The Breakdown - What Treasury Secretary Nominee Scott Bessent Means for Markets

Episode Date: November 26, 2024

After much back and forth, Trump has made his selection for Treasury Secretary and it's macro hedge funder Scott Bessent. Wall St. is excited and crypto is optimistic. Here's the details. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Monday, November 25th, and today we are talking about the next Treasury Secretary of the United States of America. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Hello, friends, happy Monday. The Trump transition team has announced macro hedge fund manager Scott Besson as their selection for Treasury Secretary.

This has been a real back and forth, right? Bessent was reportedly Trump's original pick coming out of the election, but the process was sidetracked by a dispute with transition team co-chair and Cantor Fitzgerald, CEO Howard Lutnik, which Trump advisors described as a knife fight. After weeks of speculation and several new candidates being put forward, it appears that Trump has circled back to his original pick. A man he described once as one of the most brilliant men on Wall Street. And that's the general view among financial professionals, that Besson is a genius money

manager whose skills in macro analysis make him uniquely suited to the role as head of treasury. Bessent spent a decade as the CIO of George Soros family office before spinning off his own fund in 2015. This was part of the challenge, as some corners of the MAGA universe are skeptical of the Soros link, but Besson fits the mold of many former Democrats who are getting behind Trump ahead of this administration. During the 2000, Al Gore campaign, Besson was one of the largest Democrat donors, hosting a fundraiser at his house in East Hampton. He continued donating to Democrats all the way to the Barack Obama campaign in 2012. This year, however, Besson was one of the earliest and loudest

voices in support of Trump among Wall Street tycoons. After supporting the 2016 Trump campaign, Besson joined this year's team as an economic advisor in addition to being a top fundraiser. The logic seems to be that the ideological battles are secondary to the economic struggles facing the United States. If confirmed, Bessent will be the first openly gay Treasury Secretary and previously held gay marriage as one of his primary political issues. During a podcast earlier this month, Besson laid out his plans to get the U.S. economy back on a sustainable fiscal path. He said, we are going to decide whether we are going to grow our way out of this debt burden and I think we can, through deregulation, energy independence, and dominance in the U.S. and a growth mindset.

I feel very strongly that this is the last chance to grow ourselves out of this. I also feel strongly that we are in the midst of a great realignment, a Bretton Woods-type realignment in global policy and global trade, and I'd like to be a part of it. Lastly, I'm convinced this new Republican Party that's been reconstituted as the party of the future, a melding of working class and business class people, and I'm determined that these constituencies get treated well. See, I started out very affluent, and my dad saw to it that we lost that. Now that I've made it back, I want to see for working people that things go well." End quote. Pushing the U.S. into structurally higher growth is the main objective. Over recent months, Bessent

pitched a plan he's calling 333-3-3, targeting 3% economic growth, reducing the deficit to 3% of GDP, and increasing domestic oil production by 3 million barrels per day. For reference, the U.S. is currently growing at around 3% but deficits are expected to be at 7%. A 3 million barrel per day increase in oil production would be a 20% increase. Under Bessent, we could see 3% growth redefined is the new lower bound that triggers concern. If successful, this policy could return the U.S. economy to settings that were more similar to the 90s than anything we've seen in recent decades. While Besson is in favor of using tariffs, he's taking a slightly more nuanced view than Trump. He views Trump's plan of blanket 15% tariffs as a maximalist negotiating strategy rather than a

sound economic plan. Besson is being received as the right man for the job on Wall Street. Andrew Brenner, head of international fixed income at Nat Alliance Security said, of all the names that were floated as frontrunner for Treasury Secretary under Trump, I think Besson was the best person. I don't think anyone is going to do a good job as Mnuchin did, but he doesn't want the job. Stan Drucken Miller, who oversaw Besson as a trader at Soros's fund during the notorious breaking of the British pound in 1992 said, if anybody can handle it, it's Scott. The bond market seems to be optimistic about Bessent, with rates on long-dated treasuries rolling over in futures trading last night. Jedd's Nordvig, CEO of Extante Data wrote,

bond futures like Scott Besson as they should. Scott will work hard to reduce tail risk for the U.S. economy and markets, and the moves in the Asian Open are logically reflecting that. When it comes to Bitcoin and crypto policy, Besson is obviously less of an overt Bitcoin Maxi than Howard Lutnik, but still firmly pro-cropto. Stating in an interview earlier this year, crypto is about freedom and the crypto economy is here to stay. Crypto is bringing in young people people who have not participated in markets. Ripple CEO Brad Garlinghouse remarked over the weekend, Scott Besson is the perfect pick by Donald Trump. He will be the most pro-innovation, pro-crypto Treasury Secretary we've ever seen. And this seems to me to be a pretty good way

to think about Besson as Treasury Secretary, at least from our point of view. Crypto won't be his number one priority, but arguably it shouldn't be. He won't be as pro-Bitcoin as Lutnik, but he doesn't need to be. Simply having a pro-innovation, pro-growth agenda and a permissive attitude towards crypto, would make him easily the most pro-Cryterterterter treasury secretary the nation has ever seen. Veteran macro investor and Real Vision CEO Raul Paul commented, Scott Bessent, the new Treasury Secretary, is in favor of a weaker dollar and lower oil prices to drive U.S. and global growth. That is all you need to know. It will drive financial conditions. TLDR, Scott is good for your bags. I've known him for over a decade, and he gets it. He added, a tad deeper. He understands that we have to try to goose GDP to grow out of the debt.

I think it fails due to long-term demographics until AI and robots. Even so, we still have to roll 10 trillion-ish of debt so we need lower rates in 2025 before growth can kick in. So that is the Treasury Secretary's story. It was a long and winding process to end up where it began. But Wall Street seems excited, and I think there's a lot to be enthusiastic about with Scott Besson. Today's episode is brought to you by Bitkey, the hardware wallet built for Bitcoin. Made by the team behind Square and Cash App, BitKee makes securely managing your Bitcoin absurdly simple. BitKee is integrated with partners like Cash App, Coinbase, Robin Hood, and Blockchain.com, so you can easily compare prices across exchanges before you buy or sell. And their app works like the money apps you already use because simplicity is the best form of security.

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Get yours today online at Amazon, Best Buy, or Bitkey.world. That's B-I-T-K-E-Y. Dot World. As to the person who lost that role, but still ended up as Commerce Secretary, Cantor Fitzgerald's CEO Howard Lutnik, may even have stronger ties to tether than previously understood. The Trump transition team co-chair and newly nominated Commerce Secretary has never been shy about having tether as a customer.

Late last year, Letnik began speaking publicly about managing the stable coins T-bill reserves. He was never clear about exactly how much Cantor Fitzgerald was managing, but implied it was a large chunk of the firm's 134 billion in treasuries. Still, Letnik was the first credible Wall Street trader to back up Tether's reserve attestations. According to reporting from the Wall Street Journal, it seems that Cantor Fitzgerald's relationship was more of a partnership than just a provision of services. The Wall Street firm reportedly stood to receive a 5% ownership stake in Tether as a result of the deal. The share in the company was valued at around $600 million. according to their sources. For some, this raises further questions about Lutnik's conflicts of interest

as he stands to take a senior role in the Trump administration. Lutnik recently confirmed that he plans to step down as Cantor Fitzgerald's CEO prior to confirmation as Commerce Secretary. He added in a statement, I intend to divest my interest in these companies to comply with U.S. government ethics rules and do not expect any arrangement which involves selling shares in the open market. This could imply that he plans to place his shares in a blind trust, stepping away from shareholder control but maintaining his financial interest. However, the Wall Street Journal is reporting Tether co-founder Giancarlo Devasini as stating that Letnik could use his, quote, political clout to diffuse threats facing Tether. That quote is paraphrased from business associates

rather than directly attributed to Devacini. Tether is, of course, currently rumored to be under investigation by the Treasury and the DOJ. Tether, however, dismissed the suggestion with a spokesperson stating, Tether's relationship with Cantor is entirely professional based on managing reserves. The claim that Letnick's involvement in a transition team somehow translates to influence over regulatory actions is laughable. It's worth noting that the Wall Street Journal has been fairly skewed in its reporting on Tether over recent years. They often amplified talking points adopted by Elizabeth Warren about the scope of money laundering and terrorist financing enabled by the stable coin. And even if there is a particular slant to it, it's probably broadly

reflective of the type of media coverage that Lutnik is going to face, given these existing relationships. A couple more appointment stories. The biggest resignation we've had so far is, of course, Gary Gensler, whose planned departure made massive headlines on Friday, but another high-profile departure could pave the way for a major shake-up at the SEC. Democrat commissioner Jamie Lizaraga announced that he would be ending his term early and stepping away from the agency on January 17th. Now, he is dealing with a genuinely tragic situation with his family, so this shouldn't be read as anything but putting his family first. His departure, though, means that the Trump administration will be positioned to appoint one Democrat and one Republican commissioner from day one,

including a replacement chair. This means we could see a pro-crypto Democrat installed on the commission, further dismantling the Gensler legacy and SEC leadership. Republican Commissioner Hester Perce is set to end her term in 2025 and has implied she has no intention of seeking another term. That adds another Republican seat to be filled by late next year. SEC commissioners are traditionally confirmed by the Senate just like cabinet positions. The confirmation process could drag out well into next summer if Senate Republicans refuse to allow it to be bypassed by recess appointments. In the interim, the SEC could be a stalemate when it comes to crypto decision making. SEC rules require all three commissioners to agree when two seats are vacant.

The last remaining Democrat commissioner is Caroline Crenshaw, who at times has seemed even more anti-crypto than Gensler. Assuming Crenshaw doesn't have a change of heart, this means the SEC won't be able to make or repeal crypto-release crypto-rules. While Gensler's crypto-rulmaking agenda was quite sparse, this could hold up the repeal of SAB 121, which prevents banks from offering crypto custody. The smaller commission could also represent a roadblock to getting lawsuit settled. Still, the big takeaway is that a pro-crypto Democrat could be in place as soon as January and make an immediate start on reshaping the agency. With the benefit of a few days, industry figures are starting to reflect on the implications

of the Gensler era coming to an end. Regarding active lawsuits, Pantara Chief Legal Officer Katrina Paglia said, I think what we're going to see is some settlements. She noted that the SEC could just actually go in and file motions to dismiss and withdraw all of their claims, but added, I don't think that's going to happen. I think that's just too far of a stretch. Instead, she believes we will see nominal fines in standard language that firms neither admit nor deny allegations, adding, they're going to quietly go away.

the defendants will pay something. Moving forward, Paglia said, I think we're hopeful that we'll start to see some no-action letters coming out of the SEC. No action letters were in common use prior to Gensler. They allow a firm to come into the SEC, explain what they plan to do, and work with the agency on a reasonable exemption. The no action refers to the SEC guaranteeing that they won't take enforcement action based on the disclosed business plan. This shift of culture would be a huge boon for the industry as we await final rulemaking. It would allow products like Metamask's wallet or crack and staking program, which exists in the gray area to get some level of regulatory clarity in the short term. On a more philosophical point, Justin Slaughter, Paradigms' head of regulatory affairs,

discussed the Gensler legacy. For context, Slaughter is a lifelong Democrat and has worked at the SEC and CFTC. He had a brief stint as a senior SEC advisor in the early days of the Biden admin before Gensler was installed as chair. Slaughter said, there's not a lot that's going to last from Gensler's time at the SEC. We haven't seen any major SEC efforts in regulation of crypto. The biggest thing they can say they accomplish is a bunch of lawsuits that likely aren't going to go anywhere. It's ironic, but the biggest takeaway for me at this point is that Gary Gensler's chairmanship is just being wiped away like erasing a chalkboard.

All of the things that felt so powerful, so significant, all the statements, all the speeches, it's all just gone. That, I think, is the most striking thing, that you can be in power for a long time. And if you're not focused on actually making things that are sustainable and persistent, that will survive the test of time, you're not going to do much more than engaging in a fancy form of regulatory cosplay. Perfect conclusion for this very regulatory episode of The Breakdown. to give you a sense of what's happening this week, obviously it's Thanksgiving in the U.S.

We will have normal episodes Monday, Tuesday, Wednesday. We're off for Thursday, back on for Friday, off Saturday as per usual, and then a long read Sunday on Sunday, and we will be back normal in December. Appreciate you listening, as always, and until next time, be safe and take care of each other. Peace.