Christopher P Casey

Christopher P Casey

Wednesday, 20 January 2021 23:12

When Euphoria Turns to Phoria

January 2021

Financial market tops always exhibit elevated valuations (check) typically combined with weak or deteriorating economic conditions (check) and a backdrop of investor complacency (check).  But the greatest bubbles exhibit far more than such excess; they exude exuberance.  Are the financial markets in a current state of euphoria with a commensurate risk of a market downturn?  Various metrics strongly indicate as such. 

Citi provides their own proprietary index: the Citi Panic / Euphoria Model.  This index utilizes multiple sentiment and trading indications to assess investor mentality.  “Euphoric” measures exceed 0.41 on their scale.  The market rarely reaches such levels: over the last 20 years, it breached this level only five times.  Three of those were but brief touches before receding in quick order.

But two times, the market was solidly deep within the “euphoric” area of the index: 1999 to 2000 and 2020 to 2021.  At the height of the technology bubble, the index neared 1.50.  What does the index indicate today?  In January 2021, the index sits solidly at 1.80 having gone hyperbolic over the last several months.1

Another commonly accepted signal of extreme bullish sentiment is the increased acceptance of and demand for riskier assets; for example, initial public offerings (“IPOs”).  During such times, companies oblige by increasing the number of IPOs to avail themselves of such demand in raising capital.  The following chart demonstrates the number of IPOs in 2020 exceeded even that of the technology bubble.2
Curiously, of the 480 IPOs in 2020, fully 248 of them were Special Purpose Acquisition Companies (SPACs).3   A SPAC is often called a “blank check” shell corporation because it pools investor funds together to finance an unknown acquisition within a future timeframe (generally two years).4  Investing in a SPAC is like paying to sit at the chef’s table in an unknown restaurant with an unnamed chef at some point in the future.  Even the most fervent foodies would choke on the idea. 

But not investors – not only were 248 SPACs debuted in 2020, but already to date in 2021, another 59 launched which tied the previous, pre-2020 high set in 2019.  And prior to 2019, SPACs averaged less than 17 per year during the previous ten-year period (2009 to 2018).5  If the Citi Panic / Euphoria Model seeks corroboration, IPOs and SPACs provide it.

While “euphoria” is a state of intense excitement and happiness, “phoria” is a misalignment of the eyes which breaks binocular vision.  Investors are moving from euphoria to phoria: unable to focus on sound investment principles and blind to economic dangers.

As long the Federal Reserve continues aggressive monetary expansion, investors may continue to fuel financial markets to loftier valuations and higher euphoria.  However, many variables could work to undermine or overwhelm the Federal Reserve’s efforts.  If that happens, investor sentiment and demand may plummet, for their feelings are usually fickle.  Financial markets will move accordingly.



1.  “A $13 Trillion Crisis-Era Debt Bill Comes Due for Big Economies”  Bloomberg News.  04 January 2021

2.  Citi Research.

3.  Stock Analysis.  20 January 2021

4.  Special-purpose acquisition company  20 January 2021

5.  SPACInsider.  20 January 2021

6.  Ibid.


Thursday, 17 December 2020 15:40

The Long and Short of It: "Unfiltered Tobacco"

Thursday, 29 October 2020 19:18

Mises Institute Publishes WindRock Article

Monday, 26 October 2020 18:08

U.S. Election Trends

October 2020

No, the general election on November 3rd will not be postponed, but the future President of the United States may be elected by a different group of voters on a much later date – and it may happen after the new Congress convenes on or around January 3rd.  This election may be as close as it is disputed, and given the complexities and vagaries of election laws, the House of Representatives could very well elect the next President.

Several scenarios provide for this possibility.  Since 538 Electoral College votes exist, the winner must secure 270 of them – a majority – to win the election.  The 2000 Bush-Gore election illustrates just how close this election may be: Bush won with only 271 votes (to Gore’s 266).

For those adding together that election’s votes, one will notice only 537 Electoral College votes were submitted.  One elector (from a state won by Gore) abstained.  It is the first time an elector abstained, but not the first time one has refused to vote for the candidate for whom they pledged their vote (an action known as being a “faithless elector”).  Absent a third-party candidate, the existence and actions of faithless electors represent one of two possible scenarios by which an election could fail to produce a majority winner.1

The other possibility would be the failure of a state’s votes to be counted since they lack certification.  To understand either scenario requires a review of the Electoral College process as governed by the Constitution and state and federal law.1 2

Before the general election, electors for the Electoral College are chosen by each state for each candidate.  Under a typical, two-party election, at least two “slates” of electors exist – each one consisting of electors pledged to vote for a particular party’s candidate.  After the election, each state mandates its own processes to verify the integrity and completeness of the election.  For example, certain canvassing (similar to auditing) procedures take place.  Each state has its own procedures and timelines.3

The problem arises in the fairly short timeline between the general election and the Constitutionally mandated new terms for President and Vice President beginning at noon on January 20th.  According to federal law, the electors must meet and cast their ballots (in their respective states) 41 days after the general election (or December 14th for this year).  It is these ballots which are sent to Congress for the official tally taking place on January 5th.  In order to avoid any controversy about the legitimacy of the votes, a “safe harbor” period exists under federal law: if the slate of electors is certified by the state six days before the electors meet (or December 8th for this year), the slate is considered “conclusive” and will not be disputed in Congress.

If the “safe harbor” timeline is not met, both houses of Congress determine which slate of electors will be recognized from a state.  This almost happened in the 2000 election.  Many misremember the Supreme Court as “deciding the election” in favor of George Bush.  In reality, Florida’s slate of electors pledged to Bush was to be selected (certified by its Secretary of State) when various lawsuits culminated in a Florida Supreme Court ruling to recount the ballots in four counties and all ballots throughout the state which did not select a Presidential candidate (under the assumption this was done in error).  Such measures would have been physically impossible before the expiration of the “safe harbor” period, and Congress would have decided the issue (for which the only precedent, the 1876 Tilden-Hayes election, offers little guidance).  The U.S. Supreme Court ruled the recount as unconstitutional for various reasons, and thus allowed Florida to certify its results in time to meet the “safe harbor” provision (actually, on the last possible day).  Presumably, if Congress cannot resolve the matter, the electoral votes may simply not be counted (thus preventing a majority winner).

In another scenario, all of the states’ electoral results may be certified, but a faithless elector may not honor the majority vote from their state.  There are 33 states (as well as the District of Columbia) which have laws compelling (e.g., via the threat of fines, removal from office, etc.) electors to honor their pledge.  These laws were recently upheld as constitutional by the unanimous Supreme Court decision in Chiafolo v. Washington (concerning the 2016 election).4  Therefore, 17 states, including the swing states of Pennsylvania, grant electors the ability to vote their conscience.  Other states, including swing states like Ohio, Florida, and Wisconsin, have laws against faithless electors, but still allow the vote to be counted as cast.  While a faithless elector has never impacted an election, a Republican’s discomfort with an “outsider” like Trump or a Democrat’s concern about Biden’s cognitive ability probably heightens the likelihood of wayward votes (or abstentions).5

What happens on January 6th if, according to the official reading of the electors’ votes, neither candidate secures a majority?  According to the 20th Amendment to the Constitution, the House of Representatives “immediately” elects the President and the Senate elects the Vice President.  Such a scenario seems to suggest a President Biden and a Vice President Pence (assuming the political control of Congress remains the same).  But two nuances imply a different, or at least uncertain, outcome.

First, the House does not vote in the same manner as it does with matters of law or procedure (with each Representative casting one vote).  Rather, each state casts one vote as determined by a majority of their Representatives.  If such a vote was taken today and cast along party lines, Republicans would control the outcome by a vote of 26 to 23 (as Pennsylvania’s Representatives are equally split and Michigan, assuming Libertarian party member Justin Amash does not squash his disdain for President Trump, would vote Democrat – otherwise the vote would be 26 to 22).6

Second, the circumstances dictating this scenario’s result may not exist since the new Congress based upon November’s general election is sworn in on January 3rd.  A change to a mere two states could swing the election in the House to Democratic control.

And what if the House of Representatives is deadlocked in a tie?  Who becomes President on inauguration day?  Vice President Pence would assume the Presidency.  As the Senate can only vote for the two Vice Presidential candidates receiving the most votes (Pence and Harris) and since one cannot hold both offices, Kamala Harris would become Vice President by default.

President Pence and Vice President Harris.  The acrimonious political landscape of the next four years may supersede that of 2020.  Just another risk the financial markets have yet to consider.




1.  Maskell, Jack and Rybicki, Elizabeth.  “Counting Elector Votes: An Overview of Procedures at the Joint Session, Including Objections by Members of Congress”  Congressional Research Service. 

2.  Tokaji, Daniel.  “An Unsafe Harbor: Recounts, Contest, and the Electoral College”  Michigan Law Review First Impressions.  Vol. 106, Article 14. 

3.  Ballotpedia.  “Election Results Certification Dates, 2020”,_2020

4.  Peter B. Chiafalo, Levi Jennet Guerra, and Esther Virginia John, Petitioners v. Washington.  Supreme Court of United States. 140 S.Ct. 2316 (2020)

5.  FairVote.  Faithless Elector State Laws.  7 July 2020.  

6.   Electoral Ventures LLC.  2020 House Election: Party Composition by State 



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