Dodgy As Hell

It’s a fine Tuesday morning here at the Far Eastern Colonial Office of Paradigm Press.

I hope you’re well and thriving.

Before I get to today’s debacle, let me apologize for my slow replies to the mailbag.  I’ve read all that you’ve sent, but I haven’t had a chance to write back.

I will do so this week.

Thank you for your patience.

One last thing, after yesterday’s rather positive message, I feel I’ve let you stick out your chin for me.  I’ll try to be gentle.  This one is a doozy.

Fed Up With the BS

Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan have resigned their positions following allegations of insider trading.

Okay, there was no mention of insider trading, nor any impropriety, for that matter.

But it’s dodgy as hell that two men who help control the economy by manipulating interest rates are trading single stocks.

The counterargument is that they’re too high up to influence, or be affected by, single stocks.  Maybe those people are right.

Nevertheless, it’s not a good look.

I don’t mind if they own broad market mutual funds.

Broad market mutual funds and ETFs (exchange-traded funds) are fully diversified. Their investors can’t possibly benefit from insider trading, and they’ll make a return in line with the market.

What these guys can do when they’re trading single stocks is to make abnormal returns trading on information… well, we don’t know what information they’re trading on.

That’s the problem.  We can’t prove they’re cheating, and they won’t prove to us they’re not.

This is just fine for private individuals.  But it’s not acceptable when you’re in a position that’s supposed to be “pure as the driven snow.”

Sound familiar?

Is Paul “The Profit” Pelosi a Prophet?

Hung-Wah WhatsApped me yesterday about Nancy “$15,000 Fridge” Pelosi.  He told me about an app that allows you to “piggyback” her trades once they’re entered into the Congressional record.

The trades are entered 45 days after they’re executed.

“Why?” you ask.

Because Nancy Pelosi’s dodgy-as-hell husband, Paul, is currently nine of nine this year with his trading picks.

That’s a trading record that’d make Peter Lynch of Fidelity Magellan fame blush.

Interestingly, a Villanova alumnus named Chris Joseph built the app. It’s called Iris.

Here’s a screenshot of the group created to follow her – sorry, her husband’s – trades:

NancyPelosiTrades

According to Investopedia: “Many people may be surprised to learn that until recently, trading based on material nonpublic information—otherwise known as insider trading—was both legal and commonplace among members of Congress.”

This allegedly ended with the STOCK Act of 2012. STOCK stands for Stop Trading on Congressional Knowledge.

But clearly, the STOCK Act hasn’t stopped insiders like Pelosi from making boatloads of money. 

Nancy Pelosi’s salary is about $225,000, while Paul Pelosi plays with millions of dollars in stock options and wins all the time.

To remind you, stock options are highly levered bets with time decay. That means you control a load of assets with little down, have to pick the right stocks, and get the timing right.

This is extremely difficult for most investors.

But not for Paul Pelosi.

Nine out of nine this year.

And we’re not supposed to assume that there’s some sort of insider trading going on here.

What district does Nancy Pelosi represent?

The 12th District of California.  San Francisco.  The financial center of Silicon Valley.  Wall Street West.

Of course, many people who live far from San Fran trade tech stocks.  But their wives don’t have those kinds of political connections. 

From a Forbes article published last year:

Insider trading by a member of Congress is a crime. To bring a case here, however, federal authorities must overcome two obstacles: the Speech and Debate Clause, and proving “materiality” in novel circumstances. Indeed, the announcement that the authorities have closed their investigations into three senators [for potential COVID-related trading – Ed.] may show these obstacles already have proven too steep.

Federal law prohibits securities trades while possessing material, non-public information in violation of a duty to a third party. In the STOCK Act of 2012, Congress clarified that insider trading laws bind members of Congress (as well as the President and members of the executive branch). Federal authorities, however, never have prosecuted a member of Congress under the STOCK Act, although they have prosecuted members (including former Representative Chris Collins) for insider trading on information acquired outside Congressional duties. 

I encourage you to click on the link to read the Forbes article for a full legal explanation of the situation.

Mrs. Pelosi is the speaker of the House of Representatives in the United States Congress.

There is no reason for her not to know what’s happening inside these companies should she choose to see what’s happening.

The Pelosis are not short of a dollar. They’ve done very well over the years.

Nancy Pelosi has been in Congress for a very long time – since 1987, actually.

To me, it’s obvious why public trust has broken down.

There are numerous reasons, but perhaps none more so than elected officials and appointed officials like Rosengren, Kaplan, and Pelosi benefiting from their knowledge with outsized returns.

It is an absolute disgrace and makes a mockery of the system.

Now, I do not doubt that Speaker Pelosi is following the STOCK Act to the letter. But I have many a doubt that she’s following the STOCK Act to the spirit.

I hasten to add that she made a bundle via her husband this year, who’s also covered under the STOCK Act.

Of course, this raises questions.

It’s high time that we have another look at the STOCK Act.

Funnily enough, recent attempts to strengthen the STOCK Act, indeed directed squarely at Speaker Pelosi, have failed.

Of course, she’s going to mobilize her troops inside Congress to make sure that never happens because no matter how much you’ve made, you want to make more.

Just like Uncle Artie reminded us yesterday, “Wealth is like seawater. The more you drink, the thirstier you get.”

And boy, is Nancy Pelosi one thirsty woman!

STOCK Act?  Phooey.

How about a spell in the stocks instead?

Have a great day ahead!

All the best,

Sean

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