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The stock market made a comeback after my post yesterday. Here is a chart after the close on Monday, Jan 24th. This is for the year 2022 only which is why it looks a bit wonky.
A comeback from the depths, but I remain firm in my belief we are in a bear market. From the lows to the highs, it was quite a ride. Still, all bounces ought to be considered “dead cat bounces” until there is some real bullish news besides the Fed printing money or a Congressional spending bill passing. There are relief rallies in bear markets, just like there are small mini-breaks in bull markets.
I see 27 House members want Pelosi and McCarthy to sign a bill banning our legislators from trading or owning stocks. I wrote a post last year about this very thing. You can read it here.
This needs to extend to bureaucratic officials too. We saw Fed officials making trades. There is smoke around Fauci’s stock holdings and his decision-making acumen. Certainly, the Biden’s and the Clinton’s used government power to build a lot of wealth for themselves. Especially after they were out of office.
Owning stocks, bonds, or property is not the problem. The problem is trading them and passing or voting against legislation that might help/hurt them. Nancy Pelosi’s husband has made a fortune trading equities and bonds. He’s not the only one. Amazing soothsayer that Paul Pelosi. What market timing he has. Former and disgraced Speaker of the House Dennis Hastert was quite a real estate investor in his day. No wonder everyone spends a lot of money to get elected.
Again, we want US legislators to own US stocks. It’s like having skin in the game. You shouldn’t have to be a pauper to be a legislator. As a matter of fact, our legislatures would be far better without career politicians that have to make money off the grift and instead by stocked by retired businesspeople, or businesspeople taking a break. Glenn Youngkin > Lindsay Graham.
Truly, if these people want to run for office and accept the power that comes with the office, the tradeoff would be that they cannot exercise power over their own finances once they become inaugurated.
There are ways to manage this without Draconian provisions. They aren’t simple but they are manageable. On the flip side, legislators should welcome transparency and disclosure. It makes everyone accountable for their actions.
All wealth ought to go to a blind trust that is controlled wholly by the person managing the trust. That person has to be unrelated to the Congressperson. Conversations between the two ought to be very limited. All buy/sell decisions would be made by the trustee without the input or knowledge of the Congressperson.
For example, if I were elected to Congress today and sworn in, my entire investment portfolio would have to go into a blind trust managed by someone other than me. All my investments in startup companies would have to be disclosed, with my percentage ownership but not the valuation because that is sensitive to the company. If I was a partner in a fund, I could still get carry from the fund but any day to day operations and decision making would be taken from me.
If a Congressperson’s family needs a stipend out of that trust, they get it. That amount could be transparent to the general public. It would be mildly interesting for about five minutes. I am sure there would be a positive correlation between personal wealth and the amount of money distributed by the trust.
The worth of a Congressperson ought to be disclosed when they enter office. If they have an outsize gain of wealth, it would be easy to track. Might be a prior investment paying off. Might be an inheritance. Might be something else. Ideally, the wealth of a Congressperson would increase by the same amount the markets increased in a year.
If an elected official wants to own something; full disclosures.
How much of their total net worth is it?
How many shares?
What percentage of the company?
Even if your total net worth is socked away in a tax haven like Bermuda, we ought to know.
If you want to serve on the Armed Forces Committee and you own a bunch of defense stocks, there might be a clear conflict of interest and the choice would be to find a different committee or sell the stocks. Wouldn’t the debate about Ukraine get more interesting if we found out those that are clamoring for US action there own a lot of stock in Boeing, Lockheed Martin, or Raytheon?
If a legislator owns a private company or is an LP in an SPV or VC/PE/Real Estate fund, we ought to know. We ought to know the fund managers and investments. Disclosure is everything. They shouldn’t be banned from having an investment in it. But, once elected, the private investing game ought to be off-limits to elected officials.
If a legislator owns an index fund or ETF, disclose it, but that should be no problem. It still would be in a blind trust that they don't trade. We want Congresspeople to own a piece of America. When the S+P does well, the Congressperson does well. Economic incentives align.
Want to see a bunch of Congresspeople abandon “ESG” and “wokeness” mandates on corporations in a hurry? Make it so if they invest, it has to be an ETF that is a diversified basket of stocks like the S+P 500. Hint: ESG and woke companies don’t return a lot of capital to shareholders in the form of dividends, profits, or buybacks. They also don’t have a lot of price appreciation.
It’s really about who is calling the shots when managing the money and disclosure. If they want the power to legislate and influence our lives, they have to open the kimono and be transparent about where their money is.
Because, as any good reporter knows if you want to root out political corruption, follow the money.
I think there's a bit of a simpler solution. Simply authorize accounts where individual equity positions can't be traded by the individual or the advisor. I've worked in financial services for 25 years and the investment management space for 13. As I am sure you have had to deal with, there are ways to monitor and restrict trading activity without resorting to a blind trust. I've had to either clear trades or to house accounts somewhere that can be monitored by my firm for the last 20 years. Over that same timeframe I have also been required to hold any position I take in an individual stock for at least 60 days.The more people you want covered, the better a solution like this works. For example, how about Congressional staffers, should they be subject? Who pays their attorney fees to set up the blind trust and pay the trustee? How about staffers at the Fed? The White House? The SEC? What about family members (my kids and spouse are also subject to my trading limitations).
I like the blind trust for a president simply because the idea that he/she (someday) not only could have conflicts but you also don't want them expending ANY brain capacity to making a trade while they are in such a high stakes position. But there are solutions that meet the goal and also allow for more flexibility than a trust without all the cost to the individuals in question.
If you are into charts, read this on the bear market: https://slopeofhope.com/2022/01/is-that-all.html