You may have heard how House Speaker Nancy Pelosi’s husband exercised $5 million worth of Nvidia stock ahead of talks in Congress around a bill that would boost the U.S. semiconductor industry.
Or the $1.65 million in stock North Carolina Senator Richard Burr sold after he was given a classified intelligence report on how bad the coronavirus pandemic could become, just weeks before the nation went into lockdown and the stock market crashed.
This kind of double-dealing by government officials is hardly a secret but how bad is it?
The reality is…MUCH, MUCH Worse…like shockingly worse.
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An analysis by the Wall Street Journal uncovered more than 315,000 stock trades by Washington insiders in just the last five years, many of them never reported, and many of them made by government officials in the companies they were supposed to be monitoring!
For example, more than 200 senior officials at the Environmental Protection Agency admitted to trading stocks of companies in the oil and gas industry, some with investments of $2 million!
Yes, officials in the Environmental Protection Agency buying Exxon, Chevron and other oil giants.
More than 70 officials reported short-selling stocks, betting against the companies they could manipulate with legislative actions!
In this video, I’ll take you in to see just how far this goes, how government officials are making millions trading stocks on insider information. I’ll then show you how to win this game, how to see who is buying what and how to make money.
Before we get started, you know I’ve got to send that special shout-out to all you in the nation, thank you for spending a part of your day here. If you’re not part of the community yet, just click that little red subscribe button. It’s free and you’ll never miss an episode.
This is an absolutely monstrous report, dozens of pages, detailing stock trading and manipulation so I’m going to give you the summary on the analysis, what they found and specific cases of insider trading in Washington.
WSJ obtained and analyzed 31,000 financial disclosure forms by 12,000 senior federal employees, political staff and appointees in a review that covered five years through 2021 and found more than 315,000 stock trades by officials and their closest family. Most of these disclosure forms have never been released or made public by the government.
More than 2600 officials at agencies from Treasury Department to EPA, during both Democratic and Republican administrations were found to be trading stocks in the companies lobbying their agencies for policy.
While the government was seemingly trying to rein in the big tech companies, more than 1,800 government officials reported owning or trading in one ore more of the major tech stocks including Meta Platforms, Alphabet, Apple and Amazon. Here you see how many top officials in select agencies owned those tech names…81 officials in the IRS with their hand out to the FANG stocks!
But then the government broke up big tech and made them pay their fair taxes, right?
More than 60 officials at five agencies including the Federal Trade Commission and the Justice Department admitted to trading stocks in companies just before their departments announced penalties and other actions against the companies.
When stock held created a conflict…oh I don’t know, like the Defense Department officials found to have shares in blacklisted Chinese companies!!!, the agencies simply waived the rules, giving officials a free pass.
And in fact, it seems the problem is only getting worse! The chart on the left shows average trades per year by officials caught in the research, averaging around 15 trades in 2016 and building to almost twice that by 2020!
It’s all those stock trades before the pandemic, when the government was telling us it was no big deal so they could sell out of their stock before the shit hits the fan!
You also see here some of the industries where that insider trading is happening. The number of stock trades in both tech stocks and drug makers more than doubled from 2019 to 2020 with more than 6,000 trades in tech names.
It’s not just Washington. The Journal reported last year that 130 federal judges had been caught trading stocks related to cases they were hearing, leading to a law passed in May requiring disclosures.
In one hilarious case, Michael Molina purchased shares of natural gas exporter Cheniere Energy in six transactions all within a year of starting his job as a senior advisor to the Environmental Protection Agency in 2018 and eventually to deputy chief of staff.
Molina’s job gave him an inside view into the administration’s push to produce and export natural gas. The trades were all made through a financial advisor in his husband’s account…in what appears to be a weak attempt to cover it up.
Molina’s trading caught the attention of ethics officials in Washington…just a minute government ethics officials…isn’t that a little like Santa Claus or the Easter Bunny…do they really exist?
Anyway, at one point, Molina didn’t file disclosures for his many, many stock trades in energy companies for as long as 12 months…remember, it’s supposed to be within 45 days.
Molina first claimed he didn’t know he was supposed to disclose his stock trading then that he couldn’t understand the electronic system…what is this guy, 70 years old? I think that’s the exact thing my mom said when I tried to explain the internet 20 years ago.
When he was fined $3,200 for multiple ethics violations, Molina just refused to pay…said nope, ain’t going to happen.
Then on his last day in 2021…and this would be hilarious if it wasn’t a tragic reality of our government, when ethics officials including Justina Fugh whom Molina had clashed with frequently, agree to settle the matter for a third of the initial fine. Molina cuts them a check with the memo line reading, Justina Tax!
But all this begs the question…why isn’t this illegal? Why are Washington politicians able to trade stocks based on insider information when nobody else can? After all, the SEC has banned insider trading by corporations and insiders since 1934 and prosecutes approximately 50 cases every year.
Some of these include famous celebrities like Martha Stewart and pro golfer Phil Mickelson or corporate executives like Jeff Skilling…but no politicians.
It turns out until 2012, it was totally legal for Congress to trade stocks based on confidential, inside information. They didn’t even have to disclose the stock trades they made.
Then in 2012 it all came to an end with the STOCK Act, or Stop Trading on Congressional Knowledge Act signed in the 112th Congress…
[laughing] No I’m just kidding. Nothing changed but Congress did prove it’s good at one thing, passing bills with catchy names.
Really, how much taxpayer money do you think was spent by a bunch of people just sitting around trying to think of the words that would spell out STOCK Act?
The bill was supposed to mandate members of Congress and family to disclose anything over $1000 within 45 days…a long lead time already, and keep them from trading in stocks based on non-public information.
Problem is, the fine is only $200 per infraction and nobody is watching. In fact, ten years after the passage, no fines have been levied despite an investigation that found more than 200 members of Congress and their staff that had failed to disclose stock trades.
I’ll show you how to find this information, see what stocks Congress is buying and how to win the game but staying on top of it means staying on top of the news. For that, I want to personally invite you to get the Weekly Bow Tie, our free weekly newsletter with all the stock market news, strategies and trends you need to know. Each week, before the market opens, I’ll show you what I’m watching and the stocks that could highlight the week. It’s all totally free, just something I like to do for you out there in the community so look for the sign-up link below.
We know this is bad, like surprisingly bad and it seems like it’s only getting worse. But then, beyond real legislative change…which is never going to happen, why would Congress pass a law taking away their golden goose, then the question becomes, how do Main Street investors win in this kind of a crooked game?
A great resource for following all this is OpenSecrets.org, a nonprofit organization that tracks data on campaign finance and lobbying. The saying goes, if you want to know the future just follow the money and that’s what this site does.
Go to Candidates & Officeholders, then Personal Finances for a sneak peak into net worth, assets and loans owed by everyone in Congress. Click on assets and you’ be able to see the most popular stocks held by Washington insiders along with what sectors and industries they’re buying. The information is a little dated but still an interesting look into a part of Congress they don’t want you to see.
The website CapitolTrades.com offers a more recent look into stock trading by government officials. You can search by specific politician, political party or company to find who is buying what and who is selling. Here we can see what Nancy Pelosi is buying or all 30 politicians interested in shares of Nvidia.
The problem with these websites and trying to follow this information is, as we saw in that Wall Street Journal report, a lot of the stock trades by Washington insiders just aren’t reported. The measly fine of $200 is nothing on a million dollar trade even if anyone ever had to pay it. Even for those that report their transactions, by the time they do, they could be in and out of the stock.
So it’s not as simple as keeping up with politicians stock trades but there is a way you can still win this game.
Long-term investing. When the short-term game is rigged by politicians and insiders, you need to pick your game and playing on an even field. While insiders, hedge funds and Washington might be able to manipulate prices over weeks and even months…they can’t do it on a longer-term basis, they can’t manipulate the broader economy or corporate earnings.
That means investing for Main Street investors will always be about buying quality companies and holding them for years, becoming an owner of those companies and cash flows.