A new bill aims to ban members of Congress from stock ownership; Small Chinese companies listed on U.S. exchanges face tightening rules to address fraud; Trouble in the bond markets despite upcoming rate cuts; Recessions have become rarer over time; Stocks follow earnings; My weekend in Santa Fe
1) It's good to see that there may be progress (though I'm not holding my breath) on two of the biggest outrages in our stock markets. And I've long railed about these issues...
The first is how members of Congress often appear to trade on information gleaned from their positions to earn huge profits. But as reported by CNBC last week, a new bill could put a stop to that.
The Restore Trust in Congress Act would ban Congress members and their families from trading or owning stocks while in office:
Rep. Seth Magaziner, D-R.I., one of the lead sponsors of the bill, said the fact that members of Congress are permitted to trade and own individual stocks makes "people go nuts, because it is crazy to the average person that this has been allowed to go on for so long."
"We have reached a tipping point where the pressure from outside the building is becoming too much for leadership to deny," he said during a press conference at the Capitol on Wednesday.
The bill's supporters span the political spectrum...
The other outrage is how fraudulent Chinese companies are allowed to be listed on U.S. stock exchanges. They bilk unsuspecting American investors of billions of dollars every year.
This isn't a new problem and has been going on for more than a dozen years. In fact, it was well documented in the movie The China Hustle, released exactly eight years ago.
Nor is it an isolated problem. Muddy Waters Research, founded by my friend and activist short seller Carson Block, shared this post on social platform X (and I think it's correct):
Last week, the U.S. Securities and Exchange Commission announced it was taking steps to address this crisis of fraud and manipulation.
And as Muddy Waters references above, the Nasdaq Composite Index was also prompted to take action. It's now seeking to tighten its rules for small Chinese stocks (but, again, I'm not holding my breath):
The New York-based exchange operator on Wednesday proposed a new rule requiring that companies principally operating in China, including Hong Kong and Macau, raise at least $25 million in an initial public offering to go public on Nasdaq.
Nasdaq also floated several related changes. These include raising the minimum float for future listings to $15 million and faster delistings for companies that no longer meet listing standards. The changes require approval from the Securities and Exchange Commission.
Since 2020, dozens of China-based companies have conducted Nasdaq IPOs that each raised $15 million or less. Many of these stocks have surged, only to later collapse.
I've said it before, and I'll say it again: In light of the long-standing, pervasive amount of fraud that Chinese companies have perpetrated here, all Chinese companies should simply be banned from U.S. exchanges.
2) What's going on in the bond market is unusual and troubling...
Next week, the Federal Reserve is almost certain to cut interest rates by 25 basis points, with more cuts expected this year and next.
Yet the interest rate on 30-year Treasurys was recently around 5%. That's the same level as during the global financial crisis in 2008... the opposite of what the Fed wants.
As the Kobeissi Letter shows in this thread on X, it's because investors are concerned about rising inflation and government deficits:
They conclude:
My outlook is more optimistic. I think inflation will be muted and the economy will remain strong. But I agree that interest rates on long-term Treasurys will stay elevated.
3) This fascinating USAFacts chart shared by Visual Capitalist shows how common recessions used to be – and how rare they've become over the past few decades:
I continue to believe that we are not on the verge of a recession (though the economy is clearly slowing somewhat).
4) I've long said that stocks follow earnings. And it would be hard to find a better example than Nvidia (NVDA) over the past three years, as this chart from The Compound shows:
5) Susan and I had a lovely weekend visiting friends in Santa Fe, New Mexico, about an hour northeast of Albuquerque.
It's a charming and historic small city known for its many art galleries, the oldest church in the U.S. (dating back to 1610), and nearby scenic vistas that offer great hiking. And, fun fact, it's the oldest state capital.
Here are some pictures:
Best regards,
Whitney
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