Prediction Summit 2022 is TONIGHT; Yesterday's crazy day; Retail Traders Bailed; I added to three of my favorite positions; Washington, D.C., Has an Insider-Trading Problem

1) In light of the recent turmoil in the markets, I can't think of a better time for our Prediction Summit 2022, which is taking place tonight at 8 p.m. Eastern time.

For the first time ever on camera, I will be joined by my colleagues Enrique Abeyta, Berna Barshay, and Herb Greenberg. We will draw upon our collective 100-plus years of experience to share our outlook for the market, our favorite (and least favorite) stocks and sectors, and our thoughts on numerous other topics... We'll talk about high-growth stocks, SPACs, cryptocurrencies, inflation, and more.

I can tell you that we're all licking our chops at some of the bargains we're seeing in the market, so, trust me, you won't want to miss this!

The big event tonight is free to attend, but make sure to reserve a spot in advance – you can do so right here.

We look forward to seeing you there!

2) Yesterday was one of the craziest days in the markets I've seen in quite some time...

By noon, the S&P 500 Index was down 3.9% and the Nasdaq Composite Index was down 4.9%, but both indexes then rallied strongly in the afternoon and closed up 0.4% and 0.6%, respectively.

One of my colleagues sent me this bit of trivia, showing exactly how crazy yesterday was: it was just the sixth time since 1988 (when open/high/low/close data began) that the Nasdaq erased an intraday decline of more than 4% to close higher on the day:

In the previous five cases, covering four time periods (two were only a month apart in late 2008), the market was down one month and three months later in every case except one, but was higher in all but one case a year later. Interesting...

3) Sadly, as Bloomberg reports, the selling yesterday appears to have been almost entirely driven by panicking retail investors: Retail Traders Bailed on the Market Right Before Stocks Rebounded. Excerpt:

Wondering what the force was that turned an orderly decline into a full-blown rout this morning? Mom and pop bailing.

In a spasm of panicked selling early Monday, retail investors offloaded a net $1.36 billion worth of stock by noon, most of it in the first hour, according to data compiled by JPMorgan Chase (JPM) strategist Peng Cheng. By his estimate, share disposals were 3.9 standard deviations heavier than the full-day average in the previous 12 months.

4) Yesterday I was doing exactly what I told my readers to do in yesterday's daily: "It's time to start buying your favorite stocks."

I made my first trades in nearly two months, adding to three of my largest positions. By the end of the day, I had already made a profit of 8%, 9%, and 12%, respectively, so I e-mailed Enrique, jokingly asking if he needed another analyst for Empire Elite Trader!

5) In my December 21 e-mail, I wrote:

After a 60 Minutes story aired in November 2011 that documented all sorts of insider stock trading by members of Congress, our elected leaders were finally shamed into action: Six months later, they passed, and President Barack Obama signed into law the Stop Trading on Congressional Knowledge ("STOCK") Act, which prohibits the use of nonpublic information for private profit, including insider trading by members of Congress and other government employees.

Well, here we are almost 10 years later, and I'm sure you will be shocked – shocked – to learn that a recent study by Insider revealed that:

Dozens of federal lawmakers and at least 182 top congressional staffers are violating a federal conflict-of-interest law known as the STOCK Act. Others are failing to avoid clashes between their personal finances and public duties.

In light of this, House Speaker Nancy Pelosi on Wednesday was asked if she supported barring members of Congress and their spouses from trading individual stocks while in office, and she replied (video here):

No... We are a free-market economy. They should be able to participate in that.

I suppose her response isn't surprising, given that, while she doesn't own any individual stocks herself, her husband, "investor Paul Pelosi, frequently trades significant numbers of stocks."

Speaker Pelosi is dead wrong on this. The optics are terrible – why give Americans one more reason to distrust Congress?

I think if you're going to serve or work at a high level in Congress, which almost definitionally means you're regularly gaining access to stock- and market-moving information, neither you nor your spouse should be able to trade stocks (though I see no problem allowing people to hold stocks they owned before entering Congress).

No matter how bad you think this stinks, the reality is worse, as Michelle Celarier documents in this New York Magazine article: Washington, D.C., Has an Insider-Trading Problem. Excerpt:

Of course, Fed officials aren't the only Washington insiders who had access to market-moving information during the pandemic. A surprisingly large number of Congress members also appeared to have been able to use their inside knowledge for financial gain while unemployed Americans were lining up at food banks. Four senators were probed by the Department of Justice for insider trading, and at least one of them is still part of an active SEC investigation.

Meanwhile, the winning trades of Speaker of the House Nancy Pelosi have become so legendary they have inspired social-media accounts with large followings. On TikTok – for both ironic and unironic reasons – the 81-year-old California Democrat's investments are a subject of viral interest. One widely viewed video described her as "the stock market's biggest whale."

Pelosi has come under scrutiny several times, including for purchases of Tesla stock made by her husband a little more than a month before President Joe Biden announced an executive order requiring that all federal vehicles must be electric. And last summer, her husband exercised call options worth $5.3 million to buy shares of Google parent Alphabet just before the House Judiciary Committee passed a series of tech antitrust bills so mild the market yawned.

Calling Pelosi a stock-market whale may be hyperbole, but it does capture something. While the data is dated, one analysis showed that lawmakers' stock trades were 20% more profitable than those of other individuals with trades by Republicans 35% higher.

Here's a web page with all sorts of interesting (and often damning) details: Congressional Trading in 2021.

In light of all this, let's hope this legislation is successful: Some Lawmakers Push to Ban Stock Trading by Colleagues. Excerpt:

Last week, Democratic Sens. Mark Kelly of Arizona and Jon Ossoff of Georgia introduced legislation that would prohibit all members of Congress, their spouses and dependent children from trading individual stocks and would require them to place their stock portfolios into a blind trust. Both of the freshman senators have put their holdings in such a vehicle, where control over their trades is given to a trustee.

"There's a lot of influence that people have and access to a lot of information, and there should be a lot of responsibility that goes with that," Mr. Kelly said of members of Congress.

Currently, lawmakers must publicly file and disclose any financial transaction involving stocks, bonds, commodities futures and other securities within 45 days. But many lawmakers and activists are pushing for tighter rules, with some liberal and conservative groups finding common cause on the issue.

Unfortunately, prospects for the legislation don't look good, as this New York Times article notes: Personal Profit in Congress:

In an academic paper published a few years ago, an economist named Serkan Karadas highlighted a suspicious pattern: Members of Congress earned higher than average returns on their stock investments.

The findings suggested that at least some Congress members were profiting off their jobs. With inside knowledge about forthcoming policy changes or economic developments, the members could buy stocks shortly before they rose in price or sell them shortly before they fell.

There have been several high-profile examples in recent years that seem to fit that pattern...

A bipartisan group of Congress members is now trying to put a stop to these trades. They have proposed bills that would require Congress members to place their holdings in a blind trust, operated by somebody else. A separate bill would bar members and senior congressional aides from buying and selling individual stocks...

For now, the bills seem unlikely to become law, partly because they lack the support of Democratic leaders.

Best regards,

Whitney

P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.