We the People

Posted by David Nelson, CFA on July 25, 2022 in Investment Management | Leave a comment

By David Nelson, CFA CMT
 
Congress is close to passing a $52 Billion subsidy for the Chip industry to on shore semiconductor manufacturing here in the United States. Normally, as an analyst and on the line portfolio manager I would be diving into the merits of the bill pointing out its strengths, weaknesses and whether it could achieve its intended goal.

But these aren’t normal times, and the backstory overshadows the merits of the legislation. The only thing that polls worse than our current president is congress.
 
Americans all but take for granted that elected officials place their own well-being above that of their constituents and the country they serve.

It certainly isn’t a new story but at least some in the press have reported on the repeated trading by Speaker Pelosi’s husband venture capitalist Paul Pelosi.
 
Business Insider laid out in specific detail Mr. Pelosi’s trades in a number of securities and of special interest were trades involving the exercise of options in semiconductor company Nvidia (NVDA). The article points out trades ranging from $1 – $5 Million from June 2021 – June 2022.
 
The Senate and House have pursued different paths regarding legislation that would be extremely beneficial to the Chip industry. The Current Senate version is scaled down from a $250 Billion package and if passed will make its way to the House and eventually to the desk of the President for signature.

Speaker Pelosi may not be a corporate insider but she’s certainly a Washington insider with knowledge of how the votes are shaping up and whether or not bills will even make it to the floor for a vote.
 
It doesn’t pass the smell test
 
It doesn’t matter if it passes the legal test of insider trading, it doesn’t pass the smell test.
 
The Speaker is on record saying her husband never made stock purchases based on information she gave him.
 
The New York Post in a recent article reported the following
 
Paul Pelosi exercised options to purchase 25,000 Microsoft shares worth more than $5 million on March 19 last year less than two weeks before the Army announced a $22 billion contract to buy augmented reality headsets from Microsoft which boosted the value of the shares.

CNBC December 2021 – Nancy Pelosi says federal lawmakers should be able to trade stock in office: ‘This is a free market’
  
Trading stocks when you know the winner before the horses cross the finish line is not a free market.
 
No, the Pelosi’s aren’t the only ones on the feed bag but as Speaker and the third most powerful elected official in the country she has knowledge most of her colleagues don’t possess making it that much more disgusting.
 
It doesn’t matter whether it’s legal or not. It’s morally wrong and Americans should demand an end to it.
 
CEO’s and other company insiders know how important it is to stay within the guard rails when trading their own stock. Most have a compliance division to monitor employee trading.

You don’t have to be a corporate insider to meet the test. Just ask Martha Stewart.
 
On December 21, 2001, Stewart sold about 4k shares of ImClone Systems after receiving a tip that ImClone CEO Sam Waksal was selling. Next day the stock tanked after news broke that ImClone drug Erbitux had been rejected by the FDA.
 
Waksal instructed friends and family to sell stock and attempted to sell his own before the drug’s rejection was made public. He was arrested on insider trading and later sentenced to more than 7 years in prison.
 
Stewart denied insider trading when questioned by authorities. It took some time but eventually she was convicted of conspiracy, obstruction of justice and making false statements.
 
Perhaps the only way to end this is by seeking term limits. Congress approved the Twenty-second Amendment on March 21, 1947. Four years later it completed the state-by-state ratification with 36 of the then 48 states ratifying the amendment.
 
We would have been better off if the amendment referred to any elected office instead of just the Presidency.

Term Limits
 
In an appearance before a Senate sub-committee in 2019 Nick Tomboulides, Executive Director of U.S.Term Limits said the following
 
The first three words in our Constitution are “We the People.” It’s written larger than anything else. Because the framers of that document, the architects of our Republic, wanted to remind you, at all times, who is in charge.
 
There have been several attempts on both sides of the aisle to introduce legislation that would ban stock trading by members of congress and their spouses. While the rhetoric is getting louder especially on the recent revelations involving Speaker Pelosi’s husband, we still don’t have a bill.
 
Make this a priority and let your elected officials know how you feel. We’ve had congressional leaders who have served more than a half century.
 
As a nation we recognized decades ago the dangers of having one person in the White House for more than two terms. Surely the same holds true for members of Congress who start dialing for campaign dollars the day after they are elected.
 
*At the time of this article some funds managed by David were long NVDA and MSFT