Friday, January 27, 2017


A reader of the blog sent me his copy of the Enron: The Smartest Guys in the Room not too long back, which is (1) one of the nicer things that anyone's done for me in a while, and much appreciated and (2) a great read if you enjoy sheer, unbridled hubris.  And who doesn't?  Makes for great reading.

One point that the book drives home is that if the executives of a company hold a lot of stock that can potentially vest (i.e., cash in - here's a lengthier explanation) in a short period, those executives have a strong incentive to drive up their company's stock price in the short term and do not necessarily have a strong incentive to tend to the long-term profitability of their company.

This has led to all of kinds of problems for a good long while now here in the period of modern capitalism.  (The BIG NERDS at Harvard Business Review discuss at great length here.)

I bring this up because another reader was asking me to weigh in on the STOCK Act, and whether Donald Trump might be in violation of it.  I have to admit this is not my area of expertise, but let me take a stab at explaining answering the question.  The answer in brief is: hell yes, he is potentially 100% in violation of the STOCK Act.

The Stop Trading on Congressional Knowledge Act (STOCK Act) of 2012 was designed to prevent members of not just the Legislative but also the Executive and Judicial branches (despite having Congressional in the name) from passing /acting on legislation that might benefit their stock position.  In other words, it is an anti-insider trading act.  Wall Street is subject to anti-insider trading laws, so our elected and appointed representatives sure as hell should be as well!  

Donald Trump has yet to divest himself of any of his stock or real estate holdings.  He could place his assets in a blind trust, but he seems to think that having his family run his business empire while he takes a hands-off approach, at least publicly, is good enough.

Trumps's best defense is that Ethics in Government Act, of 1978, exempts the President from having to worry about conflicts of interest vis-a-vis his or her personal finances.  And that is true! But the President is not exempt from the STOCK Act, of 2012, which you'll note is much more recent year. There are any number of tariffs President Trump could angle for, arms deals he could or could not authorize, wars he could start for Pete's sake, which could directly benefit his stock portfolio and/or have an impact on his real estate holdings.  

So, in theory, the STOCK Act is a big problem for President Trump.  Quite frankly, if the rule of law is going to stand, he needs to divest.

But is the rule of law going to stand?  I have a hard time believing that any Executive branch nominee's will be rejected over STOCK Act violations and an even harder time believing that action will be taken against the President for a STOCK Act violation.  Call me a cynic I suppose.

After all, Republicans are proving themselves to be as spineless most of us expect them to be, so let's not count on them for any sort of anti-corruption crusade.  And Democrats appear to be wandering down the path of caving for which they are famous, so let's expect nothing from them either.

(While we're on the topic of spinelessness, I'm so tempted to talk about how the press is handling Trump and vice versa, but that's a topic for a different post, one that should probably be written after drinking heavily because that's what the topic will lead you to.)

Stock ownership by members of the Executive, Legislative and Judiciary in this country should be illegal.  Period!  What good reason is there to permit these individuals who allegedly want to serve their country with huge stock portfolios?  This article looks at Tom Price's confirmation hearings and draws the same conclusions.

Donald Trump won't even release his tax returns and so far he's gotten away with it, so what consequences will he suffer under the STOCK Act?  I'd love to be proven wrong on this score, and I will definitely revisit this issue as events unfold, but I am not holding my breath.

In the meantime, if you have the time please read this article on the economic headwinds facing Donald Trump as his Presidency begins, which may make the political task of selling a big infrastructure plan easier for him, but contain pitfalls, mostly the rising value of the dollar and the fact that the Fed is likely to raise interest rates several time this year - in general, trends that favor a decrease in economic growth.  More on all this later.

Everyone have a great weekend, and if you have any insider trading tips, pass them along to yours truly.  I promise fabulous profits in the year to come. 

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