Podcast Summary
Politician Investments in ETFs: A trader created two ETFs based on Democratic and Republican lawmakers' investment strategies, allowing everyday people to invest similarly, potentially leading to good returns despite past performance being no guarantee.
A trader named Unusual Whales has created two Exchange Traded Funds (ETFs) named NANCE and Cruz, modeled after the investment strategies of Democratic and Republican lawmakers respectively. These ETFs allow everyday people to invest in the same companies as their elected representatives. Darienne and I plan to invest in these ETFs on the show and discuss whether politicians should be allowed to invest in the market. While past performance is no guarantee of future results, Deirdre believes we could potentially see good returns. This discussion comes from NPR sponsors Greenlight and American Express. Greenlight is a financial app that helps kids and teens learn about saving, spending, and investing, while American Express offers a Business Gold Card with rewards points for various business expenses.
American Express vs Mint Mobile, Cruz vs Nance ETF: American Express Business Gold Card offers high rewards for large purchases while Mint Mobile provides an affordable wireless plan. Cruz ETF focuses more on oil and gas sector while Nance ETF focuses more on software sector, which could impact investment outcomes.
While American Express Business Gold Card offers rewards up to $150,000 in purchases per year, Mint Mobile provides an affordable wireless plan starting at just $15 a month. Meanwhile, the Planet Money team is attempting a new investment experiment, with $77.35 in capital, where they'll each buy one share in either the Nance or Cruz ETF, focusing on different sectors. Notably, the Cruz ETF has a larger allocation to oil and gas (11%), while the Nance ETF has a smaller allocation to this sector (0.65%). Instead, the Nance ETF has a larger allocation to software (6.2%). This difference in sector focus could potentially impact the outcome of their investment experiment.
Congressional Stock Trading: Democratic lawmakers and their families have seen a 5 percentage point greater increase in stock market performance compared to Republican lawmakers from mid-June 2021, raising concerns about potential insider trading and conflict of interest. The Ethics Act aims to address this issue by banning individual stock trading by Members of Congress.
There is a significant difference in stock market performance between trades made by Democratic and Republican lawmakers. While trades made by Democratic lawmakers and their families have seen a 20% increase in the year to mid-June, which is 5 percentage points more than the S&P 500, trades made by Republican lawmakers have only seen an average increase of 9%. This disparity has raised concerns about potential insider trading and conflict of interest, as Members of Congress should not be in a position to profit from individual stocks. Josh Graham Lynn, the CEO and co-founder of anti-corruption advocacy group RepresentUs, supports a bill called the Ethics Act, which aims to ban individual stock trading by Members of Congress to restore public trust and maintain the integrity of the political system. Despite the concerns, it's important to note that there is no evidence of systemic outsized gains by politicians from their stock trading. However, with only 16% of Americans trusting the government to do what's right, transparency and ethical behavior are crucial to rebuilding trust and confidence in our political system.
Congressional Stock Trades: On average, congressional stock trades do not outperform the market, even for top traders, and reindeer outperformed them in an experiment, suggesting random chance or trend following may be more influential than insider information
A study led by Bruce Sacerdote, an economics professor at Dartmouth College, found that on average, congressional stock trades do not outperform the market. This was true for the top 1% of traders as well. In an unusual experiment, Sacerdote and his team even had reindeer pick stocks by having them step on pages of The Wall Street Journal. The reindeer outperformed congressional traders and senators on average, suggesting that random chance or trend following might be more influential than insider information. This raises questions about the performance of high-profile political figures in the stock market and the need for transparency in their trades. The researchers also noted that the impact of a few good picks can significantly influence overall performance, regardless of whether it's a human or a reindeer making the choices.
Political ethics, Insider trading: The ethics bill under discussion could potentially protect congresspeople from making poor stock picks and prevent insider trading and other unethical practices in politics.
Just as we wouldn't allow a bad actor to rig the rules in sports, we shouldn't allow it in politics. The ethics bill under discussion could potentially protect congresspeople from making poor stock picks, but the broader implication is that it could help prevent insider trading and other unethical practices. Meanwhile, the body is adapting to technology, and NPR's Body Electric Challenge invites listeners to explore this topic further. Inflation is a concern for many, but Mint Mobile offers affordable wireless plans starting at just $15 a month. Back to the political discussion, we'll see how the funds fared when we check back on Friday. The Indicator is a production of NPR, and this episode was fact-checked by Sierra Juarez and edited by Kate and Cannon.