If you cannot get away from your hatred of congress than there really is not any point in reading further. This is not about them being able ethical, of course it is not ethical. I will answer any criticism I get in the comments, as long as it is intelligent and you have at least read below. 60 Minutes ran a story about insider trading and it got a lot of tempers flaring. First let me say that making insider trading illegal is about enforceable as making marijuana illegal. Making insider trading illegal gives everyone a false sense of security, it is a way of outsourcing due diligence. We know how well that goes. I am also not going to address the IPO portion because an IPO is like a lottery ticket. If you are going to make serious money you need a lot of them to make up for the losses and/or if you are exiting on the first day.
I am making a few assumptions about the insider trading congress is doing. The information they are using is based on how congress is going to vote or take action. For example, they did not trade on pending bankruptcy news. The second assumption is that they are a small part of the overall liquidity and their inclusion in the market did not distort prices in a material way. If I have not correctly assumed those two things I have no argument.
If you do not believe congress should be allowed to inside trade you must believe the following:
There is such thing as a risk free trade. Knowing information before others means that you are guaranteed to make money. There is never a risk free trade, risk free means that the same people are acting in the same way at the same time. There are always risks in a trade, even if it is only exit risk.
Information is hard to find. The one thing that I know is that people like to talk. The information would have to be only known by the congress which I find hard to believe. I am sure there is a blog out there somewhere that covers this that you probably do not even have to pay for.
Markets always move as expected. You believe that the market always moves in the way it should, that the market always acts rationally, and that everyone digests the information the same way and at the same time. You believe that all good news causes sustained rallies and bad news causes sustained breaks. This can happen in illiquid markets but not liquid ones because there are many different reasons and time frames.
That information is the most important thing. Lets say no one knows there is going to be a vote or have no clue how congress will vote. You believe that this information is the only thing that matters to the price of the stock. Without a doubt information plays a part but not always a significant part.
So I did not write this post because I wanted to write about politics, I hate politics and I do not think they are doing a good job. I wrote this as a way to explain a few problems you may be having in trading.
The first is bias. I will be honest, when I started watching I wanted to hate them and call for their heads. I still looked at the information. I got blasted because after looking at the facts because I do not think it is a big deal. I may have oversimplified the above explanation and please let me know if I did but you cannot logically argue that Congress has an advantage over everyone else.
Second is that there is a short cut. You know why trading can be so profitable, because it is risky. If you are trading on inside information you are gambling. You are engaging in an activity that can not be repeated. People are mad because Congress is “getting rich”, not exactly.
Thirdly, trading is about execution not information. If I gave you the closing price of the S&P 500 tomorrow would you make money? No. Knowing what the market is going to do is the easiest part of trading. That takes less than a year to learn, learning how to execute takes a lifetime. It takes a lifetime because the market is constantly changing and you must constantly be learning. I always find it a little funny that people guess the NFP numbers not how the market reacts.
So please debate me in comments. If I got the assumptions wrong let me know. I realize there are going to be crazies in the comments but here are the rules. Please tell me what part you disagree with and/or if I did not specify you specify what assumptions/facts you are working with, no citing wikipedia or zero hedge, and if you are going to call me names do it creatively. I am big fan of fuckstick.
Updated: Interesting link, Rep Bachas made 160K from trading with TARP information. http://bit.ly/rtqAvF This goes to further strengthen my argument that they had little effect on the market. Once again, I am not arguing ethics. 100% I think it is wrong.
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