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Being Elected To Congress Continues To Be A Pretty Good Wealth Maximization Strategy

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In these volatile times it helps to have role models to steer you through economic uncertainty, wise investors who you can look to when your faith in markets is shattered. And that sort of wisdom is hard to find right now, what with John Paulson continuing to trip over his own feet and George Soros closing up shop / apparently not having the resources to house all of his girlfriends in the manner to which they are accustomed. Fortunately, Roll Call today brings us a new list of investors for you to emulate: the 50 richest members of Congress.

Would you believe that millionaires who are able to direct stimulus funds to their own companies and unconstrained by insider trading laws had a pretty good year in 2010? Then you would be correct. Our 50 richest members of Congress had an average net worth of $32mm, and saw a weighted average growth in their net worth of 17.7% (unweighted 26%).* The S&P was up 12.8%.

Not bad - but if you want to learn from the greats, and not just also-rans, you can break that down a little further. At first glance, it would seem that House Republicans are particularly killing it: almost half of the total top-50 net worth ($792mm) is held by the 22 House Republicans, with an average net worth of $36mm. And their returns are striking - a 41% average return vs. under 5% in the Senate.

But in fact those returns come entirely from the top 2 names on the list, and they each come with an asterisk. Darrell Issa and Michael McCaul accounted for over 100% of the House Republicans' gains in 2010, and it wasn't just from savvy market timing: McCaul seems to have grown his stash via a big transfer from his in-laws, while Issa got his in part by hosing minority shareholders in his electronics company. Excluding those two, the House Republicans were down some 4%. You might do better to invest with the Democrats, of whom over 80% were up in 2010, led by Nancy Pelosi's 62% returns.

Sadly this data goes only through the end of 2010 so we don't know who's making money in today's markets. One good guess would be Ron Paul, who didn't make the top-50 cutoff (with single-digit-millions net worth) but who's pleasingly ideologically consistent, with a portfolio consisting pretty much entirely of shares of gold miners. Weirdly no physical metal is reported. We'd be heartbroken if we believed that Ron Paul wasn't hoarding gold ingots in his basement, so we're going to chalk that up to a view that gold is not a discloseable "asset held for investment" but just money.

* There are lots of disclaimers to this data - the reports group asset and liability amounts in broad buckets so these numbers are approximate and overestimate changes; they're valued as of the end of 2010 so some portfolios may be down since then; there's no change in net worth reported for the 13 newly elected members who didn't file 2009 forms; and there's a selection problem where negative returns that bounce you out of the top 50 don't get counted.

McCaul Leaps to Top of 50 Richest Members of Congress [Roll Call]


After The STOCK Act It Will Still Be Legal To Trade On Congressional Inside Information*

Here's a sort of touching monologue from David Einhorn's call with Punch: If you’ve done the analysis, and come to the conclusion that on it’s own, the company is not going to make it, it makes all of the sense in the world to raise equity at whatever the price is, so that you can know that the company, you know, is – is going to make it. Now, what that brings to my mind though is, you know, obviously we haven’t done your analysis, we haven’t done -- signed an NDA; I don’t know that we’re going to sign an NDA, because we prefer to just remain investors, but from my perspective, and I’ll be just straight up with you, is that gives a lot of signalling value. And the signalling value that comes from figuring out the company has figured out that it’s not going to make it on it’s own is that we’ve just grossly misassessed the -- you know what’s going on here. And -- and that, that will cause us to have to just reconsider what we’re doing, which is not the end of the world to you. You will continue on even if we don’t continue on with you. You could sort of see why the FSA read that to mean that he was insider trading. Like ... (1) You have told me something with signalling value. Sorry - "a lot of signalling value." (2) I will now act on that signal. (3) Don't be mad. "Signalling value" sure sounds like it means "material nonpublic information," doesn't it? Now as we've discussed before, trading on that information would not be enough to make Einhorn guilty of insider trading in the US, though maybe it wouldn't be exactly a great idea here either. Why? Because in our weird but sort of sensible insider trading laws, it's just not illegal to trade on material nonpublic information. It's only illegal to trade based on material nonpublic information that was obtained in violation of some sort of duty of confidence. Since Einhorn didn't sign an NDA, he had no duty of confidence. And since the Punch CEO and bankers weren't tipping him for nefarious purposes, but were instead sounding him out on the company's behalf as a shareholder and potential investor in a new capital raise, they weren't breaching their duty of confidence. You could quibble with the details of that but it's basically the law here. In England not so much. That also seems to be the law for our friends in Congress, who recently passed a law making it illegal for them to insider trade, which is worrying some people who make their living from trading on Congressional inside information:


Facebook Indicating To Congress That It Has Unprecedentedly Enormous Balls

Even Jamie Dimon wouldn't tell the Senate Intel Committee that he's too busy for a chat.