Congress Wants To Ban Investing | Stocks Under Attack

What's up guys, it's Graham here. So, there's no easy way to put this, but so far 2022 has been the worst year for buying stocks since the Great Depression in 1930. Without exaggeration, some expect the situation to continue getting worse. For example, the British pound just collapsed to its lowest level ever on record. The bond market, which is typically known for its safety, fell to its worst year since 1949.

As of today, the Federal Reserve is hiking rates further and faster than any other point in history. Not to mention, even Congress is taking steps that would enact a trading ban to limit which securities are allowed to be bought and sold. So, we should talk about exactly what's going on, what this means for you, and how you could use this information to make you money.

Although before we start, as usual, if you appreciate all the information that goes into making a video like this, it would mean a lot to me if you subscribe for the YouTube algorithm. If you haven't done that already, it's totally free. It takes you just a split second, and as a thank you, here's a picture of a baby possum. So, thank you guys so much, and also a big thank you to public.com for sponsoring this video, but more on that later.

All right, so first we have to talk about the current situation because all of this mayhem simply boils down to two words: interest rates. Now, in a normal market, this is carefully regulated to ensure that rates are stable, consumer prices are steady, and unemployment is low. But when inflation is near an all-time high and prices are growing out of control, they have no other choice but to turn off the money printer, hike rates, and then hope for the best.

That's beginning to happen here. As you can see, besides the 1970s stagflation era, interest rates have risen faster and higher than any other period in modern history. That is being reflected in the price that you see every time you open up your stock account and begin to cry a little bit.

Now, in addition to that, most people are not aware that on top of rising interest rates, the Federal Reserve is also in the process of trimming their own balance sheet. This is comprised of mortgage-backed securities, corporate debt, and a variety of other investments that are beginning to be sold off, putting even more downward pressure on the market.

If that sounds confusing, here's how it works in a really simple example: during the 2020 pandemic, the Federal Reserve stepped in to buy corporate bonds and mortgages in an effort to stabilize prices and keep the market from falling even further. It's no different than a whale coming in, buying up the existing shares, and then watching as all the plebs jump in as prices begin to increase.

However, in the process, their balance sheet began to grow and grow and grow. Unfortunately, that can't last indefinitely, and unbeknownst to most people, they're beginning to sell.

One way they do this is known as a balance sheet runoff, where loans get paid back, and instead of reinvesting the extra capital, they just take the money and destroy it, so it's completely removed from circulation. Just like a seller could dump too much of a stock and crash the price, the Federal Reserve also has to be especially careful not to offload more than the market could absorb.

As one analyst explains, we're in the land of experimental monetary policy; we just don't know how this is going to play out. That's why investors are beginning to stockpile cash and government-backed treasury bonds, which are now beginning to pay nearly four and a half percent risk-free for doing absolutely nothing.

In terms of which investments are going to be the most affected along with Congress's investment ban, here's what you need to know. This is the part that I found the most disappointing. All of this begins with the strategy of "buy the dip." This is the general philosophy that no one could time the market; anything can happen, and long-term it's a lot better to consistently buy in on a regular basis so that you could ride the entire market as a whole.

After all, every single stock market study has consistently shown that this is the best way to build your wealth long-term, especially considering the fact that the average investor can't even outpace inflation over a 20-year time frame. But that doesn't mean there can't be short-term pain when investors buy the dip, and then stocks keep dipping and dipping and dipping and dipping.

So far, like I mentioned earlier, 2022 has been the worst year on record for buying the dip in almost 100 years. According to the Wall Street Journal, the S&P 500 has dropped 1.2 percent on average this year in the week after all one-day loss of at least one percent. That's the biggest such decline since 1931.

They then go further to explain that many investors were falsely disillusioned by the most recent stock market rally, where "buying the dip" proved to be a very successful strategy. But that is not the reality of a balanced market, where stocks could often decline for months or even years without any promise of eventually returning back to their previous all-time highs.

This paints a very real picture that there will be years of losing money, and there will be entire decades where the stock market trades completely flat. That's perfectly normal. In fact, the market trades negative 25 percent of the time, and the average decline of a bear market recession is 35 over a period of 495 days, which would have provided a fantastic buying opportunity for those who aren't sitting out of the market and continue investing as usual.

For instance, even if we look at the most recent example of the peak at the dot-com bubble through 2012, you could see that over those 12 years, the market was completely flat. Using that example, if you had only invested at the peak of the market and then never again, you would have made a total of 4.66 percent throughout 12 years.

Although if you include dividends, your return skyrockets to 332 percent. But if you consistently bought in month after month, regardless of where it's trading, your cumulative return jumps to 24 percent. With dividends reinvested, your return is as high as 42 percent.

However, when it comes to Congress, they have a slightly different idea, so they're enacting a trading ban that's beginning to make its way through the system. That is a problem that's worth addressing right now.

When it comes to the investing ban that's making its way through Congress, here's what you need to know because most people have no idea this is even happening, and it's rather unsettling. All of this begins with what's called the STOCK Act of 2012. This was a provision enacted to help combat insider trading from within members of Congress.

As a result, they must publicly disclose anytime they or a spouse buy or sell a stock. In this case, if they make an investment in excess of a thousand dollars, they have a maximum of 30 days to report that trade or up to 45 days if that trade was made by a third party or a spouse.

This means that all of us are able to see exactly what they are buying and selling and then copy what they do. Of course, in terms of how the stock picks perform, they actually do quite well. The blog Market Sentiment, who I'll link to down below in the description, analyzed over 10,000 stock trades made over two years in excess of fifteen thousand dollars and then benchmarked those returns against the S&P 500 over a week, a month, and a year to see just how big of a return they really got.

He found that over the first month, they beat the S&P 500 by an average of 0.12 percent. Over a quarter, they beat the benchmark by 1.34 percent. Through the end of the experiment, their stock picks outperformed by almost six percent.

But here's where things get even more interesting: even though they have an average of 30 days to report each trade, the median disclosure is made at day 28, and the average is at day 52, meaning almost everybody waits until the last possible moment to report their stock trades, with many of them filing late and getting hit with a $200 penalty, which is basically just a slap on the wrist.

Even with all of that on a 30-day delay, if you just copied their trades, you would still be beating the market. That's where the problem begins. As it is right now, elected officials are free to buy and sell whatever they want, as long as they don't use private information to profit.

However, on September 13th, the New York Times broke a story that from 2019 to 2021, more than one in five members of Congress have reported buying or selling a stock where they sat on congressional committees that potentially gave them insight into the companies whose shares they reported buying or selling.

In one example, Boeing stock was sold just a day before a House committee released damaging findings on the company's handling of its 737 Max jet. Another reference traded cattle contracts during a time where they were talking about the cattle market, and a third example involved selling Wells Fargo stock a few months before they issued a critical warning to the bank, crashing its price.

That meant that in total, 97 members of Congress were flagged, and once they started looking deeper, it's alleged that more than 3,700 trades reported by lawmakers from both parties posed potential conflicts between their public responsibilities and private finances.

Plus, the New York Times is not the only one investigating these matters either. One Twitter user identified every member of Congress who successfully outperformed the market in 2021, and some of them put Warren Buffett to shame. As a result, one proposal is currently in the works that would enact a stock trading ban, which would result in all high-ranking officials being prohibited from investing in securities, commodities, futures, cryptocurrencies, and other similar investments, and be banned from shorting stocks.

It's also worth noting that this has nothing to do with Democrats versus Republicans because both sides equally beat the market by a nearly identical amount, suggesting that it's a widespread issue that needs to be addressed throughout the entire system.

In terms of my own thoughts about everything going on, the issues with the current market, and what I'm doing to make the most of it, here are my own strategies that I think can help. To start, as far as the investing ban with Congress goes, I'm all for it. I think there needs to be more accountability, more federal oversight, and higher fines.

Because let's be real, a flat $200 failure to file penalty is nothing when some of these trades are making hundreds of thousands or even millions of dollars. Just to put that into perspective, if someone is worth $20 million, a $200 fine would be the same thing as someone being worth $100,000 and being fined one dollar. So let that sink in.

Now, logistically in the real world, even though I'm all for investing in index funds and ETFs, logistically it would be a nightmare to actually enact. That's why I think a better solution would be to simply announce all stock trades 48 hours ahead of time so that way the public has the ability to invest before they do.

On top of that, the failure to file penalties should be increased to an amount that discourages any late filings from happening to begin with. Imagine if the penalty was increased to 25 percent of the entire investment! If that happens, I guarantee no one would file late because the penalty would be as much as their profits.

In terms of everything else, even though the UK's currency is collapsing, the Federal Reserve is playing catch-up, and investors are stockpiling cash, it's important to remember that in times like this, the market is driven more by fear than it is logic. Yes, we are in an unprecedented time, yes, we're battling higher interest rates and inflation, and yes, no one has any idea what's going to happen.

But generally, the bottom is going to occur during a time where everyone feels like the world is falling apart and the markets are doomed forever. That is going to be a fantastic opportunity for anyone who has the means to invest.

It's also worth noting that historically, September tends to be the worst month of the year for the stock market, and that might play a small factor. After all, mutual funds have fiscal years ending in September, and many of them sell off their losing positions for tax harvesting towards the end of the month, which further hurts stock prices.

That's why for me, I'm continuing to make the decision to dollar-cost average into the markets on a regular basis with the exact same amount I'm investing in a diversified range of U.S. and international index funds. I'm keeping enough cash on the sidelines to hop on a good real estate deal if and whenever that comes up.

I get that it's never fun to see your investments decline in value, but it's a part of the process. The more you familiarize yourself with what's going on in the markets, the better you could be as an investor, especially if you smash the like button for the YouTube algorithm.

So with that, today, guys, thank you so much for watching. As always, feel free to add me on Instagram. Enjoy! Thank you so much for watching, and until next time!