Investing Secrets of the Federal Reserve

January 15, 2022 Updated: January 16, 2022

Commentary

I’ve been in this business for over two decades. As a financial adviser, I built custom portfolios for clients. I grew that skill into my own advisory firm. I even ran a hedge fund. I think it’s fair to say that I’ve seen pretty deep into the other swamp called professional Wall Street.

And I’m pretty sure I have an idea.

Like so many people mistakenly think, real investing success has nothing to do with studying stock fundamentals, economic indicators, or tracking price charts.

All you have to do to get incredibly rich on Wall Street? Be the person who makes policy.

But isn’t that illegal insider trading?

The short answer is, no. As proof, I’d offer some recent antics by members of the Federal Reserve.

Foxes, Meet the Henhouse

Last October, Dallas Fed President Robert Kaplan was caught with his hand in the “cookie jar,” so to speak, when it was revealed he was actively trading at the onset of the pandemic lockdowns.

To the tune of some 27 transactions valued at over $1 million each.

According to the Wall Street Journal (emphasis mine), “Kaplan was trading stocks like Apple, Alibaba, Amazon, Delta Airlines, Google, and Oracle. These are all stocks that he, as a former Goldman Sachs executive, surely knew would react bullishly to the massive quantitative easing the Fed deployed during the depths of the Covid crisis.”

Every former Goldman Sachs executive knows that.

As a result of the embarrassing disclosure, Kaplan announced that he would step down from his position.

But he wasn’t the only Fed president heading for greener pastures. Also submitting an early resignation was Boston Fed President Eric Rosengren. His “official” reason for leaving involved health issues he’s been dealing with for some time. It didn’t mention the real estate trusts he was buying and selling in the face of the Fed’s monthly $40 billion mortgage-backed security purchases.

According to Business Day, “Rosengren’s disclosure listed stakes in four separate real estate investment trusts and disclosed multiple purchases and sales in those and other securities. Those investments raised eyebrows because he has publicly warned about the risks in commercial real estate.”

I bring these indiscretions up because this week, Fed Vice Chairman Richard Clarida announced he’d be leaving his post two weeks early due to even more indiscretions on his part.

Again from the Journal, Vice Chairman of the Fed Richard Clarida “moved between $1 million and $5 million out of one mutual fund and into two other funds on Feb. 27, 2020, which was the day before Fed Chairman Jerome Powell issued a statement signaling a potential interest-rate cut due to concerns over the budding pandemic.”

(Just an aside: Do you know what’s been more difficult to uncover? How much money these guys actually made.)

As a result of all this nonsense, “The Federal Reserve is launching a review of its internal rules governing the financial activities of its officials in the wake of news last week that the leaders of the Dallas and Boston regional Fed banks actively traded in financial markets.”

It’s most reassuring to know the fox is on duty at the henhouse.

Time for a Change

If these kinds of revelations aren’t making your head explode, you’re not really paying attention.

Actions like these go far beyond simple “insider” trading. These men wield far too much power and influence. A statement from the Fed can affect more than individual stocks—they can move entire markets.

It’s entirely possible, likely even, that these trades were all perfectly legal according to the letter of the law.

That’s why I believe the law needs to be changed. IMHO, nothing short of a blind trust requirement should be the rule at the federal level.

No stocks. No ETFs. No futures. No options. No nothing!

In fact, I’d go even further and mandate they put all their investable wealth into a basic savings account and see how they like earning 0.10 percent annually.

That might force them to rethink their monetary policies, too.

These are just the latest, egregious examples of how Wall Street is stacked against the little guy. And it’s why we work so hard to get our readers the insights they’d otherwise never hear.

And until these kinds of restrictions are in place, the playing field will never be level for main street investors.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Tim Collins
Tim Collins worked for years as a financial advisor before establishing his own hedge fund, one that would acquire shares in companies like Facebook, Twitter, and AirBnB in the private markets before they went public. He now co-authors Streetlight Confidential investment newsletter with Bob Byrne, and his writing and commentary has been featured on RealMoney and RealMoneyPro on TheStreet.com for over a decade.