Does Paul Ryan trade on inside information?

[Norman Bernstein]

This ought to give some people a bit of pause, for sure. If he isn't trading on inside information, then he must be a stock market fool. This comes from Brad DeLong, a professor of economics:

January:

• Sold his Wells Fargo position (1K-15K) on January 14, 2008
• Sold part of his Wachovia position (1K-15K) on January 22, 2008
• Sold part of his JPMorganChase position (1K-15K) on January 22, 2008
• Sold part of his Citigroup position (1K-15K) on January 22, 2008
• Bought Goldman Sachs (1K-15K) on January 22, 2008

February:

• Sold part of his Goldman Sachs position (1K-15K) on February 22, 2008
• Bought Citigroup (1K-15K) on February 22, 2008

March:

• Sold part of his Citigroup position (1K-15K) on March 24, 2008

April:

• Bought Citigroup (1K-15K) on April 24, 2008

June:

• Sold part of his Wachovia position (1K-15K) on June 16, 2008

• Sold part of his Citigroup position (1K-15K) on June 16, 2008

• Bought Goldman Sachs (1K-15K) on June 16, 2008

July:

• Sold part of his JPMorganChase position (1K-15K) on July 17, 2008

• Bought Citigroup (1K-15K) on July 17, 2008

August:

• Sold part of his Goldman Sachs position (1K-15K) on August 18, 2008
• Sold part of his Wachovia position (1K-15K) on August 18, 2008
• Sold part of his Citigroup position (1K-15K) on August 18, 2008

September:

• Sold part of his Wachovia position (1K-15K) on September 18, 2008
• Sold part of his JPMorganChase position (1K-15K) on September 18, 2008
• Sold part of his Citigroup position (1K-15K) on September 18, 2008

• Bought Goldman Sachs (1K-15K) on September 18, 2008
• Sold his State Street position (1K-15K) on September 30, 2008

October:

• Sold part of his Goldman Sachs position (1K-15K) on October 20, 2008

• Bought Citigroup (1K-15K) on October 20, 2008

November:

• Sold part of his Goldman Sachs position (1K-15K) on November 5, 2008

December:

• Sold part of his Citigroup position (1K-15K) on December 8, 2008
• Sold part of his Goldman Sachs position (1K-15K) on December 8, 2008

The Richmonder's "Paul Ryan traded on insider information to avoid 2008 crash" says:

Ryan attended a closed meeting with congressional leaders, Bush's Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke on September 18, 2008 [...] to beg Congress to pass legislation to help collapsing banks [...] Ryan left the meeting and [...] sold shares of stock he owned in several troubled banks and reinvested the proceeds in Goldman Sachs, a bank that the meeting had disclosed was not in trouble...

On seven dates in 2008, Paul Ryan sold bank stocks -- either because he needed the cash, or because he thought he knew better than Ms Market that bank stocks were overvalued (1/14, 3/24, 8/18, 9/30, 11/5, 12/8) or undervalued (4/24).

On six dates in 2008 Paul Ryan switched his portfolio from one bank to another -- because he thought he knew better than Ms Market that Goldman Sachs in particular was a buy (1/22, 6/16, 9/18) or that Citigroup was a buy relative to Goldman Sachs (2/22, 10/20) or that Citigroup was a buy relative to JPMorganChase (7/17).

Did Paul Ryan run from his Paulson-Bernanke briefing to his phone to call his broker and trade on inside information? I doubt it. It is certainly not a potential conflict of interest or the appearance of a conflict of interest but rather an actual conflict of interest for a Congressman receiving Fed and Treasury information on the health of banks to be buying and selling individual bank stocks. But late-mid-month -- the 16, 17, 18, 20 -- is a "normal" time for Ryan to be trading (38 percent of trading days are in that 17 percent of the month) and for Ryan to switch out of some banks into another (usually Goldman Sachs) was a common thing for him to do: once every two months.

The impression I get from these 27 transactions in individual bank stocks in 12 months, 17 of which involve not net injections or withdrawals but rather switches between banks, is of a guy who simply does not know what he is doing.

There are three sound reasons to trade:

• rebalancing: you find that you are bearing too much of some idiosyncratic or systematic risk factors, and want to shed that risk on to the market -- but that doesn't motivate switching out of some banks into others.
• liquidity: you need to either put money into or pull it out of the market -- but that doesn't motivate switching out of some banks into others.
• information: you know something, either because of better analysis of public information or because of inside information, that Ms Market does not -- in this case, that Ms Market has gotten her assessment of the relative strength of different money-center banks wrong, and is too bearish on either Goldman Sachs (1/22, 6/16, 9/18) or Citigroup (2/22, 7/17, 10/20).

Whenever you neither rebalance your portfolio nor move money into or out of the market but instead switch out of stock X and into stock Y, you are able to do so only because somebody else -- or somebody else's -- thinks that it is a good idea to switch out of stock Y and into stock X. And if it is a good idea for them to switch out of stock Y and into stock X, it cannot be a good idea for you to switch out of stock X and into stock Y. Such trades are a bet that your counterparty is a fool -- and since your counterparty in all likelihood is sitting at the corner of 57 and Park or on Canary Wharf with a staff of five, each of whom has much better quantitative analytical skills than Paul Ryan or his broker, watching and analyzing the relative valuations of bank stocks full time, odds are that you are the fool.

Historically, people who invest in indexed mutual funds like the Vanguard S&P make 5.5 percent/year above inflation (but, alas! only 1 percent/year since January 1, 2000); people who invest in actively-managed mutual funds like those run by Fidelity make 4.5 percent/year above inflation (but, alas! only 0 percent/year since January 1, 2000); people who actively trade individual stocks turning over their portfolio once year or so as it appears Paul Ryan does make 3.5 percent/year above inflation (but, alas! only -1 percent/year since January 1, 2000); and day-traders who trade every day lose 5 percent/year (and, alas! have lost 10 percent/year since January 1, 2000).

Now stocks as a whole have historically earned 6 percent/year above inflation (but, alas! only 1.5 percent/year since January 1, 2000). The gap between the return to stocks as a whole and the return to individual investors -- which, in the case of Paul Ryan, is considerable: unless he is actually trading on his inside Congressional information his portfolio strategy underperforms the market by 2.5 percent/year -- accrues to the princes and professionals of Wall Street: Ryan and his ilk are the meat on which they feed.

At the level at which part-timer Paul Ryan plays this game -- Oh! Goldman is undervalued relative to Citigroup on January 22! Oh! Citigroup is undervalued relative to Goldman on February 22! Oh! Goldman is undervalued relative to Citigroup on June 16! Oh! Goldman is undervalued relative to Citigroup on September 18! Oh! Goldman is overvalued relative to Citigroup on October 20! -- he can no more win than Reagan-era ex-Secretary William Bennett could win as he dropped $7 million over the years in Las Vegas. An intelligent man takes the advice of the computer in the movie Wargames: "A very interesting game. The only way to win is not to play."

I don't want to hire as my vice president and federal budget czar somebody who uses Congressional inside information to profit by switching his portfolio back and forth between Citigroup and Goldman five times a year: I want somebody with better ethics.

I don't want to hire as my vice president and federal budget czar somebody who investing very part-time with no analytical support and without inside information switches his portfolio back and forth between Citigroup and Goldman five times a year: I want somebody with a better brain.
Stats courtesy of OpenSecrets.org.

Originally posted on "Grasping Reality with Both Invisible Hands: Fair, Balanced, and Reality-Based: A Semi-Daily Journal."

[john l]

This ought to give some people a bit of pause, for sure. If he isn't trading on inside information, then he must be a stock market fool. This comes from Brad DeLong, a professor of economics:

I don't think this was unique congressional behavior. Congressmen from both sides of the aisle have been ding this for years on banking and mic stocks. Somewhere I read that it was difficult to assemble congressmen fom banking committees during the early hours of the economic crisses because they were busy dealing with personal matters.
However unpalatable this may seem, it is likely a human response.

[Norman Bernstein]

This might not be 'unique' congressional behavior... but then again, he's not just any congressman... he's 1) running for VP, and 2) claiming to be astute on economics issues. Brad DeLong put it very well, when he said:

I don't want to hire as my vice president and federal budget czar somebody who uses Congressional inside information to profit by switching his portfolio back and forth between Citigroup and Goldman five times a year: I want somebody with better ethics.

I don't want to hire as my vice president and federal budget czar somebody who investing very part-time with no analytical support and without inside information switches his portfolio back and forth between Citigroup and Goldman five times a year: I want somebody with a better brain.

In short, I think this is a VERY big deal.

[Tom Montgomery]

I think it is enough to know that Ryan, despite his ideology, voted in support of both the bank bailout (TARP) and the rescue of Chrysler and GM. Why? Because Dubya and Cheney advocated both.

He is a typical established congress critter.... creepy, untrustworthy, and self interested.

[Kaa]

Brad DeLong: "Whenever you neither rebalance your portfolio nor move money into or out of the market but instead switch out of stock X and into stock Y, you are able to do so only because somebody else -- or somebody else's -- thinks that it is a good idea to switch out of stock Y and into stock X. And if it is a good idea for them to switch out of stock Y and into stock X, it cannot be a good idea for you to switch out of stock X and into stock Y. Such trades are a bet that your counterparty is a fool -- and since your counterparty in all likelihood is sitting at the corner of 57 and Park or on Canary Wharf with a staff of five, each of whom has much better quantitative analytical skills than Paul Ryan or his broker, watching and analyzing the relative valuations of bank stocks full time, odds are that you are the fool."

Brad DeLong is an idiot.

Kaa

[Norman Bernstein]

Brad DeLong is an idiot.

Where did you say you got your degree in economics, and what university are you serving as professor of economics?

And while we're at it, would you care to offer a defense, in Ryan's name, of the logic and/or sensibility of his trading pattern?

[Kaa]

Where did you say you got your degree in economics, and what university are you serving as professor of economics?

You mean having a degree in economics confers immunity to idiocy..? :-)

And while we're at it, would you care to offer a defense, in Ryan's name, of the logic and/or sensibility of his trading pattern?

No -- I have no idea on the basis of which logic he is trading. Neither does DeLong, which doesn't stop him from posting absurdities about the ways markets work.

Kaa

[Tom Montgomery]

[Norman Bernstein]

You mean having a degree in economics confers immunity to being an idiot..? :-)

No, but disagreeing with someone does not automatically confer the status if 'idiot' on him... especially if that someone at least has a nominal reason to know what he's talking about. For the record, I see nothing whatsoever idiotic in the paragraph you quoted. Any time you buy a stock, you can only do so if there's someone out there who thinks it's time to sell it.

No -- I have no idea on the basis of which logic he is trading.

Then you don't have a basis to defend it, either.... do ya?

[Kaa]

No, but disagreeing with someone does not automatically confer the status if 'idiot' on him...

Nothing automatic here :-) I happen to read DeLong on occasion, I have come to the conclusion that he's an idiot. His posting that you quoted in the OP confirms my opinion.

For the record, I see nothing whatsoever idiotic in the paragraph you quoted. Any time you buy a stock, you can only do so if there's someone out there who thinks it's time to sell it.

Notably, DeLong says that you can switch out of X into Y only if somebody wants to switch out of Y into X. That's, um, false. As in, not related to reality at all.

As an aside, any time anyone buys or sells a market security, he's expressing a disagreement with the market opinion (unless the transaction is forced).

Then you don't have a basis to defend it, either.... do ya?

Nah, but then I don't have any desire to defent Ryan's trading habits since I'm not sure what there is to defend. If Brad DeLong thinks it proves Ryan's a fool, well, I think DeLong is successfully proving himself to be an idiot :-)

Kaa

[Tom Montgomery]

I don't think DeLong's point is that Ryan is a fool. I think his point is that he is a very clever congress critter trading on inside information.

[Kaa]

I don't think DeLong's point is that Ryan is a fool.

Have you read the OP?

DeLong: "Did Paul Ryan run from his Paulson-Bernanke briefing to his phone to call his broker and trade on inside information? I doubt it. ... The impression I get ... is of a guy who simply does not know what he is doing."

Unless you think Brad DeLong is just playing cute, he's quite explicit :-)

Kaa

[Donn]

I believe the trades in question took place in 2008.

Until April of this year, when Obama signed The STOCK Act, it was legal for CongessCritters to trade on 'Congressional knowledge.'

[Tom Montgomery]

Isn't that special?

Legal and ethical are two different concepts.

[Norman Bernstein]

Notably, DeLong says that you can switch out of X into Y only if somebody wants to switch out of Y into X. That's, um, false. As in, not related to reality at all.

i think you're taking him far too literally, although I agree that his sentiment was poorly expressed. Certainly, when you switch out of X into Y, there is a counterparty somewhere willing to take X off your hands, irrespective of Y.

But more to the point, churning one's own account makes sense only if one is an active trader, and we would have to make the assumption that Ryan's trades, even if they were NOT informed by inside information (if not illegal, then certainly unethical) were only sensible if he was making money on the trades. As DeLong points out, few people not devoting their careers to short term trading are able to make any money.

[Kaa]

...we would have to make the assumption that Ryan's trades... were only sensible if he was making money on the trades.

Nope. They were "sensible" if he expected to make money on the trades. Would you like to assume otherwise? :-)

As DeLong points out, few people not devoting their careers to short term trading are able to make any money.

...and this means what? Switching five times a year is excessive? Why? Is once a year OK? Once every five years? That whole approach doesn't make any sense. If you assume that the market is efficient, you lose nothing (but transaction fees) for switching in and out as frequently as you want, anyway.

Kaa

[Captain Intrepid]

Of course he's an inside trader. Up until just a short time ago, members of congress were legally allowed to conduct insider trading.

[Norman Bernstein]

...and this means what? Switching five times a year is excessive? Why? Is once a year OK? Once every five years? That whole approach doesn't make any sense. If you assume that the market is efficient, you lose nothing (but transaction fees) for switching in and out as frequently as you want, anyway.

The assumption that the market is 'efficient' is irrelevant... it isn't, and you know that. but even if it were, frequent trading would normally result, for all but the exceptionally lucky, or the exceptionally able, in a loss.

So, there are three possibilities:

1) Ryan is a brilliant short term trader,
2) Ryan is playing the trading game poorly, or
3) He's hoping that his priveleged information gives him a leg up. If not illegal, than certainly immoral.

As much as you think DeLong is an idiot, it's hard to argue with his final conclusions. If we were electing a Presidential ticket sporting a VP pick who is supposedly a fiscal conservative with great economic abilities, then this is a pretty poor indication for the guy.... and it really doesn't say all that much for his ethics, if #3 is the basis of his trading. Furthermore, the guy was born with the same silver spoon as Romney, in his mouth.... it's a fine attribute to devote one's life to public service... not so fine, if the person feels justified in taking advantage of his position for personal gain.

It's a character issue.

[Captain Intrepid]

It was allowed. Of course, it was also terribly unethical, and that goes for every man jack of them that engaged in it.

[Kaa]

..but even if it were, frequent trading would normally result, for all but the exceptionally lucky, or the exceptionally able, in a loss.

Why is that?

Kaa

[John Smith]

While I have a few moments, I'd like to make an observation. Am I mistaten when I don't see any private sector job holding experience in Ryan's past? If he's had not experience in the private sector, is he not, in Romney's words, not qualified to be president?

[Tom Montgomery]

While I have a few moments, I'd like to make an observation. Am I mistaten when I don't see any private sector job holding experience in Ryan's past? If he's had not experience in the private sector, is he not, in Romney's words, not qualified to be president?

When Paul Ryan was attending college he worked summers as a spokesman for Oscar Meyer. Once he even drove the Wienermobile!

But since graduating college he has not held a job in the private sector. Like Mitt Romney, Paul Ryan is a child of privilege.

[John Smith]

When Paul Ryan was attending college he worked summers as a spokesman for Oscar Meyer. Once he even drove the Wienermobile!

But since graduating college he has not held a job in the private sector. Like Mitt Romney, Paul Ryan is a child of privilege.

Almost sorry I asked.

[wardd]

Almost sorry I asked.

the big thing is since college he has done it all his self with no help from the tax payers

[Tom Montgomery]

Nyuk, nyuk, nyuk....

Yep, Paul Ryan is a professional politician.

[Dave Wright]

This ought to give some people a bit of pause, for sure. If he isn't trading on inside information, then he must be a stock market fool.....

I have no use at all for Ryan and think he's more of a threat to everyone's well being than Palin... BUT, please tell me you went to the Yahoo Finance site and plugged in all of those trades and dates, and made a list of the trade prices before you posted this.

I didn't do this, I don't know what you would find if you did, and I'm not going to do it for you, but wouldn't you agree that it's something you should do??

[Norman Bernstein]

I have no use at all for Ryan and think he's more of a threat to everyone's well being than Palin... BUT, please tell me you went to the Yahoo Finance site and plugged in all of those trades and dates, and made a list of the trade prices before you posted this.

I didn't do this, I don't know what you would find if you did, and I'm not going to do it for you, but wouldn't you agree that it's something you should do??

No. Whether Ryan made money on the trades or not, is besides the point. The significance of the events is that they coincided with what might quite reasonably be described as inside information, and while not illegal, is highly questionable, ethically.

More interesting is the explanation that came out yesterday.... utterly nonsensical. Some ridiculous story about trying to track the Russell 1000 index.

[Kaa]

The significance of the events is that they coincided with what might quite reasonably be described as inside information, and while not illegal, is highly questionable, ethically.

Um. September 18, maybe (though it's not like the observation that the banks are in trouble was "inside information" at this point). What did all his trades earlier in 2008 coincide with?

Kaa

[hokiefan]

No. Whether Ryan made money on the trades or not, is besides the point. The significance of the events is that they coincided with what might quite reasonably be described as inside information, and while not illegal, is highly questionable, ethically.

More interesting is the explanation that came out yesterday.... utterly nonsensical. Some ridiculous story about trying to track the Russell 1000 index.

Unfortunately, in those days it was perfectly legal for congresscritters. I won't argue that it was ethical, but since it was legal I'm sure a good many of them didn't have any problem with it.

Cheers,

Bobby

[Norman Bernstein]

Unfortunately, in those days it was perfectly legal for congresscritters. I won't argue that it was ethical, but since it was legal I'm sure a good many of them didn't have any problem with it.

We're in the process of selecting a president and VP. Is it not appropriate to take an interest in the ethics and character of the candidates? I don't recall Republicans backing down when questioning Obama's character, having attended a church where a reverend preached one particularly activist sermon (out of thousands he preached in his career). Obama got blasted for simply being there, NOT for anything Obama believed or expressed....

....this particular issue in Ryan's ethics and character is small potatoes, in comparison.

[hokiefan]

We're in the process of selecting a president and VP. Is it not appropriate to take an interest in the ethics and character of the candidates? I don't recall Republicans backing down when questioning Obama's character, having attended a church where a reverend preached one particularly activist sermon (out of thousands he preached in his career). Obama got blasted for simply being there, NOT for anything Obama believed or expressed....

....this particular issue in Ryan's ethics and character is small potatoes, in comparison.

I just think this is a glass houses kind of thing, one I'm not going to get too upset over. There are other reasons I won't vote for Romney/Paul that matter more to me. We all arrive at our conclusions via a different route.

Cheers,

Bobby

[wardd]

under the randian philosophy would ryan find anything wrong with insider trading?


being a member of the elite and all

[Kaa]

under the randian philosophy would ryan find anything wrong with insider trading?

It's a rather non-trivial question of what's wrong with insider trading (done not by corporate insiders, but rather based on "material non-public information"). Europe, that hotbed of wild randianism, had no laws against insider trading for a very long time, for example.

Kaa

[peb]

Here is what it does not look like: It does not look like insider trading at all, as insider trading normally entails a selling of a position and being done with it for quite a while. Or alternatively buying a stock, and holding on to it until the good news becomes public. In neither case is it moving in and out repetitively of the same stock.

Here is what it does look like (and this is an educated guess): He has a portion of his portfolio in an actively managed account, managed by a stock trader (not an invester). THis happens with certain hedge fund managers, who actually have seperate accounts for some clients as opposed to having those clients' assets lumped into their common fund and attributing units of ownership to them. This has all the hallmarks of a hedge fund manager who is focused on the finacial sector and short term trading opportunities. It is missing any shorting of stocks, which one would normally expect to be a certain percentage of the trades; but that can be explained away on several points.

I doubt seriously if Paul Ryan was actively trading these stocks himself directly. I would be very surprised.

[Norman Bernstein]

Here is what it does not look like: It does not look like insider trading at all, as insider trading normally entails a selling of a position and being done with it for quite a while. Or alternatively buying a stock, and holding on to it until the good news becomes public. In neither case is it moving in and out repetitively of the same stock.

Here is what it does look like (and this is an educated guess): He has a portion of his portfolio in an actively managed account, managed by a stock trader (not an invester). THis happens with certain hedge fund managers, who actually have seperate accounts for some clients as opposed to having those clients' assets lumped into their common fund and attributing units of ownership to them. This has all the hallmarks of a hedge fund manager who is focused on the finacial sector and short term trading opportunities. It is missing any shorting of stocks, which one would normally expect to be a certain percentage of the trades; but that can be explained away on several points.

I doubt seriously if Paul Ryan was actively trading these stocks himself directly. I would be very surprised.

And the dates of the trades, coinciding with various meetings held, was merely a coincidence?

Your explanation would be reasonable. Unfortunately, that isn't the explanation the Ryan flacks gave the day afterwards. They insisted it was some sort of a play on the Russell 1000 index... yet 27 of 58 trades made in that period were in and out of just 5 banks.

[Dave Wright]

[QUOTE=Norman Bernstein;3501039]No. Whether Ryan made money on the trades or not, is besides the point. The significance of the events is that they coincided with what might quite reasonably be described as inside information, and while not illegal, is highly questionable, ethically.

QUOTE]

No, the point is what sort of “commentator” are you going to be here, and should we always take your stuff at face value just because we like you and your point of view.

Just for the hell of it, I singled out Citigroup from the list you posted and copied it below with share prices.. Notice he made 6 trades of Citigroup prior to his Sept 18 meeting with Paulson and Bernanke. Are you suggesting that he had inside info on these six trades??? If so, then his info was telling him to buy high and sell low. It might be reasonable for you to assume that he’s a fool from this, but I don’t see it as a pattern of coherent insider trading.

You listed 3 trades of Citigroup after the September 18 meeting. These are the only trades of Citigroup that we might reasonably suspect to be “inside” trades. The six prior trades simply indicate that he trades a lot.

Since we don’t know the volume of his trades it’s difficult to know if he makes money overall on these trades.

I don’t like the guy; I’d love to see him legitimately smeared, but your attempt to discredit him here is weak and unimaginative, I expected better from you.

Bought Citigroup (1K-15K) on February 22, 2008 237.10

Sold part of his Citigroup position (1K-15K) on March 24, 2008 208.30

Bought Citigroup (1K-15K) on April 24, 2008 263.90

Sold part of his Citigroup position (1K-15K) on June 16, 2008 193.00

Bought Citigroup (1K-15K) on July 17, 2008 188.50

Sold part of his Citigroup position (1K-15K) on August 18, 2008 181.40

Ryan attended a closed meeting with congressional leaders, Bush's Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke on September 18, 2008

Sold part of his Citigroup position (1K-15K) on September 18, 2008 206.50

Bought Citigroup (1K-15K) on October 20, 2008 121.40

Sold part of his Citigroup position (1K-15K) on December 8, 2008 77.00

[Kaa]

And the dates of the trades, coinciding with various meetings held, was merely a coincidence?

Which dates and which meetings other than September 18?

Kaa

[Norman Bernstein]

I don’t like the guy; I’d love to see him legitimately smeared, but your attempt to discredit him here is weak and unimaginative, I expected better from you.

I acknowledge that the case is weak, for insider trading... so I probably should back off that part of the argument.

However, even if that is true, the other part of DeLong's argument still has some merit. Based on the numbers you posted, it appears that his rapid-fire trading was anything but profitable. If we assume that he personally wasn't doing the trading, then we might argue that whoever IS trading his account is a fool.

This is a guy who claims the high ground of competency on fiscal affairs. Would you expect this kind of thing from someone who actually had fiscal chops?

UPDATE:

Here's the Ryan staffer's explanation... and a moderately plausible explanation at the end:

As professor DeLong observes, Paul Ryan made 57 trades in 2008, 27 of which were in the stocks of the large money-center banks.

Soon after these trades were revealed, it was suggested that Paul Ryan had engaged in the same sort of possible-insider trading that other Congress-people were accused of earlier this year--dumping bank stocks after getting a dire prognosis in a private briefing from Ben Bernanke and Hank Paulson (See Spencer Bachus).

Not surprisingly, Gov. Romney's team rejected that explanation, and the exact timing didn't quite make sense. The Romney campaign also immediately provided another explanation to Benjy Sarlin of Talking Points Memo:

The Romney campaign said Ryan had nothing to do with the trades in the first place. They were part of a Russell 1000 index fund that automatically traded stocks as part of a pre-set formula. Ryan’s disclosure forms include several similar trade patterns at various points throughout the year.

In a statement provided to TPM through the Romney campaign, Larry Gaffney, the independent accountant for the partnership who handled the trades in question, said the stocks were out of Ryan’s control.

“Trades are done automatically based on an algorithm on a regular basis,” said Gaffney, who works as a CPA in Ryan’s hometown of Janesville, Wis. “In addition, this index was held at the time within a partnership in which Rep. Ryan had and continues to have no trading authority.”

Hmm.

It's possible something was lost in the game of telephone between accountant Gaffney, the Romney campaign, and Talking Points Memo, but this explanation makes no sense.

First, the Russell 1000 is an index of 1000 stocks. Ryan's trades were mostly in a handful of bank stocks.

And then there's the question of what exactly this index "algorithm" was designed to do.

Here's DeLong again:
There is no way in hell--if you are rebalancing to try to track the Russell 1000 index--you make only 58 trades in a year, that you make 27 of those 58 in large money-center banks, and that 10 of those trades involve shifting your money from Citi to Goldman and back five times.
No way in hell.


Given how dumb an investingstrategy this rapid-fire trading would appear to be, let's hope that Ryan did indeed have "no trading authority" here. And for the sake of Ryan's financial health, let's hope that the trading strategy makes more sense than accountant Gaffney's explanation would suggest.

Read Brad DeLong's article on Paul Ryan's trades >

UPDATE: Twitter reader @richfreed has an explanation that might explain this: Ryan's accountant appears to have been "harvesting losses"--a tax minimization strategy--while maintaining exposure to bank stocks: "Paul Ryan appears to have harvested losses while avoiding wash sales. Maintaining exposure to financials. Note 31 day intervals."

Read more: http://www.businessinsider.com/paul-...#ixzz23XXErKRI

[Dave Wright]

This is a guy who claims the high ground of competency on fiscal affairs. Would you expect this kind of thing from someone who actually had fiscal chops?
QUOTE]

I have no reason whatsoever to believe that he is competent in finance, investing, economics, or anything else. I suspect his money came easy to him and mainly from his family. His current position will allow for much "easy" money in the future, and will far exceed any losses incurred by his broker taking him to the cleaners on fees and bum trades.

I like the series 53, 55, 57, 59, and wish he was 53 rather than 42

[Norman Bernstein]

QUOTE]I have no reason whatsoever to believe that he is competent in finance, investing, economics, or anything else.

I don't see it as an issue of 'competency', per see.... more an issue of self-serving ideology triumphing OVER competency. He's a very smart guy... but he knows where his bread is buttered.

QUOTE] I suspect his money came easy to him and mainly from his family.

That does seem to be the case.... very much like Romney. Their world view is shaped by their world, quite literally.

And finally.... the 'tax loss harvesting' strategy suggested by the twitterer at least a very slight ring of truth to it... although it strikes me that intentionally taking losses in a stock sector, even if he has gains that need to be offset, isn't the smartest idea; maintaining a position in bank stocks? WHY? Why on earth would someone want to simultaneously hold a position in bank stocks while, at the same time, losing money on that position?

It just doesn't smell right.

[peb]

As to harvesting tax losses, I am skeptical of this, if Ryan's accountant had direct communications with the manager. I find that tax management of losses and gains with a paid manager rarely works out that well, as the owner of the money does not always knows what he needs ahead of time with respect to taxes and the information from an accountant is either too late (accountants are rarely pro-active) or does not get transferred well from the accountant, to the owner, to the manager.

Actually, now that I think about it, the Russell 1000 index makes a LOT of sense. The financials were much more volatile in 2008 than the rest of the stock market. On top of that, the Russell 1000 index is a market capitalization weighted index. This has a huge impact when a large cap company falls or rises in value by a much greater percentage than the rest of the market. A computer algoritm trying to track the index whould be moving stocks in and out from a sector (or company for that matter) quite a bit if that sector was so much more volatile than other sectors.

A quick look at a chart of XLY vs SPY (financial sector vs SP500) shows that the finaicial sector in the first 7.5 months of 2008 lost 35% while the SP500 lost around 15% in the same period. Then from the middle of July through the middle of september, the difference between the two YTD returns when from 20% to less than 5%. Then from the middle of september to end of the year it went back to 15%.

One would expect a broad market index fund, tracking a market-cap weighted index, whould have a very large percentage of trades in the financial sector during 2008.

My guess on the fact the trades were done by a paid manager and not him was apparently correct. I expect I am correct on this analysis also.

Edited to add:
Sorry folks, I think I messed up on this analysis. There are two Rusell 1000 indexes, one is market cap weighted and one is equal weighted. My analysis is wrong for the market cap weighted, but correct for the equal weighted index. The market cap weighted index can be easily tracked with an ETF and is not subject to this effect. The equal weighted version is subject to these effects in the short term, and the fact that he had an indepentend, computer-based trading account performing trades, I suspect this is the index the manager was targeting.

[Norman Bernstein]

My guess on the fact the trades were done by a paid manager and not him was apparently correct.

If you're correct, then he's hired a piss poor manager, hasn't he? Correct me if I'm wrong, but the object is to make gains, not take losses. I can see taking a loss when you're down in some position or even sector that has underperformed, and you expect it to continue to underperform..... I can even see taking a loss if you believed (via some divining rod) that the stock or sector could expect further losses, but would ultimately more than recover (but now we're getting into crystal ball territory).

But taking consecutive losses on trades like that?

I think I need either a better explanation, or a condemnation of his money manager

[wardd]

This is a guy who claims the high ground of competency on fiscal affairs. Would you expect this kind of thing from someone who actually had fiscal chops?
QUOTE]

I have no reason whatsoever to believe that he is competent in finance, investing, economics, or anything else. I suspect his money came easy to him and mainly from his family. His current position will allow for much "easy" money in the future, and will far exceed any losses incurred by his broker taking him to the cleaners on fees and bum trades.

I like the series 53, 55, 57, 59, and wish he was 53 rather than 42

yep the randian self made man