Caught in the storm enveloping U.S. president Donald Trump’s imminent impeachment by the U.S. House of Representatives on charges of Abuse of Power and Obstruction of Congress, it may be difficult – or even overwhelming – to recall the numerous other offenses and crimes the president is alleged to have committed. But as investigations by the Democratic majority continue into all aspects of his conduct beyond the current impeachment probe, it is worth recalling some of the financial entanglements of Mr Trump’s Twitter presidency, with the president coming under increasing suspicion that his incessant and often mendacious tweeting on markets, trade and other economic indicators serves ulterior motives. The question is whether these motives belong in the real but murky world Mr Trump’s presidency continues to unveil, in the frenzied fantasies of his detractors, or, most likely, somewhere in between.
It is well known that Donald Trump’s Twitter feed moves the stock market, sometimes violently, through tweets about the U.S. economy, incessant reversals on his trade war with China, tariff threats against anyone under the sun, and attacks on individual companies, so much so that there often appears to be a direct correlation between his tweets and stock gains and losses. JPMorgan has even created a volatility index for Mr Trump’s Twitter adventures. Investors have learned to make instinctive decisions based on his tweets, with many moving to treasuries as a consequence, considered safer than stocks in light of Mr Trump’s penchant for impulsiveness. But, going one step further, is it possible that there is an element of insider trading related to advance knowledge of announcements in Mr Trump’s tweets?
It has frequently been alleged that Trump family members or others in his cabinet with privileged access to information may be guilty of insider trading by using advance knowledge of Mr Trump’s market-moving tweets to manipulate the stock market, an easy thing to imagine given, for example, the president’s children profiting from his presidency in other ways. Insider trading usually involves corporate leaders who buy or sell a stock while possessing material information not available to the public. An executive might know about e.g. an impending loss of a contract and sell shares before the investing public is aware of it, sending the price down. Inside traders usually try to hide their tracks by setting up buyers and sellers among relatives or other acquaintances. It’s certainly possible, in theory, that advance knowledge of when Mr Trump plans to issue threats or endorsements – in as far as he plans his Tweets at all – would allow the purchase or sale of stocks to earn profits from the ensuing volatility.
Since Election Day 2016, Mr Trump has attacked specific corporations, causing their stock prices to drop. Sometimes there is clear political motivation for this – Mr Trump cannot abide Amazon, for instance, due his loathing of the Washington Post newspaper, owned by Amazon CEO Jeff Bezos, which resulted in the Department of Defense awarding a $10 billion technology contract to rival Microsoft. Other times, Mr Trump likes to tweet contradictory messages on ongoing events, such as trade negotiations. One pattern that seems to suggest itself is that he often tweets out a threat against an individual, company or country, causing stock markets to tumble, only to reverse himself a few days later.
Last June, financial expert and NBC News analyst Howard Fineman suggested that Trump family members could indeed be using their knowledge of his tweets that roil the stock market to earn money from the ensuing volatility, breaking something of a taboo on the subject: “[A]re @realDonaldTrump’s business and family profiting from insider knowledge of his pending – market-moving – tweets, comments and bargaining stands?” he wrote on Twitter. “My guess would be yes. The real questions are: who is doing it for him and how?” While it is not hard to imagine Mr Trump or his family are personally profiting from market fluctuations, however, nobody so far has been able to offer any direct evidence.
But suspicions continued to grow when a number of large trades in futures contracts linked to the S&P 500 index appear to have happened at opportune moments in the context of the U.S.-China trade war, prior to both announced breakthroughs or setbacks in talks. On June 28 2019, for example, 420,000 ‘e-minis’ were purchased just shortly before Mr Trump announced trade talks were progressing, resulting in a $1.8bn profit as stock markets rose. The e-mini S&P 500 Future is a futures contract based on the market-wide S&P 500. Both institutional and private investors are active in this contract, with a daily volume of over 1 million contracts, making the share very liquid. Trading takes place 23 hours a day, five days a week. Something similar happened on September 10, when someone bet the S&P index would rise imminently and bought 82,000 e-minis just prior to China’s announcement that it was lifting some tariffs on U.S. goods, and Mr Trump suggested he was delaying imposition of some of his. That made a $200mn profit.
Then, an October article in the publication Vanity Fair spurred Democratic senators to urge the Justice Department, the FBI, the Commodity Futures Trading Commission and the SEC to investigate “disturbing reports of suspicious trading in [U.S.] futures and equity markets.” The article describes five large transactions in S&P e-mini futures between June 28 and September 13, ranging from 55,000 to 420,000 contracts which were made shortly before market-moving geopolitical news involving the U.S.-China trade war (three times), the bombing of Saudi oil fields, and Hong Kong politics. People involved could have made gains between $82.5 million and $1.8 billion, according to the article, which gives the following example:
“[A] trader, or group of traders … bought 420,000 September e-minis [the most popular future’s contract linked to the S&P 500 stocks index] in the last 30 minutes of trading on June 28. That was some 40 percent of the day’s trading volume in September e-minis — making it a trade that could not easily be ignored. By then, President Trump was already in Osaka, Japan — 14 hours ahead of Chicago — and on his way to a roughly hour-long meeting with China’s President Xi Jinping as part of the G20 summit. On Saturday in Osaka, after the market had closed in Chicago, Trump emerged from his meeting with Xi and announced that the intermittent trade talks were “back on track.” The following week was a good one in the stock market, thanks to the Trump announcement. On Thursday, June 27, the S&P 500 index stood at about 2915; a week or so later, it was just below 3000, a gain of 84 points, or $4,200 per e-mini contract. Whoever bought the 420,000 e-minis on June 28 had made a handsome profit of nearly $1.8 billion.”
The problem with the Vanity Fair story though, detractors say, is that it quotes anonymous sources and, more importantly, lacks evidence for anyone specific making money from the trades. In this case, it is unclear who was going short and who was going long, and when, given that trades made preceding the aforementioned events could be interpreted either way and all involve not just a buyer but a seller, which would require a very high degree of coordination based on information presumably available to very few people. The story also does not mention how long positions were held, which would determine whether they unwound at a profit or a loss. Finally, without direct evidence of who was allegedly making these winning trades, it is impossible to say what else they were trading at the time, seeing as futures positions often hedge or offset positions in other markets (usually to mitigate losses elsewhere). Without evidence as to who was making the profits and who had insider information, critics say, the charge is spurious.
CME Group Inc., the biggest futures exchange in the world, dismissed the claims by suggesting too many market participants were involved for the trades to have taken place based on insider information. “As it relates to the Vanity Fair article published on October 17, 2019, regarding activities in the E-mini S&P futures contract, the allegations about the trading activity are patently false,” CME said in a statement.
Suspicions, however, are not likely to end there. Mr Trump has proven himself capable of transgressing every legal and ethical norm imaginable, often with little or no consequence (so far). This does not by itself make hitherto unsubstantiated charges of insider trading hitherto true, though it does explain why the suspicions of their possibility arise when correlated with unusual market movements. Mr Trump encourages sceptics to think the worst of him; the problem is that because he is capable of anything, it doesn’t necessarily mean he did it.
Image: Wikimedia Commons