Monday, June 29, 2009

Stocks Gain to Open Week; Madoff Gets 150 Years

The most significant news story of the day was the sentencing of serial Ponzi-schemer Bernard Madoff by US District Court judge Denny Chin, who figuratively "threw the book" at the convicted swindler, issuing the maximum sentence of 150 years in prison to the 71-year-old. Madoff will spend the rest of his life behind bars for masterminding the largest securities fraud in history.

Perhaps one of just a few bright lights from the unwinding of the US economy, Madoff may never had been discovered if not for the horrific losses taken by the market in the fall of 2008. It was amid crashing stocks that Madoff first admitted his guilt as he could no longer maintain that his investments were making profits.

Ads Madoff heads out of the spotlight and behind bars, it's worth noting that various frauds, scams and scandals come to light during serious market declines. If Madoff proves to be the worst of them, all well and good, but there was surely more than the solitary machinations of a singular evil genius at work within the latest market crash. The bodies are all now safely buried in the books of Citigroup, Goldman Sachs, JP Morgan, Bank of America, Wells Fargo and Morgan Stanley. The real crimes have been neatly swept under the rug by Treasury Secretary Geithner and Fed Chairman Barnanke.

The words "toxic assets" have been swiftly dispatched from the standard economics news lexicon; those have all been absorbed by the Federal Reserve for future disposal. Accounting rules have been changed to accommodate the bankers, as usual. The same kinds of things happened before and during the Great Depression. Incompetence and lack of foresight in allowing a speculative bubble to get out of hand were the causes then, as now, and there will likely be more scandal, finger-pointing, accusations, firings and eventually, prosecutions of those who undermined the core of our economy.

The economy has suffered severe damage, stocks are overpriced in an unsustainable trading range, but the word on the street is that the bad times are already behind us. We can almost hear Roosevelt's campaigners singing "Happy Days Are Here Again."

We so wish it were so, but evidence points in the opposite direction. While our maladies may not ever approach those of the Great Depression, by some standards they already are. True unemployment figures point to 18-20% currently, but what never gets reported and is at the root of our problem, is the black market or "underground" economy, which the government stopped trying to measure back in the 1970s. From pot dealing to off-the-books labor, this illicit economy grows daily, eroding the tax base along with our confidence in government institutions.

So broad, vast and rapacious are federal and state taxes that companies and individuals are nearly coerced into cheating if only to ensure their own survival. The costs of taxation on business are so odious today that there's actually a disincentive to entrepreneurism. Nobody wants a partner that takes but never contributes. Still, people make money without paying taxes, and that's what - besides the incredible amount in aid to states - is really keeping the economy from going bust. There's a lot of money around, and nobody's starving or freezing yet. Let's hope it stays that way.

Dow 8,529.38, +90.99 (1.08%)
NASDAQ 1,844.06, +5.84 (0.32%)
S&P 500 927.23, +8.33 (0.91%)
NYSE Composite 5,962.50, +55.54 (0.94%)

As market participants apparently had cash on hand and nothing better to do with it, they bid up stocks early in the day and traded sideways after 10:00 in the AM. As well as the final numbers look, the internals were conforming but far from encouraging. Advancing issues beat back decliners by a modest margin, 3540-2858. New highs surpassed new lows, 88-52, but volume was the most tepid in some time, somewhat expected in this shortened holiday week.

NYSE Volume 1,065,345,000
NASDAQ Volume 2,021,623,000

Oil shot up $2.33, to $71.49, as Nigerian rebels attacked an offshore oil rig and China announced it would add to its strategic reserves. Gold finished the day down 30 cents, at $940.70. Silver dropped 18 cents, to end the day at $13.98.

Again, there was little in the way of corporate or economic news. It looks like another slow trading week ahead.

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