Friday, June 19, 2009

Quadruple Witching Today; Fraud Update

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Today is quadruple witching, the once every quarter event when equity options, index options, single stock futures and index futures expire. The market will tend to move either up or down to minimize the value of the expiring options. Reversals to undo those moves frequently take place early the next week. After four days of closing below its 200-day moving average, the Dow jumped above this resistance line this morning and it needs to close there today and stay above it next week for the market to be healthy. The US dollar is steady at 80.46 this morning, gold, silver and oil are up slightly.

The big news today is that Texas billionaire Allen Stanford had been indicted and arrested. Stanford is accused of running an $8 billion Ponzi scheme. The SEC first received complaints against Stanford in 2001. The ever on the ball SEC only took four years to launch an investigation. After 'only' four years after the investigation began in 2005, the SEC filed civil fraud charges against Stanford four months ago. It is rumored that Stanford has connections to the CIA.

While Stanford was being indicted, uber fraudster Bernie Madoff settled civil fraud charges with the SEC in his $65 billion Ponzi scheme (something the SEC supposedly failed to notice for a few decades). Even though Madoff has admitted guilt in criminal proceedings, the SEC allowed him to settle its charges against without admitting any wrongdoing! Legal experts were reported as being 'dumbfounded' by this move. Indeed it doesn't make any sense unless the SEC is trying to protect itself and its own involvement in the Madoff scam. Madoff sat on SEC committees. He will be sentenced on June 29th.

If the SEC doesn't find major frauds that can damage the entire financial system, what does it do? It spends its time catching dentists in New Jersey who get tips from their clients and buy a few thousand dollars in options. These small one time transgressions are essentially irrelevant, but make great publicity. The massive ongoing crimes are ignored. It also looks like the SEC may be participating in the criminal activities that it's supposed to be stopping. If it was closed down tomorrow, would investors be any less safe?

NEXT: The Simple Arithmetic of Hyperinflation

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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