The Markets Are Happy, And "Voodoo Economics" Takes On A Whole New Meaning

The markets decided to celebrate the New Year by throwing a little rally. The Dow ended p 93.24 (0.81%), the NASDAQ was up 38.65 (1.45%) and the S&P 500 was up 14.25 (1.13%), mostly on the good ISM Manufacturing Survey numbers. There's nothing like beating expectations to prolong the Santa Claus rally.

Winifred Jiau[1] has been denied bail on the grounds that she is a flight risk. She had originally been granted bail to the tune of $250,000, but was held in prison over the weekend because the co-signer of the bond decided not to co-sign.

In "The Markets Need More Regulation" news, the Commodity Futures Trading Commission is bracing for not getting a $92 million budget hike, and not having the funds needed to actually regulate the swaps market like the Dodd-Frank Wall Street Reform and Consumer Protection Act requires. Reports of salivating investment bankers are considered spurious[2].

Marie Laveau is now the Wall Street Journal's endorsed solution to the nation's lingering unemployment problem, as revealed on December 28th in an article about how hoodoo practitioners are aiding their clients in finding work. No word on whether or not LuckyMojo.com will be going public, but 20 years ago some venture capitalist would probably have thrown a few million at it.

If you are buying gold coins, make sure there's enough gold to make it worth your money.

And finally, don't just look back on the trading activity on the Dow in 2010. Listen to it.

[1] The latest alleged inside trader to get swept up in Operation Broken Trust.

[2] Mostly because historical precedent indicates that they really weren't going to be regulated any better anyway, so why worry?

Energy Stocks and Broken Trust

Once again, energy stocks seem to be driving the market. We're wrapping up the day up (mildly): the Dow closed up 9.84, the NASDAQ closed up 4.05, and the S&P 500 closed up 1.27. Chevron, ConocoPhillips and Exxon Mobile all hit 52-week highs today (before pulling back) - mostly on the fact that crude oil prices are near a 2-year high (thank you, Fimbulvetr!).

But, whatever good may have come from the Fimbulvetr's impact on those oil prices is more than being offset by the impact the blizzard (and the ravening packs of lean, hungry wolves) is having on retail sales. ShopperTrak is showing a 4.1% year over year decline in Christmas week retail sales, and is estimating that the blizzard has postponed about $1 billion in retail spending.

On the other hand, the S&P 500 is up 6.7% for the month (rising in 17 of the last 20 sessions). The bad news is that volume has been extremely light, indicating that investors are waiting to see if this is just a Santa Claus rally, or if this is sustainable.

In California, Operation Broken Trust strikes again. Winifred Jiau has been charged with one count of securities fraud and one count of conspiracy for leaking inside information about multiple publicly traded companies from 2006 - 2006. If convicted, she faces up to 20 years in prison.

News Flash: FBI Finally Notices Fraud, Launches PR Blitz

"Operation Broken Trust". It sounds like the sort of thing that we would have come up with as the name of a major offensive in the Indian Wars of the 19th Century, but it's the name of a series of "...criminal and civil enforcement actions that occurred from August 16 through December 1, 2010". The purpose?

To root out and expose massive investment fraud scams across the nation; and
To alert the public about many phony investment scams.

And why did they do it? Well, because

The FBI has observed a steady increase in investment frauds, in particular Ponzi and market manipulation schemes. Since January 2009, we’ve opened more than 200 Ponzi cases, many with $20 million-plus losses. Based on our current caseload, the top five Ponzi scheme hot spots in the country are Los Angeles, New York, Dallas, Salt Lake City, and San Francisco, but keep in mind that these scams can and do happen anywhere.

While I don't really need the FBI on my case, what with Homeland Security already watching my blog, let's be honest here. There was a whistleblower trying to deliver Bernie Madoff to the SEC back in 2000. The Inspector General of the SEC has repeatedly hammered the SEC for its failure to actually act on findings of Ponzi schemes and other frauds, even when its own investigators are the ones who brought the information to light.

So sure, the FBI now has 231 cases involving 120,000 victims and $8 billion in losses. Good for them. I'm sure that the SEC and our other regulatory agencies are really appreciating the FBI for providing the government with the appearance of giving a damn.

Maybe "Operation Broken Trust Two" will go after the SEC regulators, and the attorney generals, and everyone else that knew this was going on and stood back and willfully allowed it to happen.

But I'm not holding my breath for that.

Fed Bearish On 2011 & Insider Trading Probes Continue

Let's take a break from the latest round of North Korean Crazy [1] and, instead, look at the US and the sort of domestic crazy we can get up to.
First off, it turns out that the Federal Reserve is in the process of downgrading the future. They had an unscheduled video conference meeting on 10/15 and a regular meeting back 11/2-11/3.

You can read the minutes at http://www.federalreserve.gov/monetarypolicy/fomcminutes20101103.htm, but here's the highlights. They've revised their 2011 predictions for GDP downwards from between 3.5% and 4.2% to between 3.0% and 3.6%. They're also expecting unemployment to remain near 9.0% through most of 2011 and still be over 8.0% by the end of 2012. So not much good news there.

If you're following the excitement over the insider trading probes, there are some new developments. Janus Capital Group and Wellington Management Co have been asked for information related to the insider trading investigations that made the news on Sunday and Monday. Wellington has been asked for documents from "federal officials". Janus has filed a form 8-K (you can read it at http://www.sec.gov/Archives/edgar/data/1065865/000110465910059711/a10-21753_18k.htm) to cover their Regulation FD Disclosures. The filing states: "Janus Capital Group Inc. ("Janus") has received an inquiry regarding the recently disclosed insider trading investigation on Wall Street calling for general information and intends to cooperate fully with that inquiry. Janus does not intend to provide any further updates concerning this matter unless and until required by applicable law."

The Wall Street Journal reports that MFS Investment Management of Boston has also been contacted, but they have declined comment.

"Fed pondered radical steps amid weaker outlook" (http://www.reuters.com/article/idUSTRE6AI2AQ20101123)

"Fund firms asked for documents by authorities" (http://www.reuters.com/article/idUSTRE6AL4DT20101123)

[1] With their number one hit single "Shellin' UR Hood"

FBI Beavers and Irish Bailouts and Giving Thanks

Those of you who read it may have noticed this headline in the Wall Street Journal: "U.S. in Vast Insider Trading Probe" (http://online.wsj.com/article/SB10001424052748704170404575624831742191288.html?mod=WSJ_hp_MIDDLETopStories). It's big, it's looking at multiple insider-trading rings, and the fallout could conceivably change the way the financial industry is allowed to do business. Some of the things the probes are looking at are:
* Was nonpublic information passed along by "expert network" companies to hedge and mutual funds?
* Did Goldman Sachs Group Inc bankers leak information about transactions that benefited certain investors?
* Have independent analysts and research boutiques been knowingly allowing clients to trade on inside information?
* Did traders at "a number of hedge funds and trading firms" improperly obtain and use nonpublic information about pending merger deals.

Ignites (http://www.ignites.com/c/124284/11924/insider_trading_probe_involves_funds_report, which may require a subscription to access) points out that currently "no mutual fund firms are identified by name as suspects, but Janus, Wellington and MFS are known to be among the clients of one analyst whom the FBI has accused of relaying inside information".

As of right now, no charges have been made, although a Federal grand jury is hearing evidence right now. Look for some indictments to be handed down in the next few weeks.

In world news, Bloomberg reports (http://www.bloomberg.com/news/2010-11-22/ireland-seeks-european-union-rescue-as-outsized-crisis-overwhelms-nation.html) that Ireland has recanted its claims from a week ago that it does not need financial aid. On Sunday, Irish Prime Minister Brian Cowen formally ate crow and requested financial assistance from the EU and the IMF. There are no official numbers - the details are still being worked out - but Goldman Sachs Group estimates that they may be tapping 95 billion euros. To put that in the market-crushing perspective it requires, Greece borrowed about 47% of its GDP. Ireland will most likely be borrowing close to 60%. If you've noticed that the futures are down this morning (and they are), this is why.

With all that in mind, we don't really have any market moving reports due out on this, the first day of the Thanksgiving trading week. Tomorrow we get the release of the Q3 2010 preliminary revision for GDP (analysts are expecting to see real GDP revised upward to 2.4% from the initial 2.0% estimate, with no change in the price index) and existing home sales (the Street is looking for a drop of 30,000 from September's 4,530,000 units). Wednesday brings durable goods orders, personal income and outlays, first time jobless claims, consumer sentiment, and new home sales. All by 10 AM. Then the markets are closed on Thursday (for Thanksgiving generally and, it appears, specifically for giving thanks for not having been indicted yet), and they close early on Friday.