Stock Buyers Strike . . . For Good Reason

When will the stock market finally bottom?

Here’s a thought: it won’t be when P/E ratio’s hit some magic level, or market cap’s (capitalization’s) become tantalizingly low, or even when the housing market finally stops falling.

It will be when Bernie Madoff is in prison, and he and his family are stripped of their — his clients’ — assets. (Just plain stripped would be even better.)

For now, Madoff sits, under house arrest, in his $10(?) million Manhattan penthouse while his lawyers plea bargain and argue, however implausibly, that his wife should be allowed to keep $67 million now titled in her name.

And Madoff’s victims?

Three months after their money disappeared, they are selling their homes to raise cash. I personally know of four such houses on the market in the Twin Cities, and wouldn’t doubt that the number nationally is in the hundreds (don’t expect an accurate tally, because in most cases, you’ll never know).

Who wouldn’t pull their money out of such a market?

What sane person would commit fresh money?

No wonder the stock market is suffering from the granddaddy of all buyer’s strikes.

And that’s before the debacle that has befallen investors in financial stocks, whose primacy in today’s market was even greater than tech stocks’ in the late ’90’s — and whose subsequent fall has been harder.

“Madoff Homes”

Investors are right not to trust a market where the top securities cop, the SEC (“Securities and Exchange Commission”), outsources its “whistle-blowing” function. Actually, it doesn’t even do that: when someone credible like Harry Markopolos presented it with credible evidence of fraud . . . it did nothing.

Meanwhile, our legal system allows well-heeled defendants to make a mockery of the presumption of innocence. Even if Madoff hadn’t confessed — which he did — there’d be no doubt as to his guilt. (If it’s all a big misunderstanding, somebody had quick better tell all those people selling their homes.)

In the meantime, any rational, functioning system would: 1) promptly incarcerate Madoff; 2) trace any assets attributable to his victims, and label them as fraudulently conveyed; and 3) confiscate such assets, and put them in trust for his victims. Done. End of Story.

Instead, Madoff is clearly using his clients’ money to pay for expensive legal maneuvering. Instead of Madoff selling his homes, Madoff’s victims are selling theirs. Watching all this, one would be forced to conclude that, at best, the authorities are impotent; at worst, they’re corrupt.

The New Testament famously says “the poor will always be with us.” It doesn’t say anything about scoundrels like Madoff.

Until investors are satisfied that the Madoff’s of the world have been dealt with appropriately, and convincing steps have been taken to assure that there won’t be any more . . . don’t hold your breath waiting for a sustainable stock market rally.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.
2 Responses
  1. Anonymous

    Same as our new attitudes about taking a vacation to Mexico. Previously we knew Mex cops were corrupt, however usually did not hassle tourists too much and the tourist areas were no more crime prone than US. Sure some crimes will always happen even with great law enforcement, but you had some assurance to cops wanted you safe and would keep a lid on it. But not now, you realize the cops and local officials are way corrupt and the drug gangs are in almost total control and they don’t give a hoot about locals or tourists or any long-term Mexican economy issues.

    Corrupt cops/govt officials = misery for general population, very risk adverse behavior, and shut down economy, whether in Mexican town square, Main Street,or Wall Street, th emore corrupt things are, the worse it is for general society and law-abiding and better for slime-sters that want to profit off others misery and don’t not care about the health of community around them.

    Why average person sees needs for cops on main street but has generally agreed with business/financial lobbies that have screamed for and gotten de-regulation on Wall Street.

    De-regulation=no rules, no cops. You never hear a local politician saying they will be-soft-on-crime but national politicians, i.e. libertarians, conservatives and moderate dems have been saying that for years in regards to Wall Street. And once again, regulat gets screwed, both in loss of money, loss of functioning of market and then loss of jobs as result.

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