There has been a lot of talk about free markets and Adam Smith’s invisible hand during this financial crisis. Every government or Federal Reserve action is met with a chorus to leave the market alone by those favoring zero intervention.

Until we are willing to take our medicine they say, the problems will never go away. Generally speaking it is favorable to have minimal intervention in the free markets. Left alone the market does a pretty good job of establishing value.

However, given a lack of oversight, crooks like Bernie Madoff have the ability to distort the free market. When his Ponzi scheme eventually exploded, Madoff’s only option was to sell his positions to raise cash.

Due to the sheer size of his multi-billion dollar fund, confidence in the market and in individual stocks were destroyed.

Confidence is such a big part of the market’s ability to function. Without it everything comes apart at the seams. We are seeing example after example of this during the current crisis.

Even worse, Madoff may not be alone in his crimes, as there could be upwards of $100 billion or more of trading activity that is completely fraudulent.

Ponzi Kills Momentum

Momentum stocks have taken a hit as the Madoff scandal has inspired liquidation driven by fear and necessity.

Try stopping something from going down the drain. It is not an easy thing to do. The same thing is true with the market. It is a difficult task to value a stock in the absence of buyers and in the face of a large forced sale.

The good news is that investors can take advantage of this mess by identifying stocks that are undervalued. The market is providing an opportunity. All investors need to do is identify the inefficiency and come up with the cash to execute.

Finding Value

Where should investors look to find these deals? I would start with agriculture stocks, a busted momentum sector favored by big money managers. Driven by the fear caused by the whole Ponzi fiasco, some of these companies have been really beaten down.

I would consider Potash (POT), The Mosaic Company (MOS) and Agrium, Inc. (AGU).

Another beaten down space is the shipping industry. While there are some very good reasons for these stocks to be down, the momentum crowd loved this space a year ago. Add in forced selling to the mix and one would think that every shipper would go out of business.

I don’t think that is the case. Take a look at DryShips Inc. (DRYS), Excel Maritime (EXM), and Eagle Bulk Shipping (EGLE).

I don’t know for certain if these stocks were owned by the crooks, but I do know that they were owned by big dollar managers that loved momentum. When the music stopped it created a vacuum of inefficiency.

Investors should take advantage.

This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.