1) Rumors are rampant that Delta is going to merge with Northwest. What would the new combination be called? Southeast? This is leading to speculation of a United-Continental merger.

2) Technology has now taken up the downside charge in the market, leaving the banks behind. Apple has dropped from $202 to $122 in three months and is approaching value stock levels.

3) Goldman Sachs put out a report today predicting that there will be $200 billion in real estate losses this year. The bulk of these losses will be borne by the insurance industry.?? There was then a long procession of experts in the press proclaiming that they weren't seeing it. The Fed cuts will cause dividends to spike in the second half. Vacancy rates have been low. There has been little construction the last two years. However, investors who overpaid for properties at the top of the bubble will be punished. Conditions vary from city to city, with New York looking great and Detroit terrible. Detroit alone could account for the bulk of this predicted loss.

4) Cisco gave cautious guidance. The stock dropped 15% to $19 overnight where it is a screaming buy. It recovered during the day. Such is the manic depressive nature of the markets now.

5) A quiet day in the markets at last. It will give back offices a chance to settle the enormous numbers of uncleared trades. Whew!

1) The January ISM non-manufacturers index, which accounts for 80% of the economy, dropped from 54.4 to 41.9, the lowest level since the terrorist attacks of 9-11. It's as if someone turned the lights off on the economy. The Dow dropped 560 points from yesterday's highs on the news. The market has given up nearly half of the gains from the MLK low two weeks ago. The market would have dropped more, but the Super Bowl winning New York Giants football team had their ticker tape parade down Broadway today.

2) A Federal Reserve survey of senior bank loan officers showed that one third of all US banks and two thirds of foreign banks have tightened up commercial lending. When loans are going through they are on wider spreads over Treasuries. The most affected are small community oriented banks with large exposure to commercial real estate lending in areas like California where prices have fallen the most.

3) Google dropped below $500 in fears of the competitive threat from Microsoft/Yahoo. It is down a third from its peak of $750 and is a buy here.

4) The futures markets are now discounting a 100% chance of a 0.25% interest rate cut at the next Fed meeting in March.

5) United Airlines will start charging $25 for a second checked bag. The plan will generate $100 million in income, but is a terrible idea from a marketing point of view.

6) Even if we don't have a consumer lead recession, it will feel like it, with growth decelerating from 5% to 0% in one quarter.

Quote of the day: 'Losing your credit rating is like losing you virginity. It is easier to lose it than to get it back.'

TRADE IDEA

The first leg of the bear market is now complete, with the S&P 500 ($SPX) down 21% for its October top of 1586. Expect a period of digestion and range trading to follow. You can cash in on this by selling the June S&P 500 1200-1450 strangle. This involves going short puts on dips and going short calls on rallies. If the market stays in the range I expect profits to drop straight through to your P&L as the time decay accelerates. It's like having a rich uncle write you a check for your monthly allowance. If we break out of this range you can always hedge yourself with futures. Use volatility spikes to 30% to scale into these positions.

1) China had its largest up day in history yesterday at +9%. It is up 20% from the recent low 9 trading days ago.

2) Exxon reported profits of $11.7 billion on the quarter and $45 billion on the year, the largest annual profit in US history. Amazing. The broader energy industry accounted for 40% of all US profits in 2007.

3) Bush announced his 2008-2009 federal budget proposal of $3.1 trillion, the largest in history. Military spending increases , while health and education get cut. It's his way of saying ?screw you? to the current crop of republican candidates, who will have a tough time selling this package to the electorate.

4) Legal insider trading reached an all time high in the last two weeks. The biggest has been in ETrade (ETFC) which saw multiple buyers. The stock has fallen from $25 to $4.

5) Barton Biggs has just published a new book called Wealth, War, and Wisdom about the financial markets. It gives one a great historical perspective and now that we are all in search of a market bottom is a must read.

TRADE OF THE DAY

Natural gas ($NATGAS) has been the orphan of the energy complex, lagging crude, heating oil and distillates. It is now historically cheap compared to the others. Virtually all of the new power plants being built in the US for the next 20 years will be gas fired. Imports will remain at a trickle due to the high cost of LNG liquifaction facilities. Many major gas fields are becoming depleted and with most of the country now having been explored there are no big replacements coming on line. Natural Gas is also environmentally friendly, producing only steam and CO2 as byproducts. Natural gas is a strong buy here at $7.80 with a summer target of $12, and $15-$20 if a major hurricane hits the gulf. Take a look at the chart below. It is about to break out to the upside, dragged kicking and screaming by crude.