Featured Trades: (BETTING ON A MIDDLE EAST WAR)

3) The Bookie's View on War in the Middle East. I have written in the past about the online betting site, Intrade (click here for their site), which will take wagers on anything under the sun, including a range of economic and political probabilities (click here for 'Here's the Winner of the November Election').

The current betting is that there is a 76.5% chance that Muammar Khadafi will be gone by the end of the year. There is only a 6.2% chance that the US will launch an air strike against Iran this year. But there is a 32.4% chance that a weapon of mass destruction will be used somewhere in the world by the end of 2013.

Of greater foreboding for stock traders is that the likelihood of the US going into recession in 2012 has risen from 15.1% to 19.9% just in the last two weeks.

After watching this site with some amusement for years, I should caution potential traders that these prices are subject to huge swings, are often wrong, and come with hefty dealing spreads. Expectation often meets a tragic end at the hands of reality. They can also be very contradictory. While predicting a Democratic slaughter in the last election, they also anticipate that Obama has a 61.1% chance of winning the 2012 presidential election.

The Bookies Give it 5 to 1 Odds

Featured Trades: (MY ALL ELECTRIC BOOBY PRIZE), (NSANY), (TM), (BYDDF)

2) China's BYD Promises to Take Over the US Car Market. For years now, I have been chronicling in exacting detail my quest to buy an all-electric Nissan Leaf automobile as the ultimate hedge against rising oil prices (click here for 'Getting Something for Nothing'). The crude price spike arrived right on schedule, with gasoline prices topping $4/gallon in San Francisco last week. My local Nissan dealer assures me that the car I ordered a year ago, along with my substantial $75 deposit, will be delivered in May.

Then I received a scratchy, badly echoing telephone call from the Southern Chinese manufacturing mega city of Shensen.? My friend had just driven BYD's (Build Your Dreams) (BYDDF) new E6 all-electric sedan, and he could not sing its praises loudly enough (click here for their website). The car has a 200 mile range, versus the 100 miles for the Leaf. That is made possible by a 60 KwH battery, compared to the 24 KwH battery in the Leaf. Yet the E6 will be offered in the US for $40,000, close to the non-subsidized price for Nissan's new vehicle.

The great barrier to competitiveness for electric cars has always been the cost of the batteries, which now run at $1,000/KwH. So $24,000 of the cost of the $38,000 fully loaded Nissan Leaf is just to cover the 600 pound lithium ion battery. However, by executing a globally integrated manufacturing model, BYD has been able to lower its costs to $500/KwH. This involves making its own chips, directly owning lithium mines, and operating in low wage countries like China and Eastern Europe. I guess this is what happens when a battery company builds a new car from the ground up, instead of a traditional car manufacturer.

BYD plans to launch mass marketing of the roomy, five passenger E6 in the US by the end of 2012. Safety specifications have already been satisfactorily upgraded to meet rigorous American standards. BYD is quietly setting up its own US dealer network. The cars will initially be offered to fleet users, and then the consumer market. It also will roll out a range of all-electric buses, which no one is currently producing here. The company's goals are anything but modest. It plans to become the largest car maker in China by 2015, and the largest in the world by 2020, surpassing the behemoth Toyota Motors (TM).

I rode Warren Buffett's coattails into this stock in 2008, taking a position after he bought 10% of the company for $230 million (click here for the piece). Buffett's partner, Charlie Munger, describes CEO Wang Chuan-Fu as a combination of General Electric's (GE) legendary manager, Jack Welch, and inventor Thomas Edison. After that, the stock rose tenfold.

It has since given up half the gains. The stock has suffered from the general malaise towards Chinese stocks since the government began its war against inflation a year ago, raising interest rates and tightening bank reserve requirements no less than eight times. Investors are also concerned that BYD's rumored secondary share issue, needed to finance its massive expansion plans, could weigh heavily on the stock.

Shares with such enormous earnings potential at this price look like a bargain to me. If I had to name one company that could appreciate 1,000% in the future, this is it. But I don't know when. So this would make it a candidate for burying it in a long term portfolio, rather than a short term trading vehicle.

And what of my Nissan Leaf? What happens to its value if BYD delivers on the E6? How about knocking it down by more than half? I'm starting to wonder if instead of getting the lead on cutting edge technology of the century, I got the booby prize.

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Will BYD's E6 Beat Nissan's Leaf Before the Race Has Started?

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1) Thoughts on Oil and the Economy. If at the beginning of the year I had told you that oil would go well above $100/barrel within two months, there would be a civil war in Libya, and the stock market would hit a new three year high, you would have immediately canceled your subscription to this newsletter and initiated proceedings to have me committed to an insane asylum. Except in Texas, where I would have been taken out and summarily shot, and rightfully so. Not in a vindictive way, but in a humanitarian attempt to put me out of my misery, like a thoroughbred race horse with a broken leg.

Yet, here we are. Go figure. The transportation index, that prodigious user of all types of fuel, is getting slaughtered. Both sides in the Libyan civil war are threatening to attack the other's oil supplies. The rebels say they have sold a supertanker worth of crude. To whom? How did they accept payment? Where is the contract? Who would you contract with? If true, why doesn't Khadafi sink it? It's not like it is a small target. While all western companies have eased oil shipments from Libya, Chinese and Indian companies are picking up the slack on the spot market.

In the meantime, US naval ships are steaming through the Suez Canal in a show of force, and we are days away from Saudi Arabia's 'Day of Rage.' If you think this is just talk, see what the Arab cable news network, Aljazeera, has to say about it by clicking here . I can easily see a carrier group sitting in the Gulf of Sidra, declaring a 'No Fly Zone', and then shooting down any plane that leaves the ground. Remember, our air-to-air missiles have a 100 mile range, and we know that the Libyans don't know how to use theirs. Hey, if you can't win two Middle Eastern wars, maybe the third time is the charm? It couldn't happen to a nicer guy.

If oil stays at the current triple digit altitude, some $70 billion gets lifted out of consumers' pockets, knocking 0.5% off of US GDP this year. Keep in mind that there is absolutely no dearth of oil in the US. Private storage facilities at the Cushing, Oklahoma hub are bulging, and the government's strategic petroleum reserve is chock full. It is fear and speculative buying by hedge funds that is driving prices up, not physical shortages.

Former Chairman of the Federal Reserve, Alan Greenspan, made some interesting comments this morning as to why dear oil wasn't having a bigger impact on the financial markets. Energy conservation has become far more pervasive than any of us realize. All of those subsidized solar panels and hybrid cars are starting to have a major impact on our energy consumption.

Also, thanks to the Great Recession, companies held back investment in productivity increases and cost cutting that have only recently been unleashed. What is one of the biggest of these investments? Spending on energy conservation measures across a vast array of industries.

Remember that busted home heater that I told you about yesterday? I had the engineer take apart both the outgoing and incoming units, and I couldn't believe what I saw. The 20 year old one was a simple gas fired affair. The new one included a built in radiator that sucked every bit of heat out of the apparatus, greatly improving its efficiency. These tiny, incremental sorts of savings are going on in a million imperceptible ways around the world every day, all adding up into something really big.

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Khadafi's New Negotiating Strategy?

Featured Trades: (FEBRUARY NONFARM PAYROLL)

3) The February Nonfarm Payroll. President Obama's political advisors were no doubt popping the champagne bottles on Friday morning when the February nonfarm payroll showed a gain of 192,000. It was the best report in two years. The headline unemployment rate handily dropped from 9.0% to 8.9%. The December and January reports saw revisions upward of another 50,000 jobs.

Private sector hiring leapt by 222,000, with big gains in manufacturing (33,000) and construction (33,000). The good news was partially offset by 30,000 job losses by state and local authorities, a trend which I expect to continue for decades to come. There are still 13.7 million unemployed in the US, including 6 million for six months or more.

I think that best case, the unemployment rate will drop to the 7% handle by the next recession, which will probably begin sometime in 2012. Then we will rocket to new post Great Depression highs. The 25 million jobs we shipped to China and other emerging markets during 2000-2010 are never coming back.

Many of those who lost their jobs then, some 10% of the work force, may be permanently frozen out of the economy and are now part of the structural unemployed. We saw the same thing happen in Germany during the seventies and eighties. This is why I have studiously avoided retail stocks during this bull market. When one tenth of the population permanently drops out of the economy, consumer spending is not going to come roaring back, especially at the low end. This may be what the stock price of Wal-Mart may be telling us.

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Featured Trades: (OIL'S BIG PUSH ON CORN), (CORN), (DBA), (ADM), (JJG)

2) Oil's Big Push on Corn. You would think that with oil crisis levitating over $100/barrel and gasoline continuing its relentless march towards $5/gallon, farmers would be wringing their hands, wondering how they can afford the fuel for their machinery. Not so.

The burgeoning demand for energy has spilled over to the corn market, where demand for feedstock by ethanol refiners is going from strength to strength. Nearly 40% of the country's corn crop is being diverted to ethanol production. Margins at the big ethanol producers, like Archer Daniels Midland (ADM), once nonexistent, are now widening rapidly.

I have been a huge bull on the whole food complex since I put out my watershed piece last May (click here for 'Going Back Into the Ags' ). Now that we are into the planting season, you might expect the volatility of food prices generally to increase. There are still drought conditions in many of the world's major producing areas. Stockpiles are near record lows. Much of the unrest in the Middle East is over rapidly rising food prices, where they are huge importers.

Notice that once the S&P 500 bounced, the first thing that traders poured back into were the ags, soaking up ETF's (JJG) and (DBA) as fast as they could click their mice. I think we are one year into a decade long bull market for food, and that investors should be buying every substantial dip in the sector.

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