1) Welcome to World War III. If there was ever a war that had to happen it is our new military engagement against Libya. Khadafy had made enemies with so many governments as the enfant terrible of the Middle East that putting together a coalition to depose him was a piece of cake. No arm twisting or fake intelligence about weapons of mass destructions needed here. Even Al Qaida hated Khadafi.

Call it 'shock and awe' light. I love it. The leadership is Arab, the French provide close air support, Egyptians the ground troops, and the Italians the pasta and the Tuscan wine (praise the Lord and pass the Antinori?). We just sit back out of harm's way and use up our inventory of outdated tomahawk missiles, while testing out the new models. Think of it as no more than a training exercise for the US. And we do all of this under the mantle of a UN approval. For us it really is a push button war. It is more like a video game that hand to hand combat.

You knew that things were going to play out differently this time when the Arab League voted to support the Libyan rebels and asked for UN assistance. For the past 60 years, this impotent international organization has done nothing but issue periodic rants against Israel and Zionism. This is the first time they have ever done anything useful.

Look at the line up in the coalition, and every national leader found it expedient from a domestic political point of view to take on Libya. The UK, France, Italy, Saudi Arabia, the UAE, Egypt, Jordan, and the US. Everyone needs a weak enemy they can defeat and claim credit for. Keep in mind that Libya's only ally in this fight is Zimbabwe, and it is providing only moral support.

Even President Obama, whose strong words and decisive action will no doubt boost his chances in the 2012 election. All of a sudden, protecting the Libyan people has become a top national priority. Who knew? Did I hear the word 'oil'? The word in Israeli intelligence is that the move was made not to save lives, but oil production facilities. After all, if you want to know what's happening in Libya, you have to call Tel Aviv.

It is also important to note that yet another country has discovered that the weapons and the decades of training they paid the Russians hundreds of billions of dollars for are utterly useless. Targeting coordinates were programmed into cruise missiles while enemy bases were still under construction. The CIA has kept a satellite parked overhead for daily updates. All that was missing was the political will to pull the trigger. Khadafy's supports can do little but fire their AK-47's in the air in utter frustration.

Does Anyone Here Know How to Drive a Manual?

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If you gave the Joint Chiefs of Staff a map of the Middle East and asked them their favorite target, Libya would be at the top of the list, and Iraq and Afghanistan would be at the bottom. While Libya looks big on a map, it is really a thin strip of coast 20 miles deep and 1,000 miles long. Its military resources are concentrated if confined, easily targeted areas. Its army consists of only 10,000, many mercenaries earning $1,000 a day. Who said there weren't well paid jobs around? The unemployed obviously aren't trying hard enough.

I predict that they will dig Khadafy out of some wretched hole in a few months, put him on trial for war crimes and terrorism, and the world will say good riddance. Sorry, but that's the Marine pilot in me coming out. That will leave the US with a pro-Western government in a major oil producing country whose massive offshore fields it was only just starting to develop.

Looking for a Good Lawyer

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The market reaction to our third Middle Eastern war in two decades was totally predictable. Traders hate uncertainty and love fact. This brings falling asset prices during the sabre rattling stage and soaring ones when the first shots are fired. If you don't believe me look at the charts for stock market indices at the onset of the 1991 and 2002 Gulf wars.

How Do You Spell 'Foreign Aid'?

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It's off to the races for oil again, as Libyan crude is now probably off the market for years to come. Macro Millionaire followers are thanking their lucky stars that, having sold oil at $107, they covered at $97. Here we are again at $106 for West Texas intermediate and $116 for Brent. It's been that kind of year.

Semper Fi.

Featured Trades: (TESLA MOTORS), (TSLA)

 

2) Tesla: Sell the Sizzle, Then Buy the Steak. So far, the most successful thing Tesla Motors (TSLA) has done is sell stock. The IPO was an absolute blowout success, far and away the best this year, with book building at $14-$16, the size increased by 20%, pricing at $17, and then trading up to $32 on the third day, giving it an impressive market capitalization of $3.3 billion. It fell back to $16 the following week, but then mad a run to $26. Now, here we sit again at $23.

It pulled this off with virtually the entire auto industry and its pet analysts pissing all over the deal from the greatest height possible, as the entire concept of a Silicon Valley based car industry is the greatest affront possible to the Detroit establishment.

I love this company, and I think Elon Musk is incredibly brave. Hell, if I had a billion dollars to throw away, I would probably do the same thing. But much about the new issue reminds me of the Apple IPO some 30 years ago, when it ran up to $21 before its nosedive to $4 (click here for the story). The ill-fated DeLorean Motor Company also comes to mind. All the focus was on the products, which consumers loved, not the business model or the bottom line.

By its own admission, (TSLA) will not make any money for two years or longer, and won't even commit to hard production dates for its crucial S-1 model. I think the way to play this stock is to skip all the hype associated with the stock floatation, as most of the buyers aren't looking for a profitable investment, but bragging rights at the country club.

Just wait for the next meltdown in the stock market to call out the weak holders. The time to buy will be in the PR ramp up to S-1 mass production, which will be just as intensive as the IPO.

There is also a political risk associated with the stock. If the Republicans retake the presidency in 2012 they may trash all alternative energy subsidies as unaffordable luxuries, which Tesla is hugely dependent on for making its S-1's $50,000 price competitive. Always be careful when making investments totally dependent on government subsidies for profitability. Here today, gone tomorrow. If that happens, the Tesla will be joining the Tucker, the DeLorean, and the Pontiac in the dustbin of history.

Oh, and Elon, a little fatherly advice. Don't tell a divorce court that you're broke a week before the market values your holdings in TSLA at $2 billion. You're supposed to impress your new shareholders with the depth of your judgment. Not good, not good.

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Featured Trades: (LAS VEGAS CITY CENTER)

 

4) A Poolside Report from City Center. I write this to you from my poolside cabana at the Aria at City Center, the newest and hottest hotel in Las Vegas, against a background of blaring rock music and helicopters buzzing overhead every five minutes. It's amazing what passes for a swim suit these days, and some of the tattoos I saw were nothing less than shocking.

I'm here because at a throw away rate of $120/night for a room that is worth at least $500, and discount fares offered by the airlines, it is cheaper to spend a weekend in Sin City than it is to stay home. Hotel flacks glibly tell reporters that with an 80% occupancy rate, they are near profitability. But staff tell me those numbers are achieved only because 20% of those rooms have been mothballed and taken off the market.

The glitzy, ultra-modern, Cesar Pelli designed, 16.8 million square foot, 63 acre complex occupies a quarter mile on the city's fabled Strip between the Bellagio and the Monte Carlo Hotels, and will unquestionably become one of the hedonist Wonders of the World. It includes the Mandarin Oriental, Aria, Veer, Vdara, and Harmon Hotels, offering 4,000 rooms and 2,600 condos. They will be adorned by two casinos, a convention center, a new theater for an Elvis themed Cirque du Soleil show, and parking for 6,900.

I wandered in amazement though the gargantuan 'Crystal' shopping mall, where half of the retail space was boarded up in the most tasteful way possible, and marquee luxury names like Fendi, Ermenegildo Zegna, Tiffany, and Louis Vuitton were manned by elegantly dressed and earnest staff, but bereft of a single customer. Despite hiring 12,000 since opening in December, service at the Aria is still glacially slow. My inside guy in Vegas, a blackjack dealer at Caesar's, tells me this is because it is an all-union house. The city is also rife with rumors that the oddly titling Harmon will have to be torn down and rebuilt due to construction flaws.

I spent my free time looking at condos that were initially offered at $600,000, but now could be had for $200,000. To see them, I had to drive through 'ghost suburbs', blighted with dusty, abandoned strip malls and tumbleweed blown office parks that might have been a scene out of a Twilight Zone episode.

Still, how can you hate Vegas? The French toast at hotel Paris, France was to die for, and my masseuse at the Aria, Monique, is clearly God's gift to mankind.

You really have to wonder what MGM-Mirage's Kirk Kerkorian, Dubai World, and their long suffering lenders were thinking when they ponied up $8.5 billion for this venture. Excess is in abundant over supply here, and they clearly thought the good times would go on forever. Instead, they created the worst commercial real estate disasters in human history.

Thanks for the great weekend, Kirk!

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Featured Trades: (QE2 JUST ENDED EARLY), (DIG), (JJG), (AAPL)

1) QE2 Just Ended Early. Many observers believe that the massive sell off that we have seen in global equity markets are purely the result of the Great Sendai Earthquake. Fat chance. I think the earthquake is masking the true causes of the liquidation, the end of Ben Bernanke's quantitative easing.

When the market would start discounting the demise of this free lunch for all asset classes and the hedge funds that trade them has been one of the great guessing games this year in the financial markets. Up until last week it was thought that the weakness since February was just another dip to buy into the great liquidity bubble. But no more.

You can see this in the violence and the severity of the sectors that have sold off the most. The ones that flaunted the biggest gains since QE2 started in August are now suffering the worst of the damage. Look no further that my favorite sectors, which were all heavily owned by hedge funds, and now being mercilessly dumped.

In a mere two weeks, my energy play (DIG) plunged 16%, the grain ETF (JJG) is off 17%, while technology bellwether Apple (AAPL) has taken a 7% hickey. The double top in the Apple chart is particularly ominous. And look at Cisco Systems (CSCO) where we snagged a double on a call spread and exited post haste. My friend, Dr. Copper, seems to have taken and extended vacation, with its ETF (CU) off 20%. Ouch!

Regular readers of this letter know that I have been expecting this and have been judiciously scaling out of long since the end of January.

The implication is that this sell off may continue longer and go farther than many traders realize. What will be the next driver to take stock prices skyward? QE3? You must be smoking something. The political balance in Washington will permit no more support for the economy. Tax cuts? We have already gorged ourselves on these for the next two years.

Rising earnings? Coming off a great quarter, forecasts going forward are being ratcheted downward, thanks to the earthquake. I think people will be amazed when they discover how much US manufacturing is dependent on high value added, irreplaceable Japanese parts, from autos to electronics.

I don't think the abundant 'crash' gurus are going to get any satisfaction this year either. The news is bad, but it is not that bad. We are far more likely to die of ice than fire. Sounds like it may be a good time to sell out of the money calls on equities everywhere.

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More Likely to Die from Ice That Fire

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Watch Closely. He's About to do a Disappearing Act