1) I confess that I am a total agnostic when it comes to specific investment philosophies, and a complete whore when it comes to trying out any new analysis that walks by. Maybe it?s because of my science and math background, but for me, raw data trumps opinion and hype any day of the week. So when someone I respect with a great track record argues that my core longs are setting up for a great short, I have to sit up and pay attention. No lesser being than famed short seller Jim Chanos of Kynikos Associates (?Kynikos? is Greek for cynic), says that China?s (FXI) much vaunted 8% GDP growth is being massively inflated. The game will continue as long as there is easy access to credit, but when reality sinks in, the resulting crash will equal the subprime crisis in its severity for the global economy.? China is Dubai times 1,000. While shorting ?A? shares on the mainland is illegal, Jim can short ?H? shares in Hong Kong (EWH)? as well as the growing roll call of US listed ADR?s, ETF?s and futures contracts. Jim is also looking at shorting the derivative commodity plays like copper (see my recent copper warning by clicking here ), cement, and yes, gold. I agree with Jim in that China is the best place to be long in rising markets, and the worst place in falling ones. This is why I have recently put out several global risk alerts, as the level of risk in all asset classes, not just China, is clearly much higher than it was just nine months ago. Jim also dislikes the auto industry, which is still facing backbreaking legacy costs, specifically Ford (F), and Fiat. EADS, the European airbus manufacturer, has myriad problems, and will eventually need a state bailout. Jim is neutral on banks, which are merely kicking the can down the road on bad loans and securities valuation.

2) I know that airline service is pretty poor these days, but isn?t a two year wait for a flight a little extreme? I?m talking about the inaugural flight today of Boeing?s (BA) 787 Dreamliner, which was plagued with manufacturing glitches, like safely attaching the wings to the fuselage. Boeing has bet $13 billion on the next generation aircraft, which is a great leap forward, using advanced carbon fiber technology to produce lighter planes that improve fuel efficiency by 40%. The plane is clearly a make or break for the airline industry, especially if fuel prices rise substantially, as I expect. Some 840 have been ordered, making it far and away the most pre ordered commercial plane in history. That takes the order backlog to 2016, and Boeing is opening a second factory in Charleston, North Carolina to accommodate an ambitious ten plane per month production schedule. The first 787, which can carry up to 320 passengers, will be delivered to Japan?s All Nippon Airways (ANA) in Q1, 2011. To read my initial call to buy Boeing, as well as my family?s long history with the fabled company, click here .? I believe this is a classic case of buying the rumor and selling the news, so it may be time to take some profits here, as the 112% run from the March lows have far outrun the broader market. It looks like the company?s chances of getting a major Air Force tanker contract have been torpedoed yet again, and it will lose money on the first 200 Dreamliners delivered.

3) I met Jack Welch last night, the legendary retired CEO of General Electric (GE). ?Neutron? Jack gets the credit for boosting the market cap of GE from $13 billion to $400 billion in 20 years, turning it into a Wall Street darling in the process. The ?hedge fund that makes light bulbs? is the last big industrial finance company standing, and when the market turns it will make a fortune, because there is no competition left. Jack is currently on the board of a private equity firm, several Internet media start ups, and is advising me on the start up of this newsletter. He gives Obama an ?A? for leadership and communication, but believes his economic policies are seriously flawed. They are based on a 4% annual growth assumption for the next decade. We never managed to achieve that rate during the go go days of the eighties and nineties, let alone attempt it during a new age fraught with deleveraging and frugality. If we get only 2.5% instead, the deficit will explode from $13 trillion to $30 trillion, at which point ?we will be cooked.? Who knew Jack was a closet gold bug, dollar bear, and inflation hawk? Jack was passing through San Francisco at the end of a national tour promoting his wife Suzy?s new book ?10-10-10?, which is about how to create a ?values driven life.? In his heyday, Jack was considered the best manager in the country. Never one to mince words, he is an absolute terror now that shareholder feelings are no longer a consideration.

1) Wow! Talk about instant results! It was only last Thursday that I recommended to readers a buy in XTO Energy at $40.50 (click here for the call). A 2:00 am call rousted me out of my sleep this morning informing me that Exxon (XOM) is taking them over at a 25% premium, all stock deal worth $31 billion. The bid values XTO?s natural gas assets at a bargain $3/MCF, compared to a spot price of $5.50. I have been extolling the virtues of this independent oil and gas producer since August (click here for my first report) because they had enough oil production to hedge their exposure in the collapsing natural gas market, and had hedged their gas by selling much of their production forward on the futures market. I guess XOM finally woke up to what I was shouting at them, as well as to Chevron and any other major who would listen. The great luxury the majors enjoy is that they can take the ten and twenty year view, unlike me, whose investors want to know what I did for them yesterday. Of course, natural gas futures soared on the deal. It also triggered an orgy of speculation that the entire rest of the independent energy sector is now in play, including Transocean (RIG), which I also recommended three days ago, Chesapeake (CHK), Devon Energy (DVN), and Anadarko Petroleum (ADC). The bidders, the oil majors, certainly have cash coming out of their ears and plenty of motive. For me, the annoying thing is that XOM will get the next triple in XTO?s value, not me. But I guess a 25% premium is better than a poke in the eye with a sharp stick. Thanks for the early Christmas present, Exxon.

2) Long time readers of this letter have been harangued to buy Chinese Internet stocks so frequently, they probably are fluent in Mandarin by now, drink only hot?? Oolong tea, and eat egg foo young at least once a week. They have been the star performers in my hedge fund this year, with Baidu (BIDU) up 420%, BYD (BYDDF) up 175%, and Netease (NTES) up 215%. Now Claymore Securities is bringing out their Claymore China Technology ETF (CQQQ), which includes the Hong Kong and US listed securities of these names among their top holdings. The firm believes this story has much further to run, even though they have had spectacular runs so far. Some $54 billion of the Middle Kingdom?s $585 stimulus package targets technology, and they are certainly darlings of the hedge fund industry. The Chinese have also showed no signs of backing off from the protectionist policies that shelter their domestic businesses. The guys that put this fund together aren?t rocket scientists, and certainly don?t speak any Chinese dialects themselves. However, they are doing yeoman?s work assembling a basket of interesting stocks that offer a convenience to those too lazy to chase down individual foreign executions. Claymore has already had success with earlier launches in China, like their real estate (TAO), small cap (HAO), and all cap (YAO) ETF?s. My only proviso on this sector is that you better be quick fingered with your mouse, because when hedge funds go back to risk reduction mode, these names will be thrown out with the bathwater.

3) I would be woefully remiss in not mentioning the impressive five cent rally Uncle Buck has pulled off against the euro since last week, from $1.51 to $1.46. Call it yearend profit taking, attempts to beat higher taxes in 2010, or a bump up against a key technical level, if you like. The reality is that when too many traders sit at the same table for a free lunch, the table has a nasty tendency to upend, and the food goes flying in everyone?s face. This is the sort of unpleasant thing I had in mind when posting six global risk alerts since October. It is absolutely no coincidence that dollar surrogates like gold and oil, have also been rolling over like the Bismarck. The long term fundamentals for the dollar still look as ghastly as ever. But they looked just as bad during the height of the financial crisis, when the greenback shot up from $1.60 to $1.20, in a heartbeat. I don?t think this snap back rally will be anywhere near as forceful as the last one. Hot money trades are like a wild beast that has to breathe. Just make sure you stand clear when it exhales, and hold your nose.

4) Last week I wrote about the Nevadan wrinkle in the housing crisis where distressed homeowners are letting their horses go wild to make their mortgage payment (click here for the full report ). Now California is facing a Chihuahua glut, where evicted homeowners are handing over their pets to the pound. The diminutive Mexican canine enjoyed a boom in popularity in recent years, thanks to movies like Beverly Hills Chihuahua and Legally Blonde.?? Celebrities, like Paris Hilton, have also helped promote the breed. Animal shelters in the land of fruits and nuts have been so overwhelmed they have had to ship the ultra cute animals to pounds as far away as Toronto. Will the unintended consequences of Greenspan?s low interest policy never end? Give the poor chihuahua?s a break!

QUOTE OF THE DAY

?If real wealth is to be created, it has to be invested generationally,? said Scott Minerd, chief strategist at Guggenheim Partners

1) The seventies are about to make a comeback. No, don?t drag your leisure suits, bell bottoms, and Bee Gee?s records out of your storage facility. I mean the nuclear industry, which has been in hibernation since the accident at Three Mile Island in 1979. There is absolutely no way we can deal with our energy crunch without a huge expansion of our nuclear capacity, which sits at a lowly 20% of our power generation. France has already achieved 85%, followed by Sweden at 60% and Belgium at 54%. Unless you?re a nuclear engineer, you are probably unaware how far the technology has moved ahead in the last 30 years. The first generation produced the aging behemoths we now see on coasts and rivers, which used high grade fuel that would melt down if someone forgot to flip a switch. Think Chernobyl. Generations two and three never got off the drawing board. Generation four is known as a pebble reactor,? which relies on a new form of fuel embedded in graphite tennis balls that is just hot enough to generate electricity, but too weak to allow a disaster. This eliminates the need for four foot thick, steel reinforced concrete containment structures, which accounted for 50% of the old design?s cost. Low grade waste can be stored on site, not shipped to Nevada or France. I?ll write more about this fascinating technology later. The permitting process is being shortened from 15 years to four by confining new construction to existing facilities instead of green fields, urged on by a less fearful public and even some CO2 conscious environmentalists. At least 30 new reactors are expected to start construction in the US over the next five years, and over 90 in China. There is a great equity play here, and I would use any substantial dip in the market to scale in.? The Market Vectors Nuclear Energy ETF (NLR), which has jumped an impressive 78% to $25 since March, is the easiest way in. You can also buy its largest components, like Cameco (CCJ) (click here for their website), the world?s largest uranium producer, which has seen its stock clock a nice double this year. And you might start practicing your ?hustle? once again.

2) On my recent trip to Oregon I met with venture capital investors in NuScale Power, which is trailblazing the brave new world of ?new? nuclear. Their technology has been pioneered by Dr. Jose Reyes, dean of the School of Engineering at Oregon State University in Corvallis. This is definitely not your father?s nuclear power plant. The company has applied for design certification with the Nuclear Regulatory Commission for a mini light water reactor with a passive cooling system rated at 45 megawatts. The idea is to site a dozen of these together which in aggregate can generate 540 Megawatts, little more than half the size of the old 1 gigawatt monsters. Running a dozen small reactors instead of one big one makes for vastly easier operation and maintenance, as individual units can be brought on and offline as needed. Small size also eliminates the need for gargantuan, expensive containment structures. This power source runs at night, when solar and wind plants are offline. Modular design makes mass production of these units economical. Once certification, approval, permitting, and construction are complete, we can expect to see the NuScale plants running by 2018. After all, if something similar works in nuclear powered submarines and aircraft carriers, why not in industrial zones on the outskirts of town? For more on NuScale?s innovative efforts visit their website by clicking here .

3) Deal of the Day??General Electric (GE) has sold 529 wind turbines to Caithness Energy for $1.4 billion for construction of the largest wind farm in the US. The Oregon facility will generate 757 megawatts of power, almost the size of a conventional nuclear power plant. The power will come online from 2011 and will be sold to California. This will no doubt help local utilities like Pacific Gas & Electric (PGE), which has a state mandate to obtain 20% of its power from renewable sources by 2017. Europe has a 20% target by 2020, and China has a similar goal, but the US has no fixed objective, although 30 individual states do. America currently gets a miserable 6% of its energy from renewable sources. The long term trend towards renewables hit a violent air pocket in 2008-2009 as the financial crisis dried up funding. Just ask T. Boone Pickens about this and you?ll get an earful. Conditions are now easing, as this deal shows, but there are still huge obstacles, like the needed upgrade of the national transmission grid (click here for more background on the crucial Tres Amigas project). GE originally got into this business by buying the wind assets of Enron for pennies on the dollar. If you had any doubt that alternative energy is THE NEXT BIG THING, this is the proof in the pudding.

4) My guest on Hedge Fund Radio this week is Charles Nenner of the Charles Nenner Research Center in Amsterdam. Charles hails from Holland, and has a long career that includes stints at medical school, Merrill Lynch, Rabobank, and ten years at Goldman Sachs. He has spent three decades developing his proprietary Cycle Analysis System, which generates calls of tops and bottoms for every major market in the world. Charles developed a huge following after 2007, when he accurately nailed the top in the Dow at 14,500 and urged his clients to put on short positions when everyone else was predicting that the market would keep grinding higher. I have been following Charles daily research reports myself for two years, and found them to be uncannily accurate. Today, Charles Nenner counts major hedge funds, banks, brokerage houses, and individuals among his clients. You can find out more about Charles? work at his website at www.charlesnenner.com. Hedge Fund Radio is broadcast every Saturday morning at 12:00 pm Eastern time, 11:00 am Central time, 9:00 am Pacific Coast Time, and 5:00 pm Greenwich Mean Time. For the online link to the live show, please go to www.bizradio.com or click here , click on ?Listen Live!?, and click on ?Houston 1110 AM KTEK.?? For archives of past Hedge Fund Radio shows, please go to my website by clicking here.

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