1) Reformed oil man, repenting sinner, and borne again environmentalist T. Boone Pickens says that ?when we turn the US green, it will have the best economy ever.? I met the spry, homespun billionaire at San Francisco?s Mark Hopkins on a leg of his self financed national campaign to get America to kick its dangerous dependence on foreign oil imports. For the past 30 years, the US has had no energy policy because ?no one wanted to kick a sleeping dog.? Production at Mexico?s main Cantarell field is collapsing, and will force that country to become a net importer in five years. Venezuela is shifting its exports of its sulfur laden crude to China for political reasons, once refineries in the Middle Kingdom are completed to handle it. Unfortunately, the collapse of energy prices since June and the disappearance of credit have put urgent alternative energy development on a back burner, with his preferred natural gas (NG) taking the biggest hit. If the US doesn?t make the right investments now, our energy dependence will simply shift from one self interested foreign supplier (Saudi Arabia) to another (China). Wind and solar alone won?t work on still nights, and can?t power an 18 wheeler. Don?t count on the help of the big oil companies because they get 81% of their earnings from selling imported oil.The answer is in a diverse blend of multiple alternative energy supplies from American only sources.? Although Boone now has Obama?s ear, it?s a long learning process. Boone has donated $700 million to charity, and says the 20,000 trees has planted should offset the carbon footprint of his Gulfstream V. I worked with Boone to organize financing for a Mesa Petroleum Pac Man oil company takeover in the early eighties, when it was cheaper to drill for oil on the floor of the New York Stock Exchange than in the field. Now 80, he has not slowed down a nanosecond.
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2) There is an easier, cheaper, and faster way to solve the banking crisis which no one is talking about on Capitol Hill.? If collateralized debt obligations (CDO?s) are the problem, just get rid of them! Desecuritize them! Just convert them back into the underlying loans. There are $1.4 trillion in CDO?s outstanding backed by Alt-A and subprime loans in the form of 3,700 individual securitizations of perhaps 3.7 million loans. Over 68% of the loans backing these bonds are current.?? Mark to market rules are forcing the banks to carry this paper on their balance sheets at 50%-80% discounts. The problem is that mark to market is a meaningless accounting fiction when there is no market. If you break up these securities and place the underlying loans back on the banks? balance sheets, the good mortgages can be valued at 100% of face, and those behind in their payments or in default can be discounted to maybe 70% because they are still secured by the value of the homes. This would boost the value of the entire asset class from the current 20-50 cents up to 90 cents on the dollar. Restored balance sheets would enable banks to resume lending. Of course it would be a massive admin job unwinding the rats? nests behind some of these securities, but Heaven knows there is abundant subprime and Alt-A expertise available for hire these days. Just sift through the ashes of Lehman Brothers and Bear Stearns. It is a workable plan, and therefore is unlikely to ever see the light of day.
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3) Ian Bremmer, President of the Eurasia Group, the world?s preeminent independent risk control consultant, passed through town last week to promote his latest book, The Fat Tail: The Power of Political Knowledge for Strategic Investing.The book details how money managers must become cognizant of and deal with foreign laws, regulation, government turnovers, civil unrest, expropriation,terrorism, and war, in order to survive in this increasingly complex and interconnected world. Globalization has ground to a screeching halt. Governments are now more important than multinationals in influencing our economic future, and a new form of ?state capitalism? is emerging. We are shifting from a unipolar to a non polar world. Iraq is morphing from war into a peace keeping operation, while Afghanistan is rapidly moving in the opposite direction. Geopolitical risks are rising. With crude at $52 a barrel there is no Iran premium currently in the market, and $20-$30 could price in very quickly. China and Brazil are the long term winners in the new set up, and the dollar is the big loser. The greatest risk to the US is its over dependence on borrowing from China. This is a must read book for any hedge fund manager struggling with his global risk exposure and looking for some great long term plays.
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4) Symantec says that 15,000 to 20,000 new viruses are being created every day, forcing it to upgrade its software every five minutes. Google admits that one out of every 100 searches connects with a virus infected website. There is no prominent website that has not been affected, including www.obama.com President?s grass roots organizing website. Many of these are created by Russian cyber gangs, where boys as young as 14 can earn up to $30,000 a year.There is no local enforcement in the former Soviet Union as the victims arepredominantly ?rich? Americans.
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QUOTE OF THE DAY

?The depression is over,? said President Herbert Hoover in May, 1930. It still had eight more years to run.

1) Ahem. Excuse me. Did someone out there say sell in May and go away?. Do I sense that risk is coming back into the market? Is it time for a reality check? Helloooo! Crude at $60? Take a look at your charts and you will see a whole host of them rolling over from nosebleed territory and dying on withering volume. You can start with the S&P 500, the DAX, the Nikkei, and go on to the dollar. These markets have summer written all over them. The flip side is that gold and silver have been positively perky, and the train wreck that has been long Treasuries are way overdue for a short covering rally. 'Things could be worse' was never a great argument for a new bull market. The dead cat has bounced. If ever there was a time to keep your powder dry it is now. The wafting scent of Coppertone beckons.

2) At the Harvard Business School they teach you that bond holders are senior creditors, followed by preferred stock investors and ordinary equity owners.?? A former community organizer from Chicago has taken over the role of a bankruptcy judge and upended this precedent. We are now learning that the 'prepackaged bankruptcy' of General Motors (GM) is Obamese for screwing bond investors, who are being stripped of their rights, so the United Auto Workers can have a booby prize. For years, widows, orphans, and pension fund investors regularly flocked to GMAC debt to capture the 400 basis points over Treasuries they offered. Now we know why. The last time I checked, the bond holders were only being offered 28 cents on the dollar, compared to the 43 cents the employee health care trust is getting; plus, they get control of the company. No wonder the hedge fund owners of the bonds prefer a normal bankruptcy. At least they would get the factories. But they are doing better than unsecured creditors, who are getting a mere five cents on the dollar. The trashing of bond holders' rights makes a mockery of 400 years of contract law, and is not exactly the right signal to send when you are betting the future of the country on selling gargantuan quantities of more bonds to finance exploding federal deficits.

3) Travel guru, Arthur Frommer, says that now is the best time to travel in 20 years, thanks to a combination of a strong dollar and desperate price cutting forced by the recession. One year after oil hit an historic peak at $148/barrel, when $500 fuel surcharges abounded and the demise of the travel industry was widely predicted, costs in some countries, like Mexico and Costa Rica are 50% lower than a year ago. Talk about price elasticity with a turbocharger! Frommer believes there are three sea change trends going on today. Business is moving away from the big three travel websites, Travelocity, Orbitz, and Priceline, who have more preferential side deals with airlines than can be counted, towards pure aggregator sites that almost always offer cheaper fares, like Kayak.com, Sidestep.com, and Fairchase.com. There is a move away from traditional 48 person escorted bus tours towards small group adventures, like those offered by Gap Adventures, Intrepid Tours, and Adventure Center, that take parties of 12 or less on eye opening public transportation. There has also been a huge surge in programs offered by universities that turn travelers into students for a week to study the liberal arts at Oxford, Cambridge, and UC Berkeley. His favorite was the Great Books programs offered by St. Johns University in Santa Fe, New Mexico. He says that the Internet has given a huge boost to international travel, but warns against user generated content, 70% of which is bogus, posted by the hotels and restaurants themselves. The 79 year old Frommer turned an army posting in Berlin in 1952 into a travel empire that publishes 340 books a year, or one out of every four travel books on the market. I met him on a swing through the San Francisco Bay Area (his ticket from New York was only $150), and he graciously signed my original 1968 copy of Europe on $5 a Day, which was crammed in my backpack for two years. Which country has changed the most in his 60 years of travel writing? France, where the citizenry have become noticeably more civil since losing WWII. Bali is the only place where you can still travel for $5/day, although you can see Honduras for $10/day. Always looking for a deal, Arthur's next trip is to Chile, the only country he has never visited, because the currency there has crashed.

4) Take a look at the recent performance of Brazil's Bovespa stock index, which I strongly recommended on February 4. It has jumped a healthy 68% since the March low, and gives credence to my theory that when global stock markets recover, emerging markets will rise twice as fast as developed ones. The best effort the Dow could mount was 33%, and even that is looking pretty wobbly now. There is really only one global stock market now that moves in the same direction most of the time. Only volatility varies country to country, and when conditions are good you want to own the most volatile, high beta ones. Look at the ETF for Brazil (EWZ), which offers the best of all worlds, an oil and food exporting emerging market with big cash reserves and a strong currency.?? Also on your shopping list should be the ETF's of other young natural resource exporting countries like Canada (EWC), Australia (EWA) so you can cash in on the long term trends in favor of commodities. When it comes time to be bullish on equities again, this is where you want to be long.

QUOTE OF THE DAY

'Don't forget my brain tumors,' said Arlen Specter, when listing the infirmities that will challenge him as a new Democratic Senator, having just defected from the Republican party.

1) If you don?t rush out and buy silver right now at $13.70 an ounce, I?m going to pick you up and shake you by the lapels of your coat until your false teeth pop out and fall clattering to the ground. Take a look at the chart below and hold in wonder the definitive break out to the upside from its recent tedious range. The trigger is a selloff in global stocks from their recent heady nine week run. The metal is at the low end of its historic valuation relative to gold, which has ranged between 12:1 (Remember the Hunt Brothers?) and 70:1m and is currently 65:1. Geologically, silver is 17 times more common than the yellow metal. All of the gold ever mined is still around, from King Solomon's mine, to Nazi gold bars in Swiss bank vaults, and would fill two Olympic sized swimming pools. But most of the silver mined has been consumed in various industrial processes, and is sitting at the bottom of toxic waste dumps. Silver did take a multiyear hit when the world shifted from silver based films to digital photography during the nineties. Now rising standards of living in emerging countries are increasing the demand for silver, especially in areas where there is a strong cultural preference, as in Latin America. That means were are setting up for a classic supply demand squeeze. I think we could run from the current $13.70/ounce to the old high of $50/ounce in the next economic cycle. Since silver can trade with double the volatility of gold, this forecast could prove conservative.

2) There are now more cell phone only households in the US than land line only homes, according to the Center for Disease Control. Those who only have cell phones jumped from 7.3% to 20% since 2005, while land lines fell from 34.4% to 17.4%. Most generation 'Y' customers have never had a land line, and probably never will, and are even abandoning voice communication for Facebook, Twitter, and texting. 'Cord cutting' really took off when cheap and effective wireless routers hit the market a few years ago, and land lines, with their high costs may eventually become a dinosaur. The CDC originally got in the cell phone business in an effort to research claims that the devices cause brain cancer or any other number of maladies. The research has proved so popular with industry, it has been continued and expanded. The brain cancer was never found.

3) Five to six million students are expected to graduate from college this spring. Only 30% are believed to have nailed down jobs so far. I doubt these kids put on an average of $40,000 in debt so that could ask customers if they want french fries with their big macs. The best thing they can do now is to go for their Masters degrees, if they can get the financial aid.

4) With money pouring into equities, another window is opening for investors to go into Treasury Inflation Protected Securities (TIPS). If you believe that imminent and massive Treasury issuance is going to pop the Treasury bond bubble, and that Obama's reflationary policies are long term inflationary, you have to be looking at what TIPS offer. Investors get a US government guaranteed protection against future price hikes by raising the security's principal in line with the inflation rate. A 3% coupon TIPS facing a 10% inflation rate automatically boosts the face value of your bond from an issue price of 100 to 110, giving you a total return of 13%. You can buy these directly from the US Treasury, or buy the iShares Lehman TIPS Bond Fund (TIP). Of course this is all based on the government's calculation of the inflation?? rate, which we all know is rigged, and has massively understated the true inflation rate for decades. But some protection is better than none. The best time to buy flood insurance is at the end of a long drought.

QUOTE OF THE DAY

'I'm used to a market that trades off of hard data, not one that is blindfolded and walking across the interstate,' said David Bahoric, at Trade the News about the recent run up in the stock market.

1) Has anyone noticed how boring things have gotten, or is it just me? After enduring 1,000 point daily ranges in the Dow, a volatility index at 88%, and blue chips stocks going to zero, maybe my nerve endings are scarred. Has it suddenly become safe to take my entire net worth out of the coffee can I have buried in the back yard, under the garden gnome? Maybe my inner adrenaline junkie will be appeased Friday morning when the April nonfarm payroll is released. My guess is that we will get a depressing figure showing that another 600,000 plus souls have joined the ranks of the downtrodden. Certainly the markets are bracing themselves for something horrific. If I'm wrong, a less awful number will rally the markets and define a new higher limit to our trading range.

2) If you need further proof of where the future growth in the global economy is coming from, take a look at the Chinese Internet firm Bidu (BIDU), the Google of China, which I strongly recommended on March 6 (check my online archives). It has since jumped 85% to $250, and has been one of my better calls of the year. In the meantime, our Google (GOOG) rose by only 35% to $400, almost in line with the S&P 500. These two hedge fund darlings are best of breed companies, but the Chinese one outperformed the American counterpart by a factor of 2.5:1. This is the consequence of the US economy making a permanent shift from a 5% growth rate to 1.5%-2%, and is a pattern you can expect to see repeated around the world for the next decade. The cruel truth here is that American companies with the drag of a mature economy will never command the same multiples of Chinese ones. Expect huge growth of the four horsemen of the Chinese Internet sector, which?? includes Netease (NTES), Sina (SINA), and Sohu (SOHU), have done as well as BIDU, and who are going to eat our lunch.

3) We are gathering a head of steam towards our next financial crisis, even before the current ones are solved. The perpetrator will be new financial product du jour, the super leveraged Exchange Traded Funds (ETF's), which are being created at a breakneck rate, sucking in billions of dollars from investors. ProShares has filed for 94 funds, which offer traders 300% long or short plays in markets as diverse as the Russell 1000 Index, the MSCI Malaysia Index, and the Nikkei 225 stock average. Direxion has gathered $3.4 billion with 16 different 3X funds launched since November. There are now more than 800 ETF's, and I have been a big fan of?? those for emerging markets (EEM) and short Treasuries (TBT), which allow investors to take positions in niche sectors and foreign markets which are otherwise difficult or expensive to get into. These also allow mutual funds the only means to go short, and include tax advantages and hedging opportunities. But the leveraged versions include risks that most buyers don't fully understand, even if they parse through the voluminous prospecti with a magnifying class. They promise their triple tracking only for the day you buy it. Beyond that, the tracking error can be huge. The mechanics of these funds force them to be buyers of every rally and sellers of every dip. Over time, leveraged short funds can actually suffer large losses, even in falling markets, and vice versa. It is just a matter of time before one of these goes to zero, wiping out investors. They are already being blamed for an increase in market volatility in the last hour of trading. Gaming sector ETF's has become the new blood sport for nimble hedge funds. You can expect a replay of a movie you've seen before. At the first sign of trouble, liquidity will disappear, auditors will mark them down to nothing, and suddenly the whole world will be for sale. Sound familiar? You have been warned!

4) In case you missed it, the second hand animal market has crashed. Forced to slash budgets by cash starved municipalities, the nation's public zoos have been paring back their collections of living exhibits. The Washington Zoo is trying to offload a 7,000 pound hippopotamus, while the San Francisco Zoo is short some tigers after one ate a visitor last year. The Portland Zoo was able liquidate a portfolio of lemurs only because of the popularity of the recent DreamWorks' 'Madagascar 2' animated film.?? When zoos are forced to economize, they downsize the big eaters first to save on feed costs, hence the absence of elephants in San Francisco (could this be a political gesture?). The hardest to move? Baltimore has been trying to sell its snake collection for two years now. Talk about an illiquid market. Maybe they should try AIG. Snake derivatives anyone?

QUOTE OF THE DAY

'Pass this package by tomorrow, or we won't have an economy on Monday,' said Fed chairman Ben Bernanke at the Treasury's emergency meeting in October.