1) Thanks, but no thanks! Goldman Sachs (GS) voted with a big thumbs down on the stock market today yesterday by issuing $5 billion in new equity at $123/share. Perhaps not coincidently, this gives the government a $1 profit on its holding in the venerated former investment bank. The move comes on top of the announcement of spectacular earnings of $3.39/share on revenues of $9.4 billion, double expectations, and a 150% rally in the stock since November. The deal was brought to market so fast it made your head spin. The money will be used as a down payment towards their $10 billion TARP repayment. Do you get the impression they are unloading this stock like it is a hot potato? Obviously they don't think the shares are going to rocket back up to last year's high of $200 anytime soon. Is it worth that much to get the Feds out of their hair? Those pay restrictions on senior executives have to be grating. And you can't imagine a greater culture clash than between the Masters of the Universe and the Treasury's white shirted, polyester suit wearing, bean counters. Or maybe GS thinks the market is peaking here and it's time to cash in their chips while they can. Windows these days are vanishingly small. Please pass the Vaseline.

2) Thanks to China's one child only policies of the past 50 years, and a cultural preference for children who grow up to become personal safety nets, there are now 32 million more boys under the age of 20 than girls. Large scale interference with the natural male: female ratio has been tracked with some fascination by demographers for years, and is constantly generating unintended consequences. Until early in this century, starving rural mothers abandoned unwanted female newborns in the hills to be taken away by 'spirits'. Today pregnant women resport to the modern day equivalent by getting ultrasounds and undergoing abortions when they learn they are carrying girls. The resulting shortage of women has led to an epidemic of 'bride kidnapping' in surrounding countries. Stealing of male children is common. Political scientists have long speculated that an excess of young men would lead to more bellicose foreign policies by the Middle Kingdom. But so far the choice has been for commerce, to the detriment of America's trade balance. Economists now wonder if the practice will also shave a few basis points off China's long term growth rate. Parents with boys tend to be bigger savers, so they can help sons with the initial big ticket items in life, like an education, homes, and even cars. It's not nice to fool with mother nature.

3) Martha Stewart picked up 350,000 followers in her first month on Twitter. Just telling her friends in less than 140 characters what she was having for Easter brunch generated a massive response. Too bad no one has yet figured out how to make money from this.

4) Sarah Palin, the possible future Presidential candidate, earned $125,000 last year as the Governor of Alaska. Tiny Fey earned $4.6 million convincingly imitating Sarah Palin on NBC's Saturday Night Live. Whoever thought laughs would be more profitable than campaign promises? Maybe Tina Fey is better at being Sarah Palin than Sarah Palin is? Go figure.

Many readers have asked me to review my recommendations of the last three months, so here is The Mad Hedge Fund Trader's Q1 report card. I have reprinted by January 4, 2009 Annual Asset Review and followed with comments in bold type.

Equities: UP

The collapse of the volatility index (VIX) is telling us that the horrific, gut churning, 10% daily moves are over. But equities are no longer a US play. Extracting the insane leverage of the last decade means chopping the US growth rate down from a booming 5% to an anemic 2%. This is not a strong argument to buy American companies, which is why most analysts only see the indexes recovering 10%-20% this year. You might just get tedious range trading after the late 2008 dead cat bounce. The real action will be in the BRIC countries, which will see upside returns double what you will get with the S&P 500. Buy Brazil's Bovespa ($BVSP), Russia's RSX (RSX), India's Bombay Sensex ($BSE), and China's FXI (FXI) or Hang Seng. And it may be time to spell BRIC with a 'K' by throwing in the Korean Kospi ($KOSPI) as a sweetener.

Grade: A After one more spike, the VIX collapsed from 50% to 36%, so a ton of money was made on short volatility and time decay plays. My call that the export sensitive BRICK's were a 'Buy' was a total home run, as they massively outperformed the US. Brazil is up 18%, Russia 29%, India 20%, China 18%, and Korea 20%. The S&P 500 is still down on the year by a miserable 3%. With 80%-90% of the world's economic growth expected to come from emerging markets over the next ten years, this trade has much, much further to run. If you want to be conservative and diversified, buy the iShares MSCI Emerging Market basket ETF (EEM), up 21% on the year.

Bonds: Treasuries Down, Private Debt Up.

As I have been vociferously arguing in these pages for months, US Treasury bonds are witnessing the final stages of an overinflated bubble, and you don't want to be anywhere near this asset class when it bursts. Take out the flight to quality and year end balance sheet window dressing bid from this market, and you have an accident begging to happen. Take in the long term inflationary impact of Obama's plans, and you have a 30 year contract which peaked at 142 last week that is really only worth 70. It's just a matter of time before massive government issuance buries largely foreign buyers. Throw in the 50:1 leverage offered by a long bond futures contract, and the profit potential of a short position is so enormous, there are not enough zeros on my calculator to total it up. Buy the Lehman 20 year plus ultrashort bond ETF (TBT). Unfreezing of the debt markets will move the prices for every other type of debt off of their current throw away levels. Buy corporates of every grade with a heavy weighting in junk, or fixed income securities backed by REIT's, emerging markets, credit cards, student loans, or subprime loans. A convenient way to do this is to buy the ETF's for the Lehman High Yield Bond Fund (JNK), the PS Corporate High Yield Bond Fund (PHB), and the iShares iBoxx Fund (HYG).

Grade: A+ My recommendation to short the Treasury's long bond was spot on, with the US Lehman 20 year 200% short ETF (TBT) soaring by 25%. With the government's printing presses running overtime, this is going to be your new free lunch. The junk bond ETF's PHB (up 6%) and HYG (up 1%) also were profitable, but did less well, as credit concerns linger.

Commodities: UP

After giving up almost all of their 21st century gains, virtually all commodities, including grains, softs, energies, and metals, are due for a recovery. A good part of the sell off resulted from the disappearance of financing, which is now slowly working its way back into the market. Now that newbie investors who never should have been involved, like pension funds, have bailed on this asset class, conditions are set for some serious base building. Commodities will be the principal beneficiaries of an epochal trend away from paper assets, towards hard assets, that will be the dominant investment theme for the next decade or two. Chinese and Indians still want to raise their standard of living faster than these substances can be grown, or ripped, or pumped out of the ground. Now Obama is adding America to the infrastructure build out story. A safe way to play this is through beaten down, dividend yielding, producing equities like Freeport McMoran (FCX) for copper, Chesapeake Energy (CHK) for natural gas, and US Steel (X) for steel and iron ore.?? But don't expect huge gains until we see signs of a global economic recovery by the middle of the year. Then watch out.

Grade A+ Commodities and their underlying stocks have been the place to be in 2009. You really couldn't miss, with grains, softs, energies, and metals all doing well. Freeport McMoran rocketed by 92% on a 45% move in copper.?? Oil is up 28%, and gold ran 17% before its current pullback. The only letdown has been natural gas, which due to supply and storage difficulties unique to this one energy source, has fallen by 30%. However, my stock pick in the area, Chesapeake Energy (CHK), jumped by a robust 23%. Again, this trade has a long way to run. While they stopped making almost everything in this recession, the world hasn't stopped making more people. They are all going to need to eat, travel on more roads, and live in more houses. The emerging market thirst for a higher standard of living is as strong as ever. Look for crude to move to $200/barrel on the next spike. Move your portfolio out of paper assets into hard ones.

Currencies: Dollar and Yen Down, Everything Else Up

Since we are smack dab in the middle of a six year trading range, I don't really have a handle on what the buck is going to do short term. Could we see $1.20 or $1.00 for the greenback in an event driven overshoot short term? You betcha! But longer term, the trend is still down. Obama's highly inflationary reflationary policies will eventually lead to an utter collapse in the dollar. If they are successful, the economy will recover, bringing Americans back to their old low saving, high consumption, high importing ways, adding fuel to the fire. Don't bet against the 45 year trend. No one ever got rich betting against the US consumer. Expect to pay $2.00 for a Euro in the years ahead. Take that European vacation now!

Grade: Pass Since I really didn't take a view, I don't deserve a grade. In fact, the euro is dead unchanged year to date at $1.33, keeping to a pretty boring range of $1.25 to $1.37. But the collapse of the dollar is a mathematical certainty resulting from current US government policies, and may be the trigger for the world's next big financial crisis.

Real Estate: Down

With markets still deleveraging, and the son of subprime, the Alt-A loans on our
doorstep, real estate is dead money at best. Although the cost of carry for home ownership is rapidly approaching equivalent rental costs on an after tax basis, fewer and fewer buyers are qualifying for loans. Add 1.2 million unsold homes from builders, to three million existing homes already on the market, and you have a staggering 4.2 million homes for sale in the US. There are at least another two million homes being held off the market waiting to smack down any recovery in prices. This is 7% of the total American housing stock. Probably 20% of US homeowners are underwater on their mortgages, and they're not buying anything anytime soon. We also have an impending crisis in commercial real estate generating lots of mall bankruptcies and empty retail space to deal with. Remember, 'debt' is a four letter word. I don't see a meaningful recovery in residential real estate for five years, and then it will be a slow claw back at best.

Grade: A+ Although we don't have the benefit of a daily closing price in the Wall Street Journal every day, I think it's safe to assume that all sectors of the real estate market have continued their death spiral this year. Stay away. Rent, don't buy.

Final Grade: A I am sticking to my guns on all of my core trades for 2009. Call me what you want. You can even call me 'Mad'. Is anyone looking for a new money manager or financial advisor?

1) I bumped into Jim Lehrer last night, the legendary anchor of 'The News Hour With Jim Lehrer' on PBS, as he breezed through the San Francisco Bay Area promoting his 22nd novel, 'Oh, Johnny'. The ex-Marine, whose first big story was covering the Kennedy assassination in Dallas, had some cogent observations on the current demise of the US newspaper industry.?? Print media have traditionally been the originators of the news, the guys who went to the city council meeting and took copious, accurate, notes. For this, the paper got full page ads from the local car dealers and every other retail business. Now the car dealers are going under. The proliferation of new media, from radio to TV, the Internet, and smart phones means that the monetization of this content has moved downstream to be reaped by others. Talk radio, weekend news programs, comedy shows, even congressional debates, and yes, blogs (guilty), are feeding off of this news cornucopia for free. The originating newspaper maybe gets a penny of each dollar of revenue spawned by their stories. Newspapers now have no choice but to cut costs by firing journalists and moving online. Thomas Jefferson said that 'an informed electorate is essential for a democracy'. The big question is, when all the journalists are gone, where will the news come from? I have suspected all along that Truth, Accuracy, and Neutrality will be the big casualties of all of this. They will go the way of the full service gas station, free check in luggage on airlines, and home delivery of newspapers by teenage boys on bicycles.

2) Pulte Homes (PHM) is buying Centex (CTX) for $1.3 billion, net of all the debt they are acquiring in a stock only deal. Centex stock is up 33% on the news. This is a bold move in that it creates the nation's largest home builder.?? I wonder how many finished, but unsold houses they are getting? And undeveloped land? A spate of takeovers like this, where the strong take over weak, overleveraged players, consolidating the industry, is a classic sign of a market bottom.

3)?? If stocks sell off from here you should get a rally in Treasuries that will be ripe for selling into. There is no way that investors are being compensated for their risk with yields at these levels, especially with massive global government reflationary efforts guaranteed to bring a resurgence of inflation. I think the futures contract on the long bond will collapse from 127 now to inder 70 in three years, once hyperinflation hits. With the leverage offered by a futures contract, the returns will be huge. However, this is not a riskless trade. There have already been several rounds of stop loss buying by traders who jumped into this strategy too early, as unimaginable buying kicked in at 120, 125, 131, 136 and finally 141. In Japan the ten year bond eventually hit a low of 0.46%, making our ten year at 2.85% look incredibly expensive. That works out to a futures price of 200 or more. Of course we are not Japan. The Treasury has done more to repair things in 60 days than Japan did in 15 years, and Japan has still not adopted full mark to mark accounting. Some 19 years after their bubble burst, the country is still seeing subpar growth, and ten year yields have made it back up to only a measly 1.25%. There are also constant games going on in the bond futures markets like expiration plays, engineered short squeezes in the underlying, and bogus news leaks. PIMCO, the Newport Beach based Pacific Investment Management Company, the world's largest private bond investor, plays this market like a violin. Still, I think it's worth a shot. Take another look at the Power Shares Lehman 20 year plus ETF (TBT), which gives you a 200% short on the sector. This will be the last bubble we can short into for a long time.

4) Jeffrey Schwartz, for the former CEO of the global logistics and warehouse firm Prologis (PLD) is not looking for a quick recovery of the economy, and sees a lot more pain for his industry. The firm suffered a near death experience last year and was only able to extricate itself with the sale of some Asian assets.?? Prologis is the world's largest developer of commercial warehouse space, and a leading manager of REIT's. The Denver based company employs 1,500, managing 2,898 properties, totaling 548 million square feet in 115 countries. It had been a highly leveraged call on the growth of international trade, which is now imploding with unprecedented speed. PLD's growth focus is still on China, where it has 38 million square feet of space, and land commitments to double that. It is investing $1 billion there over the next two years, counting on a government commitment to support the logistics sector. Investors certainly believe it. The stock has roared 57% in the last ten days. The company has announced that it is using the rally to issue new shares to wisely reduce its insanely high levels of debt. This will dilute existing shareholders by 50%, but hey, half of something is better than nothing, isn't it?

QUOTE OF THE DAY

'You can't swing a cat in the US without hitting a barrel of oil,' said Stephen Schork of the Schork Report, an energy newsletter.