1)???? ??Call me an optimist, but I am starting to see crocuses of economic recovery busting out all over. Long side traders now have a spring in their step after a 23% rise in the Dow in three weeks, the best move since 1938. If it is true that the stock market anticipates moves in the real economy by six months, then a lot of managers are going to come back from their summer vacations in September to find a surprising batch of new orders. Commodities have been on an absolute tear this year, especially oil and copper, classic harbingers of future business activity. Just look at my favorite, Freeport McMoran (FCX), which soared 170% from the November lows. The downward momentum of a whole range of economic indicators is slowing. The durable goods number was actually up last week! The mother of all inventory adjustments is almost over. Retailers are still offering the deals of the century, but there is very little left in the back room. The Baltic Dry Shipping Index has tripled off of its November low, hinting that international trade may come out of its comatose condition. And they are no longer looking for organ recipients for the major airlines. Now I hear that semiconductor makers are expected to make their Q1 targets. Maybe it's because spring has arrived, and the girls on the Embarcadero have shed their overcoats for low cut tank tops. Or maybe the $4 trillion in global stimulus is starting to have its desired effect.

2) 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.

3) Natural gas ($NATGAS), which peaked at $13.50/btu last year, has become the red headed step child of the energy complex, plunging a gut churning 72% to a low of $3.75. To see demand this weak coming out of a cold winter is nothing less than stunning. The credit crisis has forced US companies like Chesapeake Energy (CHK) and Devon Energy (DVN) to scale back exploration, so the US rig count had dropped by half. The price collapse is welcome news for consumers, as NG is an essential raw material for making naphtha, fertilizer, and plastics and accounts for 20% of US electric power generation. It also is a favored fuel of the green crowd, as the only products of its combustion are carbon dioxide and water. The industry was making the leap from a domestic industry to a global one just the global recession punched it right between the eyes. The completion of six liquefaction plans in Qatar, Russia, Indonesia, and Yemen costing $48 billion is expected to boost global production by 25% this year, and more big plants are coming on stream in the near future. If I'm right, and those really are crocuses out there and not some florid hallucination, then it's time to load the boat with NG.

4) AIG has become such a despised company that the children's' TV program 'Sesame Street' has removed the letters. 'A,' 'I,' and 'G,' from the alphabet.

QUOTE OF THE DAY

'A fool with a plan can outsmart a genius with no plan,' said oil man turned environmentalist T. Boone Pickens.

1) 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.

2) For Woody Allen's take on the Madoff scandal, look at the Shouts and Murmurs column on page 29 of the March 30 issue of The New Yorker magazine. On learning of the total loss of their life savings, two of his elderly investors die of heart attacks and are reincarnated as two pound lobsters. While sitting in a tank in a Third Avenue restaurant bemoaning their imminent fate with a light butter sauce who walks in for dinner, but Bernie! I'll leave it to you to see how this ends with tears at http://www.newyorker.com/.

3) The one screaming buy out there now are the emerging markets. The US, Europe, and Japan are now committed to spending trillions of dollars to shock the global economy back to life. This is costing the emerging economies nothing, and gives them a free ride back to prosperity. IT turns out that the smaller economies are financially better off than the big ones, with a decade long export boom blessing them with massive foreign exchange reserves and little debt. China, Russia, India, Brazil, and Turkey will be the big beneficiaries. You can buy the specific ETF's for these countries, or go with the generic iShares MSCI Emerging Market ETF (EEM), which has already started to outperform US markets in a big way. It's a once in a century opportunity to buy the highest growth corners of the world's economy at severely knocked down prices.

QUOTE OF THE DAY

'I'd rather consult a trader than a mathematician,' said former Fed chairman Alan Greenspan when considering the best way to assess risk.

1) 'I said a few months ago that Washington was all in. We are now all in squared. The FDIC, Fed, and the Treasury are making a concerted effort to turn deflationary swamp water in inflationary wine.'?? Ah, Paul McCulley, man of Virginia, you have such a way with words. PIMCO must love you. I agree.

2) If you want to get an inkling of Obama's new out of the box foreign policy weapon, listen to President Obama extended to Iran in an unprecedented YouTube New Year's greeting beamed directly to the people of Iran. Check out the link at http://www.youtube.com/watch?v=yft9ZCe3VCw. He said that Iran was a 'great nation that should join its rightful place in the community of nations', and that 'It's great and celebrated culture has made the world a better place'. The US is committed to diplomacy with the Islamic Republic of Iran, which should not pursue terrorism.?? He signed off with a Persian salutation, which was nothing less than stunning. One can't imagine a more radical departure from the Bush doctrine, which got the US nowhere for eight years. No one has benefited more from tragic American missteps in the Middle East than Iranian extremists. This now puts the spotlight on Secretary of State Hillary Clinton's carrot and stick approach to get Iran to dump its nuclear program. If it fails, she can use our new found moderation to recruit European allies to impose sanctions if the Islamic republic goes all the way. The only reason I care about this is that fresh troubles with Iran could trigger an instant $30 spike in crude prices on a bad day. This would send global markets tumbling, send gold through the roof, and snuff out any prayer of a recovery from this ghastly recession.

3) Satanists, occultists, and Tarot cards readers who follow the market closely (yes, there are some), called the S&P market bottom one point above the sign of the devil at 666. Does this mean my performance will improve if I draw a pentagram on my front door and engage in ritual chanting?

4) On of the stellar performers in the commodity space this year has been copper, up 50% to $1.87 since December. Heavy and secretive stockpiling of the red metal by Chinese, which accounted for a third of the world's 18 million tonnes of consumption last year, has been a main driver. Of course, we are still less than half the $4.10 peak seen last year. But copper is the only commodity that has a PhD in economics, and when it flies, prudent hedge fund managers have to pay attention. As a predictor of future economic activity, it can't be beat.

5) I'll tell you what GM's problem is. My dad was a lifetime GM customer, religiously?? buying a new Oldsmobile every five years. Once he even flew to Detroit for a factory tour and drove his new prize home. Thirty years ago I told him he was doing GM no favors by buying their cars, and the only way to force them to improve a tragically deteriorating product was to buy better made German and Japanese vehicles. This was right after the State of California forced auto makers to install seatbelts on new cars. Airbags and ABS brake systems were still years away. His response, 'I didn't fight the Japanese for four years so I could buy their cars.' (He was a Marine). GM's problem is that my Dad passed away seven years ago. Of the original 17 million WWII veterans, 1,500 a day are dying, and there are only 1.5 million left. All of them loved Detroit because it built great Jeeps, Sherman tanks, and half tracks that brought them home from harm's way. Their kids prefer German, Japanese, Italian, Korean, and soon, Chinese and Indian vehicles. It is no coincidence that GM's problems really accelerated with the passing of the 'greatest generation.' During the last 35 years, when Japan's share of the US car market climbed from 1% to 40%, I begged GM to mend their ways and build a quality, price competitive product that Americans wanted to buy. They answer was always the same: 'Nobody can tell GM how to build cars.' Maybe someone should tell them.

QUOTE OF THE DAY

'The children of Adam are limbs to each other, having been created of one essence,' said President Obama, quoting a famous Persian Poet in his Internet New Years greeting to Iran. Whoa! Heavy!

1) I thought President Obama did a pretty good job with comedian Jay Leno last night. With some pundits already pronouncing his administration a failure, he has the moxie to appear on a late night talk show. For the last eight years, presidential visits to California have been about as frequent as Bigfoot sightings. You can diss all those rumors about Treasury secretary Tim Geithner resigning anytime soon. After 59 days in the White House his bowling score is up to 129. All of his favorite picks for the Final Four basketball championships were in politically sensitive swing states (North Carolina, Indiana, Iowa). While playing basketball, he doesn't get knocked down as much while the secret service is watching, guns at hand. Obama still has the magic touch, speaking with the deliberateness of a trial lawyer, but with the folksy charm of your local barber. One thing is for sure though. Your taxes are going up, baby.

2) There have been 14 bear markets in the postwar period with an average 25% decline. This bear market is down 58%, and it still may have farther to go. No wonder everyone's risk models are blowing up. This time it really is different. Over the last 100 years the average return on stocks has been 10% a year, with 40% of that coming from dividends. Today there are dozens of prime industrial companies offering dividends rates in the mid teens. Why investors are not loading the boat with General Electric (GE) stock yielding 12% at $9/share is beyond me. Take systemic risk out of the equation, and investors will leap at these.

3) Since you do 50% of your business while driving your car, you'll love this new product from the Canadian company Ilane. A combination of a small dashboard box, Blackberry, and blue tooth earpiece permit verbal commands to open your email and have it read to you by a seductive female voice. You can respond with canned answers like 'in transit'. You can also have a short verbal response recorded and then sent as an attached MP3 file. You can have all of this for $600 and an $8 a month subscription fee. It works great as long as your various talking mobile devices don't get in an argument with each other.

4) Private equity funds bemoaning the disappearance of the once lucrative LBO market are migrating en masse to distressed debt as their new raison de etre. Yields of 25% are now common, but this is no market for dilatants. The 4.6% default rate seen at the end of 2008 is expected to soar to 13%-18% by the end of this year. Players are going to need industrial strength research departments, abundant bankruptcy law capability, and expert trading desks just to find this illiquid paper. But with a modicum of leverage their may be able to attain returns for investors that restore them to their former glory.

5) The median home price in the San Francisco Bay Area has fallen to $295,000, a ten year low. This is down 56% from the $665,000 peak seen in July, 2007 (it seems like only yesterday). Sales are up 25% YOY, fueled by a tidal wave of foreclosures and cheap FHA financing. If prices fall further this place might even become affordable. Too bad you can't live off of the sunshine here.

QUOTE OF THE DAY

'Stocks are not bought on Wall Street, they're sold', say seasoned brokers.