Featured Trades: (WORLD SERIES)

1) From Your Mad Hedge Fund Trader Baseball Correspondent. What a game! Burp. The San Francisco Giants trounced the Texas Rangers 11-7 in what had to be one of the most exciting games in World Series History.

I spent the pregame completing my Christmas shopping for the year, feverishly buying commemorative baseballs, knit hats, and T-shirts at $40 a pop. China's trade surplus must be soaring. A Niagara Falls of beer was pouring out of the concession stands. The air was electric with enthusiasm.

Tony Bennett sang the Star Spangled Banner. The F-16's flew in formation 500 feet overhead right on cue. Nancy Pelosi and Mayor Gavin Newsome sat just below me, where else, but in the left infield.? In fact, a foul ball almost landed in the lap of the Speaker of the House of Representatives.

Starting Giants pitcher, Tim Lincecum, seemed to defy the laws of physics, using a slight, boyish frame to throw a sizzling 98 mile per hour fast ball. In the fifth inning the Giants were hitting them like they were playing T-ball, scoring six runs. Both teams looked like they had been cleaned out from a home for juvenile delinquents. Are baseball players getting younger, or am I getting older?

I missed heavyweight, Juan 'The Panda' Uribe, belt out a home run because I was stuck in the 30 minute line to get into the men's room. The red clad Texas Rangers cheering section went comatose, where else, but in the upper right field bleachers.

Tony Bennett then sang I Left My Heart in San Francisco during the seventh inning stretch. Both sides threatened to score in every inning. We spent virtually the entire game standing on our feet screaming our lungs out.

Many thanks to the San Francisco Bay Area readers who emailed encouragements to me throughout the game. To the Texas readers who sent messages like 'Yeeeehaaaaaa Texas' when they scored, a pox on your houses, homesteads, teepees, or wherever you live in that God forsaken land.

When Brian Wilson stuck out the last Ranger hitter, the fireworks went off over the bay. The city exploded into celebration, with cars everywhere honking their horns and cable cars ringing bells. Probably 100,000 poured out of packed bars into the streets for a huge nonstop party. Groping my way through the crowd, I almost got run over by the black GM Suburbans of Nancy Pelosi's Secret Service detail.

I almost fell asleep on the last train home. If I had, I would have ended up at the end of the line at Pittsburgh/Bay Point, where I would have gotten mugged and lost all of my $40 T-shirts. But I didn't. I'm back to Earth today writing this letter with the mother of all hangovers.

Yes, We Have Our Own Team Serial Killer

Featured Trades: (CONTEMPLATIONS ON RISK)

1) Contemplations on Risk. The S&P 500 has risen 11 out of the last 13 trading days. Everything in my portfolio is up 50% in the last four months, except for the rare earth stocks which are up 400%. My call that the global equity markets would launch into a surprise up move driven by better than expected earnings, sending shorts scrambling, turned out to be one of the best in my career (click here for 'My Equity Scenario for the Rest of 2010'). So far, 82% of reporting companies have surprised to the upside. It doesn't get any better than this.

Now that everything is ridiculously overbought on a short term basis, I have to ask: What can go wrong with this party? When will investors flip from 'RISK ON' to 'RISK OFF' mode? Should I pick up my ball and go home? I'm sorry, but I am one of those guys who believes that the higher prices go, the more risk they carry, and the more volatility they threaten. Most people believe the opposite.

I see three possible near term inflection points setting up for the markets:

I) The November 2 elections. A surprise Democratic win would send the markets into a tailspin. Much of the buying since august has been driven by an expected Republican takeover of the House of Representatives. If that doesn't materialize as promised, the punch bowl would disappear very quickly.

II) Year End. Many hapless financial advisors have bought the top of the market and then sold the bottom for the second year in a row. As a result, 30% of active managers are now underperforming the index. To catch up, they are buying this year's hottest stocks hand over fist, driving markets higher still. This is why you are seeing so much buying concentrated in lead names like Apple (AAPL), which now accounts for an amazing 20% of the NASDAQ. Flip the page on the calendar and all this buying may end.

III) End Q1, 2011. The QEII surge continues for another five months, the S&P 500 challenges this year's high of 1,240, and New Year cash allocations pour into the market. Then Bernanke says 'Ha Ha, fooled you! I'm not doing any QEII because you guys already did it for me!' We then run into a repeat of 2011 where six months of feast are followed by six months of famine. The 'double dip' scenario once again rears its ugly head. This is what lost decades are supposed to look like.

While I am not certain which of these three scenarios plays out, I know for sure what to do when one hits. 'RISK OFF' means the dollar and volatility go up, and stocks, bonds, commodities, currencies, food, and emerging markets go down. Retail participation in the equity markets shrinks to two guys sitting in rocking chairs on a porch in Arkansas waiting for their cable to get installed.

Don't kid yourself into thinking that you can hedge against these losses, or that diversification will protect you. We live in a binary, bipolar world, and the only hedge that truly works is cash.

Featured Trades: (THE WORLD'S LARGEST SOLAR PLANT)

3) The World's Largest Solar Plant. Unfortunately, I know Blythe, California too well. This natural blast furnace is in a God forsaken corner of the state where I hunted jack rabbits as a kid, the Indians survived on Gila monsters for protein, and it regularly reaches 130 degrees in the shade. It is also where Peter Fonda and Dennis Hopper crossed the 'bridge of no return' over the Colorado River in the cult flick Easy Rider. Blythe has unsurprisingly become ground zero for the global thermal solar movement, which I have been chronicling with great interest in these pages (click here for 'The Solar Boom in California').

The entire industry has just taken a quantum leap forward with the approval of a massive 2.8 megawatt plant to be built by Solar Trust of America, a joint venture between two European companies. It dwarfs the 392 MW plant to be built by BrightSource Energy which only received its own go ahead weeks ago. It is all part of a rush to start alternative energy projects before Federal subsidies from Obama's 2009 stimulus package expire at the end of this year. The Solar Trust project expected to qualify for $900 million in cash grants and additional loan guarantees from the Department of Energy.

The facility will deploy arrayed mirrors over 7,025 acres, or 11 square miles, aimed at a conventional steam turbine. This will generate enough electricity for 2 million homes, about 15% of the total in California. With the Tres Amigas facility in New Mexico coming online soon, this raises the possibility of the Golden State selling excess green, carbon free power to the rest of the West (click here for that piece).

Sorry guys, no equity play here. The new plant will be built and operated by privately held European companies that have been flocking to the US with their advanced technology to cash in on our generous subsidies. But it does make other publicly listed smart grid, transmission, and storage plays out there more interesting. It is all part of a huge, new alternative energy industry that is growing far faster than most investors realize.

Who Knew This Place Would Be Worth Something Someday?

Featured Trades: (NUCLEAR POWER), (EXC), (CCJ)

3) Is Exelon Building an Alternative Energy Conglomerate? Exelon (EXC) popped up on my radar a few months ago, when it bought the wind energy business from John Deere (DE) for $900 million. The company plans to cash in on a national trend by states requiring their power companies to obtain fixed minimum amounts of electricity from green, carbon free alternative sources.

California has the most ambitious goal, setting a 33% target by 2020 (click here for 'The Solar Boom in California').? Some 28 other states are following suit with lesser thresholds, and more are expected to follow. You would think wind is a bad place to invest on the eve of a Republican takeover of the House of Representatives that could herald the freezing or elimination of all alternative energy government subsidies.

In fact, wind energy is now competitive on a non subsidized basis in many parts of the country. That is what Google (GOOG) obviously thinks, since it recently committed to investing $5 billion in a massive offshore grid meant to harvest power from planned wind energy projects off the East coast.

There is another political angle to this story. Exelon already has a large established business maintaining nuclear power plants. The nation's 100 facilities are getting long in the tooth, some approaching 60 years old, and are in desperate need for modernization. Exelon already has contracts to upgrade 39 of these.

While the Republicans' alternative energy credentials leave something to be desired, they are big fans of carbon free nuclear, which I believe will be a crucial part of any long term energy solution. That's why you find top uranium producer Cameco (CCJ) is my model portfolio, which has soared a stunning 55% since August.

To top it all, (EXC) offers a whopping great 5.1% dividend, which effectively makes it a mid rated corporate bond in this low yield world. If you are looking for a low volatility name to add to your portfolio in this sector, Exelon might me a good one.

Getting Long in the Tooth

Featured Trades: (LUMBER), (WY), (CUT), (RYN)

4) The Monetization of Lumber. If you want to see how widespread the commodities boom has become, take a look at the lumber market, which has popped 47% since June. This is in the face of new home starts that are flat on their back, posting the worst numbers in modern history.

Suffice it to say that the lumber market has changed beyond all recognition. The monetization of lumber is now a big driver, as investors scour the globe for dollar alternatives and hard asset surrogates. China has stepped into the market as a big buyer, as it has everywhere else. You only need to spot some visitors from the People's Republic at a Chinese restaurant in Portland to tack another five cents on to lumber prices.

The strong loonie is pricing supplies from the Frozen Wasteland of the North out of the market. Prices are also getting an assist from the mountain pine beetle, where a long term draught is enabling them to devastate Western forests, cutting into supplies.

The US industry is much less elastic than it has been in the past, as so much capacity has been shut down and scrapped, thanks to the housing crisis. Add the lead lumber equity plays to your 'buy on dips' list of US commodity plays. These include the recently trustified Weyerhaeuser (WY),? the lumber ETF (CUT), and Rayonier (RYN).

Lumber Futures Have Been On Fire