Featured Trades: (SOLAR ENERGY PARITY), (FSLR)

3) Solar Energy is Poised to Achieve Cost Parity. After two years of relentless cost, the solar industry is about to reach the Holy Grail of parity with the cost of conventional power sources at around 10 cents per kilowatt hour, paving the way for and exponential growth in profitability.

For those of us who have been cheerleading this industry from the sidelines since the 1973 oil shock, it has been a long and tedious wait. We have traveled the long and winding road from primitive roof mounted water pre heaters to advanced thin film technology, with endless political battles along the way against frequently hostile and tight fisted administrations in Washington.

You can thank Germany, a country that ironically often lacks sunlight, where individuals and local utilities alike are putting the pedal to the metal to cash in on generous government subsidies. The goal is to push the Fatherland's alternative energy supplies from the current 12.5% of total generation to 20% by 2020. Local sources tell me that installed rooftop solar panels are expected to double this year.

Several US states have similar mandates. California, which has the lofty goal of 30% for alternative power, has just approved the building of a massive solar facility in the Mohave Desert just North of Los Angeles.

The net net is higher volumes and prices than the solar industry was expecting only six months ago. This will enable the big players in this space to wean themselves off of subsidies, stand on their own feet, attract more private capital, and shrink costs further through economies of scale.

Part of the economization story for American companies involved the offshoring of a substantial part of its manufacturing to China. It didn't hurt that the Middle Kingdom signed a contract with First Solar (FSLR) to build an enormous one square mile plant in the Western part of their country, which looks an awful lot like our Southwestern desert, to gain advanced technology. They no doubt also sought to defuse the threat of anti-dumping actions in the US against their own manufacturers.

I think the earnings leverage in this industry is now huge, and any upturn in oil prices, which I expect over the long term, will act on profitability like a shot of steroids. Equity investors have recently figured this out and have broken (FSLR) out of its recent range to the upside. Buy (FSLR), which has lived in my long term model portfolio for some time, on any serious dip.

-

Featured Trades: (WALL STREET)

3) An Insider's Review of Wall Street: Money Never Sleeps. One of the great things about flying first class is that you often get to meet some pretty interesting people. During the early eighties, I found myself on a flight from Los Angles to New York sitting next to an unknown aspiring young director named Oliver Stone, who was on his way to pitch a new film idea to potential investors.

Over six hours I enjoyed one of the most interesting conversations of my career, covering jungle combat in Vietnam, the ins and outs of movie making, and the harsh realities of Hollywood style accounting. The movie he was pitching turned out to be the 1987 industry cult classic, Wall Street.

The film sparked one of the greatest guessing games of all time, with everyone attempting to identify the real people behind the fictional characters. The villain, Gordon Gekko, was easy. That was Ivan Boesky, a risk arbitrageur who became the target of one of the first high profile insider trading case. Other links with reality were more obscure, and many real life traders on the floor of the NYSE simply played themselves as extras.

In the sequel, it is much easier to play who's who, thanks to the financial crash that seems like was happening only yesterday. Gordon Gekko, released from federal prison, this time turns into legendary hedge fund manager John Paulson, whose character turns $100 million into $1.2 billion in a matter of months through buying up cheap credit default swaps on subprime debt. Hank Paulson and Tim Geithner are easy to pick out in a crucial meeting at the New York Fed. The chairman of 'Keller Zabel' (Bear Stearns), one 'Louis Zabel' (Ace Greenberg), throws himself in front of a train on the Lexington line. Well, this is fiction, after all. The $2 dollar/share sale price gave it all away.

Many people played themselves. The whole CNBC crowd was there, their descriptions of the crash so realistic that I thought it might be archival footage. So were Warren Buffet, Nouriel Roubini, Jim Chanos, and other notables. In fact, Chanos managed to get Stone to change the original script, switching the bad guy role from a hedge fund to Goldman Sachs (GS), as it should be, referred to in the film as 'Churchill Schwartz.'. They are easily identified as the Wall Street firm that took out a big short in housing debt just before the crash.

Shia Labeouf does an outstanding job playing Jake Moore, an aggressive, razor sharp, earnest young investment banker. I have known so many like him over the years, both working for me and at competitors, that his performance really rung true. Michael Douglas, who has aged dramatically, seemed to be simply replaying the same role that he has in countless earlier films. To understand their characters, several actors opened up online trading accounts and did quite well in the market, with Shia alone reportedly booking some $20,000 in profits.

There are a few minor flaws in the film. It could have used more editing. There is a mention of '50% leverage' of subprime debt, when the correct figure was 50 times. The Chinese government investor doesn't act like a real person from the People's Republic, but as an American with a bad accent. However, these are trivial complaints. If you want to have a hoot, rent the DVD, but expect to provide a simultaneous translation about all of the different instruments and strategies if you bring any non-financial types with you. And thanks to Oliver's advice, I never got involved in financially backing a film project, despite countless invitations to do. It was the best trade I never did.

(SPECIAL MIDDLE EAST ISSUE)

Featured Trades: (THOUGHTS ON EGYPT)

 

1) Thoughts on Egypt. When I first visited Egypt in 1977, they tried to kill me. I was accompanying US Secretary of State Henry Kissinger on an Air Force jet as part of his shuttle diplomacy between Tel Aviv and Cairo. Every Arab terrorist organization had vowed to shoot our plane down. When we hit the runway I looked out the window and saw a dozen armored cars and personnel carriers? chasing us just down the runway;? all on board suddenly got that gut churning feeling. When the plane stopped, they surrounded us, then turned around, pointing their guns outward. They were there to protect us. The sighs of relief were audible. In a lifetime of heart rending landings, this was certainly one of the most interesting ones. Those State Department people are such wimps! Henry was nonplussed, as usual.

When I traveled to Tel Aviv, El Al security made sure my luggage got lost. So the Israeli airline gave me $50 to buy clothes. On that budget, all I could afford were the surplus Israeli army fatigues at the Jerusalem flea market. A week later, my clothes still had not caught up with me when I boarded the plane with Henry. That meant walking the streets of Cairo in my Israeli army clothes. It would be an understatement to say that I attracted attention.

I was besieged with offers to buy my clothes. Egypt had lost four wars against Israel in the previous 30 years, and military souvenirs were definitely in short supply. By the time I left the country, I was stripped bare of all Israeli artifacts, down to my towels from the Tel Aviv Hilton, and boarded the British Airways flight to London wearing a cheap pair of Russian blue jeans. Levi Strauss never had a thing to worry about.

Virtually every research and intelligence organization seemed surprised at the sudden riots in Egypt that dinged the market on Friday. Every one, except this one, that is (click here for 'It's just a matter of time before the food riots resume'). For some time now, I have been warning that high food prices would lead to political instability in emerging markets. If you had to pick one place where this would happen first, it would be Egypt.

The bewitching North African country is a prisoner of a medieval religion that has left its people stranded in the Middle Ages. While its GDP has doubled in the last 60 years, so has its population, to 83 million, meaning there has been no improvement per capital income. Islamic fundamentalism can be traced back to the mid-19^th century as an extreme reaction to British colonialism. Egypt responded by? inventing the concept of the sovereign debt default, which is how Britain ended up with the Suez Canal. Later, a young Winston Churchill cut his teeth as a journalist covering a major battle, the first where machine guns were successfully employed, and 10,000 of the faithful were mowed down. During the sixties, Gamel Abdel Nasser's efforts to form an Arab United States failed. As a journalist, I covered Kissinger's negotiations for peace with Nasser's successor, Anwar Sadat, who was? assassinated by his own bodyguard for his efforts shortly afterwards. Hosni Mubarek inherited the throne in 1981, and has been ruling the country with somewhat of an iron fist ever since.

I know that whenever the CIA kidnapped a suspected terrorist, but didn't want to deal with the legal consequences of bringing them home, they happily handed them over to Egypt, where the shadow of Amnesty International is unseen. Today, the advent of cell phones, cable TV, the Internet, Twitter, and even Facebook, enable revolutions to unfold at lightning speed. Cut these off, and everyone pours into the streets. The tourism industry, the big earner for this impoverished country, has been shattered and will take years to recover. The Egyptian stock market gave up $12 billion in stock market capitalization in two days, but who cares.

Events like this tend to have implications far beyond our initial understanding. In 1979, when the Shah of Iran fell to a movement led by an unknown radical mullah named Ayatollah Khomeini, we thought no big deal, it's a local problem. The Shah was no Boy Scout, and corruption in Iran was then endemic. Yet the fall out eventually led to our wars in Afghanistan and Iraq that has cost us trillions of dollars.

Of course, the final question has to be how all of this affects you and I and the financial markets. The positive impact on food prices has to be obvious. But as long as the world is in 'RISK OFF' mode, we aren't going to see dramatic moves in my favorite ETF in the area, the (JJG). The selloff in stocks was going to happen anyway, so don't pin the correction on the Middle East. Egypt was just the match to a market pyre that had been drenched with gasoline.

Today, Egypt is far and away the world's largest importer of wheat. It is also a major supplier of food to the rest of Africa, as it always has been. At first sight of the troubles, surrounding countries rushed to increase stockpiles to head off shortages, and are a major force driving prices higher. Egypt is also a leading supplier of cotton to the world market, and there is no other commodity less able to handle a supply cut off right now. Its price has already doubled in the past four months.

-

There has been much talk about the oil situation. While Egypt produces 600,000 barrels a day, that is a drop in the bucket in today's 84 million barrel/day global production. That is barely enough to meet domestic needs. A cut off of the Suez Canal would be problematic, but only for the short term. This explains why there has been a huge run up in Brent crude, to a record $9 a barrel premium over West Texas intermediate. But that is Europe's problem, not ours. All of America's crude from the Middle East comes around Cape Horn because the tankers are so large. If anything, this places a greater premium on Canadian tar sands producers like Suncor (SU), which are already rapidly replacing imports from other unstable sources.

The net net of all of this is a lot of short term angst, but little long term impact. This is great for volatility owners (VIX), (VXX), but of little consequence to the rest of us.

Featured Trades: (GOLD), (GLD), (DGZ), (GLL)

2) So Close, Yet So Far on Gold. Close, but no cigar on getting out of my gold puts on Friday. We opened low enough on Friday morning to get within striking distance of my downside target for the barbarous relic at $1,280. But once the rout in equities started in earnest, it was off to the races for gold, and it was all over for gold put holders but the crying. Gold managed to pull a $36 rally out of the hat on aggressive short covering before giving up $10 at the close.

We knew all along that gold was never going to make it to $1,280 in one straight shot. If you want to see why long term bulls are so determined that this level will hold, take a look at the chart below, which shows the convergence of several trend lines around my target. I think we'll take another shot at the downside, in days, if not weeks, and double bottom at the very least. Keep in mind, also, that owners of the gold put spread have time decay working in their favor now, as we are so solidly in the money.

-

-

Gold Sure Was Getting Cheap