1) The one absolute, take it to the bank, bet the ranch fact you can count on right now is that there is no value in the stock market. We are at a lofty 20 X earnings, and historically, when the market sported such a rich valuation, a 7% drop ensued in the following year. But what is history, but the ravings of an angry, frustrated old trader? Maybe having seen the best bargains in a century only six months ago, I?m spoiled. I have always been a tightwad. I must be the only guy around who flies his own private plane to garage sales for the sheer love of the deal (where else can one find Dean Martin records in decent playable condition for 25 cents each?). I just reviewed all of the stocks and sectors I liked at the beginning of the year, and a more picked over field you never saw. (Click here for my New Year list ) The list of big winners is long: FCX, FXI, BYDFF, BIDU, X, gold, silver, copper, crude, oil services, junk bonds (JNK), (HYG), emerging markets (EEM), BRIC?s, Korea (EWY), with shorts in long dated Treasuries (TBT), volatility (VIX),?? and the dollar (UDN), (ULE). Even tax exempt munis have been on a tear. Many of my core positions are up over 400%. When everything in your portfolio has done so well, it?s time to go hide. The problem is that my more loyal, even fanatical followers have taken out paid subscriptions for up to two years, so I must keep dancing. Hence, the recent increase in book reviews, political pieces, or just outright frivolous stories. What you do here is deep research and list building, so when the window opens you can jump through with both feet, and without any reservations. I hate being out of the market. But I hate losing money even more.

2)For an iconoclastic, myth shattering, eye opening view of the true competitive threat posed by Asia, read the piece in the August issue of Foreign Policy magazine by Minxin Pei, a scholar at the Carnegie Endowment for International Peace. Power is not shifting from West to East; Asia is just lifting itself off the mat, with per capita GDP only at $5,800, compared to $48,000 in the US. We are simply moving from a unipolar to a multipolar world. China is not going to dominate the world, or even Asia, where there is a long history of regional rivalries and wars. China can?t even control China, where recessions lead to revolutions, and 30% of the country, Tibet and the Uighurs, want to secede. All of Asia?s progress to date has been built on selling to the US market. Take us out, and they?re nowhere. With enormous resource, environmental, and demographic challenges constraining growth, Asia is not replacing the US anytime soon. There is no miracle form of Asian capitalism; impoverished, younger populations are simply forced to save more because there is no social safety net. Ever heard of a Chinese unemployment office? Nor are benevolent dictatorships the answer, with the despots in Burma, Cambodia, North Korea, and Laos thoroughly trashing their countries. The press often touts the 600,000 engineers that China graduates, joined by 350,000 in India. In fact, 90% of these are only educated to a trade school standard. Asia only has one world class school, the University of Tokyo. As much as we despise ourselves and wallow in our failures, Asians see us as a bright, shining example for the world. After all, it was our open trade policies and innovation that lifted them out of poverty and destitution. Walk the streets of China, as I have done for nearly four decades, and you feel this. To read the story in its entirety, click here . I think I?ll reread it next time I think about doubling up my FXI and EEM positions.

3) America?s economy was powered by personal computers in the eighties, the Internet in the nineties, and credit cards and subprime loans in this decade. So what is America?s next gig? I think conversion of the global energy grid to alternative sources is the best candidate. If you took this out of the realm of geeky engineering graduate students and high school science projects and made this a national priority and a defense issue, it could become a major GDP driver for decades. Using the broadest possible definitions, the number of green jobs could grow from one million today to 37 million in 20 years, or 17% of the total work force. Since many of these jobs are in local construction and installation they can?t be exported. Last year, 8,000 megawatts of wind power was built, the equivalent of seven large coal fired plants, accounting for 42% of all new power generation. If the US develops cost competitive clean energy while China is still stuck using the expensive dirty stuff, it will have a competitive advantage that could reverse the terms of trade with the Middle Kingdom. The US would also have superior technology that it could sell to the rest of the world. I can tell you that green energy is one of the few themes that gets a hearing with venture capitalists these days, and this will be a major stock market driver down the road. I know this is all long term stuff, but remember buying Apple (AAPL) at $4 in the early eighties?

1) Peabody Energy?s (BTU) CEO, Gregory Boyce, says that the Chinese buying of coal is real, not stockpiling, and expects to see a 7.5% annual growth in sales for the next five years (click here for their website ).?? The big demand is for metallurgical coal used to make steel, which the Middle Kingdom is importing at a record rate. Investors have already figured this out, taking the company?s stock up 400% in a year. Coal has been the fastest growing energy source in the US for the last six years, and now accounts for 50% of our electricity supply and 85% of energy generation. The problem is that the industry is target numero uno with the environmental movement, which now holds significant sway in Washington. Thanks to a 150 year lobbying effort, the coal industry has already carved out preferential treatment in the upcoming cap & trade wars at the expense of other fossil fuels.?? They are also pushing hard for carbon capture & sequestration (CCS), which strips the CO2 out of emissions and pumps it down to 8,200 feet underground. All eyes are now on the first such plant to come online this week in New Haven, West Virginia (click here for link to the full New York Times story ). Industry analysts say it will cost $1 trillion to convert the country?s 400 plants to generate power 30% more expensive than we are currently paying.?? You might also get polluted ground water and earthquakes as part of the deal. Sounds like a high price to pay to save a few union mining jobs. I vote for a natural gas based solution, which is currently coming out of our ears.

2) I met with my next Congressman, John Garamendi, who will be replacing Ellen Tauscher, after Hillary bumped her up to an Asst. Secretary of State job. John comes to the seat via UC Berkeley, the Harvard Business School, a Peace Corps stint in Ethiopia, the California State Assembly and Senate, Deputy Secretary of the Interior under Clinton, and state Lieutenant Governor. While the general election is not until November, his win is assured by the 18% lead the Dems have over the Republicans in California?s 10th Congressional district. The timing for Garamendi is unfortunate, as his 15 years as the Golden State?s first elected insurance commissioner would come in handy in the health care debate, which will be decided by then. One of the most gerrymandered districts in the country, on the map it looks like either a butterfly flipped over on its side, or a giant Rorschach test. This is not an easy area to represent. It includes big helpings of liberal San Francisco suburbanites balanced with conservative Central Valley farmers, and includes the worst Berkeley radicals, sizeable minority groups, cattle ranchers, and foaming at the mouth fruit farmers. Garamendi has taken the traditional liberal tack, supporting public single payer health care, the environment, education, jobs programs, infrastructure spending, and a pro-Israel foreign policy.?? The insight he gave me is that Obama is assuming he will have control of both houses of Congress for only four years, so it will be pedal to the metal to get his reforms programs through quickly. Every session on the Hill will be extended to the max, and there will be no rest for the wicked. If you think this year?s donnybrook over health care was tough, wait until you see the battles over tax reform, cap & trade, and financial regulatory reform in 2010. In my world this means that politics will become a much larger factor in the markets than it ever has in the past. Better go short more dollars.

3) After nearly four decades in the industry, I can tell you that stocks can be snarly, bad tempered beasts that would as soon as bite you as give you rabies. So it is a rare pleasure when I get to trade securities like the Chinese Internet companies, which have been purring away like domesticated kittens. If you need further proof of where the future growth in the global economy is coming from, take a look at Baidu (BIDU), the Google of China, which I strongly recommended on March 6. It has quadrupled from the lows to $400, and has been one of the best calls of my career. Look at the chart below, which is probably the most bullish one you will ever see.?? In the meantime, our Google (GOOG) only doubled. These hedge fund darlings are best of breed companies, but the Chinese one outperformed the American counterpart by a factor of 2:1. 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 twin drags of a mature economy and staggering debt, will never command the same multiples of Chinese ones. When looking for long equity exposure, always look for Chinese ones first. Expect huge growth of the four horsemen of the Chinese Internet sector-Netease (NTES), Sina (SINA), and Sohu (SOHU), and of course, BIDU- who are going to eat our lunch.

QUOTE OF THE DAY

?Coal is the drug of choice of a major industry with a lot of political power,? said David H. Holtz, head of Progress Michigan, and environmental group.

1) The autumnal equinox is tomorrow. That is the day when the sun crosses the equator headed South, and daylight equals darkness. I know this because I am so old that celestial navigation with a sextant was a requirement to get a commercial pilot?s license. That means that I can shoot an angle off of the North Star and tell you your latitude, the same method used by Christopher Columbus to first cross the Atlantic. Now that?s old! Moving on to navigation of the financial sort, many long in the tooth, grizzled old veterans insist the movement of the sun, moon, and stars, as well as sun spots, have a major impact on the markets. History is certainly replete with financial disasters this time of year, most recently in 2008 when Lehman went under, almost dragging the entire banking system with it. These were easily explainable a century ago when 50% of our GDP came from agriculture, and the harvesting of the fall crop placed huge trains on a then nascent financial system. But today, less than 2% of the economy comes from Green Acres. So maybe history is not repeating itself, but rhyming, or reverberating. Certainly everything good, from currencies and commodities, to energy, emerging markets, and private and public debt, need a rest and are overdue for a pull back. The short term risk/reward for everything is not good here. Watch the run up to end Q3, when the fireworks may begin.

2) India has been one of my stellar picks this year, the ?I? in BRIC, rocketing 112% from the March lows (click here for my initial report ).? Although it appears overheated for the short term, I believe it has much further to run over the long haul. You want to buy countries that have yet to build infrastructure and a middle class, and China has already done that. India?s per capita GDP came in at a sparse $1,016 last year, compared to $6,100 for the Middle Kingdom. China?s economy today is about on the same level that Japan experienced during the late fifties, while India is still in the late twenties, with large parts effectively mired in the 16th century. India?s recent election of a more pro-business government was the trigger for improved growth, which is expected to exceed 6% for the rest of the year. India?s economy is entirely domestic, and is so far outside the world economic system that the global financial crisis was barely felt there. While we were melting down with a minus 6% GDP rate, India continued to bask in a plus 5.8% growth rate. No subprime debt, toxic portfolios, foreclosure crisis, government bailouts, or AIG, GM, or Chrysler. With 1.2 billion consumers, some 70% of GDP there accounted for by consumer spending, so retail figures large in the country?s future. Even Harley Davidson (HOG) has big expansion plans in the world?s largest user of motorcycles.? For those of the ETF persuasion, look at Wisdom tree?s earnings based offering (EPI) or the one from PowerShares (PIN). Better start checking your share prices in rupees.

3) With the collapse in employment, it is all about ?location, location, location.? No surprise then that Michigan leads the country with a 15.2% jobless rate caused by the implosion of the auto industry. Detroit is suffering a horrific 17.3% rate. Nevada came next at 13.2%, blasted by both barrels of a shotgun by simultaneous layoffs in housing and hotels. Rhode Island at 12.8% took big hits in health care services and tourism. My home state of the ?Land of Fruits and Nuts,? California, now has a 12.2% jobless rate, the worst in 70 years. Housing was the grim reaper here, and now 20,000 teachers have started collecting unemployment checks, thanks to our bankrupt state government. Who has the lowest unemployment rate in the nation? Sunny North Dakota at 4.3 %, where healthy agriculture and energy industries kept people in work, and ranking 48th in population, have almost no people to fire anyway. It also helps that the ?Roughrider State? was completely bypassed by the subprime boom, and for many years was the cheapest place in the country in which to own a home. To get unemployment back to a normal 5% rate, Obama has to create 20 million jobs by the next election in 1012, one tall order.

?If you have been playing poker for a half an hour, and you don?t know who the patsy is, it?s you,? said Warren Buffet.

1) Ouch! So much for my ?Sell the Tenth Consecutive Up Day? model. I shorted the S&P 500 September 1050 calls, which expire in two days. The trade was looking good all the way until this morning, when I got stopped out with a 0.5% hickey. It?s no excuse that this works 99% of the time. This is well and truly a liquidity driven market, the kind I used to feast on in Tokyo during 1987-89, when we took Japan?s PE multiple up to 100. The S&P earnings multiple has now made a round trip from 18 times in 2007, to 10 times in March, and back up to 18 times today. Worse, the previous 18 peak was in an era of far rosier economic projections than we are currently grappling with. Don?t fight the tape. Stand out of the way, and let the insanity play itself out before rebalancing your portfolio. At least I have my gold, silver, copper, crude, junk bond, emerging markets, FCX, BYD, water ETF, and short dollar profits to drown my sorrows in.

2) When readers ask me about my next ten bagger, I point them to to the Chinese electric car company ?Build Your Dreams? (BYDDF) (click here for their website . The stock is up 450% since I first mentioned it in March, and up 250% since my follow up in June. CEO Wang Chuan-Fu, who Charlie Munger describes as a combination of General Electric?s (GE) legendary manager, Jack Welch, and inventor Thomas Edison, scraped up $300,000 from relatives to start a knock off cell phone battery company in Shenzen in 1995. He grew the company into a massive, vertically integrated conglomerate, employing 130,000 workaholics at 11 factories, including those in Hungary, Romania, and India (interesting choices). BYD bought a defunct car company in 2003, and re-engineered it to launch the $22,000 F3DM sedan last year, an old technology ferrous oxide based plug-in hybrid that gets 62 miles on a charge. General Motors (GMX) Volt and Toyota?s (TM) plug in Prius, which won?t come out until next year, will only get 40 miles per charge and cost more. All-electric models are coming out this year. Warren Buffet was so impressed, he made a rare foreign investment last October, asking for a 25% stake and settling for 10% for $230 million. In a year the Oracle of Omaha has earned a tidy $800 million on the postion. Wang, who has already earned himself a place on the Forbes 400 list, intends to build BYD into the world?s largest automaker, and quickly.

3) If you think that the upcoming energy shortage is going to be bad, it will pale in comparison to the next water crisis, so investment in fresh water infrastructure is going to be a recurring long term investment theme. (See my earlier efforts to get you into the water space by clicking here). One theory about the endless wars in the Middle East since 1918 is that they have really been over water rights. Although Earth is often referred to as the water planet, only 2.5% is fresh, and three quarters of that is locked up in ice at the North and South poles. In places like China, with a quarter of the world?s population, up to 90% of the fresh water is already polluted, some irretrievably so. Some 18% of the world population lacks access to potable water, and demand is expected to rise by 40% in the next 20 years. Aquifers in the US, which took nature millennia to create, are approaching exhaustion. While membrane osmosis technologies exist to convert sea water into fresh, they use ten times more energy than current treatment processes, a real problem if you don?t have any, and will easily double the end cost to consumers. While it may take 16 pounds of grain to produce a pound of beef, it takes a staggering 2,416 gallons of water to do the same. The UN says that $11 billion a year is needed for water infrastructure investment, and $15 billion of the US stimulus package will be similarly spent. It says a lot that when I went to the UC Berkeley School of Engineering to research this piece, most of the experts in the field had already been retained by major hedge funds! At the top of the shopping list to participate here should be the Claymore S&P Global Water Index ETF (CGW), which has appreciated by 50% since I first brought it up. You can also visit the PowerShares Water Resource Portfolio (PHO), the First Trust ISE Water Index Fund (FIW), or the individual stocks Veolia Environment (VE), Tetra-Tech (TTEK), and Pentair (PNR). Who has the world?s greatest per capita water resources? Siberia, which could become a major exporter to China in the decades to come.