1) Sony won the format war with its blue ray DVD's. The final nail in the coffin was Walmart's announcement last week that it will no longer carry Toshiba's rival HD-DVD format machines. This is the first time that Sony has won one of these wars. Remember Betamax?

2) Credit Suisse announced $2.8 billion in write downs because of 'mispricing' by traders. 'Mispricing' is Swiss German dialect for ?rogue trading?. The market has become inured to these announcements so no sell off today.

3) Under the Fed's TAF program it has loaned $50 billion directly to European banks in February so far, and $200 billion since the program started in December. The Fed has morphed into the de facto European central bank. This will eventually be highly inflationary.

5) The crisis in the Auction Rate Securities market spilled over into every corner of the corporate debt market at the end of last week, from triple 'A' corporates to junk. More credit spread repricing which in the long term can only be good for investors, especially those with new money. Stocks are being supported by a flight to quality bid as investors shun any kind of debt instrument as fallout from sub prime.

6) Treasury bond prices fell off a cliff today. I recommended you sell all bonds when the 10 year yield was 3.22% in January. It is now 3.85%. If you have any bonds left anywhere please, please sell them. They will go down a lot more when real inflation hits next year.

7) If you remember my S & P 500 1200-1450 short strangle recommendation in January, it expired out of the money on Friday with the index at 1,352 for a total profit of 5% plus. You could put the same trade on now and take in another 5% over the next four weeks. The total profit on this would be $200,000 on $2 million in capital over two months.

8) There are rumors that Lehman Brothers is about to announce large losses in real estate lending. A rogue commercial real estate department??? 'Lehman lied' isn't exactly something they'd like to read in the papers these days.

THOUGHT OF THE DAY

The US is setting itself up for a serious bout of stagflation from next year. We will be coming out of this recession with oil in the $60s-$70s and most other commodities at all time highs, so imagine what inflation will do when the economy recovers. Yet housing will still be a major drag on the market for a couple of years. The last time this happened was during the seventies, which no so coincidentally was the last time the US lost a war.

1) Target (TGT) is now looking like a potential takeover candidate. When I have time I troll through 13-F filings looking for recent share accumulations. These are public disclosures filed with the SEC by hedge funds with over $100 million in assets. Five major hedge funds have started building large stakes in Target, including Eddie Lampert who took over Sears a few years ago. The stock was already on my 'buy' list as a cheap, early cyclical retailer. The stock has fallen from $70 to $45 since June. Earnings have fallen by 2/3 in a year, but will triple in any recovery. Look for the share price to double in two years. Home Depot is another one of these.

2) Sub prime interest rate resets, now running at $40 billion a month will go to zero by the end of the year. Outstanding loans will either refi in the current low interest environment or go into default this year. After that the problem will be gone.

3) The US?? population is growing by 3 million a year, or 1.2 households. Housing starts can't fall below a 1.2 million annual rate for very long or people will have to start living in cardboard boxes under freeway overpasses.

4) Consumer confidence came in this morning at the lowest level since 1992.

5) Money is now cheap but unavailable. The Fed has cut interest rates by 2.25% since August, but triple 'A' rated State of California tax free bond yields have risen from 4% to 10% as of yesterday.

6) China is building a new electric power plant every 4 days. The recession for them means growth slowing from 11% to 8%.

7) Oil is above $96 this morning, not exactly anticipating a recession. OPEC is meeting in early March and many are expecting production cutbacks. They are clearly trying to manipulate the price higher. Sell oil, buy natural gas and coal!

8) 50% of all new venture capital spending is going into start ups creating clean energy sources, a radical change since the nineties. If even just one out of ten of these companies becomes successful the US could become energy independent within 20 years.

9) Financial markets closing early today. The rush to get out of Dodge has started.

1) A new credit crisis has exploded on to the scene. The Auction Rate Securities Market has failed. This is a $300 billion market for floating rate notes for municipalities. It is the primary vehicle for public authorities to raise cash to pay short term bills. For example, Port Authority of New York and New Jersey bonds, which normally yield 4%, are now yielding 20%. Usually dealers step in to soak up any warehouse excess paper in the market, but they can't now because they are all capital constrained and in risk reducing mode. If this problem is not sorted out soon cities will have to start laying off employees and suspending services for lack of funds. This is a totally unnecessary crisis because no municipality has defaulted since Orange County did so in 1994. At the very least this will increase borrow costs for public entities.

2) On the good news front, Morgan Stanley and Bear Stearns managed to place $1.2 billion in mortgage backed securities last night, the first such placement this year. They are yielding 235 basis points over treasuries vs. 60 basis points a year ago. It?s just a toe in the water. Granted, this was for a package of commercial real estate loans and not residential loans, and the size is very small, but it is an important step in the risk repricing and market reopening process. Now others have a price they can trade around. History shows that these initial deals after any crisis always turn out to be immensely profitable. Please recall people buying S & L loans in the early nineties for 10 cents on the dollar. The same happened in Japan. This has a 'light at the end of the tunnel' feel to it.

3) The Swiss bank UBS announced a quarterly loss of $11.3 billion, the largest in history.?? It has remaining exposure in sub prime of $28 billion. I was a director of this company for a year and have to say that I am not surprised. They were always the most aggressive of the Swiss banks.

1) Masco, a major building materials supplier, announced terrible earnings, citing a fall off in new housing starts among its customers of 25-33%. The stock got slammed. Still no light at the end of the tunnel in housing.

2) Sub prime related law suits against directors and officers are skyrocketing.?? In 2007 there were 191 law suits with $3.9 billion in claims initiated, four times the previous year's figure.

3) Fund manager cash levels are at the highest levels since 2001, all fuel for the next bull market.

4) Private business jet sales in 2007 totaled 1,138, up 28%, an all time high. Fractional ownership has been the big driver as businesses try to avoid the post 9/11 hassles of airport travel. The rich are definitely getting richer.

5) Global wheat stocks are at a 30 year low and US stocks are at a 60 year low. The inflation adjusted all time high is $20 a bushel, the target that traders are gunning for this year, compared to last week's high of $12.

6) We are ?? of the way through the fourth quarter earnings reports. Excluding financials US corporate profits are up 13%, a great year for anyone with international business. The problem with the economy is not with corporate earnings but expectations. We may be talking ourselves into a slowdown which is not warranted by fundamentals.

7) US retail sales came in at +0.3% compared to an expected -0.3% spurring a 173 point rally in the Dow.

1) Did you know that if the rest of the world ate like Americans the world food supply would have to increase 2.4 times? This is one of the factors driving up commodity prices. Some 24% of US corn production now goes into ethanol. Commodities markets are so small that one hedge fund could buy the entire open interest in any one of them. That is why when they go up, they go up really fast. It is like trying to get a billion dollars through the eye of a needle. This will provide strong underlying support for many commodities for the next decade.

2) Treasury secretary Hank Poulson announced the 'Hope Now? coalition of five major banks to initiate a 30 day moratorium on all foreclosures. This is another feel good measure that will not work. A popular Wall Street expression is that 'hope turns to bloat.'

3) Warren Buffet has offered to buy the entire $800 billion municipal bond portfolio of the three bond issuers, Ambac, MBIA, and FGIC. This will never happen because it would mean spinning off the only profitable parts of their business and leaving them only with sub prime toxic waste. It does underline the extreme cheapness of muni bonds at the moment, and Buffet's offer will stand as a stop out in case the above three insurers go under. Muni bonds rocketed on the news. I mentioned the attractiveness of muni bonds in my February 8 comments.

4) William Lerach plea bargained to a two year prison sentence and $7.6 million in restitution for illegal payments to his plaintiff witnesses. There was no figure more universally despised in Silicon Valley for his bogus class action suits on earnings shortfalls. It's a great deal. He will go to a camp, be out in a year, and gets to keep the $2 billon he made in the racket. Stamps anyone?

5) The global FIFO phenomenon is generating a major hedge fund trade at the moment. The idea is that since the US will go into recession first it will be the first out, with Europe lagging. Hedge funds are shorting US Treasuries and going long European bonds in massive size to take advantage of this. It looks like a good trade.

5) The Sports Illustrated annual swim suit issue came out today. For the last 45 years when blondes are on the cover the Dow Jones goes up 11.6% that year. With brunettes it is only 2.2%. This year the cover girl is blonde. BUY!