1) The market has gotten so dead here that I have started watching Suzie Ormand to get trading ideas. So I?m not supposed to run large balances on my credit card? Who knew? A hedge fund friend told me that the market is now like watching a ball tossed in the air that is at the apogee of its move, just before the free fall begins. No news, with shrinking volume and volatility. General Motors (GM) isn?t a stock anymore, so all of the news flow there might as well be a History Channel documentary. You can only sell so many out of the money short dated calls on other stocks before bumping up against risk control parameters. Even if you do make money in these conditions, it is at the expense of a Maalox addiction to fight the multiple holes in your stomach. It?s not worth it. This is why I prefer to spend my summers mountain climbing or practicing my ballroom dancing. Please see my ?Sell in May and Go Away? opus.

2) Last January I said that I felt like a kid in a candy store when I looked at the oil service stocks here and here. Let?s see how those worked out. Flowserve (FLS) is a global supplier of pumps, valves, seals, automation, and services to the power, oil, gas, and chemical industries, and seemed like the deal of the century at a PE multiple of 7X. It has since soared by 88% from $45 to $85. Buying Patterson-UTI Energy (PTEN) at a 5X multiple seemed like a better idea because it operates 403 rigs for oil and gas drilling in the Midwest. It has exploded 125% from $7 to $16. Subsequent recommendations to buy Kinder Morgan Energy Partners (KMP) and Enterprise Products Partners (EPD) did just as well. As much as I love these companies, you have to take some money off of the table after such humongous moves. The entire sector tracked the up move in crude very nicely, dollar for dollar. If I am the least bit right to take profits in long positions in crude, as I mentioned in yesterday?s comment, you have got to cash in some chips in the oil service sector as well. I have always been a big fan of taking the easy money, and the easy money has been made. Long term, these are great holds, but short term, they?ve run ahead of themselves. Make the volatility work for you. Remember, you are dating these companies, not marrying them.

3) The world?s largest hedge fund is taking profits on one of its biggest positions. I?m talking about the US Treasury allowing ten banks to repay $83 billion in TARP money. I guess the banks really want to get the government green eye shades out of their board rooms, who have been surreptitiously swiping the soap out of the executive washroom. This means paying back 5% money when it costs 6% to fund in the markets, and 10% of you want to raise equity. I guess it?s worth it if this enables you to revive your celebrity golf tournaments in California for ?clients,? throw Caribbean parties for your top producers, and get the Gulfstream out of storage after it couldn?t be sold. Could bonus compensation also be an issue? Gee, do you think? I have to begrudgingly give the government credit for making a ton of money on this trade. Not only did they borrow from us at zero and lend at 5% in huge size. They also got, at the point of a shotgun, fistfuls of? equity warrants that have tripled. And they did stop the bank runs that took Morgan Stanley (MS) down to a near death experience of $6, boosting it back up to a positively virile $32. Alas, if only I could play by their rules. I have a question, Mr. Geithner. Does the government have to pay taxes on those profits? Will it report them?

4) First of all, let me warn you that reading this paragraph is a complete waste of time. Still interested? There is chatter about that the Fed is considering raising interest rates at its next meeting. After all, where can they go from zero, but up? The bond market is certainly telling us that rates should go higher, with yields on ten year Treasuries jumping from 2.45% to 3.95% since March. This is the usual kind of gibberish you get from financial journalists, who deep into a summer with no real news, resort to making stuff up out of thin air. US industrial capacity utilization is terrible and still falling, while unemployment is still rising at a record pace. Sure, commodity prices have doubled this year. But this is happening because investors are looking for an alternative to the sick dollar, not because there is huge underlying demand by end users. This is one of the reasons why I have recently become cautious about all of my long positions. So I can say with complete confidence that the chances of an interest rate hike are less than zero for the foreseeable future. This discussion did have the one benefit that it did enable me to fill this space in my newsletter.

1) If you think that the place where China does its offshoring would be a great investment, you'd be right. Vietnam has been one of the top performing stock markets this year, its index rising by an amazing 85%.?? It was a real basket case last year, when zero growth and a 25% inflation rate took it down 78% from 1,160 to 250. This is definitely your E-ticket ride. Vietnam is a classic emerging market play with a turbocharger. It offers lower labor costs than China, a growing middle class, and has been the target of large scale foreign direct investment. General Electric (GE) recently built a wind turbine factory there. You always want to follow the big, smart money. Its new membership in the World Trade Organization is definitely going to be a help. Remember what happened when China joined the WTO? Until now, the only way to get involved with this country was to go through the tedious process of opening a local currency brokerage account, or buy a region sub emerging market ETF. But now there is a vehicle to get in and out of this ultra emerging market easily, through the London listed Vietnam Opportunities Fund (VOF.LN), run by Vena Capital Management. I still set off metal detectors and my scars itch at night when the weather is turning, thanks to my last encounter with the Vietnamese, so it is with some trepidation that I revisit this enigmatic country. Throw this one into the hopper of ten year long plays you only buy on big dips, and go there on vacation in the meantime.

3) Brace yourself for the impending gold shortage. Gold shortage? Yup. Last year, South Africa suffered its steepest decline in gold production since 1901, falling 14%, to a mere 232 tons. It now ranks only third in global production of the yellow metal, after China and the US. Severe electricity rationing, a shortage of skilled workers, and more stringent mine safety regulations have been blamed. Choked off credit has frozen the development of new capital intensive deep mines, as it has for everybody else. Rising production costs have driven the global breakeven cost of new gold production up to $500 an ounce. In the meantime, the financial crisis has driven flight to safety demand for gold bars and coins to all time highs. Last year, the US Treasury ran out of one ounce $50 American Gold Eagle coins, now worth about $980. Competitive devaluations by almost every central bank, except Japan, mean that currencies are not performing as the hedge that many had hoped. It all has the makings of a serious gold shortage for the future. Could last year's downturn be a blip in the eight year bull market? When we break $1,000, which could happen any day now, watch out above!

4) The sushi market has crashed. Premium blue fin tuna for sale at Tokyo's Tsukuji fish market, where I once lived next door, have seen prices drop 30% in the past year. The monster 500 pound frozen fish, which in better times fetched as much as $60,000 each in open outcry auctions, have gone out of favor. A Q1 GDP of -4.0% and a 5% unemployment rate have brought cutbacks in Japanese business entertainment spending as well as supermarket purchases of luxury items. This is despite a rising shortage of the best grade catches that has driven fishermen as far away as Antarctica. I'll let you know when prices start to tick up, as it could be a great leading indicator for the Japanese stock market.

QUOTE OF THE DAY

'The fall of a great nation is always a suicide,' said the great British historian Arnold Toynbee.

1) The big thing for me yesterday was the long awaited (well, maybe not so long) upside breakout in silver to a new six months high of $16.00, up 95% from the October lows. Please see my warning of the impending move at. The metal is at the low end of its historic valuation relative to gold, which has ranged between 12:1 (Remember the Hunt Brothers?) and 70:1 and is currently 62:1. Geologically, silver is 17 times more common than the yellow metal. All of the gold ever mined is still around, from King Solomon's mine, to Nazi gold bars in Swiss bank vaults, and would fill two Olympic sized swimming pools. But most of the silver mined has been consumed in various industrial processes, and is sitting at the bottom of toxic waste dumps. Silver did take a multiyear hit during the nineties when the world shifted from silver based films to digital photography. Now, rising standards of living in emerging countries are increasing the demand for silver, especially in areas where there is a strong cultural preference, as in Latin America. That means we are setting up for a classic supply demand squeeze. I think we could run to the old high of $50/ounce in the next economic cycle. Since silver can trade with double the volatility of gold, this forecast could prove conservative.

2) Every evening, after the cleaning staff has swept up the discarded trade tickets from the floor, the networks have swapped relentlessly opinionated commentators for game shows, and all but the most ambitious traders have decamped for the bars across the street, I sit down and go over my portfolio, asking myself a few key questions. Have I gone completely insane? What have I missed? Are these the positions of someone who has gone completely barking Mad (oops)? Just as I was going through this exercise last night, a long time friend from the energy industry, who used to put me up in his Dallas mansion when I was wildcatting for natural gas in the Barnet Shale a decade ago, called me up and told me I was out of my tree putting people into NG at $3.60.?? Huge discoveries, such as the Hainesville shale in Alabama, have made available enough NG to last the US another 50 years. The new generation of fracting technology, while great for taping into marginal, low grade fields, is much more difficult to turn off when prices are low without causing permanent damage. And then there is the looming threat of large scale LNG imports from abroad. The big gas companies will be forced to dump whatever they have on the market at any price, possibly taking prices this summer down to $2, or even $1. This, after all is the mother of all overshoot contracts. Of course, one could argue that these risks are what already took it down to $3.20, and that industry demand will happily soak up the excess supply. Did I mention that the hurricane season started yesterday? Only Mr. Market knows for sure, and he ain't talking. In the past month, my calls have enabled traders to catch a 50% move in NG, followed by a 20% move (http://madhedgefundradio.com/April_14__2009.html ). No one will think less of you if you want to cash out here at $4.30 and stay on the sidelines until a more definitive bottom is put in. As they love to tell you in flight school, there are old pilots, and there are bold pilots, but there are no old, bold pilots.

3) The fat lady finally sang. General Motors (GM) is gone at last. Don't look at the share price, which now trades in pennies, down from $90. Look at the labor force, which has shrunk from 360,000 to 39,000 on its way to 18,000. I sat at Ralph Nader's knee (because there were no chairs) 40 years ago, who wore his unfashionable trademark white shirt and pencil thin tie. He was fresh from the runaway success of his book Unsafe at Any Speed, which castigated GM for its Corvair, which had the unfortunate tendency to explode when hit from behind. Even then he was predicting the demise of GM. Companies that recklessly kill off their customers and produce inferior products at high prices can't last, he said. Fuel efficiency and the environment came later. Many people considered him a communist then, for bashing GM was considered unpatriotic by most and treasonable by some. No doubt J. Edgar Hoover's FBI was following his every move. I think that Obama should now make Nader a director of GM, along with that other GM hater, Michael Moore.

4) I have made a lifetime hobby of analyzing scams out there, partly to warn my investors, but also driven by my fascination with the creativity and determination of crooks intent on extracting cash from the unwary (for the last one, see how to raise money for your hedge fund at http://madhedgefundradio.com/March_27__2009.html). In the San Francisco Bay Area, the new con is to rent out a house you don't own. The unscrupulous are targeting any of the thousands of abandoned or empty homes in the high rent region, changing the locks, and then renting them out below market on Craigslist. The victims sign a lease, pay first and last month's rent, plus a two month security deposit, and move in. They don't realize they've been had until the lender, the sheriff, or the true owner shows up to evict them. No wonder that credit check went so easily! To protect yourself, go to www.foreclosureradar.com, which will tell you if that property you are lusting after is delinquent, in foreclosure, or scheduled for auction, before you lay out any cash.

QUOTE OF THE DAY

'I think I timed this move perfectly. I'm at a last place network, I'm moving to a state that's bankrupt, and tonight the show is sponsored by General Motors,' Said Conan Obrien on his opening monologue of the Tonight Show.

1)The imminent demise of General Motors (GM) will be a nail in the coffin for the commercial real estate market, which I believe will be the financial crisis of 2009. Some 2,000 dealers are being axed, dumping hundreds of millions of square feet on to a market that least wants it. These were the guys who sponsored the local baseball team and Girl Scout cookie sales, and their absence will rip the hearts out of hundreds of American communities. Much of this is prime space, near dense populations, with great frontage, adjacent retail space, completed site work, mitigated environmental work, and already zoned for commercial use. Some might get turned into mini malls, but I'm afraid more will end up as indoor climbing walls and paintball battlefields. Commercial real estate sales are off 73% this year, while vacancies have catapulted to 16.7%. Banks have seized 464 properties so far in 2009, including $7 billion worth in March alone, and thousands more are on the brink.

2) If you are not a captain on a bridge somewhere, ready with orders to repel boarding pirates with fire hoses, you might be forgiven for being unaware that the Baltic Dry Shipping Index ($BDI) has gone up an unbelievable 20 days in a row. This market for bulk cargo charter rates made investors seasick last year when the near complete shutdown of international trade and a cessation of credit took the index down a mind boggling 94%, from 12,000 to 650. At that level, the market was pricing in a probability that no ship would ever sail anywhere again, and that the global fleet would permanently rust at anchor. A slow thawing of credit has drawn in some hot money that has taken the BDI back up to 3,400, a handy 560% gain in six months. It has also been matching the revival of commodity markets tick for tick. The chart below looks like crude with a turbocharger. In additional to being a favorite topic to impress friends with at dinner parties, the BDI has also become a favorite of the 'green shoots' crowd as proof that the world is not going to end after all. After so many things have had great runs, there are a lot of charts that look like this now (Crude, FXI, etc.). This one is just the most extreme.

3) The Athens based, Dry Ships Inc (DRYS), which operates a fleet of 40 coal and iron ore carriers, has done almost as well. After my call to buy it in December at $4, after a crash from $110, it popped to $18, and currently is churning around $7. The company launched three equity fund raisings since then, bringing in over $1 billion to pay off debt. It slashed operating expenses, cancelled orders for new ships, and wrote off defaulted charter contracts.?? The always colorful CEO George Economou, says he now has $1.67 billion in cash and is prowling for takeover targets. Keep this great trading vehicle on your radar screen as a supper leveraged call on the recovery of the global economy.

4) I met with my congresswoman last night, Ellen Tauscher of the 10th district, on her way to Senate hearings for her appointment as Undersecretary of State for rms Control and International Security. Helen started out life on Wall Street at the old Bache & Co. as one of the first female members of the NYSE, became an entrepreneur, and spent the last 13 years in congress overseeing all things nuclear ('If I told you the details I'd have to kill you').?? It looks like Obama is going to adopt Teddy Roosevelt's approach to foreign affairs of 'walk softly, but carry a big stick.' 'There's a better way to do it than just offering up our military,' she said. 'We want to go back to the high ground on the nuclear issue,' she continued, which meant restarting the destruction of some of our stock of 5,000 weapons already agreed to by treaty with the Russians. Her new responsibilities will include nuclear, biological, and chemical weapons control, the monitoring of nuclear power plants, treaty compliance, and the reigning in of Iran and North Korea's nuclear ambitions. On the financial bailout bill, for which she voted, she opined, 'If your neighbor's house is on fire, it's in your self interest to do something about it.' She thinks that California has a nonworking government model that needs a constitutional convention to fix. The Republican Party has marginalized itself by sacrificing its moderates for the sake of ideological purity. That is what prompted Senator Arlen Specter to change parties. Good luck working for Hillary at Foggy Bottom.

QUOTE OF THE DAY

'Cheap is not a sufficient condition in which to invest in these times. It has to be combined with credit worthiness,' said Marty Whitman of the Third Avenue Funds

1) With North Korea testing low grade nukes and short range missiles (think WWII German V2's), and a former prime minister jumping off a cliff to commit suicide, you wouldn't think this is the best time to contemplate an investment in South Korea. You may recall that I recommended that the Hermit Kingdom be added to spell 'BRICK' with a 'K' last January.
Korea is in fact somewhere in between a true emerging market and a developed country, with lower risk and lower returns, than say a Taiwan or an India. Let's see how that call faired. After hitting a low of 998 in March, it soared 45% to a seven month high. The recent troubles have pared it back by 10%. For long term investors, this is opening a rare window to scale into some exposure here. Short term traders should wait for a bigger pull back. They used to say you bought Asia only when there was blood in the streets. This isn't really blood, but is close enough.

2) Just a little note to point out that my long term Treasuries short recommendation has gone ballistic, hitting a new high of $56, and that the futures have crashed to 116 1/2. The ten year yield has ratcheted up to 3.56%, a new high for the year, and the 30 year to 4.5%. The market is finally reading the writing on the wall. Who thought the sale of $100 billion in new paper was going to go well? The dealers are now choking on this stuff. I'm sure government agents are now scouring the country for new sources of high grade linen, the best raw material for printing new $100 bills. My calls don't always work out this well this fast, so please indulge me, and let me savor the moment. Let the crash continue. Instead of focusing on the bankruptcy of GM, we should consider the United States government going under, as this cataclysmic move in federal debt seems to be presaging.

3) Continental Airlines (CAL) is suing nine of its former pilots, claiming that they entered into 'fake' divorces in order to make early withdrawals from their pension funds. The aces in question took out up to $900,000 each, even though they continued living with their ex spouses and kept legal proceedings secret from their families. The pilots cashed in because they were afraid CAL would go bankrupt before they retired, wiping out any obligation to pay benefits. Do you suppose they know something we don't? One has already returned the money. Do you suppose this is going on at General Motors (GM) too?

4) Take a look at the clock below, which I obtained courtesy of the blog of Clark Winters, and please tell me what time it is. It is the clock of investment behavior, and describes the 12 stages of a 'W' shaped recovery. I think the markets are discounting 11:00, when in fact, the economy is at 6:00, or even 3:00. Have the markets gotten ahead of themselves? Is there an arbitrage here? Despite the connection with the previous administration, I think that a 'W' shaped recovery is looking more plausible every day. I look forward to your erudite comments.

QUOTE OF THE DAY

'When asked if English should be made the official language of the United Sates, 80% said 'S??,' according to late night comedian Jay Leno.