2 ) The Manhattan residential market is now in free fall, after holding up better than every major market in the country for years. Rents have fallen up to 25% since the Lehman bankruptcy in September, dragging down condominium and co-op prices almost as fast. Hardest hit have been units priced in the $1-$2 million range that appealed to up and coming Wall Street traders. This class of newly unemployed former owners is now fleeing the Big Apple en masse. The stratospheric end of the market, the mega mansions and penthouses with those fabulous Central Park views and live-in nanny suites in the $30 million on up range, are still holding up. With industry job losses this year expected to exceed 100,000, expect this downtrend to continue.

3 ) Will people pleeease stop incessantly talking about the possibility of China dropping the dollar as a reserve currency? What else are they going to use? Monopoly money? Taiwanese dollars? Collectable postage stamps? At nearly $2 trillion, the Middle Kingdom’s reserves are so enormous that no other currency in the world could accommodate the switch, and no other security offers the necessary depth and liquidity but Treasury bills. Chinese attempts to buy anything in size causes its price to immediately skyrocket, such as we saw in the relatively Lilliputian commodity markets last year. And really, how likely is it that China embarks on policies that quickly halve the earnings of the country’s exporters, as well as its 30 year hoard of accumulated savings? The demise of the dollar has been predicted more often than the ditching of Microsoft’s Windows as the global PC operating system, and is just as likely. Hate the greenback as much as you like, but there just isn’t any other alternative. I have been hearing these arguments ever since the US went off the gold standard in 1973. First there was a perennial Arab threat to price crude in a basket of currencies. Gee, they never seem to complain when the buck is going up. Then there was the speculated emergence of the “Yen Block”, in the eighties, back when Japan was dominating international trade and the yen was bumping up against ¥80 to the dollar. Remember the book “Japan as Number One? Ha! Double Ha! Then we got all that European whining after the launch of the euro when the weak dollar was everyone’s one way trade. Let’s face it, Europeans hate using someone else’s currency as the primary reserve instrument. Before the dollar, sterling was in widespread use and was equally despised. So rather than waste time discussing this issue anymore, let’s talk about something more important, like which of those two flies over there will jump off the wall first.

4 ) Daniel Yergin of Cambridge Energy Partners says that crude prices will stay in a $40 to $60 range for the foreseeable future. The author of the Pulitzer Prize winning “The Prize”, the best business book I have ever read, believes the recent 26% rally in the stock market is what dragged crude up from $35 to $54. Another downdraft in stocks, or a realization that the recession will be longer than expected, could take crude back to $40 in a heartbeat. Inventories are at a 16 year high, with possibly 80 million barrels at sea, as demand has shrunk from 86 to 83.5 million barrels a day over the last two years. Spare capacity is now huge. Don’t expect to break out of this range until a recovering economy eats into these supplies, and inflation makes its inevitable return. Then all commodities will roar, not just crude.

QUOTE OF THE DAY

“You can observe a lot just by watching,” said baseball great Yogi Berra.

This is not a solicitation to buy or sell securities.

2 ) Yuba County, California, a semi rural area in the Sierra foothills within commuting distance of Sacramento, has the highest underwater rate in the nation. There, 78% of all homes have mortgages larger than the houses’ worth, and the numbers are rising. Four out of the five highest negative equity counties in the US are in the Golden State’s Central Valley.

3 ) Japan’s closely watched tankan report was released today, a quarterly report of business sentiment, showing its sharpest drop in history, cliff diving from -24 to -58. Japan is the one nation that has profited the most from globalization, and is therefore the most severely punished now that it is in retreat. Exports have dropped by half, industrial production plunged 9% in a month, and unemployment is soaring. Fourth quarter GDP shrunk an unimaginable 3.2%, double the fall seen in the US. The last time the numbers were this bad, two atomic bombs had just been dropped on Japan and it lost WWII. Prime Minister Taro Aso’s government is embroiled in multiple scandals, taking his approval rating down to 23%, so the ruling Liberal Democratic Party’s half century long hold on power is in doubt. Elections are due in September. Perversely, a hurried unwind of a decade long accumulation of yen carry trades has pushed the yen up just short of a 20 year high of ¥87 in January, making the country’s essential exports even less competitive, and vaporizing the foreign earnings of Japanese companies. Toyota Motors (TM) has been reduced to begging for bailout money from the government GM style. The government has passed four bailout packages in the past year totaling 13% of GPD, none of which have so far been spent. Japan has little choice but to wait for a US economic recovery, grab its coattails, and hold on for dear life.

4 ) More than $19 billion has poured into commodity funds since January 1, $4 billion more than was seen during all of last year. This explains why my beloved copper soared 35%, while gold jumped 9%. Buy hard assets, sell paper ones.

5 ) If you want to finance any new business ventures in the San Francisco Bay Area, go to the Bank of Marin (BMRC). They were one of the first four banks to repay TARP money to the Treasury today. Apparently they didn’t want to undergo the full proctologic exam the Feds were threatening to conduct.

QUOTE OF THE DAY

“Chance favors the prepared,” said the great French chemist Louis Pasteur.

This is not a solicitation to buy or sell securities.

2 ) 27 out of the 30 Dow stocks are currently profitable. The public perception is that all are losing money, and several are on the verge of bankruptcy.

3 ) Former Fed chairman Alan Greenspan published some very sobering numbers in the Financial Times yesterday. Global stock market losses from the peak total $35 trillion. Half of that has occurred since the Lehman bankruptcy in September, effectively doubling corporate leverage in the last six months. No wonder banks are freaking out! Throw in real estate losses, and the world has lost a mind-numbing $40 trillion in net asset value in two years. He opined that stock markets are close to turning, and that even a modest rally will have large positive effect on the economy. The only thing missing from the article was a mea culpa acknowledging that the losses were all his fault.

4 ) All of the high grade paper used by the US Treasury to print money is bought from one firm, Crane & Co., which has been in the same family for seven generations. Last year the Feds printed 38 million banknotes worth $639 million. Although they have seen the recession cause the velocity of money to decline, recent reflationary efforts have spurred a big increase in demand for paper for 100 dollar bills. The federal government first issued paper money in 1862 to finance the Civil War, and Crane has been supplying them since 1879. The average life of a dollar bill is 21 months. Who said no one was doing well in this recession? M1, or notes and coins in circulation, is already exploding. Is this a warning of an imminent jump in inflation?

5 ) Symantec says that 15,000 to 20,000 new viruses are being created every day, forcing it to upgrade its software every five minutes. Google admits that one out of every 100 searches connects with a virus infected website. There is no prominent website that has not been affected, including www.obama.com, the President’s grass roots organizing website. Many of these are created by Russian cyber gangs, where boys as young as 14 can earn up to $30,000 a year. There is no local enforcement in the former Soviet Union as the victims are predominantly “rich” Americans. Software security experts are now warning of a coordinated global attack on the Internet on April 1.

6 ) Skype (EBAY) plans to release a version of its Internet phone software for the iPhone (AAPL). The move, which will be announced tomorrow, brings Skype more directly into competition with AT&T (T) and Verizon Wireless (VZ). The software is free and allows iPhone users to call Skype users for free if they are in a Wi-Fi hot spot. Alternately, the user can call a landline for a small fee, usually 2.1 euro cents per minute. Skype COO Scott Durchslag said the move is part of a strategic push into the cell phone market.

QUOTE OF THE DAY

“The stock market has predicted six out of the last zero recoveries,” says ultra bear professor Nouriel Roubini of New York University. He is forecasting a retest of the 666 level in the S&P 500, another 15%-20% in real estate, and a lot more foreclosures.

This is not a solicitation to buy or sell securities.

2) Reformed oil man, repenting sinner, and borne again environmentalist T. Boone Pickens says that “when we turn the US green, it will have the best economy ever.” For the past 30 years, the US has had no energy policy because “no one wanted to kick a sleeping dog.” Production at Mexico’s main Cantarell field is collapsing, and will force that country to become a net importer in five years. Venezuela is shifting exports of its sulfur-laden crude to China for political reasons, once refineries there are completed to handle it. Unfortunately, the collapse of energy prices since June and the disappearance of credit have put urgent alternative energy development on a back burner, with Pickens’ preferred natural gas (NG) taking the biggest hit. If the US doesn’t make the right investments now, our energy dependence will simply shift from one self interested foreign supplier (Saudi Arabia) to another (China). Wind and solar alone won’t work on still nights, and can’t power an 18 wheeler. Don’t count on the help of the big oil companies because they get 81% of their earnings from selling imported oil. The answer is in a diverse blend of multiple alternative energy supplies from exclusively American sources. Although Boone now has Obama’s ear, it’s a long learning process. Boone has donated $700 million to charity, and says the 20,000 trees he has planted should offset the carbon footprint of his Gulfstream V. Now 80, he has not slowed down a nanosecond.

3) Natural gas ($NATGAS), which peaked at $13.50/btu last year, has become the red-headed step child of the energy complex, plunging a gut churning 72% to a low of $3.75. To see demand this weak coming out of a cold winter is nothing less than stunning. The credit crisis has forced US companies like Chesapeake Energy (CHK) and Devon Energy (DVN) to scale back exploration, so the US rig count had dropped by half. The price collapse is welcome news for consumers, as NG is an essential raw material for making naphtha, fertilizer, and plastics and accounts for 20% of US electric power generation. It also is a favored fuel of the green crowd, as the only products of its combustion are carbon dioxide and water. The industry was making the leap from a domestic industry to a global one just as the global recession punched it right between the eyes. The completion of six liquefaction plans in Qatar, Russia, Indonesia, and Yemen costing $48 billion is expected to boost global production by 25% this year, and more big plants are coming on stream in the near future. If I’m right, and those really are crocuses out there and not some florid hallucination, then it’s time to load the boat with NG.

4) AIG has become such a despised company that the children’s TV program “Sesame Street” has removed the letters. “A,” “I,” and “G,” from the alphabet.

QUOTE OF THE DAY

“A fool with a plan can outsmart a genius with no plan,” opined T. Boone Pickens.

This is not a solicitation to buy or sell securities.

2 ) George Soros says that it is “inevitable” that commercial real estate falls another 30%. Rents are falling, tenant bankruptcies are rising, there are tons of debt to be refinanced for which there is no market, so cap rates are rocketing and “ghost mall” has joined the recessionary lexicon. This all adds up to lower prices. Some credit default swaps are trading at levels suggesting that a major REIT bankruptcy is imminent. I know George is sometimes prone to extreme statements, but this time he may be on to something. If you want a short play, or if you have an existing long position in commercial real estate which you can’t get out of and want to hedge, try a short position in the (IYR), although it has already dropped from $85 to $21. You can also play one of the sicker REIT names like Brookfield Properties (BPO).

3 ) Having trouble raising capital for your new hedge fund? Just list Warren Buffett as your “Honorary Chairman”. That’s what California prison guard Ottoniel Medrano did. To help his marketing efforts he also claimed that he had $4.8 billion in assets under management as well as massive real estate holdings in Asia. Medrano’s International Realty Holdings managed to raise $700,000 with this scam, which he promptly shipped to offshore bank accounts before the Feds shut him down. When you think you’ve heard everything, something like this pops up. Unbelievable.

4 ) The recent 69% leap in crude prices from $32 to $54 may mean that the next spike has already begun. We have been sowing the seeds for the last nine months. The US drilling rig counts has dropped by half to 1000, and it could go as low as 900. Credit squeezed companies have chopped exploration budgets to the bone. The few new wells that are being drilled are becoming increasingly expensive to bring on line. Mexico is the second largest foreign supplier of crude to the US, delivering 1.2 million barrels a day. But production at its main Cantarell field in offshore Yucatan is falling off a cliff, and the country will soon become a net importer. Buy that Prius while the lots are still full.

QUOTE OF THE DAY

“The funny thing is, in your twenties you try to look serious, and after your twenties, you just try to look hot,” said Meredith Whitney, rock star Oppenheimer banking analyst, who recently left to start her own firm.

This is not a solicitation to buy or sell securities.

2 ) Fuji TV, one of Japan’s leading television and film producers, will soon premier a Japanese language remake of the cult wine snob film “Sideways”. The Asian version will be released under the name “Kami no Shizuku”, or “The Drops of God”. The merlot-hating 2005 buddy film, which cost $16 million to make and earned $110 million, won five Oscar nominations and caused pinot noir sales to soar. One big change from the original is that the new film is set in Napa Valley, not Santa Barbara’s Santa Ynez Valley, enabling local producers like Frog’s Leap, Berringer, and Chandon to pile on to the product placement bandwagon. Wine sales in Japan have been steadily improving in the past decade, and the film’s producers are targeting an affluent, sophisticated, and presumably wine drinking audience.

3 ) Ralph Amendolaro won the New York lottery by playing the last three digits of Bernie Madoff’s prisoner ID number, 054. This is the first real money Madoff has probably ever made anyone.

4 ) Toyota launched its Prius 2010 model today, to much fanfare. The 3G model, which boosts gas mileage from 46 to 50 mpg, carries solar panels on the roof, and offers more elegant styling, will cost around $23,000, stripped down. To date, the Japanese car maker has sold one million of the snub nosed, high backed vehicles, which account for 50% of the global hybrid market. Toyota hopes this 3G model will fight off competition from Honda’s Insight and the Ford Fusion, but it won’t be easy. Hybrid sales fell 31% in 2008, and the US car market is now thought to be running at an 8.8 million run rate, down precipitously from the 19 million peak. This will be the last Prius model before Toyota brings out its plug in version next year, which will run on batteries only for the first 40 miles of every trip. A 3G win would give Toyota’s US traded ADR’s, which have recently plunged from $138 to $58, some much needed life support.

5 ) Desperate for new sources of revenue, Skype (EBAY) is pushing into the corporate market. Today it announced ‘Skype for SIP,’ that connects to corporate phone systems, and will begin beta testing the program with a limited number of companies. Skype will initially charge around 2.1 cents per minute for calls to cell phones and fixed lines, while calls from computers to phone systems will remain free. Ebay has long been dissatisfied with its Skype acquisition, and is thought to be shopping this subsidiary on the market.

QUOTE OF THE DAY

“There hasn’t been a recession yet that hasn’t ended,” said Abbey Joseph Cohen, chief strategist at Goldman Sachs (GS).

This is not a solicitation to buy or sell securities.

2 ) If you want to get an inkling of Obama’s new out of the box foreign policy weapon, listen to President Obama extended to Iran in an unprecedented YouTube New Year’s greeting beamed directly to the people of Iran. Check out this link. He said that Iran was a “great nation that should join its rightful place in the community of nations”, and that “It’s great and celebrated culture has made the world a better place”. The US is committed to diplomacy with the Islamic Republic of Iran, which should not pursue terrorism. He signed off with a Persian salutation, which was nothing less than stunning. One can’t imagine a more radical departure from the Bush doctrine, which brought the US nothing for eight years. No one has benefited more from tragic American missteps in the Middle East than Iranian extremists. This now puts the spotlight on Secretary of State Hillary Clinton’s carrot and stick approach to get Iran to dump its nuclear program. If it fails, she can use our new found moderation to recruit European allies to impose sanctions if the Islamic republic goes all the way. The only reason I care about this is that fresh troubles with Iran could trigger an instant $30 spike in crude prices on a bad day. This would send global markets tumbling, send gold through the roof, and snuff out any prayer of a recovery from this ghastly recession.

3 ) Satanists, occultists, and Tarot cards readers who follow the market closely (yes, there are some), called the S&P market bottom one point above the sign of the devil at 666. Does this mean my performance will improve if I draw a pentagram on my front door and engage in ritual chanting?

4 ) One of the stellar performers in the commodity space this year has been copper, up 50% to $1.87 since December. Heavy and secretive stockpiling of the red metal by Chinese, which accounted for a third of the world’s 18 million tons of consumption last year, has been a main driver. Of course, we are still less than half the $4.10 peak seen last year. But copper is the only commodity that has a PhD in economics, and when it flies, prudent hedge fund managers have to pay attention. As a predictor of future economic activity, it can’t be beat.

5 ) I’ll tell you what GM’s problem is. My dad was a lifetime GM customer, religiously buying a new Oldsmobile every five years. Once he even flew to Detroit for a factory tour and drove his new prize home. Thirty years ago I told him he was doing GM no favors by buying their cars, and the only way to force them to improve a tragically deteriorating product was to buy better made German and Japanese vehicles. This was right after the State of California forced auto makers to install seatbelts on new cars. Airbags and ABS brake systems were still years away. His response, “I didn’t fight the Japanese for four years so I could buy their cars.” (He was a Marine). GM’s problem is that my Dad passed away seven years ago. Of the original 17 million WWII veterans, 1,500 a day are dying, and there are only 1.5 million left. All of them loved Detroit because it built great Jeeps, Sherman tanks, and half tracks that brought them home from harm’s way. Their kids prefer German, Japanese, Italian, Korean, and soon, Chinese and Indian vehicles. It is no coincidence that GM’s problems really accelerated with the passing of the “greatest generation.” During the last 35 years, when Japan’s share of the US car market climbed from 1% to 40%, People have begged GM to mend their ways and build a quality, price competitive product that Americans wanted to buy. Their answer was always the same: “Nobody can tell GM how to build cars.” Maybe someone should tell them.

QUOTE OF THE DAY

“The children of Adam are limbs to each other, having been created of one essence,” Said President Obama, quoting a famous Persian Poet in his Internet New Years greeting to Iran. Heavy!

This is not a solicitation to buy or sell securities.

2 ) Has anyone noticed that the economies with the biggest infrastructure stimulus packages, the US and China, are having the biggest bounces in their stock markets? Those with a “deer caught in the headlights” policy response, like in Europe, are seeing a much less impressive move in their markets. Gee, do you think there is a connection?

3 ) When Citigroup (C) hit 97 cents two weeks ago, it became the first Dow stock to be offered on McDonald’s dollar menu.

4 ) IBM’s $8 billion takeover bid for Sun Microsystems (JAVA) at double the previous market price has sparked an explosion in call option buying by hedge funds betting the industry consolidation trend will accelerate. The big buyers in this sector, IBM (IBM) and Microsoft (MSFT) have cash coming out of their ears, and things certainly are cheap enough. Traders loaded the boat with perennial takeover targets like Network Appliance (NTAP), SanDisk (SNDK), EMC Corp. (EMC), and Citrix Systems (CTXS). A flurry of takeover activity is a classic sign of a market bottom. The best way to play this is to buy call spreads on all of them, and hoped you picked a lottery ticket

5 ) Last week traders were confused and disoriented when they saw something for the first time this year. Green arrows! It’s getting so I can’t tell the difference between the fake financial news on Saturday Night Live or The Daily Show and the real thing.

6 ) Honda has triggered a price war among Japan’s hybrid car makers with the launch of its new $19,000 Insight model. The price undercuts a stripped down version of the leading marquee Toyota Prius by a good 10%. Honda was able to beat the competition by using a smaller lightweight gasoline engine, slashing weight, smaller batteries, and sharing parts with its existing Civic model. The Japanese carmaker accomplished this at the cost of a mileage drop from 46 to 43 miles per gallon compared to the Prius. These are not small stakes Honda is playing for. In October, JP Morgan predicted that global annual sales of hybrid cars will grow exponentially from 500,000 to 9.6 million by 2018. The vehicles are expected to go a long way towards helping both the US and Japan wean themselves from unreliable foreign oil imports.

QUOTE OF THE DAY

“Cash bonuses on Wall Street are going to become a dinosaur,” said Jon Corzine, governor of New Jersey, and former chairman of Goldman Sachs.

This is not a solicitation to buy or sell securities.

2 ) I have a question, Mr. Market. If General Electric (GE) went down to $5, Bank of America (BAC) to $2, and Citigroup (C) to $1, where were the share buybacks? Are these companies too broke to buy their own shares, or do they think a few bucks over zero is too much to pay? I’m not sure I like either answer, or even my own question.

3 ) Early data show that the economy was getting traction even before B-52 Ben launched his carpet bombing campaign. Some $45 billion poured out of near zero yielding money market funds last week. Fannie Mae financed $41 billion in new home loans, the most in a year. Bring on the “V” recovery!

4 ) This could be the year of the Exchange Traded Fund (ETF), which was one of the few growth products in an otherwise disastrous year for the brokerage community. Asset allocators are attracted by the ability to make single sector bets, like in oil (USO), leveraged short plays that would otherwise be banned, like the 200% short long Treasuries fund (TBT), intraday trading, and low fees. The only thing missing is liquidity, which is still inadequate in all but a few of the biggest ETF’s. There is now thought to be $400-$500 billion invested in these funds, compared to $4 trillion plus in mutual funds, and the rate of innovation is accelerating. The early entrants in the field, like Vanguard and Barclays Bank, are raking in the cash, leaving more conservative families of funds like Fidelity in the dust. Expect to start seeing more ETF’s in your 401K’s and pension holdings.

5 ) President Obama is getting 40,000 letters a day from individuals and small businesses complaining that their credit has been cut off. He read a sampling.

6 ) There is now the equivalent of 60% of the US stock market capitalization sitting on the sidelines in minimally yielding money market funds. What else will Bernanke do to entice this money out of its bunker?

QUOTE OF THE DAY

“An investor has to guard against many things, and most of all against himself,” said Jessie Livermore, a legendary stock speculator of the twenties.

This is not a solicitation to buy or sell securities.

2 ) Consumer prices jumped by 0.4% in February, the largest increase since July, suggesting that we may not be plunging into a deflationary death spiral after all. Rising gasoline and clothing prices led the way. Expect contradictory economic data to increase from here.

3 ) Here is another mustard seed: Pfizer successfully floated a jumbo $15 billion multi-tranche, multi-maturity bond issue to finance its $65 billion takeover of Wyeth. The three-year paper was priced at 305 BPs over Treasuries, with the shorter term paper 195 basis points over three month LIBOR. These are not exactly bargain terms, but the fact that this deal got done at all is proof that life is certainly returning to the corporate lending market. Seeing investors show up tells you that some of the systemic risk is starting to ebb.

4 ) OPEC voted to keep quotas at their current reduced levels, spurring crude to top $50 yesterday, a two-month high. At this point, helping revive near comatose importers with low prices is more important for members than squeezing out a few more dollars in revenues. The cartel has done a better job keeping cheaters in line than in the past, with Saudi Arabia doing the heavy lifting on production cuts. We are backing off a couple of bucks today because of a surprise 3.2 million barrel jump in gasoline inventories. But the enormous contango has started to shrink, suggesting that the $32 low we saw in December is looking safer by the day. Could crude’s revival be another early hint at a recovery in the broader global economy?

5 ) I’m glad that I’m not counting on an AIG bonus check to clear the bank. CNBC has turned into the AIG channel. I can only imagine how that annual review conversation went down. “The good news is that your bonus is $5 million. The bad news is that you will have to spend $25 million in legal fees defending it”. Thank goodness for small favors. What hath Obama wrought?

QUOTE OF THE DAY

“To be right when a great power is wrong can be a dangerous thing,” said Benjamin Franklin. He should know.

This is not a solicitation to buy or sell securities.