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1 ) I am more convinced than ever that real estate has another 25% to fall, and best case, it is dead money for another five to ten years. The New York Times produced some insightful data on inflation adjusted home prices for the last 120 years, which baselines at a $100,000 for a single family home in 1890. Few people realize how superheated the recent real estate bubble really became. Past bubbles very consistently peaked at $125,000 in 1896, 1979, and 1989. This last one peaked at $205,000 in 2005, almost double the previous record highs. And while we have dropped 34% since then, to $135,000, we haven’t even fallen to the past all time highs yet. If you look at historical lows, my call for a further 25% slump looks positively bullish. We saw lows consistently around $66,000 in 1920, 1932, and 1942. Postwar lows came in at $105,000 in 1976, 1983, and 1996. These figures suggest the best case low is down a further 28%, and the worst case is down another 51%. I think I’ll go find something else to trade.

2 ) After a merciless torrent of budget cuts, California’s public education system has been bled dry, and now ranks 50th in the US, down from number one fifty years ago. The golden state now spends more on its 170,000 prisoners than on educating the young. When I recently tried to get Fedex to send a package to Japan, the clerk thought it was a city on the east coast and refused to take it because she couldn’t find the zip code. I ended up mailing it. Those trying to engineer an economic recovery in California don’t understand that you can’t become globally competitive with a dumbed down work force.

3 ) If you are wondering why it has become so hard to sell wine, look at this chart of personal consumption cuts which I fudged from “Business Week”. It says that Americans have chopped their purchases of alcoholic beverages by $11.2 billion YOY. Opening a restaurant is even a worse idea because spending there has dropped by $55.7 billion.

QUOTE OF THE DAY

“The dark side of the moon is the hardest to see,” said Nassim Taleb, author of The Black Swan-The Impact of the Highly Improbable.”

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1 ) Fed chairman Ben Bernanke did a great interview with CBS 60 Minutes last night. It’s nice to know that the recession “might” end this year. He ruled out the big banks going to zero, which is great news for Bank of America (BAC) and Citigroup (C). This should support global stock markets for at least another day, and every day helps! Who knew he missed only one question on his SAT test to score a 1590 and that his mother didn’t want him to go to Harvard because he didn’t have the right clothes? I bet it was a question in the verbal section. It was all a nice bit of hand holding while we may be enduring the worst quarter for the economy in a century. If we don’t surpass the -8.1% seen in Q1, 1981, it will certainly be in the top three worst quarters of all time. Anyone going shopping, visiting a car dealer, or waiting in long lines for unemployment benefits will tell you this. By the way, BAC is now trading like a penny stock, up nearly triple from last week’s low. A BAC triple? Pinch me!

2 ) Ian Bremmer, President of the Eurasia Group, the world’s preeminent independent risk control consultant, passed through town last week to promote his latest book, The Fat Tail: The Power of Political Knowledge for Strategic Investing. The book details how money managers must become cognizant of and deal with foreign laws, regulation, government turnovers, civil unrest, expropriation, terrorism, and war, in order to survive in this increasingly complex and interconnected world. Globalization has ground to a screeching halt. Governments are now more important than multinationals in influencing our economic future, and a new form of “state capitalism” is emerging. We are shifting from a unipolar to a nonpolar world. Iraq is morphing from war into a peace keeping operation, while Afghanistan is rapidly moving in the opposite direction. Geopolitical risks are rising. With crude at $46 a barrel there is no Iran premium currently in the market, and $20-$30 could price in very quickly. China and Brazil are the long term winners in the new set up, and the dollar is the big loser. The greatest risk to the US is its overdependence on borrowing from China. This is a must read book for any hedge fund manager struggling with his global risk exposure and looking for some great long term plays.

3,) In one of the worst market timing efforts ever, the Financial Times reports that China dramatically increased its weighting in equities and other risk assets for its $1.8 trillion in reserves in early 2007, just before the markets crashed. The, unfortunately named, State Administration of Foreign Exchange (SAFE) boosted its holdings in US equities alone, from $4 billion to $100 billion, which have since dropped at least by half. It turns out the China took its hard earned profits from US exports and used the money to buy, now worthless, American lottery tickets. I’m glad I’m not the guy who has to explain this decision to the country’s senior leadership. At least poorly performing fund managers in the West don’t face firing squads, or at least not yet.

4 ) The Top Ten Messages found on Bernie Madoff’s answering machine, according to comedian David Letterman:

10 ) “This is Barnes & Noble. I’m sorry we don’t sell calendars for the year 2159.”
9 ) “Hey Bernie, I’ve been out of the country-how are my investments doing?”
8 ) “Blockbuster calling. Your copies of “The Great Escape” and “The Shawshank Redemption” are overdue.”
7 ) “Do I have the correct number? Is this 1-800-F***-***?”
6 ) “It’s Ruth—if you go out, remember to swindle some milk and eggs.”
5 ) “If you’re under house arrest why aren’t you home?”
4 ) “Sorry, I didn’t mean to dial your number. I just sat on my phone.”
3 ) “Hi Bernie, its A-Rod’s cousin. You looking to bulk up for prison?”
2 ) “It’s Michael Phelps. Need something to help you relax?”
1 ) “It’s George W. Bush. Can I still get in?”

QUOTE OF THE DAY

“How badly can you get hurt falling out of a basement window?” said Bob Brusca of Fact and Opinion Economics about current stock prices.

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1 ) Forbes Magazine has published its annual list of the 400 wealthiest, and the carnage has been awesome. The net worth of the elite club has shrunk from $4.4 trillion to $2.4 trillion, with the average dropping from $3.9 billion to $3 billion. Bill Gates, worth $40 billion, jumps back up to the number one position, even though he lost $18 billion in 2008. The number of billionaires has plunged from over 1,100 to 793. Among the fallen are Citigroup’s Sandy Weil, Facebook’s Mark Zukerberg, AIG’s Hank Greenberg, and of course, Sir Alan Stanford. China managed to add five new billionaires, including Wang Chuanfu, founder of battery maker BYD, who has attracted backing from Warren Buffett for his electric car efforts.

2 ) The global economic collapse has finally hit China with full force, knocking down exports by 25.7%, and shrinking imports by 24% in February. The ghastly figures show how rapidly international trade is shrinking. China’s trade surplus is in free fall, and it is just a matter of time before the renminbi starts to fall against the dollar. Do you suppose that anyone in the US government understands that this will lead to fewer Chinese purchases of Treasuries, just when they need to sell the most? Better double up on the TBT, the 200% short long bond ETF.

3 ) Looks like we are going to have to invent ourselves out of this mess. One third of US GDP is produced by companies that were created after 1980. Almost all new jobs are created in firms that are less than five years old. These figures show that innovation is the primary driver of new hiring.

QUOTE OF THE DAY

“For decades, the money shufflers, the paper shufflers, have been the captains of the universe. That is now changing. The people who produce real things will be on top. You’re going to see brokers driving taxis,” said legendary investor Jim Rogers, former partner of George Soros.

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1 ) Noted international monetary economist Judy Shelton believes the US should return to at least a partial gold standard to help damp volatility in the $4.4 trillion a day foreign exchange market to hasten an economic recovery. The current “dirty float” system, where a free market is subject to occasional coordinated central bank intervention that emerged after the collapse of the original Bretton Woods agreement in 1973, is not working. The US currently holds 260 million ounces of the yellow metal, which for some arcane government accounting reason is still carried on its books at the old fixed rate of $42 an ounce. At today’s prices the holdings are worth no less than $231 billion. Such a system would make it easier for governments to manage interest rates and control inflation. The highlight of the evening came when she passed around a ten ounce gold bar worth $9,000 and a one billion deutschmark Weimar Republic bank note, both of which were miraculously returned to her. In the meantime, the recent bounce in global stock markets raise the risk that we have put a medium-term double top in the chart for the barbaric relic.

2 ) The economic crisis is accelerating the demise of print journalism, whose migration to the Internet was already well underway as cash-hemorrhaging owners desperately took a hatchet to costs. Advertising by car dealers has almost vaporized, and revenues from retailers are off by half. The Seattle Post-Intelligencer is in the process of downsizing from print to online only, and early indications are that 85% of the staff will be laid off. If you extrapolate these figures nationally, 37,000 of the 44,000 full time employed journalists in this country are soon to be fired. Newly laid off investment bankers, brokers, and hedge fund managers hoping to build second careers as writers are jumping out of the frying pan into the fire.

QUOTE OF THE DAY

“When we declared war in 1941, there were not 8,000 earmarks attached,” said Warren Buffet in chiding Congress for its handling of the economic crisis.

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1 ) February non-farm payroll came in at -651,000, taking the unemployment rate up to 8.1%, a 25 year high. The unemployment rate in California is now well over 10%. There were huge revisions up in the December and January figures. Remember when the market used to have a heart attack over a job loss of 100,000? Those were the days! More than 4.4 million workers have lost their jobs since December, 2007, taking the total unemployed to a record 12.5 million. It may be only a matter of months before we surpass the 1981 peak unemployment rate of 10.8%. These figures suggest that the current quarter GDP could be as low as -8%, the worst since the thirties.

2 ) Spreads on commercial real estate-backed mortgage securities have absolutely blown out to the upside, with the lowest grade BBB- paper now yielding a staggering 45% over Treasuries. This is more than double the peak seen in the wake of the Lehman bankruptcy in September. It reflects just a few throw away bids by opportunistic hedge and vulture funds outside of a closed market, and equates to about 20 cents on the dollar. These are levels anticipating nothing less than a Great Depression II and the utter collapse of the commercial real estate market. The reasons, which you well know, have already been detailed in these pages: failing tenants, emptying malls, too much leverage, and no refinancing. This is one of the reasons why General Electric (GE), which has heavy exposure in the sector, is trading at the $5 handle, down from $38. This is all happening when some of the most expensive and luxurious commercial space ever built, which broke ground three years ago, is about to swamp the market.

3 ) It now takes only four shares of Citigroup (C) to buy a cup of coffee at Starbucks. The stock market has hit twelve year lows only three times in the last 109 years. Remember, bottoms are made when things look terrible and are getting worse. I am not a big market timer, but this certainly qualifies as one of those times. If you assume that we are seeing the worst economic conditions this quarter since the Depression, then we are setting up for improving conditions in Q2, and the market will start to discount that. Today we hit 35% below the 200 day moving average in the S&P 500, which if you are a technical analyst, occurs about as frequently as Haley’s comet. The short interest out there is enormous, and the trade is getting too easy. Even my cleaning lady is running a leveraged short on the S&P 500. Could the short bubble be the next one to pop? Watch for another furious 10%-20% bear market rally ensue in the next few days or weeks.

4 ) There is more speculation that China may lead any upturn in the global capital markets. China’s holdings of US government bonds leapt by $250 billion last year, through capital appreciation alone, taking their current market value to roughly $1.25 trillion. To finance a domestic reflationary program, China need only sell some Treasuries, not print money, as the US must. This would involve converting a sizeable chunk of the Middle Kingdom’s productive capacity away from US oriented exports to domestic consumption, particularly accelerated and much needed infrastructure spending. This would be painful in the short term, to say the least, but is necessary for the long term. This would enable the Chinese stock market to lead the world out of the current morass. I like the iShares FTSE/Xinhua China 25 ETF (FXI).

5 ) Clever traders are keeping a sharp eye out for things to buy for the next recovery, whenever that is. Look at the industry of the future in the country of the future, Chinese Internet shares, which are growing 15%-30% a year with strong cash flows. Baidu (BIDU), which is often referred to as the Google of China, saw its shares sell off 75% last year, but have rallied 75% from the December lows. Internet use in China is expected to increase from 250 million to 900 million over the next 5-10 years. The majority will access the net via cell phones, where gaming is the dominant application. Expect huge growth at the four horsemen of the Chinese Internet sector which also includes Netease (NTES), Sina (SINA), and Sohu.com (SOHU).

6 ) A year ago GMAC financed 1,500 cars for Autonation, the country’s biggest auto retailer. Last month they financed only nine, despite much higher demand. This tells you where the real problem is.

QUOTE OF THE DAY

“Pessimism is your friend, euphoria the enemy,” said Warren Buffett in his 2009 letter to shareholders.

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1 ) Q4 European GDP came in at -1.5% and consumer spending registered the sharpest fall on record, while exports fell off a cliff, the victim of a relentless shrinking of globalization. The euro ($XEU), down to $1.2450, is flirting with a new four-year low. The Continent continues to pay the price for the disastrous decisions and lack of experience of the EC central bank president, Jean-Claude Trichet, who raised interest rates last summer.

2 ) Buy a house and pay no taxes for a year: that is what the government is saying with the most generous tax credits in history for first time buyers of new homes. Buyers in California with incomes under $75,000 can cash in on $18,000 in tax credits ($10k in state, $8k in federal) that were slipped into the stimulus program. This is on top of incredibly generous financing, free upgrades, and no fee loans offered by desperate sellers. The package also raised the FHA loan limit from $625,000 back up to $729,000, crucial in the high cost markets of California, New York, and Florida. The only catch is that one must stay in the house for three years to reap the full benefit. Flippers need not apply.

3 ) Charlie Rose did an insightful interview with Marc Andreesen last week, who has one of the best high altitude views of the future of technology. This is the man who, at 22, co-authored the Mosaic browser, which was used to create Netscape Navigator, and eventually Internet Explorer. He sees the recession creating a “tragic opportunity” that accelerates the migration of dying industries to the Internet such as, radio, TV, DVDs, music, newspapers, real estate, and banking. Every day the awesome power of the Internet to eat new industries grows, which is now populated by 1.5 billion users. His favorite game is the incredibly violent “Gears of War 2” which you should keep out of the hands of your teenagers. Venture capital start-ups are not as endangered as people say because they are usually funded with five years of cash flow, enough to get through a downturn. Google, YouTube, and Facebook were all developed during the last recession. The Internet is creating a far better educated and connected consumer than ever seen before. Twitter, where Andreesen is a director, is becoming a real time electronic nervous system for the planet. The same is happening with the world’s three billion video enabled cell phone users. He is also on the board of Facebook, with 175 million users, which is leaving at least a $1 billion a year in potential advertising revenues on the table. He is an angel investor in the social networking site LinkedIn, which now boasts 20 million resumes. All in all, it was a fascinating glimpse into the future.

4 ) One out of five stocks in the S&P 500 has a single digit price. General Electric (GE) hit the $5 handle. Amazing. This is a company that has $45 billion of cash, $60 billion in back up government financing, and has already rolled over 70% of its long term debt due this year. GE Capital will be profitable this year, because only 2% of its holdings are subject to mark-to-market rules. CFO Keith Sherin says the only explanation for a share price that is a hat size is the rampant fear now sweeping the markets.

5 ) Google (GOOG) CEO Eric Schmidt says it is obvious that the news is bad and getting worse, that we are not at the bottom yet, and that we have some quarters to go. Watching traffic, it is clear that advertisers are tightening budgets, but the number of online advertisers is increasing. He thinks the recovery will start first in the US and then spread overseas. However, the company does not expect any decline in its own revenues. Does Google own the planet, or what?

QUOTE OF THE DAY

“If something can’t go on forever, it won’t,” said Herb Stein, Chairman of the Council of Economic Advisors under presidents Nixon and Ford.

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1 ) The US is turning into Europe. Think high taxes, high unemployment, more government involvement in everything, and much lower growth. That is the message the markets are telling us by retreating to the 6,000 handle, levels not seen since 1996, and down 54% from the peak only 17 months ago. Equity prices are shrinking to multiples, in line with a permanently lower long term growth rate of maybe 2%, a shadow of the 5% rate seen for much of this decade. Maybe this is what mature economies are supposed to look like. If one does buy American stocks, he should only buy the ones that are really foreign stocks with American sounding names. Microsoft (MSFT), Intel (INTC), Oracle, (ORCL), Cisco (CSCO) all get 60%-70% of their profits from overseas where high growth rates have migrated.

2 ) Bank of America’s (BAC) Ken Lewis says that he won’t resign until he pays back the $45 billion in TARP money he owes the government. So paying $50 billion for something that is really worth a negative $170 billion is a bad career move? That’s a revelation! I can see that secrecy is a concept that will be forever banished from the investment community. CEO’s won’t be able to make an acquisition, nor fund managers raise a single nickel from here on, without a complete undressing.

3 ) Warren Buffet and his managers feel like “hungry mosquitoes in a nudist camp.” So he revealed in his annual letter to investors in Berkshire Hathaway (BRK/A). I love it! This gem is an absolute must-read for anyone in the markets. Although Buffet massively outperformed the indices, book value fell 9.6%, the worst performance since he took the helm in 1965. He admitted he did some “dumb things”, like adding to his holding in Conoco Phillips (COP) at the absolute top in the oil market, at the expense of safer stocks like Johnson & Johnson (JNJ). If you analyze his balance sheet and income statement, you can see the method to his madness. He only increased his net equity exposure by $1.3 billion. Much of his new investment went into high-guaranteed return instruments, like 10% preferred in Goldman Sachs (GS) and General Electric (GE). He has greatly improved the long term cash flow of BRK/A at the expense of a short term hit to book value. Moves like this justify his “Sage” appellation.

4 ) While American banks have their subprime crisis, European banks are being dragged under by their lending to emerging economies in Eastern Europe. Led by UniCredit in Italy, Austria’s Erste Group Bank and Raiffeisen International, France’s Societe Generale, Belgium’s KBC, and Hungary’s OTP, banks have lent $1.6 trillion to companies in these formerly communist countries at cheap rates, with minimal documentation, and few questions asked. The easily available credit caused local money supplies to explode, and sparked bull markets in both stocks and currencies. Emerging Europe grew at double and triple rates in the West, as local companies pumped up on steroids became the master of leverage. Now $400-$600 billion is due for rollovers this year from nonexistent credit markets, and the vultures have come home to roost. Economic growth has fallen off a cliff, with Poland’s seasonally adjusted industrial output down in December a precipitous 7.4% YOY. The Polish stock market fell 48% last year and the zloty is off 40% against the dollar from its June peak. The Central European Equity Fund (CEE) has crashed 80% in eight months. The crisis is so severe, it may postpone Poland’s entry into the Euro block, which had been scheduled for 2011. Home mortgage borrowers are in especially bad shape. Up to 50% of their loans were denominated in Swiss francs, so the collapsing Polish currency has caused a near doubling of borrowers’ monthly payments and principals since last year. Austria really has its knickers in a twist, as these heavily syndicated loans account for 80% of GDP. A 10% default rate could wipe out the entire banking system there. Germany has the smallest loan exposure, but has the most to lose, with 25% of its exports headed east. It is now in negotiation with its partners in the EC to cobble together a bailout with the help of the IMF to provide bridge financing for these loans, and hopefully ward off a further economic collapse. It looks like the headlines in Europe are about to get uncharacteristically sensational.

QUOTE OF THE DAY

“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.

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1 ) Welcome to the worst case scenario, with Q4 GDP revised down from -3.8% to -6.2%. Q4 will be just as bad, if not worse, then we will find a bottom. Technical analysts were ringing their hands as the Dow hit a new 12 year low and the S&P 500 broke key support at 740. Thank God I don’t believe in that mumbo jumbo. Natural gas hit a new six year low at $3.90, and even gold backed off to $928. Citigroup (C) is now so cheap at $1.40 that you could launch a hostile takeover with your American Express card. It really had the flavor of a “throw up your hands and sell everything” day.

2 ) Thomas Ricks, author of the best selling The Gamble: General David Petraeus and the American Military Adventure in Iraq, 2006-2008, says that we are only half way through the war, and our unfortunate involvement there could run as long as another 16 years. The surge has failed, our casualties are rising, and U.S. credibility with Iraqis is zero. Bush blew a cozy set up that worked for a decade where Saddam was contained at minimal cost. Talking is more worthwhile than fighting, and it is cheaper to hire someone than to kill him. General Petraeus figured this out, so we now have 100,000 enemy fighters on the payroll costing $30 million a month. It was easy to walk away from Vietnam and leave a few million locals in re-education camps. Iraq won’t be so easy, because it sits atop, or adjacent to the world’s largest oil supply. Eventually, Iraq will evolve into another Lebanon where you have multiple competing armed groups. The big winner in all of this is Iran, which has seen its prestige grow in the Middle East at our expense. Iraq will continue to be a huge financial drain on the U.S. for decades, no matter what Obama says. All very sobering thoughts, with big implications for the markets.

3 ) With gold bugs, survivalists, and garden variety hedge funds running victory laps over the yellow metal’s recent breach of $1,000, it is easy to miss the move in silver that has been twice as impressive. Silver has run 30% this year to $14.60 an ounce, despite the steady deterioration in industrial demand. Silver ETF buying has exploded by 1,676 tons to bring its total to 9,929 tons. Sales of silver American eagle coins have doubled to four million ounces so far this year. The metal may have more to run. Hedge fund longs, which peaked last year at 50,000 futures contracts, have so far reached only 23,100 contracts in this round, but risk managers are going to have to keep an extra sharp eye on silver positions. A turnaround by the Dow or the yen against the dollar could suddenly take the air out of this bubble.

4 ) Anyone with any illusions about the Canadian tar sands business should take a look at the March issue of National Geographic, (not normally a prime source of financial and economic news for me). I’m not normally a big time environmentalist, but just looking at the glossy, eye opening pictures tells you that this is this an ecodisaster of biblical proportions. A $50 billion investment by several firms over the last decade is now producing 750,000 barrels/day, and another $100 billion was headed north before prices crashed last year. You have to cut down a whole forest, remove two tons of peat, then another two tons of sand, and burn 100 barrels of oil equivalent to heat rivers of water to steam, just to produce a single barrel of oil. This gives you the world’s highest production cost, thought to be $80-$100/barrel. There are now 50 square miles of sludge ponds in Northern Alberta leaching a witch’s brew of poisons into the water supply, which has caused the local cancer rate to explode tenfold. We’re not just talking about a few sick ducks and fish here. Canada is the largest foreign supplier of oil to the US, accounting for 19% of the total, and half of that is coming from tar sands.
One can only assume that the whole industry was built as a hedge against some Third World War, Armageddon type total-cut-off-of all-foreign-crude-supplies that would drive prices to $500/barrel, making all of this hugely profitable. Maybe the owners think they can get away with this because it is in the middle of nowhere. An army of lawyers about to hit these projects with a tidal wave of litigation think otherwise. After looking at these pictures and analyzing the numbers, you have to ask if it is really worth it, just so I can drive my Hummer to Walmart.

QUOTE OF THE DAY

“You cannot motivate the best people with money. Money is just a way to keep score. The best people in any field are motivated by passion,” said open source advocate Eric S. Raymond.

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1 ) So nationalize the banks already! Get it over with! Call it whatever you want: partial nationalization, temporary nationalization, socialization, liverwurst, or rutabaga. Just get it over with! This tortuous slow drip of on again, off again, stop gap measures is going to cost us more than if we executed the politically incorrect “N” word. Of course, a government takeover is the worst nightmare for many Republicans. But now that former Fed governor Alan Greenspan and many fiscal conservatives are on board, this shouldn’t amount to political suicide for Obama. The FDIC’s Sheila Bair already does this on an almost daily basis with smaller regional banks, like Washington Mutual, but for some reason the top nine “too big to fail” banks are sacrosanct. Their deposits have been effectively nationalized with government guarantees since last fall. The market is already selling us that many of these once hallowed institutions are now worthless. This is what Citigroup (C) at $1 and Bank of America (BAC) at $2 are telling us. Just wipe out the pitifully little the common shareholders have left, clean them up, and resell them in five years after the credit markets are restored. Every government that ever did this, like the UK in the eighties and Hong Kong in 1998, made a fortune. Serious coin was made by the sellers and the buyers. Not to drive a stake through the hearts of these de facto “zombie” banks really would risk a Great Depression II and an “L” shaped lost decade. The markets would love decisive and surgical action like this and rocket.

2 ) Looks like the San Francisco Chronicle may be about to join the dustbin of history. The industry rag, Editor and Publisher, says that the privately owned Hearst Corporation has given the venerable paper an ultimatum to cut costs or close. The 150 year old Chronicle lost $50 million last year. Of course, this may all be a ploy just to beat up one of the last surviving unions, but they have made a similar threat to their paper in Seattle. Ironically, Hearst acquired the Chronicle and dumped the San Francisco Examiner in 2000, which was then put on a crash diet and made profitable by its new owners. If the Chronicle goes it will join the Philadelphia Enquirer which went under last week, and the soon to be shut Christian Science Monitor. Google has been eating their lunch for years. It is tough to chop down a forest to make paper, get a union to print it, and manually distribute your product, and then compete against a one man email blast on costs. If the Chronicle goes, it will be survived by a much smaller SFGate.com, one of the most successful web based newspaper portals out there. There could be a ninth inning save by a surprise buyer, but moguls willing to lose money just to promote a political view are a dying breed. Rupert Murdoch has been the only recent buyer of newspapers, and something tells me that a match with the Chronicle would not exactly be one made in Heaven. It’s sad to see newspapers go, but you can’t exactly sit like Denmark’s old King Canute and order the tide to stop rising.

3 ) Joe Biden’s chief economist Jared Bernstein made an interesting comment today. He implied that Obama had a tough time crafting a stimulus and recovery plan because so many government data releases last year were massaged, distorted, obfuscated and misrepresented to hide how serious the unfolding economic crisis really was.

4 ) Expatriates have been bailing on Dubai so fast that there are now 3,000 abandoned luxury cars parked at the airport. Those with multiyear leases who don’t want to pay early return penalties are just abandoning their vehicles with the keys left in the ignition, some with apology notes taped to the windshield. In the UAE, failure to pay debts can get one locked up in a local prison.

QUOTE OF THE DAY

“Do not allow our newspapers to degenerate into propagandist organs,” said the late press baron, William Randolph Hearst.

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1 ) The Senate Banking Committee holds hearings while Rome burns. The S&P Case-Shiller Home Price Index showed a Q4 fall of -18.2%, the sharpest decline in its 21 year history. Prices in San Francisco fell by 31.2%. We got within 100 points of a 6,000 handle on the Dow this morning, and a print there would have sparked a global stampede to the restroom. But Bernanke managed to assuage fears today, prompting a 234 point rally in the Dow. All ears are on Obama tonight.

2 ) Gold finally hit a wall just above $1,000, and instantly melted $50. For many traders who got in just above $700 three months ago, it’s time to say thank you very much to Mr. Market and either wait for a substantial pull back, or go on to the next trade. It was taking increasingly larger purchases of physical gold by ETF’s and coins by individuals to push the price up. CME statistics showed the speculators’ position soared to a net long of 215,661 contracts ($21.5 billion). The SPDR Gold Trust ETF (GLD) added five tons of the barbaric relic to 1,029 tons in just one day. The turnaround neatly sets up a double top on the long term charts with the high set last year. It may take a couple of more runs, and more bad news, which seems in abundant supply, to get the yellow metal to a true new high.

3 ) The forecasting firm Macroeconomic Advisors says that we are going through the “epicenter” of the recession right now. They see Q4 GDP being revised down from -3.8% to -6.0%, and that Q1 will come in at -5%. These numbers fall somewhere in between the 1974 recession and the Great Depression in terms of their severity, and are double the worst case scenario offered only three months ago. A tsunami of infrastructure spending, stimulus, and newly recapitalized bank lending will bring positive growth of 2% in the second half. Lower interest rates are slowing down the home foreclosure rate. Many states and municipalities, like Denver, started shovel ready projects the very second that Obama signed the stimulus bill, but it will take months to see the impact on the data. In layman’s terms, thing are about to get a lot worse, then a lot better pretty quickly, giving us a classic “V” type bottom for the economy.

4 ) With many analysts expecting commercial real estate to be the next shoe to drop in the financial crisis, there is already maneuvering to get a bail out in place before the sushi hits the fan. “Ghost malls” now widespread around Michigan are spreading to the coasts like a highly contagious plague. Simon Properties (SPG) and Westfield have gone to the extremes of shortening hours to save money on staffing costs and electricity. The trigger will be impending failed rollovers of the debt of a couple of big REITs, of which over a $1 trillion are coming due. The Treasury’s TALF program will be expanded from CDO’s backed by student loans, car loans, and credit cards to include commercial real estate loans, giving the industry the safety net, and the breather it needs.

QUOTE OF THE DAY

“There is only one side to the stock market, and it is not the bull side or the bear side, but the right side,” said Jesse Livermore, the famed stock speculator of the 1920’s.

This is not a solicitation to buy or sell securities.

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