Warren Buffett has said the American economy is a "shambles." Buffet told CNBC that the worst of the financial crisis peaked late last year (we're not so sure). But the economic crisis? That's still in full flight.

"I get figures on 70-odd businesses, a lot of them daily," said Buffet. "Everything that I see about the economy is that we've had no bounce. The financial system was really where the crisis was last September and October, and that's been surmounted and that's enormously important. But in terms of the economy coming back, it takes a while."

"A while," is not a precise unit of time. But Buffet is probably right. "There were a lot of excesses to be wrung out and that process is still underway and it looks to me like it will be underway for quite a while. In the (Berkshire Hathaway) annual report I said the economy would be in a shambles this year and probably well beyond. I'm afraid that's true." However, Buffet remains optimistic that eventually we'll grow our way out of this recession.

Agronomy-for-algae?

$800 million has been given to biodiesel research by way of the stimulus, much of which will go to algae biodiesel research.

It's hard to profit from research unless a private company makes a major breakthrough.

What's worse, the DoE's Algal Roadmap puts it in plain terms that:

The current state of knowledge regarding the economics of producing algal biofuels are woefully inadequate to motivate targeted investment on a focused set of specific challenges. Furthermore, because no algal biofuels production beyond the research scale has ever occurred, detailed life cycle analysis (LCA) of algal biofuels production has not been possible.

In short, the science of algae cultivation (algaculture), agronomy-for-algae, if you will, does not exist. It is thus clear that a significant basic science and applied engineering R&D effort including a rigorous techno-economic and LCA will be required to fully realize the vision and potential of algae.

Nonetheless, several companies are in hot pursuit, trying to eliminate every hurdle to commercialization they can and securing a windfall payout in the process.

Investors are doing the same. But so far, finding a winner has been as successful as the hunt for commercialization.

But the research goes on. Best possibility  http://www.originoil.com/ but this seems a long way off – not a buy recommendation.

THE DEFICIT

In the eighth straight record-setting month, the deficit now stands at $991.9 billion fiscal year-to-date, even larger than consensus expected.  Relative to the prior year, government receipts were down 5.7 percent, while spending went the other direction, up 5.8 percent.  Oversized deficits will be a reality for the foreseeable future. 

Paul Swartz, an International Economics analyst at the Council on Foreign Relations, presents the recession, in context, in graphs (in a PDF).

The following graphs, from the appendix of Swartz's report, compare this recession to the Great Depression and the pre-/post-war recession averages:

        I think the graphs speak for the themselves, but here are some micro-conclusions. In reverse order: 1) US Trade (i.e. the sum of imports and exports) is historically terrible, but we're nowhere close to Great Depression depths; 2) Real home price and federal deficit collapses are historically disastrous, although in the Great Depression, you can see how long it took for the US to begin serious deficit spending; 3) Inflation is still historically low.   Ben Bernanke has his work cut out.

The 10 Hottest Commodities of 2009 

1. Unleaded Gas +79.1%; ETF - United States Gasoline Fund (NYSE: UGA) +66.2%
2. Copper +56.9%; ETF – Barclays IPATH DOW JONES AIG COPPER  (NYSE: JJC) +55%
3. Crude Oil +48.3%; ETF - Powershares Dynamic Oil Services (NYSE: PXJ) +34.3% and DIG, OIH
4. Orange Juice +36.6%; ETF - Market Vectors Agribusiness (NYSE: MOO) +30.3%

note, MOO is DAXglobal Agribusiness Index which invests in US and foreign companies primarily in the business of agriculture.; however there is no pure play orange juice ETF]

5. Silver YTD +35.6%; ETF - iShares Silver Trust (NYSE: SLV) +38.8%
6. Sugar YTD +26.1%; ETF - iPath DJ AIG Sugar (NYSE: SGG) +18.9%
7. Coffee YTD +23.5%; ETF - iPath DJ AIG Coffee (NYSE: JO) +25.5%
8. Soybeans YTD +20.6%; ETF - Powershares DB Agriculture (NYSE: DBA) +5.9% [note, DBA is a mix of soybeans, wheat, corn, and sugar]
9. Heating Oil YTD +20.6%; ETF - United States Heating Oil Fund (NYSE: UHN) +18.2%
10. Nickel YTD +19.2%; ETF - iPath DJ AIG Nickel (NYSE: JJN) +20.1%

If you want to have some real fun, be aware that many of these subsectors of the commodity space have Inverse, Double Long, and Double Short tied to them.  

Talk to Banner as we can actively trade these in Portfolio Accounts US$200,000 and above.

3A commodity fund is the best fund of funds way to successfully invest in commodities, particularly in the volatile economic times that we are experiencing.  Yet, the 3A Commodity Fund returned 27% in 2007, 8.6% in 2008 (commodity indexes lost 62% on average) and is up 10.6% this year.   What separates this fund from the rest is that it is made up of 7 diverse sub-funds whose managers have spent a lifetime trading commodities.  The least experienced has traded commodities for 13 years and the most experienced for 44 years.  At this point 85% of their trades are relative value, meaning they are not relying solely on directional bets but are using their years of experience to gage which commodities or grades of commodities will increase or decrease in value in relationship to each other.

If you have extra Yen available, now is the time to take advantage of the strong Yen and invest it as the Yen strength will not last, just remember 1994-1995 we do.

So what is next?  We are still in a bear market rally --  a counter trend rally – the major trend is still down, (intermediate trend is up) however this will be tested by the 89 week moving average as this is now resistance so what may happen is over the next several months we will chop back and forth but most importantly UP for a while, we think perhaps several months.  Then once (or if) we meet the 89 week moving average we will be at a turning point either up or (IMHO) down to retest the lows if this happens this will be the scary drop and the shrilling screams of depression will come.  But this move will have possibly another 20-30% upside then we can decide to go to cash or to invest using  Short funds there are a multitude of ways to make money in this market it is a great time to invest!  Even with the possibility Swine Flu just look at GILD and BAX or SVA all great places to invest short term.   

The above has been something we have been saying for some time now, there is no need to sit in cash.  As we will watch the signs and act according to the trends and charts the 89 week moving average is just one simple one to use as a guide once or if we get there we will see what is next. 

You should now be investing into Agriculture, Energy, precious metals and managed futures funds. Why?  Simple first we all need to eat, thus agriculture is an obvious choice.  Second, energy is needed to keep the world moving and there is a coming shortage.  The shortage is being ignored at present because of the world slowdown but the reality of peak oil  has arrived; once it comes back into main stream thinking the world will be utterly unprepared for it. Third, precious metals this should have a place in the portfolio for the simple hedge against inflation, but also as protection against stupid government policies and global breakdown. 

Hedge funds and Managed futures; One of the lessons from 2008 was that in extreme conditions, the normal mathematical expectations underpinning hedge funds may cease working, counterparties may fail, or important techniques may be arbitrarily removed. They may even be subject to fraud. However, this is not the case with funds that trade on public exchanges through margined contracts. The process is transparent and liquid, and the exchange eliminates the risk of counterparty default. There are a number of such funds which made from between 8% and 35% in 2008. Some of them have capital guarantees. They make good core holdings in a portfolio.

Investing is fraught with risk and reward; asset allocation and timing is everything  - please give us a call and we are happy to assist. 

Banner Japan K.K.

4F Esperanza Ebisu Bldg

3-2-19 Ebisu Minami

Shibuya-ku

Tokyo 150-0022

Tel: 03-5724-5100  Fax: 03-5724-5300 

TECH WATCH;   Web tool 'as important as Google' http://news.bbc.co.uk/2/hi/technology/8026331.stm  have a look http://www.wolframalpha.com/