John Mugarian's Dynamic Growth

I was watching Lou Dobbs on CNN a few nights ago, and I was happy to see Lou have the guts to call American corporations and the Bush administration on the carpet for exporting jobs to other countries. Of course the problem runs much deeper than just exporting jobs. The problem is actually the exporting of our national sovereignty to communist countries who would cut our throats if they had the chance.

On July 1st, Chinese President Hu Jintao and Russian President Vladimir Putin met in Moscow and reaffirmed their friendship. Both leaders warned the United States not to attempt to dominate global or other countries' domestic affairs. This being said, do you still think its a good idea to sell a US oil company (Unocal) to a communist government?

Crude oil prices fell more than 7.5% to $57.20/bbl, and closed at $60.73/bbl (-$0.55)as terrorist attacks in London rocked the financial markets. Most of yesterday's gains in the oil patch were due to the threat of hurricane Dennis' eventual path into the Gulf of Mexico. I live in the panhandle of Florida, and last September we took a direct hit from hurricane Ivan. Since we have yet to recover from the damage of Ivan, no one around here wants anything to do with hurricane Dennis.

I was impressed with the action of the financial markets despite the terrible news coming out of London today. I am holding out hopes that we will have at least one more run to the upside before the market reverts back to its seasonal trend.

This morning the Dow Futures were indicating a low of 10,061 with an actual value of 100 points higher at 10,161. In technical terms, I felt if the Dow could close above that number the market would put on a positive showing. Since the Dow closed at 10,302, I find the markets performance to be very impressive.

It's time to do some selling. Sorry for not posting comments the past few days. We had a hurricane Dennis come roaring through our area, and we were without power for about 3 days.

Today, I would like to sell 4 stocks. They are as follows: Monsanto (MON + 12% or 24% annualized), Johnson & Johnson (JNJ + 24.5%), Baxter International (BAX +24.5%), and Boston Scientific (BSX - 18.9%).

The selling of these 4 stocks leaves us with 16 stock positions, 1 preferred stock, 2 hedge mutual funds, and a boatload of cash. This is the exact position I want to be in as we enter the volatile summer and fall season. I want to keep a large cash hoard in a safe place to take advantage of any opportunities that should arise over the next few months.

The biggest rallies that we have witnessed over the last few weeks have been confined to sectors that have been the most heavily shorted. Short selling has been concentrated in mid and lower cap stocks, that's why the S&P 400 MidCap index and the S&P 600 Small Cap index are trading at all-time highs.

As we approach the July 15th seasonal turning point, we want to be a little more cautious. Technology continues to show positive action in the markets in the wake of short covering and the lack of bad news. The NASDAQ is in a seasonality is positive period that usually ends in mid-July and into August.

The American consumer continues to remain as gullible as ever as the Commerce Dept. showed that retail sales rose by 1.7 percent in June. This figure is .7 percent better than Economists had expected due to strong sales of motor vehicles and parts.

By now, everyone has seen the "employee discount" promotion that was started by GM and is now being offered by most car companies. These promotions are nothing more than an inventory reduction sale to get ready for the introduction of the newer hybrid vehicles. Unfortunately, many consumers are buying into the promotion, and are going to be stuck with vehicles that are costly to operate. This inventory reduction sale reminds me of the 100% tax right-off the IRS allowed businesses on large SUV's prior to 2005. Since I am convinced higher energy costs are here to stay, many of these vehicles will be worth a lot less at trade in as the more fuel efficient vehicles come on line. Bottom-line: The consumer screws themselves again.

The Communists and Unocal

The saga over CNOOC's bid for Unocal continues. I have to applaud Lou Dobbs for taking a stand against the Chinese governments bid for a strategic US asset. Since the Chinese government has unlimited resources, and owns 70% of CNOOC, it is clear why the purchase of Unocal is could pose a threat to national security.

The Chinese want Unocal so bad that rumors are flying that CNOOC will raise its bid for the company to an astounding $19 billion. Many politicians and former security experts have voiced strong opposition against China's attempt to grab key strategic assets in the US. Here are a few comments from last nights (7-13-05) Lou Dobbs Tonight:

Yesterday the Dow Jones Industrials closed up 71 points at 10,629, on volume of 1.57 billion shares. The S&P 500 reached a four year high while the Nasdaq set a new for the year. Sometimes it's lonely being on the sidelines when the market is advancing. I feel like a kid who is indoors watching his friends play outside during a lightning storm.

While we are impressed by the markets recent action, one cannot ignore the fact that the S&P 500 is heading into a weak seasonal period that usually lasts into October. Secondly, many influential traders are on vaction and away from their posts. I believe the market has enough steam to put on an impressive performance that could last through yearend, but not before a seasonal correction that could take the averages down 5-10%. This being said, we have lightened our long positions to take advantage of any weakness that occurs over the coming weeks.

Sam Stovall, the Chief Investment Strategist for Standard & Poors appeared on CNBC this morning, and the tip of the day was a shift or change in S&P's Sector Rotation Model. Now this is important stuff, so pay attention.

In the March and May issues of the Investor Alert newsletter, I explained in detail about being in the right sectors at the right time. This morning, Stoval revealed S&P's changes to their Sector Rotation Model, and I wanted to pass the information along with a few precautions.

Here are the recent changes:

RECENT CHANGES:

07/13/05: S&P UPGRADES ITS CONSUMER DISCRETIONARY SECTOR TO OVERWEIGHT FROM UNDERWEIGHT.

07/13/05: S&P UPGRADES ITS INFORMATION TECHNOLOGY SECTOR TO OVERWEIGHT FROM UNDERWEIGHT

07/13/05: S&P UPGRADES ITS FINANCIALS SECTOR TO MARKETWEIGHT FROM UNDERWEIGHT

07/13/05: S&P DOWNGRADES ITS CONSUMER STAPLES SECTOR TO UNDERWEIGHT FROM OVERWEIGHT

07/13/05: S&P DOWNGRADES ITS HEALTH CARE SECTOR TO MARKETWEIGHT FROM OVERWEIGHT

07/13/05: S&P DOWNGRADES ITS UTILITIES SECTOR TO MARKETWEIGHT FROM OVERWEIGHT

06/30/05: S&P DOWNGRADES ITS INDUSTRIALS SECTOR TO UNDERWEIGHT FROM MARKETWEIGHT

05/19/05: S&P UPGRADES ITS CONSUMER STAPLES SECTOR OUTLOOK TO OVERWEIGHT FROM MARKETWEIGHT

05/19/05: S&P DOWNGRADES ITS MATERIALS SECTOR OUTLOOK TO UNDERWEIGHT FROM MARKETWEIGHT

05/19/05: S&P DOWNGRADES ITS ENERGY SECTOR OUTLOOK TO MARKETWEIGHT FROM OVERWEIGHT.

S&P recommended an overweight position only in consumer discretionary and information technology stocks. They went on to say that investors should underweight in consumer staples, industrials, and materials, and have equal weightings in energy, financials, health care, telecommunications services, and utilities.

Ok, fine. Now for the disclaimers:

I spent the majority of last week in Aspen, Colorado, and if you think you are rich, you need to spend some time in Aspen to gain a little perspective.

As I passed by the Aspen Airport on my way to the golf course, I couldn't help but notice the rows of private jets lined up near the hangers. My son and I played a round at the Aspen Golf Club (after 3pm it only cost us $70 each for 9 holes), and after we finished, I struck up a conversation with the starter.

I asked the starter if there were any other courses close to the Aspen course, and he said yes, and pointed just over my shoulder,and said "Maroon Creek". I expressed interest in playing a round at "Maroon Creek", and then he proceeded to tell me that the greens fees were a little more expensive. Of course, I asked, "how expensive". He said, "a $750,000 initiation fee, and $50,000 a year in annual dues". Talk about bringing you back down to earth. I quickly learned that there is "us" and "them". The question that remains is how do we become one of "them". Here's what I found out.

I have heard and read a lot of bickering about problems with Border Crossings, Illegal Aliens, and the Exporting of US jobs to foreign countries, but I never heard anyone discussing the REAL CAUSE of why all this is happening. Does all this have repercussions for our economy and the stock market? You betcha !

Take for example the CNN program, Lou Dobbs Tonight. Lou has been harping on all these issues but has failed to get to the REAL CAUSE of all of these problems. Its easy to sit back and complain, but eventually you have to start pointing fingers.

To give you an idea of what I am talking about, lets take a look at the behind the scenes activity of the CNOOC(Chinese)bid for Unocal. Prior to CNOOC's bid for Unocal, Chevron was represented by the powerful Washington law firm of Akin Gump Strauss Hauer & Feld. A senior partner at the firm is Vernon Jordon, who is deeply entrenched in the dealings of the worlds biggest movers and shakers.

Just prior to CNOOC's bid for Unocal, Akin Gump dropped their representation of Chevron, and are now advisors for CNOOC. Others rumored to be involved are Kissinger Associates, who is headed by Henry Kissinger. Jordon and Kissinger have been advocates of "the world without boarders" mentality that seems to be gripping the nation by storm.

The housing bubble continues to grow larger and larger as the homebuilding sector continues to show record results. The earnings from many of these companies are bordering on obscene. Today, Pulte Homes (PHM) gained 3.20 to 95.85 after declaring a stock split and a dividend increase. Beazer Homes (BZH) was up 3.71 to 67.24 after earnings beat estimates and the builder raised guidance for the year.

These results are proof positive that the Federal Reserve has no intentions of slowing or halting their rate increases anytime soon. In fact, I don't think the Fed will stop until the housing bubble bursts. I am not expecting a NASDAQ type crash in the housing market, but a 25%-35% retracement would be healthy, and perfectly normal.

For those of you that are looking for a high degree of safety, and are tired of sitting around waiting for the market to sell off and create some bargains, you might want to consider a safe investment product called MITTS. MITTS can be bought or sold any day the market is open, and they trade on the NYSE and AMEX. Since the International Markets and the Nikkei look attractively priced, I listed a few idea's at the bottom of the page. Of course, you need to access your own risk tolerance and goals before investing.

MITTS: Are “Protected Growth Investments” that are linked to a variety of indexes and various sectors including energy, consumer staples, healthcare/biotech, etc. If fact, you could actually construct a complete index portfolio of large caps, small caps and foreign stocks, all with zero risk to principal if held to the stated maturity date. In the meantime your principal will fluctuate until maturity.