John Mugarian's Dynamic Growth

Over the weekend, Barron's did a feature story on Anheuser-Busch (BUD). There is no doubt, BUD is a classic value stock at these levels. UBS has a reduce rating on the shares saying there is a potential downside of $37.

While I cannot rule out there analysis, Value investors really don't care what analysts have to say. Traders care because an analysts report can move a stock because of the influence they have with their institutional clients. But the key point for value investors is this: Analysts rarely recommend stocks that are out of favor.

Once you decide what type of investor you are (Value or Momentum), stock picking becomes a lot easier. That being said, which analysts do you think Warren Buffett follows? That's right! None of them. Case closed.

Warren Buffett bought a large chunk of BUD back in April. BUD is trading about 5 points less now, and is currently at 16 times analysts' 2006 earnings estimates of $2.56 per share. Is this BUD for you?

THE MARKET:

Now that we are in the month of November, we will see a lot of scratching and clawing as the market climbs a wall of worry into year-end.

Today, the Fed will meet, and its obvious that the key fed funds rate will be hiked to 4%.

The crooks on Capital Hill will begin to hold hearings on how the oil companies have been screwing consumers. If they want to talk about screwing consumers, these politicians need to look in the mirror.

In our area, there is about a .50 cent tax on a gallon of gas. Since gasoline is currently trading at $1.58 on the spot market, a .50 cent tax is about 33%. Whose screwing who? In other parts of the country, you have an additional tax by your local and state governments. So those elected officials are compounding the screwing.

What would really help the consumer is to take all energy products off the futures market, and make oil producers have to compete against one another to win your business. Since gasoline is a consumer product, I believe the Wal-Mart approach to oil would work like it does for other consumer products.

Oh, I forgot. If this would be allowed to happen, we could no longer be manipulated and screwed. Well, so much for that.

THE NEW JUDGE:

I like him. I read a piece this morning that said that judge Samuel Alito had a significant amount of his investments in the Vanguard Group of mutual funds. This shows that even a man of his stature does not rely or trust Wall Street firms. Good for him!

After all the scandals that Wall Street brokerage firms have been involved in, who in their right mind would continue to do business with these people? Not judge Samuel Alito.

Here are some latest insider buys among big name, highly quality stocks:

Caterpillar (CAT) 70,000 @ 50.77 by a Director= owns 206,000

Stryker (SYK) 25,000 @ 41.00 by a Director. Another purchase was made yesterday of 100,000 shares by an insider.

Wrigley (WWY) 5000 @ 69.50 by a Director= owns 20,000

Bell South (BLS) 10,792 @ 25.26 by a Director= owns 12,200. I think BLS will probably merge with SBC.

Pfizer (PFE) 10,000 @ 21.20 by a Director= owns 12,200

Kimberly Clark (KMB) 2000 @ 56.65 by the Pres/CEO= owns 29,250

Today the Federal Reserve raised interest rates for the 12th time to 4%. Here is a piece I wrote on February 27th, 2004:

"The fed funds rate by any measure is historically low and should move higher over the next 18-24 months. Based on the chart, a Fed Funds move to 3% would be perfectly normal, and beyond 24 months a move to 4% would not be out of the question. I feel Alan Greenspan will adjust the Fed Funds rates upwards for 2 reasons.

As you can see, I have been calling this one for quite some time.

Its unfortunate, but many consumers have very poor money and risk management skills. The objective of our commentary is to educate and inform the average investor, and the average consumer. We do not need to inform the wealthy since they acquired their wealth by practicing many of the ideas I talk about everyday.

I try my best to educate investors/consumers to become wealth accumulators, but unfortunately the desire to consume, and make others wealthy takes precedence over accumulating wealth for themselves.

I have been warning readers for quite sometime about the dangers of buying into mortgage lenders sales pitches on adjustable rate and interest only mortgages. Of course, those who bit into the lenders sales pitch are experiencing some real pain.

Here is a readers comments from my last post, " Higher Interest Rates: No Surprise to Me", written yesterday:

Like most guys, you don't think about the low enders in our economy. The people with adjustable rate mortgages are about to be blown up, these are usually the people with "credit problems" and the like. People who borrowed at 1-1/2 percent are doomed unless they make a lot of money. Could be horrible for the housing markets.

First of all, I cannot help what uninformed people do. And secondly, I use to be a low ender myself. By making some changes in the choices I was making, I switched ends.

One reason I decided to do this blog was to provide some sound and sensible ideas for everyone, regardless if they are low enders or high enders.

If a mother tells a child do not touch a hot stove because it will burn them, and the child touches the stove anyway, the result will not be good.

In America, we make our own choices. We choose where we work, we choose whether or not to get up in the morning, get an education, take drugs, who we marry, and on and on. We cannot blame others for the choices we make. That burden falls squarely on the shoulders of the person making the choices.

Making the wrong choices often results in some short term pain. While I do not wish misfortune on anyone, sometimes learning from one's mistakes is the best teacher. Personally, I like to learn from other peoples mistakes, as well as their successes.

Of course, that's how I chose to run my life. Everything has a probability, an outcome, and a history behind it. Skydiving without a shoot has a high probability of a bad outcome. So does investing in adjustable rate mortgages when interest rates are at 40 year lows.

So far, so good. I am pleased the market is responding according to my calls for the past few months. A top for this cycle in the market will probably correspond with interest rates reaching the neutral to restrictive zone.

As we approach the 4.5% mark in short term rates, market players becoming increasingly cautious since a neutral and restrictive rate environment usually results in a recession. Right now, a 4% Fed Funds rate is considered neutral.

Most Favored Sectors

Overweight: Energy, Healthcare, Staples
Slightly Overweight: Insurance, Telecom, Financials
Neutral: Industrials
Underweight: Materials, Utilities, Consumer Discretionary

At the 1250 level on the S&P 500, I will be approximately 50% in cash, and looking to raise the cash level up to 75-80% on any subsequent rallies.

Now that the stock market has regained its footing, we can all sit back and enjoy the ride for the next few weeks. If any profit opportunities arise I will let you know.

I am happy to report that our market calls have been right on the mark. I have a job managing money, and I deal with portfolios and clients all day long. Some people have the time to sit and blog all day, and while this is entertaining, I only have time to post useful information when I see it. You will not see much jibber jabber in this blog.

For now, I am pleased with the bounce back in our oil stocks. Schlumberger (SLB) has been making new highs almost daily. Exxon (XOM), and Marathon (MRO)are beginning to decouple themselves from the price of crude, and Chesapeake (CHK) will bounce back when temperatures start to fall.

The Financials have bounced back nicely. While still out of favor, this group will be the next sector to benefit within the sector rotation process when the Fed stops raising rate.

As you can see, Wall Street is not waiting for the rate hikes to end before they begin building positions. Bank of America (BAC) and JP Morgan (JPM) are bouncing nicely, and CitiGroup (C) has been a laggard.

I really like our 2 telecom stocks, SBC (SBC), and Verizon (VZ). I don't think you can find a safer yield with a 20-40% upside anywhere on the NYSE.

Our 2 retail plays, Wal-Mart (WMT) and Best Buy (BBY) have actually outperformed the market. Coke (KO) and Anheuser Busch (BUD) are wonderful values and will eventually attract buying pressure when the economy softens.

Our move of selling half of our position in the Rydex Tempest 500 (RYTPX) bear fund, and putting those assets into the Rydex Titian 500 (RYTNX) and the Rydex Velocity 100 (RYVYX) has out performed their respective index two fold.

S&P 500:

For short term traders, a bottom was reached in October as the S&P 500 rallied back above its 30 day moving average at 1200. As the Index appraoches the 1250 mark, it will run into some fairly stiff resistance.

If the S&P can break decidely above the 1250 level, we could see a rally up to 1300.

DJIA:

Overhead resistance for the Dow is in the 10,700-11,000 area.

NASDAQ:

Initial resistance was at the 2130-2140 mark. This index is acting very nicely. The next move from here looks to be 2250.

Let's be frank, if you do business with a brokerage firm, chances are your assets are being used as a negotiating tool to be bought by another firm. So, "Are You Being Bought & Sold?".

Wall Street is not a moral place, and no one will care more about you than yourself. Brokerage firms have proven over and over again they cannot be trusted, and some no longer deserve your business. Your broker may be a fine, upstanding person, but if the firm they work for was mentioned in the global securities fraud settlement, I would not allow the firm to have another dime of my fee痴 and commissions.

I am of the opinion that any firm participating in investment banking activities should not be allowed to deal with the small investor. Below is a list of the firms involved in the securities fraud settlement: CS First Boston, Goldman Sachs, Merrill Lynch, Morgan Stanley, Smith Barney, UBS (Paine Webber), Bear Stearns, JP Morgan Chase, Deutsche Bank, Lehman Brothers, Piper Jaffrey, Thomas Weisal Partners.

Many of these firms lost client accounts to smaller, regional firms as clients and brokers tried to escape from the conflicts of interests associated with larger brokerage firms. Guess what ? They are buying you back. You can't get away from these people.

SOME RECENT BUYOUTS

In my years as a broker, I watched many brokers play hopscotch as they jumped from one firm to the next. After I jumped ship at AG Edwards, I went to JC Bradford, a small regional firm based out of Nashville.

Two years after my move, rumors began to circulate that the company was going to be bought by Paine Webber. The day before the merger, the CEO of the company held a morning squawk box meeting with every branch in the company. The CEO emphatically stated the firm was committed to remaining independent. The following day, the firm was sold to Paine Webber. The CEO was obviously a liar.

A few months later, Paine Webber was sold to UBS. I read a story in a brokerage the industry trade publication Registered Rep that the brokers liked the merger, and the majority were staying with the new firm. That's not what I saw. Brokers were leaving in droves.

If brokers are jumping ship after a merger with a big New York firm, what does that tell you.

Legg Mason-Smith Barney Merger:

One of the guys I knew at AG Edwards, jumped ship to become the branch at Legg Mason. Prior to coming to Edwards, this guy worked for Shearson Lehman which became Smith Barney. He tried to convince me join him at Legg, and said that the family that owned Legg was committed to remaining independent. I had already heard that story before.

Since then, Legg Mason has sold out to Smith Barney, and this guy who was once with Smith Barney, is now back at Smith Barney. A few weeks ago, this guy left Legg to go to Wachovia.

Wheat First, then First Union, then Wachovia, then Prudential

Believe it or not, all of these firms are now one. Remember, when brokerage firms merge, they are not buying brokers, they are buying the brokers accounts. The bottom-line, they are buying you.

BE YOUR OWN BROKER, OR DEAL WITH AN INDEPENDENT ADVISOR

Like the TD Waterhouse ad says, "You can do this". Waterhouse is a great firm. Personally, I have my accounts at Fidelity. If Fidelity decides to sell to a big Wall Street firm, I will move my accounts.

Here are some reasons you should consider becoming your own broker, or use an independent advisor who clears through a discount firm:

1) Eliminate conflicts of interest.

2) You will save thousands in fee痴 and transaction costs. Unless you want to pay somebody hundreds, maybe even thousands of dollars to say, 登h don稚 worry, everything痴 going to be ok�, I would seriously consider investing on my own. If a person constantly needs to have their hand held, more than likely they have no business being in the stock market.

3) Investments don稚 need a 24 hour baby sitter. I致e heard the argument that an investor wants someone who痴 going to watch their investments for them. Why? The investments are not going anywhere. If you池e an active trader, I can see why you would want a market baby sitter. But if your not, don稚 waste your money.

4) You can subscribe to 3-5 newsletters that will give you all the information you'll ever need. Discount brokers have high quality planning tools that will help you determine your risk tolerance, and guide you toward a sensible asset allocation model.

5) Peace of mind, and it痴 fun and easy. You are really going to enjoy the learning process and find it rewarding as well.

With two pieces of the puzzle coming together, the stock market is now into the beginning stages of a year-end rally. The third piece of the puzzle however, is the wild card that may or may not occur.

So, what is the third piece of the puzzle, and why is it important? The third piece of the puzzle are investors that can simply be defined as "Johnny Come Lately's".

Seasonality is never a certainty, and short covering will only drive the markets so far, but investors who jump in on a rally in fear that they will miss the next big move is what allows that market to rally break beyond reasonable levels. Do I think that will happen? I don't know.

This is one reason I have been so emphatic about the 1250 level on the S&P, and the 10,800 level on the Dow as my initial targets to get increasingly cautious.

Sure, I have given you euphoric targets like 1300-1400 (S&P), 11,000-11,800 (DJIA), and a 2250-2400 (NASDAQ). In order for these breakouts to occur, the "Johnny Come Lately's" have got to enter the market and start buying.

So far, the Wall Street gang has done a good job on the financial talk shows putting a positive spin on the year-end rally. My best guess is this spin will work, and investors will jump into the market for its final 3-5% move.

Personally, if the markets break above my initial targets of 1250(S&P),10,800-11,000 (DJIA), and 2250 (NASDAQ), I will leave the last 3-5% on the table, and set my sights on the short side while others get increasingly bullish. One thing I learned from some very successful Wall Street guys is sometimes you have to sit back and wait.

MARKET BRIEFS:

Oil vs. Transports: The DJ Transportation Average has been in a strong uptrend as the price of oil has pulled back. FedEx (FDX) has rallied sharply, and it looks like UPS (UPS) is right on its heals.

It looks as if Oil has decent support at the $55-57/bbl level, and a break below $50 will not be in the cards until the economy softens.

Commodity Prices: Commodities have pulled back along with the price of oil, but raw material prices are still very high. This is the true hidden inflation that no one seems to want to talk about.

These higher commodity prices are putting a damper on the real estate market, as prices for homes and new construction are extremely expensive.

Congress will be grilling the oil executives this week, and I am sure they will be asking oil executives if they have plans to build or expand their refining capacity. The executives will probably dance around the question because they know that the costs associated with building new refining capacity has skyrocketed. They would rather buy and existing refining company than build because its less expensive.

Interest Rates: I hate to keep boring you with my continued assessment of why rates must go higher, but you curb commodity price inflation by bringing down the demand for raw materials. The only way to do this is to reduce demand for real estate.

I think before it is all said and done, you will see 7% mortgages again.

The S&P 500 was up 1.8% last week, this is the second week of gains for the major index. Cyclicals and Technology lead the way as retailers turned in better same stores sales during the month of October. Utilities got beat up a little, but the rebound in TXU's shares helped the sector today.

We experienced a jump in the IA portfolio as Wal-Mart (WMT) and Best Buy (BBY) put on nice performances.

ECONOMICS

The Fed raised short term rates 25 basis points for the 12th consecutive time, raise the fed funds rates to 4%. This Thursday, the trade balance report will be released, and it will be interesting to see how the market reacts if the trade deficit continues to climb.

TRADING RANGE

From current levels, the market (S&P) has the potential to trade toward the upper end of its trading range (1250-1300). This would represent another 3-7% upside.

SECTOR PERFORMANCE (S&P 500)

Sector 1 Mos 3 Mos 12 Mos 5 Yrs

Financials 5.3 2.9 6.6 1.3
Materials 2.9 -2.3 0.9 7.9
Industrials 1.5 0.1 2.5 -0.9
Cons. Descre 1.2 -5.2 5.5 0.9
Info. Tech 1.2 -0.9 5.6 -13.8
Telecom 0.2 -5.1 -3.2 -12.9
Cons. Staples 0.0 0.2 5.5 2.0
Healthcare -2.7 -3.3 8.7 -3.0
Energy -3.8 1.3 34.1 9.9
Utilities -7.3 -3.9 18.3 -4.6

The above numbers speaks volumes about the importance of having a strategic sector rotation plan in place. I am currently back testing a sector rotation strategy dating back to 2001.

The preliminary results are nothing short of phenomenal. In the months ahead I will be posting the results of our back test, and after we complete our research, we will be providing a subscriber based newsletter. I'll keep you posted.

Just when the little guy and the middle class thought they found a way to get rich, someone pulls the rug out from under them. We have seen this before with the NASDAQ, and now its beginning in real estate.

Today, the homebuilders are getting whacked after Toll Brothers (TOLL -$4.67 or -11.9%)reduced their outlook for 2006. Here's are quote:

"The shortage of selling communities, coupled with some softening of demand in a number of markets, negatively impacted our contract results," Toll Brothers said. "It appears we may be entering a period of more moderate home price increases, more typical of the past decade than the past two years."

Other Homebuilders: Ryland -$3.00, Hovnanian -42.35, Beazer -$3.50, Pulte -$2.92, Lennar -$2.82, DR Hotron -$2.60, and Centex -$3.62.

This is just the beginning. I'm sure, some investors will begin to buy on the pullback believing that Toll's problems are company specific. That would be a mistake.

Eventually, higher interest rates will also begin to affect the real estate market. One thing that is sure to halt real estate speculation along the Florida coast is the availability of wind storm insurance. Large insurers are pulling out of the state of Florida due to the number of hurricanes.

Think about it. If you wanted to buy a house or condo on the water, you better have cash, and then, not care if it got destroyed because no one would insure you. For those who do not have the cash,a bank will not give you a loan unless you secured the proper insurance. In short, the ballgame is over.

A hit in the real estate market is sure to hit consumers who have lines of credit on their homes or property. As the values come down, so does the amount a person can borrow against their property. This is why you have seen a mini hit in some of the retailers this morning.

With the annoucement from Toll Brothers (TOL)in the homebuilding sector, fundamentals in the consumer discretionary sector continue to deteriorate. The recent rally among many of the retailers was due more to a dramatic oversold condition, rather than a new uptrend.

The S&P 1250-1300 is looking more and more like the most logical point to exit the market. At this level, I would only want to be 40% invested.

Sure, the retail sector can continue to run, but I suspect as we get deeper into the month of November, weekly retail sales numbers may start to affect the sector sooner rather than later.

I am willing to hold our two retail stocks, Wal-Mart (WMT) and Best Buy (BBY) a little while longer. My main reasons for doing so are as follows:

1) When consumers begin to feel pinched, they tend to shop at discount retailers like Wal-Mart rather than full priced department stores.

2) In the case of Best Buy (BBY), they appeal to a broad spectrum of consumers wants. In this day of the me,me,me, consumer, they would rather miss a payment or two on other debts, than miss buying what they want at BBY.

As the homebuilding sector sold off, you could see the ripple effect throughout many of the industries that support the sector. Also included were many natural resource companies. Here is a list of some companies that felt the pain after todays news:

BUILDING MATERIALS (BMHC) 81.65 -9.07 -10.00%
EAGLE MATERIALS INC (EXP) 108.62 -5.61 -4.91%
DYNAMIC MATERIALS (BOOM) 22.64 -4.41 -16.30%
ST JOE CO (JOE) 64.57 -3.29 -4.85%
FLORIDA ROCK IND (FRK) 52.2 -2.94 -5.33%
SOUTHERN PERU COPPER(PCU) 54.26 -2.68 -4.71%
WHIRLPOOL CP (WHR) 78.45 -2.52 -3.11%
VULCAN MATERIALS (VMC) 64.95 -2.15 -3.20%
ETHAN ALLEN (ETH) 32.80 -1.76 -5.09%
JACOBS ENGINEERNG (JEC) 62.80 -1.75 -2.71%
POTASH CP SAS. (POT) 83.40 -1.47 -1.73%
LOWES COMPANIES (LOW) 60.50 -1.45 -2.34%
BUILDERS FIRSTSOURCE(BLDR) 17.86 -1.05 -5.55%
READY MIX INC (RMX) 13.39 -1.01 -7.01%
FURNITURE BRNDS (FBN) 17.81 -0.95 -5.06%
HOME DEPOT INC (HD) 40.57 -0.93 -2.24%

THE MARKET: 4:05 P.M. ET

DJIA: 10,539.72, down 46.51
S&P 500: 1218.59, down 4.22
NASDAQ: 2172.10, down 6.20
Russell 2000 656.23 -5.01 -0.76%
NYSE Comp 7489.72 -29.70 -0.39%
CRB Index 318.24 +0.79 +0.25%
Dollar Index 91.37 +0.08 +0.09%

30-Year T-Bond 4.759% -0.069%
10-Year T-Note 4.565% -0.074%
5-Year T-Note 4.481% -0.067%
2-Year Note 4.408% -0.042%

Energies

Crude Oil Dec 05 59.73 +0.02
Brent Crude Oil (SCZ5) Dec 05 57.80 -0.24
Gasoline Unleaded Dec 05 1.5650 +0.0027
Heating Oil (HOZ5) Dec 05 1.7755 -0.0030
Natural Gas (NGZ5) Dec 05 11.844 +0.051

Metals

Gold Dec 05 462.2 -0.1
Silver Dec 05 766.0 +3.5
Copper Dec 05 183.15 -0.65

As I was taking my son to school this morning, I was listening to the mind manipulation station on the radio, CNN. I guess FOX could be characterized in the same light, but with a more conservative tilt.

I call these people mind manipulators because when you ask a Republicrat for an opinion on a subject, the just reverberate what they heard from a media outlet. It seems very few people have an original thought these days.

I wanted to bring this subject to light because oil executives will get grilled today on capital hill about the industries massive profits.

What I find hilarious is the squeaky, whiney tone of the two Republicrats on the radio, as they complained about being gouged by the oil companies. I have news for them, they are being gouged every month by politicians who will be accusing the oil companies of gouging.

As an example, there is at least a 33% tax on a gallon of gas. In some parts of the country, it is much more. Have you ever looked at your monthly cable, power, and telephone bills? Talk about gouging?

Why did I bring all this up? Because I want to emphasize the importance of independent thought. Today, you will see some softness in many of the major oil stocks. I am convinced that oil prices will go lower, but eventually a decoupling effect will take place where the price of oil will come down, and oil stocks will rally. Why?

The short term outlook for the price of crude does not affect the longer term demand issue. China, India, and the rest of the world are not going to reverse course. In addition, the refining issue will take years to resolve, if it is resolved at all.

Don't forget oil and politics either. The media has been harping on the beating the Republicans took in the governor's races in New Jersey, and Virginia. Since state Governor's do not set our nations policies, the big money people within the Republican party will make sure everything is rosy by the mid-term elections. After that, oil will resume its march higher.

Yesterday, crude oil was up only .02 cents, and oil stocks were rallying. Once prices stabilize, I think you'll see a gradual move upward. The energy sector's rise will probably resume because of the colder temperatures forecasted for late next week.

As for the markets, the popular averages moved lower yesterday on light volume. The morning's weak opening was due to the market being short term extended, and some profit taking was tied to continued Muslim problems in France. Yesterday's quiet, low volume trade looks like a normal "time out" since the S&P is up almost 3.7% from late October.

Prior to the October sell-off, insiders were selling at a rate of 3 or 4 to 1. As the market was trying to find a bottom, insider selling dramatically dropped off. Now that the markets have recovered somewhat, corporate insiders are back to their selling ways.

Since November 2nd, insiders are once again 3-1 sellers over buyers. Lets look at every trading session since November 2nd.

Nov 2 B78 S175
Nov 3 B80 S244
Nov 4 B81 S264
Nov 7 B75 S208
Nov 8 B76 S176
Nov 9 B77 S194

To use a modern term "what's up with that?". I'll tell you what's up. Unlike a lot of people who get their advice from Wall Street, these insiders "really" know what's going on.

If you want to really get sick to your stomach, go look at how much stock Phillip Knight, the former CEO of Nike (NKE) has made from his stock sales. Today alone, Knight sold 275,000 shares netting him a cool $13,135,725. The real kick in the rear to hardworking people like you and I is this guy has been steadily selling multi-millions worth of NKE stock. Here's another kick in the rear, he has 4,047,593 shares left. Go multiply that out on your calculator.

So, what do these insiders see that others don't? Exactly what I have been telling you all a long:

1) The Fed is tightening and is going to continue tightening.
2) The economy is slowing and rates are still going up.
3) The governments inflation numbers are a gross misrepresentation of what's really happening.
4) The real estate market is on the verge of a painful decline.
5) The war in Iraq is a disaster.
6) Our trade and budget deficit is soaring.
7) As a country we are deeply in debt.
8) Consumers are deeply in debt.
9)We are entering the 4th and final year of a cyclical bull market.
The 4th year is historically a bad year.
10) Corporate earnings estimates will continue to be revised downward.

Other than these, everything is fine. The year-end rally is still a good bet, but as we approach the 1250 mark on the S&P, or hopefully 1300, its "Katy Bar the Door".

Given the weakness in the energy sector this morning, I think it is important to take a step back and take a closer look at the issues surrounding natural gas.

In the IA portfolio, our natural gas play is Chesapeake Energy (CHK).

In its recent Short Term Energy Outlook, the Energy Information Administration boosted their forecasts for natural gas prices in the near term and through 2006. The EIA doesn't expect a full recovery of Gulf of Mexico production until the end of 2nd quarter of 2006. Consequently, winter prices are expected to be over $10/mmbtu, and average prices for both 2005 and 2006 are predicted to be over $9/mmbtu.

Natural Gas has been weak because local distribution companies have adequate supplies due to warmer weather. I can assure you that this will change.Going forward, seasonal temperatures will swinging back and forth between above and below normal.

In its most recent forecast, the EIA says that home heating bills this winter will be lower than the original predictions after Hurricanes Rita and Katrina. Nonetheless, residential heating costs will be significantly higher than last year. The EIA forecasts that natural gas heating expenses will rise by 41% this winter compared to the previous year.

As far as Chesapeake Energy is concerned, the company's CEO, AUBREY K. MCCLENDON, has been buying his company stock in a big way. Let's look at some of his purchases:

30-Sep-05 3382 shs @ $38.25
14-Sep-05 305,623 @ $32.72
26-Aug-05 150,000 @ $28-28.50
25-Aug-05 50,000 @ $28.39-28.50
24-Aug-05 50,000 @ $28.09 - $28.2
23-Aug-05 50,000 @ $27.25 - $27.35
18-Aug-05 50,000 @ $26.55 - $26.6
17-Aug-05 50,000 @ $28.05 - $28.18
16-Aug-05 250,000 @ $27.82 - $28.35
30-Jun-05 100,000 @ $22.94 - $23.25
29-Jun-05 25,000 @ $22.88 - $23
24-Jun-05 25,000 @ $23.23 - $23.25
22-Jun-05 25,000 @ $23.14 - $23.16
21-Jun-05 25,000 @ $23.05 - $23.06
17-Jun-05 50,000 @ $23.19 - $23.31
16-Jun-05 50,000 @ $22.70
15-Jun-05 75,000 @ $22.48 - $22.5
14-Jun-05 50,000 @ $22.26 - $22.3
10-Jun-05 30,500 @ $21.61 - $22.3

I could go on, but i think you're starting to get the picture. Mr. McClendon is buying huge amounts of CHK for a reason. Is the reason because of the current energy crisis? Or is the company up for sale?

Chesapeake is the second largest producer of natural gas and the most active driller of new oil and gas wells in the United States. It is estimated that the company owns interests in approximately 29,800 producing oil and gas wells, and has proven reserves of 7.3 trillion cubic feet of natural gas.

In my opinion, and especially at these levels, CHK is a good bet.

The rally in the S&P 500 and the markets is in part due to seasonality, and lower energy prices. Energy prices have been falling due to reduced demand, and warmer than expected temperatures. This condition will not last long.

Yesterday I made a case for owning the natural gas stocks at these levels. This morning, the natural gas market reversed yesterday's decline in overnight trading, basically retracing all of yesterday's loss.

The December natural gas contract is trading at $11.72/mmbtu, up $.34/mmbtu from yesterday's close. Prices are being supported by a stronger cash market and colder temperatures in the Northeast.

OIL

The December futures contract traded below $57/bbl, but have recovered this morning. The current market is $57.70/bbl, down only $.10/bbl from yesterday's close. The weakness in the oil complex is based on high inventory levels and mild weather. Market momentum has been negative since prices have broken through various technical support points.

Our short term target for crude puts support at $55/bbl, and in the spring around $50/bbl.

THE MARKETS

If you have been following our blog, your probably happy with my call on the markets direction. The S&P has jumped 54 points from the October lows, but will run into some pretty strong resistance at the 1250 level.

As temperatures start to cool across the nation, energy prices will begin to stabilize, and so will energy stocks. On the flip side, the S&P's momentum will slow, so if you did not get in the market in October, the advance from here will be more tempered.

IA PORTFOLIO POSITIONS

I am happy to see our stocks advancing sharply during the market rally. Our decision to buy the supercharged Rydex Titan 500 (RYTNX) +4.58% or 68.6% annualized, and the Rydex Velocity Fund (RYVYX) +9.49% or 188.1% annualized has paid off nicely.

Our 3 financials have put on impressive performances. Bank of America (BAC)is up 10% from its October lows, and JP Morgan (JPM) is up 10.4% from our initial purchase. CitiGroup (C) has been a dog. In fact, it will be one of the first stocks I sell as this rally matures.

The portfolio has 1 more pseudo financial/insurance company that has been gradually coming back, American International Group (AIG). Despite their crooked dealings, AIG has been climbing out of the gutter. After the Hank Greenberg & Family debacle, and the lack of cooperation by P&C insurers after the hurricanes, I have grown to really dislike insurance companies. BUT, I cannot ignore the fact that these crooks raise premiums, and fight policy holders who file claims. What a great business, you pay me, but I am not going to pay you. This is just like a casino.

Our 2 retailers have been wonderful. I have seen some insider selling on Best Buy (BBY +9.3%) lately, so I may take profits in a week or two. Wal-Mart (WMT +7%) should do well through Christmas now that fewer people have money after the rise of inflation and energy.

UnitedHealth Group (UNH + 44.6%) continues to be a stellar performer.

Be patient on the energy stocks. Despite the noise, I think colder temperatures will bring higher prices.

Today is Veterans Day, and with it comes a lighter volume day, less market participants, and a closed bond market. What better day to sell a few things.

My first sell, is the Rydex Titan 500 Fund (RYTNX). Titan is up 4.58% (annualized 68.6%) from our initial purchase price. While the S&P might still have a ways to run,the S&P is up 5.1% from its October lows, and we have made 4.58% in Titan. I realize that we bought the fund prior to the October lows, but given the funds risks (200% of the S&P), I want to start reducing risk right now.

Also, my first area of profitaking is around the 1250 mark on the S&P. Since we are only 18 points from that level, there is no guarantee we could get out at that level if the 1250 area is hit intraday, then sells off. So, goodbye Rydex Titan.

My second sell is, CitiGroup (C). In this case, we have a stock that has underperforms its peers. As the Fed continues to raise rates, consumer demands for loans will decrease. Both BAC and JPM are up 10% from the October lows, and C is up 8%. Goodbye C.

In 3 weeks, the DJIA is up 448 points (4.4%) and S& P 500 (5.1%) is up 60 points. The secular bull is 37-months old, and the maturity of this cycle is right around the corner.

I've told you before, I am not very good at putting my feet on the edge of a cliff. I would rather be early than late.

I just got a call from a guy I have know over 17 years. When he retired, he rolled his 401k plan to his bank. Immediately, he was introduced to the banks investment advisor.

This fellow had little or no knowledge about investing, and he let the broker from the bank talk him into putting his rollover into annuities. Since annuities pay the bank around 4-5% on the amount invested, the bank had a nice $20,000-$25,000 pay day. Please be careful of bank brokers.

Here's my take on these people, and others to whom I refer to as "Peeping Tom's".

ARE YOU DEALING WITH A PEEPING TOM?

In light of the recent merger activity among major banks, I thought it would be timely to give you my analysis on how mainstream America痴 assets are slowly being seized by New York Banks and Brokerages. Why are they doing this? I believe that the New York Banking and Wall Street elite realize that traditional brokerage operations are slowly dying. Investors began flocking to discount brokers and banks to avoid conflicts of interest, and high fees.

Wall Street investment firms have no intentions of changing their ways, so what better way to recoup lost assets, than to merge with someone the public absolutely trusts, a bank. We are actually witnessing the execution of a brilliant plan by Wall Street, to capture and control more of your assets than ever before.

A Bank/Brokerage combination will allow the banking arm to share information about you with the brokerage division of the bank.. And you thought little red riding hood was easy prey? For brokers, this is like manna from heaven. A broker no longer has to deal the hassles of prospecting and worrying about 電o not call� regulations. The bank/brokerage combination spoon feeds its brokers more prospects, like you, from the banks depositor and lending lists.

During a press conference announcing the JP Morgan/Chase- Bank One merger, JP Morgan CEO Harrison said 展e are a leader in investment banking and this adds new clients and scale with the ability to cross-sell.� Boy I値l say. Wall Street is buying Main Street. Let痴 take a closer look.

PEEPING TOM # 1- BANK BROKERAGES�: Not long ago I made a deposit into my account at a local branch of a major bank. The teller informed me that a ten day hold would be placed on the check, and the proceeds would not be available until then. Taken aback by the length of time, I asked the teller 層hy so long?�. The teller informed me that it was bank policy and a standard clearing procedure. Seeing my disappointment, the teller said she would speak to the manager and see if the hold could be lifted.

The next afternoon I received a call from the bank, and a nice gentleman informed me that he had lifted the 10 day hold on the check, and the proceeds were now in my account. I thanked the gentleman for his gracious attention to this matter, and was very appreciative of his efforts. Then out came the hook! 徹h by the way Mr. Mugarian, I am also the financial advisor for the bank and we�.� He proceeded to tell me all about the brokerage services the bank provided.

My initial reaction to the release of the 10 day hold was one of appreciation and gratefulness. When I heard the 登h by the way, I felt taken advantage of and thought, 典his wasn稚 a service call, this was a sales call!�

A week or so later, I received a recruiting call from the regional manager of the same banks brokerage division. I was really curious after my encounter with the local broker, so I asked a lot of questions. The regional manager told me that traditional brokers who become bank brokers double their production in less than 18 months. He informed me that the bank and brokerage operations have a system of working together, and that bank brokers are privy to information that traditional brokers are not. I asked like what? He informed me that the bank brokers receive information from the tellers on customers who make large deposits, and the tellers are encouraged to do this by the banks management. In addition, bank brokers also had access to maturing CD痴 list and account balances.

Boy talking about Peeping Toms! My goodness, this has to be an invasion of privacy to say the least. You池e not going to believe this, but this 撤eeping Tom� approach is perfectly legal and is not considered an invasion of your privacy. Since the bank and its brokerage operation are technically under one roof, no laws have been broken. All this may be what JP Morgan CEO Harrison calls, 渡ew clients and scale with the ability to cross-sell�. No Mr. Harrison, this is called 撤eeping Tom�.

As more and more banks and brokerages merge their businesses, your banking information will be shared among the companies that make up that combination. This is scary! In light of the massive merger activity among banks and brokerages, new legislation needs to be introduced to protect the public痴 interest. Until then, you must understand what is going on, and realize that your once private bank accounts are not private anymore. If you get a call from a broker a few days before you have a CD maturing, you値l know why.

PEEPING TOM # 2- ACCOUNTANTS- During the excesses of the 1990痴, several auxiliary professions began expanding their businesses to include investments. During the ragging bull market, accountants became envious of the brokerage profession as they prepared tax returns for brokers as well as their clients. Seeing how much brokers were making, and being the opportunists that they are, accountants thought 塗ey, we can do this too�.

Since most investors trust their accountants more than their brokers, the accounting profession felt that providing financial advice to their clients would be like shooting fish in a barrel.

Industry trade publications like 典oday痴 CPA� show accountants how to expand their businesses and increase revenues. Accountants are taught to use the 田onsultative approach� to make the client comfortable with the accountant as a 田onsultant or advisor�. Since a client relies heavily, and trusts explicitly the accountant for tax advice, a natural tendency is to do the same regarding investing. But remember, when an accountant that is compensated for giving investment council begins discussing your investments, the advice has stopped, and the selling has begun.

Accountants qualify as 撤eeping Toms� because they, like bank brokers, are using private and confidential information for personal gain. Now, if an accounting firm would offer and advertised their financial services to all their clients that would be fine. But, when an accounting firm has access to w-2痴, 1099痴, real estate holdings, and banking and brokerage statements, they might have a tendency to pick and choose who they offer financial services based on who would pay the most in fee痴.

Accounting firms that offer financial counseling have had great success against brokers. One reason for their success is they play the perfect role of a devils advocate, and a second guesser. Regardless of whether we池e in a Bull market or Bear Market, there are not many brokers that can overcome statements by an accountant once they are firmly planted in the clients mind. For example;

Bull Market Phrases:

1)Why did you have to take all these capital gains this year? You may have to pay a penalty if you didn稚 pay enough in. Or, this dividend income is going to kill you.

2)You sure paid a lot in fee痴 this year, what was your return?

3)I知 concerned about how you assets are allocated; you may be taking too much risk. Would you mind if I looked into that for you?

In a Bear Market, the client becomes even easier prey since most people are already upset over losing money. At this point, the client is emotional and is willing to listen to any alternative. Since the accountant is assuming the role of being your consultant, their comments reflect your losses as being your own. For example:

Bear Market Phrases:

1)I can稚 believe this (looking at your portfolio), someone obviously did not do their job.

2)You paid all these fees and still lost all this money? This is ridiculous.

3)If your assets had been properly allocated, you would not have lost all this money. Who痴 your advisor?

4)I壇 think seriously about making a change. Would you mind if I did a thorough review of your account?

I am confident that there are many highly competent accountants who provide great investment advice to their clients. The trust placed in accountants as tax advisors should not be automatically assumed when it comes to your investments. When an accountant approaches you about your investment business, keep in mind the various points made here. Carefully evaluate what they have to offer, and never be swayed to make an emotional decision.

The S&P 500 has moved back into the plus column for the year, but a shift in the markets leadership is underway. Despite the recent rally, the Energy and Utility sectors have failed to participate.

For the short run, I have expressed may defensive stance on the Energy sector. I still feel that Natural Gas and Energy Services will continue to perform until late February or early March. This is the main reason I highlighted Chesapeake Energy (CHK) in a journal post last week.

The correction among the major integrated oils has to be viewed as a correction in a longer term bull market for the sector. Much of the momentum that has pushed these stocks higher for the past two years is now being re-allocated. Specifically, this reallocation is beginning to benefit Healthcare, Financials, Technology, and the Consumer Staples sector.

The implications for this sector shift should not be underscored. Given the remaining negativity among investors, the positive price action of the above mentioned sectors could carry the market averages to the euphoric levels that I have mentioned for the past few months.

So far, the majority of the gains in the Healthcare sector has been concentrated in Managed Healthcare + 27.15%, and Healthcare Services +26.61%. The laggards in the sector has remained Pharmaceuticals -7.9%, and Healthcare Equipment -1%. This seems to be the place that represents the most value.

We are all aware of the problems facing Merck (MRK) and Pfizer (PFE). The problems among the US pharma's has put a damper on most American based companies. Herein lies a few opportunities. While MRK and PFE may bounce, companies like Johnson & Johnson (JNJ) do not face the same issues.

We are going to add JNJ to the IA portfolio as the stock looks like a good bargain at current levels. Also, JNJ fits the description of both a pharmaceutical company and a healthcare equipment company.

BIRD FLU SOUNDS LIKE "DUCK TAPE"

Now that the news media and the government has scared the heck out of the consumer, the "Bird Flu" scare is beginning to sound as ridiculous as the "Duck Tape" scare a few years ago. Do you remember when the Department of Homeland Security said they recommended that Americans protect themselves from chemical and biological warfare by getting duct tape ?

You need to be careful with the foreign pharmaceuticals since many have run up in price due to the "Bird Flu" scare. I guess "Bird Flu" and "Duck Tape" have something in common since a Duck is a Bird.

Oh, get this one. The person named to replace former FEMA director Michael Brown, is David Paulison,the same guy who gave us the infamous "duct tape" scare a few years ago. It just makes you shake your head, doesn't it.

That aside, stocks that have already had a nice run are:

Gilead Sciences (GILD)- They own the patent for "Tamiflu". Oddly, Defense Secretary Donald Rumsfeld was chairman of Gilead before accepting his present job in 2001. And, former Secretary of State, George Shultz is a director on Gilead's board. Hum....

President Bush is backing a controversial bill called the Pandemic Vaccine and Drug Development Act (S 1873) of 2005. The bill would allow health officials to purchase vaccines a flat rates with no bid. Under the current wording, the government could force citizens to use the vaccine while absolving the company from any responsibility should anyone die or be injured by the drug.

GILD would be fun to trade, but it would not be a long term holding.

Hoffman-LaRoche- They are the producers of Tamiflu.

Glaxo SmithKline (GSK)- looks pretty good here. Once again, the stock has had a nice run, but as money comes pouring out of energy and into healthcare, GSK could run to $60.

Oddly, I happen to like Jim Cramer. Anyone who displays that kind of passion for anything they do, will always have my vote. Cramer, like most other investment advisors, has times when they're right, and times when they're wrong. I can tell from watching his "lightening rounds", and listening to his callers yell, "Boya", that Cramer is a "momentum investor" with a fundamental flare.

A momentum investor is the opposite of a value investor. Momentum investors believe you buy a stock near its high because you believe its going higher. I have seen this strategy pay off big for investors, but as soon as the momentum fades, these stocks get killed. As long as you know when to get out, you're fine. Unfortunately, very few know when that time is.

Whenever I watch Cramer, I am probably not seeing or hearing the same things you are. Unlike most who watch his show, I am more interested in the attitudes of the people calling in (Boya) rather than the stock picks. Herein lies my observations of an "out of control public".

I cannot recall a time in the past 48 years where I have seen greed reach such epic proportions. For anyone who has watched Willy Wonka & the Chocolate Factory, you are probably familiar with the greedy, selfish little girl, Veruca Salt. Veruca was the one who was always demanding that her Dad give her everything she wants, and give it to her now! Boya!

I thought the NASDAQ bubble would have cured some of this greed, but investors shrugged this off and went into real estate instead. I have heard several people tell me that they gained back everything they lost in the stock market by investing in real estate. Oh, really. Did you sell? Boya!

Oh, by the way, before I go any further, I wanted to tell you what Boya means. I have heard military personnel use the term, but I thought it meant go get'em. When I went to dictionary.com, it referred me to acronymfinder.com. The acronymfinder said boya was a military word for.... Well, I'll let you look it up.

The outlandish greed we are witnessing in society today is unparalleled. Over the past 85 years, the closest we came to present day greed was during the roaring 20's, just prior to the 1929 stock market crash, and just before the great depression. Some market historians believe that greed played a major roll in the demise and collapse of the economy and stock market in the 1920's.

Today, selfish greed to attain wealth is breaking down our moral fiber, and our sense of decency. All you have to do is turn on your TV set, and watch for a couple of hours to see what I mean. I don't know about you, but a few years back when I saw Bob Dole do a Viagra commercial, I was embarrassed for the guy. Today, when we see a Viagra or Levitra commercial, we think nothing of it.

When the Viagra commercial first appeared on TV, my son was 11 years old. Since he was, and still is, a big baseball fan, asked what Viagra was after seeing Rafael Palmeiro do the commercial.

Now days, we see the selfishness and greed of Veruca Salt from Willy Wonka, in people we see everyday. Here in Pensacola, FL, the city put up its first camera at an intersection. On the first day, they counted 41 people who had run a red light. This is only at one intersection!

Let's take it a step futher. Have you made a list of the happenings around you. I have.

After hearing CNBC痴 Joe Kernen say, BOYA a few minutes ago, I have got to give you the definition. Basically, this goes to the heart of my theory that some investors are gullible, and follow the lead of anyone without knowing what they're doing.

BOYA is a military acronym for�. I can稚 say it. Go to www.acronymfinder.com and look it up for yourself. You池e not going to believe it. Better yet, once the CNBC people find out what it means, they will probably be embarrassed and stop letting Jim Cramer from using the term.

I don't know if you really want to call it a warning, but the American Express CEO, Kenneth Chenault said that analysts estimates of 20-25% earnings growth was is "too aggressive". Instead, Chenault said that a target of target of 12- 15% was more realistic. That sounds about right since most credit card companies charge loan sharking fees to customers that amount to 18%. When you back out expenses, 12-15% sounds about right.

WALL STREET'S ESTIMATES ARE TOO HIGH

I've said it before and I'll say it again, earnings estimates are coming down, and they should continue decline in 2006.

Yesterday, Target (TGT) lowered its November outlook, which does not bode well for the Christmas selling season. Higher commodity and raw material prices are beginning to take a bite out of the earnings power of companies who do not raise their prices for fear of lower sales. Companies who do not pass on the increase costs eventually eat the difference which in turn reduces their margins.

Retailers like Best Buy (BBY) and Wal-Mart (WMT) also sold off on Targets news. Best Buy was the hardest hit after dropping 5 points (to $43.89) from its November 7th high of $48.95. BBY shares are up +.62 so far today at $44.51.

Wal-Mart (WMT) made an interesting comment a few weeks ago when they said they were going to be squeezing their suppliers for lower prices extra hard this year. This tells me that is higher costs, and inflation are hurting WMT as well, but they are going to try and make up for it by squeezing the companies they do business with. The key word here is TRY.

Let's assume WMT is successful in squeezing their suppliers. Most of Wal-Marts suppliers are publicly traded companies. If their margins are squeezed, they will have to lower earnings and revenue estimates as well. So, around and around we go, who will warn next, nobody knows.

Here is a comment from Andy on my BOYA discovery:

That IS funny. I never bothered to look up the meaning, but I'm sure glad you did.

Not only is it funny, but what do you think the CNBC people are thinking right about now. I sent an e-mail to them too. I値l be watching Cramer for his reaction.

Here痴 a comment from David after viewing my explanation of 徹ptions� under the 迭eports� section of the website:

Thank you for this very clear explanation.

I encourage all of you to take a good look through the Reports I have written. You値l save yourselves a lot of $$$

A real estate question from Courtney

I've managed to save up roughly $88232 in my bank account, but I'm not sure if I should buy a house or not. Do you think the market is stable or do you think that home prices will decrease by a lot?

If you have been following my comments, I believe the real estate market is almost as overvalued as the NASDAQ was in 2000. This is not to say that the Fed will not attempt to protect the real estate bubble from completely falling apart at the seams however.

So many people have bet their financial futures on their homes, and the lines of credit tied to their homes, that a huge collapse would be devastating for the economy. This is not to say it cannot happen. No one thought the NASDAQ would fall as much as it did either.

The problem that buyers face is this. When interest rates fall, home prices rise. When rates go up, home prices fall. In my opinion, the best time to buy a home is when interest rates begin declining during an economic slowdown, or recession.

What is disturbing about real estate right now is homebuilders have announced record sales of new homes. This has been going on for quite sometime. If they are selling a record number of homes, what is happening to the homes these people are selling to buy the new ones?

You can稚 tell me that month in and month out, the buyers of these new homes, or the buyers of the existing homes, are bought by first time home buyers. There are not that many eligible first time home buyers in the country.

What I think will happen is supply will eventually outstrip demand. I have seen reports that 20% of new home purchases were made by speculators looking to flip their real estate at higher prices. If this happens, you will see a glut of new or existing homes on the market, interest rates will drop, and despite a drop in rates home prices will remain down due to oversupply.

In time, (10-15 years) this oversupply problem will correct itself as older existing homes fall under re-zoning , and are torn down to build commercial real estate. This process could take a long time. The bottom-line is you cannot build more homes if you don稚 have the people to occupy them.

In your particular situation, you need to assess your earnings power, debt level, and re-payment capability. Remember, in addition to your mortgage payment, your payments will be higher because property taxes and insurance will be added to the payment. In addition, if you do not put 20% down, the bank will make you purchase insurance on yourself in case you default on the loan.

Don稚 let the bank try and talk you into interest only or adjustable rate loans. Find a rate you are comfortable with, and a payment you can afford.

Lastly, keep plenty of cash for a rainy day, and don稚 put that cash with the same bank that holds your mortgage. If you can, keep it a secret.

S&P 500 1231.21 +2.20 +0.18%
Industrials 10674.76-11.68 -0.11%
Nasdaq Comp 2187.93 +1.19 +0.05%
Russell 2000 654.64 -1.59 -0.24%
NYSE Comp 7518.98 +9.60 +0.13%
CRB Index 315.31 +2.58 +0.82%
Dollar Index 92.33 +0.24 +0.26%

NYSE volume totaled about 1.59 billion shares, and the A-D ratio was slightly negative on the NYSE, and 3 to 2 negative on the NASDAQ.

Energy prices have rebounded from a four-month low as a cold front pushed across the country. The stock market came under pressure as the latest EIA inventory report said that oil and gasoline stockpiles dropped unexpectedly.

Energies:

Crude Oil Dec 05 57.73 -0.15
Crude Oil Jan 06 58.31 -0.14
Crude Oil Feb 06 58.80 -0.13
Crude Oil Mar 06 59.05 -0.17
Gasoline Unleaded Dec 05 1.4835 +0.0005
Gasoline Unleaded Jan 06 1.5410 -0.0007
Gasoline Unleaded Feb 06 1.5840 -0.0017
Gasoline Unleaded Mar 06 1.6047 +0.0265
Heating Oil Dec 05 1.7278 -0.0014
Heating Oil Jan 06 1.7919 -0.0030
Heating Oil Feb 06 1.8224 -0.0030
Heating Oil Mar 06 1.8095 -0.0039
Natural Gas Dec 05 12.321 -0.008
Natural Gas Jan 06 13.070 -0.013
Natural Gas Feb 06 13.183 +0.040
Natural Gas Mar 06 12.943 +0.040

Our favorite natural gas stock, Chesapeake Energy (CHK) was up +4.81% to $29.40, up $1.35.

ECONOMIC NEWS:

The always suspect October PPI released yesterday said that core rate came in less than expected. Get this, the data suggested that higher energy prices have not filtered into the costs of other goods. Ha! Liar, Lair, pants on fire.

The CPI data released today and basically confirmed the PPI data from the day before. Believe it or not, the CPI also suggested that energy prices have not filtered into non-energy prices. Unbelievable!

Finally, the Labor Department reported consumer prices rose at the slowest pace in four months, while the Commerce Department said business inventories rose more than expected in September.

INTEREST RATES:

With the yield curve flattening, the 2 year to 10 year Treasury yields tightened their spread to the lowest level since 2001.

30-Year T-Bond 4.674% -0.067% 11/16/05
10-Year T-Note 4.484% -0.073% 11/16/05
5-Year T-Note 4.430% -0.072% 11/16/05
2-Year Note 4.392% -0.068% 11/16/05

Insider Trades:

The pattern among insiders continues to be on the sell side. Who knows about a company's future better than an insider? From time to time I report trends in insider activity. I focus mainly on company directors and executive officers. Here's a glimpse of what has happened this week:

Tuesday 11-15-05 B139 S357
Standout Buys: EL, TE, ULBI, MWY
Standout Sells: MSFT, NKE, BRCM, RYL

Wednesday 11-16-05 B95 S215
Standout Buys: HET, KO, PHM, BAC, HTV
Standout Sells: MSFT, GOOG, DNA

Today 11-17-05 B86 S255
Standout Buys: MWY, WTNY, HTV, CWEI, HSY
Standout Sells: GOOG, CSCO, MHS, KMG, DNA, GLW, MSFT, ERTS

Comments: GOOG insiders have been big sellers for several months. I would love to short this stock, but Wall Street keeps pumping the stock and short sellers are panicking and driving the stock higher. One day, this will be the short of a lifetime.

The financial media has been pumping MSFT to investors as well. MSFT insiders have been big sellers as well. While they are pumping, insiders are dumping. CSCO's CEO, John Chambers, sold 1,379,107 shares @ $17.11-17.30. He still has 3.1 million shares left.

DNA and GLW hav also seen steady selling by insiders.

TODAY'S NEWS:

1) GM is being dogged, and speculation of bankruptcy is growing. Billionaire investor Kirk Kerkorian has bought a substantial stake in the company, and is rarely wrong. That being said, he is no dummy either. Anyone who accumulates positions as large as he has, also protects themselves with long term put options to protect their downside.

2) Limited (LMT) announced a loss of $12.31 million or $0.03 per share for the third quarter. The Christmas selling season will be driven by upscale companies, as well as discounters and niche' players like Wal-Mart (WMT) and Best Buy (BBY). Middle of the road retailers will probably suffer the most.

If you have been keeping up with my journal comments, you know that I think 2006 will be a tough year. Energy prices have come down a little in preparation of a slowing economy. In 2006, energy prices will come down even more.

In 2006, if not sooner, consumer spending is likely to slow as increased energy costs, higher interest rates, and a slowdown in the housing market begin to weigh in.

That aside, the stock market looks prepared to make its next move, and this move, will likely be up. On the surface, the year to date performance of the various market averages have been unimpressive.

Year to Date:

S&P 500 +1.4%
NASDAQ +.52%
Dow Jones -.52%

This year is a prime example of why sector investing beats index investing by a wide margin. Some of our research has revealed that in 2005, sector investing has outperformed the market significantly. We are in the process of publishing our data, and hope to have a newsletter available to subscribers in 2006.

In 2005, there have been pockets of opportunity for traders, and traders have outperformed long term investors thus far. Traders are investors who buy on dips and sell on rallies, while the typical long term investor has a minimum time horizon of 5 years, and owns a set portfolio of stocks or index funds.

As an example, the trader who bought into the market in August of 2004, and sold on the rally in March 2005, showed gains of about 15% in less than 150 days. If the trader had bought back in after the 2005 spring dip, and sold in August, he would have gained a little over 9% during that period.

So, in 2005, the investor who had allocated their portfolio among the Utility and Energy sectors did quite well. Other sectors in the S&P were lackluster at best.

Not all markets performed as poorly as the U.S. markets. Foreign stock markets and international funds had a great year. For example:

German DAX +19%
France CAC +18%
Swiss SMI +27%
Japan Nikkei +23%
Korea +41%
Brazil +15%
Mexico +25%
Argentina +19%

Usually, when you see outstanding performances in the foreign markets, and lackluster performance in the U.S. markets, investors like to take profits on the gains, and re-allocate those assets elsewhere. My feeling is this elsewhere will be in the U.S. stock market.

What is encouraging in recent weeks is the strength of markets advance despite negative news. I am still focusing on the 1250 mark on the S&P, 10,750 level on the Dow, and 2250 level on the NASDAQ. If the markets can overcome these key resistance levels, we will get the last hurrah that we have been waiting for.

Sorry about not adding any comments yesterday. I was tied up with clients all day, and....I don't want to start sounding like a broken record. For those of you who have been following my comments, my opinions on the markets have not changed.

In order to bring you the best possible insights, sometimes when there is nothing to report, why report. In blogging, everyone is trying to attract eyeballs to their websites to sell advertising. This is not my objective.

A SELL:

We are going to sell Schlumberger (SLB) in the IA portfolio Monday. Our price target is $100, and its been hanging around the $95 level. That's close enough for me. A sale at $95 would put our gain somewhere around 30%.

THE MARKET:

Yesterday stocks put on a good, but boring performance. The S&P is pounding on the door of the 1250 resistance level, and may breakout soon. Once this happens, the financial press and the media will be yelling "buy, buy, buy", and if you do, could be saying "bye, bye, bye", to your hard earned money.

Since Christmas is right around the corner, its time to be "Making a list, and Checking it Twice". Not a list of gifts, or stocks to buy, but a list stocks to short.

The first place I will start is an easy one. Once the S&P 500 breaks above the 1250 mark, I will be dollar cost averaging into my favorite S&P 500 short, the Rydex Tempest 500 fund (RYTPX). Yes, for a while it will be painful if the S&P reaches the euphoric 1300-1350 level, but markets go down a lot faster than they go up. Once the markets start heading south, the declines will be very painful for the perma-bulls.

Let's be frank, no one likes a perma-bear, or a messenger of bad news. I am neither. In fact, I feel I am a messenger of good news, particularly if you can make money as the market is going down.

In addition to increasing my position in the Rydex Tempest fund, I will be making a list of short sale candidates. I hope you will too. Once I begin listing my ideas, I hope you will pass a few of your ideas along also.

As far as my personal allocation to stocks, I will reduce my holdings to 40%, then 30%, and maybe even 20%. The only stocks I will be interested in holding are in the consumer staples area, and maybe a few financials.

When the decline begins, it could last for 6-9 months. The sector rotation model tells us that financials and cyclicals should be accumulated during this period. After cyclicals, technology and industrials should be accumulated. Don't get to antsy however, we have a long way to go.

As the debt laden consumer goes on their final buying binge for Christmas, we will be preparing ourselves to profit for what is sure to be a tough 2006. So, when will the fireworks begin? My best guess is sometime between February and May. Yes, I know, we may have to wait 4 month's, but I'm sorry, I do not control the markets. So, who does control the markets? Here are a few quotes from some past US President's:

President Woodrow Wilson said...

鉄ince I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the United States-in fields of commerce and manufacturing-are afraid of somebody. They know that their is power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so perverse, that they had better not speak of condemnation of it."

Franklin Roosevelt said in a letter... 鄭 financial element in the large centers has owned the government since the days of Andrew Jackson".

For those of you who watch the financial channels, GM did a well orchestrated dog and pony show this morning as they announced their restructuring and reorganization plan. Whether you like it or not, times are changing. Companies like GM can no longer act like government pension centers; they are no longer the big kids on the block.

Piece by piece, unions in this country are being ripped apart. I have mixed emotions about this since every business needs some sort of compliance or disciplining to keep them straight. A few other professions that need some compliance and oversight are the medical and legal professions. In our greed stricken society, we can never be sure if anyone is being straight with us anymore.

I am not sold on unions being the best overseers of a companies dealings however. In the past, the internal workings of the UAW and other unions have been controlled by organized crime.

GM raised its job cuts by 5,000 to 30,000. This is an effort to remove $7 billion of expenses by next year, which is $1 billion more than previously estimated.

I don't think GM is dead by any means. In 2007, the company is going to announce a new line of hybrids for their top selling Chevrolet Tahoe痴, and GMC Yukon痴. I'm sure other hybrids will follow as well.

I am not going to add GM to the IA portfolio, but for speculative investors, the stock looks like a decent bet.

As GM closes plants, and cuts personnel, the ripple effect with its suppliers is sure to be felt as well. The economy was going to slow on its own anyway, but GM's news will accelerate the process.

THE MARKET:

I have not changed any of my opinions. The S&P looks like it is ready to make an effort to break through the 1250 mark. If it does on high volume, it could carry the index up another 3-5%. At this point I will not be impressed, but will be working feverishly to lighten my portfolio of stocks.

VIEWER COMMENTS:

I would like to thank those who have expressed your enjoyment with the website. As your probably aware, it takes a lot of thought and work to condense the technical aspects of investing into common sense, everyday terms. I will do my best to continue bringing you some insightful commentary.

Here's a comment from RC:

Don't financials typically perform poorly w/ high(er) interest rates?

Yes, and I your probably referring to my comments that financials should be accumulated sometime during the next decline in 2006.

The Financial sector has had a nice run in recent weeks. This is partly due to short covering (the sector was heavily shorted), and institutional accumulation ahead of the next move in the sector rotation model.

When the economy eventually bottoms in 2006, one of the first sectors to benefit will be the financials. At this point, rates will have stopped rising, and the economy may be weak enough where rates may actually start declining.

Short term rates have already risen more than 3% from their lows, and we probably have 50 to 100 basis points left in this tightening cycle. So, I believe we are closer to the end of the rate hikes, and thus financials should be on investor痴 radar screens.

Here's a comment from Sergio:

How about SLB for a short at your sell price - looks over-extended.

I don't know if SLB is extended or not. In past oil crunches, SLB has reached $120 under similar circumstances. That may happen yet. One thing that does seem apparent is the oil sector is temporarily going out of favor. This is a normal progression in the sector rotation process. I may be a little early, but I don't like being late.

I had a question of whether there was a charge for the IA blog. No, there is no charge for the Investor Alert. I am working on a subscription based newsletter for No-Load Mutual fund and Exchange Traded Fund (ETF)investors. This service, if it ever happens, will be completely separate from this site.

I am working on this newsletter with one of the most famous stock pickers, and portfolio managers on Wall Street. We are applying his research and stock picking evaluation system to No-Load Funds and ETF's. The initial results and backtesting have revealed some dynamic performance! I'll let you know when this service is available.

I have been telling you about the possibility of the S&P 500 breaking through the 1250 barrier. Now that we have reached this technically stiff resistance level, the S&P has now reached a moderately overbought position. This means the index may not have enough power to breakout above the key resistance level without first selling off.

For traders, look for a pullback to the S&P 1125 area. This will give the market some time to work off its moderately oversold condition. With temperatures getting colder, and oil rallying, this just may be the excuse the market needs to take a time out.

If the S&P pulls back enough to work off the overbought condition, it may gather enough steam to hurdle past the 1250 mark, and a final blow-off could drive the market averages to the 1300-1350 area by year-end. This in my opinion would be the grand finale'.

INTEREST RATES, COMMODITY PRICES & INFLATION:

I hate to tie all of these area's of the economy together, but based on my analysis, I don't have much of a choice.

For now, interest rates continue to be in a trading range. What is frightening is interest rates are signaling a deflationary environment, while commodity prices are signaling an inflationary environment. So, the bottom-line here is, we are seeing a decoupling of the direction in interest rates in relation to commodity prices.

This negative price action is extremely rare. A similar situation like this occurred during the Great Depression, when interest rates were range bound, and commodity prices were rallying.

The recent pullback in oil and commodity prices were overdue because both were very extended and due for a pullback. Longer term, I feel that oil and commodity prices are still in a longer term bull market.

As the economy continues to cool in 2006, any significant pullback in oil, and commodity related stocks, has got to be viewed as a buying opportunity. Depending on the magnitude of any slowdown in the economy, a severe slowdown could pull a barrel of oil to below $50.

A little over a month ago, the Wall Street gang were injecting fear, and instilling doubt. The doubts of course questioned whether the October sell-off could recover enough to give investors a year-end rally.

In the weeks ahead, if not now, the "Wall Street Shuffle" will be pumping up stocks as the major market indexes reach new highs for the year. This pump and dump strategy is nothing new, and by now you should be wise to these tactics.

To put it mildly, we have been dead on balls accurate (so far) about what we thought the markets would do. Here are some comments on the markets, and other hot topics dating back to July. I sliced and diced the comments to reflect only the market forecasts.

July 15, 2005: "Lonely, But Safe"

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.

We will be adding several stocks in late August and September to take advantage of the yearend rally. For now, we are standing aside.

September 26, 2005: "Oil Slick Heading Our Way?”

It seems that everyone today is an oil bull. As alert contrarian's, we should look at this overly bullish view as an obvious signal for a sharp sell off. The Bush Administration is being blamed for high energy costs, and a sharp sell off would very beneficial to the President's upcoming approval ratings. In fact, there are some behind the scene measures in place that lead us to believe that oil prices may drop to $55/bbl soon.

If you want to take a few chips off the table, go ahead if it makes you more comfortable.

October 14, 2005: "The News is Horrible"- Shh, Time to Buy

As far as the S&P is concerned, I told you that the 1180 area was the first line of support. Whether it happens or not, the market is attempting to scare investors with one of its nororious panic sell-offs. These sell-offs cause the less informed investor to give into their weaknesses and sell. These so called washouts (technically called: capitulation) are followed by dramatic reversals that begin new trading rallies.

On the Dow, a sudden drop below the 10,000 is similar to the S&P's key reversal point at 1160. The NASDAQ appears as oversold as the other two indexes, but a break below the 1975-2000 level can bring the washout down to 1875.

October 24, 2005: Come to "Papa"

The stock market is acting pretty much as we had expected. Despite all the negative news, it looks as if the market is attempting to stabilize, and the year-end rally should begin to unfold soon.