John Mugarian's Dynamic Growth

We all hear a lot of rumblings about our nation痴 trade deficit, but rarely do we hear any politicians talk about what caused the massive imbalance. What I am going to attempt to do here is give you the reason why our balance of trade is out of control.

The ramification of this problem is my #1 reason for being cautious on the US stock market. While the focus of the stock market and the economy seems to be hinged on the direction of interest rates, I致e been arguing that higher interest rates do not tell the entire story. The bigger picture, in my opinion, is lower incomes, and the loss of jobs.

So, what caused the massive trade deficit? Back in 1993, congress voted 234-200 to approve the North American Free Trade Agreement (NAFTA). Prior to 1993, George H.W. Bush used the term 哲ew World Order�, and of course, at the time, I had no idea what that meant. Well, by now, we should all know what this means. In a nutshell, it was a term for globalism, and free trade.

When power brokers (whoever they are) realized there was no way a republican President could convince a democratically controlled congress to pass NAFTA, they chose a little known democrat from Arkansas to get the job done. Early in his administration, Bill Clinton convinced the democratic majority in congress to pass NAFTA. This was the beginning of our soaring trade deficit.

釘UY AMERICAN� & WALMART

Do you remember the days when the founder of Wal-Mart, Sam Walton began the famous Wal-Mart 釘uy American� slogan in 1985? These famous words worked for a while, and Wal-Mart stock was one of the best investments around. When NAFTA was passed, the company's 釘uy American� strategy began to hurt the stocks performance, because American made goods were more expensive, and hurt the company痴 margins. The stock went into a deep slumber, and traded in a range of $22-$30 from 1993 to 1997.

Wal-Mart was slow to change, but eventually the 釘uy American� slogan was trashed, and the company began selling goods made from cheap labor markets. From late 1997 to April of 1999 Wal-Mart stock rose from $30.25 to $106.81, and split 2-1.

Here's my take on the economy and the markets. Since we cannot make any sense of the economic data being released, I thought I would use hieroglyphics instead +---+-+ = ?. What the heck does all of this mean? It is a combination of all of the good + economic news, combined with the bad economic news -, which equals = the conclusions investors are left with ?, after trying to digest all the news.

Lets take them one by one:

+ Economic news remained positive as the 3rd quarter GDP came in better than expected. An important component of the report said that inflation quite mild (??????).

- Precious metals shares gained as gold futures hit an 18-year high. (But there's no inflation ??????)

- The November ISM manufacturing index fell slightly but was close to expectations and still suggests a healthy expansion. (It fell, but that was good??????)

- October construction spending was up 0.7%, more than expected. It was the fourth straight monthly increase. (So we do have inflation, right ??????)

+- Retailers reported their November sales, but the results we mixed.
(So,is the consumer tapped out because they are only buying bargains??????)

+ The government reported that personal income and spending edged up in October. (Oh, wait, are consumers doing well or not???? Incomes are up, right??????)

Summary of today's economic data: ?????????

Today's Market:

Yes, you should begin making your list, and checking it twice. A short list that is. Like I had said on November 28th, the spin is beginning and investors are jumping into the market in fear of missing the next big move.

As investors sifted through the economic data for the day, they concluded that we have a goldilocks economy (not too hot, not too cold, just right), where consumer spending and incomes rose, but without the threat of inflation. Oh, how perfect. I could not have written it any better myself.

Today, in our no-inflation environment, energy stocks rose sharply as the no-inflation oil prices rallied. Crude closed up +$1.15 at $58.47/bbl. Unleaded gas closed up =.0655 to $1.56/ gallon. And heating oil and natural gas prices advanced as well.

The important thing you need to remember though, "inflation is under control" (???????)

The materials sector was also a big gainer today as gold and copper rallied. But remember, "inflation is under control".

In other news, SBC Communications officially changed their name to AT&T. The new stock symbol is T. Boy, did we see this coming from a long way away.

I am getting anxious to sell our two retailers, but I may hold off for a few more days. Best Buy is going to announce earnings around the middle of the month. I think the news will be pretty good, but this might be a classic case of buy the rumor, sell the news. I may not wait for the news.

The shares of internet search engine Google, has been the most widely touted stock of the year. Its market cap has already surpassed many well know companies who actually produce and sell something. It is also mind boggling to see the number of Wall Street investment (banks) firms that have religiously raised their price targets on the stock. Of course, being the inquisitive person that I am, I want to know why?

I just finished reading the December 5th issue of Business Week, which featured Google on the front cover. An alert contrarian knows when you see magazine covers touting, or condemning a company, the best course of action is to play the opposing side. This contrarian attitude usually pays off 12 months down the road.

As I read the article, I was stunned to see that the company's market cap had surpassed $120 billion dollars. This is a clear case of a stock that is incredibly over hyped. With over $120 billion market cap, this places Google痴 valuation much higher than "real" companies that actually do something. Here is a partial list of companies whose market cap is less than Google's (Source: Yahoo Finance):

3M-$59.5b, Abbott Labs-$59.2b, Boeing-$55.8b, BellSouth-$50.5b, ConocoPhillips-$$85b, Hewlett Packard-$85.8b, Home Depot-$89.9b, Pepsi-$99.2b, Texas Instruments-$51.5b, Time Warner-$83.3b, UPS-$86.6b, Verizon-$88.9b, Disney-$50.4b, Wachovia-$84.5b

So, do I think Google is over hyped and overvalued? You bet your sweet adams apple I do. This is one of the most outlandish cases of over hyping I have ever seen. So, now we must ask ourselves the $8 billion dollar question. Why are some Wall Street firms continually pumping the stock?

The answer is...$8 billion dollars. Yes, according to Business Week, Google is holding $8 billion dollars in cash, and investment bankers are falling over one another to sell Google " mergers, acquisitions, financing, and strategic advice". Now, if you are an investment bank trying to get Google's business, the best thing you can do is rate the stock a buy, and the worst thing you can do is anything else.

This week alone, Google insiders have sold a grand total of $47,131,693 worth of stock. Business Week reports that Google shares turned 5 people into billionaire's, and 1,000 people into millionaires. They also went on to say that "one in five staffers is a millionaire, at least on paper".

In conclusion, if you believe the hype, and also believe that this internet search engine is worth more than the companies I listed above, more power to you. But before you begin to throw (more?) you池e hard earned money into this stock, remember this disclaimer that is posted on most investment banks research reports:

(Brokerage Firm)"does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decisions."

After hashing through all of the technical projections from the various market technicians that we follow, the question that keeps coming to mind is, "is it worth it?".

Lets look at some technical market numbers, while keeping in mind that the market will probably revert back to its bear market ways in 2006.

S&P:

The technical projections are currently forecasting a rally to the mid 1300 level on the S&P. While 1325 sounds pretty good, the gain would only be 5.1% from current levels.

We have seen some forecasts that could carry the S&P to euphoric levels (1350/ +7.1%), but we need to keep in mind that every projection is just an educated guess.

In my opinion, the risks of staying in the market for the possibility of an extra 5-7% is not worth it. I would rather split the difference and buy a 4-4.25% cd.

If I absolutely had to gamble on a rally, I would buy the SPY, or SPX calls 3-4 months out on a pullback.

DJIA:

The techical projections on the Dow are currently forecasting a rally to the 11,500 level (+5.5%), with a possible top at 11,900 (+9.1%).

The possibility of 9% is pretty tempting. Again, if I absolutely had to play the possibility of this rally, I would buy the DIA Diamonds, or buy a 3-4 month call on the DJI on a pullback.

If you would rather sit this one out, again 4%+ cds sounds pretty good.

Here's a question from Shawn on the NASDAQ:

I enjoy your daily comments. I was wondering if you believe NAZ can do the best out of all indexes, instead of buying the QQQQs, isn't it better to own NDAQ

thanks

Thanks for the question. Actually, no. The NDAQ is the holding company for the NASDAQ, and the direction of the stock is based on the company's profits.

The up and down movement of the QQQQs is based on buying or selling pressure from investors in the underlying companies that make up the QQQQs. The technical projections for the NASDAQ are based on the overall indexes current technicals, not the NDAQs technicals.

Of course, keep in mind, the QQQQs are the top 100 companies in the index, while the NASDAQ itself are all the companies in the index.

We'll have to wait and see if all of the calls for the market to go higher actually pan out. This is not a negative comment, but investing in what may be the final stages of this secular bull market is kind of like playing dodge ball in a phone booth.

As I have said many times before, I am not very good at putting my feet on the edge of a cliff. So, even if the market does put on another 5-7% on the upside, I will have a difficult time getting myself to participate.

So far, the rally from the October lows have followed most technical forecasts and the recent pullback is getting under way right on cue. Will the market try to rally to new highs before the end of the year, or early 2006? I don't know.

This is why I call this period in the market, 兎dge of the cliff" investing. Anything could happen, and it usually does.

TODAY'S MARKET:

The main buzz word that most market mavens like to use during markets such as todays is, "pause to refresh". This means the market is trying to catch its second wind before attempting another run to the upside. Another term they like to use is "backing up to get a running start to jump over the fence". Whatever term you want to use, the consensus seems to be that another rally attempt will happen before year-end.

The word 田onsensus� bothers me a little, because the market is notorious for doing the opposite of what most people expect. For example, what if the retail sales numbers begin to show that investors are not spending as much as initially expected. Or, oil prices resume their march upward after a brief pause. Given these unforeseen items, you can see why I think participating on an extra 5-7% on the upside is not worth it.

I was watching CNBC this morning as I always do, and Donald Evans, CEO of "The Financial Services Forum" was the guest host. Evans was praising our economy saying it was one of the best economies he has ever seen. He went on to say that employment is the best it has ever been, and on and on...

My response is fairly straight forward; "Don't Step in it". I told you a week or so ago that the spinmeisters would eventually start to come out, and begin telling you how great everything is. As I was listening to Evans (without knowing his background), I began to think, "Am I missing something here?", or is Evans not seeing the same things that I am seeing?

As I began to check Mr. Evans background, it became clear that he was in fact one of those spinmeisters. What a relief! I was beginning to doubt myself there for a moment.

Mr. Evans was in fact a member of President Bush痴 economic team, and the 34th secretary of the U.S. Department of Commerce. So much for objective, and independent opinion. Being from Texas, Evans moved to Midland where he began working in the oil industry. Hum... Isn't the Midland area the same place where the Bush family was in the oil business?

After learning all this, I quickly discounted all of Mr. Evans' opinions as spin.

Mr. Evans referenced the employment situation as being all roses. I guess if you are a corporate insider cashing in your millions of dollars in stock and option grants, everything is rosy. But if you are among the 2 million people who have lost your jobs because your factories have been shipped overseas, everything is not rosy. If you are working in the automotive industry, or had a business in New Orleans and along the Gulf Coast, everything is not rosy.

As far as the employment situation, we all have to be raving morons not to realize that most of the new jobs being reported are temporary services jobs. These are temporary jobs to rebuild the Gulf Coast, temporary jobs for retailers during Christmas, and the rest are service jobs like waitresses and bartenders. Oh, super! Those are the kind of jobs that can really provide comfort and security to the nation痴 work force.

Bottomline: "Don't Step in it"

As the market continues to waggle back and forth around the upper end of its trading range, the mantra for the day is "caution". With everyone waiting around for the final rally portion of the year-end rally, I am beginning to believe that the easy money has already been made.

So, as we wait around for the markets final act, let痴 go over a few scenarios that could possibly carry the market to higher highs.

1) Energy Prices Collapse: What are the odds? Winter is among us; surely it will remain cold or get colder as winter wears on. If this is true, why would energy prices suffer a significant pullback? Sure, the recent drop in gasoline prices have helped a little, but $2.00 per gallon to someone who owns a Tahoe or Suburban is still a chunk of change.

Conclusion: Energy prices are not going to collapse anytime soon.

2) Retail Sales Spike to the Upside: Retailers are giving away the store to move merchandise. We have all heard the recent sales figures. But, what we need to keep in mind is many retailers have lowered prices so much that profit margins will be low.

As an example, clothing retailer, Aeropostle (ARO) received high marks from analysts for their "Black Friday" sales gimmick. What was it? They marked down everything in the store 50%. Sales associates were instructed to yell, "50% off of everything in the store" as shoppers walk by their store in the mall. On the surface this seems like a great idea, but when I heard the news, the first thing I thought was, "this is an act of desperation".

Conclusion: While pockets of the retail space may do well (BBY &WMT), other retailers may suffer as earnings are released in January and February. Why? Sales may have increased, but profit margins will erode.

If you can wait a few months (3-6), shorting the Retail Holders (RTH) may not be a bad idea.

3) End of the Rate Hikes: If the Fed is actually at the end of its tightening cycle, the market may celebrate with an explosive rally. In fact, I believe the majority of the rally we have just witnessed was in anticipation of this news.

The Fed (normally) will stop raising rates when the economy cools and inflation is under control. If the Fed does stop soon, then the great economy that Donald Evans was talking about this morning (see my earlier post) does not exist. The Fed is not going to stop raising rates when the economy is going gangbusters, it will stop when the economy is slow or slowing.

Conclusion: So far, the economy does not look as if it has cooled enough to prevent further rate hikes. Unless we begin to see signs of a slowdown in the economy, the current market advance is running on fumes. This does not mean it cannot fly higher, it can. The market will be very disappointed if the Fed doesn't say that the economy has slowed enough to warrant an end to the rate hikes.

Until the market provides us with some better opportunities, I thought I would provide you with an educational lesson while we wait.

After I broke away from the shackles of working for a brokerage firm, I was amazed by the huge array of choices available to investors investing through discounters. I have mentioned this before, and its worth repeating, brokerage firms keep their brokers and clients ignorant to a host of wonderful investment opportunities. Why? Because they can't make money off of you if you use them.

Here are some examples:

1) Vanguard No-Load Funds: Since the Vanguard Funds are no-load, and they do not pay kick backs to the firms to put them on the brokerage firms shelf, investors do not have the option to buy these funds through a broker.

This is not the brokers fault. Remember, a broker is just a salesman for the brokerage firms products. So, if the brokerage firm does not allow the broker to sell certain products, your choices, and possibly your performance, is limited.

2) Fidelity Select Sector Funds: If you like to maximize your performance by investing in conjunction with the Sector Rotation Model", you cannot buy Fidelity sector funds through a broker.

3) Short or Bear Funds by Rydex and ProFunds: Some brokerage firms will allow you to buy certain Rydex and ProFunds mutual funds, but not all. For example, you may be able to buy a Rydex fund that does 100% of the inverse of the S&P, Dow, or NASDAQ, but not the funds that do 200% of the index. Why? First, they don't think you池e smart enough to understand the risks associated with a 200% inverse fund. Secondly, they don't get paid because the fund is a no-load. Lastly, they are not confident that their brokers are knowledgeable to recommend these funds, and if something goes wrong they might get sued.

Here are some other examples:

Hey, Donald Evans, is you head burried in the sand? You need to read yesterday's post to understand this comment.

My former hometown newspaper announced today that Ford Motor would be eliminating 30,000 jobs and closing at least 10 plants. The company said that it "is considering closing five North American plants", and "that the company was initiating closure of assembly plants in St. Louis, Atlanta and St. Paul as part of a restructuring plan."

Hey, Don, do you think you can get these people jobs demolishing homes and businesses along the Gulf Coast, or picking up trash? How about a bartender or waitress job?

This latest report from Ford comes on the heels of a report from GM who said that "it would close 12 North American facilities that would see reduction of 30,000 manufacturing positions."

According to Challenger, Gray & Christmas, a professional outplacement firm, "technology companies announced 41,439 job cuts in the third quarter, up 4.3 percent from 39,720 in the second quarter. For the year, tech-job cuts totaling 140,696 were 18.8 percent higher than the three-quarter total of 118,427 in 2004." (Source- devxnews.com)

As the market begins heading toward the first areas of support for the market indexes, we need to keep in mind that the magnitude of any correction is dependent on energy prices. Hence, we are labeling the market action for the next few weeks, a "Teeter Totter" market.

This morning, oil prices continue to hover around the $60/bbl mark:

Crude Oil $59.30 +.09
Gasoline $1.57 +.0054
Heating Oil $1.73 -.0041
Nat. Gas $14.05 +.350

In the short run, I think oil prices will remain in a tight range of
$55-$62. As we get into 2006, we will probably see a sharper correction to the $50 level, or maybe a hair lower. At the $50 mark, I would be an aggressive buyer of the major integrateds, as well as the refiners.

The December 2006 crude oil contract is currently priced at $62.60. I know this doesn't mean much right now, but it does signal that futures traders think oil prices will be higher a year from now.

Phil Erlanger at www.erlangersqueezeplay.com , had these comments on his December 6th update:

"Now that the major indices are in a pullback phase, how large will the pullback be? The NASDAQ 100 above is still working above a gap that has not been filled. At this time, we don't see anything worse than a filling of that gap (which would be a 6% retracement to the 1600 level.) Since this appears to be a break away gap, there is no need for this gap to be filled. The EBB has retreated, but is about mid-way down, and is therefore of no prognosticative help near-term. Seasonality is taking a little dip which turns back up after 12/20/2005."

"As the stock market has begun a pullback, crude oil has begun a rally. So far the rally has served to test overhead resistance around the $60 - $61 level. This level is both a broken head and shoulders neckline and is also where a downtrend resistance line exists. If crude were to break above this level, the stock market will likely pull back further. If crude falls away to lower reaction lows, the pullback in stocks is expected to be minor. In any event, the market should renew its uptrend by December 20th. Stay tuned!"

Phil is one of the best market technicians in the business. He has a knack for being able to see through market gyrations that most people cannot.

The wave of insider selling has not let up. This adds to our conviction that 2006 may be a tough year. Here is the data since Monday (source: insiderscoop.com).

Monday 12-5 B87 S284
Tuesday 12-6 B77 S254
Wednesday 12-7 B47 S134
Thursday 12-8 B69 S208

Even Alan Greenspan has gotten into the act. I read a comment by Alan Greenspan where he said that our economy was facing serious consequences if we did not address the nation痴 serious debt problems, and if the country adopted a "protectionist" attitude.

The subliminal message here is the "protectionist" part. No one wants to be a full blown protectionist, but every country is a protectionist in some form or fashion. You have to be a little bit of a protectionist to prevent the loss of millions of jobs, and to prevent the total destruction of the nations manufacturing base.

Greenspan, in his comments, basically took the side of the multinational corporations, and suggested that any form of protectionism would hurt the nation. Nothing could be further from the truth.

The massive outsourcing that we are currently witnessing runs contrary to the rights given to all Americans in the preamble of the constitution.

Politicians who are being influenced by the multinational corporations in this country, are not "insuring domestic tranquility, promoting the general welfare, and securing the blessings of liberty to ourselves and our posterity", by creating huge trade deficits, and outsourcing millions of American jobs.

Paul Craig Robert, PhD., served as Assistant Secretary of the Treasury in the Reagan administration. He is a nationally syndicated columnist, and here are a few exerpts from a recent article he wrote.

Question of the day: How many shares of stock have Google insiders purchased in the open market since going public in August 2004?

Answer: Zero

Question Two: What is the dollar volume of sales this week, from December 5-8.

Answer: $219,095,458 @ $403-$419

Google Insider Sales Since Public:

Brin Sergey: Dir, President
1892 sell transactions = $497,696,658
Shares Remaining: 49,062

Lawrence Page: Director
1618 sell transactions = $272,629,288
Shares Remaining: 36,802

Eric Schmidt: Dir, CEO
14677 sell transactions = $268,983,240
Shares Remaining: 35,361

OVERLOOK NEWS ITEMS:

SENATE HEARINGS ON OIL: U.S Senator Ted Stevens is the chairman of the Senate Committee on Commerce, Science, and Transportation.

On a joint hearing on energy price gouging, Stevens refused requests to make the 5 oil executives testifying do so under oath. Oh, by the way, Stevens received over $100,000 in contributions from big oil.

OBSERVATIONS OF THE DAY:

OUR CURRENCY IS WORTHLESS: As I reached into my pocket to buy a cup of coffee today, I noticed that every coin in my pocket basically had no metalic value. Even the new bills issued today fade very quickly. Given that our nation is $8 trillion in debt, and our currency is based on the full faith and credit of the U.S. government, our money is basically worthless.

ARE YOU A DRIVING BILLBOARD ? : Car dealers are getting free advertising as you drive around town. On the back of your car, dealers place a hard to remove sticker that allows them to use your car as free advertising. They also do this with license plate holders. I always tell them that I'd send an invoice for a $1000 a month to allow their advertising on my car; or they can remove the sticker and plate holder. For some reason, they always remove the advertising.

I've decided to go ahead and sell Best Buy (BBY) from the IA portfolio. At a current price of $50.46, BBY has given the portfolio a gain of 17.07% from our initial purchase of $43.10 in September.

As I look at the chart, BBY usually peaks around the first week of December, and sells off into its earnings announcement. Given that the economy will soften in 2006, I am satisfied with the current return (Pigs get slaughtered).

In addition, video game maker, Electronic Arts (ERTS) said that sales for the first week of December were weak. This follows the weakness in sales for November.

Rumors were flying this morning of a possible buyout of Burlington Resources (BR) by Conoco Phillips (COP). This is great news for our natural gas play, Chesapeake Energy (CHK).

If you want to roll the dice a little, and collect some cash between now and Friday's option expiration, you can sell the Burlington Resourses December 80 put (BRXP) at .65 cents or $65 per 100 shares.

Continue to hold Chesapeake (CHK) and Marathon (MRO). The major integrated oil companies will continue shopping for assets to keep them out of the hands of the Chinese. China cannot continue its massive growth without energy assets.

The merger activity that we have been witnessing is as much about national security as it is about an energy company's growth. The same can be said for our involvement in the Middle East.

Here痴 a question from Brad on my comments concerning our currency:

You are correct with your comment about our currency having no intrinsic value. The penny has hardly any copper content in it today because the $ has been devalued so much that if the 1 cent coin were actually made of copper it would be worth close to twice its face value in terms of recent spot prices for copper. I have followed your web site for over a year now and find your postings very informative. I would like to know what your opinion is on the Feds recent decision to stop reporting on M3. Personally, I believe it is an indicator the Fed is about to flood the system with dollars. Your comments would be appreciated. � Brad

The removal of reporting M3 is yet another step of keeping investors in the dark when it comes to financial reporting. If you have been following my blog, I have questioned the reliability of the inflation data released by the government.

The CPI for example does not include the cost of energy. It is suppose to reflect the prices of a fixed basket of goods bought by the typical consumer for items like food, transportation, shelter, utilities, clothing, medical care, entertainment, and various other items.

The sub-section they like to use when focusing on the inflation data is the 田ore� number. The core is simply not a reliable measure of inflation. To get the true picture of any statistic, I致e always been taught to look at the 杜ean� of any statistic.

As far as the discontinuation of the M3 data is concerned, I don稚 know how the Fed can discontinue its use. M3 is the broadest measure of the money supply since it includes all of M1 and M2 plus�(And this may be the answer) the financial instruments of large institutions.

So what are some financial instruments of financial institutions? How about derivatives? Derivatives are financial instruments which are not easily converted into spendable forms of cash. They also reap havoc on a company痴 balance sheet.

Recently, Fannie Mae (FNM) has used improper accounting methods to smooth out gyrations in its earnings due to derivatives, which the company uses to hedge against movements in interest rates. Freddie Mac (FRE) is also being looked at. The question being raised by Warren Buffett and others is how many other financial institutions are there using the same methods to smooth out their earnings as well.

I may be wrong, but I think the removal of M3 may be one way of hiding many of these problems.

Here's a question from Claude:

Comments: Hi John, thank-you very much for posting your insights, I really appreciate your point of view - your insights don't require me to go into suspended disbelief unlike the mainstream financial press.

I was reading your 7 secrets post and have had several discussions with my wife this week regarding finances and a question came to mind I was hoping you could help with. Specifically - it seems that coming up with goals (and ultimately a plan) involves some level of financial expertise that we don't have (we're in our early-30s and not clear what our expenses are going to be 25yrs from now). Do you suggest leveraging books/internet to work through that, or should we find someone like a financial planner to go through this? Thank-you and regards, Claude.

Claude

I really think you can handle your own investment plan. I will give you a few ideas, and below I have enclosed an article I wrote on the subject a few years ago. Here are some tips.

1)Buy The Wall Street Journal, “Guide to Understanding Personal Finance”. This simple and easy to understand guide is available at most bookstores, and sells for $15.95. This guide is very easy reading, and you can use it as reference guide.

2)Go to www.money.com , in the left column go to calculators, click on ‘retirement planner’ and start plugging in your financial numbers. After that, click on ‘savings calculator’, and that will tell you how much you need to save and what return you need to generate to achieve you goals.

3) After you find out how much your going to need for retirement, fill out the "risk profile" which will determine what asset allocation model best suits you. If your risk tolerance is less than what is called for to achieve your goals, you might have to take more risk (more $$ in the market) to meet your goals. 4) Once you get your model, you need to allocate your assets accordingly. Keep in mind as you get older, and closer to your goal, you need to re-allocate your assets to a more conservative mix (more income, less stocks).

4) Follow the "7 Secrets" guide to make sure you are saving as much as you can, and not spending too much. I know its hard not to keep up your neighbors spending habits, but you'll live to thank me one day.

***By the way, I am working on a book on the "7 Secrets". I really think this advice is a must read in today's spend thrift society. Let me know what you think.

HOW TO BE YOUR OWN BROKER: “Know Thy Self”

I think most investors should learn how to be their own brokers. Don’t worry it is not difficult at all. In fact you would be surprised by the number of brokers who had no prior investment experience before joining a brokerage firm. In fact, brokerage firms frequently hire people with little or no previous experience. Brokerage firms train their brokers for about 6-10 weeks then cut them loose on people like you. I feel you can have yourself trained in no time. Now, why do we want to do this? I can give you thousands of reasons, one dollar at a time if you wish, but I’ll spare you the boring details and cut to the chase.

1)First Reason – 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’s and commissions. In fact, it is my 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.

2)Second Reason- You will save thousands in fee’s and transaction costs. Unless you want to pay somebody hundreds, maybe even thousands of dollars to say, “oh don’t worry, everything’s 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)Third Reason- Investments don’t need a 24 hour baby sitter. I’ve heard the argument that an investor wants someone who’s going to watch their investments for them. Why? The investments are not going anywhere. If you’re an active trader, I can see why you would want a market baby sitter. But if your not, don’t waste your money.

4)Fourth Reason- In a very short period of time, you will be as knowledgeable, and maybe more knowledgeable than most first year brokers.

5)Fifth Reason- it’s fun and easy. You are really going to enjoy the learning process as the months unfold. Keep a separate notebook and take notes like you would if you were outlining a chapter for school. This will also help you with the learning process.

Below, I have also listed my "Top 10 Mistakes Most Investors Make"

Well, we slithered our way out of Best Buy at the right time. We have all heard the slogan, "buy the rumor, and sell the news". I don't believe in waiting for the news.

BBY announced this morning that 都ales of electronics and appliances were offset by higher costs for new-store openings, labor costs and an expansion of services, shaving nearly a point from operating income as a percentage of revenue".

I don't think that is the whole story however. Analysts were looking for income of $152.13 million, or 30 cents a share, on sales of $7.34 billion. Same-store sales were projected to rise 4%, but actually came in at 3.3%.

Like many Americans, BBY bit off more than they could chew by spending too much money, while at the same time, cutting prices. I told you that price cuts at most retailers would eventually flow through to the bottom-line.

Conveniently, analysts are now beginning to come out and downgrade the stock.

Wal-Mart (WMT): The company started early on the price cut craze by squeezing its suppliers. The company痴 main focus has been sales in rural markets, and capturing market share at the expense of other retailers.

Today, the Federal Reserve raised key federal funds rate to 4.25%. The Fed also said that the rate hikes may be coming to an end in the near future.

Commercial banks are raising their prime lending rates in lock step with the Fed. The only difference of course, is they are in the "loan sharking" business, not the lending business. For example:

The "prime lending rate" is expected to rise from 7%, to 7.25%. Wait a minute! Interest rates across the board are now where near 7.25%. Why are they charging us 3 percetage points or 70% more for prime when the Fed Funds Rate is 4.25%. Answer: Because they can.

Certain businesses in this country are exempt by law, from certain loan sharking statutes in our country. Here is a quote:

"Banks have separate rules. In fact, due to high inflation, in 1980, the federal government passed a special law which allowed national banks (the ones that have the word "national" or the term "N.A." in their name, and savings banks that are federally chartered) to ignore state usury limits and pegged the rate of interest at a certain number of points above the federal reserve discount rate. In addition, specially chartered organizations like small loan companies and installment plan sellers (like car financing companies) have their own rules".

These exemptions are called usury limits. Here's another quote about usury:

"The usury limit which is stated as the general usury limit is the rate that can be charged by one person or corporation to another, in other words, if you lend your next door neighbor $ 100.00, the rate stated is the limit. To charge more you must get a banking, pawnbroking, or whatever license. This also means that special kinds of loans, like those from pawnbrokers or small loan companies are not stated".

So, the bottom-line here is, certain businesses are allowed to screw you by law, and if you tried to charge an interest rate beyond the legal limit for individuals, you'll go to prison.

Who are the idiots that make these laws. Oh, I know, the same ones who ask for our votes every few years.

To give you a idea of how much you are paying for "prime", here are the latest government rates:

T-Bills:

3-Month 3.91
6-Month 4.33

Notes/Bonds:

2-Year 4.41
3-Year 4.42
5-Year 4.43
10-Year 4.53
30-Year 4.73

Key Rates:

Federal Reserve Target Rate- 4.25/ 1 year ago 2.00

3-Month Libor- 4.49/ 1 year ago 2.49

Prime Rate- 7.00/ 1 year ago 5.00

5-Year AAA
Banking & Finance - 5.04/ 1 year ago 4.10

10-Year AAA
Banking & Finance- 5.36/ 1 year ago 4.92

Mortgages:

15-Year Mortgage- 5.39/ 1 year ago 4.72
30-Year Mortgage- 5.80/ 1 year ago 5.27
1-Year ARM- 4.53/ 1 year ago 3.39

The trade deficit jumped to an all time high in October, and this basically goes to the heart of a minor piece I put out on Wal-Mart yesterday. I値l get to that in a moment.

The Commerce Department announced that the trade gap between imports and exports rose to $68.9 billion in October from the prior record of $66 billion in September.

On December the 9th (撤R Campaign Fueling Trade Deficit & Lost Jobs�) I wrote a piece on the closing of U.S. manufacturing plants and massive job losses caused by shipping jobs overseas. This goes to the heart of my Wal-Mart argument.

Here is a comment I received yesterday on a few remarks I made about Wal-Mart. I知 sorry I did not make myself clear. I値l try to give you a more detailed explanation below.

笛ohn....I am not an apologist for WalMarts, but I couldn't disagree with your comment more about politicians putting pressure on Wal-Mart in the future. You have been reading too much of the liberal press. Think about it, can you see Ted Kennedy blasting Wal-Mart? I don't think so. Kennedy has a constituency of poorer families and seniors on fixed income who frequent WalMarts, not for political reasons, but because they can purchase stuff there cheaper. An example is Vermont, which severely restricts Wal-Mart. However, the Vermonters living close to New York fill the Wal-Mart parking lot on the weekend. The parking lot is literally filled with green license (Vermont) plates. Wal-Mart may go the way of Woolworths, W.T. Grant and Montgomery Ward, but it will be because they mismanage their business, not because of what the politicians do�.

I agree that politicians will not be the ones that will begin to pressure Wal-Mart, or any other outsourcing company. After all, why should they? They were the ones who voted to ship U.S. jobs to other countries. I feel if any political pressure begins, it will start with workers who have had their wages cut, or seen their jobs disappear. Of course, the only way this can happen is if the American people get angry enough. Whether they will or not is the big question.

If the economy gets bad enough, and the American people get angry enough, the backlash against companies who import foreign goods could be huge. In my December 9th journal, I quoted Paul Craig Roberts :

"The October 28 issue of Manufacturing & Technology News reports that Procter & Gamble, General Electric, Ford, Kimberly Clark, Caterpillar, Goodyear, General Motors, USG, Honeywell, Alcoa and Kodak combined exported 269,600 containers of goods in 2004. Wal-Mart alone imported 576,000 containers of goods".

The loss of good paying jobs is a direct result of companies like Wal-Mart and others seeking cheaper labor to make their goods. They have their products made overseas, ship them back to the U.S., and then expect the people who lost their jobs to buy products made by the people who took their jobs.

If Americans begin to feel the same kind of pain with their job situations as they did when gasoline prices were above $3.00/ gallon, you may see someone begin to lead a nationwide boycott against foreign made goods. This would cripple (temporarily) a company like Wal-Mart.

If a political backlash does occur, it will begin with the American people. Of course this cannot be done without someone who is willing to step up and lead the charge. But if things get bad enough, the leader who calls for a boycott against companies who export jobs, and import goods, will eventually get a massive amount of press and airtime.

Once politicians see that the American people are angry, and serious about defending their jobs, you will see them jump on the bandwagon to capture votes.

I know the possibility of a boycott sound remote, and it probably is. But the rumblings of the lava beneath the volcano are beginning to rumble. All I know is there are a lot of very angry and hurt Americans out there. They are tired of seeing their jobs disappear, pay checks shrink, costs rise, and their dreams of financial independence get shipped away to other countries.

All I attempt to do is look at possibilities, as well as probabilities from an investment prospective. I do not try to get involved in political debates and rhetoric. So, when I analyze any company, I have got to look beyond the numbers to determine exactly how much money I am willing to invest given a company痴 current situation.

Over the past 12 months corporate insiders have been selling at a torrid pace. Let痴 face the facts, insiders are privy to information that the common investor is not. Behind the scene's there is a lot of deal making that goes on between insiders and their investment bankers. In spite of the massive securities fraud settlement from a few years ago, it looks as if the pumping of stocks by investment banks to capture investment banking fees has not stopped. Today, it痴 just done more discretely.

Here is a list of the weekly buy/sell figures in terms of dollar amounts from March 2005 to December 2005: (Source: Insiderscoop.com)

March B $885,435,424 S $33,102,754,199
April B $1,000,792,776 S $11,913,818,011
May B $4,046,983,037 S $17,785,402,791
June B $1,257,927,628 S $11,062,186,415
July B $389,915,341 S $17,360,357,093
Aug B $1,386,408,499 S $37,516,618,581
Sept B $679,458,839 S $13,847,813,787
Oct B $1,720,150,947 S $12,615,883,568
Nov B $5,174,584,508 S $21,435,997,178
Dec B $267,917,980 S $9,774,411,746

I don't know about you, but these numbers paint a compelling picture. I also track insider trading on a daily basis, and I cannot remember the last time when I saw more buyers than sellers.

Corporate insiders are no different than anybody else. They are just as greedy as the next guy. Would they really be selling at their current pace if they thought the prospects for their company, and the market for the next 12 months was really good? I don't think so.

Here is this week痴 buy/sell numbers:

Monday B70 S159
Tuesday B62 S185
Wednesday B72 S206
Today B76 S219

We want to take advantage of the markets recent strength to make a few adjustments to the IA portfolio.

Sells:

Exxon-Mobil (XOM): Without a doubt XOM is one the best positioned integrated oil company's in the world. As far as price appreciation is concerned, XOM price performance has lagged many of its peers. At this stage of the game, I would rather invest in companies that have a high probability of being bought, instead of the companies that may be the buyers.

Also, in Q3, XOM simply met their earnings expectations, while many of its competitors exceeded their consensus forecasts.

Wal-Mart (WMT): Wal-Mart by far is the retailer of choice if you had to own a retailer, but the company's sales growth is spotty since they mainly appeal to value consumers from a lower income base.

Higher energy prices tend to effect people who live on lower incomes than those in the middle or upper end of the income spectrum. Since oil prices are remaining stubbornly high, WMT same store sales growth will probably remain under pressure.

The final two weeks of the year will bring a light volume of news. When bad news is absent, the stock market tends to do well. Next week, traders will leave early for the Christmas holidays, and between Christmas and New Years, stock market activity is usually bullish.

YESTERDAY'S MARKET:

Despite the news of consumer prices dropping, the major market average closed down for the day. Had it not been for Altria adding 23 points to the Dow, the market would have finished even lower.

The bottom-line here is the market indexes are hitting four year highs, and traders are looking to lock in profits. In addition, the smart money knows that economic reports suggesting that manufacturing activity is growing, while inflation remains mild, is at best a suspect reading of what痴 really going on.

The key to a powerful year end rally rest squarely on the price of energy. Gasoline prices have rebounded slightly in recent weeks, and this does not bode well for the economy. If energy prices can continue to soften, we may get a decent rally into year-end and early 2006. If not, the ballgame may be over.

THE JANUARY EFFECT:

One of the positive developments for the "January Effect" is the sell-offs in the foreign markets. The cash generated from profit taking in the foreign markets will eventually have to be reinvested somewhere. In all likelihood, the redeployment of that cash will benefit the U.S. stock and bond markets.

The choppy action that we have witnessed in December was basically a consolidation effort to work off some overbought excesses. The S&P index has held its support at the 1240-1250 level, and this is good news.

The S&P is not alone in its impressive action; the Dow reached overbought levels in November, worked off some excesses in December, and is poised to make a run for the 11,000 mark by year-end.

The NASDAQ is technically the most impressive market thus far. Wall Street loves to run to they areas of the market that are the most hated, and the NASDAQ has been one of those areas.

As an example, in 1997-2000, gold was called a worthless commodity, as central banks around the globe were dumping the Midas metal on the open market. After bottoming at $220/ ounce, gold has rallied $300/ ounce for a gain of 136%.

Another classic example is internet stocks. For those of you who follow the Internet Holders (HHH), you'll see a classic example. During the tech and internet craze of 1999-2000, the HHH holders hit a euphoric high of $191 in March of 2000, and came crashing down to a low of $17.88 in July 2002. Since hitting the bottom in 2002, the HHH has skyrocketed 51 points for a gain of 285%.

The NASDAQ seems to be following a similar pattern to gold and the internet index in that the most hated, becomes the most loved. The NASDAQ is the only index of the major three (S&P, DOW, NASDAQ) that has not erased 50% of its bear market losses from 2000-2002.

If the NASDAQ does begin to make up for lost ground, we could see a rise to the 2500-2600 level next. In addition, many former high flyers from the NASDAQ have been removed, and new stocks have been added. Of the three major indexes, I feel the NASDAQ and the best risk/reward ratio.

CONCLUSION:

Playing a year-end rally from these levels is a speculative venture. Personally, I would rather sit this one out. I may dabble a little just for kicks, but I would rather begin adding to my short positions on rallies by using the Rydex Tempest 500 (RYTPX), and possibly the Rydex Inverse Dynamic Dow 30 (RYCWX).

You may have to wait a few months before the market begins heading south, so the best approach to buying a "bear" fund is to dollar cost average. If energy prices continue to march higher, you may not have to wait long for the bear market to begin.

Well, the good news is oil is selling off, the bad news is, the market doesn't care. My best guess is another day or two of declines in the energy patch will set the stage for a rally after Christmas.

Basically, traders are snake bit. Just when they thought oil prices were going to test the $50 mark, prices turned and head back to $60. The bottom-line is a trader trying to make a big bet on a year-end rally, is not going to do so until they see a sustainable break to the downside on energy.

Here are the recent numbers:

Crude $58.00 -1.99
Gasoline $1.56 -.05
Heating Oil $1.73 -.05
Natural Gas 13.60 -.18

Here are how the big boys (Commercial Traders) in New York lined up in the futures pits:

CRUDE OIL: LONG 540,058/ SHORT 496,329
UNLEADED GASOLINE: LONG 83,459/ SHORT 106,665
HEATING OIL: LONG 108,908/ SHORT 111,101
NATURAL GAS: LONG 247,181/ SHORT 249,528

Based on these futures positions, there is no way of knowing which way energy prices will go. Flip a coin. The same can be said for the year-end rally, January Effect, or whatever you want to call it.

This is why I keep saying that playing what could be the last rally is at best speculative.

As you could probably tell from the skeleton crew on CNBC this morning, many big market players will be cutting the week short to get ready for Christmas.

The final two weeks of the year are normally positive for the markets, but 2006 could bring some dramatic moves to the downside.

Our country's financial resourses are continually being drained to fight terrorism. While we do need to be proactive to protect our citizens, the fight is costing us a fortune.

We are not fighting a stupid enemy. They quickly figured out that they could inflict maximum pain by attacking the nations pocketbook. I think they are right.

IS ANOTHER RALLYING COMING?

The fine people at Erlanger Squeeze Play thinks so. Here are the latest comments from Phillip Erlanger (www.erlangersqueezeplay.com):

We think the pullback phase is long in the tooth:

Philip B. Erlanger, CMT

Here we go again. The Labor Department released the PPI numbers for November, and they are trying to lead us to believe that the 0.7% decline for the month is positive because the expectations had been for a drop of 0.5%. Further more, (and here we go again) they said that the "core" PPI (excluding energy) rose only 0.1%, while expectations were for a rise of 0.2%.

The only thing I know about a "core" is you can't eat it. Don't give us this "core" stuff, give us the "mean" numbers. A "core" of an apple is not very tasty, and either is a "core" of an economic number.

Here's my comment to the labor department, and Wall Street mis-information machine. "Get out of my face", "Talk to the hand".

This morning I was watching billionaire Mayor Bloomberg blast the transit workers of New York for striking. "Hey Mike, Talk to the hand". Don't you realize that the real inflation numbers that are not being reported is killing the average American family. Oh, I get it, you don't care.

After the takeover bid for Burlington Resources (BR) was initiated by Conoco-Phillips (COP), I have become increasingly more confident that Chesapeake Energy (CHK) will follow the same path.

I originally found CHK a few months ago as I browsed through my daily list of insider transactions. Even at current prices, Chesapeake insiders continue to have an insatiable appetite for their stock.

On December 15th, CEO Aubrey McClendon bought another 50,000 at prices of $33.90-$33.94. From December 14th thru the 19th, Chesapeake insiders have bought a grand total of $48,886,453 worth of stock at prices ranging from $31.46 to $33.94.

Insiders have been huge buyers of the stock. I am looking for a tidy profit in CHK shares in the weeks ahead.

Let me finish the sentence,...you can get away with just about anything". I was simply finishing the headline of this journal heading. "Ok Mugarian, what in the heck are you talking about?"

I don't know if you have been following the various corporate corruption cases lately, but the biggest joke of the American justice system (second to the OJ trial) has to be the case against former HealthSouth CEO, Richard Scrushy.

I spoke to a friend of mine who is very good friends with a former Wall Street mutual fund manager, and he said the the evidence against Scrushy was overwhelming. Scrushy faced 36 criminal charges,including conspiracy, securities fraud, mail fraud and a charge under the Sarbanes-Oxley Act. In June, he was acquitted on all 36 charges in his involvement in the company's $2.7 billion accounting fraud scandal. How did he do it? You're not going to believe this.

First you take 25 million, and buy yourself a crack team of legal experts. Secondly, you start a PR campaign, and pick a gullible jury from Birmingham, Alabama.

You're going to want to read this article for yourself. It is truly inbelievable.

To access the article go to:

http://www.nacdl.org/public.nsf/whitecollar/WCnews005

AIG's GREENBERG:

I think Hank Greenberg is taking a page from HealthSouth's, Richard Scrushy. He has hired high-powered attorney David Boies, who is the same attorney that represented Al Gore during the famous Bush vs. Gore case that eventually decided the presidency.

Greenberg began his PR campaign by being inviewed by CNBC, and the next day on Bloomberg. Of course, David Boies was by his side.

Greenberg has been rumored to be among the super elite having affliations with "Council on Foreign Relations, the Bilderberger Group, and the Trilateral Commission. In 1995, he was a former candidate for CIA director, and high-level functionary for all US presidents stretching back to Kennedy. He remains supremely confident, and defiant. His net worth is still at least $3 billion. Greenberg has transferred hundreds of shares of stock to his wife and Greenberg family trusts."- (source: fromthewilderness.com)

GM certainly has had its share of problems. The recent weakness is the stock is due to a tax loss sales by billionaire investor Kirk Kerkorian.

If you own the stock, you need to follow the news very closely. If Kerkorian continues to dump the stock after the first of the year, GM may very well be heading for bankruptcy.

Here are some comments from a Reuters article today:

DETROIT, Dec 21 (Reuters) - Shares of General Motors Corp. (GM.N: Quote, Profile, Research) are expected to fall further in Wednesday trade after hitting an 18-year low on Tuesday, following the news of billionaire Kirk Kerkorian's investment arm selling 12 million GM shares.

Hi John:

1) i would appreciate if you can list a couple of good agressive stocks that you like for year end rally or even small rally for the begining of next year. If you know any.

Sorry, but I cannot give specific advice, only general ideas. Any stock ideas would be listed in the IA portfolio. That being said, I did mention if anyone wished to speculate on a year-end rally I would do so using the following:

S&P 500: SPY,or SPX calls 3-4 months out on a pullback.
DJIA: DIA Diamonds, or buy a 3-4 month call on the DJI on a pullback.
NASDAQ: QQQQ

2) About CHK. i know you have been commenting about insider purchase. But isn't it illegal to buy your company shares based on possible buyout of your company? I am sorry i am not too familiar with insider trading trasaction.

Shawn

Yes, trading on inside information is illegal. But, this does not prevent it from happening. Insiders insulate themselves from conflicts of interest by investing in a takeover several months before the deal actually happens.

The SEC has strict rules in place that dictate when company insiders may execute transactions in their company's stock. All transactions that do not conform to these rules are a violation under US securities law. This doesn't mean that some insiders aren't smart enough to dance around the rules.

On November 23, 2005, I made these comments about some very timely selling by Cooper Company insiders:

Cooper Companies (COO):

A QUESTION ON MIDWAY GAMES (MWY):

John:

thanks for your comments.

I have followed the insider trading on Midway since the stock was around $5. Sumner Redstone, CEO and majority shareholder of Viacom (VIA & VIAB) has been the buyer of Midway stock.

Redstone, and his family business, National Amusements, has been accumulating Midway shares for about 2 years. Mr. Redstone's daughter, Sherri, has been hand picked by her father to be put on Midway's board.

Its become obvious that National Amusements, or the Redstone family wants to own or control Midway. If they buy Midway, they may take the company private. With the stock now in the 20's, their probably is not much more upside should a takeover occur.

By now, everyone has heard all the doom and gloom surrounding the pension fund entitlement programs around the nation. Of course, GM and Ford are getting the most attention. This being said, we cannot ignore a fundamental shift taking place as companies try to replace their entitlement programs with 401k's.

On the surface, it seems cruel to take away something like a pension fund, but the changes are inevitable. In order to remain competitive in the global market place, pension funds must be replaced by 401k plans.

Since GM has been one of the worst performers for the year, I have got to believe that 2006-2007 will bring a turnaround for the company. I am not placing the stock in the IA portfolio, but for speculators/contrarians, this is an interesting bet.

GOOGLE:

On the opposite side, I have not seen this much hype in a stock since the internet craze of the late 1990's. As bad as I want to short this puppy, I think I'll wait and see if the stock can get in the high 400's. Once again, brokerage firms are falling over one another to recommend this stock. Once the bubble bursts, a person short at $475+ may be able to make a quick 25%.

THE FED:

Everyone is expecting at least 1 more rate hike to the 4.5% range. Since everyone is expecting this, my target has been raised to the 4.75-5.0% area before the Fed calls it quits.

I thought that many of you would be interested in this latest vote.

"Last week, the House of Representatives passed a resolution to protect the symbols and traditions of Christmas. The vote was 401-22 in favor of the resolution (5 voted "present"); below are the representatives that voted "nay."

Gary Ackerman (D-NY)
Earl Blumenauer (D-OR)
Lois Capps (D-CA)
Emanuel Cleaver (D-MO)
Diana DeGette (D-CO)
Jane Harman (D-CA)
Alcee Hastings (D-FL)
Michael Honda (D-CA)
Barbara Lee (D-CA)
John Lewis (D-GA)
Jim McDermott (D-WA)
George Miller (D-CA)
Gwen Moore (D-WI)
James Moran (D-VA)
Donald Payne (D-NJ)
Bobby Rush (D-IL)
Janice Schakowsky (D-IL)
Bobby Scott (D-VA)
Fortney Stark (D-CA)
Debbie Wasserman Schultz (D-FL)
Robert Wexler (D-FL)
Lynn Woolsey (D-CA)

Below is an article written by Paul Craig Roberts, a nationally syndicated columnist, and a former editor at the Wall Street Journal. In 1981-1982, Roberts served as assistant secretary of the treasury for economic policy. He has also been associated with the Hoover Institution, and the Institute for Political Economy.

Here is a viewers comment about a piece I wrote yesterday on corporate entitlements. Let me clarify that anything a worker bargains for, and corporations agree to, should be honored. But, I don't know if corporations can, or will, hold up to their end of the bargain. The movement toward globalism is a much larger goal for these companies.

Pensions are not "entitlement programs." A pension is a part of a workers pay. It is the part paid at the end of a career instead of at the end of a pay period. Every company with a defined pension plan knows they have to set aside money for this just as they set aside money for regular payrolls. Anything else is fraud.

After yesterday's sizable drop, many are wondering if the market has enough power to break to new high's. Our friends at Erlanger Squeeze Play think so. Here are a few of Phil Erlangers thoughts: (www.erlangersqueezeplay.com)

Short interest dropped 0.50% on the NASDAQ in its report released after the close yesterday. Overall short intensity dropped in all sectors for the month, with short intensity particularly light in: energy minerals, transportation, commercial services, health services and utilities.

Philip B. Erlanger, CMT

On the surface one may assume that a company that announces a share repurchase is doing so because they feel that their stock is undervalued. Sometimes this is the case, and sometimes its a way for insiders to fill their wallets.

According to TrimTabs," 1,012 U.S. public companies announced $456 billion in stock buybacks this year, breaking the previous record set in 2004 when 728 companies said they would repurchase $312 billion worth of their own stock".

If corporations are buying back shares, and insiders are too, this is a bullish sign. However, often companies will announce buybacks, but will not tell investors that the purpose was to offset employee stock-option exercises.

For those of you who are football fans, you'll enjoy this analogy. As a young college baseball coach, a few of my buddies were football coaches. One of my best friends eventually became a head football coach in the Southeastern Conference.

After we finished with practice, I would zip off over to the football practice field to catch the final few minutes of football practice. At the end of every practice, the football team would work on the "two minute drill".

The drill is really fascinating to watch. The "two minute drill" is an offense a team incorporates in the final two minutes of the game in hopes to score a touchdown and win the game.

What is really fascinating about the drill, is how rapidly the offense moves the football from one end of the field to the other in a very short period of time. Being the inquisitive person that I am, I asked my coaching friend why teams didn't use the two minute offense the entire game. Boy, if they can move the football 60 or 80 yards in less than two minutes, think how many points they could score if they used it the entire game.

My friend did tell me that more points are scored during the two minute offense than any other time during the game. Unfortunately, the drill is also dangerous because the rate of turning over the football is also very high.

Many are betting that Wall Street is getting ready to start its on version of the "two minute drill" in the weeks ahead. Maybe, they have already started, and the ball has been intercepted.