John Mugarian's Dynamic Growth

I just spent the last 7 days in Orlando at my 14 year old sons National Championship baseball tournament, and I'm sorry I didn't post anything to the journal, but I wasn't about to get ripped off another $10/ day for internet access at Disney when people like Starbucks and Panera Bread give it away for free.

See, I told you I was conservative.

I have always known Disney World was nothing more than a royal raping of a consumers wallets, but this past week really rubbed me the wrong way. Now I know what they mean by “Disney Magic”, your money magically disappears.

In any event, here’s the latest scoop on the street.

1) Orlando has uncontrollable crime. Despite the quest of the” One World” or “New World Order” gang pushing for open boarders, cities like Orlando have been overrun by immigrants, and crime has soared.

Orlando Crime
2 Cops Killed in Hit & Run

So, if you have always wanted to get away from the snow and move to luxurious Florida, you had better do your homework first.

In addition, it seems as if retirees have also been influenced by the sex craze on TV too. Check out what is going on at “The Villages” retirement community near Orlando.-Read Article.

My point in this exercise of people watching is simple, the public remains out of control.

If you watch and listen very carefully, people will tell you what is going to happen with the economy, and the stock market. They are the best leading indicators that I know of.

I have said many times that investors always feel like they have to be doing something (I.E.- Buy or Sell). Here is an article by Investor's Business Daily on Yahoo Finance.

My strategy from here is pretty simple. I am going to wait for profits to be sitting alone in the corner, then I will calmly go over and pick it up.

For example, here are the prices of a few Dow 30 stocks during the intial phase of bear market that started in 2000. The bottoms on many of these stocks were not reached until 2002-2003. I don't know if these stocks will go back to these exact lows again, but the price ranges do give us something to work with.

If you can buy a high quality stock at 50 or 60% off of their multi-year highs, I feel very confident that the potential gains will be much better than what we can get today.

Here is a partial list, and the price ranges of each stock when the Dow traded at 9450 & 8775;

Here is a question from Bill;

Dear John,
Thanks again for your blogging efforts and help. They are appreciated.
QUESTION: In your posting dated July 26 "My Wish List is Getting Larger" you note several stocks you "want to buy down the road:” Would you be able to share what information you look at and how you will use it to determine the most appropriate time to buy these stocks?
Thanks again for your help...

Best Regards,
Bill

ANSWER: Sure, I’ll be happy to.

SUNOCO (SUN): Sunoco reported Q2 operating earnings of $3.22/share, which compares to consensus estimates of $2.70/share. Share repurchases increased to $150 million this past quarter with authorization for an additional $609 million. Our Price Target is $85.

MARATHON OIL (MRO): Marathon reported operating EPS of $4.16/share, way above street consensus of $3.57. Share repurchases to approximate $1.5 billion in 2nd half of 2006. Our Price Target is $100.00.

VALERO (VLO): Valero reported operating EPS of $2.98/share, which were above consensus projections of $2.95/share. Refining profits were at record levels. Valero repurchased 9.3 million shares (2%) during the quarter, with additional repurchases likely during 2nd half of 2006. Our Price Target is $75.00.

I guess we can all agree that the oil business is highly profitable. Wouldn't you agree with that statement? Of course you would.

Given that our nation is almost broke; wouldn't it make sense for our government to begin exploring new ways to create new revenue streams without raising taxes? I think that would be wise.

In fact, many countries are already using oil as a means to prosper their nations by profiting off of the rest of the world. The two countries that come to mind are Venezuela and China. Both countries control their state owned oil companies.

Given the energy crisis we are facing in the U.S., maybe its time we should adjust the way we think.

The Federal Open Market Committee deicided to keep rates unchanged at 5.25%, but said that inflation risks remain.

Here is the transcript from today's meeting;

Release Date: August 8, 2006

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting.

I think the Arnold Schwarzenegger line of "I'll Be Back" could happen at the next meeting or two.

Today, I am selling three stocks to make room for additional purchases in September and October.

The three stocks are; Coca-Cola (KO- Current Price $44.03), Anheuser Busch (BUD- Current Price $48.12), and the GMAC 7.25% preferreds (GKM- Current Price $22.36).

Two of the stocks we are selling are in the Consumer Staples sector, and I realized I may be a tad early on exiting these stocks. During an economic downturn, the Staples area is a good place to be, but also during a downturn, many bargains appear that could provide gains of 40% or more. If I thought that we had a 40% upside remaining in each of our sells, I would not sell them. I don't think this will be the case.

It usually takes me a while to catch on, but I think I am finally getting it. Oil prices are being manipulated and driven higher by speculators in the futures market.

Crude prices seem to jump over any event whether large or small. In fact, gasoline prices are fluctuating so wildly on a daily basis that many gas retailers are buying matrix price signs to avoid climb a ladder to change prices everyday.

There are many things that can affect the price of oil, we are all aware of issues such as supply and demand, and the events that cause supply disruptions as well as small amounts of excess capacity.

The issue not being discussed is what is actually causing excess capacity to be so small. As I begun to take a look at the futures market, it hit me all at once.

As we head into the dog days of summer, many senior traders are still on vacation at resort destinations such as Martha's Vineyard, Jersey Shores and Aspen.

This morning, senior traders are awaking to news of a foiled terror plot to blow up airplanes traveling between Great Britain and the U.S.

Since I believe we are dealing with an enemy that is highly intelligent, I have to question their timing of another attack. Why would these so called 'smart" terrorists plan an attack when their targeted enemies, Tony Blair, George Bush, and the politicians backing the war in Iraq, are already under attack by their own citizens.

Just a few days ago, Senator Joe Lieberman was run out of town on a rail after siding with the Republicans who control the White House and Congress on the war in Iraq. If these terrorists were really smart, you would think they would wait until the outcome of the November elections before making any moves.

If you are looking for a few investment idea's, or have been wonder whether you should take a profit or two, I have list the top insider buys and sells for the month.

Top Buys This Month

USG (USG)

NATIONAL INDEMNITY CO (10% Owner) B 692,500@ 45.46= 31,481,050
NATIONAL INDEMNITY CO (10% Owner) B 6,969,274@ 40.00= 278,770,960

*** If don't already know this, these are purchases by Warren Buffett***

SOVEREIGN BANCORP (SOV)

BANCO SANTANDER CENTRAL HISPANO SA (10% Owner) B 150,000 20.56 3,083,250
BANCO SANTANDER CENTRAL HISPANO SA (10% Owner) B 171,445 20.51 3,516,336
BANCO SANTANDER CENTRAL HISPANO SA (10% Owner) B 300,000 20.75 6,225,480
BANCO SANTANDER CENTRAL HISPANO SA (10% Owner) B 145,500 20.89 3,039,047
BANCO SANTANDER CENTRAL HISPANO SA (10% Owner) B 174,500 20.63 3,600,558
BANCO SANTANDER CENTRAL HISPANO SA (10% Owner) B 412,300 20.46 8,435,478
BANCO SANTANDER CENTRAL HISPANO SA (10% Owner) B 515,000 20.39 10,498,834

***There has been steady buying by Banco Santander in SOV shares. Are they getting ready to make a move?

If you are an employee of the Government, you are well aware of what COLA means. COLA means "Cost of Living Adjustment", and is an annual adjustment in wages to help offset the rise of inflation. Without a cost of living adjustment, employees of the Government could find themselves behind as prices rise.

The Consumer Price Index (CPI) is used to determine a government employee痴 COLA each year. For this reason, the CPI has been massaged in a way to make sure the Government does not have to shell out big bucks during highly inflationary periods.

In fact, since its inception in 1921, the CPI has undergone six revisions or adjustments. Prior to these adjustments the stock market would react negatively to huge jumps in the CPI. So, as a solution, the CPI has continually been a work in progress and revised.

I realize that "Scandal" is a very strong word, but I have been warning clients and investors for years that corporations and Wall Street have been in cahoots, and the victims of all their greed and shenanigans have been the small investor.

Unfortunately, I feel like my warnings have fallen on deaf ears. Despite accounting irregularities, and the self righteous enrichment of these gangs at the investor痴 expense, investors have yet to grasp the nature of the beast. I know this by the large number of investors who still have accounts at Wall Street firms. I guess I just don't get it.

Yesterday, I posted a list of a few insider buys and sells. I hope you noticed that huge amount of shares that insiders sold, and also have available to sell in the future. In most cases these insiders did not purchase these shares with their own money, these shares were either part of a stock grant or options plan that Wall Street helped the companies design.

While you and I are reaching into our pockets and using our hard earned cash to buy shares in public companies, executives simply have stock handed to them. This is a crying shame, not to mention a slap in the face of every investor that buys stock.

Here is an interesting article by Eric T Miller on Thursday, July 27, 2006 concern the possibility of a big decline in energy prices. The article was on bankstocks.com, and he quotes the CEO of BP as saying;

"it is very likely that oil prices will average around $40 in the medium-term, and could fall to $25 to $30 in the long run. He says that new oil finds in the Caspian Sea, Russia, and West Africa, and improved extraction from existing fields could increase supply while high energy costs depress demand."

I made mention of this posibility in my August 09, 2006 post; Futures Traders Driving Up Oil Prices

Its time to be careful.

Throughout 2005, and as early as 2004, I was harping about the bubble in Real Estate. Here is a small sample of what I wrote a year ago: "Oh, Give me a Home..."

And now, this is what the homebuilder Toll Brother's had to say;

August 9 2006: 4:15 PM EDT

"Instead, it seems to be the result of an oversupply of inventory and a decline in confidence," he added. "Speculative buyers who spurred demand in 2004 and 2005 are now sellers; builders that built speculative homes must now move their specs; and nervous buyers are canceling contracts for homes already under construction."

While investors buy, insiders sell. They are laughing all the way to the bank. Guess who they are laughing at?

Top Google Insider Sales Over the Past Month;

Google

Rosenberg Jonathan J (VP Prod. Mgmt.) S 4,885 374.52 1,829,546 822 2006-08-02 REYES GEORGE (Chief Financial Officer) S 4,565 374.46 1,709,388 49,404 2006-08-02
Kordestani Omid (SVP, World Wide Sales/Oper.) S 5,202 381.60 1,985,065 445,201 2006-08-01
Kordestani Omid (SVP, World Wide Sales/Oper.) S 6,564 380.72 2,499,067 438,637 2006-08-01
Kordestani Omid (SVP, World Wide Sales/Oper.) S 5,400 378.02 2,041,325 420,779 2006-08-01
Kordestani Omid (SVP, World Wide Sales/Oper.) S 4,611 377.62 1,741,191 416,168 2006-08-01
Kordestani Omid (SVP, World Wide Sales/Oper.) S 6,361 377.14 2,398,959 409,807 2006-08-01
Kordestani Omid (SVP, World Wide Sales/Oper.) S 2,368 376.68 891,979 407,439 2006-08-01
Drummond David C (VP, Gen. Counsel, Secty) S 13,113 382.19 5,011,610 9,743 2006-08-01
Drummond David C (VP, Gen. Counsel, Secty) S 9,743 377.91 3,681,953 0 2006-08-01 Rosenberg Jonathan J (VP Prod. Mgmt.) S 4,885 380.95 1,860,956 3,707 2006-08-01 REYES GEORGE (Chief Financial Officer) S 4,565 381.14 1,739,911 53,969 2006-08-01

Keep reading------>

The stock market will remain defensive into the fourth quarter. The seasonally weak period for the market begins next week, and with fears over the economy, inflation, a stagnant housing market, November elections, and a tapped out consumer, things could head south rather quickly.

The rally we witnessed in early August was more of an oversold technical move than the start of a new bull market. Many want us to believe that now the fed has paused that a new cycle has begun to drive the markets higher. I wish it were that easy.

In reality, the fed normally does not begin lowering rates immediately after it stops raising them. The lag time between the two is usually laced with frustration both on the equity front as well as the investor front. The stock market will look at this frustrating period negatively.

As we continue to back-test and monitor the results for my upcoming newsletter, Dynamic Growth, the Fidelity Select Utility Fund jumped into our Top 10, taking over the #4 spot.

When we looked at the top 10 holdings of the Fidelity Utilities Fund, we were happy to see that the top two stocks in the portfolio are two of our favorite telecom stocks, AT&T (T) and Verizon (VZ). In fact, as of 06-30-06, 57.8% of the fund was in Telecom Services, and 41.2% in Utilities.

Here are the Top 10 holdings for the Fidelity Select Utility Fund;

VERIZON COMMUNICATIONS INC
AT&T INC
BELLSOUTH CORP
SPRINT NEXTEL CORP
QWEST COMMUNICATIONS INTL INC
EXELON CORP
FPL GROUP INC
FIRSTENERGY CORP
ENTERGY CORP
AES CORP
68.40% of the portfolio

Given the inflation problems caused by the rise in energy prices, Utilities will have to raise prices to keep pace with inflation. This could very well be the beginning of a new growth cycle for utilities.

Here is a shocking article by Mark Anderson that appeared in the August 14, 2006 issue of the American Free Press.

Anderson interviewed Lindsey Williams, a former Baptist missionary who enventually made a good impression with oil big shots, and found himself involved in meetings with "the World Bank, the International Monetary Fund and various meetings of oil executives over a three-year period."

Williams states that a pool of oil "exists under Gull Island, located in the waters of Prudhoe Bay in Alaska, if tapped, would bring today痴 fuel prices at least as low as $1.50 per gallon and make America more energy independent."

If any of this information is true, there are a large number of oil people who should be thrown in jail.

We continue to believe for the time being, that the best approach right now is to remain cautious and prudent. The biggest mistake most investors make is they always feel like they need to be doing something.

Geopolitical events aside, the economy and the stock market runs in cycles. We are not as focused on what is happening geopolitically as we are with what is occurring within the business cycle. Don't get me wrong, geopolitical events are important, but the maturity or end of a business cycle is the first thing we are focused on.

The Business Cycle

Economics teaches us to look for certain signals during a business cycle. Basically there are two that we would like to address;

The stock is up 100 points today on news from the most unreliable inflation indicator known to man; the CPI.

In my August 10, 2006 journal post, "The CPI is Useless to Us", I explained why the CPI is a useless inflation gauge.

High Energy prices have had a huge impact on the prices we pay for not only goods, but services also. While global competition may keep the prices of imported items in check, global competition does not impact the prices we pay for labor services such as electricians, plumbers, or even a sub sandwich at Firehouse or Subway.

Here are some comments from Scott J. Brown, Ph.D., Senior Economist at Raymond James & Associates;

"Crude oil prices have risen to two and half times the level of late 2003. For the most part, consumers have continued to spend. In contrast to thirty years ago, most consumers pay for gasoline with credit cards. In the 1970s, if you paid more at the pump, that meant you had less cash in your wallet to spend on other things. The use of credit cards allows consumers to smooth out purchases in the face of higher energy prices and other shocks. However, consumers still have to pay the higher prices. Spending patterns will adjust over time. Thus, higher oil prices have a lagged impact on consumer spending – but over time, if gasoline prices stabilize, real incomes will eventually pick up, adding to consumer purchasing power."

I know this a lot like beating a dead horse, but I spent so much time in 2005 warning investors about the eventual end to the housing boom that I thought you would want to see this article- "Home Sales Decline in 28 States, D.C.".http://biz.yahoo.com/ap/060815/home_sales.html?.v=12

That's right, if you break down the numbers, add in all things inflationary, you come up with the "Same Ole Stuff".

As for the PPI numbers released yesterday, Barry Ritholtz at "The Big Picture" (www.bigpicture.com), did an excellent job of breaking down the PPI hype. Click here to read what he had to say- Ritholtz PPI

Today, the July CPI number came in at +0.4%, while the Core rose +0.2%. Since these numbers exclude many of the items consumers spend their money on, it is not reliable.

Here is Ritholz' take on why the PPI and CPI are driving the market higher (a good read);

Max Fraad Wolff of the Global MarcoScope writes;

"Consumer price increase- including food and energy- ran up just shy of 50%. Q12006 readings showed acceleration of 2.7% and Q2 advance readings ran at 4%. The preferred and lower core rate- excluding food and energy- actually fell from 3.0% to 2.9%. I guess you can predict which number will get the attention?"

The CPI numbers do not match up with reality.

The SPX is at at top end of its 1275-1295 resistance level, a breakout from here could carry the index back to the 1325-1350 level. If the index gets stopped in its tracks however, this could lead to another visit to the 1220 mark.

In order to protect ourselves as we enter a less favorable period for stocks later this month, and into the fall, I wanted to show you a list of ETF's that provide double the daily inverse of the key market indexes;

QID- ProShares UltraShort QQQ: $67.00- $3.25
DXD- ProShares UltraShort Dow 30: $67.82- $1.54
SDS- ProShares UltraShort S&P 500: $67.86- $1.04

I don't know if the indexes will breakout from here, so if you decide to buy any of these market inverse funds, be prepared to dollar cost average in if the market rallies back to its highs for the year. Also keep in mind these funds attempt to double (x 2) the daily inverse of their respective index.

I received this question from a viewer regarding Inverse ETF's versus Puts;

I read a lot of blogs on a regular basis. Quite a few of them have been suggesting inverse ETFs to protect yourself against a market down turn.

p.s. I have also read on other blogs that these double inverse ETFs have a less than stellar performance record - they tend to go down twice as much when the market goes up, but go up only 1.5 times when it goes down - making them a bad risk/reward solution.

This is a really good question, and my answer may deal more with preference than anything;

I have made mention of the enormous insider selling taking place by Google executives.

If you would like to see where some of that cash is going, take a look at Larry Page and Sergey Brin's Boeing 767-200.

Here is an interview with Journalist Bob Woodward on April 18, 2004.

Woodward said;

"Prince Bandar enjoys easy access to the Oval Office. His family and the Bush family are close. And Woodward told 60 Minutes that Bandar has promised the president that Saudi Arabia will lower oil prices in the months before the election - to ensure the U.S. economy is strong on election day."

"Woodward says that Bandar understood that economic conditions were key before a presidential election: “They’re [oil prices] high. And they could go down very quickly. That's the Saudi pledge. Certainly over the summer, or as we get closer to the election, they could increase production several million barrels a day and the price would drop significantly.”

Will we see the same happen as we approach the mid-term elections in November?

On July 20th, Microsoft beat analysts' earnings estimates for its fourth quarter and announced plans to buy back $20 billion in stock through a tender offer that is be completed on Aug. 17.

While Microsoft is using its cash reserves to buy, Microsoft insiders are selling into the stocks recent rise;

MICROSOFT

GATES WILLIAM H III (Chairman of the Board) S 400,000 24.45 9,780,000 957,499,336 2006-08-09

GATES WILLIAM H III (Chairman of the Board) S 1,310,458 24.41 31,989,721 958,188,878 2006-08-08

GATES WILLIAM H III (Chairman of the Board) S 289,542 24.30 7,035,883 957,899,336 2006-08-08

GATES WILLIAM H III (Chairman of the Board) S 2,000,000 24.24 48,480,000 959,499,336 2006-08-07

GATES WILLIAM H III (Chairman of the Board) S 84,800 24.16 2,049,192 961,499,336 2006-08-04

GATES WILLIAM H III (Chairman of the Board) S 1,915,200 24.34 46,625,544 961,584,136 2006-08-04

BACH ROBERT J (President, Entertainment Div.) S 10,000 24.50 245,000 721,831 2006-08-08

GATES WILLIAM H III (Chairman of the Board) S 1,949,800 24.32 47,411,336 963,549,536 2006-08-03

GATES WILLIAM H III (Chairman of the Board) S 50,200 24.16 1,212,581 963,499,336 2006-08-03

GATES WILLIAM H III (Chairman of the Board) S 222,194 24.06 5,344,876 965,499,336 2006-08-02

GATES WILLIAM H III (Chairman of the Board) S 2,777,806 24.24 67,333,091 965,721,530 2006-08-02

BACH ROBERT J (President, Entertainment Div.) S 20,000 24.27 485,400 741,831 2006-08-02

BACH ROBERT J (President, Entertainment Div.) S 10,000 24.40 244,000 731,831 2006-08-03

GATES WILLIAM H III (Chairman of the Board) S 2,000,000 24.02 48,042,068 968,499,336 2006-08-01

GATES WILLIAM H III (Chairman of the Board) S 1,648,100 24.24 39,942,802 970,851,236 2006-07-31

GATES WILLIAM H III (Chairman of the Board) S 351,900 24.06 8,464,954 970,499,336 2006-07-31

BACH ROBERT J (President, Entertainment Div.) S 10,000 24.22 242,200 762,641 2006-07-28

GATES WILLIAM H III (Chairman of the Board) S 3,000,000 24.19 72,566,250 972,499,336 2006-07-28

GATES WILLIAM H III (Chairman of the Board) S 1,905,000 24.16 46,027,339 975,594,336 2006-07-27

GATES WILLIAM H III (Chairman of the Board) S 95,000 23.81 2,261,950 975,499,336 2006-07-27

BACH ROBERT J (Senior Vice President) S 50,000 24.17 1,208,375 772,632 2006-07-27

The media has been pounding Dell. And, why not? Computers exploding because of defective batteries?

When I first heard the news, Dell was trading around $22.50, and I thought that the stock would be a decent short into the high teens. Of course, earnings were released yesterday after the close, and the company said that Q2 profits dropped 51%. The stock fell in after hours trading, and now I am looking to be a buyer once it breaks below $20.

Watch the insiders over the next 30-60 days. I think you'll see Michael Dell send the markets a big message as I anticipate that he will cash in some cd's and make a huge purchase.

In reality, Dell's problems are only temporary. The bad news is Dell will probably miss out on the big back to school buying spree for laptops, so Q3 earnings will be bad as well. Value investors may have to wait a while before cashing in on a possible 40% gain.

If the stock can get as low as $18, I plan to unload some of my cash and buy the stock. I think the stock can easily get back above $25 over the next 12 months, and then $30 in 24 months.

While we cannot rule out a continuation of the markets recent trading range (SPX 1325-1220), it looks as if several pieces are coming together that suggests a break above 1325 could occur. I don't know the exacting timing of this occurrence, but evidence does suggest the possibility.

If we do get a re-test of the May lows around the 1225, there is enough evidence to suggest that the market could trade above its May high's (SPX 1326) before the economy begins to roll over.

Here are some things that lead us to believe this could happen;

1) Large amount of pessimism coupled with a large amount of cash on the sidelines.
2) Short interest is elevated.
3) Oil prices and Real Estate prices are beginning to decline which will calm inflation fears.
4) Bonds are rallying, and yields are falling.

For these reason's, we believe the market may mount an impressive run before the reality of a slowing economy takes hold.

I received this question from "DollarBill" on commodities and the CRB index;

"John what do you think of the CRB index? If the world economy slows down that could reduce the demand for commodities. Less inflation? Deflation?

First, I would like to concur with Jim Rogers (Author of "Hot Commodities") that we have entered a new bull market for commodities. As Roger's pointed out in a recent interview;

"Well if you go back in history, there you will see that the shortest bull market in commodities that I found lasted 15 years, the longest bull market lasted 23 years. So, this bull market will last until sometime between 2014-2022. It has got a long way to go, as far as I am concerned, because the supply and demand is seriously out of balance."

Sure, there will be corrections, even sharp corrections along the way, but given the supply/demand issue, we are a long way from balancing the scales. If you had to have a correction to ease inflation fears, what better time to do this than before an election.

Is this possible? Sure. Will it happen? Well, the odds are improving.

Take a look at the insider purchases by Pep-Boys (PBY) directors a few days before today's announcement that they revised their shareholder rights plan;

Reuters U.S. Company News
08:49 a.m. 08/21/2006

BOSTON, Aug 21 (Reuters) - Auto parts retailer Pep Boys-Manny, Moe & Jack (PBY) on Monday said it had modified its shareholder rights plan.

The company did away with a rule that required takeover proposals to be approved by directors independent of the company proposing to acquire the retailer.

It also established a rule requiring a committee of independent directors to meet at least once every three years to review the terms of the shareholder rights plans.

Shareholder rights plans are bylaws that corporations use to influence the way in which they may be acquired.

The Philadelphia-based company's chief executive, Larry Stevenson, resigned in July, following months of pressure from hedge funds that were dissatisfied with the pace of its restructuring.

Stevenson was replaced by nonexecutive Chairman Bill Leonard, who holds the CEO post on an interim basis while the company searches for a successor.

Hedge funds including Barington Capital Group and Pirate Capital hold stakes in the company. This month Pep Boys named four directors proposed by Barington to its now 10-member board.

During my baseball days as a player and a coach, I always emphasized waiting on the perfect pitch. Waiting on the perfect pitch in certain situations can dramatically improve your batting average if you are disciplined and patient.

For example, a batter who has a count of 2-0 and 3-1 has to be looking for a pitch they can drive. A pitcher who is behind in the count does not want to walk the hitter, so the odds are pretty good that the hitter will see a fastball that they can hit.

A cardinal sin in baseball is to chase a curveball on 2-0 or 3-1. Sometimes a hitter will guess that a curveball is coming, but the odds of success are not as good as waiting on a fastball.

Guessing in investing, and in baseball can be very dangerous. In baseball if you guess curveball and get a fastball up and in, the results could be a broken cheekbone. In investing, guessing may not crush a bone in your face, but you池e going to feel like punching yourself in the nose before it痴 over.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan Administration.

Since we receive so many economic reports that exclude important items, I think it is important to cut to the chase and get the real scoop from someone who knows what they are talking about.

Here is Mr. Roberts latest article entitled: "US Jobs Decline Continues"

I just received my renewal notice from Barron's. Inside the envelope came a special "price alert" about future subscriptions. I quote;

"The continued escalation of fuel prices has sharply raised our cost of delivering subscriber copies. Even the cost of the oil-based inks used to print BARRON'S has gone up! We're doing our best to hold the line, but the inevitable result of these higher costs will be an increase in the cost of a subscription."

Bottom-line: The CPI is a bold face lie and cannot be relied upon as an inflation gauge.

I wish Barron's would harp on this issue more on its front cover rather than hide it in its renewel envelopes. There is nothing wrong with telling the masses they are being lied to.

A few weeks ago, my family and I were in Orlando for my son's championship baseball, and like most families we visited the theme parks. At one park, a magician was doing card tricks and it was a lot of fun to watch. Of course the hand was quicker than the eye, and I kept saying "how does he do that?"

The answer is very simple, "It痴 like Magic!"

Almost two months before the mid-term elections and oil prices are beginning to bend. Crude oil "magically" sold off today after a report showed an unexpected rise in supplies of gasoline. In addition, Iran has made a counteroffer to resolve the problems associated with its nuclear program.

More than likely, we will see more "magic" when it comes to the price of oil as we edge closer to Election Day in November. On August 17, 2006, I posted an article entitled "Can Saudi's Save The November Elections Again?", and included an article written by Bob Woodward

See, I believe given the stakes in the high profit game of oil that anything is possible.

Americans, are being controlled and conditioned, without there knowledge, to accept whatever comes their way. They are so busy running around trying to keep up with the Joneses, and so absorbed in themselves, that they do not have time to understand the ramifications of what is going on around them.

In 1993, the New World Order and Trilateralist, Henry Kissinger wrote that NAFTA was the "architecture of a new international system," a great "step forward toward the new world order."

In the early 1990痴, the New World Order gang decided to back Bill Clinton for President in order to get a Democratically controlled congress to back NAFTA.

In 1993, with help from the Republicans, NAFTA was passed. NAFTA was suppose to increase our $5 billion trade surplus with Mexico after it was passed, but our country is facing a trade deficit that is in the multiple billions.

As part of their giant sucking up program, the AP reported today that Wal-Mart has agreed to allow a Chinese "state-sanctioned labor group to launch a campaign to set up party-controlled unions in Wal-Mart branches."

Here is how Wal-Mart cares for their employees in the US (According to the United Food and Commercial Workers Union):

1)" High premiums and deductibles keep more than half of Wal-Mart workers from participating in the company health plan. While the national average of workers covered by employer health insurance is 67 percent, only about 47 percent of Wal-Mart痴 employees are covered by the company痴 health care plan."

Warren Buffett has been buying large blocks of USG Corp. (USG) the maker of drywall, wallboards and a host of other construction products.

After raisng his stake to over 17%, and seeing that the stock has taken a 61% haircut since April of this year, I went ahead and added a few shares for my own account.

I also took a look at this list of companies owned by Berkshire Hathaway, and USG seems to fit very nicely. I don't know if Buffett will buy the entire company, but I wouldn't rule it out.

Here are some building related companies that Berkshire did buy;

This Month;

USG

NATIONAL INDEMNITY CO (10% Owner) B 23,500 @46.03 =$1,081,705
NATIONAL INDEMNITY CO (10% Owner) B 118,500 @46.01 =$5,452,185
NATIONAL INDEMNITY CO (10% Owner) B 587,100 @45.98 =$26,994,858
NATIONAL INDEMNITY CO (10% Owner) B 1,200 @45.81 =$54,972
NATIONAL INDEMNITY CO (10% Owner) B 82,900 @45.80 =$3,796,819
NATIONAL INDEMNITY CO (10% Owner) B 26,900 @45.71 =$1,229,599
NATIONAL INDEMNITY CO (10% Owner) B 692,500 @45.46 =$31,481,050
NATIONAL INDEMNITY CO (10% Owner) B 6,969,274 @40.00 =$278,770,960

I don't know about you, but I an getting tired of all the excuses.

Aug 25, 2006- 都torm threat off Puerto Rico, UN-Iran standoff
Aug 24, 2005- 鄭nalyst: Blame Investors for High Gas Prices�
Aug 21, 2006- 徹il prices rise as market awaits Iran decision on United Nations incentives
Aug 18, 2006-鼎rude oil inventories fell 1.6 million barrels in the week�
Aug 18, 2006- 徹il producer BP said Friday it has restored half of the production from Prudhoe Bay in Alaska, but oil prices rose anyway�
Aug 11, 2006- 徹il prices rise as markets reconsider impact of thwarted airplane attacks�
Aug 10, 2006- 鼎rude Oil Prices Rise after the U.S. government reported drops in crude, gasoline and distillate fuel inventories
Aug 9, 2006-徹il Prices Rise on Concerns About Supply�
August 6, 2006- 徹il prices jump on Alaska shutdown�
Aug 2, 2006- 哲atural gas, crude oil prices rise amid heat�
Aug 1, 2006- 徹il Prices Rise As Traders Watch Storm�
Jul 31, 2006- 展hile traders watched the effects of an oil pipeline leak in western Russia�
Jul 31, 2006- 徹il prices rise as Mideast violence rages on�
uly 28, 2006- 鄭fter the Venezuelan oil minister said OPEC was powerless to stop price surges caused by geopolitical tensions.
Jul 27, 2006- 徹il prices rise slightly as market watches Mideast developments�
Jul 27, 2006- 鄭s militant attacks and a pipeline leak stifled Nigerian production.�
Jul 26, 2006 -徹il Prices Rise Ahead of Inventory Data�
Jul 26, 2006-徹il prices rise on much larger than expected fall in US gasoline stocks�
Jul 26, 2006- 徹il prices rise on worries over news of US refinery troubles�

A viewer posted this comment after I posted the insider buys in USG by Warren Buffett;

Hmmmmmm. Over this week, I have read a lot of articles indicating that this is a good time to start to get your feet wet in the hommies as well.

Personally, I don't think we are even halfway through the housing collapse. Things, I suspsect, will get much worse before they start to get better. And note that we are within striking distance of recent highs on quite a few averages. With this in mind, I think I will hold off.

I do agree that the housing debachle is just beginning. At the moment, real estate sales are down. The time to go bargain hunting in the sector is when you read in the paper that home prices have fallen 25-50%.

Like the NASDAQ in 2000-2002, many brokers couldn't take the pain and left the business. Over the past 5 years everyone wanted to be a real estate agent. When realtors begin to look for other means of employment, we will know that we have reached the bottom.

We may see a 10-15% rally in the homebuilders once the Fed signals that they are finished. There has been so much negative press lately that the arm chair experts (who are late to the party) have begun shorting the sector.

I have spent the majority of the day looking at commodities, and it is becoming increasingly clear that a correction is due in the sector along with energy.

As we get closer to the election in November, energy prices will meander lower. Unlike 2004, however, we may not see energy rebound as quickly. News of a slowing economy could bring a sharp pullback which may last into the winter months.

Now that the small investor has jumped aboard the energy train, big traders will look to take profits. The game is fairly simple, wherever the smaller investor thinks there are sure profits; this is the area to be careful of (I.E. - NASDAQ, Real Estate, Commodity Funds, Hedge Funds etc...).

As far as energy and commodities are concerned, the longer term bull market is intact. I will be looking to increase my exposure in both areas on sharp pullbacks.

You see it every day like I do. People driving a Lexus or BMW, and without a second thought, the car has a sticker on the back advertising to the world that they bought the vehicle second hand. If I really wanted to impress someone, I certainly would remove the used car sticker off the back of my car first.

By the way, Paris doesn't buy her vehicles second hand.

Sure, some legitimately make enough money to drive an expensive vehicle, and own an expensive home, but many cannot.

We have become a nation of show-offs. Whether it is the vehicle, or the house that has us strapped to our interest only or adjustable rate mortgages, the spending spree that has prompted the Paris Hilton lifestyle of the masses is about to come to an end.

Barron Hilton痴 net worth is estimated to be at just over US $1 billion, of which Paris is expected to inherit a little over US $350 million. If consumers want to be like Paris, they should consider this. To accumulate $1 million dollars, the average person would need to save $2,000/ month (or $24,000/year) for 41 years. To have Paris' money, the average consumer would need to save $24,000/ year for 14,583 years.

I have made mention of the manic spending habits of consumers. The Baby Boomers do not have the same views about money as their parents. Many parents of "Boomers" remember the dark days of the depression. Unfortunately, their kids do not.

Parents who were born in the 1920's, and grew up in the 30's and 40's know the value of a dollar. Their kids who were born in the 50's and 60's, only know the good times.

Here are the results;

Personal Savings Rate

I have often said that most people only learn when pain is the consequence. Sometimes, even pain is not enough.

Insider Trades

Buys: Today

MEDTRONIC (MDT)

BONSIGNORE MICHAEL R B 3,000@ 46.28= $138,840
BRODY WILLIAM R MD PHD B 1,000@ 46.30 =$46,300
SCHULER JACK W B 25,000 @46.25=$ 1,156,204

WABASH NATIONAL (WNC)

GREUBEL WILLIAM P (Chairman & CEO) B 10,000 @12.70 =$127,000

NEW YORK COMMUNITY BANCORP(NYB)

FICALORA JOSEPH R (President and CEO) B 5,000 @16.24=$ 81,199

Buys: This Week

USG
SOV
JBHT
WYNN
PBY
LAMR

We are reiterating our call for lower oil prices from now through the November elections. We have reasons other than political for this call, but it seems as if a substantial risk premium has been built into oil prices due to hurricane season.

There are a few months left in hurricane season, so if a hurricane does enter the gulf, you may see a few sharp rallies along the way. This aside, we still believe that energy prices in the intermediate term are headed lower.

Here are some comments we have made on the issue;

August 11, 2006; "A Sharp Fall For Energy Ahead ?"

August 14, 2006: "We Need to Pay Closer Attention"

Energy stocks remain on the top spot for relative strength, but as oil prices have been making new highs, energy stocks have struggled to reach to peaks we saw in April.

As the economy continues to slow, we may see the pressures from high energy prices ease. As prices begin to contract, energy will lose its top stop in the relative strength rankings. On significant drops in energy, we plan to increase our exposure to the sector. While the longer term outlook for energy is still positive, the sector looks much overbought at current levels.

As I picked up the morning paper, I chuckled as I read the front page headline in the business section. It read "Gasoline Prices Dropping". It痴 not like we didn't spot this train roaring down the tracks.

The even quoted a gasoline analyst from the Oil Price Information Service who said, "We'll be closer to $2 (a gallon rather) than $3 come Thanksgiving".

I've been telling you to watch out for the "magic", and magic is "the art of producing illusions as entertainment by the use of sleight of hand, deceptive devices." Hummm, I don't think the public looks at the manic price movements in gas as "entertainment", and no one likes to be deceived.

This "magic, deception, or sleight of hand", reminds of a quote from one of my favorite movies, "The Godfather".

The EIA released its inventory numbers for the week. Crude oil inventories had an unexpected build as imports increased last week to a second highest record. Gasoline stocks also had an unexpected build putting supply at about 5 percent above last year.

The problem with BP's Prudhoe Bay oil field pipeline is also being fixed.

Natural gas is trading slightly down this morning as mild weather is forecasted for most of the U.S.