John Mugarian's Dynamic Growth

Boy, the news on energy seems to be getting better by the day. This morning we woke up to more “magic” about oil prices when Chevron, Devon Energy and Statoil announced that’s its deep-water tests revealed that they may have found a huge oil and gas discovery in the Gulf of Mexico. What timely news!

It is amazing to watch what the some very powerful people can do.

I have been saying that oil prices will “magically” decline as we approach the November mid-term elections. Whether we like it or not, it looks as if consumers are being lead by the pied-piper of Hamelin. But, do you know the rest of the story?

Here is the story of the Pied-Piper of Hamlin, as edited by me in parenthesis;

"In 1284, the town of Hamelin was suffering from a dreaded rat infestation (High Oil Prices). One day, a man claiming to be a rat-catcher (Oil Cartel) approached the villagers (Politicians) with a solution. They promised him a schilling (Higher oil prices in the future) for the head (Vote) of each rat. The man accepted and thus took a pipe (Drove oil prices lower) and lured the rats (Voters) with a song (Good News on Oil Prices) into the Weser river (Voting Booth), where all 999,999 drowned (Voted back in the oil politicians).”

Here is a comment from Brad about my call for lower oil prices heading to the election. He also asks, what are my investment strategies based on my theory;

Thanks for your posts regarding the correlation between the price of oil and the November elections. After reading your previous posts the recent news headline "Successful Test Well in Gulf of Mexico Means U.S. Oil Reserves Could Grow More Than 50 Percent" (source: CBS Marketwatch) seems like blatant manipulation of public opinion.

Now that you have more evidence to support your theory regarding a short term drop in the price of oil what investment strategies and/or trades are you implomenting based on this theory?

While most American's are busily working to make ends meet, and taking their kids to ball practice, our politicians are helping to quietly building the NAFTA Super Highway.

How many times has the average American gone off to work only find that their jobs have been eliminated, and that they have been fired?

As long as the "Global Elitists" can continue to keep the publics mind pre-occupied with the mundane tasks of everyday life, they can continue their assault on our liberty and national sovereignty. The "Global Elitists" are a combination of organizations that include The Trilateral Commission, Council on Foreign Relations, Bilderbergers, United Nations, Skull & Bones, Federal Reserve, World Bank, IMF, Bank of International Settlements IBF, World Trade Organization, and many others.

Whether you like it or not, our republic is being transformed into the "New World Order" that former President George H.W. Bush spoke of during an address before a joint session of congress.

Here is a great article by R. James Thornton, a Senior Portfolio Manager at Tocqueville Asset Management. The article sums up the kinds of stock picks clients receive from the full commission firms;

Read Tocqueville

As the "news" on Cisco (CSCO) begins to get more encouraging, I find it interesting (typical) that the insiders are selling into the news.

In recent weeks, Cisco put on a dog and pony show for Wall Street unveiled a new logo and marketing strategy in hopes to get customers to buy. Since January, six analysts have upgraded the stock to either "Buy" or "Outperform". Only one investment firm, Robert W. Baird, downgraded the stock from "Outperform" to "Neutral".

Since I happen to know the Chief Market Strategist at Baird, I would have to agree with their assessment after seeing the recent insider selling at the company.

Even Jim Cramer has gotten into the act as he recommended Cisco on one of his recent Mad Money programs.

I have been gathering as much data as a human possibly can, and if I am not fairly certain of an outcome, I do not like to babble on just to have something to say. I realize I am speaking to intelligent people; I want to make sure I have my facts together before I render an opinion.

This being said, we as investors are bombarded with a huge number of opinions. The only problem of course is everyone has an opinion right, or wrong.

I will be the first to admit that I am never always right. I will also say that some of my economic and market opinions take time to pan out.

Right now, and for several reasons, I am rather puzzled about the direction of the economy and the stock market. Let me tell you why.

Like you, I take in as much information as I possibly can, then render an opinion. Sounds pretty simple doesn't it? Since this is what I do, most of the time it is. This time however, I hesitate to use some the conclusions I am considering because most people will blow them off as being alarmist, or prophesying doom. I never have been one to do such a thing, I always call them as I see them and let the chips fall where they may.

As I look at some stocks on the widely held list, I am amazed that anyone could even hint that we are in a bull market. What we have witnessed over the past 4 years is nothing more than a bear market rally.

Bear market rallies can be sharp and impressive, but for investors who bought these stocks in 2000, the bear is still alive and well.

AT&T- 12/31/00 price $47.80/ 9-8-06 price $31.28= -34.5%
Cisco- 12/31/00 price $38.30/9-8-06 price $21.55= -43.7%
Citigroup- 12/31/00 price $51.10/9-8-06 price $49.15= -3.81%
GE- 12/31/00 price $47.90/ 9-8-06 price $34.00= -29.01%
Home Depot- 12/31/00 price $45.70/ 9-8-06 price $34.34= -24.8%
Disney- 12/31/00 price $28.12/ 9-8-06 price $29.62= +5.33%
Intel- 12/31/00 price $30.10/ 9-8-06 price $19.56= -35%
IBM- 12/31/00 price $85/ 9-8-06 price $80.44= -5.3%
J&J- 12/31/00 price $52.50/ 9-8-06 price $63.37= +20.7%
Pfizer- 12/31/00 price $46.00/ 9-8-06 price $27.97= -39.19%
Microsoft- 12/31/00 price $21.70/ 9-8-06 price $25.62= +18.4%
Time Warner- 12/31/00 price $34.80/ 9-8-06 price $17.40= -50%
Proctor & Gamble- 12/31/00 price $39.20/ 9-8-06 price $61.55= +57%
Verizon- 12/31/00 price $50.10/ 9-8-06 price $35.41= -29.32%

Pardon me if I say that I am not impressed when some suggest we are in a bull market. Unfortunately investors have owned these stocks at the big brokerage firms/ investment banks for the past 6 years and are told, "hang on, you own the best of the best. We are not traders we are long term investors".

Boy I'll say you're a long term investor !

I'm sure I am not the only one who has noticed, but the leaders in the S&P 500, the ones that have lead the index higher, are beginning to breakdown. I'm talking of course about oil and commodities. The sectors gaining strength are defensive areas like staples and utilities, and these are not the building blocks of a bull market.

Traditionally, a bull market is built on the backs of sectors like Financials and Semiconductors, but thus far, these sectors have fallen into a deep slumber.

I find it odd that the May highs marked the top of this years market run, and these highs came to a screeching halt after the Bank of Japan is co decided to end their zero interest rate policy. BOJ Governor Toshihiko Fukui said monetary decisions should be "made early" and "in small increments", and speculation has it that hedge funds and investment banks were borrowing money from the BOJ at zero interest, and using the money to buy futures contracts on oil and commodities.

Now that the zero interest rate policy in Japan is gone, rumor has it that speculators in oil and commodities futures are selling and running for cover.

All of these complicated and behind the curtain transactions are way beyond the comprehension of the average investor. How can these hedge funds and investment banks do this without us knowing about while it is happening? Why do we have to hear about these moves after the fact?

Here is another question that needs to be addressed. If the money borrowed by these hedge funds and investment banks were responsible for driving energy and commodity prices through the roof, why isn't our government investigating this robbery of the American people, and throwing these guys in jail?

You can't write the script any better. Energy prices are falling (Remember the "Magic"), and so are commodities, gold, and interest rates. What a beautiful sight!

Almost daily we are hearing great news on energy and how are problems of the past 9 months are coming to an end. Of course I believe these solutions are only temporary, but for now, the "magic" is working.

You do remember my articles about the "magic", don't you?

Say What You Will...But It Is Like Magic!

Oil Prices Going Lower

Energy Prices Falling: Are We Puppet's ?

More Magic: Crude Oil Inventories & BP's Pipeline

In the first few days of September, CNBC and Bloomberg were warning us that this is the worst month for the stock market. Now that the cats out of the bag, and millions of investors have positioned themselves accordingly, I think its time to prepare ourselves for a year-end rally. This rally could be pretty impressive, but I don't want to get caught up in owning a portfolio of 25-30 stocks to capture the possible upside.

So, what do we do?

Here is a quote from a May 15th, 2006 post-"Investors Selling Anything That Made Money".

I wrote;

The majority of the profit taking we are witnessing is concentrated in stocks that had the biggest gains. If you have been paying close attention, the biggest hits in the market were concentrated among energy, commodities, and the metals.

Basically what we are seeing is more of the same since Mutual Funds and many institutions close their books for accounting purposes during the September-October time-frame. So, in order to take gains, and show profits or decent performance numbers, institutions sell stocks with the largest gains to justify their fee's and money management services. I guess we can call this window dressing season.

I found this article written by Randy Kirk in the "Energy Bullitin" (www.energy bullitin.com). I think you'll find it a good read.

Randy believes as we do, that the timing of the annoucement had a little "magic" in it.

While I am always leery of opinions that are always bullish, or always bearish, Dr Kurt Richebcher makes some good arguements for why the US economy will head into recession in the coming months.

Like the little boy who cried wolf, eventually he was right.

Click here to read: "Reasons for an impending US economic recession"http://www.dailyreckoning.co.uk/printerfriendly/view.asp?idarticle=1450

I just received this e-mail this morning from Registered Rep, which is the brokerage industries trade publication.

As the big brokerage/ investment banks continue touting themselves as "wealth management" experts, the nations wealthy ("average household income for respondents was $616,000 with $3.8 million in net worth") are saying, not so fast.

In the latest survey by the Luxury Institute, its 2006 Luxury Brand Status Index (LBSI) survey of 1,000 consumers with a minimum age of 21 and minimum income of $150,000 picked discount brokers as the investment vehicle of choice.

"The top 10 firms from the list of 20 ranked by LBSI are: TD Waterhouse (now known as TD Ameritrade), Smith Barney, Charles Schwab, Fidelity Brokerage, Deutsche Bank, Oppenheimer, UBS, A.G. Edwards, Bear Stearns and Lehman Brothers."

Smith Barney ranked #2, but of the top 5, three were discounters. I highlighted the discounters above.

"Milton Pedraza, CEO of the Luxury Institute, says, “The discount broker/dealers like Schwab and TD are seen as having a more straightforward and more transparent value proposition. The perception is that the interests of the client and broker are more aligned.” Several of the write-in comments to the study reflected this opinion: One respondent said the firm has “low costs, no conflict of interest since no recommendations offered,” another said simply, “cheap prices, solid execution, no thrills, easy to use.”

In yet another sign that the massive speculation has come to an end, real estate developer St. Joe's (JOE) announced it was "exiting homebuilding in Florida, and will take a $10.7 million dollar charge resulting from writedowns and a 10% reduction in its workforce."

St. Joe's was very active in the Sandestin Resort boom, and was a major influence in the areas resort, commercial and industrial development. With skyrocketing insurance costs (if you can find a comapny to write the policy), and heavy property tax burdens in Florida, St. Joe's is throwing in the towel.

Now there is speculation that St. Joe's may want to sell out entirely.

In recent days the stock market has rallied, ignoring all the warnings by CNBC and the Wall Street Gang.

Not a bad strategy; put out warnings about what a bad month September is for the markets, buy some depressed sectors, get investors to short, rally the market, put out good news about falling energy prices, get shorts to cover and go long, then take profits. How convenient.

As I said a few days ago I said;

In the first few days of September, CNBC and Bloomberg were warning us that this is the worst month for the stock market. Now that the cats out of the bag, and millions of investors have positioned themselves accordingly, I think its time to prepare ourselves for a year-end rally. This rally could be pretty impressive, but I don't want to get caught up in owning a portfolio of 25-30 stocks to capture the possible upside.

After the markets recent rise, we may still have a big year-end rally, but I don't think the recent rally is its beginning. At this juncture, will the market continue to go higher, or will we finally get the fall sell-off after option expiration on Friday?

Sorry to say, but Schlumberger (SLB) no longer fits into our theme of owning oil companies who are potential takeover candidates. We will sell the stock from the IA portfolio immediately.

I am replacing the stock with Pep Boys (PBY). Pep Boys has had large clusters of insider buying recently, and even at current prices insiders continue to accumulate the stock;

I am also addding the ProShares UltraShort S&P500 fund, symbol SDS.

PEP BOYS MANNY MOE & JACK (PBY)

Admiral Advisors, LLC B 233,334 @12.75 = $2,975,008
STRAUSS THOMAS W B 233,334 @12.75 = $2,975,008
Hudson Thomas R Jr (Director) B 200,000 @13.00 = $2,600,000
Barington Companies Offshore Fund, Ltd. (BVI) B 466,666 @12.75 = $5,949,991
MITAROTONDA JAMES A (Director) B 466,666 @12.75 = $5,949,991
Hudson Thomas R Jr (Director) B 110,000 @12.75 = $1,402,500
STRAUSS THOMAS W B 33,333 @11.00 = $366,663
Starboard Value & Opportunity Master Fund Ltd B 33,333 @11.00 = $366,663
LNA Capital Corp. B 66,667 @11.00 = $733,333
MITAROTONDA JAMES A (Director) B 66,667 @11.00 = $733,337
LEONARD WILLIAM (Interim CEO) B 30,000 @10.90= $326,895
LEONARD WILLIAM (Interim CEO) B 10,000 @10.94 = $109,438
HOTZ ROBERT H (Director) B 9,000 @10.89 = $98,010
MITAROTONDA JAMES A (Director) B 89,733@ 10.95= $982,966
SCACCETTI JANE (Director) B 2,763 @10.97=$ 30,310
LUKENS MAX L (Director) B 7,300@ 10.95= $ 79,935
LUKENS MAX L (Director) B 42,700 @10.98 = $469,050

Call it what you will, but a month ago you were paying $3.00/ gallon for gasoline, and all we were hearing was;

Aug 24, 2005- “Analyst: Blame Investors for High Gas Prices”
Aug 21, 2006- “Oil prices rise as market awaits Iran decision on United Nations incentives
Aug 18, 2006-“Crude oil inventories fell 1.6 million barrels in the week”
Aug 11, 2006- “Oil prices rise as markets reconsider impact of thwarted airplane attacks”
Aug 10, 2006- “Crude Oil Prices Rise after the U.S. government reported drops in crude, gasoline and distillate fuel inventories
Aug 9, 2006-“Oil Prices Rise on Concerns about Supply”
August 6, 2006- “Oil prices jump on Alaska shutdown”
Aug 2, 2006- “Natural gas, crude oil prices rise amid heat”
Aug 1, 2006- “Oil Prices Rise As Traders Watch Storm”
Jul 31, 2006- “While traders watched the effects of an oil pipeline leak in western Russia”
Jul 31, 2006- “Oil prices rise as Mideast violence rages on”
July 28, 2006- “After the Venezuelan oil minister said OPEC was powerless to stop price surges caused by geopolitical tensions.
Jul 26, 2006 -“Oil Prices Rise Ahead of Inventory Data”
Jul 26, 2006-“Oil prices rise on much larger than expected fall in US gasoline stocks”
Jul 26, 2006- “Oil prices rise on worries over news of US refinery troubles”

Now we are hearing the opposite.

This morning CNBC had economist Philip Verleger on Squawk Box. Verleger is an oil economist who is predicting that gasoline could fall to as" low as $1.15 a gallon".

Here is an article that appeared in the Seattle Times.

I find the timing of the impending "Oil Glut" very suspicious. But as I said last month; "Watch the Magic" as we head into the November elections.

Verleger confirmed our opinion that hedge funds and investment banks were driving up the price of oil in the futures market with big influxes of cash. He didn't say where the cash came from, and we speculated that these institutions borrowed the money at zero interest from the Bank of Japan.

Now that the BOJ has raised interest rates, these institutions are selling their futures and paying back their loans.

Oddly, most people in our society have no idea they are being jacked around and pick-pocketed.

There is never any doubt “Who’s got the Power” in the US of A.

Well, its beginning to happen. According to RealtyTrac, an online reporter of foreclosure sales, the number of foreclosurers are surging.

"Rick Sharga, RealtyTrac's vice president of marketing, says the rising foreclosure numbers are in part the result of rising monthly payments on adjustable-rate mortgages, which have a low introductory interest rate that heads higher after an initial period."

We have been telling you this was going to happen. Read the article here: RealtyTrac

Here is the Ford news. The Detroit area is way past a recession: Ford cuts 14,000 jobs

1) Energy and commodities are in longer term bull markets. There will be corrections along the way, and some of these corrections can be swift, sharp, and sometimes violent on the downside.

a) Countries like China and India are not going to stop growing their economies. As these economies grow, they will need more natural resources to build their cities, and more energy to accommodate the number of people who will eventually own a car.

b) The supply and demand issue is an easy one. China is trying to slow its growth in part because the demand for raw materials is increasing production costs, and getting ahead of the governments capability to improve vehicle emissions, build refineries, build roads and parking structures, as well as create a system to manage traffic. When the Chinese auto market reaches levels similar to the United States, oil demand will soar putting a strain on the dwindling resources.

Good morning! Let me start off by answering some viewer comments;

Question #1: What ETFs do you suggest for participating in the return of the commodity bull? The ones I normally employ are XLE, OIH, XLB, etc. Would you suggest any others?

As I was watching "Mad Money" on Friday, a caller asked Jim about Schlumberger (SLB). Cramer said don't buy it, he thought it was going lower, and he thought energy prices would fall for the next six weeks.

I thought that was an interesting comment since in six weeks we will be on the door step of the mid-term elections. I have mentioned many times about the "magic" that will occur in energy prices a few months before the election. I don't know why Cramer just didn't come out and say it though. Maybe he was scared.

Despite all of their advertisements, the brokerage firms continue their same old business practices.

Here is a recent article where Edward Jones agreed to pay $127 miilion to settle a suit for accepting revenue-sharing payments from mutual fund companies to promote their funds.

In my last year as a broker (2003), we were encouraged to put a portion of our clients assets in hedge funds. As I looked at these unregulated businesses, I decided to ignore the advice. The best advice I've ever received is "invest in what you know." I have followed this advice for more than 20 years and i have never been disappointed.

In recent days we have heard news about the hedge fund, Amaranth Advisors LLC, announcing "It Lost $4.6 Billion" due to a huge bet it made on natural gas.

Remember last fall when everyone on TV was screaming for you to invest natural gas? That was not the time to be buying. Now that hedge funds are un-winding their positions, this is the time to be buying.

This chart shows that the Wall Street Gang was encouraging you to buy natural gas in the fall of 2005, which happened to be the peak.- See Chart

The October contract for natural gas is currently quoted at 5.07. The forward contracts going into the winter look like this;

Nov 06= 6.34
Dec 06= 7.975
Jan 07= 8.55

This is not saying that an unusually warm winter will not drive prices lower, but current prices look like a decent entry point.

My favorite stock for natural gas continues to be Chesapeake Energy (CHK).

I am going to add another gas play to the IA portfolio; BG Group PLC (BRG)

You can call our prediction about falling oil prices just before an election coincidence, but you cannot ignore the fact that we were right. In 2004, I warned investors about an impending oil crisis that was getting ready to grip the world. And in the month of August I told investors that energy prices would fall in the months heading into the election.

Now, is the fall in energy prices before the November mid-term elections just coincidence, or is it something more?

Here is my next prediction;

“After the November elections, if oil prices remain weak (below $60/bbl), OPEC will begin to cut production to keep prices about $60.”

The FOMC decided to keep the fed funds rate at 5-1/4 percent.

I think this will eventually serve as a disappointment to a market that seems to be looking for an excuse to take profits. Historically, the stock market has not fared well in the second half of September.

Since my initial article suggesting that oil prices will fall in the weeks leading up to the November mid-term elections, prices have fallen about 20%. At the same time, the President's poll numbers have risen dramatically.

This morning, Bloomberg interviewed Eli Broad, who was the founder-chairman of both SunAmerica Inc. and KB Home (formerly Kaufman and Broad Home Corporation).

Here are a few points that Mr. Broad made;

1) The housing market will be in a quite period or slumber for longer than what most people are saying. He basically said there is an over supply, and that exotic mortgages fueled too much speculation.

2) Energy stocks are priced for $40/bbl oil and are currently undervalued.

3) The best investment and growth opportunities are in China and India, not in the United States.

Here is the comments and questions from a viewer. My response and input are italisized.

John,

I have been following your comments on oil prices and observations about China and India and the upcoming election.

I guess I have my own views and also some questions.

1) If the Democrats manage to win either the house or the senate what will the reaction be in stocks? I have read several articles indicating some bullishness being the result of some percieved notion that it will stay all republican.

The statistics that I have seen say that the 24 years prior to 2005, when the Democrats controlled the White House and both braches of congress the market rose on average of 2.3%. I don't have the stats on the republicans, but during the same period, the stock market rose on average 23.8% annually when the government was divided between the two parties.

Personally I don't see the vast improvement in numbers, 39% Last Sunday was what the McGloclin group reported (on PBS). Granted he is up from 33% but I wouldn't call that a resounding change.

The way I see it the concerns of the election follow:

1) Iraq
2) War on Terror
3) Economy

Here is a quote I read this morning;

"Crude oil futures are trading up this morning likely due to speculation on whether OPEC will cut their output ceilings. The November contract is trading at $62/bbl, 41 cents above Thursday's close."

A few days ago (September 20, 2006) I wrote;

Here is my next prediction;

“After the November elections, if oil prices remain weak (below $60/bbl), OPEC will begin to cut production to keep prices about $60.”

Humm...

Question 1: Whatever happened to your newsletter? I think the last posting I saw was last year sometime?

The Investor Alert Newsletter was a paid service at one time. When I began doing the blog, I found that writing the blog took up too much time if I included a newsletter as well. Since what I do, I do for free; I couldn't take time away from my investment advisory service to continue doing the newsletter.

Also, whatever free time I have away from my investment advisory and blog, I am spending on the development of my new newsletter, "Dynamic Growth". Soon, the Investor Alert website will be replaced with "Dynamic Growth", and the current website and portfolio will not longer exist.

Before we actually convert the website, I will give a rundown of each of the stocks in the IA portfolio. Once I give a rundown of each company, I will no longer track or post the IA portfolio.

Dynamic Growth will be a Sector Rotation newsletter with all the bells and whistles for subscribers, along with a blog attached for the general public. I will give specific sector fund and ETF picks for subscribers only, and in the blog portion, I will only mention stocks, funds, etc... that I happen to find attractive.

Energy and Commodity prices are taking it on the chin, and there are several reasons for this decline. Not withstanding the commentary on TV, we can point to a few other reasons for the decline;

1) Whatever goes up dramatically in a bull market, normally corrects, and sometimes corrects very sharply. After a normal correction, prices consolidate then gradually move higher.

2) Hedge funds that were over exposed to energy and commodities are unwinding their positions to avoid a Amaranth type situation.

3) Interest rates are falling. Normally interest rates fall when the economy is in trouble. Lower interest rates are used to bail out a faltering economy, but everyone is telling you the economy is fine. So, if the economy is fine, why are interest rates falling. If the economy is not fine, then why are stocks rallying?

4) No hurricanes in the Gulf, and a few "Magical" moves just before the election in November.

While the market continues to rise on short covering, and an awakening that in the blink of an eye oil, commodities, and interest rates are dropping, Doug Kass offers this dose of reality.-Doug Kass

I have nothing against a multi-sector rally, but even stocks with significant problems are pushing the market indexes higher.

Take for example Merck and Pfizer.

Merck has thousands of lawsuits pending across the country, and in August 2005 the company was found liable in a Vioxx case, and a jury awarded damages of $253.4 million.

In April 2005, Pfizer issued a recall of Bextra after an FDA request. The FDA went on to say the "The risks posed by Bextra outweigh its benefits."

Both stocks have rallied significantly since July.

We are on election watch and much of the news we heard during the summer months about all the oil threats have died down.

With the stock market rallying because of our new found utopia, I couldn't help refocusing on the recent Time Magazine cover that I ignored as fear mongering by the media. Now that I have had time to read it however, the quote of "prepare to deploy orders" began to have new meaning.

The reason I did not think much of the article in the beginning was I didn't think the US administration would be bold enough to start another conflict since the two that we are currently involved in (Iraq and Afghanistan) are going so poorly.

I mean, really, what are the odds? Well, maybe the odds are better than I thought. If so, when will this happen and what are the ramifications for us and the stock market?

Ok contrarian's, I was watching CNBC as I ate breakfast at 10am, and I couldn't resist Liz Claman's giddiness about the Dow only being a few points away from a new all time closing high. CNBC even put a banner on our screen to keep a tick by tick total of how many points the Dow had to go.

While I am happy to see the Dow near record highs, this one index certainly does not signal a healthy rally. So, what can cause the market to correct in October?

1) In a flight to safety (Usually not a good sign of things to come), the yield on the 10-year Treasury note has dropped 70 basis points to bring the yield down to 4.55%. We can speculate that this drop in yields has occurred in-line with the sell-off in the metals/energy markets.

Now that the "hot money" has rotated out of the metal and energy sectors, the bond market is sending us signals that a potentially sharp economic slowdown may be on the horizon. Whenever the markets sense danger, it tends to seek a safe haven.

Since the market does not want its moves to be too obvious, I wouldn't be surprised to see a sell-off in bonds in the weeks ahead. This rise in bond yields (though temporary) will be one of the backdrops for profit taking in the stock market.

Everyone seems to have an opinion (me included) on the "Hard Landing or Soft Landing" topic. Throughout history the Fed has not been very good at engineering a soft landing. If anything, they have been notorious for raising rates too much. What bothers me is the most is you are not hearing many economists calling for a hard landing.

We still have not resolved the current debacle in real estate, and today's news of news of existing home sales (+4.5%) came unexpectedly. Looking beyond the numbers, buying incentives and lower long term rates helped move a portion of the massive build up in inventory.

Anyone who has dealt in the real estate markets can tell you that real estate moves in steps. This includes the downside as well as the upside. Homebuilders actually had to give up some profits to move inventory, so unless I am way off base, prices of existing homes will continue to fall in the coming months. The current supply of homes on the market is now at 6.6 months.

USG Corp. is a stock I highlighted in August. At the time, Warren Buffett began buying large blocks of USG in the open market. Here are the articles I wrote highlighting Buffett's interest in USG;

Buffett Buying Large Blocks of USG

Warren Buffett's Recent USG Purchases

It looks as if the timing of my post yesterday, "Hard Landing or Soft Landing ?", turned out to be a timely one.

This morning, "The Big Picture", a website dedicated to the macro picture of the markets has two great article posted this morning. The first is titled " Soft Landing Continues to Fade", and the second is "Paul Volcker at Bloomberg HQ". I encourage you to read both articles.

Yesterday, I heard an interesting analysis on Bloomberg about the Dows recent attempt at new all time highs. They basically said that if wasn't for the amazing performance of Boeing (BA), Caterpillar (CAT), and Altria (MO), the Dow would be 1,000 points lower.

I just received this e-mail from Barry Ritholtz at The Big Picture (www.bigpicture.com) web log.

Barry said;

"We took apart the Dow yesterday -- see this":

Click here to see the change in the Dow components: The Big Picture

Thank you, Barry !

And the hits just keep on coming!

If you didn't believe in our "magic" theory before, maybe this will help change your mind.

Read: "Former US Treasury Secretary Snow joins Marathon board"