John Mugarian's Dynamic Growth

On Friday, January 26th, I wrote a journal entry entitled "Do You Like To Trade?". In the article I highlighted 3 energy stocks: Conoco-Phillips (COP), Valero (VLO), and Chesapeake Energy (CHK).

Being a contrarian, and slightly dyslexic, I tend to question most of what I hear on the financial channels, and take an opposing view. This has served me well for many years.

To access the member portion of the website, simply click on the "Subscribe Now" tab (www.johnmugarian.com), establish a username and password, and you'll have full access to the Dynamic Growth newsletter and portfolio. This free trial will end on June 1, 2007.

If you are a trader, refer back to the January 26th article for my actionable advice. If you want to sell and take some quick profits, you can do it now. My quick scalp trades would be Valero and Chesapeake.

The only stock I would not pull the trigger on however is Conoco-Phillips (COP). I think you will see Conoco back in the 70's in the next few months. If you are an investor, I would hold COP through the summer.

The February 5th Newsletter Briefing was posted last night. To access the newsletter portion of the website, simply click on the "Subscribe Now" tab, establish a username and password, and you'll have full access to the Dynamic Growth newsletter and portfolio. This free trial will end on June 1, 2007.

Despite all of the negatives that would cause a reasonable person to be cautious about the stock market, the indexes continue to march higher.

As I mentioned in this weeks briefing, insiders are selling at a rate of 7 to 1, energy prices still relatively high, inflation exists that is not accounted for in the inflation data, manufacturing jobs continue to leave the U.S., consumer debt is high, the housing market is weak, the yield curve is inverted, geopolitical problems are tense, and the market continues to march higher.

Many rational market experts are throwing in the towel for any meaningful decline in the market since their practical analysis of macroeconomics no longer works. Its seems that the fears of missing a runaway market has overtaken all reasonable calls for caution.

I would like to thank the good people at "The Big Picture" (http://bigpicture.typepad.com) for this fine illustration of the global economic cycle.

Merrill Lynch is predicting that the world economic boom is about to end.

I have said many times before that we cannot rely on Government reports to tell us that there is "stable inflation, moderating inflation, or no inflation." We know better, and so do the publishers at Barron's and the Wall Street Journal.

Both publications have reduced the size of their newspapers. Initially the media reported that the size reduction was because of declining ad-revenue and smaller circulation numbers. While this may be true, I received a letter from Barron's in 2006 urging me to re-subscribe soon because rising commodity prices may prompt an increase in the subsciption cost.

To access the newsletter portion of the website, simply click on the "Subscribe Now" tab, establish a username and password, and you'll have full access to the Dynamic Growth newsletter and portfolio. This free trial will end on June 1, 2007.

We track our own results, but the fine people at tipstraders.com have been following our performance as well.

Dynamic Growth put its first portfolio of ETF's and Fidelity Selct Sector Funds in place on December 11, 2006. Here is the chart of our annualized gains since November. Not too shabby.

Why not sign up for a free trial while you can.

The February 12th Newsletter Briefing has been posted. To access the newsletter portion of the website, simply click on the "Subscribe Now" tab, establish a username and password, and you'll have full access to the Dynamic Growth newsletter and portfolio. This free trial will end on June 1, 2007.

In America, we all like to believe that everyone has an equal opportunity to succeed and get ahead. This has been the major sales pitch in living in a free society with open markets. To an extent its true, but when it comes down to making the big bucks, having influence and knowing people in high places takes precedence over hard work.

Let me give you a few examples;

1) Last night my step-son called. He is going to school at a major university, and working at an elite country club.

Supreme Court Judge Samuel Alito was a visitor at the club last night, and my step son was Judge Alito's personal waiter for the night. He said that Judge Alito was a great guy, and the judge was very interested in my step-son's experiences in Iraq when he was a soldier with the 82nd airborne.

At the end of the evening, Judge Alito and my step-son were having a conversation when "a person of influence" from the law school approach Judge Alito, and attempted to interrupt the conversation. When this happened, Judge Alito held up his hand in front of the man's face and said, "excuse me, I'll be with you in just a moment."

After finishing the conversation with my step-son, Alito then gave the VIP from the law school his attention.

The VIP was very angry that Alito did not cut-off the conversation with my step-son when he tried to interrupt. After Judge Alito left for the night, the law school VIP told the country club executives to not have my step-son on the premises of country club the following night when Judge Alito returns for dinner.

This folks is clearly an abuse of power. My step-son is an Iraq War veteran, who received the bronze "V" for valor. He went on missions with "Delta Force" after his heroic acts were recognized by the elite group, and a half pint VIP from the law school pulled rank on him because Judge Alito would not allow the conversation with my step-son to be interrupted.

Tell me this wouldn't piss you off. In my younger days (maybe even now), the law school VIP would have left the country club with a busted lip.

This reminds me of a quote by Hannibal Lectur (played by Anthony Hopkins) in the movie Hannibal; “People don't always tell you what they are thinking. They just see that you don't succeed in life".

We all saw this same kind of abuse in the financial markets in 1999-2000.

To access the newsletter portion of the website, simply click on the "Subscribe Now" tab, establish a username and password, and you'll have full access to the Dynamic Growth newsletter and portfolio. This free trial will end on June 1, 2007.

In 2004, I was a guest speaker at the World Money Show in Orlando. One of my highlighted stock picks was SBC Communications (now AT&T). When the stock was at $25/ share I said;

"SBC Communications (SBC NYSE) is the second largest telephone company in the US. SBC is the combination of Southwestern Bell, Pacific Telesis, and Ameritech with 57 million phone lines in 13 states. In addition, SBC owns a 60% stake in Cingular Wireless. In 2001, the company traded in the $50s and is currently trading around $25. Left for dead and paying a 5% dividend, the company is back on the comeback trail.

"Recently, SBC announced plans to buy back 10% of its outstanding shares and raise the dividend by 10.6%. Share repurchases will reduce the number of outstanding shares, and raise earnings. Mexico's richest man, Carlos Slim Helu purchased five million shares in October 2003 at prices around $22/ share. The last time I saw Carlos Slim buy this aggressively, he was buying Phillip Morris at $19/ share. Mr. Slim is an SBC Director and has proven to be a very savvy investor. I am looking for a conservative 25% gain in SBC, and maybe more."

AT&T is now trading around $37.00, a up 48% from 2004. I am satisfied with the return, and think it is time to sell.

The stock is currently yielding 3.8% which is competitive, but not worth risking any reductions in capital gain. If you have held the stock since 2004, any capital gain will be taxed at the lower rate.

Accoding to Yahoo Finance, insiders have sold 616,758 shares in the last 6 months.

The telecoms have had a great run, but like most market leaders, eventually their leadership will come to an end.

A few days ago I said oil prices would probably be locked into the $50-$60 trading range the next few months. After reviewing some insider trading activity, another push to the downside may be in the works.

Insider Trades

Diamond Offshore (DO)

Chevron- Texaco (CVX)

In addition to the above trades, Colin Twiggs from incrediblecharts.com weighs in with these observations about oil;

"Crude oil prices have broken the downward trendline at $60, signaling that the trend is slowing. At present this remains a bear market rally -- unless there is a rise above $65."

The February 20th Newsletter Briefing has been posted. To access the newsletter portion of the website, simply click on the "Subscribe Now" tab, establish a username and password, and you'll have full access to the Dynamic Growth newsletter and portfolio. This free trial will end on June 1, 2007.

Throw all rational market projections out the window; we are in the "Market That Never Goes Down".

What is causing this massive piling on in the stock market? Well, something that you and I don't have the privilege of doing.

Much has been written about the Yen carry trade in which certain individuals can borrow money in Japan at a .25% percent interest rate, then turnaround and use the cash to buy stocks, companies, or even bonds yielding more than .25%. What a racket!

As for you and I, when we want to borrow money to do the same thing, we are either raped by the banks and brokerages for margining accounts or using a line of credit. See, there really are two rungs on the privilege ladder, us, and then, them. By them, I mean hedge funds and private equity.

The question that remains to be answered is how much longer can this private equity craze continue?

This is the 19th quarter in a row of double digit earnings growth for the S&P 500. The previous record was 13 consecutive quarters from the fourth quarter of 1992 to the fourth quarter of 1995.One reason that corporate earnings have been so strong is the wave of corporate stock buybacks in the past three years, and private equity is continuing to buy public companies at a premium which is reducing the net float of stock available.

The never can lose mentality is beginning to embrace investors emotions. This type of attitude usually causes investors to make some serious errors in judgment.

By now you have read all about the debacle in the sub-prime lending market. What you might not know is the number of investment banks involved in the business.

So, what is a sub-prime lender? They are lenders who loan money to borrowers who do not qualify for loans from mainstream lenders. Borrowers who a very high credit risks cannot qualify for prime financing, and often have low credit scores. Usually these borrowers are a high risk, and have to pay higher rates than those who are able to borrow from a prime lender.

Basically, these are loans issued to people with lower incomes, so they get screwed when they borrow by paying a higher interest rate.

The favorite mortgage of choice for these sub-prime lenders is none other than the infamous Adjustable Rate Mortgage (ARM).

As you are well aware, (and I have written about this several times over the past two years) the interest rates on ARM's have jumped up dramatically.

If you are going to invest ANY money in the financial markets, you need to understand two things.

1) Who controls the money supply?
2) Who or what can possibly manipulate the stock market.

Once you understand these two things, you are ready to play poker with the boys across the table. As the old saying goes, "if you look around the table and can't figure out who the patsy is, it might be you."

Without a clear understanding of who you are playing against, you don't stand a chance. Sure, they may let you win a few games here and there, lure you into a false sense of security, but make no mistake, when it comes to the financial markets, you are only going along for the ride.

The February 26th Newsletter Briefing has been posted. To access the newsletter portion of the website, simply click on the "Subscribe Now" tab, establish a username and password, and you'll have full access to the Dynamic Growth newsletter and portfolio. This free trial will end on June 1, 2007.

In this weeks briefing, we discussed;

-Doubling down on some of the strongest performing sectors.
-Our current recommended asset allocations.
-Our Top 15 ETF Funds for the week of February 26th.
-Performance of our top 15 Fidelity Select Portfolio.
-Among our top sector funds is utilities, and the buyout of TXU Corp., (Texas Utilities) for $32 billion.
-The yen carry forward trade, and leverage buyouts.
-Oil prices climb back above $60/bbl.

On February 22nd, I wrote;

If you are going to invest ANY money in the financial markets, you need to understand two things.

1) Who controls the money supply?
2) Who or what can possibly manipulate the stock market.

These are two very important things to keep in mind.

On Tuesday, Chinese stocks fell almost 9% in a day. Who pulled the plug? Do you really believe that all fund managers were telepathically connected to one another and decide in concert to sell? No way Jose’!

Don’t get me wrong, I am not defending the sell-off in China. My point is simple. I just want to make sure we all understand who really controls the financial markets.

Case in point, in March 2000, we saw first hand what the “Button Pushers” can do. The “Button Pushers” are financial elites who control monetary flows, and have incredible power over stock market booms and busts. For the past 6 months, they were content with keeping a steady amount of buying pressure on the U.S. market indexes.

After the US delegation ( Hank Paulsen -Treasury Secretary, Ben Bernanke -Fed Chairman, and Susan Schwab -U.S. trade representative) visited China in December, and came back empty handed, do you think it is possible that these “Working Group” members turned their pit bulls lose on the Chinese markets as a warning shot across the bow?

To access the newsletter portion of the website, simply click on the "Subscribe Now" tab, establish a username and password, and you'll have full access to the Dynamic Growth newsletter and portfolio. This free trial will end on June 1, 2007.

I wanted to throw up when I heard the financial channels sensationalize yesterday’s market decline. We heard comments like;

“President Bush said he would talk to Treasury Secretary Hank Paulsen about today’s market sell-off”.

“Bernanke will undoubtedly get a lot of questions about the sell-off in his testimony to congress on Wednesday”.

"Worst percent drop since March 24, 2003".

AP Photo/ examiner.com- I don't know if this guy is upset over the market decline or if he hit his head on the computer monitor.

If you were going to get answers straight from the horse’s mouth, Paulsen and Bernanke would be the one’s to ask. They are after all members of the “Working Group on the Financial Markets” (aka-Plunge Protection Team).

If the President does speak with Paulsen about the markets, he needs to ask about the “mysterious buyers that have materialized in the futures markets”- (Jeff Saut/ Raymond James) since the July 2006 lows.