John Mugarian's Dynamic Growth

The April 2nd Newsletter Briefing is posted to the newsletter portion of the website. The Fidelity Sector Fund and ETF portfolio's are now showing. To access the newsletter, 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.

The guest host on CNBC this morning was Countrywide Financial's CEO, Angelo Mozilo. Mozilo warned that the woes of the subprime mortgage crisis would eventually have an effect on the consumer, and consumer spending.

Mozilo said that consumers have been using their home equity as ATM machines, and that cash has dried up.

Mozilo is not just talking, he is acting on his convictions too. Mozilo continues to unload large blocks of CFC's stock.

I don't mind if Mr. Mozilo takes his chips off the table. At least the guy has the guts to come out and tell everyone that the problem is bigger than what we are led to believe.

Sell Angelo, Sell ! As long as you're honest and upfront, I don't have a problem with it. What about all the squirels at Google? What's their excuse? What to buy another jumbo jet or what? No comment, huh?

What about the rest of you guys who are selling? Mums the word, right? Here's a small list;

TYSON FOODS (TSN): Don Tyson and partnerships.
AIG: "Hankie Panky" Maurice Greenberg
KOHLS (KSS)
MICROSOFT (MSFT)
CABELAS (CAB)
WEYERHAEUSER (WY)
CISCO (CSCO)
FEDERATED DEPARTMENT STORES (FD)
URBAN OUTFITTERS (URBN)

The April 9th Newsletter Briefing is posted to the newsletter portion of the website. To access the newsletter, 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.

As we take a closer look at the employment numbers for March, its hard to get excited about the prospects for the economy when you break it all down. In fact, and what is turning out to be a major trend, lower paying jobs are up, while higher paying jobs are down.

If the March jobs report is any indicator, a decline in corporate profits is right around the corner. The Labor Department reported that the economy added 180,000 new jobs, and the unemployment fell to 4.4 percent rate, a five year low. Let's take a look at the QUALITY of the new jobs that were obtained.

Information from: Bureau of Labor Statistics

Construction: +56,000 for March, a net loss of -8,840 for February and March.

Nonresidential Specialty Trades: up 34,200, after being down 25,600 in February. Net gain +8,600

Residential Specialty Trades: up 11,000, after being down 20,400 in February. Net loss -9,400.

Heavy & Civil Engineering: up 7,700, after being down 10,600 in February. Net loss= -6,640.

Nonresidential Building: up 4,000, after being down 700 in February. Net gain= +3,300.

Residential Building: down 1,200, after being down 3,500 in February. Net loss= -4,700.

Retail/ General Merchandising: +35,600

Retail added 35,800 jobs in March. This is all well and good, but how does a person keep up with their mortgage payments working for minimum wage. In addition, after paying your rent/mortgage, what does a person have left over to drive corporate profits higher. Can anyone say, "nothing ?".

Correct me if I am wrong, but didn't I read somewhere that "Circuit City fired 3,400 employees across the country" because the company said "they were making too much money and would be replaced by new hires willing to work for less." Yes, I do recall that I read this somewhere.

Other

Natural Resources & Mining: +3,000
Manufacturing: -16,000
Wholesale Trade: +5,000
Transportation & Warehousing: +5,000
Utilities: +1,000
Information: -5,000
Financial Activities: -0-
Professional & Business Services: -7,000
Education & Healthcare: +54,000
Leisure & Hospitality: +21,000
Government: +23,000
Other: +4,000

Its becoming real clear that the "at your service, sir" jobs are the trend, while manufacturing continues to decline. What we are witnessing is quantity of jobs, not quality.

Now you know why our outsoucing ETF's continue to hold top spots in our portfolio's :

EWM: iShares MSCI Malaysia (Free) Index Fund
EWS: iShares MSCI Singapore (Free) Index Fund
EWP: iShares MSCI Spain Index Fund

The big (under the radar) movements in the stock market yesterday were among the semiconductor group.

Intel (INTC) put in a bottom on March 27th at $18.86, and yesterday it closed at $20.68. This represents a 9.65% move during that period.

Advanced Micro Devices (AMD) received an upgrade from UBS. The stock was rated "reduce" with a price target of $12. The stock is now rated "neutral" with a price target of $14.

Other than the news on the semi's, not much is going on.

Today, it will be interesting to see what kind of spin the fed is going to put on the massive inflation we are witnessing. The FOMC notes will be released today.

A large than expected decline in gasoline inventories is pushing up fuel prices. This is the 9th week of falling gasoline inventories.

Culture Changes and Fallout

I've often said that people are the market, and that is why it is important to watch what people do and what they become.

The bubbles created by the Nasdaq in 2000, and the Real Estate Bubble that ended recently are prime examples of how people are focus on the "I want mine too" mentality. That's all well and good, but how a person goes about becoming the person they want to be creates bubbles if they follow the herd.

If you turned on the TV at all the last few days, the airwaves were jammed with the Imus fallout and the DNA test results of who Anna Nichole's baby belongs to. Instead of focusing on what they were saying, I was focusing on the cultural ramifications from what was going on.

As I watched the arguments over the Imus situation yesterday, three of the guests had raised some very important points about our culture. One debate focused on the "gangster rap" music that is so popular among young adults. During the exchange, they talked about the vulgar lyrics in the rap songs, but then said that 80% of the rap music purchases were by young white kids. The point was that blaming the black kids for supporting the "gangster rap" trend was a mistake. I have to agree.

So, knowing this, what does it say about our future work-force and culture?

I am a big self development guy. I started my self esteem training by attending self help seminars and listening to Zig Ziglar tapes. After hearing the statements made above, I couldn't help but remember what Zig preached in his seminars and tapes;

"You are what you are because of what goes into your mind".

"You can change who you are, you can change what you are, by changing what goes into your mind".

I believe every bit of what Zig Ziglar said. As a culture, we have become what we see, what we hear, and the influences others have on us.

Culturally, we are the stock market. Johnnie Cockran used the slogan “If it doesn't fit, you must acquit" after the glove warn by the killer was seemingly too tight for OJ Simpson's hand.

Here is another one for the stock market. "If we don't buy, the stock market can't fly". If Zig Ziglar is right, and "You are what you are because of what goes into your mind", how can society continue to be productive with constant irresponsible behavior.

Some of the nation's top retailers are spreading concerns that sales may be lower than what Wall Street is expecting.

Today, Federated Department Stores (FD- will change name to Macy's under the new symbol-M) warned that Q1 sales will be at the low end of analysts expectations. Wal-Mart (WMT), the nation's largest retailer, said "April will be a difficult month".

This morning, the Labor Department reported that new claims for unemployment benefits rose last week to the highest level in two months. The unemployment number is a volatile one, but new claims for jobless benefits came in at 342,000 last week.

The April 16th Newsletter Briefing is posted to the newsletter portion of the website. To access the newsletter, 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.

Comments from this week's Briefing;

"This week’s back tests are revealing that ETF’s representing bonds, utilities, and the euro-currencies are aggressively dominating the top spots in our ETF universe. Coming in right behind these funds are foreign ETF’s that are the recipients of jobs outsourced from the United States as well as telecommunications, and consumer staples."

To access the newsletter, 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 my weekly briefing, I said that "Wall Street has lowered estimates to a point where anyone beating these lowered estimates portrayed as positive. We are not going to buy into the spin on these reports."

I had a conversation with someone this morning, and they felt if the market continued higher their clients would be angry that they missed a big move in the markets, and transfer the accounts to another advisor. This comment, while real and valid, reminds me of client mentalities just prior the market meltdown in 2000. In fact, I had some clients of my own saying the same thing. The result;

-One client transferred their account to an advisor who had made his clients 45% prior to the NASDAQ crash. After the crash, the client’s assets were cut in half.

- Another client, who refused to sell saw their assets also cut in half. This client did not want to pay taxes on capital gains, and thought the Dow was going to 20,000 because of a book published by Harry Dent in 1999 entitled; "Roaring 2000s Investor: Strategies for the Life You Want".

Now, Dent is out with the book; "The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010.:

In this latest book, Dent uses examples of;

"Demographics of Home Buying"
"The Spending Wave- a double peak in spending at ages 46 and ... "
"The large baby-boom family formation cycle"

Is it just me or does anyone else spot a contrarian indicator here?

As for the investors who don't listen, and threaten advisors with, "if you can't do it I'll find someone who can", I say "Goodbye, Adieu. Aufwiedersehen, and Farewell." This is much better than having them blame you later on when their nest eggs have been pouched beyond recognition.

Raymond James Investment Strategist, Jeffrey Saut had a good article today on " “Risk versus Reward”. I encourage you to read the article.

Mr Saut said;

"A lot of people have missed the rally over the past nine months. Those investors view missing the rally as opportunity lost. Accordingly, we are getting the sense that investors, confronted with these “prospective” losses, are turning into catch-up “riverboat” speculators."

Yesterday's tragic murder at Virginia Tech speaks volumes about a society that is out of control. We have become a society of Snoop Dog lovers with a broken down moral base that lacks respect for the law, and respect for others.

To assume this has no ramifications for our society, and eventually the economy, is a poor assumption. Remember, society is the economy, and hence stock market.

I can't begin to tell you how badly I feel for the families whose children were murdered at Virginia Tech. There is no way you and I can begin to imagine what those families are going through. This is a very horrible thing, and our prayers go out to these families.

The question I have is who is society going to blame for the murders. Undoubtedly, the gun holders will be attacked first. They always are. I think this situation goes much deeper than guns. I think we have a terrible societal issue in our nation.

Those of you who have teenagers, please pay attention to the pressures that your kids have to deal with. Parents that do not want to confront their children are ignoring the vulgarity and filth that they are being bombarded with on a daily basis.

Be it video games, MTV, VH1, Showtime (owned by CBS-Viacom who fired Imus), HBO (owned by Time Warner) Vulgar Rap Music (Warner Music Group, Sony, Seagram's/Universal), or mainstream products promoting sex (Viagra-Pfizer, Celais, KY Jelly, and Valtrex), no one can argue that our decency as a society is in the tank.

The media will stop short in calling for a nationwide boycott on rap music because some of their employers (or their friends) are making a ton of money from it. Heck, Time Warner owns CNN and has Warner Music that producers rap music. Don't look for CNN to condem rap music. Many rap songs promote drugs, sex, and violence.

So, what major companies are involved in distributing these vile products to our society? How about these;

Sony Music Entertainment

Interscope Records, under Time Warner, now Warner Music Group.

Premeditated Records, Warner Brother Records, Time Warner, now Warner Music Group.

Thorn EMI; now called The EMI Group, United Kingdom

PolyGram merged with Universal Music Group in 1998, the parent being The Seagram Company of Canada.

BMG Distribution, BMG Entertainment, Bertelsmann, Germany.

PolyGram Group Distribution was formally owned by, Philips’ Electronics, Netherlands.

To get a better picture of what we are up against, let's compare the murder rates in California 1960 to the year 2005;

1960

Population- 15,717,204
Murders- 616
Forcible Rapes- 2,859

2005

Population-36,132,147= up 129% since 1960
Murders-2,503= up 406% since 1960
Forcible Rapes-9,392= up 328% since 1960

Now that the Virginia Tech tragedy has occurred, the airwaves will be filled with so-called experts who will attempt to find the cause of the sickness in our society. In reality, one does not have to look too far beyond our TV sets and radios.

Remember what Zig Ziglar said;

"You are what you are because of what goes into your mind".

"You can change who you are, you can change what you are, by changing what goes into your mind".

Wall Street continues to tell us that the hot shot consumer is continuing their strategy of beg, borrow, and steal to fuel its spending habits. I say, not so fast!

Bill gross from Pimco was on this morning, and he said he expects housing prices to drop another 20% over the next year. Real estate guru, Ken Heebner, said " U.S. home prices may plunge as much as 20 percent because of rising defaults on riskier mortgages."

Heebner manages the top-performing real-estate fund, CGM Realty which has gained on average of 20 percent a year in the past 10 years.

If I were a betting man, I would seriously look at shorting some consumer descretionary stocks and ETF's that are trading at or near their 52 week high's. Here are a few that made the list yesterday;

AEROPOSTALE (ARO)
RALPH LAUREN POLO (RL)
ROSS STORES (ROST)
RADIOSHACK (RSH)

PS CONSUMER DESCRETIONARY (PEZ)
SPDR CONSUMER DESCRETIONARY (XLY)
RETAIL HOLDRS (RTH)
VANGUARD CONSUMER DESCRETIONARY (VCR)

I know, I know, the stock market has been climbing a wall of worry, the housing data is not as bad as expected, the inflation we are feeling is just a mirage, and goldilocks is in town.

Wow, what a performance! New all-time high's on the Dow. Oh, wait a minute, am I reading this right? What? 16 of the Dow 30 are still below the high's set in 2000!

There's no doubt about it, if you are not in the right sectors, or the right stocks, you are not doing very well.

After Intel's earnings on Tuesday afternoon, four brokerage firms came out with their ratings on the stock. Obviously, INTC has been a great trade. Buy the stock below $19.50, and traded out around $21-22.

Here's how the analysts rated INTC after their earnings report;

Deutsche Bank- Buy, PT $25
Cowen & Co.- Outperform- no PT
Credit Suisse- Underperform- PT $18.50
Prudential Financial- Underweight- PT $16

Boy, this is enough to give you some real conviction, isn't it? Here is some conviction for you.

Unless I am very wrong, INTC is not a play on the rest of the world and not the U.S... The same can be said for AMD. For the past few months the "experts" were telling you to keep your hands off AMD, and to buy INTC. I think, longer term, both stocks were buys at these levels;

INTC- $19.50 or less
AMD- $12.50 or less

INTC was a play on MSFT's vista launch which turned out to be a bust. Why was vista a bust? Experts are telling me that Microsoft came out with vista in an attempt to see and control what you are doing on your computer. I am in the process of upgrading my PC, and I was told by a very good source to stay away from vista, and use XP instead.

My source also told me that Intel's more powerful chip's are needed to run vista. If IT experts in corporate America are familiar with vista's snooping capability, they may not upgrade their software which means INTC & AMD will not experience a buying boom just yet.

If you consider that both INTC and AMD were trading at lower levels, and insiders were not buying, that should tell you something too.

Intel Insider Trades
AMD Insider Trades

I think the best way to play both stocks is to sell some out of the money puts, and let the stocks come to you.

-Richard Breeden, former chairman of the Securities and Exchange Commission, is now a hedge-fund manager.

-Former Secretary of State Madeleine Albright (Clinton Administration) started an emerging-markets hedge fund called- Albright Capital Management. Albright has no prior investing experience.

-Former Treasury Secretary Lawrence Summers (Clinton Administration) took a job as managing director at the private-equity firm D.E. Shaw.

-Former Treasury Secretary John Snow (Bush Administration) was appointed chairman at the hedge-fund/private-equity firm, Cerberus Capital.

-Former Vice President Dan Quale (Bush Sr.) also took a job with Cerberus Capital.

-Former Secretary of State Henry Kissinger is said to have a roll advising hedge funds "on how geopolitical events affect their investments."

There's no doubt about it, we are seeing capitalism at its finest. Famed hedge fund manager, George Soros said that “hedge funds are the market now.” He also said that "the heavy use of debt to leverage up financial transactions could prove damaging when and if the economy stumbles."

The April 23rd Newsletter Briefing is posted to the newsletter portion of the website. To access the newsletter, 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 posted the weekly newsletter briefing this morning, and while the changes to the ETf portfolio were minor, there were some sensitive issues I felt compelled to discuss that are rather disturbing.

As investors, it is critically important to keep your eye on the "big picture". I have to tell you that the big picture goes far beyond economic statistics. Statistics only reveal the here and now. There are leading and laging economic indicators. In life, there are also leading and lagging indicators that eventually affect the economic indicators, but only after the cats out of the bag.

After writing this weeks " Briefing", I was having doubts to whether the average American would understand what I was saying. The issues I brought to light today have been dismissed as non-sense by politicians over and over again. As I watched Lou Dobbs this evening I thought, "thank goodness, Lou has confirmed and validated every word that I wrote".

Today, Lou interviewed congressman Ron Paul. They discussed the issue of the North American Union, a proposed economic-political merger of the United States, Mexico and Canada.

Here are some of my comments from this week's Briefing;

"We are living in some very strange times where behind our backs the world elite are designing a “new world order” that many will not understand until the pieces are in place, and it’s too late to respond."

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Wow! Good news is good, and bad news is too.

For example;

1) The housing numbers are horrible... That's good.

2) The consumer confidence numbers are lower...That's good.

3) Detroit is in a depression...That's good.

4) Energy prices are near post Katrina high's...That's good.

5) Employment numbers are up for waiters, waitresses, strippers, bartenders, and healthcare assistants, but higher paying labor jobs are being sent overseas...That's good.

6) Consumers are deeply in debt and have no savings...That's good.

7) Imus gets fired for saying NHH, but Halle Berry is coming out with a new movie called “Nappily Ever After”, That's good.

8) Companies are beating earnings this quarter after estimates have been lowered substantially...That's good.

9) Wall Street brokers continue to hype the market until they can get all of their investment banking deals done...That's good.

10) Our soldiers in Iraq continue to die so that the oil cartel can protect their newly seized investment...That's good.

11) Congress twisted the arms of the lending business and forced them to lend money to unqualified buyers, and now they are directly or indirectly responsible for the sub-prime disaster...That's good.

12) Lenders created a Ponzi scheme by overextending credit thru exotic mortgages to unqualified buyers who are now filing for bankruptcy...That's good.

13) Consumers are horrible stewards of their money and finances. Credit card companies know this and prey on anyone who has a pulse. According to the Federal Reserve Bulletin, "Today, three out of five U.S. households are responsible for the approximately $560 billion in outstanding credit card debt. That works out to over $11,000 per household." ...That's good.

14) The inflation data in the U.S. is not entirely honest based on the soaring price of gold. Excluding food, energy, and items we use on a daily basis, there is no inflation. In the U.K., it is a different story...That's good.

March: CPI 3.1%, RPI 4.8%- Source www.statistics.gov.uk

I think I'll begin to take positions on the contrarian side today. I will begin by dollar cost averaging into these inverse positions; SDS,DXD, and QID.

I heard some pumping up of McDonald's (MCD) a little while ago on CNBC. MCD has been one of the best performing stocks on the Dow during this 3 week, 760 point run.

Here's what the insiders are doing;

McDonalds Insider Trading

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Yesterday, the Dow hit 13,000, and as we speak, its adding to its gains. One important point to remember during the hype of the markets- Its never as good, or bad, as they say it is. All market movements, up and down, have a way of feeding on itself because of public perception.

As is the case of our recent market advance, irrational advances take place when reason and facts are totally removed from the decision making process. One can never be a totally bullish or a totally bearish. There is always something to make money on in the capital markets.

One of the reasons I like being a contrarian is human beings can be convinced of almost anything. If you want proof, just ask someone their opinion on the stock market, Rosie O'Donnell, Imus, or any other hot topic, and you'll probably get a comment (pro or con) that has been expressed on TV. This is where most form their opinions. It seems as if no one has an original thought anymore. That's fine and dandy with me.

Today, the Dow is struggling to move higher. Its obvious that Wall Street's trick worked. They lowered earnings guidance to a point where corporations are blowing away the lowered estimates, but falling short of the y/o/y numbers. In short, earnings were not "as good, or bad", as many had expected.

Oil prices continue to be a problem. Yesterday the gasoline supply numbers showed that stockpiles fell for the 11th straight week. Gasoline futures hit their highest price since August causing many energy stocks to rally.

Today, Exxon Mobil (XOM), Sunoco (SUN), and Valero (VLO) came in with great numbers. Get this, Valero's profits were up 30%, and they announced they were tripling their share buyback program. If I had to predict the next "big oil" takeover, it would be Sunoco or Marathon.

Adding muscle to the Dow today is 3M (MMM) which posted first-quarter results that were much better than lowered analyst expectations.

Ford Motor (F) earnings revealed they didn't lose as much as analysts had expected. What a bunch of crap. Our government is allowing every foreign car manufacturer around the globe into the US and they expect GM and F to compete? If you pay close attention, you'll see that our politicians are not raising the living standards around the world, they are simply lowering ours to make the others look good.

Globalization is killing our nation. We don't quite see it yet, the unbelievably low interest rates we witnessed since 2001 gave the public a false sense of wealth. As interest rates move closer to their historic levels, many are seeing that they are worse off than they were before 9-11.

My general feel from here is the caffiene induced stock market can run a little farther before giving way to its own weight. Let's let them play their little head game with investors for a little while longer, and when every one is convinced we are in a new bull market, they will find that the markets are never as good, or bad, as they say.

The April 30th Newsletter Briefing is posted to the newsletter portion of the website. To access the newsletter, 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.

The stock market continues to climb despite deteriorating economic conditions. Here are some comments I made in this weeks newsletter breifing;

A little over a year ago, investors were told that the market was going to continue to go higher because the economy was strong, double digit earnings growth was here to stay, corporate profits were strong, gas prices were declining, the housing market was going to rebound, and inflation was not a problem.

As I look at the sectors with the best performance, I have a hard time believing we are in a rip roaring bull market with Utilities, Bonds, Consumer Staples, and sector nations that benefit from our outsourcing leading the way.