John Mugarian's Dynamic Growth

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In the mid- 1960's thru the 1970's, growing up in Detroit was wonderful. People had that good ole Midwestern attitude, "if you want something, you're going to have to work for it". Sounds fair to me.

In those days, baseball was big. As a kid I couldn't wait for the Little League application forms to be delivered to the schools in mid-March. In early April, the local Little League held tryouts for youngsters aspiring to make one of the leagues teams.

In Detroit, early April was still quite cold, and I remember the times when Little League tryouts were held in a parking lot because the baseball fields were still covered with snow. Boy, you had to love the game to tryout in 30 degree weather, and had to be tough to boot.

After the tryouts were over, the players that impressed the coaches were called that night informing them that they had been picked to be on a team. The players that did not do well were not called, and hence not chosen. Sounds like real life doesn't it?

In high school, it was the same drill. Go out for the baseball team, if you did well, a list was posted with your name on it that let you know you made the team. If your name was not on the list, you didn't make it. Once again, sounds like real life doesn't it?

Today, it’s quite different. Little League does not cut anymore, every player regardless of talent must play a set number of innings, so there is no incentive for people to work harder, and become better to achieve a goal. In short, people do not have to be accountable for what they may or may not do.

Psychologists argued that rejection at a young age would lead to some sort of dysfunction later in life. Don't cut, don't reject, because it may hurt a persons psyche. What a load of crap!

To prove that people cannot handle rejection anymore, all one has to do is watch the tryouts for "American Idol". This is a result of what Psychologists have done to our society since implementing the "no-cut, must play" rule in Little League. Another result is high school coaches being threatened or attacked by parents when their kid doesn't play.

Today, in the real world, real estate investors are being told, "don't worry about being held accountable for your mistakes, or irresponsible behavior with your money, we will help you out".

So what measures are being implemented to bailout real estate investors?

1) How about refinancing your ARM to a 40 or 50 year mortgage. Do you believe this? 40-50 year mortgages? Talk about a royal screw job!

2) Hillary Clinton believes that the Federal Housing Administration’s (FHA) mortgage insurance program should be available to who only qualify for sub prime mortgages.

This is the "new" Little League mentality of, "I realize you don't qualify, we will help you, even if you can't pay back the loan".

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Here are some comments I made in this weeks newsletter briefing;

Oddly, as tensions have risen between the US economic team, and the Chinese economic team, so have interest rates. Interest rates rise whenever inflation is out of control, or some big holder of US debt decides they want to sell some of their bonds. In this case, is it possible that China is unloading some of their massive US debt holdings, and driving interest rates higher? At this stage of the game, anything is possible.

I don't believe that the small investor is responsible for the record short interest. If they were, I would be very bullish on the markets.

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Our system automatically expired all free trials on June 1st. We have fixed the problem, and anyone who signed up for the free trial should have full access at this time.

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We have extended the free service until August 1st. The Dynamic Growth Newsletter will be a paid service with a one year subscription price of $129.00. To access the newsletter, simply click on the "Subscribe Now" tab, establish a username and password, and you'll have full access to the newsletter and portfolio. This free trial is scheduled to end August 1st.

The financial media, Wall Street, and Washington politicians want you to believe them, and not what you are experiencing in your daily lives. Years ago, someone told me, "the bigger the lie, the more people will believe it".

Unlike CNBC, I am not an entertainer. Yes, I know, there is a lot more money in entertainment than in cold hard facts. I have to apologize, I never have been very good at small talk, and at parties, while not shy, I'm just not a good BS'er.

Here is the truth. We have an inflation problem, and it is a big one.

For some reason, over the last two days, Bernanke, and others are coming out and saying inflation is a concern. A concern? You have got to be kidding me! Inflation is a huge problem.

The biggest culprits of inflation are commodity and energy prices. The biggest drivers of these prices increases are China and India. Higher prices for commodities and energy are causing labor costs (plumbers, electricians, roofers, builders) to soar, as well as the prices we pay for food in the grocery stores and restaurants.

To convince us that there is no inflation, the government data on inflation uses the expression, "excluding food and energy (otherwise known as the core number), inflation is well contained". This is nothing more than a smoke screen for the truth.

We have extended the free service until August 1st. The Dynamic Growth Newsletter will be a paid service with a one year subscription price of $129.00. To access the newsletter, simply click on the "Subscribe Now" tab, establish a username and password, and you'll have full access to the newsletter and portfolio. This free trial is scheduled to end August 1st.

Here are some comments I made in this weeks newsletter briefing;

The big news of the week was inflation. We have been yelling the inflation story from the mountain tops, but the noise from the financial channels have been effective in drowning out our words.

The Stock Traders Almanac is now saying that the stock markets best six months have now ended. Since 1971, June has been the third worst month for the Dow with an average monthly return of 0.3%.

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By now, I think you see that the financial markets do not run themselves, and there is always someone or something behind the scenes creating a predetermined action in the market. One can no longer ignore what is happening in politics and invest successfully.

In years past (prior to the internet), the big money that controlled the financial markets and our politicians could disguise their moves. With increased access to information, it’s becoming increasingly difficult for the “Global Elitists” to hide their true motivations.

These motivations are affecting how the average American, works, speaks, lives, and invests. Unfortunately, no one is pointing a finger directly at these people.

While most of us are focused on making a living, taking care of our families, and enjoying a peaceful and prosperous life, there are some who are intent on controlling our lives for their own benefit. Let me give you a few examples;

1) President Woodrow Wilson said...

Since I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the United States-in fields of commerce and manufacturing-are afraid of somebody. They know that their is power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so perverse, that they had better not speak of condemnation of it."

Franklin Roosevelt said in a letter... A financial element in the large centers has owned the government since the days of Andrew Jackson".

2) The "Global Elitists" are a combination of organizations that include Bilderberg, The Trilateral Commission, the Council on Foreign Relations, United Nations, Skull & Bones, Federal Reserve, World Bank, IMF, Bank of International Settlements IBF, World Trade Organization, and many others.

Oddly, David Rockefeller's name appears in the wikipedia under Bilderberg, The Trilateral Commission, and the Council of Foreign Relations.

3) Lou Dobbs, from Lou Dobbs tonight has been reporting on issues such as NAFTA, China, Immigration, the war in Iraq, the outsourcing of American jobs, the U.S. Border issues and the possibility of a North American Union and a single currency (Amero) with Mexico and Canada.

Lou stops short at saying who is responsible for all of these issues, but I think one should look no farther than the "Global Elitists" listed under example #2 above.

The Christian Science Monitor reported this morning that "The rise in grocery costs is up more in the first six months of 2007 than in all of 2006." But "excluding food and energy"...inflation is fine.

The article states that corn prices are soaring due to demand for ethanol. In my June 23rd joural post, (Ethanol Demand Can Spark More Inflation) I told you that higher corn prices would create
ripple effect of higher prices for a host of other products. Well, its happening!

The Christian Science Monitor interviewed , "Patrick Jackman, an economist at the Bureau of Labor Statistics, who said, A family's average grocery tab could leap from $300 a month last year to $400 a month this year." But "excluding food and energy"...inflation is fine.

Yesterday, I went to the grocery store and was shocked to see a gallon of milk approaching $4.00/ gallon. The ripple effects from higher energy and corn prices are affecting everything from Food to Rents, Cable, Electric, Building Materials and Services.

The biggest insult to the public, and investors is the reporting of the Producer Price Index (PPI), and the Consumer Price Index (CPI).

Here is the misleading data released this morning on the Producer Price Index (PPI). "Investors instead were pleased the core PPI, which strips out often-volatile food and energy costs, posted a small 0.2 percent rise, as expected, after a flat reading in April." You can read this for yourself at: Yahoo Finance.

The Consumer Price Index (CPI) will be released tomorrow, and it is equally useless. Using the word "core" when reporting inflation data is a way to mask the truth, and gives investors with a false impression of what is really going on.

Since the CPI is used as the cost of living benchmark (COLA- Cost of Living Adjustment) to adjust Social Security payments to retiree's and the salaries of government and union employees, the numbers have been massaged in a way to make sure the Government does not have to shell out big bucks during highly inflationary periods.

Since its inception in 1921, the CPI has been revised (through trial and error), and watered down so much that inflation has been in a range of 1-5% since 1991. This makes it easier on the government to manage the COLAs for employees, not to mention being easier on the country's massive financial debt.

The next time you listen to the financial channels and get excited about the inflation rate, remember it has been within a 4% range for 15 years. Since everything inflationary has already been removed, you know it is not an accurate measure of what is affecting us.

A more accurate measure of inflation is what you are feeling in your own pocketbook. If you are feeling a little pain at the pump or the grocery store, all you have to do is "exclude what you are paying for food and energy"...and you'll see that everything is just fine.

Who is kidding who? All of the skuttlebutt over the takeover of Dow Jones is not your normal takeover. The takeover is more about who "controls" the news, rather than who reports the facts.

There is no better way to control what others think than to dominate a media empire. Ruppert Murdock knows this well, as his "fair and balanced" Fox News Channel boldly proclaims. Fox News is obviously tilted way to the right, while the opponents at CNN are tilted far to the left. Wherever your political leanings lie dicates what channel you watch. So, in reality, there is no "fair and balanced" news, one just offsets the other.

Clarence W. Barron purchased the Dow Jones & Company after the death of its co-founder Charles Dow. After Barron's death, his son-in-law, Hugh Bancroft became president of the company.

While Barron was no choir boy, he was quoted saying;

"You are in the field to defend the public interest, the financial truth for investors and the funds that should support the widow and the orphan."

Barron, was opposed to war because he knew that war was often times a means for financial gain for those who stood to profit from it. In the book, "The Audacious War" (1915), Barron wrote;

I deemed it my duty to ascertain at close hand the financial factors in this war, and the financial results therefrom.

I found myself on the other side, not only in the domain of the finance encircling this war, but unexpectedly in close touch with diplomatic and government circles. The whole of the war, its commercial causes, its financial and military forces, its tremendous human sacrifices, the
conflicting principles of government, and the world-wide issues involved, all lay out in clear facts and figures after I had gathered by day and night from what appeared at first to be a tangled web.

Given the price that Ruppert Murdock is willing to pay for Dow Jones, only a fool, or a person of principle, would turn that offer down. It's no secret that Murdock and Fox News are steadfast in their support for the war in Iraq, the Republicans, and the Neoconservative agenda.

If the Bancroft Family are truly intent on preserving the principles of Clarence W. Barron, no amount of money in Ruppert Murdock's bank account will be enough.

The Weekly Briefing has been posted to the "newsletter" portion of the website. We have extended the free service until August 1st. The Dynamic Growth Newsletter will be a paid service with a one year subscription price of $129.00. To access the newsletter, simply click on the "Subscribe Now" tab, establish a username and password, and you'll have full access to the newsletter and portfolio. This free trial is scheduled to end August 1st.

Since the Bureau of Labor Statistics likes to report their inflation data, I thought it would be interesting to cross reference their statistics, with those of John Williams at Shadow Government Statistics- www.shadowstats.com.

View image

I guess it's a matter of, who do you trust?

Based on what we are feeling in the "Real World", I choose John Williams. John has updated his Alternate CPI data, and his numbers show inflation running at an annual rate of 10.3%. Sounds about right don't you think?

There were several warning shots across the bow recently. Let me give you a few;

Bernanke & Congress want to stop hedge funds and private equity firms;

Bloomberg: Bernanke, Trichet Turn to BIS as Markets Ignore Risk

Bloomberg: Fund Managers' Taxes May Rise as Senate Targets Fees Stratagem

Most arm chair economists know that consumption accounts for about 70% of GDP growth. If so, the news today from Best Buy (BBY) should give you a heads up;

Bloomberg: Best Buy Profit Falls; Company Lowers Annual Forecast

Schaeffers Research: April Same-Store Sales Rundown

While the market will probably hit a few new highs before the selling starts, you might want to look at these market inverse funds;

DXD- Ultrashort Dow 30
SDS- Ultrashort S&P 500

More contrarian thoughts;

Ticker Sense: June 18th Blogger Sentiment Poll

Bilderberg held it's annual meeting earlier this month in Istanbul, Turkey. Last years meeting was held in Ottawa, Canada.

If you have been wondering where the problems from NAFTA, outsourcing, illegal immigration, the European Union, and now talks of a North American Union are coming from, look don't have to wonder any more.

The spin used to get your mind off of this group's activities is the term- conspiracy theory. That's fine. But don't you find it odd that previously unknown guests are invited to attend, and a year or so latter they become a U.S. President, as in Bill Clinton, and British Prime Minister, as in Tony Blair?

How about this? Everyone seems to question where Goldman Sachs gets so much power. Peter D. Sutherland, Chairman of both BP and Goldman Sachs International is on the steering committee of the Bilderberg Group, and a chairman of the Trilateral Commission.

Oh, you'll love this one. The news coming out of this years Bilderberg Meeting was a call for $6/ gallon gasoline.

You may be asking, what does this have to do with the stock market? Watch what happens to the stock market when gas prices hit $6 a gallon- or even $4 a gallon.

There has been a virtual media blackout here in the U.S., but here are some countries that have reported on the yearly confab.

Turkish Daily News

World Net Daily

Dallas Morning News

CBC News- Canada

Technicals:

S&P 500 Index:

The SPX is closing in on its March 24, 2000 all-time high of 1552.87. If the index can break convincingly above this mark and hold, a new bull market may be in the works. On the other hand, if the index fails to hold the new high, a double top could signal the beginning of a substantial correction.

The current bull rally is long in the tooth (56 months), but sideline money could enter the market in fears of missing out on the next big move.

Given the current economic conditions (slowing consumer spending, real estate, higher interest rates, geopolitical problems, high energy prices), we believe the prospects for a double top is possible.

Dow Jones Industrials:

Repeated calls to buy large mega cap stocks has propelled the DJIA to numerous new highs recently. Technically, we are in uncharted territory. While the index could make major headlines by reaching the 14,000 level, we believe the index would run into profit taking with a downside target of 12,700-13,200. If the index does not hold at 12,700, the next level of support would be around the 12,400 mark, with key support just below 12,000.

NASDAQ Composite:

The NASDAQ has had an impressive run from the lows seen in 2002. The index has gained 1520 points to 2620 since 2002. While still in bear market territory, I am impressed by the NASDAQ's action.

Given that we are at the tail-end of the current economic cycle, I would be surprised if the NASDAQ could muster another large upside move. Longer term, I believe it is possible to break above the 3000 level.

Today's Market:

Home Depot (HD) is up this morning after announcing it will buyback more than 25% of it's stock. There is a good news bad news scenario here, the good news is the company will use the $10.3 billion from the sale of its supply business, and cash on hand to fund some of the buyback. The bad news is the company will use $12 billion in new debt to fund the remainder of the purchases.

On news that HD plans to take on an additional $12 billion of debt, Moody's and Standard & Poor's said they expect to cut Home Depot's debt rating. Fitch cut Home Depot's debt rating to "A-minus," with a negative outlook.

Is it me? Or, are they just robbing Peter so Paul can cash in his stock options? Let the selling begin!

The consumer continues to show weakness as Circuit City (CC) announced a $54 million dollar loss for the quarter, and withdrew guidance for 2008 . While CC is no bellweather, Best Buy (BBY) certainly is. Yesterday, BBY reported earnings that were well short of analysts estimates.

Hey, I have an idea. Why not issue debt and borrow money to buyback stock? Heck, everyone else is doing it!

I have exhausted myself explaining why I believe the inflation rate is much higher than what is being reported. The financial channels tell you there is no inflation, and I'm telling you there is. Since they are winning the distribution war, I feel slightly overmatched.

Here is an article by Dr. Irwin Kellner- MarketWatch. Finally, someone is telling the truth.

It looks as if the economic pain of the consumer is beginning to shift to Retailers. Today, Limited Brands (LTD) said they will cut 10% of its corporate workforce to reduce expenses. They are also following the lead of Home Depot (HD) by issuing $1.25 billion in debt to buyback $1 billion in stock.

I've been trying to figure out where these companies got the idea of incurring more debt to buyback stock. Then it hit me. They got the idea from home buyers who walked away with cash after refinancing. Haven't these companies learned anything from the recent real estate disaster?

I wonder what Warren Buffett would say if an investment bank came to him and said, "hey, why don't you add a billion dollars in debt to your books and buyback stock?"

To make an already embarrassed homebuyer gain back confidence, Ditech Mortgage came up with the slogan," People are smart". After suckering people into Adjustable Rate Mortgages (ARM's) when rates were at historic lows, they are trying to gain back customers by making them feel better about themselves.

I hate to be so blunt, but I don't think a people who are drowning in debt, and can't control their spending are very smart. The first step in correcting a past mistake is to admit you did something stupid, educate yourself, and correct the mistake. Also, if you don't have the money, don't spend!!!

These companies are not stupid; they know people can be led like sheep.

the string of retail sales disappointments continue;

J.C. Penney (JCP): same-store sales fell by 2% in May.

Abercrombie & Fitch (ANF): Lehman Brothers downgraded the stock from "overweight" to "equal-weight," citing concerns over negative comparable sales in the second and third quarters.

Cheesecake Factory (CAKE): Shares were downgraded by several analysts given higher food costs and lower growth estimates.

These downgrades come on heels of other warnings, disappointments, and lowered outlooks;

Target (TGT)
Wal-Mart (WMT)
Best Buy (BBY)
Circuit City (CC)
Radio Shack (RSH)
Pier 1 (PIR)
Starbucks (SBUX)
Pacific Sunwear (PSUN)
Gap Inc. (GPS)
AnnTaylor Stores (ANN)
Hot Topic (HOTT)
Aeropostale (ARO)
American Eagle Outfitters (AEO)
Liz Claiborne Inc. (LIZ)
Panera Bread Co. (PNRA)
Talbots (TLB)

If your looking for a trade on the short side, the ML Retail HOLDRs (RTH) is trading near it's high. Here is a list of the funds top 10 holdings- Yahoo-RTH

The Weekly Briefing has been posted to the "newsletter" portion of the website. We have extended the free service until August 1st. The Dynamic Growth Newsletter will be a paid service with a one year subscription price of $129.00. To access the newsletter, simply click on the "Subscribe Now" tab, establish a username and password, and you'll have full access to the newsletter and portfolio. This free trial is scheduled to end August 1st.

Here are some comments I made in this weeks newsletter briefing;

The cat is finally out of the bag as the bond crowd is finally beginning to realize that "real" inflation is out of control. By "real" I mean, products that you and I use and need on a daily basis.

This morning, a Bloomberg headline said that Milk prices are set to rise another 17% next month. The increase in food prices are leaping due to higher costs for agricultural products such as corn, and fuel costs for transporting products.

U.S. Bonds: As interest rates climb, consumers with Adjustable Rate Mortgages (ARM's), Lines of Credit, and high credit card debt will be reaching for a lifejacket. On Friday, interest rates for a 30-year fixed mortgage were at 6.65%, and the prime rate for credit lines is now at 8.25%.

U.S. Equities: Friday's 185 point sell-off is the 5th 100 point drop in the month of June. Clearly, the stock market is becoming more volatile, and much more selective.

The string of disappointments for many retailers continues to be a red flag for the consumer discretionary sector. Two retailers, Limited Brands (LTD) and Home Depot (HD) are taking on debt to buyback stock. I've always been taught that buying stock in companies that were aggressively paying down debt and buying back stock was a good thing. I guess I don't understand the "new" financial engineering that's going on nowadays.

Geopolitical Issues: One of the main reasons for the recent rise in bond yields is the selling of U.S. Treasuries by foreign investors. Major oil producing nations in the Middle East have been dumping their U.S. dollar denominated assets to hedge themselves against a weak dollar. In addition, China and other Asian central banks have become a net sellers of U.S. Treasuries recently.

Energy Prices: Given the demand from the summer driving season and a forecast for an active hurricane season, I don't see much relief in sight for gas prices until late September.

As I watch the Bear Stearns debacle unfold, I am reminded that things are never as good or as bad as they seem. In the case of the Bear Stearns High Grade Structured Credit Strategies Enhanced Fund, I am amazed at how a fund could raise $600 million in capital, and then turn around and invest in $11 billion dollars in securities. This goes well beyond any margin requirements I have ever heard of.

The issues with sub prime deal with Collateralized Debt Obligations (CDOs), and Collateralized Mortgage Obligations (CMO).

Having been in the brokerage industry for many years, I understood how they packaged mortgage investments, but chose to stay away because of their complexity. My rule was simple, if the investment sounds too complicated, don't invest in it.

Here is an interesting scenario. Consumer spending has been fueled by home equity extractions over the past few years. While home builders are trading near their lows, the retail sector continues to trade near it's high's. This trend will not continue as many retailers continue to warn, disappoint, and ratchet down earnings expectations.

Residential Construction Stocks

Residential Construction Chart

ML RETAIL HOLDRS TR (RTH)

Top Holdings

BEST BUY
COSTCO
CVS CAREMARK
MACY'S
HOME DEPOT
KOHLS
LOWES
TARGET
WAL MART
WALGREEN

On June 5th, Wal-Mart announced a huge stock buy back of $15 billion, but also said that they would reduce the number of new super centers to be opened this year by nearly 30 percent. Initially the stock jumped from the $46-47 level to around $50-51.

After buyback news broke, investors piled into WMT shares only to see the stock trade right back down to the $47-48 range. This tells me there is something happening in retail that is much more serious than what we are being led to believe.

Today, Best Buy said it would immediately start buying back $5.5 billion in stock, and raised its quarterly dividend by 30%. The stock is up 3.3% today, but will BBY shares follow Wal-Mart's lead and settle back down in a few days?

No one can argue that both companies are great franchises, but I would rather buy both stocks in the low $40's.

In spite of his latest endorsement of Hillary Clinton (we all have lapses in judgment from time to time), I really like Warren Buffett's methodology of "waiting for the perfect pitch". This means that a patient investor can make a lot of money if investors simply patiently wait for the right opportunity.

Unfortunately, too many investors want instant gratification. Since none of us are graded on monthly performance (like fund managers), often its better when investors don't overpay in an overheated market.

The problem of course is recognizing you are in an overheated market. As is the case today, the financial channels are jammed with people telling you that the market is still undervalued. They did it in 2000, and they're still doing it today.

The fact of the matter is the market is extended and rich based on these trends;

- Corporate profits are decelerating.
- Emerging markets are overheated.
- The Hedge Fund and Private Equity mania is at a peak.
- The Housing market continues to unwind.
- Insider buying in big blue chip companies are non-existent.
- Energy prices are at all-time highs.
- Inflation remains out of control, and the CPI and PPI numbers are no longer an accurate indicator.
- American's are fed up with the current government and will make additional changes in the 2008 elections. With this shift of power will come changes in the current tax structure.
- Foreign Central Banks are selling U.S. fixed income in search of a more stable currency. As a result, long term interest rates are heading higher.
- Finally, we will find that the fallout from the Bear Stearns CDO debacle is not an isolated case, and there are more hedge funds involved than previously thought.