John Mugarian's Dynamic Growth

Until the Dynamic Growth Newsletter becomes a paid subscription in September, we are going to provide you with the "Weekly Briefing" in the "Journal" section of the website. In doing this, you will be provided with our top 10 Fidelity Sector Funds, and top 10 ETF portfolio immediately, and without interruption.

Dynamic Growth ETF Portfolio

NEW BUYS:

IAH- Internet Architecture HOLDRs Trust-.631
ITA- iShares DJ Aerospace & Defense-.533

NEW SELLS:

VPU: Vanguard Utilities- .167
IDU- iShares DJ Utilities Sector Index Fund- .168

SWITCHES:

Down to Honorable Mention:

These two funds are still posting strong numbers, and are considered holds in our system.

DIM: Wisdom Tree International Mid-Cap Dividend- .364
EWM: iShares MSCI Malaysia (Free) Index Fund-.442

We have decided to throw in the towel on our two utility ETF's, and move two of last week's top 10 holdings to the honorable mention list. This will make room for two new sector ETF's that are exhibiting strong back-tested returns.

Here are our Top 10 ETF;s for the week of August 4th:

1) SHY: iShares Lehman 1-3 Year Treasury Bond Fund- 1.210
2) IAH- Internet Architecture HOLDRs Trust-.631
3) PGJ: PS Golden Dragon China Fund- .575
4) ITA- iShares DJ Aerospace & Defense-.533
5) FXA: CurrencyShares Australian Dollar Trust- .530
6) AGG: iShares Lehman Aggregate Bond Fund- .516
7) IXP: Telecommunications Sector Index Fund- .514
8) DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .502
9) EWS: iShares MSCI Singapore (Free) Index Fund-.492
10) VOX: Vanguard ETF Telecommunication Services- .455

Dynamic Growth Fidelity Select Sector Portfolio

NEW BUYS:

FSPTX- Technology

NEW SELLS/ SWITCHES:

FSUTX: Utilities

*** To buy the Fidelity Technology (FSPTX) fund, simply call your discount broker and request that you would like to switch from the Fidelity Utilities Fund for the Technology Fund. If you place your own trades on-line, you can do this pretty easily.

Here are our Top 10 Fidelity Sector Funds for August:

1) FSESX- Energy Services
2) FWRLX- Wireless
3) FSENX- Energy
4) FSTCX: Telecom
5) FBSOX: IT Services
6) FSCSX: Computers & Software
7) FCYIX- Industrials
8) FSDAX: Defense & Aerospace
9) FSNGX- Natural Gas
10) FSPTX- Technology

Honorable Mentions:

FDFAX: Consumer Staples
FSCHX: Chemicals

It looks as if the sector rotation model is right on schedule as it continues to rotate away from utilities and financials, and into sectors that perform the best after an economic slowdown. Sectors such as technology and industrials keep popping up on our radar screen, but cyclicals such as consumer discretionary are still weak and underperforming.

Fund managers seem to be placing early bets on growth stocks, this is the reason why three technology funds (IT Services, Computers & Software, Technology) have shown up in our top 10 Fidelity Select Portfolio.

By now you have all seen the results of "The Cheating Culture" break Hank Aaron's all-time homerun record last night. Barry Bonds (who is a great hitter) hit homerun number 756 passing Hammering Hank. If you want to see what baseball players are suppose to look like, watch ESPN's "The Bronx is Burning" (Tuesday's 10 pm EST) and compare the size of players to today's. It's not even close.

Since we're on the subject of cheaters, a friend of mine just returned from Martha's Vineyard and Cape cod (the summer hangout for Wall Street big shots), and he said he has never seen so many Obama bumper stickers in his life. Obama for president? Give me a break. Don't you know that Abraham Lincoln and George Washington are rolling over in their graves?

The volatility in the markets has been extreme as the new LBO crowd, aka... private equity is finding it tough to find buyers to finance their debt. In addition, hedge funds are liquidating profitable stock positions to make up for losses they incurred in the sub-prime LDO markets.

In my August 6th post I said that there were no better contrarian indicators than the front covers of popular financial publications. Just before the housing market tanked, a June 2005 Time Magazine cover boldly stated "Why we are going gaga over real estate".

Now, Time is at it again as the August 13, 2007 issue is entitled, "Bonfire of the Builders". On Monday I said if you are looking for a way to invest in real estate and get rich, I would focus on buying banks, lenders, REIT's, and homebuilders.

The banks and lenders have rallied sharply since Monday. No, I don't think you have missed the boat. I think there will be some more opportunities to begin building positions soon.

I find it very odd that a mild 4-6% correction in the stock market could draw reassuring words from the President of the United States.

Yesterday, President Bush spoke to a group of reporters at the Treasury Department-Read Article.

The "Plunge Protection Team" is also known as Executive Order 12631- Working Group on Financial Markets, signed into law by President Reagan after the 1987 market crash.

Here are some highlights of the order;

"By virtue of the authority vested in me as President by the Constitution and laws of the United States of America, and in order to establish a Working Group on Financial Markets, it is hereby ordered as follows:

Section 2. Purposes and Functions. (a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence.

Oddly, Treasury Secretary Hank Paulson "said he hoped declines in housing prices had been largely offset for Americans by higher stock prices:"

Mr. Paulsen also happens to be one of the four people who can manipulate the markets through the use of futures options.

Given yesterday's comments by Mr. Bush, and if Hank Paulsen, and the Plunge Protection Team (PPT.. aka the President's Working Group on Financial Markets) continue to intervene, we probably will not see a drop on the Dow below 12,800. If they didn't intervene at all, we may be looking at 10,800.

Here are a few other terms to get you to buy at the top;

1) "People are Smart"- Oh really!
2) "BOOYAH SKEE-DADDY"
3) CNBC promoting-"Points above new all-time high" on your tv screen.
4) Valuation models suggest stocks are too cheap to pass up at these levels.

This morning the Federal Reserve added $19 billion in liquidity, of which $16 billion was added this morning.

Piggybacking on my comments yesterday ("Is the Plunge Protection Team at work?), the Fed said, "it would do all it can to facilitate the orderly functioning of financial markets."

Well I guess the PPT is at work.

Many small investors are asking themseleves if the current market correction "is the big one?".I don't think it is. That would be too obvious. The "big one" usually occurs without warning, and the Fed is following it's pre-determined plan to intervene in the markets before things got out of hand.

My downside target for the current correction remains around the 12,800 level. I never wait on "the bottom" before re-entering the market. Of course, dollar cost averaging in is the best way to build positions in your porfolio. I am not ruling out a full blown correction of 10% which would carry the Dow down to around 12,500-12,600.

The most attractive sectors for value investors are the financials, energy, homebuilders, REIT's, and select retailers. Many high quality bank stocks are now sporting dividend yields of 5-6%.

Last week, we raised our allocation to the stock market by 5%. If the DJIA drops to the 12,800 mark and/or the SPX to 1400, we will automatically raise our allocations by another 5%.

For now, we are content with an asset allocation of;

65% Equities: (Normally 95%) Aggressive
55% Equities: (Normally 80%) Moderately Aggressive
45% Equities: (Normally 60%) Moderate
25% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative

At DJIA 12,800/ SPX 1400

70% Equities: (Normally 95%) Aggressive
60% Equities: (Normally 80%) Moderately Aggressive
50% Equities: (Normally 60%) Moderate
30% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative

Dynamic Growth ETF Portfolio

None

Here are our Top 10 ETF's for the week of August 12th:

1) SHY: iShares Lehman 1-3 Year Treasury Bond Fund- 1.254
2) IAH- Internet Architecture HOLDRs Trust-.533
3) ITA- iShares DJ Aerospace & Defense-.522
4) AGG: iShares Lehman Aggregate Bond Fund- .508
5) IXP: Telecommunications Sector Index Fund- .463
6) PGJ: PS Golden Dragon China Fund- .461
7) FXA: CurrencyShares Australian Dollar Trust- .451
8) EWS: iShares MSCI Singapore (Free) Index Fund-.448
9) DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .418
10) VOX: Vanguard ETF Telecommunication Services- .371

Charts on our top 10 ETF's- See Charts

Honorable Mentions (Holds):

DIM: Wisdom Tree International Mid-Cap Dividend- .265
EWM: iShares MSCI Malaysia (Free) Index Fund-.372

Here are our Top 10 Fidelity Sector Funds for August:

1) FSESX- Energy Services
2) FWRLX- Wireless
3) FSENX- Energy
4) FSTCX: Telecom
5) FBSOX: IT Services
6) FSCSX: Computers & Software
7) FCYIX- Industrials
8) FSDAX: Defense & Aerospace
9) FSNGX- Natural Gas
10) FSPTX- Technology

Honorable Mentions (Holds):

FDFAX: Consumer Staples
FSCHX: Chemicals

The Week in Review

Buckle your seat belts and get ready for a volatile week! The stock market re-tested it's prior lows in this correction cycle, but we have yet to see the capitulation phase. Capitulation usually occurs with a sharp sell-off at the beginning of the day, followed by a reversal that ends with the market registering big gains at the close.

While I think that most of the damage is done, we could see another day or two of selling before the market mounts a comeback. In short, I believe that this week will bring the capitulation that we have all been waiting for.

The Great OZ Has Spoken

Why? During the past two days, the European Central Bank (ECB) pumped €155.85 billion ($214.56B) into the system, the U.S. Federal Reserve injected $59 billion, and other central banks around the world added billions, too. This flood of new capital is allowing the central banks to bailout the banking system without having to lower short-term interest rates. This is very important.

By injecting massive amounts of capital into the system, and not lowering rates, the U.S. dollar can begin to firm and the fed can continue its fight against inflation. This is very positive for the financial markets.

Prior to central bankers injecting liquidity, many hedge funds were forced to sell good stocks to raise cash for mistakes made in their portfolios. Now that the fed has stepped in and thrown them a life jacket, many high quality stocks that were sold will be bought back. This in turn will cause a huge rally in the stock market.

If you currently own any of our recommended market hedges, we suggest that you take your profits on those positions this week. They are the inverse funds on the S&P (SDS), Dow 30 (DXD), and the Nasdaq (QID).

For those of you who would like to play the markets eventual recovery, you may want to consider some of these supercharged bull funds by ProShares; S&P (SSO), Dow 30 (DDM), and Nasdaq (QLD). I would only buys these when the S&P breaks below 1400, or the Dow reaches the 13,000-12,800 level.

The stock market closed down sharply (again) as investors continue to focus on liquidity problems brought on by the unwinding of CDO mortgages, and get this, even the good mortgages. Wasn't it just a few short weeks ago that we were told (by financial tv) that the subprime mess was a small issue and not to worry?

So much for their credibility.

Not to worry though, the calvary has come to town. The calvary I am speaking of is;

1) European Central Bank (ECB), which pumped €155.85 billion ($214.56B) into the system last week, and another €47.5 billion ($65 billion) on Monday.

2) The Bank of Japan with $5 billion.

3) U.S. Federal Reserve with $59 billion.

When will these guys run out of money? When they run out of ink!

They beauty of this bailout is that central bankers can inject money into the banking system without having to lower short-term interest rates.

If you currently own any of our recommended market hedges, we suggest that you take your profits on those positions this week. They are the inverse funds on the S&P (SDS), Dow 30 (DXD), and the Nasdaq (QID).

For those of you who would like to play the markets eventual recovery, you may want to consider some of these supercharged bull funds by ProShares; S&P (SSO), Dow 30 (DDM), and Nasdaq (QLD).

Previously I said I would only buys these when the S&P breaks below 1400, or the Dow reaches the 13,000-12,800 level. I think it's fine to start buying the above funds at current levels.

My downside target for the current correction remains around the 12,800 level. I never wait on "the bottom" before re-entering the market. Of course, dollar cost averaging in is the best way to build positions in your portfolio. Now that the central bankers have injected liquidity into the financial system, the odds of a greater than 10% correction seem remote.

The most attractive sectors for value investors are the financials, energy, homebuilders, REIT's, and select retailers. Many high quality bank stocks are now sporting dividend yields of 5-6%.

In my April 2nd journal post (Countrywide Financials (CFC) CEO warns investors), I highlight the comments made by Countrywide Financials CEO, Angelo Mozilo.

Mozillo was a guest host on CNBC and said "that the woes of the sub prime mortgage crisis would eventually have an effect on the consumer, and consumer spending".

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

Mozillo has been selling his shares of Countrywide Financial since the stock was around $39.00 a share. I believe Mr. Mozillio to be a straight forward and honest guy. In short, I like people like Angelo Mozillo.

Today, Merrill Lynch analyst Kenneth Bruce downgraded Countrywide to ``sell'' from ``buy.'' Bruce said that shareholders shouldn't ``understate the importance of liquidity, and if liquidations occur in a weak market, then it is possible for CFC to go bankrupt.''

Today, shares of Countrywide closed at $21.29, and it's obvious Mr. Bruce did not listen to what Mr. Mozillio had to say when the stock was trading at $39. A little late to the party aren't we Mr. Bruce?

So, the question now is, who do we believe Kenneth Bruce from Merrill Lynch, or Mr. Mozillio from Countrywide? The score right now is Mozillio 1, Bruce 0.

I'll go with Mr. Mozillio.

I am going to be listening very carefully to what Countrywide's CEO, Angelo Mozilo says in the days and weeks ahead. Mozillo has already hinted that the feds recent injection of liquidity into the financial system may be just the medicine needed to turn the sub prime mess around.

He was true to his word on April 2nd, and the Merrill Lynch analyst was little late to the party.

So Angelo, what's the real story?

The stock market made a dramatic intraday recovery erasing almost all of its lows for the day. What does "Close, but no cigar" mean? Simply, "falling short of a successful outcome and get nothing for your efforts".

In the Weekly Briefing I said that we have yet to see the capitulation phase. Today, we came close.

Capitulation usually occurs with a sharp sell-off at the beginning of the day, followed by a reversal that ends with the market registering big gains at the close. Today, the market erased most of its 343-point drop, but failed to close up sharply on the day.

By the way, we have officially corrected 10% from the highs.

The stock market is short term oversold, and should attempt a feeble rally before re-testing today's lows once again. I hate to be the one to tell you this, but I don't make the rules.

One of the reasons for today's reversal was on rumors that the fed was calling an emergency meeting to cut short term rates. Based on where the bond market has gone lately, cutting rates is no longer a matter of if, but when.

In the midst of the latest credit crunch, the yield on two-year Treasury fell to its lowest in 22 months. The rest of the Treasury market closed as follows;

2-year note is yielding 4.22%
10-year Treasury is yielding 4.66%
30-year bond is yielding 4.96%

Going forward, I am looking for a rally the next few days followed by a re-test of today's lows. By months end most of the selling should be over, and the "real traders" will be back from vacation.

We have raised our allocation to the stock market by another 5% as the Dow dropped below the 13,000- 12,800 mark and the SPX to below 1400. Our asset allocation now stands as follows;

70% Equities: (Normally 95%) Aggressive
60% Equities: (Normally 80%) Moderately Aggressive
50% Equities: (Normally 60%) Moderate
30% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative

We will raise our allocations by another 5% if the Dow hits 12,000, and or the S&P goes below 1325.

Dynamic Growth ETF Portfolio

NEW SELLS:

DIM: Wisdom Tree International Mid-Cap Dividend- .173

SWITCHES:

Back to Top 10

EWM: iShares MSCI Malaysia (Free) Index Fund-.372

Here are our Top 10 ETF's for the week of August 18th:

1) SHY: iShares Lehman 1-3 Year Treasury Bond Fund- 1.208
2) AGG: iShares Lehman Aggregate Bond Fund- .510
3) IAH- Internet Architecture HOLDRs Trust-.498
4) ITA- iShares DJ Aerospace & Defense-.486
5) IXP: Telecommunications Sector Index Fund- .465
6) EWS: iShares MSCI Singapore (Free) Index Fund-.434
7) PGJ: PS Golden Dragon China Fund- .408
8) VOX: Vanguard ETF Telecommunication Services- .375
9) EWM: iShares MSCI Malaysia (Free) Index Fund-.372
10) DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .282

Honorable Mentions (Holds):

FXA: CurrencyShares Australian Dollar Trust- .243

Here are our Top 10 Fidelity Sector Funds for August:

1) FSESX- Energy Services
2) FWRLX- Wireless
3) FSENX- Energy
4) FSTCX: Telecom
5) FBSOX: IT Services
6) FSCSX: Computers & Software
7) FCYIX- Industrials
8) FSDAX: Defense & Aerospace
9) FSNGX- Natural Gas
10) FSPTX- Technology

Honorable Mentions (Holds):

FDFAX: Consumer Staples
FSCHX: Chemicals

The Week in Review

Last week we told you to buckle your seat belts and get ready for a volatile week. Well, that's exactly what we got. After reaching an intermediate term bottom on Thursday, the stock market got some relief as the Federal Reserve cut the discount rate (.50) one-half percent to member banks.. The big question that remains unanswered is will the fed do the same for the consumer (IE- the fed funds rate)?

The mini panic that took place this week in the stock market was basically aimed to force the Fed to cut interest rates. Since the recovery on Thursday and Friday was rather anemic, I think the markets will re-test the lows we saw last week.

I believe investors will continue to play a cat and mouse game with the Fed. On one hand, if a cut in the discount rate is good enough to cause a sustained rally in the stock market, the fed will have no incentive to lower rates for the consumer.

On the other-hand, as long as turmoil remains in the markets, the Fed will continue to be concerned about the economy going into recession. If the stock market continues to sell-off into the next Fed meeting on September 18th, odds of a cut in the fed funds rate are almost assured.

Going forward, I believe the Fed will lower rates by a quarter of a percent on September 18th, and possibly another quarter in October.

This being said, I realize that Jim Cramer has been telling you to stay away from bank stocks. I have to tell you that I think he is dead wrong. By time he rings the dinner bell and tells you to buy, many high quality banks and financials will probably be up 15-20%.

In my August 12th Briefing, I said "the most attractive sectors for value investors are the financials, energy, homebuilders, REIT's, and select retailers. Many high quality bank stocks are now sporting dividend yields of 5-6%".

In my August 18th Briefing I said;

"I believe investors will continue to play a cat and mouse game with the Fed. On one hand, if a cut in the discount rate is good enough to cause a sustained rally in the stock market, the fed will have no incentive to lower rates for the consumer."

Today, there is no cat and mouse game, the market is up 145 points as we speak.

My argument is a very simple one. If the stock market continues to rally, the fed may take this as a sign that market confidence has improved, and there is no need to lower the fed funds rate for consumers.

Some argue that the 3 month Treasury bill rate is now below the fed funds target rate of 5.25%, concluding that the fed has no choice but to cut. I'm not so sure about that.

First of all, the sharp decline in the 3 month Treasury Yield was a knee-jerk reaction to fear. This extreme flight to quality was caused by investors fleeing the commercial paper market in fears that CDO's were ravaging every money market account known to man.

A few days before the fed came to the rescue of the credit markets, the fed declared that "inflation was the biggest risk to the economy". Has the inflation risk suddenly disappeared in a little over 30 days? I think not.

If the fed does in fact cut the fed funds rate at its September 18th meeting, inflation will continue to be a problem, and the US Dollar will continue to decline.

Since confidence in the markets has been restored, the fed may hold off until the next fed meeting before cutting the fed funds rate.

I say the next month because investors will not take the no interest rate cut very kindly. In fact, if the fed does not cut rates on September 18th, we may re-visit the August 13th lows (or lower).

If the fed does not begin cutting the fed funds rate, consumer spending will continue to erode, and the labor market will continue to soften. In any event, I don't think a 1% drop in the fed funds rate will be enough to ward off a recession.

Here why;

Consumers holding adjustable rate mortgages with a teaser rate of 3% are going to see those rates re-set at around 8%. If the fed lowers the discount rate 1%, holders of ARM's will see a reset of 7% on their mortgages. A 1% rate cut is hardly enough to bring us back to the heyday of wild consumer spending.

In conclusion, if the fed lowers rates the markets will celebrate, and then sell off. If the fed doesn't lower rates the market will sell-off. After the sell-off in both scenarios plays out, I am expecting a rally into year-end. 2008 could be the year we begin a recession.

This one is really absurd.

Bill Gross of the investment firm PIMCO is calling for President Bush to "Write some checks, bail 'em out", referring of course to the millions of consumers who got suckered into adjustable rate mortgages (ARM). Gross went on to say that the Federal Reserve lowering rates "would not necessarily guarantee that adjustable-rate mortgages would not keep climbing or that mortgage lenders would relax their lending standards".

As I said yesterday, if the fed did lower the fed funds rate, a 1% cut would do very little to bailout adjustable rate mortgage holders. I think the fed is smart enough to realize this, and any cut on September 18th would be a symbolic move, and not a cure.

"Consumers holding adjustable rate mortgages with a teaser rate of 3% are going to see those rates re-set at around 8%. If the fed lowers the discount rate 1%, holders of ARM's will see a reset of 7% on their mortgages. A 1% rate cut is hardly enough to bring us back to the heyday of wild consumer spending".

In the real world, the Fed's lowering of the discount rate to 5.75% should help to alleviate the liquidity problems facing lenders. A cut in the funds rate would allow banks to lower their prime lending rates which are currently around 8%. But like I said a few minutes ago, a 1% cut would lower many prime rates to 7%.

For consumers who agreed to adjustable rate mortgages with an initial rate of 3% would still be charged 7%.

Let me see if I'm getting this right. The fed funds rate is currently 5.25%, so banks and lenders charge a prime rate of 8-8.25%. This means that consumers are being charged a rate that is 52.3%-57.1% higher than what lenders are borrowing money for.

Mr. Potter, the heartless and cold, banker and slumlord from "It's a Wonderful Life".

In civilized countries this is called loan sharking! If you or I were to lend money to a local business, and charged the 3% over the going rate, we would be thrown in jail for loan sharking. This is a fact, go look it up for yourself.

But banks, credit card companies, and title loan companies don't have to play by the same rules. Why? Because lobbyists for corporate America have many of our lawmakers in their pockets.

Here is an easy fix. If you really wanted to bailout homeowners, wouldn't it make more sense to require lenders to charge no more than 1% (or 19%) over the fed funds rate instead of 3%? I think this makes the most sense.

But, let’s be real. It will never happen. The dark side of capitalism is often the screwing of the other guy to get ahead. In corporate America, how much is enough is always answered by, it’s never enough.

I have to tell you that I am a full blown capitalist. But I believe that capitalism must be tempered by decency and morals. For example, I don't see healthcare as a business, I see it as the right thing to do for people who are sick.

Corporate America sees healthcare as a business.

For example;

According to the Center for Responsive Politics, there are four times as many health care lobbyists as there are members of Congress.

There are almost 50 million Americans without health insurance. While people are dying, or losing their entire savings to paying medical bills, people like;

Bill McGuire, CEO of United Health had stock options worth $1.6 billion at the end of 2005. According to the "Forbes 2006 Executive Pay list" (April 20, 2006), Michael B McAllister the CEO of Humana, earned $3.33 million

Will this BS ever end?

A World Health Organization report in 2000 said ""The U. S. health system spends a higher portion of its gross domestic product than any other country but ranks 37 out of 191 countries according to its performance."

So, will President Bush "Write some checks, bail 'em out" as Bill Gross of PIMCO thinks he should? Not if we follow the same philosophy that we have in Banking and Healthcare today.

The "screw'em, and let'em suffer philosophy really rubs me the wrong way.

Dynamic Growth ETF Portfolio

NEW BUYS:

None

NEW SELLS:

None

Here are our Top 10 ETF's for the week of August 27th:

1) SHY: iShares Lehman 1-3 Year Treasury Bond Fund- 1.173
2) ITA- iShares DJ Aerospace & Defense-.566
3) AGG: iShares Lehman Aggregate Bond Fund- .516
4) IAH- Internet Architecture HOLDRs Trust-.514
5) PGJ: PS Golden Dragon China Fund- .493
6) IXP: Telecommunications Sector Index Fund- .493
7) EWS: iShares MSCI Singapore (Free) Index Fund-.485
8) VOX: Vanguard ETF Telecommunication Services- .383
9) EWM: iShares MSCI Malaysia (Free) Index Fund-.368
10) DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .345

Notes:

1) Our two bond ETF's witnessed a mini surge in price as fears in the commercial paper market lead to a sharp decline in the 3 month Treasury Yield- See SHY & Agg Charts.

2) After a brief dip below $60, our #2 holding (iShares DJ Aerospace & Defense-ITA) surged back above the $65 mark to close at $65.26. Is something brewing in Iran?

3) Technology shares continue to gain ground as shares of our Internet Architecture HOLDRs (IAH) continue to march higher.

4) Despite the efforts to slow the economies in Asia, our 3 ETF's continue to rebound nicely- See PGJ, EWS, EWM Charts.

Honorable Mentions (Holds):

FXA: CurrencyShares Australian Dollar Trust- .308

Other currency ETF's showing strength are;

FXE- Euro Currency
FXB- British Pound
FXF- Swiss Franc
FXC- Canadian Dollar

As talks of lowering interest rates in the US persist, other world currencies are gaining ground against the dollar, and seen as safe havens.

Last week I reiterated;

"I believe investors will continue to play a cat and mouse game with the Fed. On one hand, if a cut in the discount rate is good enough to cause a sustained rally in the stock market, the fed will have no incentive to lower rates for the consumer."

"My argument is a very simple one. If the stock market continues to rally, the fed may take this as a sign that market confidence has improved, and there is no need to lower the fed funds rate for consumers."

Yesterday's sell-off was nothing more than a tactic that some unruly children like to use on their parents. It's the old "I'll show you what will happen if I don't get my way" theory.

In short, the market seems to be telling the fed, "if you don't cut interest rates at the September 18th meeting, we will sell-off the markets." Okay, fine. At least we know where we stand. This has been my prediction all along.

The markets are not very complicated if you understand the psychology.

Yesterday's 280 point sell-off occurred on below average volume. It will be interesting to see what happens next Tuesday when senior traders return to their posts. Right now these movers and shakers are enjoying what is left of their vacations in places like Martha's Vineyard.

Until September 18th, expect the same wild gyrations until the fed rate decision.

It is amazing isn't it? Yesterday, Merrill Lynch (late to the party again) issued a "sell" recommendation on Wal-Mart (WMT). What planet do these guys live on? Oh, I forgot. They are from New York City which is a place so far removed from reality that they can't judge how common people really live.

Here are some issues facing the average American worker, and some facts as to why I feel Wal-Mart is a buy;

1) Representative Walter Jones (R-N.C.) said, "Since NAFTA was approved, the United States has lost 3.1 million manufacturing jobs, and more than 10,000 illegal aliens now stream across our southern borders every week."

2) Former Assistant Secretary of the Treasury in the Reagan Administration, Paul Craig Roberts wrote; “According to the Bureau of Labor Statistics, one-quarter of all new US jobs created between June 2006 and June 2007 were for waitresses and bartenders. Almost all of the net new US jobs in the 21st century have been in domestic services."

3) On August 20-21 in Montebello, Quebec, President Bush met with Canadian Prime Minister Stephen Harper and President Felipe Calderon of Mexico to put the finishing touches on the “Security and Prosperity Partnership” (SPP) agreement, which essentially merges the United States, Canada and Mexico into one entity.

On April 22, 2001, when President Bush signed the Declaration of Quebec City in which he made a “commitment to hemispheric integration”, this opened the door for the free flow of goods, capital, and people across North American borders.

This North American Union is to follow in the footsteps of the European Union which has been met strong resistance in France, Germany and Britain.

The media (with the exception of Lou Dobbs) has basically blacked out this news from the America people, but this borderless union of the United States, Mexico and Canada continues to unfold. Oddly, most experts believe that this agreement can accomplished without ratification of the U.S. Congress or Senate.

4) Here, in the most Western panhandle of Florida, our local Lowe's (LOW) stores now have aisle signs that are written in English and Spanish.

In Summary, if;

- 3.1 million Americans have lost higher paying manufacturing jobs, and
- One-quarter of all new US jobs were for waitresses and bartenders, and
- The net new US jobs in the 21st century have been in domestic services, and
- More than 10,000 illegal aliens now stream across our southern borders every week, and
- If the hemispheric integration of the United States, Mexico and Canada is allowed to continue, then...

Where do you think all of these workers with lower paying jobs are going to shop???

Tiffany?
Coach?
Macy's?

No way! But, these people are going to shop somewhere.

Wal-Mart will gain hundreds of thousands of new customers because of lower wages for American's who have lost their manufacturing jobs, and new immigrants entering the U.S. In addition, a Wal-Mart benefit from products made from cheaper labor, and has a $10 billion dollar buyback in place.

This is a no brainer.