John Mugarian's Dynamic Growth

Dynamic Growth ETF Portfolio

NEW BUYS:

FXI- iShares FTSE/Xinhua China 25- .579
PPA- PS Aerospace & Defense- .502

NEW SELLS:

SHY: iShares Lehman 1-3 Year Treasury Bond Fund
AGG: iShares Lehman Aggregate Bond Fund
FXA: CurrencyShares Australian Dollar Trust

Here are our Top 10 ETF's for the week of September 4th:

1) FXI- iShares FTSE/Xinhua China 25- .579
2) PGJ: PS Golden Dragon China Fund- .559
3) ITA- iShares DJ Aerospace & Defense-.558
4) IAH- Internet Architecture HOLDRs Trust-.554
5) IXP: Telecommunications Sector Index Fund- .526
6) PPA- PS Aerospace & Defense- .502
7) EWS: iShares MSCI Singapore (Free) Index Fund-.460
8) VOX: Vanguard ETF Telecommunication Services- .366
9) EWM: iShares MSCI Malaysia (Free) Index Fund-.361
10) DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .349

Honorable Mentions (Holds):

None

Notes:

1) In the wake of the mini surge in the prices of our two bond ETF's (SHY & AGG), we have decided to take profits. Since the fed is addressing the fears associated with the commercial paper market, we believe the rally was overdone, and there are better profit opportunities elsewhere.

2) We have decided to increase our holdings in China and the defense sector by adding the FXI- iShares FTSE/Xinhua China fund, and the PPA- PS Aerospace & Defense fund. Both funds are exhibiting excellent strength, as are their respective sectors. Last week the Hong Kong and Shanghai markets hit new highs.

3) We have added another China ETF to our top 10. It seems that China has emerged as a temporary safe haven amid the "credit crunch" going on in the rest of the world. Despite the People's Bank of China raising rates for the fourth time this year, China's growth will continue to soar as we approach the 2008 Olympics in Beijing.

In our Fidelity Sector Fund portfolio, we feel the portfolio now sits in the sweet spot of the best performing sectors.

Here are our Top 10 Fidelity Sector Funds for September:

1) FDCPX: Computers
2) FSTCX: Telecom
3) FWRLX- Wireless
4) FSCSX: Computers & Software
5) FSESX- Energy Services
6) FSCHX: Chemicals
7) FSPTX: Technology
8) FSDAX: Defense & Aerospace
9) FDFAX: Consumer Staples
10) FSDPX: Materials

New Buys:

FDCPX: Computers
FSDPX: Materials

New Sells:

None

Shifts:

From HM to top 10:

FSCHX: Chemicals #6
FDFAX: Consumer Staples #9

From top 10 to Honorable Mention (Holds):

FSENX- Energy #19
FBSOX: IT Services #12
FCYIX- Industrials #18
FSNGX- Natural Gas # 23

Notes:

We continue to believe that energy will play a dominate roll in most portfolios. Yes, even the most hated which is natural gas.

This month, you have witnessed why placing some funds temporarily on the "Honorable Mention" list makes sense. Our two (HM) holds last month were recently promoted back to the top 10.

Stocks fell sharply on Wednesday as investors continue to play a cat and mouse game with the Fed.

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."

In the short run, I don't believe the market will be satisfied with anything the fed does. If they don't cut rates, the market will react negatively. If they do provide investors with a "token" cut, it will be looked at as not enough. I think the fed already knows this.

In summary, I would look for more volatility and the possibility of a capitulation day. A capitulation is a major washout (down 300-500 points) would set the stage for a major rally into November and December.

Wal-Mart

In every economic downturn business will continue to thrive somewhere. The biggest buying group being squeezed is the middle class. Most people below the middle class are always being squeezed, so to them, the economy is always tough.

In a growing economy many middle class consumers like to portray themselves as "upscale" or "rich". You've seen it. When the economy begins to contract, middle class consumers contract too. Mind you, they don't stop spending, they just spend differently.

For example, when they had cash to burn, you could find many middle class consumers shopping at places like Coach (COH), Macy's (M), and other upscale retailers. When the equity from their homes no longer became a source of funds, they had to re-adjust their spending habits.

Dynamic Growth ETF Portfolio

NEW BUYS:

IHI- DJ Medical Devices

NEW SELLS:

None

To Honorable Mention:

VOX: Vanguard ETF Telecommunication Services- .328

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

1) FXI- iShares FTSE/Xinhua China 25- .565
2) PGJ: PS Golden Dragon China Fund- .545
3) IAH- Internet Architecture HOLDRs Trust-.545
4) ITA- iShares DJ Aerospace & Defense-.542
5) IXP: Telecommunications Sector Index Fund- .507
6) PPA- PS Aerospace & Defense- .493
7) EWS: iShares MSCI Singapore (Free) Index Fund-.463
8) IHI- DJ Medical Devices- .400
9) EWM: iShares MSCI Malaysia (Free) Index Fund-.387
10) DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .369

The new addition to our top 10 is the DJ Medical Devices Fund (IHI), which has been gradually creeping up in our performance rankings.

Oddly, the ETF's of most major currencies around the globe are also registering high marks in our rankings. This tells us that the US Dollar is in serious trouble, and if the Fed lowers the fed funds rate after its meeting on September 18th, the dollar will weaken even further.

Because of the volitility associated with most currencies, we have elected to stay away from their respective ETF's. But to give you an idea of how powerful their moves have been against the dollar, I have provided some of the rankings below;

FXE- Euro Currency Trust- .517
FXB- CurrencyShares British Pound Sterling Trust- .496
FXF- CurrencyShares Swiss Franc Trust- .286
FXC- CurrencyShares Canadian Dollar Trust- .371
FXA- CurrencyShares Australian Dollar Trust- .352

Also creeping up in our rankings is the oil services sector. While their strength numbers are climbing, they're not quite ready to be added to our top 10 list.

IEZ- iShares DJ US Oil Equipment & Services Index Fund- .361
OIH- Oil Service HOLDRS Trust- .354
PXJ- PowerShares Dynamic Oil Services Portfolio- .331
XES- SPDR S&P Oil & Gas Equipment & Services ETF- .135

On the other hand, our Fidelity Select Sector Fund Portfolio has a large exposure to the energy sector.

In our top 10, we own;

FSESX- Energy Services
FSDPX: Materials

And on our Honorable Mention (Holds) list, we are holding;

FSENX- Energy
FSNGX- Natural Gas

Here are our Top 10 Fidelity Sector Funds for September:

1) FDCPX: Computers
2) FSTCX: Telecom
3) FWRLX- Wireless
4) FSCSX: Computers & Software
5) FSESX- Energy Services
6) FSCHX: Chemicals
7) FSPTX: Technology
8) FSDAX: Defense & Aerospace
9) FDFAX: Consumer Staples
10) FSDPX: Materials

Honorable Mention (Holds):

FSENX- Energy #19
FBSOX: IT Services #12
FCYIX- Industrials #18
FSNGX- Natural Gas # 23

Let's be honest, if a current Fed Funds rate of 5.25% is killing the economy, then something is seriously wrong in America. I can understand a 7.25% Fed Funds rate having an impact, but not 5.25%.

For you young whippersnappers out there, I am old enough to remember a rip roaring bull market with a fed funds rate around 6.50%.

Over at the Chicago Board of Trade, a little game is played with the Fed Funds future that eventually affects the outcome of upcoming FOMC meetings. Traders manipulate the interest rate on the Fed Fund futures in hopes of affecting the Fed Funds rate before an upcoming FOMC meeting. The Fed Funds futures are also known as market rates.

When market rates (the fed funds futures) are below the Fed Funds rate, the fed normally lowers the Fed Funds to get in line with market rates. Currently, the Fed Funds rate is 1.18% above market rates. This means the Fed has room to cut rates by a full 1% in the upcoming months.

Yesterday, I wrote that the odds placed on the Federal Reserve cutting interest rates are done by speculators over at the Chicago Board of Trade. This is where the Fed Funds futures are traded. Thus far, the odds favor a cut.

But, what will happen if they don't?

According to the "Financial News online us", "An anonymous investor has bought put option contracts on the DJ Eurostoxx 50 index that amounts to €6.9bn" or $9,593,760,000 dollars.

When buying a put or a call you must be right about the direction of a securities move as well as the timing of your bet. In this case, the "puts" expire on September 21st.

With all of the BS flying around in the financial world, it’s really hard to know what to believe. If someone actually bought $9,593,760,000 dollars in puts expiring on the third Friday in September, either that person knows what’s going to happen, or they are total idiots.

Since I don't believe someone with $9 billion dollars is a total idiot, I would like for a regulatory agency to explain to us what this person knew if they end up being right.

Let us examine a few reasons why the world's greatest investor is buying Burlington Northern (BNI).

Does Mr. Buffett know something we don't? You can bet he does!

Since Burlington Northern doesn't qualify under the normal investment parameters that Mr. Buffet uses, why is he so interested in accumulating 25% the stock?

Here are some of Buffett's parameters before buying a company;

1) Buffett identified the average rate of return on equity of American companies at 11%, and basically said he would not consider buying a company with an ROE of under 14%.

Burlington Northern ROE

2010- 11% as projected by Value line***
2006- 13%
2005-13.5%
2004- 11.6%
2003- 9.1%
2002- 9.6%

On the other hand, Coca-Cola's (KO) ROE looks like this;

2010- 32% as projected by Value line***
2006- 31%
2005- 31%
2004- 31.5%
2003- 34%
2002- 34.7%

This being said, what does Buffett know that you don't?

Globalism & The North American Union

1) Burlington Northern is a Ft. Worth, Texas based railroad that strategically lies in the middle of the NAFTA super highway. It even goes thru his home-town of Omaha!

Burlington Northern will be a big beneficiary of shipping goods from Mexico to the United States and Canada.

Dynamic Growth ETF Portfolio

NEW BUYS:

OIH: Oil Services HOLDRS- .430

NEW SELLS:

None

SWITCHES:

To Honorable Mention:

EWM: iShares MSCI Malaysia (Free) Index Fund- .420

Here are our Top 10 ETF's for the week of September 17th:

1) FXI- iShares FTSE/Xinhua China 25- .623
2) ITA- iShares DJ Aerospace & Defense-.589
3) PGJ: PS Golden Dragon China Fund- .588
4) IXP: Telecommunications Sector Index Fund- .548
5) EWS: iShares MSCI Singapore (Free) Index Fund-.537
6) IAH- Internet Architecture HOLDRs Trust-.535
7) PPA- PS Aerospace & Defense- .530
8) OIH: Oil Services HOLDRS- .430
9) DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .433
10) IHI- DJ Medical Devices- .430

The Week in Review:

Oil has finally broken into our top 10 this week. The new addition is the Oil Services HOLDRS, symbol OIH.

Also moving up in our rankings are commodity related ETF's like the PowerShares DB Commodity Index Tracking fund (DBC).

Last week I said that major currency ETF's were registering high marks in our rankings. The rally taking place with currencies, commodities, and energy tells us that investors are betting the will Fed lower the fed funds rate at its September 18th meeting.

One of the adverse affects of lowering interest rates in an inflationary environment is a weaker dollar, higher energy and commodity prices.

So, this being said, I think Bernanke will throw the hedge funds, private equity, and investors a bone, but...

After Tuesday's half-point rate (.50) cut, I sometimes wonder if the Fed really knows what's going on.

For example, after every FOMC meeting, a statement is released to the public.

As you'll see, one month inflation is a problem, and the next month, "core" inflation has "modestly improved".

On August 7th, the statement on inflation read;

Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.

On Tuesday, the statement on inflation read;

Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Here is my take on inflation. After Tuesday’s rate cut, inflation has gotten "modestly out of control".

The "Core" rate is meaningless. It excludes "real" items that "real" people count on daily. You cannot excluding certain items from the index (food and energy) and get an accurate read on the CPI.

So, what should the Fed have done???

Sometimes you have to bite the bullet. By not allowing the free markets to adjust its mistakes on their own, you cause a whole new set of mistakes that could result in a more painful consequence.

Putting a band-aid on an open gash may stop the bleeding, but eventually the healing process will leave a nasty scar for many years to come.

Dynamic Growth ETF Portfolio

None

Here are our Top 10 ETF's for the week of September 24th:

1) FXI- iShares FTSE/Xinhua China 25- .616
2) PGJ: PS Golden Dragon China Fund- .599
3) ITA- iShares DJ Aerospace & Defense-.571
4) IAH- Internet Architecture HOLDRs Trust-.555
5) PPA- PS Aerospace & Defense- .526
6) IXP: Telecommunications Sector Index Fund- .501
7) EWS: iShares MSCI Singapore (Free) Index Fund-.494
8) IHI- DJ Medical Devices- .469
9) OIH: Oil Services HOLDRS- .468
10) DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .443

Honorable Mentions:

EWM: MSCI Malaysia (Free) Index- .393

The Week in Review:

On Tuesday, the FOMC cut the Fed Funds rate a half point (.50) to 4.75%. While the stock market cheered the news, the U.S. Dollar collapsed, and prices for commodities, precious metals and energy spiked.

The U.S. Dollar is now almost at par with the Canadian Dollar. The last time this happened was in 1975, which was 31 years ago . Five years ago, nobody would have thought this was possible.

While many Americans spend their waking hours oblivious to what is going on around them, the financial strength and sovereignty of the United States is crumbling.

Weeks before the Fed cut the discount rate, we told you that foreign currency ETF's around the globe we climbing in our weekly ranking system. The rally of these foreign currencies was a precursor to the Dollars eventual decline.

I have provided some of the rankings below;

FXE- Euro Currency Trust- .557
FXB- CurrencyShares British Pound Sterling Trust- .404
FXF- CurrencyShares Swiss Franc Trust- .300
FXC- CurrencyShares Canadian Dollar Trust- .470
FXA- CurrencyShares Australian Dollar Trust- .437

Why the Dollar Collapsed- Inflation!!!

After Tuesday's FOMC meeting, their statement read;

Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

The smart money knew that the Fed's statement on inflation was a lie. The Fed was clearly lowering rates to bailout hedge funds, private equity, and numerous lenders.

We know that the Fed's comments on inflation were a lie because;

1) Gold closed at $732.10, up from $711.00 last week and $703.00 two weeks ago.

2) NYMEX crude oil spiked to $81.62 /bbl up from $78.09/bbl last week, and $75.62/bbl two weeks ago.

3) Commodities surged this week as the CRB Index closed at 444.00, up from 428.54 last week, and 418.53 two weeks ago.

Even if the Fed Funds rate fell to 4%, this would not be enough to bailout homebuyers who go suckered into interest only, no money down, or adjustable rate mortgages.

Foreclosures will continue for the next few years while the bankers partake in the "Great American Land Grab of the 21st Century".

And you thought Mr. Potter from "It's a Wonderful Life" was a fictional character!

What Does All This Mean???

Well, I hate to be the one to tell you this, but you are going to be paying more for Food, Energy, Building Materials, Services, Plumbers, Electricians, Contractors, Vehicles, Travel, Leisure, Going out to eat, and anything else you can think of.

Since we can only get our news from TV networks that are biased toward one political agenda or the other (Conservatives-Fox/ Liberals-CNN, etc) we trend to Parrott or mimic what we are told.

The stock market closed up 99.50 points on the day as General Motors and the United Auto Workers reached a tentative deal to end a two-day strike.

The market also rallied on news that Bear Stearns may sell a minority stake to investors including Warren Buffett. In addition, Chevron announced a $15 billion share buyback.

Reality came the day before as Lowe’s (LOW) guided 2007 earnings lower and Target Corp. (TGT) cut its Sept. sales forecast. In addition, durable goods orders came in lower than expected.

Here's the real scoop.

While GM and the United Auto Workers ended their strike, over 3 million manufacturing jobs have been lost in the US since 2000. This slow economic death continues to unfold before our very eyes, while most soccer moms and 12 hour working fathers remain oblivious to the facts.

Massaged economic reports continue to proclaim that the unemployment rate remains steady, but they fail to mention that Americans who are unable to find jobs are labeled disgruntled workers, and are dropped from the labor numbers.

One of my clients who lives in Virginia told me the state is paying her not to lease her land to tobacco farmers for a period of 10 years. She said the state is outsourcing tobacco farming to China.

Since politicians and corporate executives are determined to outsource many of our American jobs to the Chinese (and others), making them the economic power of the world, why don't they just go ahead and replace our flag with theirs, and just get it over with.

On Lou Dobbs Tonight, a guest said that only one US Company now makes apple juice from US apples. Even the apple juice business is being outsourced to countries like Turkey, Greece, Germany, Communist China, and other countries.

As long as consumers continue to buy products from foreign countries, US jobs will be lost, our standard of living will decline, and your chance for the American dream will disappear.

As we speak, the Fed recent move caused the US dollar to plunge, putting it even with the Canadian dollar for the first time in 30 years. Oddly, as the .50 basis point cut was enacted, the 10-year Treasury bond claimed from 4.5% to 4.69% a few days latter.

Why? INFLATION!