John Mugarian's Dynamic Growth

Dynamic Growth ETF Portfolio

To Top 10:

EWM: MSCI Malaysia (Free) Index- .458

To Honorable Mention:

OIH: Oil Services HOLDRS- .404

Here are our Top 10 ETF's for the week of October 1st:

1) FXI- iShares FTSE/Xinhua China 25- .680
2) PGJ: PS Golden Dragon China Fund- .666
3) ITA- iShares DJ Aerospace & Defense-.615
4) EWS: iShares MSCI Singapore (Free) Index Fund-.558
5) IAH- Internet Architecture HOLDRs Trust-.557
6) PPA- PS Aerospace & Defense- .556
7) IXP: Telecommunications Sector Index Fund- .531
8) DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .493
9) IHI- DJ Medical Devices- .489
10) EWM: MSCI Malaysia (Free) Index- .458

Honorable Mentions:

OIH: Oil Services HOLDRS- .404

Here are our Top 10 Fidelity Sector Funds for October:

1) FSESX- Energy Services
2) FWRLX- Wireless
3) FSDAX: Defense & Aerospace
4) FNARX: Natural Resources
5) FSCHX: Chemicals
6) FDFAX: Consumer Staples
7) FDCPX: Computers
8) FSENX- Energy
9) FSDPX: Materials
10) FSMEX: Medical Equipment

New Buys:

FSMEX: Medical Equipment-#10
FNARX: Natural Resources- #4

New Sells:

FSCSX: Computers & Software-#17
FBSOX: IT Services-#21
FCYIX- Industrials #16

Shifts:

From HM to top 10:

FSENX- Energy #8

From top 10 to Honorable Mention (Holds):

FSTCX: Telecom-#12
FSPTX: Technology-#13

Honorable Mention (Holds):

FSNGX- Natural Gas ##13
FSTCX: Telecom-#12
FSPTX: Technology-#13

Notes:

We continue to believe that energy, materials, commodities, and emerging market plays related to commodities will continue to dominate the markets. Also, countries who are benefiting from the outsourcing of American jobs continue to be strong.

The Week in Review:

The media continues to promote former Fed Chairman Alan Greenspan's book by re-running an interview by CNBC's Maria Bartiromo. I find it very interesting since this is the most I have ever heard Greenspan say.

Yes, over the past 20 years Greenspan has spoke a lot, but he spoke in fed speak, and not english. Now that he is speaking English, what he is saying is pretty revealing.

Here are the questions, and the short answers;

MARIA BARTIROMO:

Hank Paulson said just the other day that this is gonna be a worse slow down than past crises. You agree?

GREENSPAN:

-the actual-- financial-- problems are very similar to those which I've seen-- over the decades.
-they reflect an innate aspect of human nature, which we call "fear." And there's nothing more debilitating to a financial market than people who are frightened.
-unlike a lot countries-- have a-- a very significant wealth effect in our consumer markets.
-85 percent of consumption is financed by income. But the other 15 percent is essentially a reflection of the wealth that gets accumulated, financed, I might say, usually the mortgage market.
-the mortgager market has been financing consumer markets.

SUMMARY: Withdrawals from home equity has fueled the spending boom. Now consumer spending must be financed by income, and not by the extraction of home equity.

Just this week, Lowe’s (LOW) guided 2007 earnings lower and Target Corp. (TGT) cut its Sept. sales forecast.

Isn't this what I have been preaching about for over a year?

Dynamic Growth ETF Portfolio

NEW BUYS:

EEB: Claymore ETF BNY BRIC- .556

NEW SELLS:

SWITCHES:

To Honorable Mention:

OIH: Oil Services HOLDRS- .444
EWM: MSCI Malaysia (Free) Index- .429

Here are our Top 10 ETF's for the week of October 8th:

1) FXI- iShares FTSE/Xinhua China 25- .693
2) PGJ: PS Golden Dragon China Fund- .679
3) ITA- iShares DJ Aerospace & Defense-.577
4) EEB: Claymore ETF BNY BRIC- .556
5) EWS: iShares MSCI Singapore (Free) Index Fund-.543
6) IAH- Internet Architecture HOLDRs Trust-.522
7) PPA- PS Aerospace & Defense- .513
8) IXP: Telecommunications Sector Index Fund- .502
9) DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .487
10) IHI- DJ Medical Devices- .461

Our newest addition to the top 10 is the Claymore ETF BNY BRIC (EEB) which invests in approximately 75 securities from companies in Brazil, Russia, India and China (BRIC).

Honorable Mentions:

OIH: Oil Services HOLDRS- .404
EWM: MSCI Malaysia (Free) Index- .429

Here are our Top 10 Fidelity Sector Funds for October:

1) FSESX- Energy Services
2) FWRLX- Wireless
3) FSDAX: Defense & Aerospace
4) FNARX: Natural Resources
5) FSCHX: Chemicals
6) FDFAX: Consumer Staples
7) FDCPX: Computers
8) FSENX- Energy
9) FSDPX: Materials
10) FSMEX: Medical Equipment

Honorable Mention (Holds):

FSNGX- Natural Gas ##13
FSTCX: Telecom-#12
FSPTX: Technology-#13

The Week in Review:

The stock markets recovery since August has been quite impressive. A little misguided, but impressive no less.

What is impressive is how the market seemed to shrug off bad news from financial companies like Citigroup, UBS, Merrill Lynch, and Washington Mutual. I didn't know that announcing multibillion-dollar write-downs were considered good news.

I realize that optimism sells, but I don't want to be like the guy that jumped from the 60th floor of a building. You know the story. As he was falling, he passed by the 22nd floor and said, "so far, so good".

It is always interesting to see what stocks and sectors performed the best in past bear markets.

According to the book, Understanding Wall Street, by Jeffrey B. Little;

"Buying Contra-market stocks" will help your portfolio because they move in the opposite direction during bear markets. Oh, do they really?

According to the book, Understanding Wall Street;

"Each bear market is different. In years past the groups that outperformed were";

1946- Oil & Gas
1957- Pharmaceuticals, food and Tobacco
1962- Gold
1969-1970- Coal and Auto Parts
1973-1974- Gold, Sugar, Steel, and Fertilizer
2000- Gold

Let's flash forward to today. The best performing sectors over the past year were the same stocks and sectors that performed well during past bear markets.

Materials- Commodities, Raw Materials, Coal, etc
Energy- Oil & Gas
Consumer Staples- Food, Household Products
Utilities- Electric, and Gas

So, what is the difference? Obviously, the stock market is rallying, and bear market stocks are blasting higher while the Dow continues to set new all time highs.

So, why are we interested in what performed well during past bear markets?

On August 31st, I posted an article entitled; "Wal-Mart: Sorry Merrill, you're wrong again!"

If you click on the Wal-Mart story above, I gave my reasons why I thought the stock would do well.

At the time of the "expert sell" recommendation given by Merrill Lynch, the stock was trading around $43-$44.

Today, the stock is up 3.66% to $47.26.

When I was working as a broker with three large brokerage firms, I found the "secret key" behind all buy and sell recommendations. The "secret key" was written in special hieroglyphic code that took a few years to decipher.

Here it is;

Recommendation/Meaning

Buy=Sell
Hold/ Accumulate= Until I can get all of my friends and clients out.
Sell=Buy

Dynamic Growth ETF Portfolio

To Honorable Mention:

DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .466

To Top 10 from HM:

OIH: Oil Services HOLDRS- .487

Here are our Top 10 ETF's for the week of October 15th:

1) FXI- iShares FTSE/Xinhua China 25- .747
2) PGJ: PS Golden Dragon China Fund- .698
3) EEB: Claymore ETF BNY BRIC- .583
4) ITA- iShares DJ Aerospace & Defense-.575
5) EWS: iShares MSCI Singapore (Free) Index Fund-.574
6) IXP: Telecommunications Sector Index Fund- .553
7) IAH- Internet Architecture HOLDRs Trust-.551
8) PPA- PS Aerospace & Defense- .531
9) IHI- DJ Medical Devices- .498
10) OIH: Oil Services HOLDRS- .487

Honorable Mentions:

DND: Wisdom Tree Pacific Ex-Japan Total Dividend- .466
EWM: MSCI Malaysia (Free) Index- .469

The Week in Review:

"Something just doesn't feel right". This is a comment I heard this weekend from a business owner who has his fingers on the pulse of many consumers.

Boy, I'll say something doesn't feel right!

I have been saying for quite sometime that reports we have been receiving about the economy are so out of whack with reality that we can not rely on their validity anymore.

Of course I am talking about the inflation numbers (CPI & PPI), and the jobs data (jobs for waitresses and bartenders up, while manufacturing disappears overseas).

What is very unfortunate is people who have lost their jobs due to outsourcing are accused of being "protectionist" or "isolationist".

I guess these are words that are designed to ward off criticism of the North American Free Trade Agreement (NAFTA), and the Dominican Republic-Central America Free Trade Agreement (CAFTA) in 2006. In reality, Americans don't mind a free trade policy as long as there is a quit pro quo. Unfortunately, there is not.

See, most Americans will give just about anything a chance when it comes to a policy change as long as they get something in return. Unfortunately again, they are getting nothing in return.

The odds of the Fed cutting the Fed Funds from 4.75% to 4.50% have fallen from 50% on October 5th, to as low as 30% yesterday. After today's housing numbers were released, the odds jumped back up to 50% again.

The basic rule of thumb when trying to predict the direction of short term rates is to watch the Fed Funds Futures- better known as market rates. The Fed does not like to fight "market rates", and for October, it doesn't look like the Fed will cut.

Monetary Policy: Fed Funds Rate Predictions

In all honesty, the Fed should not lower interest rates and risk further collapse of the dollar. In addition, not lowering rates would put a lid on the torrid advance in commodities and energy prices.

This morning the CPI showed that consumer prices rose modestly last month, suggesting there are still inflation risks. The questionable CPI data showed a 0.3 percent increase in September, after showing a decline of 0.1 percent in August.

The sell-off in the Financials on Tuesday signaled that the Fed will probably stand pat after its October meeting.

Sometimes you have to let certain segments of the market take their punishment for past misdeeds and stupidity.

Today, the Commerce Department said new home construction for September slowed to its weakest pace in 14 years. Housing starts fell 10.2 percent to a seasonally adjusted 1.191 million annual rate, after falling 3.2 percent in August to 1.327 million.

Yesterday, Treasury Secretary Hank Paulsen finally said some things that needed to be said;

1) “I have no interest in bailing out lenders or property speculators,”

I agree, people do not learn their lesson unless there is a certain amount of pain involved. Many lenders and real estate speculators drank too much from the spiked punch bowl. Now is the time to hug the toilet, and get ready for the big barf.

2) “Let me be clear: Despite strong economic fundamentals, the housing decline is still unfolding, and I view it as the most significant current risk to our economy,”

Housing prices have not declined enough to begin a new demand cycle. A correction has occurred in building construction and lending, but a substantial correction in home prices has yet to occur.

In order to cleanse the system from the speculative price increases since 2002, a 50% give back of the recent price advances can be viewed as natural, and healthy. It would also stop the decline in home sales, and spur new demand among buyers.

Consumers Can't Get a Life

As I was mulling over the reasons for the huge problems surrounding sucker loans such as ARM's, interest only loans, sub-prime mortgages, and various other credit issues, the Ditech Commercial keeps coming to mind. You know the "People are Smart" ads.

People are Smart. No, people are sheep, and sheep are easily led. Here is why...

Everyone is scared to death of the financial stocks. Herein lies the opportunities.

Unless every major bank goes bankrupt, and the US sinks into a depression, I have got to believe that many of the bank stocks yielding 5%++ are incredible bargains.

If the US sinks into recession, inflationary pressures will subside, giving the Fed more room to lower interest rates. For those with a 2-3 year time horizon, I believe buying high quality bank stocks at these levels will reward you greatly in 24-36 months.

I look at these high quality banks yielding 5% like cd's without the government guarantee. In 2004, at the World Money Show in Orlando, I recommended SBC Communications (now AT&T) at $25/ share. Today, the stock is at $42.20, which is a gain of 42.5%, and I collected a 5% dividend while I waited.

Market Commentary

On Wednesday, the talk over Turkey invading Iraq caused big swings in oil prices, and hence, wild fluctuations in the stock market.

The Turks are really pissing me off. They were upset that the US passed a resolution condemning the mass killings inflicted on the Armenians by the Ottoman Turks in 1915. Over 1,500,000 Armenians were slaughter during the Armenian Holocaust.

Dynamic Growth ETF Portfolio

NEW SELLS:

DND: Wisdom Tree Pacific Ex-Japan Total Dividend- N/A

SWITCHES:

Here are our Top 10 ETF's for the week of October 22nd:

1) FXI- iShares FTSE/Xinhua China 25- .747
2) PGJ: PS Golden Dragon China Fund- .698
3) EEB: Claymore ETF BNY BRIC- .583
4) ITA- iShares DJ Aerospace & Defense-.575
5) EWS: iShares MSCI Singapore (Free) Index Fund-.574
6) IXP: Telecommunications Sector Index Fund- .553
7) IAH- Internet Architecture HOLDRs Trust-.551
8) PPA- PS Aerospace & Defense- .531
9) IHI- DJ Medical Devices- .498
10) OIH: Oil Services HOLDRS- .487

Honorable Mentions:

EWM: MSCI Malaysia (Free) Index- .469

The Week in Review:

The worries are everywhere! After hitting new all-time highs a few weeks ago, investors once again began to worry about the "goldilocks" economy, the "not to worry" sub prime situation, the "resilient" consumer, and corporate profits.

Now the spin misters are coming up with a new slogan for investors to mimic; "foreign profits will carry corporate earnings due to the weak dollar".

I don't think so! The Dollar is due for a major rally, and the emerging markets are due for a nasty correction.

Oil prices hit new high's this week on growing geopolitical tensions, but oil stocks sold off. This tells me that the global economy is weakening. As investors run from US assets like the Dollar, and Emerging Market Stocks, they will be doing so at exactly the wrong time. Their timing will be awful, as the Emerging Markets are on the brink of a nasty correction.

Soon, the infamous "can lose" markets such as Brazil, India, and China will be hit with a 25-40% sell-off. Of course, while the financial media begins screaming "get out while you can", wise investors will look at the upcoming carnage as a wonderful buying opportunity.

Here is the US; the Federal Reserve is coming to the rescue of the major lenders, and also the consumer.

Dynamic Growth ETF Portfolio

Back to Top 10:

EWM: MSCI Malaysia (Free) Index- .507

To Honorable Mention:

OIH: Oil Services HOLDRS- .373

Here are our Top 10 ETF's for the week of October 29th:

1) PGJ: PS Golden Dragon China Fund- .801
2) FXI- iShares FTSE/Xinhua China 25- .788
3) EEB: Claymore ETF BNY BRIC- .639
4) ITA- iShares DJ Aerospace & Defense-.589
5) IAH- Internet Architecture HOLDRs Trust-.554
6) IXP: Telecommunications Sector Index Fund- .550
7) PPA- PS Aerospace & Defense- .519
8) EWM: MSCI Malaysia (Free) Index- .507
9) EWS: iShares MSCI Singapore (Free) Index Fund-.474
10) IHI- DJ Medical Devices- .381

Charts of our Top 10 ETF's

Honorable Mentions:

OIH: Oil Services HOLDRS- .373

The Week in Review:

The stock market closed the week on a strong note as earnings from Microsoft (MSFT) and reassuring comments from Countrywide Financial (CFC) helped to drive the markets higher.

Countrywide, the biggest U.S. mortgage lender said it would return to profitability in the fourth quarter of this year. The Countrywide news also helped to spark a rally in the extremely oversold financial sector. Many high quality bank stocks reversed an ugly downtrend to close higher on the day.

Oversold Major Banks

Merrill Lynch closed up 5.19 at 66.09, its biggest gain in five years, after reports that chief executive Stanley O'Neal will lose his job. Merrill Lynch took an $8.4 billion write-down from losses incurred in collateralized debt obligations (CDOs).

Treasury Secretary Henry Paulson is trying to create a $100 billion "superfund" to help banks with their credit problems, and investors began fleeing stocks of many U.S. banks in fears that more bad news is in the cards.

Energy stocks reversed their brief downtrend as the price of oil briefly broke above $92 per barrel for the first time ever. On top of all of the supply and demand issues, the US has to contend with a Turkish invasion in Northern Iraq, as well as the new sanctions placed on Iran.

Major Integrated Oils

Gold was higher as the dollar dropped to a record low versus the euro. Expectations remain that the Federal Reserve rate will cut interest rates next week.

The Fed's stance on inflation is based on the CPI data, and frankly, the Gold, Energy, and Currency markets are signaling that the data is no longer an accurate measure of inflation.

In any event, the FOMC meeting Oct. 30/31 is expected to result in a 25 basis point cut in fed funds rate.

The US dollar is hitting new lows, foreign currencies are soaring (FXE,FXC,FXB,FXA,FXF), oil prices are over $90/bbl, commodity prices are hitting new highs, but this morning we are told that inflation is under control.

How sad it is when our citizens can only get the truth at the end of every month when their checking accounts are bordering on overdrawn.

Consumer confidence keeps declining because the CPI data continues to lie about real inflation. Here are the numbers;

Consumer Confidence

Consumer Price Index

Jobless Claims- last week

Consumer Sentiment

We could go on and on, but why bore you with the obvious.

This morning the Fed Funds Futures are signaling a 88% chance that the FOMC will lower the the Fed Funds Rate .25 basis points to 4.50%. The December odds are at 40% for another .25 basis point cut to 4.25%.

As rates come down, inflation continues to soar!

On the stock front, Google (GOOG) stock jumped to over $700/ share this morning. I find it amusing that not a single Google insider has any interest in hanging on to their shares for the long term. Every time they get a chance to sell stock they were GIVEN, not bought, they sell.

Insider Selling on GOOGLE.

If you were wondering how people become billionaires, keeping buying Google while the insiders are selling. Its simple math, you turn your money over to them when you buy the stock.

Yes, I know, but the stock is skyrocketing! So did AOL and Amazon in 1999.

If you want to know where the recent new life in the Nasdaq has come from, look no farther than Google (GOOG), Apple (AAPL), and Research In Motion (RIMM).

The Nasdaq 100 is up over 400 points since the beginning of the year, and 230 points of those points can be attributed to the three stocks above. One day, without warning, the plug will be pulled. When the initial downturn comes, bargain hunters will view the decline as a buying opportunity. Then the second, third, and fourth wave of selling will drive share prices into the ground. It happened in 1999-2000, and it will happen again.