The Week in Review:

Investing has clearly become more complicated than ever before. Investors must contend with widening global conflicts as well as problems surrounding our domestic financial system.

A few short years ago the euro was established with an initial value of 85 cents to the U.S. Dollar. Flash forward to today, and the Euro is worth around $1.45.

If it had not been for the sub prime mortgage meltdown, Federal Reserve Chairman Ben Bernanke was well on his way to shoring up the dollars decline by raising interest rates. When the commercial banks and investment banks are eventually bailed out, look for Mr. Bernake to abruptly change his easy money policy, and begin raising rates again.

Why?

Foreigners such as Japan and China have invested in dollar assets as a way to capture are large share of the US markets. It is estimated that China has over one trillion dollars, and Japan almost one trillion, in dollar denominated assets. These countries have grown increasingly nervous over the dollars decline, and now are expressing their concern.

China has recently stated that they concerned about their investment in the dollar, and are looking for ways to invest in other currencies.

The interest rate that foreign nations are receiving on US Treasury bonds is not considered a viable investment since the dollar continues to decline precipitously against other major currencies. The interest payments that foreign nations are receiving have been wiped out by the dollars decline.

As Bernake fires up the printing press, more dollars are being put in circulation while less dollars are being accumulated by foreign nations. As a result, the dollar continues to erode. This in turn pushed oil and commodity prices to new all-time highs just a few weeks ago.

In summary, enjoy the low interest rates while you can. If you were thinking about refinancing a loan, you'd better take advantage of it over the next few month. In the next 12-24 months, after the banks are bailed out, interest rates are going back up.

This is NOT a Buy and Hold Market

As Fed Chairman Ben Bernake and Treasury Secretary Hank Paulsen devise ways to bailout the Investment and Commercial Banks from the sub prime mortgage meltdown, a window of opportunity appeared for investors.

For several weeks we have said that dollar cost averaging into high quality bank stocks will prove to be a wise move. I don't know how long it will take before the sub prime mess clears up, but my best guess is late 2008 could be the end of the crisis.

As such, I believe that owning high quality, high yielding bank stocks will prove to be rewarding as bonds yields plummet, and interest on savings decline. Lower short term yields will help banks shore up their balance sheets, and a million investors will look to refinance their sucker loans. When this happens, the banks will be raking in the cash.

In addition, many banks have taken hits on their balance sheets by writing down the good loans along with the bad. They did this because there were no accurate pricing measures for what a loan was truly worth. Since not every loan is bad, the good loans will eventually be re-priced and marked to market. This means that the good loans that have been written down on corporate balance sheets will eventually be re-priced and marked up. I want to be an investor when this happens.

Bank insiders have been relentlessly buying stock despite the turmoil in the credit markets. On Friday morning, we woke up to news that Treasury Secretary Hank Paulson was in negotiations with banks to freeze the interest rates for some sub-prime ARM's that are due to reset in 2008. As a result, the bank stocks had huge upside moves.

Maybe my newest slogan is becoming more than just a slogan;

"Throughout our history, the track record is clear. Solutions to major problems always appear."

In the weeks and months ahead, and as more and more solutions appear, watch how analysts will begin jumping on the bandwagon, upgrading their opinions on the banking sector. After a 10-20% rally, you will be hearing buy, buy, buy!

Economic News

- Last week Fed Vice Chairman Donald Kohn, Fed Chairman Ben Bernanke, and St. Louis Fed President William Poole basically said the Fed will be cutting interest rates on December 11.

Since it looks like they want to fix the sub prime mortgage mess as quickly as possible, look for a surprise half point (.50 basis point) cut.

- The Abu Dhabi Investment Authority invested $7.5 billion in CitiGroup, and got an 11 percent convertible bond in return.

Just because you see Arabs riding camels in the sand on CNN, some in people think they're dumb. Don't think this for a moment. They are very smart people when it comes to business. Since CitiGroup was the one in search of money, who do you think was dumber?

- September new home sales rose 1.7 % in September, but home prices dropped 8.6%.

- The National Association of Realtors said inventory of existing homes rose to a 22-year high, and supplies now stand at ten-and-a-half months.

Last week:

-Gold closed at $789.90/oz down from $824.70 last week and up from $786.46 two weeks ago.

-The Commodities CRB Index closed at 339.84, down from 354.29 last week, and 349.43 two weeks ago. The index hit a high of 359.05 on November the 7th.

-Crude Oil closed at $88.71/bbl down big from $98.18 last week and down from $93.84 two weeks ago.

-The U.S. Dollar close at 76.15 up from 75.04 last week and up from 75.86 two weeks ago.

This past summer we raised our allocation to the stock market by 5% when the Dow dropped below the 13,000-12,800 mark, and the SPX fell below 1400.

We are altering our sell strategy a bit to prepare for a tough year in 2008. At Dow 14,000, or S&P 1525, we will reduce our allocations by 5-10%

Our current asset allocation is 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

At Dow 12,500, or 1400, we will raise our allocation to the stock market by 5% to;

75% Equities: (Normally 95%) Aggressive
65% Equities: (Normally 80%) Moderately Aggressive
50% Equities: (Normally 60%) Moderate
30% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative

At Dow 14,000, S&P 1525, we will reduce our allocation models by 5-10% to;

55% Equities: (Normally 95%) Aggressive
45% Equities: (Normally 80%) Moderately Aggressive
35% Equities: (Normally 60%) Moderate
15% Equities: (Normally 40%) Moderately Conservative
10% Equities: (Normally 20%) Conservative