John Mugarian's Dynamic Growth

Happy New Year!

The 2007 results are in for our Fidelity Sector Fund portfolio.

Every month, as changes occurred in the Fidelity Sector Fund portfolio, we reinvested the assets of each sale into the new buys. This strategy gave us a powerful compounding effect.

From January 2, 2007- December 31, 2007:

Our Top 10 Fidelity Sector Fund Portfolio Gained: + 13.028%

The 13.028% Sector Fund gain more than doubled the Dow’s gain of +6.4%, and was almost 4 times better than the S&P’s gain of 3.5%. The NASDAQ faired better than the Dow and S&P coming in with a gain of 9.8%.

We are still working on the results for the ETF portfolio, and should have the results by the middle of this month.

2008 will be extremely challenging. According to the people at the Stock Traders Almanac, this is the first year since 1974 that both November and December had negative monthly closes. Yikes!

The recession cat is finally out of its bag. We have been telling you for quite sometime that the US is facing a "Perfect Storm" scenario where Inflation, Energy Prices, and the Credit Crunch would derail the economy.

Clearly, the inflation rate is similar to what we saw in the early 1970's, and the Credit Crunch/ Real Estate debacle is similar to what we experienced in the 1980's. When you throw in the high costs of Energy, Raw Materials, and Commodities you have a situation that cannot be corrected by a single Central Bank.

The stock market will eventually clean out (if allowed) all of the excesses. This is done when unemployment and bankruptcies rise, and the consumer is forced to stop spending, and start saving. This cleansing of the economy will also force the major market indexes down 15-25%.

Less demand for goods and services will drive down commodity prices, forcing energy costs down, which will eventually bring down inflation.

We were holding out hope that a rally in January would allow us to reduce our allocation models by an additional 10%. While I still believe the market is due for a rally in January, it looks as if that rally will be an oversold which will fall short of reaching the highs set in 2007.

This being said we will reduce our asset allocation models by 5% immediately and another 5% if the Dow rallies back to the 13,500 mark.

Dynamic Growth: ETF Portfolio

NEW BUYS:

FXF: Currency Shares Swiss Franc Trust- .428

NEW SELLS:

PPA- PS Aerospace & Defense- .352

SWITCHES:

Here are our Top 10 ETF's for the week of January 7th:

1) SLX: Market Vectors Steel Index Fund- .590
2) OIH: Oil Services HOLDRS- .579
3) PZD: PowerShares Cleantech Portfolio- .476
4) PGJ: PS Golden Dragon China Fund- .464
5) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .450
6) VWO: Vanguard ETF Emerging Markets- .433
7) UTH: Utilities HOLDRs Trust- .430
8) FXF: Currency Shares Swiss Franc Trust- .428
9) EEB: Claymore ETF BNY BRIC- .387
10) FVL: First Trust Value Line (R) 100 Fund- .376

Notes:

Given the current market environment, we are being more nimble and less patient in regards to our top holdings. As you can see from our recent changes above, we bought the Swiss Franc Trust (FXF) because we feel the currency will strengthen, and sold Aerospace & Defense (PPA) because we are 11 months away from a potential political change in Washington.

As the old saying goes, when a Republican is in the White House, buy Oil and Defense stocks. When a Democrat is in the White House, sell Oil and Defense, and buy Technology.

As far as owning technology is concerned, I do not want to buy as the economy is losing strength. I think we will have ample opportunities to gain exposure to the sector latter in the year.

The Week in Review:

It's becoming clear that the 5 year bull cycle is coming to an end. Given the current oversold condition, I believe the market is due for bounce in the near term.

An oversold reflex bounce would give us a little wiggle room to reduce our asset allocation models by another 5%. On Friday, we trimmed 5% from our suggested models.

We are holding out hopes that the Dow can rally back to 13,500. With all eyes watching for hints of a potential recession, the Fed may come to the markets rescue after last weeks devastating payroll report.

On Friday, the Labor Department reported that seasonally adjusted non-farm payrolls rose by only 18,000 in December, well below the estimated 58,000 to 70,000 that many economists had expected. As a result, the unemployment rate rose 0.3%, from 4.7% to 5%. Historically, dating back to 1949, any time the unemployment rate has jumped 0.3% or more in a month, a recession has followed. This is what scared the market on Friday.

The 3-month Treasury bill currently sits around 3.1% while the Fed Funds rate is at 4.25%. The Fed does not like to fight market rates, and since it is already way out of line with market rates, the next cut many surprise the markets enough to ignite a huge short covering rally.

The stock market remains soft as news of lower pending home sales for November, and the rumors of a potential bankruptcy for Countrywide Financial (CFC). Today’s news is weighing heavily on the entire financial sector.

According to Morningstar and Value-Line valuation ratios, many high quality banks are now trading at or below their respective book values. I’m confident in his next quarterly report; we will find that Warren Buffett was adding to his positions in the financials.

Gold soared to $875/oz this morning as investors are frightened that their US currency has become as worthless as wooden nickels, and our current officials in government don’t have a clue of what they are doing.

In other news;

-Hillary is crying.

If anyone should be crying it should be the nearly 50 million Americans who do not have health insurance, and probably will not get it if Hillary becomes President (God help us) since she became the second largest recipient in the Senate of health care industry contributions.

-Oprah promises Obama to get every idiot woman who will listen to her to vote for him.

- Our troops continue to die in Iraq to protect oil interests.

- Recession is the new buzz word for the economy replacing Goldilocks.

- Inflation is out of hand, but under control? That’s what we are being told. Go figure.

- Bear Stearns announce the resignation of James Cayne as chief executive. Who care’s. Its New York news and the rest of the country could care less who gets replaced at Bear Stearns, Merrill, or any other chop shop.

Our Fearless Leaders

Treasury Secretary Hank Paulsen was a guest host on CNBC this morning. When asked a question, he stuttered like Mel Tillis when giving an answer. His comments were not clear and concise, and in short, I didn’t get that warm fuzzy feeling after listening to him speak.

It’s really sad when a guy like Steve Leisman can express him self better that the US Treasury Secretary.

The Financials are a Coiled Spring

There is no doubt that the entire financial group is heavily shorted, and very much hated. The Fed will do everything in its power to bailout any deficiencies that exist in the sector.

Unlike the 2000 NASDAQ situation, financial institutions are vital to the economy, and our nation could not survive if a prolonged crisis was allowed to continue.

In my opinion, the financial sector will be bailed out, and financial stocks will recover. This may not happen as quickly as you would like (yesterday), but it will happen over the next 12-24 months.

Today, the stock market rebounded after the Wall Street Journal reported Bank of America may buy Countrywide Financial (CFC), and Fed Chairman Ben Bernanke said that more interest rate cuts were on the way.

For the day;

DJIA +117.78 points to close at 12,853.09
SPX +11.20 points to close at 1,420.33
NASDAQ +13.97 points to close at 2,488.52

Now You Know... The Rest of the Story

Believe if you must that politicians work for the citizens who elect them. I wish I was naive enough to believe that.

Jeb Bush, former Governor of Florida, brother of the President, and son of former President GHW Bush was a paid consultant with Lehman Brothers. Lehman sold the State of Florida pension fund some SIV (structured investment vehicle) investments which could lose the State between $900 million to $2.3 billion dollars.

Former British Prime Minister Tony Blair joins JP Morgan as a senior advisor. Well thats a refreshing change, most US politicians join hedge funds.

Dynamic Growth: ETF Portfolio

Here are our Top 10 ETF's for the week of January 14th:

1) SLX: Market Vectors Steel Index Fund- .530
2) OIH: Oil Services HOLDRS- .526
3) EEB: Claymore ETF BNY BRIC- .519
4) UTH: Utilities HOLDRs Trust- .446
5) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .444
6) FXF: Currency Shares Swiss Franc Trust- .442
7) VWO: Vanguard ETF Emerging Markets- .432
8) PGJ: PS Golden Dragon China Fund- .429
9) PZD: PowerShares Cleantech Portfolio- .369
10) FVL: First Trust Value Line (R) 100 Fund- .285

Notes:

The Top 40 ETf's in the Navellier screening process is being dominated by Oil, Commodities, and Gold. Since I feel that these three sectors are log in the tooth, I am choosing not to overweigh our top 10 in these sectors at this time.

The Week in Review:

According to the National bureau of Economic Research (NBER), a recession is usually officially declared 6 to 18 months after the economy is already in recession. Given that tidbit of information, one can assume by time the recession news is officially released, the economy may in fact be well on its way of climbing out of a recession.

Recessions are defined as two or more quarters of declining real GDP. While some recessions are worse thatn others, you can see from the chart below that the size of a stock market decline can vary.

The big news last week was Bank of America's (BAC) offer to buy Countrywide Financial (CFC) for $4 billion. It looks as if Mr. Potter is buying, and not selling!

415 companies released their 4th quarter earnings last week, and the average drop in earnings was around 26% from a year ago.

Looking ahead;

1) The real estate market is likely to start some kind of recovery given the prospects for lower interest rates. Since large inventories still exist, I am not expecting a new growth cycle to begin until prices decline enough to become attractive to prospective buyers.

Many existing homes on the market, listed by individuals and not builders, are still way overpriced. These sellers saw where prices were a two years ago, and are betting that someone will be stupid enough to buy at the previously over inflated prices.

Dynamic Growth: ETF Portfolio

Here are our Top 10 ETF's for the week of January 14th:

1) SLX: Market Vectors Steel Index Fund- .530
2) OIH: Oil Services HOLDRS- .526
3) EEB: Claymore ETF BNY BRIC- .519
4) UTH: Utilities HOLDRs Trust- .446
5) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .444
6) FXF: Currency Shares Swiss Franc Trust- .442
7) VWO: Vanguard ETF Emerging Markets- .432
8) PGJ: PS Golden Dragon China Fund- .429
9) PZD: PowerShares Cleantech Portfolio- .369
10) FVL: First Trust Value Line (R) 100 Fund- .285

Notes:

The Top 40 ETf's in the Navellier screening process is being dominated by Oil, Commodities, and Gold. Since I feel that these three sectors are log in the tooth, I am choosing not to overweigh our top 10 in these sectors at this time.

The Week in Review:

According to the National bureau of Economic Research (NBER), a recession is usually officially declared 6 to 18 months after the economy is already in recession. Given that tidbit of information, one can assume by time the recession news is officially released, the economy may in fact be well on its way of climbing out of a recession.

Recessions are defined as two or more quarters of declining real GDP. While some recessions are worse thatn others, you can see from the chart below that the size of a stock market decline can vary.

The big news last week was Bank of America's (BAC) offer to buy Countrywide Financial (CFC) for $4 billion. It looks as if Mr. Potter is buying, and not selling!

415 companies released their 4th quarter earnings last week, and the average drop in earnings was around 26% from a year ago.

Looking ahead;

1) The real estate market is likely to start some kind of recovery given the prospects for lower interest rates. Since large inventories still exist, I am not expecting a new growth cycle to begin until prices decline enough to become attractive to prospective buyers.

Many existing homes on the market, listed by individuals and not builders, are still way overpriced. These sellers saw where prices were a two years ago, and are betting that someone will be stupid enough to buy at the previously over inflated prices.

The stock market is beginning 2008 with its worst January start since 1991. After the closing bell today, Intel (INTC) announced that profits rose 51 percent on higher sales, but revenues missed analysts' forecasts.

Intel is down in after market trading.

Once again, investors need to exercise caution when it comes to Wall Street's advice. In recent months, wave after wave of experts have touted technology and healthcare as the best places for new money.

In a slowing economy, technology is a risky place to overweight one's assets, particularly when the consumer has pulled back, and corporate spending eventually follows.

With the Democrats gaining popularity nationwide, I wouldn't touch healthcare with a 10 foot pole.

Value investors can use Wall Street research as contrarian indicators since many sectors with "Underweight" ratings often present the best values.

For example, S&P currently has "Underweight" ratings on two sectors;

Financials
Consumer Discretionary

As I comb through the individual stocks in each of the two sectors, I am finding many high quality stocks trading at or near their respective book values. When stocks trade at book value, it is important to also look at Return on Equity and Intrinsic Value. When all of these numbers point to potential returns of 75-100% over the next five years, I get very interested.

Boy, it was fun to watch. This morning Jim Cramer finally imploded after he suggested that executives at the bond rating agencies and Wall Street investment banks were "Country Club" buddies, and were hiding material financial facts due to their friendships.

Cramer's Wall Street tongue lashing was so revealing that CNBC chose not break for a commercial for several minutes. I have often referred to CNBC as the financial commercial channel, so when they didn't go to their usual break after 5 minutes, I knew what Cramer was saying was profound.

He also said that if it wasn't for the "Terrorist" (Arabs), and the "Communists" (China) adding capital to companies like Merrill Lynch and CitiGroup, both firms would be bankrupt.

Folks, it was only a matter of time before Cramer imploded. Like Colonial Nathan R. Jessup from the movie a "Few Good Men", Cramer has wanted to tell the truth about Wall Street for a very long time. He has covered their asses, and held his tongue for so long, that he finally couldn't handle it any longer.

"You need me on that Wall (Street), You want me on that Wall (Street)"

Video of Cramer’s Interview on CNBC this morning.

My guess is Cramer's sudden boldness was trigger by an interview with Donald Trump which will air on Mad Money today.

While Cramer's Mad Money is entertaining, you have to be careful with Jim's recommendations. He is obviously a momentum trader, but when you mix momentum with traits of being ADHD (Attention-Deficit Hyperactivity Disorder), you are dealing with a dangerous combination.

I've been telling you for quite sometime to be very careful with Wall Street. Why anyone in there right mind would house their investment accounts with these people is beyond my comprehension.

In addition, be careful with what you are told by the media. The media is often used by Wall Street as a tool to tout whatever it is they want to sell. If you want some in-depth proof of this, read Running Money and Wall Street Meat by Andy Kessler.

Here is a quote by Mark Twain that you should always keep in the back of your mind;

"If you don't read the newspaper you are uninformed, if you do read the newspaper
you are misinformed."

Dynamic Growth: ETF Portfolio

NEW BUYS:

INP: India Total Return Index- .519
EWZ: Brazil Index- .517

NEW SELLS:

FVL: First Trust Value Line (R) 100 Fund- .285

SWITCHES:

To Honorable Mention

PZD: PowerShares Cleantech Portfolio- .369

Here are our Top 10 ETF's for the week of January 22th:

1) SLX: Market Vectors Steel Index Fund- .530
2) OIH: Oil Services HOLDRS- .526
3) EEB: Claymore ETF BNY BRIC- .519
4) INP: India Total Return Index- .519
5) EWZ: Brazil Index- .517
6) UTH: Utilities HOLDRs Trust- .446
7) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .444
8) FXF: Currency Shares Swiss Franc Trust- .442
9) VWO: Vanguard ETF Emerging Markets- .432
10) PGJ: PS Golden Dragon China Fund- .429

2007 Results for Dynamic Growth ETF Portfolio

Every week, as changes occurred in the Dynamic Growth ETF Portfolio, we reinvested the assets of each sale into the new buys. This strategy gave us a powerful compounding effect.

From January 2, 2007- December 31, 2007:

Our Top 10 ETF Portfolio Gained: + 10.56%
Our Top 10 Fidelity Sector Fund Portfolio Gained: + 13.028%

During the same period;

DJIA: +6.4%
S&P 500: +3.5%
NASDAQ: +9.8%

Notes:

It sure looks like a bear market to me. But, just as everyone begins to throw in the towel, the stock market will prove the majority of investors wrong.

The US markets are closed for the MLK holiday, but as we speak, the overseas markets are tumbling.

Today, many of the Asian and European Markets went into a freefall. Here are the closing numbers from Asia, Australia and Europe overnight;

Asia Pacific & Australia

Australia/ ASX 100: -138.40 -2.97%
Australia/ASX All Ords: -168.50 -2.91%

Hong Kong/ Hang Seng: -1,383.01 -5.49%
Hong Kong/ HSCC Red Chip: -278.84 -5.11%

Japan/Nikkei 225: -535.35 -3.86%

Europe

Belgium Bel 20: -202.65 -5.48%

Europe DJ Stoxx: -213.17 -6.36%
Europe Euronext 100: -56.06 -6.28%
Europe Euronext 150: -79.72 -5.32%
France CAC: -347.95 -6.83%
Germany DAX: -523.98 -7.16%
UK/ FTSE 100: -323.50 -5.48%

Americas

Canada/ TSE 300: -510.71 -4.01%
Canada CDNX: -211.24 -8.07%

Needless to say I am expecting a very weak open for the US equity markets on Tuesday. A major sell-off will lead to a capitulation day where investors will give up and throw in the towel. I don't know if the capitulation day will be Tuesday, Wednesday, or Thursday, but a major buying opportunity should appear from the carnage.

By months end, the Fed will aggressively cut interest rates which will result in a very strong oversold rally.

Today, I would use my time building a wish list of stocks, ETF's or Funds you've been wanting to buy.

As far as potential entry points are concerned, we look to see where the Dow and the NASDAQ would be at declines of 10%, 15%, 20%, and 25%. The following percentage declines would put the DJIA and the NASDAQ at these levels.

Declines from 14,166:

10%= DJIA 12,749
15%= DJIA 12,041
20%= DJIA 11,332
25%= DJIA 10,624

Today, Treasury Secretary Hank Paulsen, and other members of the Plunge Protection Team (the President's Working Group on Financial Markets) are working overtime to stabilize the financial markets.

Paulsen's morning speech was interrupted with news that the Federal Reserve cut the key leading rate by three quarters of a point after its first emergency meeting since 2001.

Short sellers would say that manipulating the markets to prevent a market crash is a bad thing. Obviously these people have something to gain from the misery of others, so we need to discount what they say.

The negatives are obvious. You and I grew up to believe that the "free markets" are based on the laws of supply and demand. In some ways they are, but today we have proof that the markets are not truly "free".

Today, many US investors are glad we don't have free markets.

Capitalism in the modern financial ERA is now run by organized groups that change regulations and laws for their own political and monetary gain.

For example, I don't believe the energy markets operate in a "free market". Over the past 6 years how many times have we been told that speculators have been in control of the oil markets?

Don't you find it odd that energy prices decline just before an important election, and rise just after?

Don't you find it odd that Glass Stegal (Banking Act of 1933), which called for the separation of commercial banking and investment banking was repealed in 1999 by the Gramm-Leach-Bliley Act?

Glass- Stegal was a depression era protection put into place by the US government to solve the problems that created the 1929 stock market crash. The repeal of this act has lead to the integration of commercial banks, and investment banks.

In short, I don't see the US equity markets being a true "free market".

Now that the financial channels have you scared to death, where do we go from here?

I think the intervention from the Plunge Protection Team will be strong enough to force short sellers to cover, and the market will rally.

My best guess the rally will stall just before the January Fed meeting. The Fed will cut rates by another .50 basis points, and the market will rally into the first week in February.

After the oversold rally, I would expect the stock market to re-test the lows we saw today sometime in February and March. By year-end, I am expecting the financials and retail to lead the market higher.

Have a great day!

As I was getting ready for the day, I was listening to CNBC when I heard (Erin Burnett?) a female commentator say;

"Apple Computer (AAPL) is down xx% this morning after reporting disappointing results. Apple was the "it" stock for 2007, could Apple be the "shit" stock for 2008?".

Right after that comment, David Faber or someone said, "what did you say?". Erin replied, "I was just reading off the teleprompter."

I hope that someone captures this comment and puts it on YouTube, I would love to post that comment for you.

Yesterday, the DJIA was rescued after dropping about -450 points on the open. During a speech by Treasury Secretary Hank Paulson, the Federal Reserve cut the Fed Funds rate by 3/4 of a point. This cut stabilized the markets, and by the end of the day, the DJIA closed down 128.11 points.

Some of the biggest losers were Healthcare, and Energy. One could argue that Energy declined because demand decreases during periods of economic weakness. That could be a valid argument, but why did Healthcare decline?

My take is a little different. Yes, the economy could have something to do with the Energy sell-off, but when you throw in Healthcare, the decline isn't because of the economy alone.

Could the sell-off in both Healthcare, and Energy have something to do with the Democrats gaining strength in the run for the Whitehouse? If so, Wall Street may be preparing for a power shift in Washington.

As I was watching Jack Welch (Former GE CEO) on CNBC this morning, he reiterated what I have been telling you about the banks. Welch said that Big Money can be made in bank stocks if a person can buy and wait until 2009.

As for your emotions, now is not the time to be a stock wimp. Investors who have followed this blog know that we have been advocates of being underinvested for several months. Use your cash wisely, and buy methodically.

Yesterday, the financial sector had the biggest upside reversal, led by the banks. While the 10-year Treasury note yield fell to 3.48%, many high quality banks are yielding better than 6%. Today, the banks are bucking the markets trend, and are adding to yesterday's gains.

This morning, the DJIA dropped 264 points in the first 20 minutes of trading. As we speak, the Dow has erased most of its losses as Banks and Homebuilding stocks are on the rise, and helping to fuel the market's comeback.

Oil prices fell another dollar trading below $88 per barrel as speculation of a recession in the US might lead to a global economic slowdown.

According to Dow Jones, European Central Bank President Jean-Claude Trichet indicated that the ECB would not follow the Federal Reserve's lead and cut interest rates.

At 2:49 EST:

DJIA: -89.13 to 11,888
SPX: -14.13 to 1296
NASDAQ: -48.23 to 2243

Dynamic Growth: ETF Portfolio

NEW BUYS:

DBA: Powershares DB Agriculture Fund- .562
IYF: iShares Dow Jones US Financial Sector- Not Rated

NEW SELLS:

UTH: Utilities HOLDRs Trust- .239

SWITCHES:

To Honorable Mention

VWO: Vanguard ETF Emerging Markets- .317
PGJ: PS Golden Dragon China Fund- .310

Back to Top 10:

PZD: PowerShares Cleantech Portfolio- .335

Here are our Top 10 ETF's for the week of January 28th:

1) DBA: Powershares DB Agriculture Fund- .562
2) EWZ: Brazil Index- .469
3) SLX: Market Vectors Steel Index Fund- .468
4) FXF: Currency Shares Swiss Franc Trust- .461
5) EEB: Claymore ETF BNY BRIC- .434
6) OIH: Oil Services HOLDRS- .401
7) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .355
8) INP: India Total Return Index- .342
9) PZD: PowerShares Cleantech Portfolio- .335
10) IYF: iShares Dow Jones US Financial Sector- Not Rated

Honorable Mention:

VWO: Vanguard ETF Emerging Markets- .317
PGJ: PS Golden Dragon China Fund- .310

Notes:

Investors are clearly running scared as Bonds, Foreign Currencies, Gold, and a few select Commodity Funds now dominate the top spots in our weekly research rankings. If the economy and the stock market continue to weaken, Commodities will be the next sector to undergo a major pullback, but Agriculture looks like a great long term buy.

We are adding the ultimate contrarian play by placing the iShares Dow Jones US Financial Sector Fund (IYF) to our top 10 list. By the end of the year I believe the financials will make a major recovery, and lead the broad market higher.

We are pleased with our 2007 results for both Dynamic Growth portfolios. From January 2, 2007- December 31, 2007:

Our Top 10 ETF Portfolio Gained: + 10.56%
Our Top 10 Fidelity Sector Fund Portfolio Gained: + 13.028%

During the same period;

DJIA: +6.4%
S&P 500: +3.5%
NASDAQ: +9.8%

The Week in Review:

US Equity Markets:

DJIA: 12,207.17, down 171.44
S&P 500: 1,330.61, down 21.46
Nasdaq Composite: 2,326.20, down 34.70

From Wednesday's intraday low to Thursday highs, the DJIA has climbed about 6.5%, while the S&P 500 gained 6.7% and the NASDAQ 7.2%.

The action on Wednesday and Thursday looked more like an oversold bounce fueled by short covering. I believe a re-test of Wednesdays lows will occur after this brief, but sharp rally plays out.

On Friday, the stock market closed out the week down. The Financials led the market lower as Fannie Mae fell 2.39 to 31.80 on concerns it may face stricter regulation in Washington.

We would love to sound the all-clear signal, but given the headwinds facing consumers and the economy, its way to early to do so. All-clear signals don't happen overnight. Politicians are in a panic to stop the current economic decline, so much so that they were willing to urgently pass a fiscal stimulus package backed by Congress and the White House.

I don't care what you hear on TV, the Mickey Mouse stimulus package giving consumers $300, $600, or even $1200 tax rebates will do little to revive the economy. When you take into account that the average consumer is neck deep in credit card debt, lines of credit, and high mortgage payments, it’s a bit naive to believe the problem will be buoyed by a tax rebate of few hundred bucks.

As for the potential solutions to the current crisis, they are aggressively being worked on. I have always said;

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

The one caveat to this slogan is will the economy get much worse before the solutions appear. Sometimes solutions appear quickly, and sometimes they do not occur until a country's pain becomes unbearable.

In short, the stock market has a very bad financial virus. A 75 basis point Fed Rate cut, a $150 billion economic stimulus package, may make investors feel better, but the virus still has to run its course. This means more nausea is in store for investors, and you know what comes with being nauseous.

As far as potential entry points are concerned, look and see where the Dow would be at declines of 10%, 15%, 20%, and 25%. The following percentage declines would put the DJIA at the following levels:

Declines from 14,166:

10%= DJIA 12,749
15%= DJIA 12,041
20%= DJIA 11,332
25%= DJIA 10,624

Investors are focused on the outcome of the two day FOMC meetings. If the Fed cuts .25 basis points, the stock market will sell-off. If the Fed cuts .50 basis points, the market may extend its current rally, but will eventually begin focus on Q108 earnings.

The question now is whether the recent rally was the start of a new bull market, or a rally in a bear market. The jury is still out, but I will side with the latter.

As US interest rates come down, the dollar continues to move lower and gold continues to soar.

Crude oil is trading up this morning to $91.15/bbl on expectations for a rate cut by the FOMC tomorrow. Fed Fund futures estimate an 86% chance the central bank will cut its benchmark lending rate to 3%.

American Express (AXP) said its fourth-quarter profit fell 10 percent after the company said it was putting more money in reserves to cover defaults.

The overseas markets climbed overnight;

Tokyo's Nikkei rose 2.99 percent
Shanghai index rose 0.87 percent
Hong Kong's index rose 0.99 percent
London's FTSE rose 1.30 percent
Frankfurt's DAX rose 1.31 percent
Paris CAC rose 1.83 percent.

We are far from being out of the woods, so I wouldn't get to excited about the recent rally.

The President's speech last night was interesting...

All eyes are on the Fed today. Regardless of the outcome, the equity markets will probably retest last weeks lows in the days and weeks ahead.

Everyone talks about an independent Fed, but you and I know better. Isn't it amazing how traders have the ability to hold a gun to the FOMC's head, and the Fed complies.

The dollar continues to sink, and why not? Money continues to be created out of thin air so that spend thrift consumers can continue to pay billions of dollars in interest on loans. The international bankers have seized control over politics, media and consumers worldwide. The only ones they don't control are citizens who refuse to be held hostage by debt.

In any event, the recent series of rate cuts are going to be wonderful for investors who are sitting back and accumulating bank stocks as panicky investors sell into the decline. As I said last week, this is not the time to be a stock wimp! You've got the power of the international bankers on your side, why not seize the moment.

Speaking of bankers, Switzerland's UBS wrote off $14 billion in sub prime mortgages. Once again this is a classic case of how smart people do some really dumb things. I'll bet UBS is cursing the day they bought PaineWebber. Life was so much simpler being a Swiss Bank.

Why anyone other than a loan shark would get into the sub-prime loan business is beyond me. That's like loaning money to a kid who doesn't have a job, drinks heavily, and does drugs. Sooner or later you've got to realize your not going to be paid back.

Today's ADP Employment Report showed a monthly (December 2007-January 2008) jobs increase of 130,000. Once again, the jobs created were "yes, sir- no sir" service related jobs. Manufacturing showed no increase and is essentially dead.

I have changed my tune a little on outsourcing, and hiring illegals to do mundane labor. I few weeks ago I spoke with some business owners, and they said the work ethic of the Americans they hired was atrocious.

They complained that several of the American workers they hired had drug and alcohol problems. Many would show up late to work, or not show up at all. They also said they didn't have this problem with Mexican workers.

So, despite what we hear, there are two sides to every story. As for the innocent, hard working Americans who lose their jobs because of outsourcing, this should not happen.

Before I get started, I want to bring you up to speed on our website, and what we are working on behind the scenes.

The "Journal" portion of the website will always be available to all viewers. In the next few months’s, the "Newsletter-Portfolio" will become a paid sight and we will no longer post our portfolio's in the "Journal". The behind the scenes set up issues have taken a lot longer than I had anticipated.

Since August 2007, I have been posting the "Newsletter" portion of the website in the "Journal" for free. I did this to eliminate the hassle of having to signing up for a free-trial to the "Newsletter", plus I wanted you to judge the performance of our model portfolios for yourself.

Yesterday, the Federal Reserve (FOMC) cut the Fed Funds and the Discount Rate -50 basis points, bring the FF rate down 1.25% in two weeks. When you couple this with a $150 billion stimulus package, the Fed must really be concerned with the economic problems facing consumers and businesses.

The Dow rose as much as 201 points after the Fed cut, but lost all of that gain to close lower (-37.47) in the last half hour of trading.

As Paul Harvey says, "You know what the news is-- in a minute, you're going to hear the rest of the story". I'm not sure I want to hear the rest of the story.

As a matter of fact, I don't know if we will ever hear the rest of the story.

The current crisis surrounding residential and commercial mortgage-backed securities (RMBS / CMBS), collateralized loan obligations (CLOs), credit default swaps (CDSs), and Structured Investment Vehicles (SIVs) is so complex and mind boggling that its beginning to look more and more like a pyramid scheme.

Even the CEO of Wells Fargo said, “Why did banks look for new ways to lose money when the old ways were working so well”?

Depending where you are on the pyramid ladder will eventually determine how much money you made or lost. I fear if all were revealed, millions of Americans would band together on Wall Street and Broad with baseball bats to take issue with the investment banks that created these products. Why? Your nest eggs would be wiped out.

Since I don't believe any of this will happen, here's what I think is going on.

Like the Enron scandal, some companies will be found guilty of their misdeeds. Others will be ignored and the problems will be sweep under the rug. You can't tell me that Enron, WorldCom, Qwest, and a few others were the only ones guilty of lying about earnings. In reality, there were probably many, many more.

Of course, the investment banks were involved in the Enron, WorldCom, and Dot-Con problems just as they are the current SIV crisis.

To smooth things over, regulators paraded a few CEO's in front of the cameras in handcuffs, and basically set an example by throwing them in jail. In time, the issue went away, and no Wall Street executive or analyst went to jail.

The New York Judge (Pollock) handling a class action case against the major Wall Street firms told the plaintiff attorney's for investors that their clients were stupid for listening to the advice of analysts.

Since the SIV, and CDO issue is much more dangerous than the one's surrounding Enron, and the bogus research reports, we may never hear the entire truth. This issue will go away faster than Brittney Spears at a MADD (Mother's Against Drunk Driving) meeting.