John Mugarian's Dynamic Growth

The big news on the financial channels this morning was Microsoft's offer to buy Yahoo (YHOO). Yawn, Yawn. If I owned Yahoo shares, I would take my money and run.

Microsoft is a mature company, no debt, and no longer a grower. Yahoo is one of my favorite website for quick financial information. The combination of two slow growers should result in a larger slower grower, but you never know what can happen with a little financial engineering.

The big buzz word in the corporate world is "synergy" when companies merge.. While synergies may exist with Microsoft and Yahoo, they didn't exist with others.

During the lying and cheating years of 1995-2000, two companies who were losing money would merged, and then viola, they would suddenly emerge as profitable.

The stock market continued its oversold rally after news broke that a plan may be in the works to bailout MBIA and ABK. CNBC reported that a group of banks including Citigroup, Wachovia, and six European banks were working with the New York State Insurance Superintendent to bailout the insurers.

As it stands, the S&P is facing stiff resistance in the 1370-1440 range. A decisive break above 1440 on high volume would confirm a resumption of the bull market. A decisive break below 1370 would confirm that we have more work to do on the downside.

Dynamic Growth: ETF Portfolio

NEW SELLS:

VWO: Vanguard ETF Emerging Markets- .300

SWITCHES:

Back to Top 10:

PGJ: PS Golden Dragon China Fund- .307

PZD: PowerShares Cleantech Portfolio- .335

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

1) DBA: Powershares DB Agriculture Fund- .587
2) EWZ: Brazil Index- .469
3) SLX: Market Vectors Steel Index Fund- .448
4) FXF: Currency Shares Swiss Franc Trust- .473
5) EEB: Claymore ETF BNY BRIC- .422
6) PGJ: PS Golden Dragon China Fund- .307
7) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .335
8) INP: India Total Return Index- .318
9) PZD: PowerShares Cleantech Portfolio- .300
10) IYF: iShares Dow Jones US Financial Sector- Not Rated

Honorable Mention:

OIH: Oil Services HOLDRS- .296

Notes:

Since I believe we are seeing a short covering/oversold rally, I am not finding many ETF's that look attractive at current levels. It seems to me that Bonds, Gold, and select Commodities and Currencies are severely overbought, and the remaining ETF's are in the early stages of a bear market.

The biggest rebounds in price were among the Homebuilders followed by the Financials. By adding the iShares Dow Jones US Financial Sector (IYF +8.32% for the week), we caught a sizable bounce off the recent lows.

Here are our Top 10 Fidelity Sector Funds for February 2008:

1) FSESX- Energy Services
2) FNARX: Natural Resources
3) FDFAX: Consumer Staples
4) FSENX- Energy
5) FWRLX: Natural Gas
6) FSCHX: Chemicals
7) FSMEX: Medical Equipment
8) FSCGX: Industrial Equipment
9) FSDPX: Materials
10) FWRLX- Wireless

New Buys:

FSMEX: Medical Equipment

New Sells:

FSPTX: Technology
FSUTX: Utilities

Switches:

Back into Top 10:

FDFAX: Consumer Staples

To Honorable Mention:

FSCSX: Software & Computers

Honorable Mention (Holds):

FSCSX: Software & Computers
FSDAX: Defense & Aerospace

Notes:

According to S&P, Industry Momentum remains strong in these 10 sectors;

Gold
Oil & Gas Exploration & Production
Agricultural Products
Coal & Consumable Fuels
Health Care Services
Education Services
Integrated Oil & Gas
Industrial Gases
Oil & Gas Drilling
Oil & Gas Equipment & Services

Crude oil fell $2.79 to $88.96 on a weaker than expected jobs report indicating the U.S. economy may be heading into a recession. Recessions normally result in reduced demand for oil and select commodities.

The Week in Review:

Now that we have had a strong rally off of last week's lows, where do we go from here?

In the weeks ahead, we need to see more evidence if the recent bounce in the most beat up sectors was a knee-jerk rally, or the beginning of a base building process. The odds point strongly against a sustained uptrend without some kind of basing building activity to indicate the sellers had been exhausted.

As it stands, the S&P is facing stiff resistance in the 1370-1440 area. Investors who are looking at the current rally as a potential end to the bear market may find themselves disappointed.

We may have to extend our focus and timeframes from one month for the Fidelity Sector Funds, to 2 or 3 months. My guess is energy will remain a top spot in the long run, but in the near term lower prices may prevail.

As far as a potential turnaround, it seems that April and May looks like a reasonable estimate for an end to the recent Bear. Longer term, specifically 2009, the Fed will reverse course and begin raising interest rates, and this could lead to a longer term bear market.

It looks as if the oversold rally has played itself out, and now a retest of the January lows seems inevitable.

One reason I was sold on a retest was the hesitance of major bank insiders to add to their November purchases. Despite the big sell-off in January, insiders from banks like Bank of America (BAC), Wachovia (WB), and Wells Fargo (WFC) were reluctant to add to their holdings.

Despite this little tidbit of information, I believe the financials are forming an important bottom.

Today's ISM (Institute for Supply Management) report showed business activity declined to 44.6 in January from a revised reading of 54.4 in December. A reading below 50 indicates contraction. Many economists expected a slowdown but not of this magnitude. This is the first service-sector contraction in more than four and a half years.

Art Cashin from UBS has been calling for a retest of the January lows, but by the tone in his voice, I believe he thinks the markets will go much lower. Bear markets end when everyone throws in the towel, and we have yet to see this.

When the news media begins to put pictures of their floor traders in anguish on the front pages of business publications, you'll know we are close to a bottom.

My best guess is the panic mode will kick in if the January 22nd intraday low of 11,634 (DJIA) does not hold. A panic bottom could carry the major market index to 10.600 which would put the sell-off -25% from the 2007 highs.

I will be increasing client equity positions slowly at 12,000 (-15%), again at 11,300 (-20%), and again at 10,600 (-25%).

The DJIA currently stands 13 percent below its record close of 14,164 set on October 9th, 2007.

The yield on the benchmark 10-year Treasury note fell to 3.54 percent from 3.64 percent.

I am confident the Feds unprecedented lowering of interest rates will help nurse the financials back to health. The problem of course is inflation, which in time will mean higher interest rates in 2009.

After reading yesterday's comments on Bloomberg that Bush and Paulsen were closely watching the stock market, I sensed that the odds favored stocks opening higher this morning.

Yesterday's ISM Report revealed a sharp downturn in the Services sector which has been the strongest sector of the economy and jobs market. But, this morning the preliminary nonfarm productivity for the 4th quarter came in ahead of expectations (+1.8% v. estimate +0.5%).

The Asian markets dropped sharply overnight; Hong Kong -5.4%, Japan -4.7% and India down -2.8 %.

Yesterday's sharp fall did not have any signs of capitulation, but left the market slightly oversold in the short run. I would expect a brief rally to work off the oversold situation, and then another attempt to the downside.

In other news, Rio Tinto (RTP) said no to BHP Billiton's $147 Billion Bid.

On the jobs front, Americans have lost jobs to off shoring and imported labor. As I said a few paragraphs ago, "the Services sector has been the strongest sector of the economy and jobs market", and now waitresses and bartenders are being laid off. This is due to the fact that consumers are not spending as much in restaurants.

Here is a little piece that has been flying around the internet lately. It kind of sums up John McCain's comments that the jobs lost are not coming back. If McCain becomes President, the war will never end, more wars will be initiated, and more lives and jobs will be lost.

Joe Smith started the day early having set his alarm clock (made in China) for 6 a.m. While his coffeepot (made in China) was perking, he shaved with his electric razor (made in Hong Kong). He put on a shirt (made in Sri Lanka), designer jeans (made in Singapore) and tennis shoes (made in Korea). After cooking his breakfast in his electric skillet (made in India), he sat down with his calculator (made in Mexico) to check his budget for the day. After setting his watch (made in Taiwan) to the radio (made in India) he got in his car (made in Japan) and continued his search for an AMERICAN job. At the end of yet another discouraging and fruitless day, Joe decided to relax. He put on his sandals (made in Brazil), poured himself a glass of wine (made in Chile), turned on his TV (made in Indonesia) and wondered why he cannot find a job in America.

Here are the facts:

1) The recession began several months ago. The way economic numbers are massaged in this country, we may not know the true severity until it becomes painfully obvious.

2) By time our fearless economic leaders officially declare the economy is in recession, we will probably be close to being out of it.

3) The stock market is beginning a pattern of lower highs and lower lows. Be disciplined, and buy (dollar cost average) in when the market hits various downside targets. An example would be;

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

4) If this contraction in the market follows the pattern of past recessionary periods, buying in at the levels I mentioned above should payoff.

If the US should undergo another economic shock (terrorist attack, war, oil, etc..), then the decline will be much worse.

The stock market is being supported by bottom fishing, as well as a more muted response to bad news. This is encouraging, and tells me that institutional money is getting interested again. Keep in mind they are dollar cost averaging in as the DJIA now sits 1880 points below its 52 week high.

On Thursday, San Francisco Federal Reserve President Janet Yellen said recession can't be ruled out, but by the end of the day the major market indexes managed to close higher. This tells me that once the Fed is finished lowering rates, recession fears will be fully discounted by the stock market. Bargain hunters are getting an early start which is a good idea if you can take a little volatility.

DJIA: 12,247.00, up 46.90
S&P 500: 1,336.91, up 10.46
NASDAQ Composite: 2,293.00, up 14.30

Since we are down over 1800 points from the highs, my worst case scenario on the downside is another 1600-1800 points. I don't know if we will get to 10,600 on the DJIA, so I am sticking to my plan to dollar cost average in at these levels;

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

Another example of stock accumulation on bad news was Cisco (CSCO) and Macy's (M).

Cisco (CSCO) forecast lower-than-expected sales, sold-off to a low of $21.79 intraday, and closed down only 40 cents to 22.71. This morning it opened at $23.26.

Macy's (M) said, "that January same-store sales dropped 7.1 percent, cut its fourth-quarter profit forecast and said it will eliminate 2,300 jobs," and the stock closed higher on the day.

Bucking the profit trend were JC Penney and Gap which both announced that profits will beat analysts estimates. In short, the Retailing Index had a good day on mixed profit news.

While I don't believe we are in a sustainable uptrend, there are examples of stock accumulation taking place. We need to keep in mind that U.S. consumer borrowing rose by a smaller amount in December as both credit card and consumer loan growth slowed sharply.

On the Energy front, Crude is trading up after four oil ministry officials from OPEC said they would trim output if prices slip to $80/bbl.

Dynamic Growth: ETF Portfolio

NEW BUYS:

KBE: KBW Bank ETF

NEW SELLS:

PZD: PowerShares Cleantech Portfolio- .287

SWITCHES:

To Honorable Mention

PGJ: PS Golden Dragon China Fund- .276

Back to Top 10:

OIH: Oil Services HOLDRS- .315

Here are our Top 10 ETF's for the week of February 11th:

1) DBA: Powershares DB Agriculture Fund- .640
2) SLX: Market Vectors Steel Index Fund- .492
3) EWZ: Brazil Index- .471
4) EEB: Claymore ETF BNY BRIC- .437
5) FXF: Currency Shares Swiss Franc Trust- .425
6) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .343
7) OIH: Oil Services HOLDRS- .315
8) INP: India Total Return Index- .300
9) KBE: KBW Bank ETF- Not Rated
10) IYF: iShares Dow Jones US Financial Sector- Not Rated

Honorable Mention:

PGJ: PS Golden Dragon China Fund- .276

Notes:

In yet another contrarian move, I am adding the KBW Bank ETF (KBE) to the Dynamic Growth ETF Portfolio. KBE sports a 5.7% dividend, is paying more than Government bonds, and almost twice what short term CD's are yielding. I think over the next two years, we will be handsomely rewarded.

Fidelity Sector Fund Portfolio

New Buys:

FSRBX: Fidelity Banking Portfolio

New Sells:

FSCSX: Software & Computers
FSRGX: Natural Gas

Here are our Top 10 Fidelity Sector Funds for February 2008:

1) FSESX- Energy Services
2) FNARX: Natural Resources
3) FDFAX: Consumer Staples
4) FSENX- Energy
5) FSCHX: Chemicals
6) FSMEX: Medical Equipment
7) FSCGX: Industrial Equipment
8) FSDPX: Materials
9) FWRLX- Wireless
10) FSRBX: Fidelity Banking Portfolio

Honorable Mention (Holds):

FSDAX: Defense & Aerospace

Notes:

Energy related funds continue to dominate the top spots in our Fidelity Sector Fund Portfolio.

Despite all of the talk about energy prices declining in a recessionary environment, prices continue to hold strong. As long as an energy friendly administration exists in Washington, prices will not decline until we get a month or two away from an election.

In addition, Crude traded higher after four oil ministry officials from OPEC said they would trim output if prices slip to $80/bbl.

Over the next month or so, refiners will be switching from the less-expensive winter fuel blends, to the more expensive summertime blends. This happens every year. After this, we will begin to hear about the potential dangers of the upcoming hurricane season. See, it never ends.

I will not get pessimistic about energy until we get closer to the Presidential election.

Warren Buffett was interviewed (by phone) this morning on CNBC. I listened to the entire interview, and I am amazed that the spin is so much different than the actual facts.

Here is the headline on CNBC;

"Buffett Offers To Reinsure Muni Bond Portfolios"

Here is the headline on Bloomberg;

"Buffett Offers to Assume Muni Liabilities of Insurers"

On the surface one would assume that Buffett is coming to the rescue of insurers like AMBAC, MBIA, and FGIC. Nothing could be farther from the truth.

Buffett is not bailing out, or willing to help the bond insurers solve their problems. He is simply willing to re-insure the municipal bond portion (the safe portion) of their portfolios, and NOT to portion of the portfolio (CDOs- risky) which is wreaking havoc in the markets.

Don't be fooled by the headlines, Buffett isn't bailing out any of the bond insurers. If the market is rallying on the assumption that the bond insurers troubles are over, then this rally is for suckers.

Yesterday's pump from the Wall Street dump was news that Warren Buffett was willing to help the bond insurers solve their problems. That turned out to be false.

Today's pump is news that retail sales unexpectedly rose in January. The “dump” in the retail numbers is excluding automobiles and gasoline, retail sales were unchanged.

Sales of gasoline rose because the average price of gas hit an average high of $3.11 a gallon in January which is .10-.15 cents high than the previous month. I would expect automobile sales to rise as consumers probably bought more fuel efficient vehicles to save money on the cost of fuel.

Since less people are eating out, grocery stores and beverage companies are reporting higher sales. Clothing retailers showed a 1.4 percent increase in sales as inventories were deeply discounted to make room for the new spring and summer lines.

All in all, retail sales were awful.

On the flip side of the coin, there is a glimmer of positive news. The smart money is beginning to get interested. By smart money, I mean Warren Buffett and Wilbur Ross. I would characterize these two guys as the smartest guys in the room.

Let's see, what will it be today? Tuesday it was Warren Buffett bailing out the bond insurers (false), and yesterday it was news that retail sales were much better than expected (false).

Yesterday's retail sales increases were mostly gasoline purchases, and masked were the declines in sales at department stores and building materials.

This Chart is courtesy of Mike Panzner

This morning's economic data showed that jobless claims came in right in line with expectations, and the trade deficit fell more than expected.

The Labor Department reported that the number of workers seeking unemployment claims fell by 9,000 to 348,000 last week, and the Commerce Department said the U.S. trade deficit fell in 2007 for the first time in five years.

This morning, Fed Chairman Bernanke, Treasury Secretary Paulson and SEC Chairman Cox testified before the Senate Banking Committee. Chairman Bernanke said that "tighter credit will restrain growth". He went on to say, "The softer labor market, together with factors including higher energy prices, lower equity prices, and declining home values, seem likely to weigh on consumer spending in the near term".

In stock news, UBS took an $18 billion hit on write-downs from the subprime mortgage crisis. This crisis is still unfolding, but as Warren Buffett says, "Only when the tide goes out do you discover who's been swimming naked."

Sticking with this theme, when the tide goes out, the sand dollars appear and are left behind for us to pick up.

In June 2006, at the annual Bilderberg conference in Ottawa, Canada, Timothy Geithner, president of the Federal Reserve Bank of New York, predicted rising interest rates would result in many American families that obtained adjustable rate mortgages would lose their homes.

Bilderberg

Bilderberg, the Trilateral Commission, and the Council of Foreign Relations is the brainchild of David Rockefeller.

Conference in Ottawa, Canada

These comments by Geithner prompted one unidentified Bilderberg attendee to say, "“stupid Americans deserve their fate.”

Almost two years later, the predictions Timothy Geithner have come true.

The current credit crisis, based on Geithner 2006 comments, obviously came as no surprise to the Federal Reserve. If the President of the Federal Reserve Bank of New York knew beforehand what was about to occur, then so did many others.

Before becoming the President of the Federal Reserve Bank of New York, Geithner worked under former Treasury Secretary's Robert Rubin and Lawrence Summers.

Surely if Geithner knew that US economy was going to take a turn for the worst, you have got to believe that Paulsen, Bernanke, and many others knew as well.

The annual Bilderberg meetings have enjoyed a virtual media blackout here in the U.S., but in other countries it's a different story;

CBC News- Canada

Turkish Daily News

My point here is a simple one. The power brokers testifying before congress yesterday (Bernanke and Paulson), probably knew months ago what the US economy would be facing today. They can put forth a face of concern and surprise, but you can't tell me they did not expect the inevitable.

As I watch this group of powerbrokers, I am thinking, if they knew an economic crisis was about to begin, then surely they know when it will end. This is why I watch insider trading so closely.

To date, net insider purchases of financial stocks have outpaced sellers for the first time in many years. Even stock vultures like Warren Buffett and Wilbur Ross are warming up to the financials.

A recent filing showed that Warren Buffett added to his massive holdings in Wells Fargo (WFC) in the quarter ending Dec. 31, 2007.

Here is a small list of bank stocks that have been bought by insiders;

CitiGroup (C)
Wachovia (WB)
Huntington Bank (HBAN)
Western Alliance Bank (WAL)
First Horizon National (FHN)
Regions Financial (RF)
Popular Inc (BPOP)

Market Notes:

Today is option expiration which combined with a three-day weekend will create some increased volatility.

Yesterday, Fed Chairman Ben Bernanke spoke to the Senate banking committee and said "the economic outlook had deteriorated and the Fed is prepared to lower interest rates further as the economy continues to deteriorate."

Since I believe the US economy is already in recession, by time the official word is handed down, an economic recovery will be underway.

Bernanke's rate cuts may not stop a recession from occurring, but the rate cuts will go a long way toward shoring up the balance sheets of many banks, and will reduce the severity of a recession.

Dynamic Growth: ETF Portfolio

NEW BUYS:

None

NEW SELLS:

None

SWITCHES:

To Honorable Mention

INP: India Total Return Index- .316

Back to Top 10:

PGJ: PS Golden Dragon China Fund- .341

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

1) DBA: Powershares DB Agriculture Fund- .615
2) SLX: Market Vectors Steel Index Fund- .487
3) EWZ: Brazil Index- .484
4) EEB: Claymore ETF BNY BRIC- .452
5) FXF: Currency Shares Swiss Franc Trust- .411
6) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .358
7) OIH: Oil Services HOLDRS- .373
8) PGJ: PS Golden Dragon China Fund- .341
9) KBE: KBW Bank ETF- Not Rated
10) IYF: iShares Dow Jones US Financial Sector- Not Rated

Honorable Mention:

PGJ: PS Golden Dragon China Fund- .341

Here are our Top 10 Fidelity Sector Funds for February 2008:

1) FSESX- Energy Services
2) FNARX: Natural Resources
3) FDFAX: Consumer Staples
4) FSENX- Energy
5) FSCHX: Chemicals
6) FSMEX: Medical Equipment
7) FSCGX: Industrial Equipment
8) FSDPX: Materials
9) FWRLX- Wireless
10) FSRBX: Fidelity Banking Portfolio

Honorable Mention (Holds):

FSDAX: Defense & Aerospace

Notes:

As I continue to watch the wild fluctuations of oil prices, I can't believe the current supply and demand issues are as dire what we are lead to believe.

A political shift in Washington in the months ahead may or may not bring down the price of oil, but I am betting an all Democratic Government will have a negative effect on the profits of the oil companies.

In the 1970's, a windfall profits tax on oil was enacted by the Carter administration to deregulate oil prices. The result was lower production, and much higher oil prices. As prices soared, oil demand declined causing windfall tax revenues to be much less than the politicians had projected.

Going forward we have to consider owning ETF's that are made up of oil commodities (oil futures contracts) instead of oil stocks. A windfall profits tax will be a major negative for oil stocks while ETF's containing oil futures will prosper. I will be watching this very closely.

Last week's news that Venezuela’s President Hugo Chávez was cutting off oil supplies to Exxon Mobil (XOM) caused a spike in the price of crude. Chavez said on Sunday "that Venezuela was not planning to halt oil exports to the United States". Obviously this was a vendetta aimed squarely at Exxon, and not the US.

I have made mention of David Rockefeller's influence with US politicians, and since the Rockefeller family fortune is tied up in Exxon Mobil, he has got to be livid about Chavez's decision to cut off supplies to pet stock.

Chávez has said several times that the Bush administration is preparing an invasion of Venezuela, with the objective of gaining control of its oil reserves. If the US does invade Venezuela one day, we need to ask ourselves if Rockefeller had anything to do with it.

The Week in Review:

Today, the markets are closed for the President's day holiday. I find it interesting that the futures most mornings start out pointing to a higher opens. Despite all of the negative news someone is finding the courage to buy the S&P futures prior to the open.

It's obvious to me that the mystery-laced Plunge Protection Team is working overtime to drive the shorts out of the markets, and bring stability to the financial markets.

This is one reason I take comfort in being a contrarian.

All throughout 2007 I've been saying that the CPI numbers have grossly understated the inflation we are witnessing in the US.

It seems after every FOMC meeting, we heard comments like "core inflation has improved modestly", or "core" inflation has "modestly improved". What a bunch of garbage!

Courtesy of Barron's/Econoday

This morning the Labor Department reported that consumer prices rose 0.4% in January. The problem, which is a direct result of energy prices, and the alternative energy fix, was food inflation which rose 0.7%.

Energy Problem Translates into Higher Food Costs

Chart courtesy of Bill King, M. Ramsey Securities

Farmer's are getting squeezed by higher fuel costs to operate machinery, and supply and demand issues for food are getting out of balance. The rising demand for ethanol has causing corn prices spike.

Corn is being used to make ethanol (it's really moonshine) instead of feed, and corn meal. Feed costs for cattle, hogs, and chicken have risen which translates into higher prices for dairy products, as well as beef, pork, and chicken.

Since farmers want to produce what is in demand, they are growing corn, and neglecting wheat. Now wheat prices are rising because demand is outstripping supply.

Lower Dollar Makes Energy More Expensive

The skyrocketing price of Gold and Oil are a direct result of inflationary pressures caused by the depreciating the value of the dollar. Until the dollars woes modestly improve, inflation will remain a serious problem.

The US Government is depreciating the value of the dollar by lowering interest rates, and throwing money in the banking system to ward off a liquidity crunch. Once the balance sheets of the major banks are repaired, interest rates will rise.

The Fed is clearly focused on solving the banks problems first, but fixing one problem while ignoring another often causes a whole new set of mistakes that could result in a more painful consequence.

Sorry about not posting anything yesterday, I was tied up with clients. I love my work, and always keep in mind I am paid to be a financial advisor while being a blogger is a freebee.

In my opinion, the markets remain in a narrow trading range (SPX 1325-1375), and pretty boring. Until we can either break above or below these levels, I am not real interested in what happens.

I continue to believe a retest of the January 22 lows (DJIA 11,640; S&P 500 1,270; Nasdaq 2,200) is in the cards. I would not be surprised if the re-test did not hold.

What does amaze me is the plethora of BS being thrown around by Wall Street and the media covering the Presidential race.

This morning- and here we go again- Merrill Lynch issued sell ratings on Fannie Mae and Freddie Mac. Talk about old, and mildewed news, everyone and their mother knows FNM and FRE are going to report horrible quarters, and both stocks would probably trade down to the low $20's.

In August 2007, I wrote an article entitled, "Wal-Mart: Sorry Merrill, you're wrong again!", after Merrill Lynch issued a "sell" recommendation on Wal-Mart. At the time of the "expert sell" recommendation given by Merrill Lynch, the stock was trading around $43-$44. Today, the stock is trading at $49.77.

If these analysts were such great soothsayers, why didn't they see what the housing bubble was going to do to FNM and FRE when both stocks were trading in the 60's and 70's?

One of the best kept secrets in the mortgage mess is the lack of media focus on the destruction of middle-class jobs. Since the "New World Order" gang (Bush the Elder, Bill Clinton ,and Dubya) pushed through NAFTA and CAFTA, the US manufacturing base has been nuked. As such, the types of jobs people need to be secure homeowners have disappeared.

John McCain and Hillary Clinton are also part of the gang. McCain during his visit to SC and Michigan told voters that "The jobs lost are never coming back". I guess to sum up McCain's Republican establishment platform; we can say there will be less jobs, more wars, and more illegals.

Market Re-Cap

Stocks traded down this morning after Federal Reserve Bank of Philadelphia released a weaker than expected reading on regional manufacturing. Manufacturing activity fell to -24.0 in February from -20.9 in January -- its lowest levels since the 2001 recession

The Conference Board's monthly index of leading economic indicators fell for the fourth month in a row, marking a 2 pct drop over the past six months -- also the biggest decline since 2001.

Crude is trading up 25 cents to $98.48/bbl this morning supported by rising geopolitical tension. Economists are worried that the high price of oil will kill consumer spending as people pay more for gas, further hurting economic growth.

Despite high energy prices the inventory numbers released by the EIA showed larger than expected builds in crude and gasoline. All I can say is someone keeps messing with the price, and pick pocketing the consumer.

Legendary oil investor T. Boone Pickens said on CNBC's "Squawk Box" Thursday morning, that he expects oil prices to drop $10 or $15 a barrel in the second quarter. He went on to say that he thought prices would be back above $100 in the second half of the year.

Gold futures surged to a record high as a weak dollar and soaring commodity prices boosted the appeal of gold as an inflation hedge. Stagflation continues to be a concern.

Dynamic Growth: ETF Portfolio

Here are our Top 10 ETF's for the week of February 25th:

1) DBA: Powershares DB Agriculture Fund- .645
2) SLX: Market Vectors Steel Index Fund- .521
3) EWZ: Brazil Index- .527
4) EEB: Claymore ETF BNY BRIC- .478
5) FXF: Currency Shares Swiss Franc Trust- .418
6) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .378
7) OIH: Oil Services HOLDRS- .368
8) PGJ: PS Golden Dragon China Fund- .330
9) KBE: KBW Bank ETF- Not Rated
10) IYF: iShares Dow Jones US Financial Sector- Not Rated

Honorable Mention:

INP: India Total Return Index- .300

Notes:

As evidenced by our top 5 ETF's, the Commodity asset class continues to dominate when compared to all other asset classes.

With Gold prices above $900 per ounce, and oil prices above $95/bbl, we are reluctant to chase these sectors. One of the reasons we are hesitant is the underlying stocks (Oil & Gold) have stalled while the individual commodities remain near their highs.

Here are our Top 10 Fidelity Sector Funds for February 2008:

1) FSESX- Energy Services
2) FNARX: Natural Resources
3) FDFAX: Consumer Staples
4) FSENX- Energy
5) FSCHX: Chemicals
6) FSMEX: Medical Equipment
7) FSCGX: Industrial Equipment
8) FSDPX: Materials
9) FWRLX- Wireless
10) FSRBX: Fidelity Banking Portfolio

Honorable Mention (Holds):

FSDAX: Defense & Aerospace

Notes:

There were no changes to the ETF portfolio this week, and we will receive new data next week on the Fidelity Sector Fund portfolio.

The Week in Review:

The stock market was pretty dull last week. Despite increased evidence that the US economy was edging nearer to an "official" recession, the markets were locked in a fairly tight trading range.

While I am finding the stock market more attractive now than a year ago, the economy continues to deteriorate. This tells me that despite the reasonable valuations, greater values may be in the offering down the road.

Two areas that are very attractive in my opinion are the Financials, and the select Consumer Discretionary sectors. Since we are not “Fund Managers”, we can afford to buy value and wait 12-24 months for 50-100% returns. Fund managers must perform weekly, monthly, or quarterly or they will get fired. Here is where I believe we have a huge advantage over the momentum crowd.

It seems to me that the major banks should be repairing their balance sheets as we speak. With the Fed funds rate at 3.0%, and the U.S. prime bank rate at 6.00%, banks should be making a ton of money off of the spread.

Investors severely underweighted in the stock market may want to begin slowly adding to their portfolios slowly while keeping some powder dry for better buying opportunities down the road. We must have the courage to dollar cost average into the face of increasingly bad news because we never know when a major solution to the current credit crisis may appear.

I find it odd that the stock market rally occurred late Friday after a rumors circulated that banks may be close to finalizing a plan to bail out bond insurer Ambac Financial (ABK).

Consumer confidence hits a 5 year low, Inflation is out of control, Home prices are plummeting, Foreclosure rates are increasing, Sub prime losses are spreading to Alt-A mortgages, but the stock market is rallying after IBM said they were going to buyback $15 billion in stock and raise its 2008 profit forecast.

The best piece of advice I've ever received on the financial markets is to look at everything with a critical eye. If you get bad news on the economy and stock market, question it. The same goes for the good news.

Today, positive news from IBM put a blanket on bad news as the market headed straight for a re-test of the upper end of its trading range (Dow 12,700 and S&P 1390).

In early trading, the Dow was down as much as -58 points even after Home Depot missed earnings forecasts. In addition, the January PPI was up 1.0% (consensus +0.4%) core PPI was up 0.4% (consensus +0.2%).

There is more BS on the energy front as OPEC President Chakib Khelil told reporters that OPEC will not increase output when it meets next week "because there are plenty of stocks."

If there is plenty of supply then why is crude is trading at $99.48/bbl, and gas prices are well above $3.00 bucks? I'll answer that one, they are out to rob you.

I guess we'll have to ask the bandits in the oil pits who are the speculators responsible for driving up prices. When the EIA released its inventory numbers for the week ending 2/15/08, crude and gasoline had larger than expected builds.

Legendary oil man T. Boone Pickens said he is short crude oil and natural gas and expects that prices will fall $10 to $15 a barrel in the second quarter.

"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey

Government to Bailout Housing and Banks

Newsmax

We have said several times that during periods of extreme crisis, solutions do appear. The latest plan being tossed around would allow the government to buy up to 1 million mortgages over five years to help prevent foreclosures, and more credit losses by banks.

I knew this option was available thru the Federal Housing Administration (FHA). The FHA was created by congress in 1934 to help borrowers get loans while reducing the risk to the lender. FHA is basically a Depression-era agency that insures loans made to borrowers with poor credit.

Since the mortgage crisis began, I've always held the opinion that potential solutions to the crisis were aggressively being worked on. This is why I came up with the slogan;

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

If you stop and think about it, the Federal Government really has no other choice. What are they going to do, let millions of mortgages go into default and throw the US into a depression? I don't think so.

If the US Government during the Carter years was willing to loan money to bailout a public company like Chrysler, surely they would do something to bailout the banking system, and the US economy. It's just common sense.

High Oil Prices- Again, and Again, and Again...

With oil prices above post Katrina highs, and no hurricanes in sight, Wall Street wants you to believe we have a supply and demand problem. We do not have a supply problem; we have a declining dollar problem.

I told you yesterday that OPEC President Chakib Khelil told reporters that OPEC will not increase output when it meets next week "because there are plenty of stocks." This means we have plenty of oil.

The bottom-line here is simple, oil prices rise as the value of the dollar declines. Sure, China is using more oil, but the supply and demand issue is not desperate enough to warrant $100/bbl oil.

What's happening is the US dollar continues to fall to record lows, and traders continue to invest in commodities such as gold and energy as a hedge against inflation. As economic reports continue to reveal a weaker economy, the dollar falls in anticipation of lower interest rates.

The US Labor Department reported that wholesale inflation jumped by a full 1% in January, more than double the increase that analysts had been expecting, and also marking the fastest rise in more than 26 years.

Today, Commerce Department reported that factory orders for big-ticket items fell -5.3 percent, the largest decline in five months. Then, to add more fuel to a burning dollar, this morning Fed Chairman Ben Bernanke hinted that interest rates will be lowered again. As Bernanke spoke, the dollar continued to spiral lower, and oil prices remained firm.

"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey

For years, even as High School students, we were taught about the evils of communism. These lessons included how the news was manipulated to the scores of people in a communist nation. We were taught how the communists and evil dictators around the world controlled the hearts and minds of their citizens through their state run media.

No doubt, this is pretty evil stuff. Unfortunately, the same thing is happening the United States of America.

As an example, yesterday Fed Chairman Bernanke gave his testimony before the House Financial Services Committee. There was an extremely important exchange that took place between Mr. Bernanke, and Congressman Ron Paul.

Paul laid out very clearly the reasons for the crashing dollar, and why US consumers are paying out the nose for everything from food to energy. Instead of focusing on this issue, the media- I mean your media- didn't report this exchange at all. Instead, they reported that the Fed was ready to lower interest rates again to help the economy.

Here are Ron Paul's Comments

I can give you several more examples of how the media suppresses news, but we would spend week's discussing it. I'll just leave you with these comments from the Master of the Universe- David Rockefeller.

"We are grateful to the Washington Post, the New York Times, Time magazine, and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. ... It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during these years. But the world is now more sophisticated and prepared to march towards a world government which will never again know war but only peace and prosperity for the whole of humanity."

Today, the Labor Department reported that jobless claims rose 19,000 to 373,000. The 4th quarter GDP numbers came in at 0.6%, below expectations of 0.8%.

Yesterday, the dollar was down sharply as gold reached new highs.