John Mugarian's Dynamic Growth

Dynamic Growth: ETF Portfolio

Here are our Top 10 ETF's for the week of June 2nd:

1) EWZ: Brazil Index- .455
2) EEB: Claymore ETF BNY BRIC- .419
3) SLX: Market Vectors Steel Index Fund- .447
4) DBA: Powershares DB Agriculture Fund- .374
5) FXF: Currency Shares Swiss Franc Trust- .449
6) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .323
7) DUG: Ultrashort Oil & Gas Proshares- Not Rated
8) PGJ: PS Golden Dragon China Fund- .223
9) KBE: KBW Bank ETF- Not Rated
10) IYF: iShares Dow Jones US Financial Sector- Not Rated

Fidelity Sector Fund Portfolio:

NEW BUYS:

FCYIX: Industrials
FSVLX: Home Finance

NEW SELLS:

Here are our Top 10 Fidelity Sector Funds for June 2008

1) FSENX- Energy
2) FSCHX: Chemicals
3) FDFAX: Consumer Staples
4) FSMEX: Medical Equipment
5) FSCGX: Industrial Equipment
6) FSDAX: Defense & Aerospace
7) FWRLX- Wireless
8) FCYIX: Industrials
9) FSRBX: Banking
10) FSVLX: Home Finance

Honorable Mention (Holds):

None

Notes:

As I promised a few weeks ago, I am adding a deep value play by adding the Fidelity Select Home Finance (FSVLX) sector fund.

The FSVLX fund has been ax murdered and left for dead. After hitting an all-time high of $69.72 in 2004, the shares have dropped 65% or -$45.24. I am not sure if this is "the bottom", but history shows that home finance will continue to be something most consumers still need in the months and years ahead.

Here are the top holdings;

Fidelity Select Home Finance (FSVLX)

FANNIE MAE
FREDDIE MAC
COUNTRYWIDE
ANNALY CAPITAL
HUDSON CITY BNCP
NEW YORK CMMTY BANK
CHIMERA INVESTMENT
WASHINGTON MUTUAL
PEOPLE'S UNITED FINL
WELLS FARGO & CO

Our other new addition is the Fidelity Select Industrials- FCYIX. The fund is not a deep value play, but has been creeping up in our strength ratings.

Here are the top holdings for the fund;

Fidelity Select Industrials (FCYIX)

GEN ELECTRIC
UNITED TECH
HONEYWELL
LOCKHEED MARTIN
BOEING
DANAHER
FEDEX CORP
BRINKS COMPANY
SIEMENS A G ADR
SULZER GEBRUEDER A G

The Week in Review:

Don't be fooled by the morons on TV that keep telling you the US is not in recession. They are dead wrong.

The good news is by time they declare the "official recession", we will be close to the end of it. I am of the opinion that an economic rebound will occur more slowly than in past recessions, but if, as, and when, oil prices begin to decline, economic activity will begin to rebound.

I believe the next 6 months will bring lower energy prices which will surprise everyone on Wall Street; but it won't surprise us!

How do I know this will happen? I don't for sure, but why would the powers that control us want to bite the hand that feeds them?

Higher and higher energy prices will reduce demand for the products that the "powers" want us to buy. They cannot continue getting rich if consumers don't have the cash to buy their products.

Voters, consumers, citizens spend money when their happy. Most families must have new cell phones, video games, wide screen flat panel tv's, new cars, and enough money to go out an eat. Give consumers what they want, and their moods change dramatically. This is what lower energy prices will do to the economy over the next 6 months.

All of these things have a way of coming true going into a presidential election. I am betting this time will be no different.

After the election??? Now that's a different story.

Last Week:

Last week was a gloomy one for investors;

DJIA
-507.17
-3.91%

DJ Transports
-223.82
-4.17%

S&P
-49.42
-3.47%

NASDAQ
-84.18
-3.33%

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

One of my favorite market gurus is famed hedge fund manager, Doug Kass of Seabreeze Partners. Doug is a frequent columnist for TheStreet.com- The Edge.

Recently, Doug became bullish on bank stocks after being a full blown bear since 2005.

Here is Doug's article entitled "I'm Putting My Money in the Banks". Oh, and by the way, so am I.

Being a contrarian means being optimistic while others are pessimistic. This fits my personality, and supports my slightly dyslexic condition as well. Believe it or not, I read better from right to left than I do from left to right.

While I struggled early in life, I learned to adjust. This condition also taught me to look at both sides of every issue. Looking at the opposing side of what is beginning touted has served me well.

I am always amazed when I ask for a person's opinion on a topic (Middle East, Oil, Politics, Stocks, etc.) and the answer I always get is what the media mantra is at the time. This tells me that the publics thought process begins and ends with what they see on TV and read in the paper. In my view, these are very shallow opinions.

Now, if a person got their news from the US media, and cross referenced what they saw and read with other media outlets around the world, then I would consider someones opinion to be thoroughly researched.

This being said, how does someone as successful as Doug Kass say the bank stocks are a buy, when conventional wisdom (the other gurus on TV) tells us they're not?

In 2005, the gurus (excluding Kass) were telling us to buy the financials, real estate, and the home builders. Today, the gurus wouldn't touch them with a ten foot pole.

Here is another contrarian indicator. Today, in a well orchestrated fashion, GM CEO Rick Wagoner said the company plans to close four American truck plants, and focus instead on producing smaller cars. Their belief is oil prices will remain high, and trucks as well as large sport-utility vehicles are a thing of the past.

In 2003-2005 GM was singing a different tune. Could GM's strategy shift be marking the highs for oil? And, as was the case in the 1970's, will oil prices decline from here?

As I was a few months ago, I am siding with the contrary opinion that bank stocks are not going away, and a few years from now, will lead the stock market to new highs.

In the Dynamic Growth ETF and Fidelity Select Sector Fund Portfolio's, as investors, we remain positive on the financials.

Long:

KBE: KBW Bank ETF
IYF: iShares Dow Jones US Financial Sector
FSRBX: Banking
FSVLX: Home Finance

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

A few weeks ago the VIX index was indicating elevated optimism among investors. As stocks steadily climbed, the AAII survey showed more bulls than bears. Last week, the stock markets weakness led to a reversal in that optimism.

Now that the optimism is wearing off, the Investors Intelligence survey is showing a decline in bulls for the first time in eight weeks. As the overbought condition continues to unwind, I believe a seasonally favorable period for stocks lies ahead for part of the summer.

This being said, I am not ruling out the remainder of the correction which could carry the S&P to its support level which lies at 1370.

In July, the Bush Administration said they would stop additional purchases for the Strategic Petroleum Reserves (SPR). This should help continue correcting the excesses in the price of oil.

Already, traders are taking profits in crude as prices have fallen from $135/bbl to its recent price of $123.05. Consumers are reaching a breaking point as gasoline prices have reached a
level that is causing consumers to begin yelling "uncle". Even GM got into the act yesterday when they announced they would close four American truck plants, and focus instead on producing smaller cars.

In addition to falling oil prices, other commodities have seen steep declines. Corn, which has risen as a result of the stupid ethanol mandate, has finally moved into a trading range, and stopped its assent. Corn has been one of the main culprits in the soaring price of food.

Other Agricultural commodities such as Oats and soybeans have fallen 10% from their highs, and wheat is down 40% since March.

These are all positive signs for inflation (in the short run), and could provide the necessary fuel for a strong rally this summer.

Last week, famed hedge fund manager, Doug Kass of Seabreeze Partners went long on bank stocks after being a full blown bear since 2005. Like the NASDAQ in 2000, the banks are now the most hated group on Wall Street. An alert contrarian knows what this means.

After the summer rally- and maybe into the election- I am concerned that the Feds new stance to fight inflation will continue to have a negative effect on housing as interest rates rise in 2009.

As the credit markets have stabilized in recent weeks, investors have been selling Treasuries driving yields higher across the board. The 2-year T-Note is now 2.75%, almost double what it was in March, and the 3-month T-Bill is around 2.00% after being as low as a half a percent.

This being said, I believe real estate has entered a 10 year bear market. While home prices will not continue to fall for 10 years, price appreciation as we know it has ceased. I don't believe we will see meaningful price appreciation again for 10 years.

Higher interest rates to fight inflation will set the stage for round two the the bear market that began in October 2007. False rallies- even very strong ones will eventually give way to a continuation of the bear market.

This being said, traders will make lots of money. Longer term investors will have their will and resolve tested several times.

The Rest of the Story

For those of you who are interested, the Bilderberg Group will hold their annual meeting in Chantilly, Va., at the Westfields Marriott, on Thursday, June 5 to Sunday, June 8th.

This secret organization has blocked off all the rooms for these dates so the little people can't get a room and interfere.

You won't read about this group in the controlled press since the broadcast networks have given their solemn promise of absolute secrecy.

Here is the website to the Westfields Marriott at 14750 Conference Center Drive, in Chantilly, Va. 20151.

When I checked on rates and availability for the meeting dates, sure enough the hotel was book. This is what their website said about a room for June 5th- 8th;

** NO ROOMS AVAILABLE FOR REQUESTED DATES ** **

If you're in the area, stop by. I think you'll be surprised, and you will raise your education level to new heights.

Here is a "List of Attendees" from Wikipedia.

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

Let's be clear about something. If sales at stores like WalMart (WMT) are up, then the economy is clearly in bad shape.

I like going to WalMart because it is a great place to gage the mood and spending habits of consumers. Since 2000, WMT has traded as high as $69, and as low as $41.50. If the US economy remains weak for the next year or so, WalMart may once again revisit the upper-end of this eight year trading range.

The difference between the 2000-2002 recession and the current one is consumers had more money back then. Sure, the NASDAQ debacle left many broke, but not everyone got suckered into the NASDAQ. Unlike the NASDAQ, consumers got suckered into another money sucking scheme. That sucker game was thought to be infallible, but turned out to be much more deceitful.

The game was;

Interest Only Mortgages
100-120% Financing.
Home Equity Loans.
Credit Cards.
No Down Payment Home Purchases

While all these sucker loans were being issued, Wall Street devised a scheme where they would package bad mortgage with good ones, get them labeled with triple A ratings, and sell them to banks, pension funds, and local and state governments. What could possibly go wrong?

Bond insurers who didn't do their homework insured these venomous bonds, and now they are all on the brink of collapse.

I have a question. Who is responsible for all of this? And, why are these people not facing a firing squad? Consumers clearly are!

As was the case in 2000-2002, most of the law suits against Wall Street and mortgage issuers will probably get thrown out.

The class action suits against Wall Street and the conflicts of interest that existed with their analysts and investment bankers went nowhere. Judge Milton Pollack dismissed several class-action lawsuits by saying investors were "high-risk speculators," who knew or should have known better.

As far as the above mentioned loans are concerned, there were many "high-risk speculators," and borrowers who knew or should have known better.

In any event, thats where we stand.

The Rest of the Story

As Barack Obama shores up the bid as the democratic presidential candidate, news broke that three members of his church of 20 years- Jeremiah Wright’s Trinity United Church of Christ- were murdered execution style with bullets to the backs of their heads.

For now, the mainstream media is trying to keep away from this one, but for how long?

I don't know if any of this stuff is true, but nothing surprises me nowadays.

My opinion on all of the candidates for president remains; "Is this the best we can do?"

I am out of town, and will be for most of the week. I will do my best to give you briefings and updates when I get a chance.

I find it interesting that oil prices spiked on Thursday and Friday, at the exact same time the Bilderberg Group began their meetings in Chantilly, Va., at the Westfields Marriott.

Bilderberg Attendees

You'll have to do your own research on the interworkings of this group on your own since their is a media blackout here in the US. The Canadian press and others have reported these meetings to their citizens, but the controlled US press has kept you in the dark.

If you watch Lou Dobbs on CNN, he has spoke extensively about- the North American Union- Open Borders- NAFTA- Immigration, and a new North American Currency, the Amero. These are all inventions of the Bilderberger's. This is the same group that came up with the European Union, and Europe's new currency- the Euro.

Dynamic Growth: ETF Portfolio

NEW BUYS:

None

NEW SELLS:

None

Here are our Top 10 ETF's for the week of June 9th:

1) FXF: Currency Shares Swiss Franc Trust- .506
2) SLX: Market Vectors Steel Index Fund- .467
3) EWZ: Brazil Index- .453
4) EEB: Claymore ETF BNY BRIC- .390
5) DBA: Powershares DB Agriculture Fund- .374
6) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .297
7) DUG: Ultrashort Oil & Gas Proshares- Not Rated
8) PGJ: PS Golden Dragon China Fund- .180
9) KBE: KBW Bank ETF- Not Rated
10) IYF: iShares Dow Jones US Financial Sector- Not Rated

Here are our Top 10 Fidelity Sector Funds for June 2008

1) FSENX- Energy
2) FSCHX: Chemicals
3) FDFAX: Consumer Staples
4) FSMEX: Medical Equipment
5) FSCGX: Industrial Equipment
6) FSDAX: Defense & Aerospace
7) FWRLX- Wireless
8) FCYIX: Industrials
9) FSRBX: Banking
10) FSVLX: Home Finance

Honorable Mention (Holds):

None

The Week in Review:

Don't let anyone kid you, consumers are hurting, and they are in bad shape.

We were in Ft. Myers, Florida for the weekend, and several drivers heading south on I-75 were driving with their windows down instead of using their AC's. The temperature was 94 degrees.

$4.00 per gallon gas is killing consumers, and truckers have are being decimated. Businesses inn and around Florida are folding up like tents, and vacant real estate residential-condos-commercial are everywhere.

Don't be fooled by the morons on TV that keep telling you the US is not in recession. They are dead wrong.

Oil prices should pull back sharply as we head into the election. The Bush administration will temporarily postpone new oil purchases for the Strategic Petroleum Reserves in July. This should provide some relief for oil prices as we head into the election.

As oil prices pullback, the stock market will rally. We will use this rally to make adjustments to the DG portfolios.

After the election, and into 2009, I believe interest rates must rise to protect the dollar, and drive oil and commodities and inflation down. This is not good news for the real estate markets, but for those looking to buy, it will be a great entry point.

Many on the financial channels keep telling us that today's economy is not like the 1970's. It sure looks like the 70's to me. In fact, it maybe worse!

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

After getting this mornings data from the Energy Department which said oil inventories fell much more than expected last week, one thought came to mind. The thought is taken from the Bible; Matt. 25:28-30 which reads;

--- they will be cast into "outer darkness," the place where there shall be "weeping and gnashing of teeth."

Consumers are getting poorer by the moment as gasoline prices continue to rise. The weeping and gnashing of teeth has begun. As I traveled to Ft. Myers and Jackson, Mississippi over the past few days, the disgust among the consumers is growing louder.

The Energy Information Administration said oil inventories fell by 4.6 million barrels last week, and oil prices spiked this morning +$5.63 to $137.50 for the August contract.

My opinion remains that oil prices will fall in July, and continue to trend downward into the election. Call me cynical, but this has been the case in the past two elections.

This contrarian view is in opposition of the comments made by the EIA who said "Motorists can expect gasoline prices around $4 gallon through next year, with oil prices staying well above $100 a barrel."

If the EIA prediction comes true, Presidential hopeful, John McCain might as well drop out of the race right now and stop wasting his time.

In addition, oil insiders better step up their stock sales because a windfall profits tax will eat into their net worth. Over the past few weeks, oil insiders have stepped up sold large blocks of stock.

Here is a very good article by Paul Craig Roberts, explaining the reasons why oil prices are high- Read Article. Roberts was Assistant Secretary of the Treasury during President Reagan’s first term.

In a double whammy, Federal Reserve Chairman Ben Bernanke said a substantial economic downturn seems unlikely, and investors are taking this as a hint that the Fed may begin raising interest rates to fight inflation.

Investment Banks are once again in the cross-hairs of sellers as the threat of higher interest rates are weighing heavily on Goldman Sachs (GS), Lehman Brothers (LEH), Merrill Lynch (MER), and Morgan Stanley (MS).

The Federal Reserve released its Beige Book report this afternoon, and the results showed that economic conditions remain "softer, weaker, or lower". As inflation continues to be a problem, many analysts expect the Fed to halt it's lowering of interest rates.

As we now stand, the "Weeping and Gnashing of teeth" has begun.

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

How does a company get in so much trouble that they are run out of business, and little less than 17 months ago their stock was at new all time highs?

In the case of Bear Sterns and Lehman Brothers, both companies will BearLeh survive, and in the end, merge with another bank.

Lehman Brothers got rid of their CFO and COO this morning after the company reported a $3 billion quarterly loss.

They way I look at it is this cleansing of the system is a good thing.

Commercial Banks: Signs of a Bottom?

Lets be frank, I don't know where the bottom is on many of the high quality bank stocks. What I do know is many of them are selling at 50, 60, 70, and even 80% off their 52 week highs.

Using the old John Templeton line- "Buy into the teeth of maximum pessimism"- seems to apply in the case of the banks. I like to keep in mind that I'll never get in at the exact bottom, and never get out at the exact top. This being said, buying into maximum pessimism doesn't mean the pessimism will end soon. Sometimes pessimism will last several months and even a few years.

I am aware of the stresses on the banking system. I also recognize the importance of this group over let's say the NASDAQ in 2000. Politicians are under pressure to fix the financial system. They were not subject to the same kind of pressure to bailout the dot-coms.

My opposite side, contrarian view comes into focus when I see;

-Meredith Whitney of Oppenheimer begins scaring investors, and predicting the apocalypse.

- Companies like Lehman, Merrill Lynch, Citigroup, Wachovia, Washington Mutual, and many others begin replacing their executives.

- Hedge funds pile in on the short side.

- Short interest reaches historic levels.

- When the "D" (Depression Word) begins to surface, and similarities are made between 1929 and what is happening today.

Market Overview

Rising oil prices took center stage yesterday as crude oil jumped $5.07 to $136.38 a barrel, and the DJIA closed down 205.99 points. At this point I am not ruling out a re-test of the January lows.

This morning, the US dollar is higher and this is bring some needed relief to the high price of oil.

Yesterday, the Federal Reserves Beige Book report said economic conditions were "generally weak" in April and May. This being said, inflation continues to be a major problem and will probably spell the end to the Fed's series of rate cuts.

This morning, the Commerce Department reported that excluding autos, building materials and gasoline, retail sales rose 0.8% in May.

Lastly, the beer company InBev (makes Beck's and Bass) made a $65 a share offer for Anheuser-Busch.

Here's a question. Is the value of our currency so bad that a company that makes Beck's and Bass has enough cash (through conversion) to buy a US icon like Budweiser? The answer is yes!

I am spending a lot of time on the road. Last week I was in Ft. Myers, Jackson, Mississippi, and just returned from Baton Rouge, Louisiana. I expect this schedule to continue until mid-July, and then I hope to park myself somewhere up north for the remainder of the summer.

As a reminder, I am posting the DG ETF and Fidelity Fund Portfolios in the "Journal" each week. Our viewing numbers have risen dramatically as over 250,000 people view our website each month.
I hope to sell ads for the website as this would keep the service free for all that are interested.

Dynamic Growth: ETF Portfolio

NEW BUYS:

None

NEW SELLS:

None

Here are our Top 10 ETF's for the week of June 16th:

1) FXF: Currency Shares Swiss Franc Trust- .414
2) SLX: Market Vectors Steel Index Fund- .433
3) EWZ: Brazil Index- .398
4) EEB: Claymore ETF BNY BRIC- .390
5) DBA: Powershares DB Agriculture Fund- .441
6) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .253
7) DUG: Ultrashort Oil & Gas Proshares- Not Rated
8) PGJ: PS Golden Dragon China Fund- .156
9) KBE: KBW Bank ETF- Not Rated
10) IYF: iShares Dow Jones US Financial Sector- Not Rated

Here are our Top 10 Fidelity Sector Funds for June 2008

1) FSENX- Energy
2) FSCHX: Chemicals
3) FDFAX: Consumer Staples
4) FSMEX: Medical Equipment
5) FSCGX: Industrial Equipment
6) FSDAX: Defense & Aerospace
7) FWRLX- Wireless
8) FCYIX: Industrials
9) FSRBX: Banking
10) FSVLX: Home Finance

Honorable Mention (Holds):

None

The Week in Review:

I would like to start this weeks review by saying my thoughts and prayers go out to the family of Tim Russert who was the lead anchor on Meet the Press. I did not know Tim, but he seemed to be a genuinely nice guy who did his job without any political bias. He was one of the very few journalists who I feel had the best interests of the country at heart while doing his job.

As we speak Tim is probably interviewing Ronald Reagan in heaven. I wonder what Ronnie has to say about what is going on nowadays?

Last Week:

For several months we have been riding the inflation wave with investments in Agriculture, Energy, Staples and Commodities. In the months ahead, I believe the leaders in the market place will eventually correct, and become laggards.

Here are the leaders that I feel are over extended, and due for a sharp correction;

Bonds
Commodities
Energy
Foreign Currencies
Dollar Bear funds
Metals & Mining

I have taken profits in some of the above holdings, and have added exposure to the laggards which are;

Banking
Home Finance

These are controversial picks, and I expect to hold these positions for at least the next 2-3 years. Looking forward, I believe the upside in these sectors are huge.

You may be wondering why I believe a correction is on horizon for the "stuff" stocks, in particular commodities.

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

Folks, if past CNBC market tickers are an indicator, then the verdict is in. A few short months ago CNBC had a window above the TV screen touting, "Points above all time high". A few months later the DJIA fell from 14118 in October 2007 to a low of 11634 (-2484 points or 17.59%) in January 2008.

The new ticker above the window on the TV screen now reads "America's Energy Crisis". Alert contrarians will see this as a sign to sell energy, or at least take profits and come back another day.

David Herro, chief investment officer for Harris Associates said Supply/demand fundamentals simply don't support oil at current prices, he says, predicting crude will tumble back into the $60-$80 per barrel range in the next 24 months.

Herro was named one of SmartMoney's "World's Greatest Investors" of 2007. He also said commodities are a bubble ripe for popping, with oil most vulnerable to a big downtown. "Just like tech fans in the early part of the 2000s, energy bulls will get burned", Herro said.

If you stop and think about it, the power brokers for oil do not want to see a mass exodus from oil and into alternative energy. Sure, alternative energy sounds good, and in its early development stage gives people hope, but as was the case in past energy crisis, something always comes along and brings energy prices back to an affordable range. When this happened in the past, energy alternatives and innovations were abandoned.

Case in point;

My comments come from an understanding of what has happened in the past, and Wall Street wants us to believe "it is different this time". While I can't rule out that it may really be different this time, history shows it never has been in the past.

Solar:

During the Carter years, solar panels were placed on the roof of the White House. When Ronald Reagan took office, he said, get that crap off my roof. During those same years, the "green movement" convinced people to buy solar panels for their homes. Many in California did, and others across the nation did not take the bait. My neighbors across the street had solar panels on the roof of their garage in 1990-1992. In 1993 the new owners took them down.

Wind:

Southern California (Lajolla) has had huge wind farms in place since the last energy crisis. The new "green movement" came out of nowhere, but has become the new mantra for corporate America.

While there is money to be made in wind as the alternative energy craze continues, my question is what happens if all of the "it is different this time" assertions turn out to be false. Its happened in the past is my point.

Oil Shale in Colorado:

During the oil crisis in 1980, Exxon spent $5 billion on the Colony Oil Shale Project in Colorado. Two years later, oil prices declined, and May 2, 1982 became known as "Black Sunday" when Exxon abandoned the project, laid off 2,000 workers, and left behind a trail of foreclosures and empty oil shale mines.

My point is obvious, and I may be wrong, but I don't see new solutions, just the old ones rearing their ugly heads.

Conclusion:

I believe a huge sell-off is coming for oil and commodities. I base my conclusion on the fact that the oil people who have controlled us for many years do not want to give up that control by way of alternative energy.

I believe in the golden rule. He who has the gold rules. You can control the masses by controlling the price of oil. If oil no longer becomes a controlling factor, then masses cannot continue to be controlled.

This being said, oil prices can remain high a little longer, but I believe oil prices will fall, alternatives will be abandoned, and the golden rule will prevail.

I realize my view points sounds remote, but so did my call on real estate in 2005, and my call for $3.00-$4.00 gas prices in 2003.

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

If the stock market has taught us anything over the years, it is to expect the unexpected. This holds true for good news as well as bad.

As I see it, the subprime mess does not have enough muscle to throw a monkey wrench into the economy. Sure, it can upset the apple cart, but alone it cannot destroy the economy.

This being said, what can destroy the economy is the spillover effect which stems from defaults on prime mortgages, lines of credit, credit cards, car payments, etc...

These problems occur when sky high energy and commodity prices are eating away at the discretionary incomes of consumers. Driving down energy and commodity prices will help ease the defaults of all the things I mentioned above.

I believe the powers behind soaring energy prices have reached their goal. Now, that high energy prices have caused food shortages around the globe. Going forward however, higher oil prices are reaching a level of diminishing returns.

Consumers are switching to smaller fuel-efficient cars, and looking for alternative means of transportation such as trains, buses and carpooling. Big vehicle manufacturers like Ford and GM are shutting down production of big cars and SUV's. All of these changes, if the trend continues, will eventually mean lower profits for the "big boys".

In addition, if oil prices correct dramatically, a democratic congress will no longer being calling for a windfall profits tax on big oil. Using all of the information above, and a good dose of common sense, I don't think the oil powers want any of the above to occur.

So, just when you least expect it, oil prices may drop dramatically. If this happens, consumers (with the exception of sub-prime) will immediately have more money to spend to pay their prime mortgages, lines of credit, credit cards, and car payments. They will also have money to spend on clothing and other items which will give a lift to consumer discretionary stocks. Food prices will decline, inflation will decline, and stocks will soar.

All of these things happen "When You Least Expect It !" And, as I see it, no one is expecting it.

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

London's UK Telegraph: Royal Bank says "brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

London's UK Telegraph: Morgan Stanley warns of "Catastrophic Event".

Are you scared yet?

As far as catastrophic events go, the damage in financial sector is looking eerily similar to the NASDAQ in 2000.

On the oil front crude is down slightly this morning at $133.60. Consumers are frustrated with the high price of fuel. Some are filling up in Mexico, and others are stealing it.

California divers are going into Mexico to buy gas at almost half the cost- Read Article. Gas in Tijuana is selling for $2.54/ gallon, and diesel is $2.20/ gallon. Is being an American the acceptance that we were destined to get screwed? Its seems that way doesn't it? How about our health care costs?

An Orlando man rigged his pick up truck to hold 800 gallons of gas while using a device that disabled the readings on the pump meters- Read Article.

Speeders caught in Holly Springs, Georgia must pay a "fuel surcharge" on speeding tickets- Read Article.

To clamp down on oil speculators, Congress is considering tightening the requirements to trade oil futures. Proposals include limiting the number of contracts, and raising margin requirements.- Read Article.

Clearly, the 350% rise in oil prices since 2003 has surpassed the oil shocks of the 1970's. Consumer spending on energy is at a 20 year high, but demand is slowing as miles traveled on U.S. roads in March fell 4.3% on a year-over-year basis, the first decline since 1979. This is the steepest fall on record.

In my opinion oil prices are at or near a bubble. I base my argument on the fact that the total market capitalization of crude oil futures is less than half of the size of Exxon Mobil (XOM).

Crude speculators have caused a large increase in the price of oil because hoards of new money has moved into a relatively small market.

The market capitalization of crude oil futures is around $177 billion, while the market cap of Exxon Mobil is around $480 billion. In addition, new investments in energy from institutional investors has reached a new high.

Supply and demand has played a role in kick starting the boom in energy prices, but speculation is the major cause for the outrageous prices today. While no new oil fields (above 300,000 barrels per day) have come online since the 1980s, plenty of capped and untapped resources remain dormant.

If oil prices do not correct sharply by fall, I believe as the Royal Bank of Scotland says "Brace for a Crash".

Dynamic Growth: ETF Portfolio

NEW BUYS:

None

NEW SELLS:

None

Here are our Top 10 ETF's for the week of June 23th:

1) FXF: Currency Shares Swiss Franc Trust- .421
2) SLX: Market Vectors Steel Index Fund- .460
3) EWZ: Brazil Index- .405
4) EEB: Claymore ETF BNY BRIC- .390
5) DBA: Powershares DB Agriculture Fund- .480
6) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .235
7) DUG: Ultrashort Oil & Gas Proshares- Not Rated
8) PGJ: PS Golden Dragon China Fund- .116
9) KBE: KBW Bank ETF- Not Rated
10) IYF: iShares Dow Jones US Financial Sector- Not Rated

Here are our Top 10 Fidelity Sector Funds for June 2008

1) FSENX- Energy
2) FSCHX: Chemicals
3) FDFAX: Consumer Staples
4) FSMEX: Medical Equipment
5) FSCGX: Industrial Equipment
6) FSDAX: Defense & Aerospace
7) FWRLX- Wireless
8) FCYIX: Industrials
9) FSRBX: Banking
10) FSVLX: Home Finance

Honorable Mention (Holds):

None

The Week in Review:

We are not making any changes to our DG portfolios this week. Given the focus on reducing energy costs before the November elections, politicians are scrambling to fix the problem. After closing just below $140/bbl the week before, crude oil ended the week at $134.71, up slightly from the prior weeks close of $134.40.

Saudi Arabia made the rumors of production increases official by saying it would raise oil output by 200,000 bbl/ day, and increase it even more if needed.

The president of OPEC blamed the $135 price of oil on speculators, and that the "concern over future oil supply is not a new phenomenon".

Oil consumption is declining as we speak. China just raised oil prices by 18%, Congress is considering tightening the requirements to trade oil futures, and Ford and GM are shutting down production of big cars and SUV's.

The trend is clear, lower consumption leads to lower profits for the "big boys". Look for oil prices to decline starting in July.

Another issue on the table is finding a cure for the US mortgage mess. Politicians are working on a deal where FHA will guarantee $300 billion in risky loans. The President is threatening to veto the bill because banks would have to take additional losses to get the deal done. This being said, I'm confident something will be worked out to cure the problem.

In other news, last week the Royal Bank of Scotland said to "brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks". While they may be right, crashes usually don't occur when everyone expects one.

Several technical market gurus are now calling for the DJIA to reach a reactionary low of 10000 by the fall. Given all that has happened to the economy, Dow 10000 shouldn't come as a surprise to anyone.

For several months we have been riding the inflation wave with investments in Agriculture, Energy, Staples and Commodities. In the months ahead, I believe the leaders in the market place will eventually correct, and become laggards.

Here are the leaders that I feel are over extended, and due for a sharp correction;

Bonds
Commodities
Energy
Foreign Currencies
Dollar Bear funds
Metals & Mining

I have taken profits in some of the above holdings, and have added exposure to the laggards which are;

Banking
Home Finance

These are controversial picks, and I expect to hold these positions for at least the next 2-3 years. Looking forward, I believe the upside in these sectors are huge.

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

I've always been notoriously independent. One of my favorite lines comes from the movie, "The Godfather" when Don Corleone said;

I don't apologize to take care of my family. And I refused to be a fool dancing on the strings held by all of those big shots. That's my life I don't apologize for that.

Folks, I don't know if you've ever thought of this before, but we have all become fools, dancing on a string held by big shots.

Take for example the current price of gasoline. The big shots- not hedgers, but index speculators- are responsible for the soaring price energy.

Here is a MarketWatch article that you need to read.

In his testimony to the House Energy and Commerce Committee, Michael Masters of Masters Capital Management said, "the price of oil would quickly drop closer to its marginal cost of around $65 to $75 a barrel, about half the current $135" if Index speculators were driven out of the energy markets.

The recent commodities craze has created a monster, even to the point where pension funds, hedge funds, and investment banks are piling billions into energy.

Of course our worthless public servants like Energy Secretary Samuel Bodman have dismissed the role speculators have had on the price of oil.

So, here we are, you and I, dancing on the strings held by all of those big shots.

Never forget the "Golden Rule" that I mentioned a few weeks ago. He who has the gold rules.

Freedom in America means free from tyranny. But tyranny is what we are all experiencing.

Tyranny is defined as;

The arbitrary or unrestrained exercise of power; despotic abuse of authority.

A arbitrary or unrestrained exercise of power leads us to believe Saddam Hussein has "weapons of mass destruction, or Iran is making a nuclear weapons, or Israel needs American protection from Iran, or NAFTA means more American jobs, or America has the best health care system in the world, or we have a "Goldilocks Economy", or we don't have an inflation problem. And lastly, that we get our news from a free press that is not controlled or swayed in any way .

I could go on and on, by you get the point. Knowing all this, you no longer have to ask why I am a contrarian. Warren Buffett did not become the richest man in America by listening, and believing all the garbage that most Americans believe to be fact from the news media.

Warren Buffett said "Be fearful when others are greedy and greedy when others are fearful." In short he is telling us to stop believing most of what we hear because most of it is nothing but BS.

Today:

Today, the DJIA closed down 34.93 points as investors wait on the Feds announcement on interest rates tomorrow. No change in interest rates is expected.

UPS warned that second quarter earnings would disappoint, blaming higher fuel costs and a sluggish U.S. economy. Dow Chemical said it will raise prices by another 25% in July because of rising fuel costs.

Eastman Kodak shares rose after the company announced a $1 billion share buyback.

The June confidence index, released by the Conference Board, fell to a 16-year low. A private survey released this morning showed that home prices in 20 metropolitan areas fell 15.3% from a year ago, the biggest decrease since records were kept in 2001.

Now that most investment banks and analysts have thrown in the towel on the financial sector, investors went bargain hunting in the group today.

Crude Oil was up .43 to close at $137.17. Gasoline prices were up .0094 cents to close at $3.46/ gallon. For those of you who are paying over $4.00 a gallon, don't forget about the hefty federal, state, and local taxes you pay on gas.

You know what I mean? Its part of "Dancing on the Strings Held by Bigshots!

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

I happen to believe we are already in a recession. How deep and protracted the recession is will be determined by how long oil prices remain at these elevated levels.

The news is unfolding just as we said it would in 2005. We knew the housing market was a bubble. We knew consumers were mindlessly borrowing money that they couldn't pay back. And, as a result, here we are.

I worked for a five time national championship coach who told me to watch people very carefully. He said when you do, you'll quickly figure out that most people are selfish, egotistical, and full of crap.

As I watched people from 2003-2006 spending money like drunken sailors, I knew that his theory rang true.

The spending craze that allowed people to buy the Lexus, BMW, and Audi's they couldn't afford is coming home to roost. This led to purchases of expensive homes, as well as eating out at expensive restaurants.

Today, banks are taking losses on "big hat no cattle" consumers, and sex sellers such as Abercrombie & Fitch and Limited are also seeing profits declines.

Today, the super bright analysts at Goldman Sachs decided to downgrade selected financials near the bottom. I can't believe that any comments from an analyst is allowed to be aired after the con job they pulled on the tech stocks a few years ago.

In short, these guys worked for investment banking fees, and not for investors like you and I. If you take the advice of these conflict of interest clowns, remember you do so at your own risk.

Every research report issued since 2000 comes with a disclaimer. I think this is unnecessary, and should be replace with this symbol instead.

Technically speaking, it looks as if our downside target on the DJIA of 10,593 will be reached sometime this summer or early fall. At 11,300 we will up our asset allocations by another 5%.

As it currently stands we are invested accordingly;

70% Equities: (Normally 95%) Aggressive
60% Equities: (Normally 80%) Moderately Aggressive
50% Equities: (Normally 60%) Moderate
30% Equities: (Normally 40%) Moderately Conservative
10% Equities: (Normally 20%) Conservative

If the DJIA hits our downside target of 10,593 we will add another 5 % to our allocation. If the DJIA breaks below 10000, we will go to 100% invested.

Since you already know the financial news of the day, (Yahoo Finance or Bloomberg) I will not bore you by repeating it.

Let's get to the "Rest of the Story".

The Rest of the Story

I heard a couple of definitions yesterday that I would like to share with you;

A recession is when your neighbor is out of work. A depression is when you are out of work.

As it currently stands, the economy is dropping like a rock. High energy prices are forcing consumers to choose between paying for food and gasoline, or keeping up with their debt payments (credit cards, lines of credit, etc). For now, they are choosing food and gasoline.

If oil prices drop to a reasonable level ($75-$85/bbl), consumers will be in better shape financially to make payments on their other debt obligations. Will this happen? I believe it will.

Unfortunately my attitude toward what our great nation once was has changed. The string pullers now own and control our lawmakers. Our nations citizens are looked upon as revenue sources. If you haven't noticed whenever Wall Street refers to you and I they use the word "consumer", and not citizen. We can change that, but we won't.

Sometimes I feel like I'm talking to the wind, but here are a few observations.

Amazing things can happen when citizens take action. In Britain and France the government fears the people. In the U.S., citizens fear the government. Whenever the citizens of these two nations are upset they protest with nationwide strikes.

Imagine what would happen to oil prices in the U.S. if our citizens banded together, and didn't buy gas or show up to work for a week. Corporations are smart. They have rapidly taken this power to strike and protest away from Americans by shipping their jobs overseas. As a result, the unions are left powerless, and nationwide strikes are a thing of the past.

As jobs have disappeared, many Americans have adopted an "every man for himself" attitude. This attitude prohibits unity, so we are left with citizens who are powerless and fearful. As a result, our citizens are now easily controlled by the string pullers.

So, are you being controlled? You, betcha!

You do have some power, however. Since the politicians are owned by someone else forget about the power of your vote. Instead, vote with your pocketbook. Be industrious with your money. When you buy food, look to your local farmers. Quit buying Salvation Army looking clothes from Abercrombie and American Eagle. Look for alternative gym shoes to Nike who make thugs like Michael Vick rich.

Think about where you spend your money, and who the people are that you give your money too. If it cost you $40 to fill up your car a year ago, only buy $40 worth today.

In short, stop giving your money away. If you kids want something, tell them no, or tell them to get a job.

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

Capitulation is the word. It is a day in the market when stocks fall sharply on high volume, then mount a dramatic intra-day reversal to close much higher. My best guess is this will happen on Monday or Tuesday of next week.

This being said, we need to ask if this event will mark the final bottom. If oil prices peak and begin a dramatic decline from current levels, I would say yes. If oil prices rise to the $150-$170 range this summer as OPEC's president suggested yesterday, then no.

A $150-$170 price per barrel oil will translate into a sell off on the DJIA that could reach 10000, or slightly lower.

If you are a long term investor, there are some incredible bargains to be had in the stock market. Assuming companies like Citigroup, Merrill Lynch, General Motors and a host of others don't vaporize, extreme profit potential exists.

After a Goldman Sachs analysts cut the three companies above to sell, GM hit a 53-year low, Citigroup traded back to its 1998 low, and Merrill Lynch went to a level not seen since 2002.

The keys to a market turnaround are very simple;

1) Oil prices must drop dramatically.

As you are aware there are a few factors that can cause this to happen. In July, the Bush (Oil) Administration will stop filling the Strategic Petroleum Reserves (SPR). Saudi Arabia is going to flood the market with an addition 200,000 barrels per day. Some believe the figure could go as high as 500,000 bbl/ day.

U.S. oil consumption is falling as citizens (consumers) are driving less. In 2005, I said consumers buying big SUV's would regret it- Read Article

2) The Senate Housing Bill must pass without the political crooks attaching pork projects to the legislation.

For example, Republican Sen. John Ensign (NV) is blocking the bill by trying to add an amendment for renewable energy tax credits. What an idiot!

The housing bill would create a fund to help 400,000 homeowners refinance their con job exotic mortgages into more affordable loans backed by the government. While it may not be the perfect solution, doing something is better than nothing.

3) Speculation in oil trading must be examined, and margin requirements must be raised.

As much as I disagreed with Bill Clinton's behavior while president, he did a much better job of dealing with energy issues than President Cheney- I mean Bush. In October 2000, the Clinton Administration released 30 million barrels of crude oil from the Strategic Petroleum Reserve which drove prices down and caused speculators to going running for cover.

In April of this year, even Hillary Clinton called for the Cheney Administration (I mean Bush) to "stop adding to the Strategic Petroleum Reserve and standing ready to release oil to counter market spikes and reduce volatility".

I am not going to support any of the candidates, but Hillary Clinton could have driven down oil prices dramatically with her plan- Hillary's Plan.

So, here we are. We have a no nothing, do nothing administrative branch that is tied heavily to oil. Based on what is happening today, are you really surprised at the outcome?

If you and I could sit down with 100 of the most devious minds in the world, and could put together a plan on how to inflict as much damage as we possibly could on the U.S. economy, we could not devise a more dastardly plan than what is currently being implemented.

1) The administrations energy plan is a disaster. Adding oil to the SPR over the last 7 years, the corn based ethanol mandate, allowing speculators to drive up energy prices, and constant threats of expanding the war in the Middle East is killing the U.S. economy.

Short sellers of oil are running for cover causing prices to spike above the $140/bbl mark.

Higher food and energy costs are making consumers choose between eating and commuting, versus paying down credit cards, lines of credit and auto loans.

2) The mortgage and credit crisis damage is beyond comprehension. The availability of credit and lax lending standards have led to a flood of foreclosures, and massive overbuilding nationwide.

3) A terrible fiscal and monetary policy is bankrupting the country, and causing the U.S. dollar to nosedive driving energy prices higher, and inflation to reach nightmarish levels. As far as monetary policy is concerned, the Fed is fighting a losing battle.

4) NAFTA, CAFTA, outsourcing, and the development of the North American Union has cost millions of Americans their jobs.

Some of the damage from the events above could be alleviated with a the bursting of the oil and commodity bubbles.

At this stage of the game, I believe energy, basic materials, metals, and most commodities are extremely over extended, and overdue for a sharp correction.

Dynamic Growth: ETF Portfolio

NEW BUYS:

None

NEW SELLS:

None

Here are our Top 10 ETF's for the week of June 30th:

1) DBA: Powershares DB Agriculture Fund- .523
2) SLX: Market Vectors Steel Index Fund- .500
3) EWZ: Brazil Index- .434
4) FXF: Currency Shares Swiss Franc Trust- .410
5) EEB: Claymore ETF BNY BRIC- .334
6) ADRE: BLDRS Emerging Markets 50 ADS Index Fund- .277
7) DUG: Ultrashort Oil & Gas Proshares- Not Rated
8) PGJ: PS Golden Dragon China Fund- .116
9) KBE: KBW Bank ETF- Not Rated
10) IYF: iShares Dow Jones US Financial Sector- Not Rated

Here are our Top 10 Fidelity Sector Funds for July 2008

1) FSCHX: Chemicals
2) FSMEX: Medical Equipment
3) FDFAX: Consumer Staples
4) FSCGX: Industrial Equipment
5) FCYIX: Industrials
6) FSPTX: Technology Portfolio
7) FSCSX: Computers & Software
8) FWRLX- Wireless
9) FSRBX: Banking
10) FSVLX: Home Finance

NEW BUYS:

FSCSX: Computers & Software
FSPTX: Technology Portfolio

NEW SELLS:

FSENX- Energy
FSDAX: Defense & Aerospace

Honorable Mention (Holds):

None

The Week in Review:

Stocks fell last week as energy prices spiked, and more bad news was released from the financial sector. Despite last weeks bearish market action, the Market Volatility Index (VIX) failed to rise to the fear levels seen in January and March.

During periods of extreme bearishness, the VIX spiked north of 31 when the Dow last bottomed. Last week, the VIX rose to 23.44 from 22.87 the prior week which tells us there is more downside to go for the major market averages.

June had its worst monthly decline since the Great Depression.

Earnings for the quarter are down 30% on average thus far. This compares to a drop of 57% for Q4-07, a 21% drop for Q3-07 and a rise of 13% for Q2-07.

Last week, UPS warned that second quarter earnings would disappoint, blaming higher fuel costs and a sluggish U.S. economy. Dow Chemical said it will raise prices by another 25% in July because of rising fuel costs.

American Express said that its customers were falling behind on their debt at a faster rate than anticipated.

For the week:

-Gold closed at $931.30/oz +27.60 for the week. Last week gold closed at $903.60, and was trading at $873.10 two weeks ago.

-The Commodities CRB Index closed at 464.40, up from 455.38 last week, and up from 445.87 two weeks ago.

-Crude Oil closed at $140.21/bbl up from $135.36last week, and up from $135.47 two weeks ago..

We need to see $75-$85/ barrel oil in the weeks ahead to get the economy back on track. Oil has remained above $100 for fourteen consecutive weeks.

-The U.S. Dollar closed at 72.29 down from 73.05 last week, and down from 74.13 two weeks ago.

Some believe the rate cuts have come to an end, and the dollar is attempting to rally. A strong rally in the dollar will help drive energy prices lower.

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
10% Equities: (Normally 20%) Conservative

If, and when the DJIA drops below 11,300, we will add another 5% to our allocations across the board. The next 5% increase will come at DJIA 10,600 for Aggressive, and Moderately Aggressive portfolios.

Moderate, Moderately Conservative, and Conservative investors are not advised to get fully invested unless the DJIA breaks below the 10000 mark.