John Mugarian's Dynamic Growth

I have been in and out of town quite a bit lately, and I need a break from the constant grind of daily "journal" posts. Besides, there isn't a whole lot more to add when it comes to the big picture. Often I feel like I am repeating myself, so a break is warranted.

Not much has changed, so I will reiterate the following;

1) Oil prices are declining in part due to the "election year magic" that I have referred to in the past.
2) Inflation is out of control due to high energy and commodity prices.
3) The U.S. is in a recession, but due to skewed reporting numbers (as is the case with the reporting of the inflation data), the economic powers are not ready to officially ready to declare the obvious.
4) Oil and commodity prices are also declining because the Chinese government ordered the provinces surrounding Beijing to cut the smog caused by industrial pollution by 70%. This dress rehearsal for the 2008 Olympics is to put a more positive spin on China's environmental issues. The Chinese government has ordered 40 factories to shut down from July 25 to Sept. 20, and has taken steps to remove 45 percent of the city's 3.29 million cars off the roads to cure the pollution problem.

The big question going forward is what will happen after September 20th. Oil prices go higher? Commodity prices rebound?

5) The Fed will probably begin raising interest rates in 2009 which tells me we are only half way through our "W" shaped recovery. The first leg down came as a result of an over leveraged consumer, bad debt, bad loans, and a credit crisis caused by an enormous real estate bubble.

Now that the GSE bill has been passed, and is ready for the President to sign, the bleeding in the financial sector will finally come to an end.

The next, and final leg down for the economy and the stock market will happen when the Fed raises interest rates to fight inflation.

6) As third world economies enjoy greater prosperity, the U.S. economy has secretly been destroyed by "financial terrorism". The free trade agreements have destroyed the American work force, and has allowed corporate executives to pay themselves millions of dollars.

Cheaper labor has meant greater profits for corporations, but has not lowered prices for most consumers.

7) A lowered standard of living in the U.S. has evolved as manufacturing jobs have been outsourced, but now, US companies are now engaged in outsourcing product development projects, R&D, and other high paying jobs such as engineering services.

Where does it stop? It doesn't.

Dynamic Growth: ETF Portfolio

NEW BUYS:

None

NEW SELLS:

None

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

1) DBA: Powershares DB Agriculture Fund- .366
2) EWZ: Brazil Index- .341
3) SLX: Market Vectors Steel Index Fund- .336
4) FXF: Currency Shares Swiss Franc Trust- .286
5) EEB: Claymore ETF BNY BRIC- .273
6) DDM: Ultra Dow 30 Proshares ETF- Not Rated
7) DUG: Ultrashort Oil & Gas Proshares- Not Rated
8) PGJ: PS Golden Dragon China Fund- .112
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 August 2008

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

NEW BUYS:

None

NEW SELLS:

None

Honorable Mention (Holds):

None

The Week in Review:

Despite the rally in the financials, many TV personalities on the financial channels continue to tell us to stay away. When everyone seems to be of the same opinion, I tend to look at the opposing side.

Obviously the trouble in the financial sector isn’t over yet, but going forward the sector is about to report favorable comparisons versus previous quarters in the months ahead. The key to success in a beaten down sector is to own the cream of the crop. Eventually, when things stabilize, the cream rises to the top.

Last week the economic news was not pretty. The unemployment numbers released last week hit a four-year high, putting the jobless rate at 5.7%. The economy lost 51,000 jobs in July, fewer than the 72,000 lost jobs economists polled by Reuters.

The economy has now lost 463,000 jobs since January, and July was the first time since May 2002 that the economy lost jobs for seven straight months.

The Fed’s latest Beige Book report showed that inflation remains a huge problem. The Fed is in a tough spot between fighting commodity inflation and dealing with weakening economy. We will know more about the Fed's response after the election.

If oil prices continue to fall after the November elections, inflationary pressures will subside. If the drop in oil prices was manufactured, and begin to rise after the election, the Fed may have no choice but to hike interest rates. If this happens, I believe we will see the final leg down in the "W" shaped recovery which can send the DJIA to 10,000 or slightly below.

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

Don't you love "election year magic?".

Oil and commodity prices are falling, and today the SEC has extended its emergency order prohibiting naked short selling until August 12th. The stocks protected from naked short selling are as follows;

BNPQF- BNP PARIBAS
BNPQY- BNP PARIBAS ADR
BAC- Bank of America
BCS- Barclays
C- Citigroup
CS- Credit Suisse
DSECY- DAIWA SECURITIES
DB- Deutsche Bank
AZ- Allianz
GS- Goldman Sachs
RBS- Royal Bank of Scotland
HBC- HSBC Holdings
BSI- Blue Square Israel
JPM- JPMorgan Chase
LEH- Lehman Brothers
MER- Merrill Lynch
MFG- Mizuho Financial
MS- Morgan Stanley
UBS- UBS
FRE- Freddie Mac
FNM- Fannie Mae

I'm just curious. What qualifications must a stock have to be placed on this protected list by the SEC? Why isn't naked short selling outlawed across the board? Why does the SEC have to extend an order for an illegal action if naked short selling is truly illegal?

If oil and commodity prices continue to fall, and are falling for reasons other than election year manipulation, the Fed will not have to worry about the inflation problem for much longer. If energy prices stay down after the election, the Fed will not have to be in any hurry to hike interest rates. This would be great news for us, and the stock market.

Our oil and gas short has worked beautifully. We added the (DUG) Ultrashort Oil & Gas Proshares to the DG portfolio on May 23 at $27.85/ share. The fund is trading near $39.00 giving us an unrealized gain of 40% or $11.15 points on the upside.

For those of you who follow my picks on Tipstraders.com, for some reason the website sold my DUG position without me knowing about it. I plan to hold the DUG shares into September unless I feel oil prices are set to rise again.

Here is a rundown of our other holding in the ETF portfolio;

DBA: Powershares DB Agriculture Fund-
Cost Basis: $34.77/ 1-24-08
Cur.Px: $34.26

EWZ: Brazil Index-
Cost Basis: $65.01/ 11-19-07
Cur.Px: $76.00

SLX: Market Vectors Steel Index-
Cost Basis: $77.38/ 11-25-07
Cur.Px: $80.87

FXF: Currency Shares Swiss Franc-
Cost Basis: $89.69/ 1-7-08
Cur.Px: $94.82

EEB: Claymore ETF BNY BRIC-
Cost Basis: $50.16/ 10-8-07
Cur.Px: $43.80

DDM: Ultra Dow 30 Proshares-
Cost Basis: $58.09/ 7-7-08
Cur.Px: $61.80

DUG: Ultrashort Oil & Gas Proshares-
Cost Basis: $27.85/ 5-23-08
Cur.Px: $39.00

PGJ: PS Golden Dragon China-
Cost Basis: $21.31/1-3-07
Cur.Px: $24.32

KBE: KBW Bank ETF-
Cost Basis: $42.50/ 2-11-08
Cur.Px: $33.66

IYF: iShares Dow Jones US Financial Sector-
Cost Basis: $89.31/ 1-24-08
Cur.Px: $73.51

Today, a barrel of Light Sweet Crude is trading at 119.90 (-2.84 from Monday) and the dollar rose to a six-week high against the euro.

The Fed is expected to leave interest rates at 2.00 percent as the economy continues to show extreme weakness.

Yesterday's markets were soft on economic news that showed the largest jump in consumer inflation since 2005. Oil prices dropped despite news of a Tropical Storm in the Gulf of Mexico. This is great news for the economy, but what happens after the election is any body's guess.

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

All of the views from our cat-bird seat tells me the U.S. has been in recession since late 2007. Since many of the economic numbers jammed down our throats insults our intelligence, we go by what is happening to the everyday person on the street. In short, now that the "big hat, no cattle" consumer can no longer spend home equity money on things they do not need, the U.S. economic slowdown is beginning to affect the rest of the world economies.

GDP growth in the second quarter came as a result of the one-time Federal income tax rebates, but the quarterly unemployment rate continues to rise, As it stands, the unemployment rate is now at 5.7%, and is projected to rise to 6.1% by the end of the year.

The good news is the stock market will anticipate an economic recovery 3-6 months before the recession ends. By mid-2009, I anticipate a recovery will occur if energy prices continue to decline. If not, the economic downturn will be much more painful since the Feds next move will be to raise interest rates to protect the dollar, and drive energy prices lower. My hope is energy prices will lead to a recovery, and the Fed will not have to force the issue.

Yesterday's Fed meeting was a waste of time. Everyone knew rates were going to remain unchanged, and the policy statement was consistent with the comments Bernanke made in his Monetary Policy Report testimony in July.

On the oil front, its amazing to see how much perception can change in less than a month. Over the July 4th holiday, consumers were being raped at the pumps because of some concocted excuse (supply/demand, Iran, Nigeria, or anything else they could concoct). Today, and even a day ago when a tropical storm was heading toward the shipping ports in Houston, oil prices were dropping like a rock. Currently, oil prices are down almost $30/bbl in about 23 days.

The thing that really disappoints me is how much we little people are manipulated and led around by our noses. We have a wonderful country with millions of wonderful people, but just like the movie "Mr. Smith Goes to Washington (1939)", we are held hostage by politicians who do not serve our best interests.

If you haven't seen the movie- here it is- Movie

I don't like to be Pollyanna when it comes money, and I am concerned that the recent drop in oil prices is due in part to election year manipulation. The other (temporary?) factor driving prices lower is the Chinese governments order to reduce industrial pollution by 70% before the Olympics. The steps they have taken are extreme, and ordering 45 percent of Beijing's 3.29 million cars off the roads to cure the pollution problem has to be looked at as temporary.

Once the Olympics and election are over, we will see if the drop in oil prices were prearranged, a ploy, a con job, or for real.

The financial media can lose you a lot of money. In mid to late 2007 they were touting the "Goldilocks" economy, and a few short months ago you were hearing how Gold was going to $1600 an ounce, Brazil, Russia, India, and China were going to dominate the world, and oil was going to $200/bbl.

In 2005 I told you the real estate market would collapse. In 2006, I told you the U.S. economy was going to go into a tailspin. In 2007, we went heavily into cash. And in 2008, I said the stock market was headed for a nasty fall, we sold oil at its highs, and that solutions to the current financial crisis would eventually appear.

Watching the interventionists over the years, I was convinced oil prices were going to fall as we got closer to the November presidential elections. I base my predictions on the assumption that capitalism in the modern financial ERA is run by organized groups that change the rules of the game for their own political and monetary gain.

In November, an unsuspecting electorate will choose between two candidates that follow the rules of the game that have been predetermined by these organized groups.

Our job is not to change the status quo. This we cannot do. Our job is to predict what they will do next.

Those of us who seek financial independence are in a constant battle with the financial interests of Wall Street bankers and their corporate friends whose purpose is to bog us down with debt, and to maintain their economic power over the little guy.

If you understand the rules of the game, use some common sense, you can side-step a lot of land mines. I will do my best to help.

Dynamic Growth: ETF Portfolio

NEW BUYS:

None

NEW SELLS:

None

Here are our Top 10 ETF's for the week of August 12th:

1) DBA: Powershares DB Agriculture Fund- .255
2) EWZ: Brazil Index- .295
3) SLX: Market Vectors Steel Index Fund- .285
4) FXF: Currency Shares Swiss Franc Trust- .250
5) EEB: Claymore ETF BNY BRIC- .234
6) DDM: Ultra Dow 30 Proshares ETF- Not Rated
7) DUG: Ultrashort Oil & Gas Proshares- Not Rated
8) PGJ: PS Golden Dragon China Fund- .112
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 August 2008

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

NEW BUYS:

None

NEW SELLS:

None

Honorable Mention (Holds):

None

The Week in Review:

Over the past 30 days the big story has been the drop in oil and commodity prices. I am not sure if the drop in oil is for real, or manufactured because of the election and the Olympics in Beijing. Right now, I have my doubts that oil prices are dropping due to sustainable demand destruction. Here are a few thoughts on the subject;

1) The drop in oil prices could be due to fears a democratic candidate would aggressively pursue new alternatives for energy over the long term. These alternatives would be wind, solar, nuclear, and fuel cell technology.

2) The drop in oil prices could be due to temporary measures taken by the Chinese to reduce industrial pollution by 70% during the Olympics. If this is the main reason for falling oil prices, we need to view the sell-off as a correction, and not a longer term trend.

3) The drop in oil prices could be due to temporary measures taken by the interventionists prior to an important presidential election.

4) Here in the U.S., we are being told that the drop in oil prices is due to "demand destruction". While I believe consumers are using less gasoline, I don't buy this as the real reason for falling oil prices.

Here is what I believe. Oil is a product that can control the lives of large masses of people.

Henry Kissinger has been quoted saying;

"Control the oil and you control entire nations; control the food and you control the people."

Oddly, the world is experiencing higher oil prices, and worldwide food shortages. Makes you think, doesn't it?

Every 10-15 we have an oil crisis that ratchets up the price of gasoline to a new level. When oil and gas prices shoot up to a new level that creates a panic, eventually prices settle in at a new and higher level that consumers can afford.

Recently gas prices hit over $4.00/ gallon which was viewed as extreme. If gas prices eventually settle in at $2.50/ gallon, consumers would see this as welcomed relief, and the oil gang would achieve their goal of higher levels for the price gas.

If oil prices drop to a price (but at a higher level) that becomes affordable for consumers, all the alternative energy solutions will be abandoned as they were in the past. But, if the growth in China and India are for real, and China revives their massive growth after the Olympics, then oil and commodity prices are heading higher.

For now, enjoy the rally. We will have a clearer view on the markets after the Olympics and the November elections.

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

The stock market came under pressure today after JP Morgan said it would write down mortgage-backed assets totaling $1.5 billion. In addition, Goldman Sachs fell after analysts said a slowing economy would hamper earnings.

The dollar rose to a 5 1/2 month high against the Euro leading to a further drop in oil prices. In addition, Russia called off military operations in Georgia.

On the subject of the Georgia-Russian situation, I had to laugh when our fearless leaders told Russia to halt their "aggression", and leave Georgia alone. Even the NWO's presidential mouthpieces, John McCain, and Barack Obama called for a cease-fire.

Isn't it amazing that in the rest of the world the press knows that Georgia initiated the violence that killed Russian peace-keepers and hundreds of civilians in South Ossetia. By the way, the Russian peace-keepers were in the country with the permission of the Georgian government.

And if our idiotic politicians want to debated initiating violence, and fighting a war that has no defined enemy, they should look no further than Iraq and Afghanistan. At least in Russia's case Georgia violated its agreement with Russia by attacking South Ossetia, and killed Russian peace-keepers in the process.

What's really strange is the Russians claim that the war in Georgia was orchestrated by the US. As I dug into the situation a little I found that the U.S. government was involved.

Keeping an eye on Wall Street is tough enough, but when you have to keep an eye on Washington too, things can get exhausting.

As we head closer to the election, I have a prediction to make. If Barrack Obama is elected president, he will not end the war in Iraq, and our troops will remain. So, I believe those voting for Obama thinking he will end the war will be very disappointed. I will not waste my time predicting what John McCain will do. I think that is obvious.

Oh, by the way, Congressman Ron Paul said he believes that House Congressional Resolution 362 paves the way for a military strike against Iran. Paul said,

“The frightening thing is they say they are taking no options off the table, even nuclear first strike,” “That is my sense because the Democratic leaders in the House are proposing no resistance whatsoever, “We saw this when a supplemental bill came up and the president asked for $107 billion for the war, the Democrat leadership gave them $162 billion.

“It is still totally bewildering to me when I see men and women in the Congress that I know and like doing this just to get along. Most of them will say ‘I agree with you on all you say but the Iranians are bad people and they might attack us some day. . . . I hear members of Congress saying if we could only nuke them.’”

Stay tuned a the oil trade during September-October time frame. I beginning to warm up to the idea.

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

Oil prices rose slightly this morning to $114/bbl after the EIA reported declines in its latest fuel inventories. Given this news, and the conflict between Georgia and Russia, we have to ask why isn't the reaction more bullish for oil?

1) The U.S. dollar continues to gain strength versus the Euro, Yen and British pound. The latest news from the European Central Bank suggests the next move in rates in Europe will be to cut. The slowdown in the European economy is making Jean-Claude Trichet re-think his strategy.

2) The Georgian/ Russian situation will cool down. The executive branch of the US government was up in arms over Russia's military actions in Georgia. Were they upset over military action and the killing of hundreds of citizens? No way! They were upset over a potential ramifications of the global oil supply. It so happens that the second longest oil pipeline in the world (Baku-Tbilisi-Ceyhan (BTC) pipeline) carries oil from Azerbaijan, through Georgia and Turkey to a terminal on the Mediterranean Sea.

If there was no potential oil disruptions in the region, we probably wouldn't hear a peep out of the executive branch.

3) China will continue to have reduced oil demand until the end of the Olympic games. See, to put their best face forward China is trying to reign in their incredible pollution (smog) problem by ordering 45 percent of Beijing's 3.29 million cars off the roads. In addition, several industrial plants around Beijing have temporarily shutdown.

4) Some demand destruction has taken place in the US as consumers continue to adjust what they drive, and when they drive.

5) Don't forget the election year magic that I keep referring to. Politicians like to pullout all the stops before an important election. Yes, this includes getting their friends to help push oil prices lower.

As we get closer to the end of Olympics and November elections, I'll be re-visiting the oil trade.

The Rest of the Story

Don't you find it odd that the rally in the financials ended yesterday, just as the SEC ban on a certain kind of short-selling expired.

The ban on short-selling took effect July 21 to prevent stock manipulation. I guess its ok to continue the manipulation again. Free markets? What a joke!

Bullish signs? Not according to Warren Buffett!

Based on the drop in oil and commodity prices, we can assume the CPI (inflation) numbers will begin to show less inflation. Right? I would be real quick to make that assumption.

Inflationary pressures give corporations an opportunity, and excuse to raise prices. The old adage of passing higher costs on to the consumer rings true. But, once inflation subsides, price hikes remain, and corporate profits soar.

This is why dollar cost averaging into the stock market during periods of market termoil makes sense. Sure, it would be easier to wait until the "all clear" signal is blown, but also blown are our chances to make the big bucks when the market begins to rally.

Through the years I have heard financial gurus say that they are willing to give up the first 20-30% on the upside to make sure the market has reversed its downward trend. I am not willing to give up that kind of profit. I, on the other hand, I want to dollar cost average in at various downside targets, and participate on all of the upside when the market turns.

The big news last week was the release of Warren Buffett's quarter investment holdings. In the period that ended 06/30/2008, Mr. Buffett only purchased one stock, NRG Energy Inc. (NRG), added to two others, IngersollRand (IR), and SanofiAventis (SNY). Since the latest bottom in the market didn't occur until after the reporting period, we don't know what he picked up (if anything) in July.

Since Mr. Buffett gets preferential treatment from the SEC in regards to reporting some of his positions, no one knows what he has done (bought more or sold) with his Conoco-Phillips (COP) position. This would have been nice to know now that oil prices are falling.

It's August, and many senior traders are still on vacation. After Labor Day, the markets could get much more interesting. With oil and commodities falling will they switch investment tactics- such as buy the financials, and short oil? We will see. Could a new trend be developing?

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

1) DBA: Powershares DB Agriculture Fund- .323
2) EWZ: Brazil Index- .310
3) SLX: Market Vectors Steel Index Fund- .293
4) FXF: Currency Shares Swiss Franc Trust- .250
5) EEB: Claymore ETF BNY BRIC- .225
6) DDM: Ultra Dow 30 Proshares ETF- Not Rated
7) DUG: Ultrashort Oil & Gas Proshares- Not Rated
8) PGJ: PS Golden Dragon China Fund- .112
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 August 2008

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

NEW BUYS:

None

NEW SELLS:

None

Honorable Mention (Holds):

None

The Week in Review:

The U.S. New World Order gang is mad at Russia for taking military action in Georgia. Subconsciously they must be saying, "hey, only we can do things like that!". I wonder if the U.S. response would have been different if oil and a pipeline wasn't involved?

Could the politicians be upset that British Petroleum (BP) owns 30% of the BTC pipeline that runs from Azerbaijan through Georgia, and into a terminal on the Mediterranean Sea? I would think so since BP said the pipeline will remain shut indefinitely.

Today's focus is on Tropical Storm "Fay". I don't know what all the fuss is about. Fay will not come anywhere near the oil platforms in the Gulf. It has however interrupted the slant drilling the Chinese are doing off the coast of Cuba.

Last week, five major banks agreed to buy back billions of dollars in auction-rate securities as part of a settlement with regulators.

The economic lies reported to the American public is finally being confirmed. In particular, the so called "benign CPI number" came in hotter than a firecracker. Consumer prices rose 0.8% in July, the fastest rate in 17 years. In addition, import prices are up 21.6% from July 2007.

The calls of a housing bottom earlier this year also turned out to be a fib. According to the National Association of Realtors, existing home sales (single family and condos) fell 16% to a 10-year low. Oddly, sales of foreclosures and short sales accounted for one-third of all existing home sales.

If oil prices continue to decline, the economy has a good chance of rebounding. I think that $75-$85/ barrel oil would reignite the economy pretty rapidly.

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

I was listening to Michael Savage on the radio a few days ago, and when he referred to the Bush administration as "A Bunch of Ivy League Frat Boys", I laughed until I cried. This is so true. If you stop and think about it, "Ivy League Frat Boys" have been running our government and Wall Street for the benefit of their families, or for the families and friends who have controlled the wealth in the our nation for many decades.

Michael Savage is really interesting to listen to. I happen to be conservative (but flexible), but I don't share the same views as the Republican Party (nor the Democrats) today. Here is how Mr. Savage defines the differences between Republicans and Conservatives. Very interesting.

The Wall Street bunch is on vacation until after Labor Day, some are at the beach, some have to work and are in Jackson Hole, Wyoming. In any event, the rookies and hedge funds are in charge right now.

I find it odd, as the Olympics are nearing an end, oil and commodity prices spiked dramatically yesterday. I really have no clue as to if or when the oils and commodities will rally. Its up the the "gang" and China. If China restarts the 40 manufacturing plants they shutdown prior to the Olympics (to curb the pollution problem in Beijing), those muted inventory numbers for energy could begin to reignite the oil markets again.

The only other factor that could hold energy prices down a little longer is the election. I really don't think there is massive demand destruction. The real temporary falloff in demand has got to be China- IE- the Olympics.

I'll have my comments on the stock market this weekend. Attempting to intelligently decipher what is going on until after Labor Day, the Olympics, and the elections is like trying to get a straight answer from a falling down drunk. Why waste our time?

Since we see the big picture, and know what it's telling us, why should we keep repeating ourselves.

Enjoy the rest of your summer! As for us, we are waiting for tropical storm Fay. If I don'y post anything over the weekend, it will be because we lost power. I don't think that will be the case however.

As I watched the closing ceremonies of the 2008 Olympic games in Beijing, I came away from the entire event with a sense of awe. The Chinese did a wonderful job, and their attention to detail was beyond impressive.

My takeaway from this massive show of detail and perfection quickly turned to the build out of China as a nation. Unless one has their heads in the sand, no one can deny that China will be one of the best, if not the best, economic superpower of the 21st century.

While the U.S. standard of living continues to decline, China's continues to grow. U.S. companies have fallen over one another to close up shop here in the U.S., and have moved production and manufacturing facilities to the Golden Dragon.

Investing is more about the sixth sense, gut feel, and growth, than it is a patriotic belief that U.S. companies and politicians will do the right thing. The "right thing" among these two begins and ends with how much money they can make. As it currently stands, the biggest untaped consumer in the world is not in the U.S, but in China.

Last week, oil rallied +$5.62/bbl on Thursday, and then sold off -$6.59/bbl on Friday. If you were watching closely, energy stocks rallied sharply on Thursday, but did not give back all of the gains despite a massive sell-off the next day.

Now that the Olympics are over, it will be interesting to see if the interventionists have enough muscle to drive oil prices below the 200-day Moving Average at 110/bbl before the November elections. I will also be watching the weekly oil inventory reports to see if China resumes their purchases of crude. If the inventory numbers magically show increased demand, then we'll know China is back in the game.

Speaking of oil, VP Dick Cheney will make a trip to Georgia and Azerbaijan in early September. Cheney is the point man for the major oil barons here in the U.S.. As I have said before, the U.S. administrations interests in Georgia are about oil, and not human life. Russia strongly opposes the plans of U.S. oil companies routing oil and gas through Georgia and Turkey instead of Russian pipelines.

The situation is much more complicated than the spin coming out of Washington. Just remember, it's all about oil. Higher oil prices are killing the U.S. economy, and is adding to the pain in the housing and credit crisis. Lower oil prices would put more cash in consumers pockets which would allow them to payoff debt, and create surplus cash for discretionary purchases. Unless prices decline ($75-$85/bbl), the economy will have a tough time recovering.

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

1) DBA: Powershares DB Agriculture Fund- .332
2) EWZ: Brazil Index- .304
3) SLX: Market Vectors Steel Index Fund- .279
4) FXF: Currency Shares Swiss Franc Trust- .207
5) EEB: Claymore ETF BNY BRIC- .212
6) DDM: Ultra Dow 30 Proshares ETF- Not Rated
7) DUG: Ultrashort Oil & Gas Proshares- Not Rated
8) PGJ: PS Golden Dragon China Fund- .112
9) KBE: KBW Bank ETF- Not Rated
10) IYF: iShares Dow Jones US Financial Sector- Not Rated

The highest ranked ETF's in our universe remains T-Bills, short term bonds, crude oil (which may or may not decline further), and commodities.

At this juncture, I prefer holding cash instead of a bond ETF, and I am not comfortable with owning oil just yet.

Here are our Top 10 Fidelity Sector Funds for August 2008

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

NEW BUYS:

None

NEW SELLS:

None

Honorable Mention (Holds):

None

The Week in Review:

Last week the stock market remained little changed on low volume. As I stated on Friday, most of the senior traders and "Ivy League Frat Boys" are on vacation. The Wall Street gang will be on vacation until after Labor Day.

The positive news, if the trend continues, is the dollar is rebounding, and commodity prices and oil are dropping. This is welcomed news, and is helping to reduce inflationary pressures.

Economic Reports This Week

-Monday, Jul Existing Home Sales (previous -2.6%).
-Tuesday, Jul New Home Sales (previous -0.6%).
-Wednesday, Jul Durable Goods Orders (previous 0.8%).
-Thursday, Q2-08 Preliminary GDP (previous 1.9%), Q2-08 Preliminary Corporate Profits.
-Friday, Jul Personal Income (previous 0.1%), Jul Personal Spending (previous 0.6%), Aug Chicago PMI (previous 50.8), End-Aug Reuters/U Mich Sentiment Index.

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

The Rest of the Story

I am seeing examples of unprecedented crimes talking place in the stock market. Though the media has not comprehensively brought these things into focus, I thought I would.

Remember in July when the SEC put a ban on the "naked" short-selling of 19 financial stocks? "Naked" is the key word here. This means that the institution or individual shorting a stock was never loaned the stock in the first place. There is an infinite amount of danger to a company or stock that has become the target of a "naked" short seller.

Here is the danger;

1) Let's assume a hedge fund places a "naked" short sell on a stock. This means they never received permission from a brokerage firm to borrow the shares that they shorted.

2) Let's assume the hedge fund blows up, goes bankrupt, or folds. Since they never borrowed the shorted shares, the shares are never unaccounted for, and never returned.

3) Since the hedge fund is now out of business, they can't buy back the "naked" short sale, and the money that was stolen by the short seller has vanished.

In essence, naked short selling is a tactic used by crooks and thieves to steal money from the market place. If a "naked" short is never covered, the money is sucked out of you, me, and the company they illegally shorted.

I encourage you to read the following websites to fully understand how this crime is being perpetrated on you the investor.

Deep Capture

Forbes

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

The rally off the July lows has been rather muted. This lack of conviction tells me that the vacationing senior traders told the rookies to "hold the stock market in a trading range until we get back".

This being said, I believe when the senior traders return, the Standard & Poor's 500 has a better than average chance of re-tested its July lows. In fact, the macro news is bad enough to assume the S&P could break below the July lows, and put in an important market bottom sometime this fall.

From the July 15th lows to the August highs have allowed the S&P, DJIA, and the NASDAQ to rally 9.4%, 9.6% and 14.11% respectively. Since this rally was produced from oversold levels. falling oil prices have helped to preserve the gains. However, now with the prospects of a major hurricane threatening the gulf, oil prices are creeping higher.

Without a hurricane, we felt the S&P could rally to the 1,325-1,350 level, and the DJIA could run to 12,000-12,250 before encountering resistance. This was all predicated on the cooperation of lower oil prices. Hurricane Gustav's current tracking projections put the storm just south of New Orleans. Any interruptions of the majority of drilling platforms will not be good news for the price of oil.

Lower oil prices have helped to alleviate pressures on the consumer, but questions about future write-offs in the financial sector will continue to weigh the market down. Until investors can see the light at the end of the tunnel in the financials, a new bull market cannot begin. As such, I continue to believe the recent oversold rally will eventually fade.

Oddly, the stock market is at the same level as it was two months ago. On June 27th, the S&P closed at 1,278.38, and today its at 1,276.89. So, I guess the instructions from the senior traders are being followed- "Hold'em in a Trading Range Until We Get Back".