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.