John Mugarian's Dynamic Growth

While the Wall Street spin machine continues to scare investors into oblivion, consumers were buying everything in sight on Black Friday. I even got into the craze and bought several items from a company started by a young man by the name of Ralph Rueben Lifshitz- better known as Ralph Lauren (Polo).

I stopped by Best Buy (BBY), and the store was jammed. People were walking out pushing large pallets stacked with computers and large screen TV's. I asked the manager of the store what was the big seller of the day. He responded, "everything."

I looked, and watched, and consumers were buying, and buying big.

Here's the skinny on the Wall Street Spin Machine. As long as you're scared, as long as you sell and create bargains in the market, this allows them time to accumulate stocks. Please keep in mind the "Snake and the Mouse" analogy I describe to you a few weeks ago.

Last week, the Investment Company Institute reported that "retail money market funds increased by $3.71 billion to $1.277 trillion", and "institutional money market funds increased by $29.40 billion to $2.438 trillion". The total amount of cash now on the sidelines stands at an astounding $3.715 trillion dollars.

Clearly the snake has gotten the mice to sell. As the mice were selling, investors like Carlos Slim and Warren Buffett were scooping up bargains.

It reminds me of Mr. Potter from "It's a Wonderful Life."

As a contrarian, I like to position myself ahead of the $3.715 trillion before it re-enters the market. When the money comes pouring back in, it will be like wild herd of elephants rushing in to buy.

Here's an interesting observations. Clearly the "Man behind the Curtain" loves Barrack Obama.

Heck, it seems every time Obama speaks, the market rallies. That's okay with me. This being said, I don't think the "Man behind the Curtain" will allow a huge rally until Mr. Obama takes office in January 09.

What's a little disturbing is Obama’s “hope and change” transition or appointments are being filled with promoters of globalization and NAFTA supporters. So, those who fear that America will retrench into protectionism can rest at ease since 32 people named for the new administration one served in the Clinton Administration.

The other fear that needs to be dispelled is the one about taxes. The democrats want to be re-elected in 2012, they aren't going to do anything to hurt those chances. While taxes may rise for some, it will not hurt the economy.

Here are our Top 10 ETF's for the week of December 1st:

1) DBA: Powershares DB Agriculture Fund
2) EWZ: Brazil Index
3) DBE: PowerShares DB Energy
4) VTI: Vanguard Total Stock Market ETF
5) EEB: Claymore ETF BNY BRIC
6) DDM: Ultra Dow 30 Proshares ETF
7) KBE: KBW Bank ETF- Not Rated
8) IYF: iShares Dow Jones US Financial Sector
9) PGJ: PS Golden Dragon China Fund
10) SSO: ProShares Ultra S&P500 Trust

Here are our Top 10 Fidelity Sector Funds for December 2008

1) FSCHX: Chemicals
2) FBIOX: Biotechnology
3) FSCGX: Industrial Equipment
4) FCYIX: Industrials
5) FSPTX: Technology Portfolio
6) FSCSX: Computers & Software
7) FSCPX: Consumer Discretionary
8) FNARX: Natural Resources
9) FSRBX: Banking
10) FSVLX: Home Finance

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

The pattern of the markets is rather simple. The hedge funds are facing massive liquidations, and while this is happening, the big money waits until ridiculous prices appear. Then, like a rattle snake coiled under a rock, they strike with lightning speed and buy.

So, who is the big money? Wouldn't we all like to know? I have my suspensions, but lets just say they aren't the ones not mentioned on CNBC, they aren't mentioned on the Forbes billionaire list, and they don't appear on any insider trading websites.

For those of you who have felt a little left out through the years, here's your chance to get a jump on the hedge funds (those left standing) before the all clear signal is sounded. Buying stocks like GE around $15, and the newly anointed CitiGroup at $6, has to be looked at as a gift. Oh, I have many more in mind, but you can see them just as good as I can.

The markets will remain extremely volatile until the hedgies are wiped clean. I don't know how long that will last. Even with the improved access to info via the internet, what we need to know and what the big money knows are two different things.

Clearly, this is get even time for investors like you an me. Accumulating stocks at these levels will look like genius moves a few years from now. In my opinion, this is not the time for day trading. Sure, you can play the wave and look like Peter Lynch for a while, but when the train leaves the station (the new bull), the next group of investors who will look like a deer caught in headlights will be the day traders.

Even the Financial Commentators are Bored

From time to time I will listen to the sounds coming from the financial channels, the rest of the time it is firmly on mute. I can't help but laugh at the recent commentaries since nothing of substance has been issued since Lehman and Bear Stearns went belly up.

Here's Cramer's take on Bear Stearns on March 11, 2008- Cramer on YouTube.

Cramer says the market is rigged -YouTube. I've been telling you this since 2005.

So, like I said above, use the MUTE button on your TV remote.

Today, the CNBC gang are playing "follow the CEO's car" as executives from the "Little 3" in Detroit make their way to capital hill. I don't hear these people issue the same criticism toward the executives at GE who are also sucking eggs after mistakes from their financial division.

Oh, by the way, GE executives are again proving themselves as idiots by allowing their NBC division to get rid of Jay Leno for Conan O'Brien. How stupid is that?

Today's Market: Frankly, it's not that interesting!

Research In Motion cut its outlook.

The ADP Employer Services report said that private employers cut jobs by the largest amount in seven years.

Freeport-McMoRan Copper & Gold slashed its copper output and suspended its dividend.

Amazon said that spending at online retailers rose 15% on Cyber Monday.

The senate committee better take it easy on the auto execs tomorrow. Condemning their rides on private jets may make other companies balk on giving congressman and senators free rides to fancy resorts to meet their mistresses and hookers.

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

You've heard of the "good cop, bad cop" technique... It's effective on younger and more vulnerable suspects to force a confession. In investing, The Wall Street Gang knows that investors become helpless, and less educated when you spread words like "The Great Depression II" across the airwaves.

Isn't amazing how cocky and well educated investors are during rip roaring bull markets, and how meek, confused, and fearful they become during bear markets? All these programmable robots have to do is listen to the media. They will tell you how to think, and what to say...in every situation.

For those of you who are not programmable robots, here's what I think is about to happen;

A week ago I said that " The mood of investors is changing". In the months ahead I believe the path of the markets take over the next few years will be much more favorable for investors. In fact, investors who continue to dollar cost average into the market at these levels will look like geniuses in a year or two.

Despite the daily deluge of negative news, the stock market has become more resilient. Now than the bone heads at the National Bureau of Economic Research finally confirmed (a year too late) that we are in a recession, investors can now look toward a recovery.

The National Bureau of Economic Research is worthless. If you were a year late for your job, you wouldn't have one.

Technically, my short term (1-3 months) target for the DJIA is 9500-9800. For the SPX 975-1000, and the NASDAQ 1750. Those short term gains will be tested, but in 2009 I am expecting a continuation of the rally. Longer term, by election day 2012, I am looking for a retest of the highs on the Dow and S&P, and by 2016 the NASDAQ may be approaching new all time highs.

Yesterday was another roller-coaster ride, but a resilient one. The DJIA fell about 185 points on the open, but closed up 172 on the day.

The VIX index close at 60.72, and some are calling a VIX number of 40 the new 20. What a bunch of crap!

The November employment report will be released on Friday before the open. Does anybody in their right mind think this number will be positive? Expect more volatility, but expect an upward bias into January and February.

Today, the CEOs of the "Little 3" will appear in front of the bureaucrats that gave tax breaks to foreign car makers allowing them to capture a huge share of the American auto market. Oddly, these politicians kissed the asses of the CEO's of the financial industry, but chose to make an example out of the auto execs.

I have to admit I would chastise the Chrysler CEO Robert Nardelli. I would ask him to wear his Home Depot hat during the meetings. Nardelli was once CEO of Home Depot, and is now a worker ant for the country club elitists of Cerberus Capital. If you remember, Cerberus hired former Secretary of the Treasury, John Snow as their Chairman. As you can see, these people take care of their own. It's a country club, and they are elitists.

What's fair for one should be fair for all, but it isn't. Shysters from the New York investment banks created the unregulated credit default swaps that are wreaking havoc in the economy.

New definition of Insanity;

Having your brokerage account with a New York investment bank.

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

Today's big news was the unemployment rate climbing from 6.5 percent in October to 6.7 percent in November. Please excuse my slightly dyslexic vision, but doesn't that put the employment rate at 93.3%. All things being equal, 93.3% on school exam is considered excellent.

Don't get me wrong, I feel for anyone and everyone who is without a job. Any person who is ready, willing and able to work should have a job.

The Labor Department reported that non-farm payrolls plunged by 533,000 last month, a much higher level than analysts expected. The unemployment rate rose to 6.7%.

As jobs were being outsourced to foreign countries, President George Bush suggested to those out of work to go back to school.

I guess he took a page out of the Rodney Dangerfield movie, "Back to School". Take a look at this video clip and fast forward to 3 minutes and 30 seconds as Rodney tells his kid that he needs to stay in school.

Back to School- Video

Now that we all understand how corrupt the business practices are on Wall Street, in the next Rodney once again tells how economics are done in the real world. It is very funny, but not that far from the truth- Video

Now that we have had a brief lesson in logic and semantics, and a taste of how business is done in the real world, lets like a look at what John Williams' Shadow Government Statistics say able the real unemployment rate.

I am out of the office due to an illness in the family. There are no changes to the DG portfolio, and I will post updates when I can. For now, I have to deal with family issues.

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

1) DBA: Powershares DB Agriculture Fund
2) EWZ: Brazil Index
3) DBE: PowerShares DB Energy
4) VTI: Vanguard Total Stock Market ETF
5) EEB: Claymore ETF BNY BRIC
6) DDM: Ultra Dow 30 Proshares ETF
7) KBE: KBW Bank ETF- Not Rated
8) IYF: iShares Dow Jones US Financial Sector
9) PGJ: PS Golden Dragon China Fund
10) SSO: ProShares Ultra S&P500 Trust

Here are our Top 10 Fidelity Sector Funds for December 2008

1) FSCHX: Chemicals
2) FBIOX: Biotechnology
3) FSCGX: Industrial Equipment
4) FCYIX: Industrials
5) FSPTX: Technology Portfolio
6) FSCSX: Computers & Software
7) FSCPX: Consumer Discretionary
8) FNARX: Natural Resources
9) FSRBX: Banking
10) FSVLX: Home Finance

After seeing all of the corruption unfold in the United States, I am saddened and ashamed of what the once great red, white and blue has become. If you want to read a good book on how our nation has evolved into its present state, read a book written by David Callahan called "The Cheating Culture". In the book, Callahan documents how American values have changed, and how people have become more selfish and cutthroat in their quest to get ahead.

During this terribly embarrassing time of lying, cheating and stealing in America, I want to leave you with this quote for the holiday's. This is a quote from Santa Claus in the movie "Miracle on 34th Street."

" I am a symbol of the human ability to suppress the selfish and hateful tendencies that rule the major part of our lives."

" If you can't believe; can't accept anything on FAITH; then you are doomed for a life dominated by doubt."

Santa Claus
"Miracle on 34th Street"
1947

50 years later, we hear about a culture that allowed the creation of bogus mortgage investments, and hedge funds who created rumors to maliciously destroy companies.

Despite the havoc created by Bear Stearns (Alan Schwartz & James Cayne), Lehman Brothers (Richard Fuld), AIG (Hank Greenberg & Martin Sullivan), Citigroup (Charles Prince), Fannie Mae (Daniel Mudd), Countrywide Financial ( Angelo Mozilo), Freddie Mac (Richard Syron), Merrill Lynch (Stan O'Neal ), Wachovia (Kennedy Thompson), and WaMu (Kerry Killinger), we know have another guy to add to the list.

The new culprit is Bernie (I "Made Off" with your money) Madoff. The crooks on Wall Street ranked Bernard Madoff Investment Securities LLC one of the 25 most successful firms. The $50 billion investment business reported phony returns of 10 percent and 13 percent annually. Madoff was taking money coming in from new investors and it paying out to existing investors.

As these Bankers and Wall Street thieves flew into Washington on their company jets, they were treated much more respectfully than the CEO's of the "Little 3" automakers. When these CEO's testified in front of the Senate Banking Committee, they were treated like criminals. The real criminals testified a few months earlier.

Unlike the bankers,the automakers in Detroit did not create the current economic crisis, they were simple victims of it.

Some time ago Congress approved a $25 billion loan for the auto companies under the Energy Independence and Security Act. It hasn't been funded because it requires the automakers to increase the average fuel efficiency for vehicles to 35 mpg. How the heck are they going to do that? Given the short amount of time given, even the guys who bombed Pearl Harbor can't pull this one off.

Not granting the automakers a bridge loan, and allowing the bankers to get $700 billion speaks volumes to who runs both houses of congress.

Finally, as you watch the financial channels, be very weary of who is giving you ideas and advice. Read the book "Wall Street Meat" or "The Fortune Tellers", and you'll see how Wall Street feeds the media with garbage to get the little guy to act.

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

1) DBA: Powershares DB Agriculture Fund
2) EWZ: Brazil Index
3) DBE: PowerShares DB Energy
4) VTI: Vanguard Total Stock Market ETF
5) EEB: Claymore ETF BNY BRIC
6) DDM: Ultra Dow 30 Proshares ETF
7) KBE: KBW Bank ETF- Not Rated
8) IYF: iShares Dow Jones US Financial Sector
9) PGJ: PS Golden Dragon China Fund
10) SSO: ProShares Ultra S&P500 Trust

Here are our Top 10 Fidelity Sector Funds for December 2008

1) FSCHX: Chemicals
2) FBIOX: Biotechnology
3) FSCGX: Industrial Equipment
4) FCYIX: Industrials
5) FSPTX: Technology Portfolio
6) FSCSX: Computers & Software
7) FSCPX: Consumer Discretionary
8) FNARX: Natural Resources
9) FSRBX: Banking
10) FSVLX: Home Finance

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

We all have questions like; What is going on?, How did we get here?, What's going to happen in the future?. I will attempt to answer these questions below.

As you are well aware, we were negative on the stock market and the economy well before the downturn started. I warned people about the impending bubble in real estate and consumer debt. Some listened, some did not. Now however, I am no longer negative on the stock market. I was negative at 14,000, but once the market broke below 10000, I became increasingly positive. Below Dow 8500 (Dow Jones Industrial Average), I feel the market is much safer than it was 5500 points ago (14000).

With the major market indexes down over 40%, I feel we are in the midst of one of the best buying opportunities we will ever see. This being said, investors must restrain themselves from getting invested above their pre-determined asset allocation plan. In many cases we were under invested by a large percentage in most investment plans.

By taking the steps we did in 2007, we not only outperformed the major market indexes, but saved investors an extreme amount of anguish along the way. In addition, many accounts have an abundance of cash to take advantage of the current market turmoil.

Before I get started, here is a great video of how Adolph Hitler would have reacted if he had gotten suckered into the Real Estate insanity- YouTube Video

Questions and Answers

Q: What is going on in the economy and stock market?

Answer:

Actually, several things;

1) Real Estate investors got suckered into one of the biggest bubbles of modern times.

2) Lenders took advantage of unsuspecting borrowers by issuing interest only loans, adjustable rate mortgages, and lines of credit on bogus real estate valuations.

3) Lawmakers forced lenders to issue mortgages to people who did not have the means to pay back loans.

4) Wall Street packaged these bad mortgages into bonds, and sold them to banks, corporations, and foreign governments.

5) The rating agencies rated Wall Street's junk mortgages AAA by packaging good mortgages with the bad ones.

6) These mortgage bonds are normally traded in a secondary market (like any other bond). The secondary market for these bonds has shutdown, and as such no one knows what they are worth. Banks and corporations holding these bonds are forced to value these bonds on their balance sheets without any indication of what they are worth.

This is known as the "mark to market" accounting rule. Since these bonds are not worthless, but are being treated like they are, banks and corporations are going through a huge de-leveraging process. Banks, corporations, and foreign governments are scrambling to raise new capital while they write down these bad assets.

This process of having no secondary market for mortgage bonds is creating havoc in the stock market. Banks and lenders have tighten credit standards, corporations are having a tough time borrowing money for short term funding, so the entire flow of money and capital was temporarily frozen.

The recent steps by the Federal Reserve and Treasury to inject capital into the system has solved a major part of the liquidity crisis.

Q: Why did the economy fall off a cliff in September and October?

Answer:

Consumers were more worried about their bank collapsing than buying new stuff at the malls. Now that the FDIC has raised the deposit insurance for banks, consumers are more at ease.

The consumer was like a deer caught in the headlights of an oncoming car. We saw a similar situation in 2000 when the US presidential election of Bush vs Gore was tied up in court during the all important shopping months of November and December. Deja vu?

Q: What do you think will happen in the future?

Answer:

While it's easy to get rapped up in manias and hype's (I.E. - The NASDAQ in 2000, Real Estate, Dow 14,000) the big money is made when there is blood in the streets and widespread pessimism.

The smart money likes to invest in the markets during periods of turmoil, and these investors will hold positions until the next bull market begins to mature. I believe the smart money is accumulating at these levels, and they will not sell for another three to four years. What we are witnessing is a good ole dose of gloom and doom. I realize it's tough to look at the monthly values on your account statements, but these things you have to ignore.

On November 10th in my blog I said;

As credit returns to the market place banks are more confident to loan to one another, and as the Christmas season approaches, I don't believe the massive contraction in spending that many are expecting will occur. Sure, there will be a pullback, but I believe when the consumer spending numbers are released in January and February, you will see headlines like; "Consumer Spending was Better than Expected".

In vindication of my November 10th commentary, the major financial networks announced that retail sales for "Black Friday" were 3% higher than in 2007.

Here's what I think will happen;

-The big 3 automakers will be extended a loan from the US government (similar to the one Chrysler received in the 1970's)

- The government will put together a package to support delinquent homeowners.

- The market to market accounting rules will be repealed.

- The government will implement a massive tax stimulus program as well as lowering taxes for the middle class.

-The SEC will reinstate the uptick rule for short sellers.

- The government will implement a massive fiscal stimulus package that will be used to build and repair roads, bridges, and other infrastructure projects.

The Federal Reserve will lower key short term interest rates to .50 or 1/2%.

In anticipation of the above, I feel the stock market will begin to dig itself out of its deep hole. An initial rally off the bottom will be strong, violent, and breathtaking. After this rally, I would expect a sharp decline, but following a pattern of higher highs, and higher lows.

After a 9-12 months, the stock market will begin to sustain rallies as economic times continue to improve.

By the end President Obama's first term, the Dow and S&P will be at or approaching new highs.

From 2005 to 2007, I went against the grain and held a very pessimistic view. I am going against the grain again in 2008, I am now an optimist.

Q: What should we as investors do to remain calm?

Answer:

If you watch CNBC during the day, make sure the volume is on MUTE.

Today is the first day of Hanukkah, and Christmas is on Thursday. The "real" market movers and shakers are not at work this week. This being said, I plan to join them in a few hours.

By now you should be convinced that the U.S. has become (or has been for a while) one of the most corrupt countries on the planet. This list of misdeeds and dishonesty are too large to list. From Wall Street to Main Street to Washington DC, we have become a lawless society.

A society built around decency and strict enforcement of laws does not live in fear. Our citizens live in constant fear. A decent and lawful society does not have to worry about "street gangs", putting bars on their windows, or even having a burglar alarm system for their homes. A decent and lawful society does not have to worry about Wall Street thieves tanking the economy, or their politicians and legal system beholden to these chosen few.

A decent and lawful society does not have to go out and buy a handgun to protect their families from predators, but unfortunately to level the playing field, many have to. In short, we live in a dangerous society of liars, thieves, crooks and con men.

The Wall Street Journal is reads like a scandalous rap sheet.

Here is a partial list of past and present liars, thieves, crooks and con men;

Street Gangs
Wall Street Investment Banks
CEOs who enrich themselves through stock options and fraud
Enron
WorldCom
Tyco
Accounting firms and financial engineering
US and European banks
AIG
Bear Stearns
Lehman Brothers
CitiGroup
Political Crooks

And, many, many more...

Market Overview

Attempting to analyze the markets this week is a waste of your time. Go enjoy your family. I believe in the weeks ahead the news will continue to be bad, but the markets will continue to rally. The Fed and Treasury have pulled out all the stops, and the current deflationary trend will eventually turn inflationary.

The stock market will anticipate a recovery, and in the months ahead look for a rebound in energy prices, precious metals, agriculture, and the CPI number. I am also looking for the dollar to fall, and longer term bond yields to rise. The big bubble right now is in the Treasury Bond market.

In the DG ETF portfolio, we are positioned for a rebound in commodities, as well as a rebound in the financials and major market indexes. Now that the Wall Street Gang has you scared to death, and got the average investor swearing they'll never buy another stock, it's time for a big rally

Here are our Top 10 ETF's for the week of December 22nd:

1) DBA: Powershares DB Agriculture Fund
2) EWZ: Brazil Index
3) DBE: PowerShares DB Energy
4) VTI: Vanguard Total Stock Market ETF
5) EEB: Claymore ETF BNY BRIC
6) DDM: Ultra Dow 30 Proshares ETF
7) KBE: KBW Bank ETF- Not Rated
8) IYF: iShares Dow Jones US Financial Sector
9) PGJ: PS Golden Dragon China Fund
10) SSO: ProShares Ultra S&P500 Trust

Here are our Top 10 Fidelity Sector Funds for December 2008

1) FSCHX: Chemicals
2) FBIOX: Biotechnology
3) FSCGX: Industrial Equipment
4) FCYIX: Industrials
5) FSPTX: Technology Portfolio
6) FSCSX: Computers & Software
7) FSCPX: Consumer Discretionary
8) FNARX: Natural Resources
9) FSRBX: Banking
10) FSVLX: Home Finance