John Mugarian's Dynamic Growth

I read an interesting comment last week rebuking the bears call that the current rally was nothing more than a bear market rally. The person quoted in the article said, "all new bull markets began with bear market rallies". This was a great rebuttal.

In every market, bull or bear, it is wise to look all around you, tune out the noise, and make some common sense decisions. In other words, you need to grow eyes in the back of your head.

Clearly, Wall Street is one huge garbage dump. Garbage is thrown at you daily, and it is up to you to decide what is salvageable, what is garbage, and if someone has thrown something away that is valuable.

One of Wall Street's misdirections is to tell you something is garbage when it is actually extremely valuable. That's why in crushing bear markets it is wise to buy the highest quality investments on the planet.

In the days ahead, Wall Street will continue to reprice assets. During the early March lows, assets (stocks) were being priced for a economic depression. The current market rally is beginning repricing assets (stocks) for an economic recession.

As the markets begin to reach extremes for the recessionary climate (early summer), traders will take the opportunity to take profits. Common sense dictates that the economic recovery will not be quick, and lowered expectations will take hold after the initial stock market burst.

After the summer break, I would not be surprised to see a sizable sell-off that extends through October. Over the next few years, I am expecting a slow recovery that really doesn't gain any momentum until 2010.

As for now, I am looking for a rally into early summer that could carry the S&P slightly above 1000, and the DJIA just above 10,000. At these levels, I am looking to book a few profits, sell covered calls, and even place a few defensive shorts.

Here are our Top 10 ETF's for the week of April 13th:

1) DBA: Powershares DB Agriculture Fund
2) EWZ: Brazil Index
3) DBE: PowerShares DB Energy
4) USO: U.S. Oil Fund
5) VIS: Vanguard Industrials
6) DDM: Ultra Dow 30 Proshares ETF
7) IXP: iShares S&P Global Telecom
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 April 2009

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

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

You're probably thinking the same thing I am. Now that the market has rallied off depressionary lows, should I sell and wait for the next shoe to drop, or should I hold? Is this just another bear market rally, or something more?

I share your concerns. At times, in the "great stock market game" if misinformation, I personally feel that holding positions is the way to go as long as you have a comfortable cash position. We all want to have cash just in case we're wrong, but at the same time we need to ask ourselves, if we sold at current levels, could we get back in at the same price?

My guess is, probably not.

Clearly there is a battle going on between the bulls and bears. Some reports suggest that hedge-funds have become net sellers of US stocks after being buyers over the past four weeks. Frankly, this is what hedge funds do- they trade.

On the other hand, mutual funds have been net buyers of US stocks for past three weeks. And to sift through all the garbage, hedge funds buy, sell, and short stocks, while mutual funds just buy or sell.

Let me throw in one more thought. After seeing and hearing about all the corruption surrounding hedge funds, my bet is hedge funds are selling to meet client redemption's. In short, no one trusts these unregulated entities anymore, and their clients want out.

In addition to the lack of trust, hedge fund investors have another problem to deal with. When they give their broker an order to liquidate their hedge fund accounts, they won't get their money back until a predetermined date in the future, and don't really know how much they will get back. On top of all of this, most hedge funds charge a fee of 2% on the value of the account plus 20% of the profits.

Given all the information above, what harebrained moron would keep money invested with a hedge fund?

I comparison, a mutual fund investor knows daily what their account is worth. They know what fee they are being charged, and if they happen to place a sell order, they know by the end of the trading day how much they will get back. To me, this makes a heck of a lot more sense.

The hedge fund craze started in 2002 when the HF's agreed to accept smaller client accounts from retail clients at brokerage firms. In years past, the minimum investment was a million dollars, and the client needed to have a substantial net worth- better know as an accredited investor.

This initial requirement was watered down when the HF's agreed to accept smaller, but numerous accounts from clients brokerage firms.

I was a broker when the brokerage firms first began their campaigns to pool smaller accounts (like yours) with HF's. At our weekly meetings we were told that a small portion of our clients accounts should be placed with a hedge fund. We were shown the investment results, and were also shown the YTB- Yield to Broker.

Despite the high pay incentive the broker, I was not a willing participant, and to this day have never placed any of my clients money with a hedge fund. Let me go a step further, I never will. In short, I don't trust the bastards.

What upsets me the most is the number of political White House cabinet members who got into the Hedge Fund business after they left government;

-Richard Breeden, former chairman of the Securities and Exchange Commission, is now a hedge-fund manager.

-Former Secretary of State Madeleine Albright (Clinton Administration) started an emerging-markets hedge fund called- Albright Capital Management. Albright has no prior investing experience.

-Former Treasury Secretary Lawrence Summers (Clinton Administration) took a job as managing director at the private-equity firm D.E. Shaw.

-Former Treasury Secretary John Snow (Bush Administration) was appointed chairman at the hedge-fund/private-equity firm, Cerberus Capital.

-Former Vice President Dan Quale (Bush Sr.) also took a job with Cerberus Capital.

-Former Secretary of State Henry Kissinger is said to have a roll advising hedge funds "on how geopolitical events affect their investments."

My thought process going forward is this;

1) If I had an ample cash position, I will not be selling into the current advance.
2) There will be sharp pullbacks as we grind higher over the next 3 years. Just expect it.
3) To hedge my portfolio, I would buy inverse ETF's, buy puts, and sell calls.
4) If an investor sold a stock that they really wanted to own over the next three years, in fear that it would go back to it's prior lows, I doubt if they could get back in at the same price or lower.
5) I believe that the same mindset that argued that the market would not not go down, is being used for why it will not go back up.

These people were "Wrong on the way down, Will they be Wrong on the way up ?

I think so...

From the March 6th intra-day lows, the S&P 500 has rebounded 28%. The reasons for the advance are obvious, and Wall Street is continuing to reprice assets. By this I mean, during the March lows, assets (stocks) were being priced for a economic depression. The current market rally is beginning repricing assets (stocks) for an economic recession.

Clearly, markets never move in a straight line. Short term technical indicators are overbought and a normal correction or pause to refresh should be expected.

As the markets begin to reach extremes during a recessionary climate (early summer), traders will take the opportunity to take profits. Common sense dictates that the economic recovery will not be quick, and in the quarters ahead, lowered earnings comparisons should not be that tough to beat.

This morning, Bank of America reported earnings that tripled most analysts expectations. The stock sold off however after the company set aside $6.4 billion in reserves to cover potential losses from bad loans.

The U.S. Dollar was stronger this morning, and this put pressure on commodity stocks and crude oil. Going forward, I think it is obvious that oil prices are going higher in the months ahead. We are well positioned to take advantage of any rise in oil prices with the PowerShares DB Energy Fund (DBE), U.S. Oil Fund (USO), and the Brazil Index (EWZ) in the ETF portfolio.

Over in the Fidelity Sector Fund portfolio, we own the Energy (FSENX) and Natural Resources (FNARX) funds as exposure to energy.

Here are our Top 10 ETF's for the week of April 20th:

1) DBA: Powershares DB Agriculture Fund
2) EWZ: Brazil Index
3) DBE: PowerShares DB Energy
4) USO: U.S. Oil Fund
5) VIS: Vanguard Industrials
6) DDM: Ultra Dow 30 Proshares ETF
7) IXP: iShares S&P Global Telecom
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 April 2009

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

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

You won't notice it until his second term, but once Wall Street is finished making Barrack Obama look like the savior of the U.S. economy, the crazy, kooky, an utterly insane liberal agenda will fly across North America.

I stand by my original opinion that the big liberal money that put Obama in office will make sure he looks like a hero after his first term. And once the economy rebounds, and Americans feel richer with their 401k's and stock accounts, Obama will look like a hero, and be re-elected for a second term.

In reality, the ingenuity of American business, and the spending habits of consumers would make this happen anyway, but, Mr. Obama will be set up to take all the credit.

Market Re-Cap

After reporting a $4 billion profit for the first quarter, the stock market plunged more than 3% yesterday after Bank of America (BAC) said more borrowers are falling behind on payments.

DJIA: 7,841.73, down 289.60
S&P 500: 832.39, down 37.21
Nasdaq Composite: 1,608.20, down 64.90

The bottom-line here is simple. When you offer certain consumers sucker loans (interest only, ARM's), and issue credit to those who don't qualify, what do you think the eventual outcome will be? Sure, there will be more losses to come, but the majority of the loans issued to consumers are in good standing, and are being paid in a timely manner.

All in all, yesterday's bank news was good, but Wall Street took a negative and used it as an excuse to take profits.

Despite the negative tone, the price of oil fell by more than $4 per barrel, and Oracle agreed to buy Sun Microsystems for $9.50 per share.

The day's only economic report was disappointing as the nations leading economic indicators fell 0.3% in March.

Monday's sell-off came on the heels of last weeks option expiration rally. We will know soon enough whether yesterday's decline was a pause to refresh, or the beginning of a more significant decline.

With the power held by the big banks, I found an interesting statement in each of their earnings reports. In each case (Wells Fargo, CitiGroup, Bank of America, Goldman Sachs, JP Morgan) every earnings report said that a portion of their profits came from "trading gains". Oh, Yeah? What were they trading?

Did they buy stocks at the March 6th lows, and sell them into their earnings reports? Exactly, what did they trade and make money on? Were these banks/ investment banks trading against clients like you (not I- I don't do business with these people).

The Rest of the Story

There are a lot of things I see and hear on the news that irritate me. I often feel that this is what the media wants to do ( irritate you and I), but this one really pisses me off.

The Miss USA pageant took place the other day, and Miss California, Carrie Prejean apparently lost because a gay judge asked her for her opinion on gay marriage. She said, "she doesn't believe in gay marriage, and believes marriage should be between a man and a woman".

Whether you agree with her is not the issue. She has a right to her opinion, and it should be respected. This is America after all, and unless we turned into some communist/ oppressive nation, we should all have the right to our opinion.

The gay judge however said that "Miss California lost because she is a dumb bitch."

On top of all this, Keith Lewis, who runs the Miss California competition, tells FOXNews.com that he was "saddened" by Prejean's statement. Lewis went on to say, "As co-director of the Miss California USA, I am personally saddened and hurt that Miss California believes marriage rights belong only to a man and a woman."

OK, I've had enough. I don't mind others having an opinion, and I don't even mind the media spoon feeding me something I don't believe in. But, when the spoon begins to turn into a shovel, I get mad.

I don't know if the gay lifestyle is biologically correct or not. What I do know is this. It is not normal, it is not mainstream, for a man to stick his reproductive organ into the rectum of another man. I could care less what these people do in private, but I don't want someone else forcing me or my kids to believe that it is.

Is that clear enough?

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

Encouraging words from Treasury Secretary Tim Geithner spurred a turnaround in the stock market yesterday as the Dow closed up 127.83 points at 7969.56, the S&P 500 up 17.69 points, and the Nasdaq gained 35.6.

Geithner told Congress the "vast majority" of the nation's banks have more capital than needed, which sparked a big rally in the financial sector.

Thyis morning, Wells Fargo (WFC) piggybacked the good news coming from JPM and BAC by saying it earned $2.38 billion for the quarter. But, and as usual, the bears are out in force trying to downplay the recent strength in the financial sector.

Despite yesterday's rally, some like hedge-fund guru Doug Kass, believe the stock market "is vulnerable to a short-term decline of 5 percent to 6 percent."

In the second quarter, investors should expect that earnings will be continue to be weak, but the stock market has already discounted this news and will eventually look forward to a better economy.

Shares of GE were higher this morning after the company reiterated that its finance unit should turn a profit this year. AT&T reported better than expected earnings. Boeing lowered its 2009 forecast, but said profits could still beat analyst expectations.

With the recent 28% rally from the March 6 lows, modest corrections are to be expected. This doesn't mean you go out and sell everything you have, but having some extra cash to pick up bargains isn't a bad idea.

The Rest of the Story

I don't get this one. Here is an article about your hard earned money being spent for Jewish Nursing Homes.

Freddie Mac CFO found dead- Article

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

It seems that the TARP money is all of a sudden being transformed into TRAP money.

As unbelievable as this sounds, several banks are willing to payback the TARP money lent to them by the US Treasury, but the Treasury does not seem willing to accept the repayment without some loan shark provisions.

In a twist that has some questioning the real motivations behind the TARP, the Treasury is making it hard for banks to give back the funds they didn't really need, but were forced to accept.

Banks willing to repay their government loans are now being met with early repayment penalties tied to the stock warrants issued to the Treasury. These warrants given to the government, or whoever they sell them to, gives them right to charge an additional 5% on the total loan to cancel the warrants. This is unbelievable!

One would assume that getting back tax payer money along with a reasonable interest payment would be great news. But, oh no, that's not good enough. One would also assume the TARP was to help banks get through a tough time, but the governments repayment penalty puts additional pressure on a banks already stressed finances.

So, here's the question (and by the way, I don't know the answer), was the intent of TARP to help the banks through tough times, or was the governments real motive to nationalize the entire banking system?

Not accepting the repayment, or pre-payment of the TARP loans sure sounds fishy to me. Can anyone say... SOCIALISM?

If the federal governments intent is to take an equity stake, in banks willing and able to repay TARP, folks, that's socialism.

As the news continued to leak out about the lack of government cooperation to allow the repayment of TARP funds, The DJIA saw a gain of 75 points evaporate into a loss of 83 points as traders sold bank stocks in the last 90 minutes of trading.

In a sign of more government involvement, the markets are upset that Bank of America’s CEO Kenneth Lewis is being forced to keep quite on the saga surrounding Merrill Lynch.

Those of you who are unaware of what happened, Lewis wanted to back out of the takeover deal with Merrill, but was threatened with dire consequences by Hank Paulson and Ben Bernanke if he did.

Here is an article that I wrote about that situation- Article

Today, Apple, eBay, and Credit Suisse reported better-than-expected results. Things are clearly looking up, but after last weeks good news from the banking sector, Mr. Obama had to come out and say things were not that good, and the economy would take longer to heal.

General Motors came out today and said it will shut down its plants for about two months. I guess this is the bad news Obama was talking about last week. The ripple effect among auto part suppliers could trigger more layoffs.

AT&T posted better than expected results. T and VZ basically have a monopoly on the cell phone business, and as you know, regardless of economic status, everyone has a cell phone.

Clearly, momentum of the rally is fading, so a correction seems to be on the horizon.

If you get people scared by concocting a crisis, and then demoralize them by stripping them of their jobs to make them poorer, you can convince a society that socialism, or relying on the government is the right thing to do. This is exactly what they have done. Think about it. You couldn't have devised a more devious plan to implement socialism.

Clearly, if the general public is frightened and demoralized, they will do whatever the government wants as long as it alleviates their pain.

I happen to believe that the current financial crisis was no accident. It couldn't have been. What lending institution in their right mind would be so irresponsible, and so reckless as to extend massive amounts of credit to people who will never have the ability to pay it back.

To prove my point even further, look at what "Big Brother", tried to pull on Bank of America's CEO, Ken Lewis, and look at what they are doing to the financial institutions who want to payback TARP, but the government won't let them. Folks, this is bad stuff!

Is it not obvious by now that these people in public office do not work for people like you and I? If you want to know who their bosses are- click here.

The rest of the world knows all about this group, the only people in denial are the one's here in the U.S. Keeping you blind and ignorant works in America. Here are some articles from sources around the globe;

Asia Times

Canada. com

The CBC

Pictures of the 2008 Bilderberg Conference at the Westfields Marriott Hotel, Chantilly, VA, June 6-8. Pictures 8-10 are of Fed Chairman Ben Bernanke leaving the 2008 Bilderberg Meeting.

Clearly, the orders given to Bank of America’s CEO Kenneth Lewis on the Merrill Lynch deal came from Hank Paulson and Ben Bernanke. Where did they get their orders from?

We can sit here and pontificate about what we think the markets will do. It is a complete waste of time unless we know what the people above have up their sleeves. What we think, and what they want, may be two different things.

Clearly, Bank of America CEO, Ken Lewis is getting ready to go through what can only be described as a Ivy League lynching. If you haven't noticed by now, or just haven't paid attention, the Ivy League crowd looks down on the rest of us. In fact, we are looked upon as "sources of revenue" rather than human beings. This is why we have been labeled "consumers" and not "Americans."

See, Ken Lewis is not an Ivy League guy. In fact, he is a lot like us, graduating from Georgia State University. Now that Lewis has spilled the beans on one of the gang ( Hank Paulsen- Goldman Sachs- Dartmouth Grad), the Ivy League lynching is sure to begin.

Here's the scorecard;

Hank Paulsen- Dartmouth
John Thain- MBA from Harvard
Ken Lewis- Georgia State University

It doesn't seem like a fair fight, does it.

In the world of stocks and investing, investors are trying to decide if the current rally phase is the beginning of a new bull market, or just another bear market rally. For those who don't have adequate cash positions, we suggest you build those positions now.

Even if the current rally is the start of something new, we cannot ignore the historical patterns that occur within the "Sell in May, and Go Away" mantra. The evidence within this phenomenon is pretty compelling.

In fact, the "Sell in May" strategy suggests that if you invest in the market during the best six months (November through April) and then switch into safer investments (cd's, money-markets,or bonds) you'll have better results. I must tell you though, I wouldn't buy a bond with a maturity past 3-6 months given the current environment.

The "Gang" is at it again today trying to convince you to buy into the latest scare- the swine flu. Whether the threat is real or not is anybody's guess. All I know is this latest piece of news came suddenly out of nowhere.

My wife asked me this morning if I had taken the swine flu vaccine the last time the epidemic broke out. I said no, and she said she did. She asked me why I didn't. I said, "you should know me by now, I'm a contrarian".

When it comes to the current tactics being used to promote the pandemic scare, I think you'll find that there are more swines on Wall Street, than there are cases of the flu.

In the months ahead, it is in the big boys best interest to get the "little people" (consumers) spending again. After all, it is us, the "little people" that make the big boys rich. If we don't spend, their bank accounts get smaller. This means they will do everything in their power to fix the economy. For us this means more gains and bigger profits ahead.

Here are our Top 10 ETF's for the week of April 27th:

1) DBA: Powershares DB Agriculture Fund
2) EWZ: Brazil Index
3) DBE: PowerShares DB Energy
4) USO: U.S. Oil Fund
5) VIS: Vanguard Industrials
6) DDM: Ultra Dow 30 Proshares ETF
7) IXP: iShares S&P Global Telecom
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 April 2009

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

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

The swine flu sideshow is being blamed for the sudden weakness in the stock market. In reality, the markets have discounted the "depression" mantra that the financial media has touted since October 2008.

After a pause that should last a month or so, the S&P could make a run toward the 1000 mark, and the DJIA could gain enough traction to reach 9300-9500 this summer.

This morning, the "Ivy League Gang" is trying to get back at Bank of America's CEO, Ken Lewis for ratting on them while giving testimony to the New York attorney general, Andrew Cuomo. I wrote about this yesterday, and you can read it here- Ivy League Lynching.

The Ivy League bunch dressed up as U.S. regulators told Bank of America (and Citigroup) they may have to raise more capital as a result of the bank stress tests. This news comes one day before the BAC annual shareholders meeting. How convenient, huh?

What's even more suspicious is The Wall Street Journal broke the news saying they have "individuals familiar with the situation". In other words, it was conveniently leaked. Is it not obvious that the Ivy League Gang want Lewis out? Isn't it obvious they want a gang member to take his place?

This situation between the Fed (Paulsen and Bernanke) has all of drama, and similar characteristics to the popular TV show "24".

The Rest of the Story

Arlen Specter of Pennsylvania switches political parties.

Air Force One flyover scares New Yorkers

Fox channel turns down Obama request for air time

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

Most people have good memories, but those memories are often short.

With oil prices hovering around $50/bbl, and a gallon of regular around $2.00, many investors have tossed oil investments into the trash as prices have declined. The next oil crisis is right around the corner, and it will be a nasty one.

Here's why;

1) Oil prices declined because of the economic crisis, and worldwide recession.
2) Demand for oil and natural gas continues to grow much faster than supplies.
3) Oil company reserves are drying up, but lower prices are bringing in less profits. Less profits leads to less exploration.
4) New oil supplies are in countries that have been labeled "terrorist" countries, so this may explain why our government is so attuned to attacking them and take their oil (Iraq?).
5) People in India and China want a lifestyle similar to citizens in the U.S.
6) In 2005, the average Chinese consumed 1.3 barrels of oil a year while those in the U.S. consumed 25 barrels per year.

Who Has the Oil?

Percentage of World Oil Reserves:

22.3%- Saudi Arabia
11.2%- Iran
9.7%- Iraq
8.4%- Kuwait
8.3%- UAE
6.5%- Venezuela
6.1%- Russia
3.4%- Kazakhstan
3.3%- Libya
3.0%- Nigeria
1.8%- United States
1.4%- China
1.4%- Canada
1.3%- Qatar

Countries where the U.S. has heavy influence, and equals 39% of the worlds oil supply:

22.3%- Saudi Arabia
8.4%- Kuwait
8.3%- UAE

Countries the U.S. has labeled as terrorists, and have attacked or threatened to attack (30.7% of worlds oil supply):

11.2%- Iran
9.7%- Iraq
6.5%- Venezuela
3.3%- Libya

Countries mad at U.S. for foreign policy decisions in the Middle East (7.5% of worlds oil supply):

6.1%- Russia
1.4%- China

Countries with pipelines important to for transporting oil to a port:

Afghanistan

The War on Terror has the U.S. is involved in military operations in Afghanistan. In addition to the terrorist operations against the Taliban, interim Prime Minister of Afghanistan, Hamid Karzai (a former top adviser to Unocal), helped Unocal negotiate with the Taliban to construct the Central Asia Gas pipeline.

Russia

The Druzhba “friendship” pipeline system runs from Russia, and branches into two systems that carries oil through Poland, the Czech Republic, Hungary, Slovakia, Ukraine to ports in the Baltic Sea, Black Sea, and the Adriatic Sea.

On July 14, 2008, the Bush administration signed an agreement with the Czech Republic on the deployment of a European ballistic missile defense system which infuriated Russia. In turn, the Russian began cutting oil shipments to the pipelines.

Phony Terrorism, or the Real Thing?

Have you noticed that most, if not all, terrorist threats we are constantly reminded about come from countries that have the largest abundance of the worlds oil, or is a country by where pipelines were built to transport the oil?

Coincidence?

I'm not suggesting there is no terrorists or terrorism threats. What I am suggesting is all of this is very strange, and there is no way (IMO) that oil prices will be as low as they are now in the years ahead.

In addition;

1) The so called "Green Movement" cannot not gain any traction without higher oil prices.
2) Hybrid cars, and more energy efficient vehicles will not sell without higher oil prices.
3) Wind, Solar, and Natural Gas alternatives will not be in demand without higher oil prices.