My 1st Million At 33 – yes, you can do it too

As I have said last year, stocks will be going up. It’s not going to be a triple top formation on S&P500 as some technicians are saying. It will be a solid new high. In general however, the volatility of the market will still be big, meaning that occasionally, the pullback can be as much as 10% if not more. I look forward to those pullbacks to increase my stake.

I believe the housing bear market that started in 2007 is still with us despite the recent big increase of 10% to 25% in various local markets. Yes, I just bought 4 homes, but that’s going to be just a trade. Economy will continue to be tepid, due to state/city government cut back and international bond market instability. I don’t know what all these talks on QE ending this year are about. As I see it, Fed won’t be raising interest rate nor ending QE this year, possibly the entire 2014. The earliest that I can see is early 2015, and it will be baby steps. I think no more than 3 steps will be applied before the end of 2016. Eventually bond market vigilantes will be back, and Fed will lose the control of the interest rates (if not already).

Housing market has temporarily bottomed last year. Chasing up the market, I bid on probably over 50 homes, and I got 4. Basically all of the homes that I put in a bid are sold within the very first week. Some homes I bid with all cash over the listing price in the very first 30 minutes, and I still couldn’t get them. Those that get sold in the first hour appeared to be structured illegally by the listing agents as insider deals.

I have been so insanely busy with everything. It takes so much more than just cold cash to get the homes. Markets are hot, and the listing agents are kings. Most of the time, if I can get a return call from the listing agent, I call that a good success already.

I will detail the housing market strategy in the second part of my eBook, but for now, I’m just too busy to write it up.

All of the homes that I bought are basically in-the-money on the first day, if not a good 15% profit. I actually only bought “3″ homes, because two of the four homes that I bought, I got a 50:50 partner who was lucky to ride up the housing market with more than $70K profit with me already. I had to get a partner because I didn’t have 1.5 million cash in the bank to bid on every terrific deal without financing.

I used to dislike housing flippers, but I will become one by buying these homes. After seeing how this lawless country is, with all the Wallstreet people not even indicted, and all those “home” owners or rather loan mowers who signed with perjury on their loan docs, still squatting in homes for free, I have to say that I’m disappointed about ethics in general. For now, I’m just going to grab the profits if they exist.

I have a lofty goal of donating at least half a million in my lifetime for charitable causes. I really would love to donate one million, but I will be realistic for now, and set my goal to $500K. It’s a lot of money, and I wish I could reach my goal. And there is no other way to reach my goal besides by becoming rich. Actually, let me take it back. It’s not me donating any money, but rather I’m just “re-distributing” the money from God to the poor.

The tax deal has been reached in both Senate and the House. There were very little spending cut, and some tax increases for the people earns the highest income above $400K. Here is the summary on the tax changes:

1. 2% social security tax cut is reverted. This affects everyone who has an income. You will see payroll tax increases (or rather reverted back) by 2%.

2. The Bush tax cuts expire for income higher than $400K on individual filing, and $450K for filing jointly. Marginal bracket rises back to 39.6% from 35%. Most people including me get to keep the same brackets from Bush tax cut.

3. AMT (alternative minimum tax) exemption amount is now $78750. Without the fix, it would have been reverted back to $45000 which has never been indexed to inflation. Going forward, this exemption amount will be indexed to inflation. With this change, some tens of millions of US households won’t be hit by AMT. Because it’s indexed to inflation now, it would reduce my federal tax by a couple of hundred dollars (while paying $2000 more in social security tax).

Essentially, there has been no changes, except the 2% social security tax reversion for everyone. The additional 3.8% medicare tax on capital gain will only apply to income higher than $400K/$450K for single/joint filing I believe.

For more details, you can follow this link for original text.

As a general rule of thumb, whatever news that is in the headline news is not new anymore (for stock trading). In the USA especially, the traditional media all seems to flock to the same topic, taking the same side of the issues mostly. News in the US drives the emotion of the crowd, but smart capital knows better.

The stock market probably hit a tradable low point already less than 2 weeks ago. I will be a gradual buyer here and scale in. The fiscal talk may continue to linger at the headline through December, creating more volatility throughout. However, I expect an okay-to-good first quarter next year. Two to three years out from now, I expect the stock market to break the high point since rising from 2009 low, while at the same time, the bond markets may trade lower. Mortgage yields may bottom this year or next year. Once it starts to rise, it will no longer serve the housing market by lowering monthly cost.

The world economy sucks right now, but US will be the last domino to fall. It will fall nevertheless, but not just yet. The stocks will always reach the high and low points without the headline news people knowing. If it’s in the headline news everywhere, you can be sure NOT to bet on it (but the opposite trade is not guaranteed until it reaches the max swing).

Best luck trading.

Frugal at 1stMillionAt33.com

I would think that you’re crazy if you tell me this statement six months ago. Frankly, RED HOT is not even enough to describe the current market. Here are some of my personal anectodes, based on my bidding in the market:
1. Most listings go into pending on the first two days, or after the first weekend.
2. ALL homes have multiple offers at or WAY above listing prices. It’s getting common to have some 20 to 40 offers if the listing doesn’t get pulled down in the first month.
3. If you don’t work with listing agents, it’s end-of-story for you.
4. Grand opening at new home sites are PACKED!!
5. The bidding frenzy is extending some 60 miles away from the center of the metropolitan area.
6. Even handyman or contractors for flooring/carpeting, etc. won’t answer or return your phone calls. I tried to call a handyman for flooring. Not only that he doesn’t return the calls, he has requested his carrier to post a message: “On the request of the subscriber, this phone number does NOT accept incoming calls.” Frankly, that is just NUTS! And this is not just an isolated experience on one handyman, but my experiences with several handymen are like this as well.
7. MLS inventory was 40% down year-to-year several months ago. I wouldn’t believe this if I didn’t see this myself, but MLS listing inventory is going down to essentially absolute ZERO probably in the next one or two months within the 60 miles radius of my search. Just go to redfin.com, and punch the city names. On the upper-right corner, you can see the inventory plots. It’s a straight line heading down to zero, since last October/November.

With Fed buying 40 billions of MBS mortgage securities every month thru QE3, which will tend to close the spread between treasury bonds and mortgage bonds, it is possible that mortgage rates may go even further down. FHA also may waive the 3-year waiting period after short sale/foreclosure. If that happens, in conjunction with even lower mortgage rate, the housing markets can easily go up by another 20%. FHA down payment is only 3.5%. That is basically nothing, and won’t even cover the transaction cost of buying and selling. Taxpapers are essentially subsidizing all the future defaults (again)!

So where do we go from here? I’m a long-term bear on the housing market, and I have called the short-term bottom five months ago this year. I’m not changing my view (yet). But it is surprising that how much intervention can do to the housing markets. I expect the next short-term peak at about 2016, and the next bottom to come at about 2018 to 2020, but that is at least 6 years away from now. If you need a home, but you cannot wait for 6 years, it may still be better to buy now rather than later. I think the prices at the next bottom may be slightly higher than the bottom that was made in 2011/2012. But you would have saved on rents for sure. Given the current pricing, with the exceptions of being right at the center of metropolitan area, it is certainly cheaper buying than renting.

Best luck on your housing hunting trip, because you will need A LOT of that.

There won’t be any more tax advantage for Amazon starting in September. It would be interesting to see how Amazon will compete vs the big discounters like Walmart and Target. If you have any big items and know that they’re priced cheaper, you may want to get them before the tax deadline.

Frankly I find that items at Walmart are usually cheaper, even after considering the tax factor. This year I bought just $50 from Amazon, and that is after many hours of searching just to try to put myself over the $25 for free shipping. Besides books & music which I don’t buy much these days, I often find that more than 50% of the 9% California sales tax goes into Amazon’s bottomline, while the buyers gain less than 50%.

The stock of Amazon is at all time high, due to its new Kindle release. From that aspect, I believe Amazon has a very good chance in competing against Apple products. After all, people want to access content (music/video/books/games). A platform that allows you to access the greatest content at the cheapest cost will be the winner. Long battery life & easy access to any of your Cloud storage also counts. Cheaper price of $199 also goes a long way. A heated competition is always better for consumers.

Markets are already expecting a QE3 for tomorrow, and I believe that Bernanke will deliver, sending S&P 500 to new high. Despite that markets are overbought, with $VIX index at a very low level, I think we will get the QE3 nevertheless.

All the people who are expecting Euro problem to continue are probably right, but being right doesn’t make you money. I’m holding my core positions at this point, and hesitate to chase this market further with VIX being so low. September/October is typically a season of higher volatility. Expect violent swings in both ways. Buying both calls & puts (or volatility) will be a good play.

My portfolio has gone up by 11.7% in the last 30 days. Risky assets are back into play.

Anticipating the slowdown in economy, I’ve stayed away most of the energy-related companies, including these high dividend companies. High dividends are good only if they last, and with natural gas price falling to an extremely depressed level, ERF announced a 50% cut in its monthly dividend a couple of days ago.

With this announcement out, and possibly other related companies (PGH, PWE, PVX, etc) to follow, I think it’s worth to take a look at them now. The summer/fall is seasonally bad for stocks, so you don’t want to get too aggressive, but stay patient.

High dividends (or high potential return) always equal to high risks. This is one of the very few golden rules in investing. Tread carefully.

Putting the money at where my mouth is, I bought my second real estate property (besides my primary residence). I actually bought several months ago, and just in a couple of months, the real estate has gone up by about 5% to 12%. Based on the speed of rally, it is obvious to me that the secular bear market in housing is not over. Hope springs eternal. As long as the participants are still full of hopes, the bear market won’t be over.

Based on the current conservative valuation of my second property, I’m already at least $40K in positive territory. I always marked everything including real estate to market prices, but in this case, I will choose to be conservative due to my long-term bearish view on housing market. My first real estate property which gained me $300K at the housing peak has been marked down by about 45% to the current market price, including a 5% off that I would need to pay real estate agents if I ever decide to sell it. I obviously should have sold it near the peak, but let’s not go there because it involved some unpleasant family feuds. Sometimes, you not only need to out-smart the market, but also need to convince your family as well.

I have been extremely busy lately, due to publishing of my Kindle book, and also becoming a landlord for the first time. Running through credit checks on various applicants, I shake my head on how financially fragile these potential tenants are. I wish more people would take my advice and live under their means.

My property is rented out already, and I’m only about cash flow even on a 30-year mortgage, due to the fact that I have cashed out before and refinanced several times. My tenants will be paying down the principal for me, and so the net profit would grow as the principal is paid down.

If you’re still sitting on the sideline, at least you should wait till the slower winter season. Hopefully, prices will pull back somewhat at that time. Have patience. Housing market won’t come back before year 2026 (or 2006+20 years for a bubble to deflate). Every time I say this, people won’t believe in me, and would shout at me, but we will see. If you buy any houses, make sure you are positive monthly in respect to equivalent rental.

Of course, the lowest bottom of the housing market in the nominal price will be different from the bottom priced in the inflation-adjusted price, and will be different as well as in the bottom in terms of monthly payment. Ideally, when you buy your home at mortgage rate of 8% instead of 4% now, your housing price should be low, while your monthly payment will be high (assuming that you can still get a mortgage).

Today market sells off big time (again), and it’s no surprise.

I don’t understand why some pundits calling to get into energy and precious metal shares simultaneously. On an intermediate term basis, the two sectors would be out-of-sync more often than not. If you are bullish on energy sector, then you are bullish on the economy. If you are bullish on the precious metal shares, then you are bearish on the economy. On a longer term basis, one can be bullish on both, if one is bearish on the US dollar.

I have not been touching much of the energy sector shares, precisely because I have been bearish on the economy on the longer term horizon. It’s interesting to observe how these two sectors going out of phase with each other. In this environment, I believe that precious metal (PM) sector serves as a leading indicator on the way up. It gives you an early hint on QE3.

The previous market cycle seems to have completed. We will have a new up cycle, with today’s hints from PM sector. Now the only question is how low will this market go. But I sure don’t want to catch a falling knife here.

If you ask me, my best guess is that market may short-term bottom here with a climatic sell-off. It would rally back towards moving average. However, starting in mid-August for many about two months, it’s best to stay on the sideline. Euro crisis is simply not going away. Remember sub-prime contagion? The finale may not come for another two years (2014), and in the meanwhile, markets will go yo-yo before things get resolved if at all.