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

Several friends of mine have concerns about their stock account safety, due to the concern of recent MF Global blow-up. So I read through the customer’s agreement and emailed the following five commonly used online brokerage firms: TD-Ameritrade, Scottrade, FirsTrade, Interactive Brokers, WellsTrade. ALL of them spelled out exactly and replied back to me with affirmative answers that they CAN re-hypothecate (or re-pledge) any of your assets in your margin brokerage accounts. For some of them, like Interactive Brokers (and a few others), it is not possible to move your stocks into your cash side of your margin account (unless your account is a cash-only account), even when you don’t use the margin buying power in your account. But of course, any gains or losses due to the re-hypothecation of your assets are not yours. ALL stock accounts are protected by SIPC coverage ($500K, including up to $250K cash, in the event of theft). But as you know, there are probably trillions of assets protected by the very small amount at SIPC. If there is a big theft like Madoff’s Ponzi scheme, SIPC is very hard-pressed to cover everything.

The best thing to do is still to exercise your proper judgment, and go with a firm that doesn’t do any proprietary trading (usually against their own customers like many big Wallstreet firms). On paper, everything is “safe” until the money in the pot is just not enough for everyone.

I also suggest to move your assets to cash accounts if possible. When you get a dividend-in-lieu instead of a regular dividend from your stocks, or you don’t get any mails or emails about voting events for your owned stocks, you can be very sure that your “own” stocks have been sold short by someone against your own interests.

Also close any accounts at JP Morgan (or Chase bank), which has basically but “legally” confiscated MF Global customers’ funds for the failed trades by MF Global. Don’t ask me how it can be legal. Thanks to Federal Reserve for allowing this to happen.

Regardless, I think if MF Global customers cannot recover their funds and at the same time Corzine doesn’t go to jail, there is something deeply wrong in this country.

It’s (ex-)Goldman Sachs again. No surprise. The former head of Goldman Sachs ran MF Global into bankruptcy, and was almost going to pocket 12 million dollar “severance” package. What a way to finish!

Actually, I highly suspect that Corzine is that stupid to buy up European debts using a leverage of more than 40-to-1. I suggest investigators to look into the counter-party of whom selling the European debts to MF Global. Maybe Corzine was to lead MF Global to pay up what Goldman Sachs bought previously (while leaving Morgan Stanley to burn and drop).

And the story doesn’t stop there. As with all futures market, there is no equivalent of FDIC nor SIPC insurance. MF Global even dared to use clients’ money of some 600 millions to mop up their mess. That is a serious crime. People should go to jail for this, but I doubt that would happen. And that was done under the helm of ex-Goldman.

After 3 years since 2008 financial crisis, nothing is learned, and nobody went to jail. Occupy Wallstreet will only get bigger.

The article at New York Times has the best coverage in my opinion. You do need to create a guest account to read it.

Where is the Volcker’s Rule? Yeah, and Goldman Sachs became a bank in the shortest amount of time ever in 2008, and still borrowing from Fed for nothing, trading the money from the subsidy by taxpayers into oblivion. If Federal Reserve didn’t save Goldman Sachs, it would be dead by now.

Frugal at 1stMillionAt33.com

In the last two months, the stock markets have gone through a wild gyration. The bears had about 5 attempts to break lows, but they never materialized. Now that with Euro crisis “temporarily” out of way, S&P may get back above 1300.

Markets may continue to act volatile, but taking no risk equals to taking no returns. There is a good chance for the leading tech names like AAPL, GOOG, or INTC or CSCO could push for new 52-weeks highs. Financial & banks will turn up as well, although I prefer not to catch a falling knife even in a counter-rally.

For those who didn’t buy anything, maybe try early next week. The short covering will be strong today and Friday. I think it’s likely the good time will last for 1 month, but beyond that news on economy may dominate again.

Good luck in trading pits.

Frugal at 1stMillionAt33.com

I always check my taxes for next year at around end of September every year. That gives me 3 months to withhold any additional taxes for next year to avoid any under-payment penalty. I also check my accumulated capital gain/loss to plan for certain tax loss sales if any.

By paying taxes from withholding your paycheck, they get treated as if they are paid evenly throughout the year. You won’t get hit by any quarterly assessment of tax penalties, just because you pay them closer to the end of year. If you run a business, this option is not available to you, and Uncle Sam wants you to pay up every quarter.

This year due to extra stock option sale earlier in the year (before stock markets crashed), I need to withhold all of my income for the next three months. It certainly doesn’t feel good to “work for free” especially after I have already paid so much in taxes. My combined state & federal marginal bracket is at about 50%. It is amazing how much government can take, and still manage to run a deficit year after year.

Oh, well. Certainly, paying taxes is far better than taking unemployment benefit checks. My best wishes to anybody who has been left behind by the rolling recessions in the economy.

Fannie Mae has this program since June 15th. It will end at the end of October. It has been extended once already a month ago. I’m guessing it will be extended again.

The 3.5% must be in the form of closing costs, which you can use for any settlement costs, and buy down the (already-low) interest rates. You do have to buy one of the foreclosed property from Fannie Mae, and it’s pretty to search through their properties online.

You can find the details of home path program here.

Freddie Mac also has a “home steps” program for extra home warranty and $1500 condo association credit. But it’s most likely less than 3.5% unless the property is extremely cheap.

I still expect the home prices to drift down further, but if you are ready to buy for non-financial reasons, by all means, you should take advantage of this offer.

It looks like euro is not going to hold past the end of October. Very likely Greek will be kicked out, and stock markets will choke before that. I’m holding only about 6% of my net worth in the general stock markets, and about 40% in cash waiting for QE3. The rest is in miscellaneous stuffs. Now, even 6% feels like too much.

Going forward, gold-related investment (not silver) is still preferred. The next is agricultural investment. When markets turn around, I will put money into tech and energy (oil & natural gas, not solar yet but no nuclear) again.

Markets have been gyrating with huge volatility. The best thing to do is to stand aside now. After storms are over however, there will be very few people left who still have the stomach & nerve to buy. That will be the time to put in the majority of your cash.

Best luck.

It is amazing how fast the markets can change in less than a week!

While it is obvious that the markets are panicking, I think it is prudent to put cash on hold. I sold out my GOOG and AAPL right before the plunge, nibbled probably using 10% of my cash, and then stopped. Both GOOG and AAPL are still good companies, but markets do what they want to do.

It definitely feels like 2008/2009 again. After my positions took a big cut on Thursday, I realized one thing: I simply look too far into the future, while the market is extremely short-sighted. Of course, the economy is not so good, and the unemployment rates still suck. But markets “apparently” are quite oblivious to these facts.

Nevertheless, I still project the stock markets to rise into 2016 due to currency devaluation & inflation mainly, not due to a better economy. The fireworks in Web 2.0 may continue and grow into a bigger bubble. But that is 2016, not 2012. In this market, anything that is 1 minute later, is too far into the future.

Both GOOG and AAPL are dropping to previous support, and it should be a fairly good entry point. I’m preserving my cash pile of more than 20%, anticipating for the final short-term pop in physical precious metals. Buying on pullback on precious metals-related complex still works better than the general stock markets (in the short term as well as in the long term). However, the volatility in precious metals is 2X to 3X higher than the general stocks, and it truly takes nerves of steel to hold onto your positions.

Obviously in my previous post, I have been mistaken. The key thing is to realize your mistake and correct it as soon as possible. My cash level went down to 26% of my total networth. It was 64% in early June, and 30% last November. I usually kept about 20% in cash in an uncertain market. I do intend to become fully invested before the end of this year.

For the first time in many years, I bought into GOOG, AAPL, and general market indexes. If it is not obvious to you, let me state it clearly: markets will be higher in two years.

I made further allocations into gold/silver mining stocks after realizing my last mistake. I would like to add more on a pullback, but I won’t be chasing prices at this level. I have quite a lot already, and much more than any “normal” portfolio. Further greed on my part could easily back-fire.

The next significant pullback will probably be in the month of September. But markets could steamroll ahead between now and then.

Best luck trading.

It’s good that today gold price is finally starting to correct. Based on the cycle of gold, it should bottom in 1 to 2 weeks. Silver however may make the final low at 30 or even 26. I wouldn’t touch silver until the second wave down is over.

Here are the new targets based on previous ratios:
1. Gold bottoms at $1442, or $1393.
2. Silver bottoms at $30.x, or $26.x. It is preferred that silver doesn’t break below $26, or else the picture may be bearish (for 12 to 16 months).
3. If GDX already bottoms at $51.10 (as I have guessed in my previous post), the next short term low would be at $52.00. If not, it should bottom at $50.46. If GDX breaks $50, then the picture turns bearish (for 6 to 9 months). Timing-wise, It will still bottom if it breaks $50. However, you will need to sell all the counter-rallies, and wait for much longer to get back in.
4. GDXJ may still break the last bottom at $32.06. It’s bottom should roughly coincide with GDX within 1 day of difference. I hope it stays above $31. Breaking $30 will be bearish again just like GDX.

I arrived these targets by using the previous peak to bottom ratio and applied to the last peak (e.g. for gold at $1563.20). There is no magic tricks here.

I think there is still a significant possibility for gold-related complex to take an extended breather here, possibly until early next year. This risk is obviously due to the parabolic behavior in the recent silver bubble. Caution and patience are required here. I think it is still a trader’s market.

The precious metal stocks have gone through a roller coaster ride like always. It looks like it probably have made the bottom for this down wave, but I don’t think the wave 2 of major wave 3 is over yet. Time-wise, it has only been 7 month correction (since last November top), and I don’t think it’s enough. I think there will be another big but short pullback probably in the month of September.

Gold however has never really corrected, and that really worries me. I am not sure how sustainable the rally will be. I have a feeling that it will see a price of less than $1400 before it can possibly hit $1850.

Putting everything together it seems that maybe this wave 2 of the major wave 3 in mining stocks could last much longer than anyone expects.

I think it is quite clear that the government authorities want commodities to have a bigger correction before they can afford putting QE3 into high gear. They also need the Congress to approve the increase of the debt ceilings first, before Fed can take the new debts onto their book. I expect that another major stimulus probably will come before the election of next year starts in earnest.

Currently stock markets probably need to go down further, so that Bernanke can rationalize the next round of money printing.

I will be buying just some more, but to go fully invested, patience is still required.