My 1st Million At 33

People are shopping more frugally as they should at Costco and Walmart, when the gasoline prices keep going up, and you can’t no longer charge everything on a maxed-out credit card.

But I must warn you that Walmart is really a better store to shop if your family is small, and doesn’t consume volume of (the same) goods. One of the things about shopping at Costco is that you can seldom walk out of Costco without spending $50 or more often $100. I mean, how many $100 bills can you spend without hurting your own budget? Anything that you buy will be packaged into a volume deal. Therefore, even if you just buy a few items, your pocket will be bleeding out with cash. That’s all good if you do need to spend that much. But that’s not so good if you don’t gather up a good plan on your own consumption. When you buy A LOT of anything, and you don’t have a good plan for it, usually you either over-consume, or have the items rotten and wasted, or you need to stock them up somewhere. Therefore, have a good plan for the consumption of the perishable goods before you start to buy. Splitting with friends and families is an excellent idea if it’s not too much trouble.

The second thing about buying at Costco is that they carry mostly above average quality goods at about the same prices at other stores. It means that you do pay for quality. If you can find items on sale outside of Costco, it’s possible that you will get a cheaper price on an absolute basis, although the quality may be slightly inferior. Shopping at Costco is really all about buying quality and saving time on finding good deals. That works out well if you’re middle or upper middle class. But if you don’t need the quality, and if your extra time cannot be converted into wage/money easily, then you could consider buying elsewhere. By the way, electronics items (especially computers and cameras) are NOT cheap at Costco most of the time. Don’t fall into their trap. Do always shop around a little.

Since people tend to over-spend when walking into stores, the best way is always to keep a buy list when you walk in, and try to stick to the list only. The list of the items should be based on what you need and what you have budgeted. That way, besides saving yourself from unnecessary buying, will also save yourself from forgetting to buy certain needed items. Save yourself from the second trip will save you both gasonline money and time.

And if you buy clothing, both Walmart and Costco have good prices, but very often, you can get good prices at Macy’s too for better styles. My wife seldom buys clothing at discount stores because she watches out for deals at the department stores.

My family has always shopped at Walmart frequently. And I can attest to the fact that every items is almost always cheaper at Walmart. We love Walmart better than Costco, only because the package size of Costco’s goods is too big for us very often.

In any case, if you don’t watch out for your own pocket, no one else will. Shop and make less shopping trips, so that you can leave more of the spare money for your own good.

Sorry, my site was down, and I couldn’t put up anything.

This morning, Fed came out and talked empty about inflation threat. I don’t know why anyone is still listening to Fed, but nevertheless, PM complex went down by some 2%. My model would have generated a buy signal in about 2 days. Looks like it may take a bit longer.

In any case, unless a big fall towards $820 level happens (which is still on the table), or a bigger rise in $US, the worst in PM is probably over for now. With that said, PM has a tendency to consolidate in a big range for a long time before any soild concrete gains can be established. So just be prepared for the volatility if you decide to purchase.

Best,

Frugal

Bank of America (BAC) is saying the most unthinkable: it may not guarantee Countrywide’s debts after acquisitions.

I have never heard such things. Buying a company without owning its debts?? What kind of deal is that? Well, since this deal was a downer for BAC in the very beginning, I would think that it would have made more sense for BAC to walk away. BAC have certainly done a disservice to their shareholders by buying up a piece of toxic junk that is worth probably a negative value. Countrywide would certainly have gone bankrupt or close to bankrupt, like many of its peers. And the prime season for resetting on negative amortization mortgages which Countrywide owns a lot is NOT here yet.

If this deal goes thru without the debts, this will be the total opposite of the Bear Stearns deal where debt holders were saved, but shareholders were destroyed.

In any case, I think stock markets are passing through brief sunny time (that could last up to 1 year) before a bigger storm hits on neg. ARMs. Enjoy it my friends.

PM have reached my downside targets last week. If you have no stakes, it’s a great time to pick up some. But don’t expect a home run right away.

Microsoft is walking away from buying Yahoo. And I just don’t think there will be anyone buying up Yahoo except Microsoft. Next time Microsoft buys Yahoo, the offer may be at $20 instead for a $14 stock price.

There are two big problems with Yahoo.
1. The best employees are deflecting to Google, which is a more successful company.
2. Yahoo’s assets and momentum seem to be declining versus its rivals. There is not enough focus. And the returns on their internet presences are poorer than Google.

At $37 for Yahoo, it would be too expensive for Microsoft. Microsoft, although being a company not very innovative, has always been very good in investing in the right key areas. The shareholders of Microsoft will obviously benefit from that.

Many people in California and other high cost living area has been waiting for the interest rate gap between jumbo loans and conforming loans to close. The interest rate gap is about 0.5% to 1.5%. However, it is very unlikely that the gap can go down to 0%.

The biggest unintended consequences that I am seeing for waiting on jumbo loan interest rates is that housing values are going down very fast for people who plan to refinance during their wait. Probably very few politicians are paying attention to this level of details. Unfortunately I think this has turned out to be a BIG TRAP for people who want to refinance.

I myself have already refinanced in the first quarter of this year, in fact, locking my loan earlier due to home valuation concerns. My original healthy LTV at 70% has turned into only 80% LTV (or higher). Fortunately, it didn’t change my interest rate. When the values of the home goes down, and you want to refinance, you MUST put up additional collateral, or cash. But for most people, refinancing was like withdrawing cash from home ATM, instead of the other way around, putting up cash for more collateral. And obviously, this is just not going to work.

Here is a simple example of how it may hurt people who want to refinance:
Let’s say someone bought a home in 2005, and put up only 5% down payment. Even though home values have gone down recently, he probably has not lost any money yet. The values appear to only have gone down to 2005 valuation. The only problem is that when he tries to refinance the loan, he may be required to put up 20%, or at least 10% instead of 5% that he did. This amount of cash can be roughly $30K to $90K for a $600K home for putting up 5% to 15% additional. If he doesn’t have any cash, or enough cash, there won’t be any refinancing deal. In fact, it may be better for him to keep his original mortgage because probably very few lenders will be willing to lend out 95% value for a home.

So what’s going to happen to the people who have to refinance, but can’t. There are probably just two outcomes:
1. They don’t refinance, but stay in the same loan which is going to reset on them with much higher monthly payment. The much higher monthly payment is probably going to drain all of their financial resources. Economy takes an ongoing hit due to them spending less on non-housing items.
2. They go into foreclosures due to the inability to refinance. This will further drag down the housing valuation, and continue the negative vicious cycle in housing market.

If one turns the clocks backward by 1 year, one may be able to squeeze thru the home valuation by simply getting a dishonest appraiser and willing lender. But there are no longer any willing lenders. All lenders as far as I know have strictly followed the home valuation/appraisal step. They can no longer afford to take huge losses when the home value which is supposed to be collateral itself cannot sell even for 70% of its value in foreclosure.

I hope you didn’t get into the traps. If you did, I can only advise you to put up more cash, or get into any of those neg option ARM or anything that you can afford on a monthly payment basis as soon as possible. Windows are closing. Bank of America & Countrywide has recently decided that they will no longer do low-doc and neg ARM loans in the future.

PM sector is getting hammered yesterday. The MACD is way oversold. It’s possible that the low will be around 370.

According to my own model, if the average value of HUI is roughly 390 for the next 12 days, it will trigger a buy signal. What this means is that the nightmare that seems to be forever for PM should “temporarily” be over in another 2.5 weeks. And the low may not be in yet.

The timeframe is right around the next option expiry date.

From the physical markets, the panic is slowly sinking in for sure. From the top of $1030 till now, the number of ounces in GLD has decreased by about 10%, or by roughly 60 to 65 million ounces to 580 million ounces. Long term holders have liquidated by about 5% in my estimate. Gold price is making new low, while silver is marginally making new low. While there may be another 10% potentially to go on the downside, that should be pretty much it.

In any case, for the intermediate term, PM markets are unlikely to rise a lot. Especially given a overbought commodity market, which in most likelihood, will drag down the entire commodity/PM complex, when grains start to turn south. That means in the next buy signal for PM, one should trade it only.

Best luck.

Economic stimulus is coming. And many retailers are looking for you to spend your check. In the recession, it’s a good time to spend money if you have it.

Of course, the amount of my rebate check is $0. I’m not getting any. But it’s not like I’m making a lot more. The tax rebate calculation and tax system was unfair to places with a very high living cost structure. Even though you are supposed to have a “high” income on a national basis, your high income simply doesn’t go far enough after all the needed expenses.

So what’s my advice on your rebate check? You guess it. You should SAVE it. The current economic slowdown is not going away yet. You will have plenty of chances to spend it on good purposes later.

But if you have to spend, make sure you spend it wisely. Find good deals. Pay down your credit card debts. Pay down your college loans. Build your emergency savings. These are just basics. I hate to repeat what Suze Orman would say, because what she says is obviously boring. But the truth is often boring, and not pleasing to your ears or heart. There is never a get-rich-quick scheme (or if there is, it won’t last very long at all). To accumulate more net worth, you simply have to save/earn more and spend less. I know every reader here would like to earn more instead of to save more. But saving more is actually a whole lot easier than earning more.

Anyway, if you still don’t know how much you may be getting, here is a calculator from IRS for you to figure it out. Hopefully, it’s something non-zero for you.

While doing this new budget, I was extremely impressed by the tools provided by the credit card companies. They have made the budgeting process so much easier that you no longer need to spend hours and hours trying to figure out where your money has gone. All of them provide spending by categories and dates, so that you can easily figure out your own spending style. Although the tools will never be perfect in categorizing every bill, at least it’s a very good start.

Here are some reflections on the increase of my expenses from 2 years ago:
My gasoline cost increased from $160 to $260, mostly to due crude oil price increase and longer commute distance.

The other major increase in the total of food+dining is from dining out, even though the most (if not all) of the dining bill is less than $35 per family. This category has gone up by almost 50%. The main reason is that my kid is no longer 0 to 1.5 year old, and I can finally dine out.

My cell phone usage has gone up too from $7 monthly to about $9, due to the increase in my other side activities besides the blog. But the absolute amount is tiny in comparison to any other items. And yes, I’m still using T-mobile prepaid.

And I have also decided to simply budget for my charity spending, instead of deluding myself. It has been pretty consistent for past 5 years, and the amount of money going towards charity purpose will only go up instead of down. I have under-budgeted the charity amount somewhat, just to give myself a little financial breathing room. I think putting it at $290 monthly should be a good compromise.

My “vacation” expenses have gone up a lot because of the cost increase in international travels going back home, and also now I’m forced to take these travels ONLY during school recess.

In case you wonder, I also zero out Spousal IRA item since that is simply a “theoretical” contribution instead of a real one. My tax brackets have disallowed this contribution almost every year.

I also up $200 on miscellaneous category, which appears to be the right amount from my past 12 months of spending.

Looking forward, I expect that I will be spending more and more on children on educational purposes as they grow up.

From above, my total expenses (in white) are $5238, and my total taxes (in red) are $1661, and the savings (in green) are $2792. Assuming a household income of about $110K, or a monthly wage of $9167, my cashflow after deducting all the above items is negative $524, which needs to be deducted from savings. Please note that the above taxes are just the taxes that one might be paying at such income level, but I actually pay A LOT more (3X or more). This is mainly due to a very progressive tax system that extract a lot more taxes from any additional income beyond this level. My marginal bracket is at about 40%, instead of 20% from the above. The only problem is that it just doesn’t take much more income to quickly go to 40% marginal bracket.

The bottomline is that my net saving has dropped to $30400 from the previous $45000, after I account for the 15% discount in share purchases of my company ESPP plan. Some of the drop is due to the differences in what I’m accounting for budget, but nevertheless, the drop is significant enough to be observable from bank account balances. Unfortunately, I expect my saving levels to continue to dwindle, due to the increase in the child expenses going forward.

What’s the lesson here? I’m not becoming much less frugal, but my saving drops. Inflation accounts partially for the drop, but the main reason is as stages in life progress, your saving (if it is still positive) will be dropping to its LOWEST when your children start going to college. I’ve written an entire post (boring, but truth that you don’t want to hear) on this point to advise anyone out there to start SAVING NOW. The best time to accumulate your savings is before having any kids, especially before getting married (and after you just started working). The next best time to accumulate your savings is when your kids finish college, and before you retire. The rest of the time, one should consider oneself lucky to scrap away something left after all expenses are paid. If you have any doubts about my drawn conclusion, simply ask your parents.

As I have said back in March, I believe stock markets probably have temporarily turned the corner. However, precious metals are “fulfilling” their anti-market function, uncorrelating to the rise of markets, and falling.

I’m tempted to say that HUI may bottom at around 370 to 400 level, which could be reached today. But even if it bottoms here, it will very likely touch this level again later in June (if not in May) I believe. Currently I don’t plan to buy until my model generates the next buy signal. Indeed, my model generated a sell signal when GDX was 48 about 2 or 3 days ago, except that I wasn’t watching (duh!). It’s an amazing trading model, but I need to keep track of it on a daily basis AND intra-day basis, since just a single day delay will make ALL the differences in accumulating gains and preventing losses. It does make intuitive sense, since the faster you act on information, the better positioned you should be. And changing my model from acting at the closing to acting at the next day after closing will make all the differences in the world.

No questions that I’ve lost a lot in my own investment this year. Again, my portfolio allocation has come to “save” me. With a previously terrible showing in my company holdings, it has come back greatly and salvaged my bets in PM (or anti-bets against general stock markets). Certainly, the plan was for “hedging” through anti-correlation of the assets. The only problem is that I’m still net down overall, since my company stock peaked. Assuming that the stock market rally still have legs, I’ve got some room to recover hopefully.

Now, I would only wish that I got out always at the peak of the two uncorrelated assets that I hold at the different time. That is probably the hardest thing to do ever, if it is even possible, since performing such feat itself is staying away from the disciplines of asset allocation.