Have you seen the following chart? At a mathematical correlation of 0.79, it is scarily high. How much time do we still have before the bottom falls out? Or is it going to be a bullish 2007 with a great 4-year cycle election? With so many bulls arguing with 4-year election cycle, maybe this argument is a sign of desperation. Just some food for thought.

I think it is safe to say that there will be great uncertainty in 2007 due to the unfolding slowdown in the housing market. I would say, RUN at the first sign of a significant market correction. I am putting 2007 as another dangerous year like 2000 if not more dangerous due to the size of the current housing bubble. But I also think it is possible for Fed to work 24/7 already, blowing up commodity market, buying up treasury bonds & GSE bonds, to postpone the unfolding crisis to 2009. When the high-tech bubble bursted in 2000, Fed simply created another huge housing asset bubble to replace it. I cannot really imagine what would turn out eventually. The next wave of money flow is simply going to be bigger for sure.

Make sure you read the counter argument by Mark Hulbert for refuting the following chart. I agree with him completely.

Have you heard the drop of a needle? No one speaks up anymore. While at the same time, the headlines are overtaken by commodity bears. In a way, sentiment-wise, this is a good thing for bull.

Such big reversal in the gold market happened before, but certainly it is not welcomed by any bulls. While I did expect the decline of crude oil (to $65, but not down to $62), I did not expect such a dramatic reversal in gold. In fact, the timing of such event is simply too suspicious. The entire week going towards the quadruple witching day experienced big selling pressure.

With the big loss of Amaranth hedge fund in the natural gas, things are really grim for commodity right now.

What is my own forecast now?

Gold/Silver: Change to Hold from Buy. Expecting another washout possibly with HUI down to 265, and spot gold down to 550 before a sustainable rally.

General market: Intermediate-term (4 to 5 months) Strong Buy. Adding short-term (~2 to 4 weeks) Sell. Long-term (6+ months) Sell (not so sure yet).

Oil: Change from Hold to possibly short-term Buy in maybe 1 to 3 weeks.

I think the commodity correction probably needs to be more extended, but maybe not much more downside. An extended sideway action of some 2 to 6 months may be in store. Put in simple layman’s term, you probably don’t need to rush in for any new cash. I do hope that a renewed bull in commodity will coincide with a renewed bear in stock market in about another 6 months.

I am still evaluating whether commodity market in general began its bear market descent in May. However, history shows that a “phase change” is never so short in duration. Certainly, commodity market cannot be called a bubble simply due to the participation rate. However, I do not reject the thesis from bears. One must be open-minded to all possibilities. If the bear market began, then it should be the time to liquidate instead of catching more falling knives.

Not too sure whether an online chat will improve your experience here. If there are more than 20 people, I will consider hosting an online chat, maybe using ICQ forum. You can sign up at the right column, subscribing your email to the Yahoo Group 1stMillionAt33_list email list.

What kind of things you could ask me? Pretty much any decent questions, except the questions that will directly or indirectly reveal my identity and my total networth. You can even ask me what stocks I currently own, or anything that I plan to buy. Since I have not let my friends and relatives know about this website yet, I will be more open to personal questions in this very first online chat.

Nothing revealed from the onine chat will be made available on the website. The purpose is to preserve a little privacy for myself and for my investment. If you make it to my online chat, you get the information. Otherwise you don’t. And I will ask everyone who participates in online chat not to divulge the content of the online chat by honor.

Once there is enough people, I will announce the details of online chatting through Yahoo Group’s 1stMillionAt33_list email list. IF there is an online chat session, it could be the first one, and the last one too.

Be back tomorrow. Work is too busy….EOM.

Learning how to invest is very important for everyone. Understanding investment is important for your whole life even if you’re not doing the investing yourself. Otherwise, you won’t be able to know how to select your money managers, or even tell whether your money manager is lying to you.

Read some books & paper trade
These are really the cheapest way of learning your ways through investing. Following good advices will always save you money in the long term. When you put your money into the stock market, it should be like a battle, not a gamble. On the battle, you don’t want to find where your gun is. That will be a little too late for that. I have an incomplete book list at my advices page. But there are lots and lots of books that you can read.
If you have not invested in anything before, paper trade your way using Yahoo’s portfolio or any other portfolio tracking site for a few months should help you. Get familiar with reading financial reports by the companies, such as cashflow, income statements, and balance sheet.

Emotional component
You can gain some experiences from paper trade. But there is definitely something that you cannot learn from paper trade: the emotional component. Only when you put your own hard-earn money at the mercy of stock market, you can start to learn and experience the up & down rollercoaster for yourself. Can you watch a rollercoaster video to learn about riding the rollercoaster? My answer is no. Experiencing the emotion first hand is very important for your success as an investor. The more emotions you go through, the better for your education. Only through observing yourself through up and down time, and subsequently looking back on your own trading/investing history, can you learn about your own self. As an trader/investor, you want to be as emotionally detached from your investment as much as possible. If you cannot be emotionally detached (which is probably true for most people), at least you must understand how you would react to the up and down in the market. Hopefully by such understanding, you can self-correct your course based on introspection, instead of letting your emotion controlling your investment decisions.

Unfortunately, the emotional part about investing is often a learning AND re-learning process. Most likely you will make similar mistakes many times until either you finally get it right, or you run out of your play money, or you get sick of doing it. Any of the three resolutions is good, assuming that you don’t become an addicted gambler and keep bringing more play money onto the table for more loss.

Fee for your tuition
Given that you probably will not learn something without going through some losses, the best way to limit your loss is the place a hard limit or a hard percentage. How much exactly is up to individual tolerance and financial situation. Certainly when you’re young, you are able to withstand a bigger percentage loss, since most likely you will have more savings and time to replace or recover your losses. Using myself as an example, I lost about 40% of my money, while the total dollar amount is about $12K to $15K. It’s big, but I was able to replace my losses with saving.
I did not look at how much my loss really is compounded through 40 years. I think the right perspective is how much more losses would I have if I don’t learn my lessons early. But certainly you want to put some limit on your losses. Don’t become an addicted gambler and keep bringing in more money to feed the brokerage houses.

Basics that you should do

• Follow the daily news in MarketWatch.com and/or theStreet.com.
• Pull out some charts at BigCharts.com or StockCharts.com.
• Read some financial reports at Yahoo finance quote centers.
• Be more familiar with various sectors, such as pharmaceutical, high-tech, consumer-staple, etc.

How do you know that you are on track
As you learn more and more about investing, two things should happen:

• Your percentage loss should decrease down to the level of about how market fluctuate, or preferably smaller by the use of cash and bond.
• You should start to construct your own trading/investing rules, or other people’s rules should echo with you strongly.

I google searched three very good trading rules here. You should look over them.

• 10 biggest mistakes made by investors
• 12 top trading rules from BigPicture.
• Trading rules from stockcharts.com.

And I wrote about The Worst Mistake that a Trader can Make: Average Down which is described in ALL of the above 3 links (may not be in exact words). Why do I call it the worst mistake? Because among all mistakes that you can make, this is the only one that can potentially WIPE OUT your entire portfolio. All the other ones can hit you with big losses. But this particular mistake can really bring you down.
I heard about a real story from my uncle. He said one of his friends kept averaging down by using margin, and then mortgage the house, and eventually everything was wiped out through the bear market of 2002. Don’t be an attached gambler!

That’s it for today. If you have any other good tips, please add to the comment sections. I got some of the trading rules pointers from Millionaire Now, but I couldn’t get the URL from his site. So I resort to finding the original source instead.

I have never been so excited about discovering a new blog. But this is a BIG find, and I just can’t wait to share this blog with everyone out there. Larry maintains a blog at MillionaireNowBook.blogspot.com. As far as I can see and judge for myself, he is the real deal!
I’m going to compare MillionaireNow & him vs 1stMillionAt33 & me here:

1. Money-wise:
   Did you think that I may have more important things to say just because I reached one million networth at 33? Now, give me a break. That’s most likely not true in the majority of cases. Maybe or maybe not, I have better things to say. But if you believe in that logic, then you probably want to visit MillionaireNow. Why? Although Larry said nothing about his networth, my best guess is that it’s not a question of being a millionaire or not, but a question of how many digits.
2. Age-wise:
   Larry is in his early 50. I am in my 30s. Do you think that age makes a difference? Probably not all the time, but certainly if I am in my 30s, I can only experience so much in life or in the investment world. An older guy certainly has more chances to experience different things.
3. Trading-wise:
   According to his comments on my blog, he sold out 50% of his precious metal investment in this April!! What did I do? I stayed put, and got hit with a big down wave. Need I say more?
4. Experience-wise:
   Throughout Larry’s long career, he has been a professional in both brokerage business and real estate. I’m just another engineer. Go figure!

Here are some of his own words about himself & his blog:

As a baby boomer, I grew up in the sixties in which the Vietnam War was the only topic of the day. Making money and getting money was of no (big) interest to me. Doing things right and learning from mistakes has more appeal. Telling others, for free, what I have learned in my journey is what interests me. The message: find out what works and repeat it. Live for today, but save for tomorrow.

The only thing that bothers me somewhat is his position in this housing market (please read Larry’s comment at this post for his clarification). I’m strongly in the bubble, and bearish camp of this housing market, while he “appears” not. I do think that there are sufficient evidences to support my position. And I’m totally against using 100% financing and/or negative amortization loan at this time to take up any investing properties. But certainly you’re welcome to read what he has to say. I don’t believe that his current profession in real estate may have influenced the independence in his thinking, but it is just something that you want to keep in mind, which could be a potential source of conflict of interests. I can tell you however that both Warren Buffett and Franklin Templeton (you may have heard about many of his mutual funds)who are value investors, are bearish on the US housing market in general.

Alright, I think it should be quite clear to you who is the real gem here. Now if all of you simply all go to his blog, and never come back to my site, it is still perfectly fine with me. I would say “Mission Accomplished” to that. Having my blog here, and writing posts, my first and foremost goal is to help every reader out there to find the best advice that they can find. I will never ever hesitate to introduce something that I think it’s of value to you. You can count on my honesty in that. And I hope that at the end of days, it is because of my honesty in this blogging business, that makes you come back again and again (while certainly I attempt to contribute my own thinking and tips to the best of my ability too).

I’m digging his most essential article The Seven Steps I Used to Build My Simple Financial Plan. But there are a LOT of other good articles that you should be able to find on his site. And if you don’t find that many, I’m sure once you clamor for encore, he will disclose even more and better tips for everyone. Or even faster yet, go and buy his book Millionaire Now!

www.HelpYourMoney.com interviewed me sometime ago. Go and check it out if you haven’t read it. I had some stock recommendation, but please NOTE that the precious metal and energy sectors are very volatile compared to the entire market. The fall (and rise) is very violent. In the past week, my concentrated portfolio has lost a little bit more than 10%, and probably lost 20% in most of my precious metal holdings. So if your heart is strong enough for such crazy volatility, welcome to the club. Do your own due diligence before investing anything. Take the responsibility for your own money, and don’t rely on anyone telling you what to do.

Thanks to Tim, you can find the interview at this link here.

Here are a few questions/answers from the interview:

1. First, can you please introduce yourself and tell us why your started your personal finance blog?

I am an engineer, and I live in California. My wife and I have two small children, aged 4 and 1. We live frugally well within our means.

One of the reasons to start blogging is obviously for the potential of making some money. I have big dreams for my blog like many PF bloggers out there. Of course, pretty soon the reality set in and it’s what other reasons that keep me going. One is that I can be a lot more accountable for my own financial and investing decisions. And I hope to share my investing tips and experiences to hopefully benefit smaller investors. And most important of all, I hope my blog can benefit my relatives and friends too.

2. Do you feel you are on the right track to reaching your financial goals and what are they?

Yes, I guess. I don’t review my long term goals very frequently because I believe that I have done everything that I can, and that’s what matters the most. My financial goals are to provide my children to go to college without them taking on any college loans, and retire at 60.

5. If you had to recommend just one financial related magazine, what would it be?

I read BusinessWeek and Kiplinger’s personal finance magazine regularly. I like BusinessWeek better.

There are many other good magazines out there, like Forbe’s, SmartMoney, Economist, and Money. All of the six magazines are very good. Some have different scopes than others. Personally, BusinessWeek addresses my needs the best because it keeps me up-to-date on the current topics in the investment world and the state of economy. For people who care less about macro-economics, Kiplinger’s and Money are probably a better choice. Economist is for the most serious investors.

P.S. If you have any questions regarding the interview, you must post your questions on my site, and at this post. I won’t see any of your comments/questions at the other site.

Here is an article from MarketWatch.com on forecasting the stock market in year 2011. This is the second time that I’ve read about longer term forecasting in stock market. I think last time when I read about it was around year 2000. At that time, the forward 5 year prediction was not good.

To give you a summary, essentially using value line research, it has been shown that predicting stock market return in the next 3 to 5 years is actually “easier” than predicting the market in the short term. In the very short term, no one knows for certain whether the stock market will go up or down tomorrow. There are theories that stock market is more like random walk, and it is unpredictable. And if stock market is truly 100% efficient, there will not be any profitable opportunity that you can exploit, and therefore, you won’t be able to predict the short term direction of the market for profitable opportunities. Efficient Market Hypothesis (EMH) is almost golden in my opinion. But there are several cracks. One of which is exactly described in this article. It is simply easier to predict stock market for a longer timeframe, than a shorter timeframe. Why is that??

It means there are really information extractable from the current state of stock market and economy. While in the short term, you may not be able to predict the direction or amount of return. In the longer term, there are indeed investable information that you can extract. In my opinion, EMH has no concept of time, and I kind of agree that looking at every instant in the market, everything is indeed efficiently priced. But when you start to expand your time horizon longer, EMH will start to fail because there are some historical and current states in the market that can be extracted and extrapolated into the future, which cannot be reflected in the next minute or second.

Why do you want to invest (certain) stocks for the long term, instead of doing short term trading? This is the biggest reason that I believe. Because when you are able to identify and select certain stocks or sectors based on the current and past information, you will be able to outperform the market given enough time span for those information to unfold.

What was the prediction from the MarketWatch.com article for the stock market in year 2011 (5 years from now)? It appears to be not too good (go and read it yourself). I believe that US stock market in general is still in the secular bear market (but should have a short term rally towards the year end)? Currently US stock market is in the short cyclical bull market which is probably about to end quite soon in less than 6 months. Looking much further out, I don’t think the return adjusted by inflation will be great in the stock market. I don’t think index investing will make you rich in the next five or even ten years. You should be lucky to just preserve your buying power.

Just my two cents.

Yak! The gold mergers are really happening at an increase pace. I have quite some IAG, but no CBJ which just got a 30% premium payment! It looks like IAG is going to have a fall. I have held IAG because I think someone else may acquire it. Unfortunately, today it is the acquirer. It cost me a few thousand dollars today again.

After this gold merger, I think IAG may be a little too big to be acquired at the price tag of 3 billions.

Man, there goes another reason to be investing in ETF or mutual funds instead of individual stocks.

If you’re very smart, and always pick the right side of these mergers, you won’t WILL get the benefits of consolidation in the mining industry.

Boy, I hate gold mergers!

Yes, Citibank Dividend Platinum Select card will no longer pay out 5% but 3% cashback on gasoline, grocery, and drug, starting October. I have found my replacement credit cards.

I have planned to cancel my cards, and have applied & received the following two new credit cards:

1. HSBC Direct Rewards Platinum credit card: Flat 5% cashback on gasoline, grocery, and drug purchases. Up to 1% on other purchases. Because it has a tier structure on the cashback for other purchases, I won’t be using this card for other purchases. You also will get the cashback every 12 months, and it needs to be more than $10.
2. Citibank Driver’s Edge Option credit card: 6% rebates on supermarket, drugstore and gas station purchases for 12 months, 3% after that. 1% rebates on other purchases. And $1 for every 100 miles you drive, . The downside is that rebate dollars must be spent through ThankYou network.

The best thing that I like about the old Citibank Dividend Platinum Select is that it pays cash, and you don’t need to wait for one year. Too bad that I will be settling for something else because the 5% rebate really adds up very quickly.

Here are the posts from other PF bloggers from whom I’ve found out about the above cards:

1. From Consumerism Commentary
2. From Blueprint for Financial Success

P.S. Today is a Thursday on which I normally don’t post. But I have decided to at least put out this short but somewhat important money-saving post. Because of the increase in traffics in the last few weeks, I have put in extra efforts for posting everyday except Sunday. Higher traffics certainly incentivize me to post more often. Not sure if it is an incentive for you to social bookmarking my posts by digg, reddit, del.ici.ous, any other sites or through emails. But in any case, I thank you for just visiting my website.