The recent article “LARRY LINDSEY LAYS IT ON THE LINE” from Ed Steer is simply SCARY. In fact, I had to email Ed to confirm again that what he transcribed from Lindsey’s words are true. He emailed me back and told me that those words from Lindsey are verbatim.

If you have not read that article, I encourage you to do so. Lawrence Lindsey is the previous economic adviser for President Bush. His words (if all true from that article) are a good indicator on how US economy will unfold going forward. To summarize, $US will be going down probably by at least 20% to 30%, and obviously gold and commodity will soar most likely. US fiscal deficit will probably keep increasing without any end of sight, especially due to an ongoing war in Middle East. All the strong dollar policy is certainly just words, not actions. And Fed will be cutting interest rates down to 3.5% by mid-2008.

I still have a little doubt on the authenticity of the article, simply because the messages in the article is simply too scary. I did a little due diligence and confirmed that Lindsey did speak at the New Orleans Investment Conference. Besides that, I can’t find anything else on the internet, possibly because the conference event is quite recent.

In any case, the message should be very loud and clear to anyone: US dollar is trash, load up gold/silver. Be prepared for high inflation. As I have said before the housing market crash unfolds, the only way for US to save the crazy housing market bubble is to create real inflation. (In the comment section of the linked post) I was expecting real inflation of 7% for 6 years, plus a 25% fall in nominal housing price. If US government tries to engineer a smaller magnitude of housing price fall, then real inflation needs to be even higher and stay longer.

By the way, welcome to the year #1 of the 6 years (or longer) of high inflation. Gold is close to breaking $800 if not already.

I’m very surprised that bond market has actually gone up (bond yield coming down) along with the stock market. The ^TNX (10 year treasury) has come down to 4.383%, and ^TYX (30 year treasury) has come down to 4.663%. Regardless of how the bond yields are coming down, whether via direct monetization through Fed’s printing, or bond market forecasting economic slowdown, the lower yields will definitely bring some stablizing effect to the housing market fallout.

Although I would like to say that it makes more sense to me that the bond market actions are due to Fed monetization, I cannot find any evidence in their Fed operations of permanent repo. In any case, assuming that Fed can fake everything else, the only thing that it cannot fake is the $US exchange rate with other foreign currency. Furthermore, under normal circumstances, bond yields should have risen when the stock markets go up. Although such weird episodes have happened before, the recent occurrence of synchronous rising is the first one since many months.

If the 30 years treasury yield fall further, it will be on track to match its all-time low at about 4.25% in June of 2003, and June of 2005. That’s just roughly 12% =(4.66%-4.25%) * 30 yr away from the current level. I don’t know how it could possibly make sense to any of the bond buyers, but a 30 year bonds yielding at 4.66% is simply too low. Investing money in a farm will probably bring a much better yield.

This week Fed is supposed to cut interest rate by another 0.25%. I think Bernanke going forward is more likely to surprise the market on the upside (meaning cutting more than less). His philosophy has always been that aggressive cutting can stave off crisis. The only thing that I see however is that there will soon be another bubble in either foreign markets or commodity markets or both, due to these aggressive rate cutting. It’s very important for investors not to sell out completely in the energy/precious metal sectors.

If Fed can successfully bring long term interest rates down to a very low level, then it may actually make sense to start buying real estate at the lower priced area. Although initially I was estimating that the bear market in housing will last all the way to 2012, if bond markets behave irrationally than my original thinking, then the buying time of real estate could be sooner at least for the lower priced area.

This year I still have about $2000 left for my charity giving budget. But I haven’t found a good charity to donate to. I only have about one month left to do it, because I will be traveling internationally to visit my parents at the end of the year.

The biggest problem that I have with charities is that their CEO is paid way too much. Many are paid north of $150K up to $200K. Some are even paid more than $300K to $500K. Charity Navigator did a study on 2007 CEO compensation study for charities. The average salary is $145,270. The charity may say whatever they want, but the fact is non-profit also means no-profit. A CEO (or superintendent for a school district) for non-profit organizations is after all very different from a for-profit organization. There is no gross margin or pricing issues for products. The only effect from a better paid CEO and/or less efficiently organization is that the target that they serve ends up with less money. Taking money out of what poor people would receive is much easier than taking money out from a competitive and capitalistic marketplace of products.

I’m sure the salary is justified for some of the CEO, but I don’t have time to sift through all the details. Furthermore, when I need to justify for why I’m not spending my $2000 on my wife for jewelries or on my kids for more fancy toys, I must really spend my charity money for a VERY GOOD purpose. Every year, I easily donate more cash to charity than my total spending on jewelries for my wife and toys for my kids. But my wife understands that charity donation is spent for good purposes. Departing from your own cash is difficult certainly, but it is just part of the process needed to learn the truth about how every human being is part of the God’s family.

If you can know a charity that is involved with children and/or hunger (the causes that my wife and I are most interested in), and that 95% of the money goes to non-admin and non-advertisement activities, and the CEO’s salary is about $100K or less, please let me know. I would really appreciate it. Many thanks.

I’ve truly never seen such crazy actions in FOREX market. In about two months, $US depreciated against Euro by 5%, against Australian dollar by 11%, against Canadian dollar by 9.5%, against British pound by 3.5%, against Japanese Yen by 2.3%. ONLY in two months, US federal reserve and treasury department has managed to devalue $US in a magnitude that is often achieved in 1 to 2 years. And that is on top of X % depreciation before September!

Are we truly about to have a big bank run on $US? It certainly looks like it. I’m hating myself for not listening to my own advice of moving into foreign currency or precious metals for all of my ($US) cash position earlier.

In spite of all these, I still believe that there will be an imminent stock market correction, possibly due to a Yuan + HongKong dollar re-evaluation. If you can purchase either Yuan or HongKong dollar, do it TODAY. I can’t move my money fast enough to EverBank or Interactive Brokers to purchase it. They are the last “cheap” currencies on the market.

Just a warning from the land of technical analysis, in the past two weeks, there have been 4 Hindenburg Omen signals triggered. My best guess is that the global stock markets are about to collapse in two weeks, with a big reversal in both $US and gold. Yeah, I’m screaming FIRE, right now. And yet, I’m extremely reluctant to pick up more of the worst currency of all: $US.

If I’m correct, I believe Chinese Shanghai market has already topped. I actually sold out of my tiny stake in this market on the day it peaked at around 6100. I think US stock markets may have also already peaked. It definitely looks like foreign currencies and gold markets will peak last right after Fed cutting interest rates next week.

The time for Yuan re-evaluation is probably almost here. If Chinese government doesn’t re-evaluate Yuan, and therefore lower the inflation rate in China, serious political instability may be about to happen. Global inflation is hitting the poorest of the emerging economy the hardest, especially when all the essential energy and food are going up big time. Asia as a whole MUST re-evaluate their currencies, or else the people who are in power today will be voted down or revolted out.

I have never been so stressed about my money, even more stressed than last time when gold rising to the moon in April/May of 2006, and knowing that it’s going to fall. I’ve almost doubled my absolute stake in precious metals since that time. Maybe it’s time to let go, and possibly repurchase them back at a lower price. But part of me is telling me that there is a very good chance that this could be another big run-up like the run from late fall of 2005 to April/May of 2006. In fact, I can almost smell that buying panic in the air.

Don’t say that I didn’t warn you, but something really really big is about to happen. Now it’s the time to choose your side. Time is truly running out. Which side? I’m not too sure. Possibly anything that you look at will be going either big up/down first, and then reverse the direction as big down/up. And of course, there will definitely be some assets that will simply go big down, and doesn’t come back. Don’t get stuck in those.

One of the most famous and vocal bulls in commodity, Jim Rogers, is moving ALL of his assets out of the dollar, and buying Chinese yuan. Smart move I would say, in the long term.

According to his opinion, yuan will probably triple or quadruple its value in the coming years, and I also have no doubt about that. It is becoming increasingly apparent that there is simply no “strong dollar” policy anymore. Further, it’s only a matter of time, before US government will use taxpayer’s money to bail out all the irresponsible homebuyers and speculators. The MLEC that is being discussed for rescuing SIV is simply another Wallstreet scam of shifting/delaying losses off-balance. I don’t know how it can be even legal, when we just had Enron that hid huge losses off balance sheet. Why is there no one talking about this comparison? You can make everything “legal” on paper, but the hard cold fact remains that this process is simply moving the losses around different entities.

At this point in time, I’m under the most stress in my financial decisions, and I’m sure it was a painful decision for Jim Rogers too. US dollar seems to be very over-sold. Yet next week US Federal Reserve is going to cut interest rate again most likely to bail out the big financial companies. The stock market is deteriorating and getting overbought as we speak. Precious metal stocks will likely suffer another round of collateral damage if stock markets fall. It is very difficult for me to go either way, selling out precious metal stocks or selling out the oversold $US. I’m staying put for the moment, and picking up a little of other currency that have not appreciated so much against $US. Certainly, if I have the mean to buy into Yuan, I will make that high in my list of choices.

I don’t know how bad $US might fall versus the old Roman empire currency. But the fact that we are in the information/internet age, it is most likely that the fall will be much more precipitous when it happens. You can take the example of ABX mortgage index. It takes only several months for “good money” to go completely BAD. I can imagine that there may be foreign capital control (no money going out of US) when that happens.

I’m preparing myself to load up some more physical bullions if precious metals pull back. I will probably buy Canadian maple gold/silver coins. No more US coins for me.

I tell you, gold junior stocks are not for the faint of the heart.

One of my biggest loser that I posted in my open position was KXL.V. I bought it at about 2.5, and it went down by some 90% after that. Gradually it recovered a little. Then boom last Friday, it went up by 48% in a day rising from $2 to $2.96, to finish off a long recovery from my 90% loss.

How do you invest in such stocks? The only way is not to be too greedy/fearful about it. You can control your own emotion by controlling the size of the position that you take. This will definitely limit its total volatility on your portfolio, and of course, it will reduce the potential gain/loss to you.

But at least it’s better than being emotional about your position, and make the wrong trades at exactly the wrong time most of the time.

Certainly the less emotional you get about your own money, the better performance you are likely to get. This is always true. And the only way to achieve that is NOT to be too greedy when getting long.

Size your position properly. And that’s the only way that you can employ Kelly’s criterion with any possibility of success.

P.S. I’m still holding KXL.V, but that doesn’t mean that I recommend buying it right now.

The stock market is falling apart on Friday. The biggest problem is that the leaders are falling apart, more specifically OIH/XLE sectors. Yet, precious metals are holding relatively better compared to the general market, mostly due to a weakening US dollar.

I think US dollar is weakening beyond anyone’s imagination, especially for the gold bull timers. It just broke another record low to 77.093. The day right after Fed cut interest rates, I said, one should put assets in gold or foreign currency, if the stock market is too frothy. Definitely I should have taken actions because my own cash position lost about 5% against Canadian, Euro, and Australian currency since September 19th.

It appears that Fed may cut interest rate again on October 31st. That will continue to support the stock market and precious metals. I may pick up more PM stocks again between now and then. The fall that I was hoping to come in PM is really when $US reverses its fall for a dead cat bounce. However, it has not materialized, and therefore I still hold on to majority of my PM positions.

In any case, I don’t see a full-blown “bear market” in stock markets even in US. Possibly there will be a correction of 10% to possibly almost 20% in US market. However, I think the double top pattern in S&P 500 will turn into a pattern more like a cup & handle chart (with a V-shaped instead of U-shaped rounded bottom). However, the renewed bull market will only be in US dollar ONLY (and probably not a talking head on CNBC cares about it).

My view is definitely different from Bill Cara who seems to believe that once precious metals have its last dance on floor, US stock market will turn into full-blown bear (while emerging markets will continue bull run). My view actually is not much different from Bill Cara’s, except that I adjust the whole market by a more serious inflation factor in US dollar. That adjustment will tend to lift the bear market in US priced in international dollar into a sideway/bullish development priced in $US, while making precious metal and emerging markets an even more bullish markets priced in $US.

I’m posting this earlier than usual. I think Monday’s opening and this entire week will be very important for how the stock markets unfold going forward. Again, I want to repeat that you want to buy into stock markets if they reach some intermediate bottom (possibly may not come until next Apirl). You will get killed by inflation more than anything else.

Timing respect to precious metals may be very different however. It is increasingly apparent that PM stocks are increasingly less impacted by stock market fall. Therefore, I’m certain that the buy point will be earlier than next April’s stock market intermediate bottom. I’m trying to time my purchase with a dead cat bounce in $US which is getting more elusive by the days. However, I can sit on my cash patiently because I can always de-leverage by paying back my mortgage debts, reducing my cash position a lot, and cancelling my “short” position in $US. Yeah, having a mortgage debt is equivalent of shorting the $US in the safest way. And I’ve always advised my friends to BORROW as much as they can when buying a home, within the supportable limit by one’s income and rainy day fund, but with a fixed loan and NOT using an ARM loan for sure.

By the way, if you have some time, you should listen to Jim Puplava’s podcast this week. He is very prescient, and I fully admire his analysis. I am actually his client for money management. I only wish he can trade stocks better than he talks because my account performance is pretty okay but not outstanding. In any case, what makes my view very similar to Puplava’s is that both of us are big inflationists. I can almost see hyper-inflation in the US at some point in my lifetime. Not sure if we have too much trust in government’s ability to inflate versus Mish and Marc Faber who are deflationists. But choosing the wrong side will make quite a big difference to your pocket and retirement for sure.

Best luck.

Frugal

I saw this article the other day from thestreet.com. It spoke about CGMFX returning 50% in two months. That is simply INCREDIBLE for a mutual fund.

Don’t know if any of you picked up some shares in CGMFX or CGMRX when I first blogged about Ken Heebner and his funds back in April 2007. Heebner moves faster than you can track him. At that time, he was bearish on real estate stocks, bullish on mining and infrastructure stocks, neutral and slighly bullish on brokerage financial stocks. I think I checked his holdings, and he was holding brokerage stocks at one time. But he got out quickly for sure, and both of his CGMFX and CGMRX (supposedly a real estate fund) are showing big holdings in energy/infrastructure names. Yeah, he moves FAST.

If there is a second example of failure of Efficient Market Hypothesis (EMH) besides Warren Buffet, I would say Heebner is high on the list. He has beaten indexes year after year for so many years now. Incredibly record. I have to seriously consider buying his CGMFX really. Maybe EMH is garbage. Or at least it’s a garbage theory definitely to Heebner and the fund holders personally. Some people I guess can really time the market. And timing the market with a big mutual fund portfolio is certainly much harder than a small individual portfolio.

Don’t invest just based on my advice. Caution is always advised. Disclosure: I currently don’t hold CGMFX or CGMRX, but I wish I did 10 years ago.

I just got my new hat, and I love it. In fact, I’m obsessed with it. Here is the picture of it.

I’m wearing the hat everywhere I go. It’s so unlike me. I’ve never wear a hat constantly in my life. But I’m doing this to support the country.

Initially, when I tried to make my first donation, and found out that it is not tax-deductible, I really hesitated, especially knowing that Ron Paul may simply not make it to the final race. But then, I still went ahead.

Then I made my second donation doubling my amount of financial support. Then I spent about $27 for this hat (including shipping), expensive by my frugal nature. Then at the morning assembly of my kid’s school, I finally understood why I’m doing what I’m doing. It’s the pledge to the flag:

I pledge Allegiance to the flag
of the United States of America
and to the Republic for which it stands,
one nation under God, indivisible,
with Liberty and Justice for all.

Yes, I truly believe that Ron Paul will bring a better future for this country. And I love this country where I was not born, but lived for the last 15 years with all of my heart. And I am going to show it, not just by money, but also by voting in Republican primary, and in the daily actions of my life.

So even if Ron Paul will not make it to the 2008 presidential ballot, so be it. But I’m not going to be apathetic about the whole thing.

Rather, I’m going to stand up and fight for a better future for USA. Fight for the soldiers to come back home. Fight for the middle class people who may suffer from the yet-to-come inflation. FIGHT.

Yes, Ron Paul (and I) may lose with great possibility. But at least, deep down in my heart, I know I’ve tried my best in my own way to help this country go back to the right track.

Will you join me to love this country, even if you don’t agree to support the same candidate?

Here is some latest YouTube video on Ron Paul if you’re interested.

Just some more data points on this crazy markets:

• Have you heard those radio ads on TreasuryDirect for buying US bonds directly? I listen to business channel on radio when driving to work everyday. Never heard that kind of radio ad before. Maybe US bonds are really unwanted and required special advertising these days from public. And US Fed is not alone. California bonds are also in the ad too.
• I have never seen Xmas tree decoration this early in the year. The first week of October, Macy is already filled with Xmas merchandise. Unbelievable. Halloween is barely here, and Macy is already selling for Xmas? I’m guessing there will be quite a lot of things on sale this year.
• Have you got your Wii yet? I tried to buy Wii at several stores, and they always run out of stock right in the morning of the day on sale. I think Nintendo Wii is going to have a really good Christmas. If you stock up on Wii, you can probably make some 10% to 15% reselling them on Ebay during Christmas, I guess.
• The precious metal markets are truly scaring me. Yeah, my portfolio is at all time high. I’m just nervously waiting for the fall to come, just like night is followed by the day. My wild guess is that HUI goes to 459, and then comes back down to 357, correcting some 20%. It appears that there are so much more money NOT in the PM, missing the biggest rally so far. Most of the best market timers that I’m aware of are missing this rally. There goes the best technical analysis down to the drain. There is a reason that I don’t want to time the market so much. I just know that I’m not that smart. If the smart market timers cannot time it, then how can I time it? My guess is that HUI will become so painfully high for people who miss the rally to suck them all in, and/or correct to a value so grudgingly high that few will take up enough shares.
• As far as I can tell, the band of day traders from 2000 are back in fashion. These day traders are trading China stocks, plus all the high volatility & high momentum stocks. And many more are leveraging their house, and making a killing in trading. Since not everyone can be rich, eventually I am guessing that it will be resolved. Watch out. Everything is alway happy, even if it’s one minute right before the top of the market.
• I listened to the financialsense.com radio over the weekend. Robert McHugh is stating out my biggest fear for this great country USA. He believes that bond yields will not be going up next year for the benefits of housing market because Federal Reserve will be monetizing the US debts by printing money to mop up the excess of US treasury bonds. That makes a lot of sense to me, and that’s what I would do to save the housing markets if I’m the Federal Reserve. But that’s just NOT the decaying path that I want to see for this great country. Such actions are simply making everyone to pay for the sins from house flippers. When I commented last year about the real losers when the housing market bursts, few people seem to understand what I wanted to say. I think as time goes on, possibly forward by another 6 or 7 years, it should become all very clear.
• Crude oil is going crazy too. Looks like $4 per gallon will be here sooner than I think. Inflation will transfer the wealth from middle class to the upper class. The short-sighted Federal Reserve thinks they’re doing the country a service, but higher inflation eventually will make big changes in the political arena globally. Poorer people from inflation won’t be happy. And vote they will. I only pray that we will have smart leaders like Ron Paul, instead of Hilter-like leaders. The history has shown that the mass cannot tell a good leader from a bad one. They will demand changes, whoever that can provide to them.

In any case, it looks like phase two of the gold bull market is here or almost here, thanks to Bernanke to kick-start it by cutting 50 basis point. Sit tight. The roller-coaster is going to get wild, both up and down.