This is an option expiration week. It’s extra volatile. Looks like a short term bottom in financials may be in. However, longer term is still a problem.
$BKX is up against some resistance, so I believe that majority of the gain is probably behind us. It should take some pause.

US dollar starts to fall a little. That should be positive for stock markets. Global stock markets are mostly synchronous. It’s hard to find a place to park your cash, when you don’t really want to be in cash.

The movement of markets is quite violent. I suggest that one should simply position oneself for the proper/suitable asset allocation, and don’t trade too much. If you do trade, you have to be really nimble, and make use of stop orders. It’s not easy to catch the exact top & bottom. And if you are caught in the wrong side of the trade, the violent movement can easily wreck your portfolio.

Be safe, and best luck.

Yesterday, my “wish” finally came true. PM stocks and physicals reverse in a big way. I can’t believe that I actually called the top for HUI at about 460. I can’t remember which post, but I think I also called the bottom at 360 to 370. But certainly, it’s of no use if I don’t act on it.

Anyway, now what?! I am not sure if 360/370 will be the correct bottom now. The way that I’ve arrived 360/370 is that it’s the previous resistance, which should act as support now. Also, 20% from 460 is exactly 368. When I arrived 460 previously, I simply used 370-280 = 90, the correction magnitude at the Aug 16 bottom, and then I just doubled 90, which gave me 280 + 90*2 = 460. Going back to 370 will give a good 50% retracement on the current rise. Everything seems to be overly simplistic. And now, I’m emotionally too scared of buying more PM, even if it falls to 370.

My biggest problem is still with PI cycle, which deems to have a bottom near the end of March 2008. Actually, since Feb of 2007 should have been the absolute peak of the credit market cycles (for a long time to come), I believe the bottom of financials may come next March, at which time, it should be safe to make a short-term trade out of financial stocks.

However, Gold/Silver seem to be trading in an entirely different frequency. I will tentatively say that if you see 370 at HUI, you should buy. But it looks like that level will come within weeks, while gold still need time to base. I think the most likely scenario would be that HUI will fall very fast to that level or lower, make a base, while gold continue to fall towards 700 to 750 level for a month or so, improving the gold versus XAU or HUI ratio to establish the next launch That is just my wild guess.

By the way, I think crude oil has made an important peak. Not so sure about OIH & XLE.

Based on my collected readings, I think HUI and stock markets may make an important bottom in two weeks, possibly right on the Thanksgiving Friday. The question of course is then whether it is tradable bottom or not.

Well, anyway. I will be too busy buying/selling stocks. So good luck to you. If you trust me, you can take my words. And I probably should start to listen to my own words more often.

Am I part of the smart money who buys early or dumb money who gets out late? I haven’t been able to figure that out one. It would be good to be 100% wrong consistently. Then you just need to do the opposite of what you think.

In these uncertain time, I have been listening more and more to the financialsense radio, and whatever opinions around the internet that I can find. This week, there was a heated “debate” between Peter Schiff and Jim Puplava in the broadcast. It was quite some exchange, although both of them were not sure whether they actually disagreed.

I don’t know whether they realized it, but I think I know what Jim Puplava was trying to get to. He wanted to say that because $US will not be going straight down into abyss, due to competitive devaluation of fiat currency globally, the financial systems will not collapse outright, but rather, there will simply more inflation to delay the end game. Furthermore, the inflation is going to be at least initially positive for stock market, and he believes that stock markets will not break down. In a more simple terms, Puplava is more of an inflationist than Peter Schiff who is probably one of the most bearish people around the investing community. In Schiff’s views, US financial markets more likely will face deflation of assets rather than inflation.

Such distinction can be quite important. In fact, inflation and deflation is totally opposite of each other, and will make your investment strategy totally different. For the following of asset classes, one can be either bearish or bullish, depending on one’s view: US stocks, emerging market stocks, precious metal & its stocks, energy stocks. The interplay between the above assets are time-varying. Normally, if you’re bullish on US stocks, you may be even more bullish on emerging markets. And if you are bullish on emerging markets, you probably will be bullish on energy stocks & possibly energy price. However, if you’re bullish on energy price, then you should be bullish on precious metal prices due to energy inflation, and therefore you should be bullish on precious metal stocks. Unfortunately, if energy price gets out of hand, then general economy should slow down, and then yank out of all the bullish sequence right from the start.

Schiff and Puplava’s difference is in US stocks. Puplava is bullish on US stocks for the intermediate term because he believes that inflation will save the markets from abyss. Schiff however has given up completely on US stocks because of US dollar devaluation.

I myself is short term (less than 6 months) bearish on US, emerging markets, and energy stocks, and neutral to bullish on precious metals, but intermediate term (> 9 months) bullish on all four classes of assets, long term bullish on all four except US stocks (only neutral for long term). I consider myself as an inflationist. However, due to recent credit market blow-ups, I still think that there needs to be a pullback, and it probably has started already.

Yes, $US dollar seems to have stopped/reversed the freefall (USD vs CAD seems to be the leading indicator), and you know what that means. It should mean that everything temporarily would probably be falling, including PM.

If the market attempts to rally next week, I will see what I can sell further. For now, I am still just selling way out-of-money naked calls, and selling shares to raise cash. The stock market is like a cat, having 9 lives. Just doesn’t die easily.

When you read articles by Theodore Bulter at silver-investor.com, you may think he is nuts (well, possibly you may put me in the same category from my writings). But when he is right, it’s down right scary.

The recent lawsuit caused by his writing on phantom silver finally bring out the light on what may be happening with your silver (and gold) stored in the bank/brokerage. (Source from Reuter) Morgan Stanley who “stored” silver bars for 22000 clients and charged years of storage fees finally revealed that there is simply no silver stored for clients. Instead of buying & storing silver for clients, Morgan Stanley simply took the counter-party obligation of delivering the silver at some future time point and took the money for free.

I’m sorry to be neurotic about all these, but the fact is in this modern finances, everything has been kind of digitized as computer records, and when you buy silver/gold in banks, or as SLV/GLD, I simply don’t know whether the counter-party can be trusted. Especially after all these subprime messes, if Wallstreet can sell you AAA to A bonds for what are really CCC or D bonds, with some accomplice from the foolish rating agencies, how can one trust the promises from these banks/wallstreet? The asset write-down parade is still in progress, and I expect tens of billions of losses to come out still. That is ENRON-type off-balance finance. I don’t know why no one talks about it. By using off-balance SIV to leverage up and buy all the last toxic trenches, they were able to keep the mortgage financing going.

Anyway. Despite my belief and being a gold bull, I myself have not hold any significant amount of physical gold & silver. I, like many people, am either too lazy or too complacent, or have been waiting for a better price for too long. Not sure what would knock me out of my comfort zone. But I (or you) definitely don’t want to be right, and wake up and find out that I am scammed by SLV/GLD or whoever the counter-party is. After all, the incentive of getting free money for nothing is simply too great. As long as you don’t sell or ask for it, it’s free capital for them.

By the way, if you consider buying physicals, and is willing to try silvertrading.net, please let me know how it goes. I got this tip from a financialsense article. Seemed to be good/cheap, but I have NO affliation nor experience with this business.

I think I’m totally lost at this point by this market. Seriously, I never have thought that I would make so much money from my stocks in such a short time. Gold is at $835 now. Maybe it is time to sell some.

On the other hand, I’m totally disgusted by the fall of $US now. Against my two favorite currencies, Australian and Canadian dollars, $US has fallen more than 20% year-to-date. It’s simply unbelievable that $US is declining 1% every four days against Canadian dollar just in the last 60 days, for a total of 14.7%.

I have been preparing to load up more PM shares and bullion. But this seems to be a runaway PM bull. My cash level is so high such that I can double my stake in PM if I choose to. Too bad that I got scared on Aug 16 and didn’t put my cash to use. My portfolio was truly bleeding at that time, with most of my stocks falling 7% to 22% in that single day.

I have been selling a few of my stocks. Certainly, for all those shares that I’ve sold I cannot buy them back mostly. And my short positions are again hurting me somewhat. Without all the shorts that I’ve done, I would have done even slightly better.

Now that I have bragged about my performance, I hope it’s time for PM to fall. Otherwise, I simply don’t know where to put my cash. I’m starting to consider going back to my dividend stocks in this volatile time.

I will do a review of my net worth & portfolio in the first week of December. This month has been too crazy. I don’t want to put up a post showing those terrific but may be transitory numbers.

Let’s see if after this month, stock markets get back to a more normal state. Of course, I probably don’t know what’s normal anymore.

Various markets are at the point of extremes or at the critical points:

1. US dollar continue to falls at an incredible pace. Now one $US can only buy 0.926 Canadian dollar. (You could buy FXC instead of Canadian currency).

2. As I’ve said previously about $US being the key to all markets, as long as $US keeps falling, markets (especially precious metals) will not reverse themselves. Yeah, gold just broke $815!! And of course, no one is ringing the bell for you.

3. However, I must correct myself for #2 above. It appears that stock markets ARE at a critical juncture, or are past peaks. $BKX broke new lows, while SPY is right at the support.

4. And I’m going to say that again, that Bear Market should have begun already. But it will be a short one I believe, possibly lasting until the first or second quarter of next year. Yeah, seasonally this should be the strongest season for stocks from Nov to next April. But isn’t that the most “fun” part about the common belief, like Chinese stocks won’t fall until 2008 Olympics is over? Of course, no one knows until we have hindsights on everything. But it’s just hard to imagine that everyone will get rich from stock markets.

One last thing, if you are afraid of your money market funds in the stock brokerage accounts (or at least I’m worried) and don’t want to take a position in currency, you can opt to buy SHY for easy access to treasury funds. The money market funds may blow away your funds into the subprime dust, but if you keep them in SHY, they can’t take it away. Furthermore, you get a decent yield, coupled with a potential upside when the market moves to an extreme risk-averse environment.

Best luck.

Citibank is taking over a $400 million retirement plan of a British newspaper company. Why would big banks want to be in the business of managing retirement benefits for retirees, other than managing their money? And why do pension plan want to give up their right to their money? I guess there are simply more eccentricity in the money business than I can imagine.

Actually, the only reason that I can imagine for banks to take up such plan is to access lots of money/cash, and manage them for big bank’s benefits. These money are like fire power in a battle (stock market). The more you have, the more you can make the fight to go to your own way. And such deal cannot yield any real benefits to the retirees, who would be the last ones in consideration. How are you going to prove that one of the most knowledgeable banks is not performing its fidiciary duties? If the highest quality bonds can go from AAA to junk bonds overnight, I don’t know how anyone can trust these big financial banks anymore.

If the pension plan buys financial services such as mutual funds from banks, it is alright because there are still competition for the money. If the pension plan is sold out entirely, lack of competition always foster corruption and misappropriation.

I have been watching for the AMT bill for sometime. The AMT bill affects me personally since my family income is right at the window of a middle-upper class income for a Californian, not too high to be called rich, but high enough to pay A LOT of AMT taxes (about $5000).

$5000 tax bite would definitely make some difference to a paycheck to paycheck Californian, and I think that will worsen the falling California housing market. I’m sure no one has ever planned for such a tax hike of $2000 to $5000. Without the patch, the AMT exemption was going to fall from last year of $62550 to $45000. Insignificant change, but meaningful dollars. Now that it appears that the tax bill would be passing, the AMT exemption would increase to $66250 instead.

Because of realized capital gains this year, I’m earning ZERO income for my last 5 biweekly paychecks for the remaining year, so that I can pay extra federal and state taxes for the realized capital gains. If I need to pay AMT taxes, it would put my long term capital gain at about 20% federal bracket, instead of normal 15% for long term gain. Of course, the california tax of 9.3% is on top of everything. Effectively I must pay about 25% on my capital gain tax, even when I don’t need to pay AMT tax.

Anyway, tax & inflation. That’s the game that we have to play as defense versus government.

Just a note to all the readers who have left comments or send emails to me. These days I usually review my comments/emails at about Monday 1am. That means I won’t get to look at your comments/emails until an entire week is over (assuming that you leave comments on Monday’s post). I know all of my posts are pre-posting at 5am PST or 8am EST, but the actual time that I write my posts is usually 1am, or in this case 2:31am in the morning for this particular post and the regular Friday’s post. So I hope it is obvious to you that I really have very little time for anything, and you could understand that sometimes I just can’t reply to every email that I get, or get to respond to every comment that I receive.

Yeah, I only have 24 hours a day, like you do. It’s really not my intention of not engaging with you, since I highly appreciate all of you being here. But because of my extreme limited time, I can only do so much. Everyday, I try very hard to split my time between my job, my kids, my wife, my investment, and my blog. Oh, and my sleep time too.

Best regards.