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

My outlook for 2008 is roughly the same as 2007. In fact, I was about 6 to 9 months too early in my investment outlook in 2007. The stock markets should be ahead of the actual economy by 6 months or more, but I was surprised that there were so much of denials of the housing slowdown and the overall stock markets were not affected until much later, with the exception of housing/builder stocks.

I am continuing my investment strategy of over-weighting in precious metals (NOT base metals), while having some stakes in oil/energy, but lightening up in the sector in general. I currently expect that the first quarter earnings in 2008 is going to be horrendous for financial companies, and that probably mean a down wave in the stock market. If not in the first quarter, maybe in the second quarter. Overall, I expect the stock markets to spill some real blood first, before having any chances of renewing an inflation-driven bull market. Therefore, I will not be putting my 401k money (the only money that I cannot put into precious metals or energy) into the general stock market before that at all. Call me a market-timer, but the mind simply has to do what’s close to the heart.

Year 2008 I also believe that it may be a year for a significant depreciation of US dollar possibly from 10 to 15%. To hedge against US dollar fall, I suggest splitting the money into both foreign cash and gold/silver. Precious metal stocks are very volatile, and I don’t recommend them to everyone, even though I hold a very significant stake in them. Especially given the dark cloud of a serious stock market correction (I think), I fear that precious metal stocks will get thrown out even more so related to the general stock market.

If we do see a serious market correction of at least 10% and possibly more from today’s level, I will be moving in and pick up energy, and especially alternative energy (solar, coal, uranium, etc) companies aggressively with my remaining cash at that point. That should be a TERRIFIC opportunity to hop onto the bandwagon of the energy bull market. The first purchases may be in red for sometime, but I expect both the energy and foreign markets to recover. It may also be a good opportunity to diversify into some emerging markets (BRIC, Brazil, Russian, India, China), but I will not be owning much of them. The reason is that relatively speaking, energy stocks are much cheaper in terms of P/E ratio, compared to emerging markets. Especially given that foreign markets have had parabolic moves from 2002 to 2007, I don’t know whether the hot money will chase the same targets again. Usually not, but who knows. Maybe that was just the first phase, and there is still a second phase left in the emerging markets.

In the first half of year, I will probably be buying puts against the general market to safe guard against my stock option positions. Puts are very expensive. I have not made up my mind on how much (or maybe how little) I will be hedging. But in any case, I have the cross-hedge from my precious metal positions against the general stock market, ASSUMING that works.

And I still expect a down year for real estate in most of the US cities. In fact, I believe that there is a significant non-zero possibility of this bear market to continue all the way into 2011. However, once the total correction from the peak is about 20% or more, I think it should be safe to buy in, if you don’t own any homes. I believe that the total correction magnitude should be in the neighborhood of 30%. It could be around 40% or more for very speculative regions, such as Arizona, Las Vegas, Riverside CA, etc. But the correction magnitude may just be 15% in highly coveted cities/regions or cities that continue to have above average population/job growth. So buying in at 20% below the peak will let you lose around 10%, if you can’t wait. And don’t forget to shop for short sales and foreclosures. They will most likely give you another 10% to 20% discount on top of the prevailing market prices.

Happy New Year 2008!

Hope that it will be a prosperous year for you and me.