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

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  • Archive for April, 2008

    HUI hammered

    Posted by Frugal on 30th April 2008

    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.

    Posted in Investing | 1 Comment »

    Tax rebate checks coming

    Posted by Frugal on 29th April 2008

    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.

    Posted in Debt/Frugality, Tax | 1 Comment »

    My new budget for 2008

    Posted by Frugal on 28th April 2008

    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.

    item

    amount

    comment

    Mortgage

    2200

    This is not the true value that I pay, but only serves as what I should be paying in terms of interest cost due to carrying a mortgage, or the equivalent rent that I should be paying.

    Homeowner due

    165

    Includes the insurance for the condo.

    Electricity & Gas

    120

    Water

    26

    Trash

    14

    Local Phone

    16

    Cell Phone

    9

    There has been some increase due to usage, but here is how I get it so low.

    Long Distance Phone

    20

    Mostly it’s international calling cards.

    Cable/Satellite

    17

    Most vanilla plan because I can’t get clear TV signals.

    Medical Insurance

    137

    Covered thru my employer.

    Car Insurance

    75

    Only pay about $900 a year for two old cars, liability only, plus full coverage on 1 new car.

    Gasoline

    260

    My round trip work commute is 24 miles. My car has about 20 miles/gallon.

    Car Maintenance

    40

    Oil changes + prorate for changing brake + 30K/60K miles service.

    Travel/Vacation

    385

    Annual of $4600, mainly for flying (internationally) back home to visit parents.

    Food + diapers + baby milk powder

    415

    Does not include dining out.

    Dining out

    265

    Never realize that it’s quite a lot of money spent here.

    Toys/Books for children

    50

    Preschool/other educational expenses

    0

    Currently zero, but expect hefty increases starting next year.

    Wife’s allowance

    350

    Wife’s happiness is of the most importance.

    Cash Usage

    100

    God knows where I spent these dollars.

    Charity

    290

    Increase due to a more realistic assessment of my contribution.

    Miscellaneous/Clothing/etc.

    300

    About $100 extra padding, while the other $200 do get spent on all kinds of things.

    Federal Tax

    500

    Tax can increase very fast with additional income or without 401k/IRA contribution.

    State tax

    250

    City tax

    24

    Social security tax

    504

    Medicare tax

    133

    Property tax

    250

    401k

    1292

    Annual limit is $15500.

    Spousal IRA

    0

    I’m not allowed to contribute to this due to my high tax bracket.

    ESPP

    1500

    Employee stock purchase plan, maximum amount of $18000.

    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.

    Posted in Frugal Ways | 11 Comments »

    Stock markets turning around, while PM dives

    Posted by Frugal on 25th April 2008

    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.

    Posted in Investing | 1 Comment »

    I went to a foreclosure auction

    Posted by Frugal on 23rd April 2008

    You will be amazed on how fast these homes get sold. In a single day, some 500+ homes get sold. And you will be amazed too by the number of people in the crowd. Definitely, there are still way too many would-be speculators who want to pick up investing properties on the “cheap”.

    Most homes that are very far from metropolitan area are selling 50% off or more. The homes that are near to where the jobs are, they are at best 10% lower than the listing prices. And the most amazing thing is that there is a huge crowd, probably more than 1000 people. Certainly, very few of them realize that the housing markets just won’t be the next best investing vehicle, possibly for the next decade. From the number of people going to auction, I’m fairly certain that this housing bear market has definitely not hit the bottom.

    Again, I have been projecting a potential intermediate bottom for housing market at about 2011, which is still 3 years from now. Depending on how the inflation unfolds, that bottom may or may not be the lowest bottom. If $US tanks and US interest rates soar, I believe that US housing markets will tank beyond the level of 2011. How high the interest rates may go under a hyper-inflationary scenario? No one knows, but I think it could be more than 10%. At an interest rate of 10%, compared to a 6% rate on 30-year mortgage, the monthly payment will go up by 46%. Alternatively speaking, for the same fixed “affordable” payment, the loan amount will go down by 32%. In that scenario, I believe housing prices will fall, despite the supposed belief that houses are a good inflation hedge (only if it’s not hyper-inflation).

    Some of my colleagues at work have been buying several investment properties, and I’m talking about 3 to 6 properties. I am fearful of their bets turning bad, but since I’m no oracle, I won’t comment on their purchases. My position has been bearish, and my projection is also bearish. The nasdaq is still not even 50% of its height back in 2000. That’s how a bubble can wreck your finances for a couple of decades.

    Don’t be too greedy. The only result coming out of tremendous financial leverage is either a great success or a great failure. And you know for a fact that a great success is simply a much rarer event probabilistically speaking.

    Posted in Real Estate | 3 Comments »

    Gas costing $4 a gallon, busting budgets

    Posted by Frugal on 22nd April 2008

    The gasoline cost has been going up along with the crude oil prices. $4 seems to start to change the consumer’s behaviors from my personal observation.

    From my own budget made back in 2006, more than 2 years ago, I was only spending $160 a month for gasoline. Now, for the last 4 months, on the average, I’m spending about $260 a month for gasoline. That is 62.5% increase. Certainly, part of the increase is due to some lifestyle changes including longer commute distance and I’m taking kids out more often to farther places. But majority of the increases probably come from the increase in the crude oil prices.

    The prices to fill up the pump definitely are more shocking every time. However, I consider myself fortunate enough not to be affected much by the energy costs. After all, it’s $100 monthly increase, or $1200 annual increase. It’s some money, but much better than the horror stories on TV where the increase is $200 to $300 a month. Americans tend to travel and commute quite a lot. And spending time on the road is pretty much meaningless, aside the thrill from the speed.

    Besides my gasoline, most of the items in my 2006 budget don’t apply anymore. My water bill has gone up by $1.5 to $26.50, and my combined bill for gas and electricity has gone up from $100 to $120. These are not a lot of increases, but they are increases nevertheless.

    Next time, I’m going to re-do my budget and take a look at food from grocery bills and dining outs. There have been definitely quite a lot of increases, due to inflation and kids growing up. I’m fairly certain that the monthly increase in food is more than $100.

    I guess the only upside from all the increases is my base salary increase. Unfortunately for many families out there, the increase in income barely covers the inflation cost.

    Posted in Frugal Ways | 1 Comment »

    Manipulation can only go so far

    Posted by Frugal on 21st April 2008

    Time after time, the only time that gold can drop by 2+% is during the open hours of London market and US markets. Majority of the time that it drops is right before US market opens, or 12pm EST in the US market. Don’t ask me why, but that’s the conclusion from my DAILY observation of Kitco’s gold price charts for the last 5 years. Are there exceptions? Yes, I only remember once, and that was during the selling panic at the bottom coming down from the May 2006 peak.

    Last Friday was the option expiration date. You can call it volatility or manipulation as I prefer. But what matters is the closing price at 4pm Friday. Whatever closing prices that are the best for the brokerage houses, they will attempt to do so whenever economically feasible. The only way to beat this is by carrying over your positions through expiration date, or hold your physical metals yourself.

    I think there is a good chance that gold/silver will break new low in this coming down wave. However, that will really be a gift for you. In the recent history of the last 8 years, there was ONLY one time that the daily MACD of HUI goes below about -10 level, and failed to turn around immediately. That was 2006 May. Of course, you get a very low point which holds after that. On the other hand, such low does not guarantee any good ROI, because gold/silver did trade in a range for a LONG time after that. Despite that, I do believe that since the last rally to $1030 for gold was the shortest on record, and that I still believe that we are in the major wave 3 of Elliot wave theory, I think the wait for precious metals to turn up should also be shorter.

    With stock markets zooming up, and $US dollar turning up, the manipulation can only go so far. Mortgage rates have gone up quite a lot as I have expected (and informed to those who have contacted me for refinancing deal back in February/March). You can manipulate something, but not everything. With the “hot”-selling season of summer coming, higher mortgage rates simply will make things worse. Well, of course, Fed is going to take up all the bad mortgages on their own book. But that doesn’t make the bad mortgages better. It’s only a transfer of losses, or rather in this case, manifest as more monetary inflation.

    COMEX can drive down commodity prices all they want, but they can’t increase the actual inventory of commodity. Manipulation only makes things worse, by preventing producers to produce more at a profit. And a shrinking grain stockpile is not of any consolation to those very poor and hungry people in the third world country.

    The next selling point in my HUI trading model lies around 430 to 425 level which can come as early as today. After that, HUI can go down as low as 370, at which point, I recommend loading up both physical and stocks.

    Posted in Investing | 1 Comment »

    Stock bulls are ready to go higher?

    Posted by Frugal on 18th April 2008

    I have said back in late March that the worst is probably behind us for this year. As the days go by, there has been an obvious bullish tint day in and day out. Are the stock bulls ready to go higher? Have the brokerages finished their accumulation?

    In the emerging market land, India’s uptrend is not broken, and is turning higher. Taiwan’s going higher after political dusts settled. EEM is still in a good uptrend. Shanghai’s market appears to be making an interim low right above 3000. The obvious question then is whether the thesis of global synchronized slowdown is still correct. By all means, these stock markets are not breaking down. Plus that the commodity markets are still very hot both in futures market and respective stock market, maybe and just maybe that global economy is going to escape from all the gloom (temporarily).

    If that is indeed the case, US stock markets should also be turning higher. I’m not too sure about the intermediate fate of $US, which seems to be the odd piece of the puzzle that just doesn’t quite fit. $US seems to be making a bottom here. If it turns up, US stock markets will have a harder time to rally. The same will hold true for mining stocks and precious metals.

    Could it be that we will have another temporary pull-back along $US dollar rally, with another correction in the commodity bubble, before really breaking the resistances on charts?

    For now, the bullish undertone is still fairly clear. HOG warns, but drop a little. GOOG went up by 17% in the after-hour trading. Markets are reacting to the negative news fairly well. Everything seems to be pointing towards positive technically.

    If you’re short of this market, I strongly advise to cover them. Yes, the financial crisis is not over for sure. But a brighter near future seems to be temporarily here.

    Posted in Investing | 2 Comments »

    Energy Sector Rotation: Buy Nuclear

    Posted by Frugal on 16th April 2008

    I missed out quite big on the recent waves of the hot energy sectors, due to my belief in the global synchronized slowdown. Energy sectors however are still in play (so far).

    There are many sub-sectors in the energy. First it was coal, with FDG, PBT. Then it was natural gas, with CHK, APA. Then it was the rebirth of solar energy, with FSLR, SPWR. Most of these names have risen by at least 20% to 100%. And partly, thanks to the high crude oil price, the energy wave seems to be continuing.

    Yes, to my surprise, crude oil price has not corrected much if at all. However, the calls from pundits for a significant commodity top, continue to worry me.

    If I would have to invest now in the energy sector, I would probably invest in nuclear sector, with CCJ and DNN in mind, both of which I have already owned.

    However, if crude oil does correct by more than 10%, expect these volatile stocks to go down even more.

    The spot/future commodity markets in general may be making a major top. However, if the thesis of peak oil is correct, pretty much all of the above sub-sectors should give you very good return.

    I look forward to a short-term bottom in the energy market to come. But I have been waiting for too long, just like waiting for the general stock markets to tank from last May to last October. Well, it did tank, but the grueling four months wore out my patience completely, and at the end, I gave up my short/hedge positions. Such is the tricky nature of the market.

    I would recommend buying nuclear energy stocks for the long term. And if they correct 10% or more from here, I would load them up.

    Posted in Natural Resources | 3 Comments »

    Bank Reserve Balances are TERRIBLE

    Posted by Frugal on 15th April 2008

    In two weeks of time, the bank reserves continue its swan dive. The whole banking system is now held and patched together by Federal Reserve. Without all the bailouts for the bankers, many banks should have gone under.

    Here is the data for the current bank reserve (click to go to Federal Reserve data), at negative 100 billion dollars. Since last November which had been holding at above positive 40 billion dollars, the US bank reserves have gone down by 140 billion dollars, or 350%. The rate of deterioration is very fast also, at about 31 billion every month. What’s holding everything together is the increase in the term auction credit. Instead of having a contracting monetary base, everything is temporarily held together at about constant monetary base (but not M3 which is exploding at about 15 to 20% annual rate).

    Again, one more emphasis on making sure your bank money is covered by FDIC insurance. Cash is only valid until the bank doesn’t go belly-up.

    Looks like banks are not simply done with writing down their assets.

    Posted in Banking | 2 Comments »