Money or rather credit will be increasingly unavailable to many. This is the sign of the time going forward, probably at least for another 3 years.

Look at the headlines:
Linens’n Things files for bankruptcy.
Aloha airlines files for bankruptcy.
Frontier Airlines files for bankrupty protection.
Borders Bookstore may put itself up for salfe after running short on cash.
US credit crunch rocks student loan business: 46 lenders stop making federally guaranteed loans
Auction-rate market for US municipal bonds srinks with failure rate at 71%.

In the US, due to past credit market expansion, we just had too many retail space per capita of population. Those who invest in retail space or commercial real estate will experience pain going forward. Likewise, those business who rely on city budgets for continuing spending freely on constructions and services will see their business shrinks or evaporates. And college students who plan on taking on loans may see their college years stop in the mid-way. Students may be forced to drop-out while college budgets will shrink.

Don’t think everything is going to be fine again really soon. The peak of credit bubble is behind us, NOT ahead of us. This is extremely significant as a turning point of the society (except many will realize long after the party is over). Contraction of credits (the great unwinding) is going to make those businesses and ventures (including going to college) which are leveraged to fail. Only the people with CASH & true cash equivalent will stand in the remaining. If you are the one with cash, you must make sure that your cash doesn’t disappear into nothing in a bankruptcy by banks or businesses. Stock markets are likely to roll over later this or next year too.

What’s the upside from the credit contraction, if there is any? Actually, there is. Things (but not everything) that used to cost a lot and requires financing will actually go down in price on an inflation-adjusted basis. This includes real estate, college education. Things that requires many consumers to keep the scale of economy may actually go up in price (inflation-adjusted) such as cars. And from a consumer society, we may be moving back to a society that saves.

Jim Roger moved to Singapore. What kind of things compel a manager to do such? There must be very good reasons according to him. Certainly, credit will be more available to more credit-worthy people in Asia, rather than the investment bankers who lied on Wallstreet and all the house-flippers on the mainstreet.

I’ve got out my longs yesterday. Next week we will have some major financial companies reporting. It’s best to simply stand on the sideline. I don’t think it will testbreak the previous low, but it may not be pretty either.

Best luck.

My trading model just triggered a buy signal on HUI index at the Thursday closing. Going all the way back to 1996, this signal is only right about 60% of the time, but has performed well through the bear market from 1996 to 2001, and the bull market from 2001 till now.

But I still hesitate to take further positions. I don’t know whether the model is correct, or Bob Hoye is correct. I would be comfortable buying if gold makes a low at or below $850, with HUI going all the way down at 370 to 400 (or below). The current correction seems to be a little shallow, and has simply not corrected the overbought technical indicators on the monthly readings.

But again, I also believe that we were in the Elliot wave 2 of 3. Supposedly the corrections are shallow in intermediate wave 3.

Trade on your own risk. Best luck.

Frugal at 1stMillionAt33.com

I saw a big typo in the headline by Greenspan. He said “The Fed is blameless on the property bubble“. Actually it should be “The Fed is SHAMEless on the the property bubble”.

Just thought that I should share my thoughts here:

If a ship (economy) goes down that quickly right after the captain took the lifeboat, isn’t the captain at fault in any ways (if not in all ways)?

A man who single-handedly created two biggest bubbles keep saying that he doesn’t know how to tell a bubble from a boom. So who is supposed to know more about economics other than Fed chairman?? So many wiser people before the bubbles burst have warned about tech and housing bubbles. But Greenspan denies even the possibility of recognizing a bubble from a boom. Go figure this man’s IQ. He is either too dumb, or too smart to lie to his low-IQ audience.

Greenspan keeps saying that property bubble was caused by a global glut of saving and global low interest rate. But he doesn’t remember that US economic policy has a big effect globally, and that if US interest rates are going so low (1%) AND so long (more than 1 years), it is very hard for other central bankers to keep both of their interest rates and foreign exchange rates unchanged. The only easy way to keep their economy relatively undisturbed is by following US economic policy (at least in the same trend). The result of a global property bubble only goes to show how much blame Greenspan was responsible for, rather than what he tries to do: confusing people with the results as the cause.

Frugal at 1stMillionAt33.com

Watching how Teri shops is just amazing. I thought it’s hard to find someone like my wife who really can get grocery deals thru usage of coupons. But Teri is a couple of steps beyond.

I saw the TV program for TheGroceryGame.Com. She walked out of the grocery store, paying only about $80 for some $280 worth of grocery. The numbers are amazing. But the image of her walking away with an entire shopping cart FULL, but paying only $80, is just awesome. I’m sure that you and I know how much grocery you can buy with just $80 these days. Maybe half of the shopping cart of grocery at best.

She keeps tracks of on-sale items and also her coupons. I just can’t imagine that someone would go into so many details for grocery shopping. But hey, her results are just unbeatable.

My only regret is that you need to sign up & pay at her website for specific grocery information. While I have not personally tried it, I suspect that you probably will net a positive sum by using her service.

Can you buy boxes of cereals for $1 or less in the recent month? If you can, I suppose you’re on the right track. They have been on-sale, plus that if you have the corresponding manufacturer’s or store coupon, you can get them at $1 or less. My wife just stocked up many boxes.

I guess grocery shopping can really be a game that you can win. It’s even more important with the food cost going up these days.

If you have any experiences with Teri’s website/service, please do let me know by leaving some comments. Thanks.

Frugal at 1stMillionAt33.com

P.S. I’m not affliated with TheGroceryGame.Com in any ways. I will never write paid articles. All articles are my personal opinions.

This is going to be a short message. I caught a flu, so I’m going to be short.

I think there may be another lower low ahead of us. Buy that low. Don’t get in yet.
It’s still quite dangerous.

Right now, it’s probably best to stay in cash or short-term treasury bonds. Don’t be cute on foreign currencies. $US may be the temporary safe haven.

Stock markets are not breaking resistances yet. So be careful about heading into April expiration (in 2 weeks). Some major banks have NOT reported yet. Longs in the stock markets need to be nimble.

Best luck trading.

Frugal at 1stMillionAt33.com

I have been worried about the global food supply, and I called up one of my friends who is an owner of an agricultural food import/export business.

I asked his opinions on how he thinks about the recent surge in food prices. He told me that it’s the first time that he is seeing everything in food going up at all fronts for an extended period of time. And he thinks that these trends are going to last and will be sustainable because of the following factors:

1. Government-mandated fuel additives of ethanol taking away lots of corn supplies.
2. Increased corn acreage is at the expense of decreased acreages for other agricultural products.
3. People in China and India are increasing their living standards.
4. World inventory of grains is at the lowest level in 60 years.

More specifically, I asked what the agricultural producers are doing in response to this problem. He told me that the existing big players are investing the profits into bio-tech to enhance their edges and profit potentials, and they are not expanding the planting acreages dramatically (since it will be to their disadvantage of increasing the supply). I obviously knew about all the above factors last year, but I was more concerned about the future going forward. Unfortunately, the answer that I got was not what I wanted to hear. I told my friend that without increasing food supplies, there may be famine. And his response was that famine will only be in the third world countries.

Well, yes, I know. I didn’t go further on my comments. But that was just what’s on my mind.

Back in 1985, when I was in my early teens, there was a music song that touched me deeply. It was “We are the world”. It made me feel very sad to know that there are people dying of hunger, and going to bed with an empty stomach. And I still remember that it was the first time that I learned about this African country Ethiopia from the song. And that there were some 100 singers who tried to raise money for the hungry people. “We are the world, we are the children….” That was the lyrics from the song. And I couldn’t agree more.

I only hope that we don’t see that happen. But we are indeed crawling towards it, if not happening already. Look at the headlines:
Rice Jumps to Record, Corn Near High as Demand Outpaces Supply.
Fear of unrest mounts as hunger spreads.

(US-exported) Inflation is hitting many foreign countries much harder. One day however the inflation may comes back to US soil with revenge (through currency exchange rate).

The most effective way to solve these problems is not really raising lots of money which will simply cause a different way of food distribution, but rather raising lots of food supply. Food inflation is the harbinger of all inflation. The future does not bode well for paper money. I only hope that farmers will be doing an excellent job for everyone else.

I can’t believe that it will take me many many thousands of dollars of loss to bury my head into my own mathematical trading model which has told me to sell. I only wish I can trade full time.

This gold correction is definitely going to last quite a while. I guess what’s most unexpected was the duration of this previous up wave, only a mere 7 months. Now the question is where gold is going to bottom. Assuming that the previous up wave is 1 of 3 in Elliot wave, I believe the “first” bottom for gold to bottom at about $850, and HUI to bottom at 400. Gold can possibly go down to as low as $760, dragging down the entire complex way down. If it goes to $750/$760, I believe the wave count should be 5 of 1 for the most recent peak.

And very likely, precious metals won’t go anywhere for the next 9 months. Yeah, we may not see $1000 again in 2008. It’s going to be dead money.

Where should you invest your money? As I have said last week, I believe the danger zone for stock market is probably over temporarily. Of course, my own opinion is different from Frank Barbera and Bill Cara. I don’t think stock markets will break new high at all, but I believe a new low in stock market is probably not going to be in this year. Yes, we have seen the low for this year I believe. But we might not have seen a lower low yet. It’s apocalypse postponed.

On the other hand, I also don’t believe that mining stocks will go as low as Bill Cara has described. Of course, it’s only my personal opinion, based on my own count of Elliot wave.

I have taken a little long position, and closed some of my short hedges yesterday.

I have not sold much of my long positions in precious metals. I guess one of my biggest problem is that I have too much cash, which prevented me to raise more cash by selling. My total cash position is now as big as my total liquid net worth when I just started my blog, which is mainly due to my leveraging on my primary residence (through refinancing), and my relatives’ cash. Since I think more in terms of asset allocation rather than trading, I don’t want to pile up more cash. That was my problem last time when gold peaked in 2006. And I am repeating my mistake again.

Nothing beats good trading (even a good asset allocation), but only if you can repeat it time after time. Certainly, it’s a little hard to asset allocate when my cash position grows so much. Unbelievably, I’m still 50+% in cash (if I count my SHY holding as cash). Of course, that’s not any comfort for my huge loss (relative to my annual salary) in precious metals sector.

P.S. Don’t buy into the stock markets today. It should be worth your money to wait for some financial companies to go thru their earnings before you buy into the general stock market. That will also give you more time to assess this market. Furthermore, I just don’t think this stock market is going to cruise to new high this year or the next. Bottomline, you shouldn’t miss a boatload of profits even if you don’t ride on this train.

There are an increase in bankruptcy filing by corporations. It’s very important for every consumer to protect themselves in every possible way. The most important thing is don’t pay cash. Cash given to corporations is only good as long as the corporation exists.

If you buy gift cards, be sure to use them as quickly as possible. Gift cards are like loans given to the companies. The only commitment from the companies is that they will honor their gift cards before they go bankrupt. An example is the recent Sharper Image bankruptcy. They stopped honoring the gift cards.

If you pay by cash/check, it’s the same story. Aloha airline going bankrupt will not be honoring their sold tickets if they were paid by cash or check.

I know it sounds outrageous. But that’s just the way it works. Once a corporation files bankruptcy, the shareholders or the owners no longer have the control over the company. Rather, the corporation is “owned” by the bondholders, who will need to divide up the remaining assets in the bankruptcy court. If you have any cash left in the company’s control, you are just another lien holder.

To avoid these heartache, the only way is to pay by credit card. A payment by credit card is only a commitment to pay the amount of cash through credit card company. Since credit card companies don’t give these money to the companies immediately, but only extend credits to the company, there is no money exchanged (yet). Therefore, it’s a much safer way to pay. And that is the reason that credit card company has the bargaining power to allow you to dispute your payment when the service/products are not received.

With global liquidity drying, I expect that both big and small companies are going to go through a rough time for quite a while (years, I mean). Those that don’t have enough cash on hand for daily operation will need to file bankruptcy. And you don’t want to become a victim of such happening.

Best luck shopping.

Frugal at Posted in Credit Cards, Frugal Ways | 3 Comments »