I recently tried to look at a short-sell property. There is no lock-box at the property. It is by appointment-only. But the seller simply doesn’t return any phone calls. Nothing. You can’t get in at all.

The property has been on the market for 100+ days. It seemes that the sellers are simply trying to buy time to live inside the property. I wonder how much the bank is aware of the situation.

Well, come to think of it, banks probably want a longer short-sell & foreclosure process anyway. This way they don’t need to write down the losses immediately, and show a big red ink in their quarterly reporting. Banks are trying to buy time too. Unfortunately, the longer the process takes, the bigger the losses. Unless the wages of homeowners suddenly increase a lot through a hefty inflation, the same unaffordability exists before and after the foreclosure/short-selling. Nothing is going to change.

And loan modification will work only if the lenders are writing down the loan value. Otherwise, when the loans get sold back to Fannie Mae or Freddie Mac, taxpapers will foot the final bill.

Stock markets usually lead the economy by 9 to 12 months. In Chinese stock markets, this is no different.

If you look at Shanghai index, it peaked in October of 2007, about 10 months earlier than 8/8/8 of the Chinese Olympic game opening. The rise of the stocks was also parabolic. Starting from the double bottom of about 1074 (Dec 6th, 2005, and Nov 1st, 2005), it doubled to 2148 on Dec 4th, 2006, about 1 year later. The next double to 4296 only took half as long on May 29th, 2007, about 6 months later. However, with Chinese government actions to control the stock market bubbling action, the next double simply didn’t come. Market peaked out at 6124.04, and has dropped by a hefty 60% to 2470 on Monday 8/11/09. Market participants are very afraid of a post-olympic slowdown.

However, I believe that most market participants will be wrong again. I believe that the bottom for Chinese stock markets is right around here and 2000 level.

The Chinese have made a great progress towards prosperity. Even though there has been many political maneuvers against a high inflation, the government will simply not allow Chinese economic prosperity to disappear overnight. In fact, billions of Chinese people will continue their climb onto the international stage. The trend is simply unstoppable.

Having said that, the next climbing up of Chinese stock market is probably going to be slower than the previous rise. There should be plenty of time to catch on to the rising dragon. Hopefully, the future growth will be more healthy and sustainable. The next biggest hurdle for Chinese economic development will be facing both a US and European slowdown in 2009. And domestic consumption will need to make up the short-fall. Another corollary from this is that a commodity bubble burst is probably not in the cards, as long as Chinese continue to absorb international natural resources.

I’m just going to introduce a web site to you at futurecasts.com.

It’s really good, and there are a ton of information. The author of that site has had a pretty good prediction record. I mainly stuided the site for economic histories. So far it looks like US is tracking the financial crisis after 1929 depression. Certainly, though, the current crisis won’t evolve to a great depression in my belief. But the political reactions so far are quite similar.

Anyway, I don’t have much time today. So I’m going to cut short.

You can imagine how bad the downturn will be numerous times, but not until it hits you, you won’t feel the full effect. The sell-off in mining sectors have truly shaken me. In fact, I have started considering to bail out the sector.

My original thesis of investing in precious metals and commodity in general has always been the following:
1. Peak oil
2. Demographics changes in combination with the heavy US debt/future obligation.
3. A serious US housing downturn, inducing a credit crisis, and thus driving up the value of the “good money” or gold.
4. Emergence of BRIC (Brasil, Russia, India, and China) and third world countries to participate in the consumption of natural resources.

For the above factors, some are near term, and some are longer term. It is still hard to say whether how soon the peak oil will occur or has occurred even. However, some of other trends are probably unavoidable. The financial crisis I believe is still ongoing, and will unfold until mid-2011. It is arguable whether capital will seek safety in gold. But as far as I can see, it should be “natural” for it to occur. As Bob Hoye has explained, a rising gold price is the mother nature’s way of encouraging gold production, which “increases” money supply to offset the deflationary crisis.

For obvious reasons, #3 should be the most immediate driving force (if it’s still there). #4 BRIC is obviously going down to the drain temporarily. Whether #4 or #1 prevails, at least one of the factors is bound to either increase the demand of natural resources or decrease the supply of natural resources. #2 factor is purely monetary on a longer term horizon. But of course, the reckoning day for US deficit gets closer everyday. Although it is more likely that it unfolds gradually, market confidence is often quite fragile and easily shatterred. For now, this factor may not kick into high gear for another 10 years.

While Bob Hoye is still predicting an upcoming turmoil in stock markets, Todd Harrison has moved on to the long side. For now, I am betting with Bob Hoye.

Regardless, the timing of those above four factors will affect greatly on the performance of my portfolio. If the timing of the events is off by some 3 to 5 years, I will be looking at a sub-par return for sure.

By the way, abiotic oil does appear to have truth to it. I will be googling more on it to see if I can refute peak oil theory.

Nearing the Fed meeting, precious metals have entered another sell-off. It’s almost predicable, but brutal too.

Is this the time to buy? Probably not.

By the way, if you ever want to buy, 12pm EST is probably the best time to buy. I can never explain why, but 12 pm EST almost always tend to get a big drop on the down days. The other best time to buy is right before the market opens, near 8am EST to 9:30am EST. This is from my personal observations in the past years.

I think HUI has broken the shoulder on the head & shoulder pattern. Therefore, it’s conceivable technically speaking that HUI may drop all the way to 300 level. My personal guess is that it could drop to 325. However inconceivable it is, the pattern is still consistent with Elliot wave labeling. That is we are in the wave 2 of wave 3. And wave 2 CAN correct majority of the gain made in wave 1 which started at HUI=285.

For long term investors, I think one can add to the stakes at the coming low point. Of course, the pain for holders (and myself) will be very high. Unfortunately, I think that there may be just no way around it.

With some 100+ banks (if not more) that probably will fail in the next two years, that averages out to be about 1 bank per week. Since FDIC is under-staffed in the first place, and you don’t want things to go too crazy, FDIC should probably be closing at least 1 bank per week, just to make everything and all the processes more smoothly.

The last Friday was First Priority Bank. The week before was First Heritage Bank in California, and First National Bank of Nevada in Nevada. Since it should be always Friday, you don’t need to worry on any other days.

IndyMac’s closure was certainly triggerred by a run on bank. The reason that FDIC wants people to emphasize that your money is “safe” as long as it’s under $100K per depositor is that such run on bank could be fatal for the financial system, since your money really doesn’t exist. For every dollar in your checking account, ten dollars can be lent out, not to mention that the reserve requirement for saving account is zero.

Closing the weak banks simply allows the game of financial systems to continue. I will certainly not wait in line to get my money back when my account balance is less than $100K. All the money “will be there”, and of course, I also know fully well that it’s also not there, since it’s lent out to crazy home buyers from 2004 to 2007.

Volatility is taking over the markets in all ways. Huge down and huge up. In less than a month, commodity complex has corrected significantly, while financial stocks have rebounded “strongly”.

(Click to see enlarged charts)

Since I’ve unloaded most of the energy stocks back in January (missing the entire run-up), I have been quite low on energy holdings. I picked up some natural gas stocks this week given that the price has dropped to the 40-weeks moving average.

There are many names that one can buy, APA, XTO, and CHK, not in any particular order. For a more conservative investor, one can also buy many of the Canadian energy trusts such as ERF, HTE, PWE, and PGH, which didn’t go up as much. And energy ETFs such as XLE, OIH, UNG, and USO, should be a very good way to participate too.

On the other hand, I don’t think the decline in commodities is over. The Elliot wave 3 should be over, and it will take some time for wave 4 to finish its consolidation. I do expect that commodities will probably trade in a range, either flat or slightly down.

If you are an investor, it should be a good time to restock at the low points. If you are a trader, you can probably trade this range for sometime, probably several months, or maybe even into next year.

Regardless, it is very evident that we have a synchronized global slowdown, signalled by emerging stock markets and commodity markets, as I have always believed back in January. In such a slowdown, most stocks will be down. I think the theme going forward will be first recession, and then stagflation.