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  • Archive for September, 2008

    Lower low on markets

    Posted by Frugal on 30th September 2008

    It was just increduluous that bailout failed to pass. When the leadership is most needed, it is not there. Instead, they listened to their constituents “finally”. I can’t think of anything more ironic than that.

    So where do we go from here? I think if there can be any rally, it would stop at about 121 on SPY. It would have gone much higher to 130 if the bailout was passed on Monday. Instead, I think there will be another selling panic at the end of this month.

    Yes, I will come back and try again after losing almost 10% on my bottom picking. But temporarily, I will not buy into the general markets. In fact, with precious metals coming back down, I may instead switch my battle zone.

    Bailout may be passed on Thursday. But it won’t have the same effect on markets as it would have passed on Monday. The longer it takes the bailout package to pass, the less effect that it would have.

    Energy stocks have also broken the recent low. Looks like energy sector is going into a very deeply oversold wave 2 of Elliot wave. It may not be pretty.
    Again, things are ironic. If energy prices stay high, we would be taking some necessary measures. But instead, we will sit back and relax, waiting for the next energy crisis to come, and it will be too late.

    Posted in Investing | 4 Comments »

    Some opinions on the bailout plan

    Posted by Frugal on 26th September 2008

    As far as I can tell, majority of the people are opposed to this bailout plan. I on the other hand kind of support this plan. Why? Because I do believe that if this plan doesn’t get passed, I think we can look easily look at 20% offfor the stock markets in 1 month. That should be 950 at S&P 500, probably 8800 on Dow Jones, and 1750 on Nasdaq. That will kind of reset your 401K account value.

    It is extremely unfortunately that Americans are not offered with another plan choice from others like Mish or Hussman offered (losses sustained by bondholders instead of the government). But Paulson’s plan is the only one what we got. In fact, I think whatever choices made now simply will not change the destination, but only change how we get there. Without a bailout plan, we will go down faster for sure, reaching a lower US dollar sooner. With a bailout plan, everyone can hang in there for a bit longer, and some banks will probably get undue benefits from it.

    I personally don’t have a strong opinion for or against the plan, except making sure the transparency, oversight with veto power, and mortgage assets purchased thru market-based mechanisms. I think Democrats have put in very good reins around the plan, except the additional baggage of bailing out more homeowners without resorting to market-based mechanism (more moral hazards).

    We will see whether there is a deal or not. This will just be another episode onto the eventuality.

    Posted in Investing | 8 Comments »

    Wamu failed. No bailout yet.

    Posted by Frugal on 26th September 2008

    Markets are in disarray. Gold is going up again. Enough said.

    Wamu’s failure is going to send FDIC screaming for cash, and lots of customers weeping for lost money. FDIC has “surprised” people with a Thursday close. Why so late shutting down Washington Mutual? FDIC can’t afford it.

    There’d better a bailout today, or markets can collapse right here today. I can’t believe that I was too busy with my day job that I didn’t get to sell out yesterday. Yak!

    Best luck. I think Congress will pretty soon understand what kind of confidence game that they are playing. Markets will very likely crumble down.

    Posted in Investing | 2 Comments »

    On the bailout plan & markets

    Posted by Frugal on 25th September 2008

    Listening to Paulson & Bernanke grilled by Senate and Congress for the last two days, I think the bailout plan should be soon approved, but it may not work as originally intended by Paulson. Based on stock market reactions however, it appears that this bailout plan will NOT work.

    I am retracting my bullish bias on general stock market (from last Friday) back to neutral position again. The biggest problem that I see right now is that a bailout plan of some sort has been PRICED in already. And whenever stocks go up, the rally is NOT broad-based, and energy stocks are NOT leading or going up much. That is very negative in my opinion. That means stock markets still expect an economic slowdown that is not going away.

    I have been cutting some of my losses from my recent entries. Fortunately, so far, my losses are not that big. The markets may still rebound after the bailout plan is approved. But it looks like the low will probably be retested again in October. I WILL come back into markets again.

    Posted in Investing | 2 Comments »

    Markets at the pivotal point

    Posted by Frugal on 23rd September 2008

    SPY has pulled back to exactly half point of the initial rise from 113.80 to 128.00, at about 120.90, not counting the recent 0.691 dividends paid. I’m quite busy observing this market. I guess no one knows for sure that which way this market will go next, but one can definitely put in their bets.

    I won’t write more here, but it looks like the $700 billion is a little precarious through Congress. Unfortunately, they’re debating the actual mechanism of the implementation, which simply should be a market-based reverse auction (which the Congress doesn’t have a good grasp of), and a very good transparency with oversight and veto power over the Paulson “King”. As long as things are transparent, with all money accounted for, and that Congress can veto and retain control, the rescue plan will be fine.

    Anyway, markets are moving lower, and it could easily retest the low again before the final bill is passed. Trade carefully.

    Posted in Investing | 2 Comments »

    Currency/gold markets are wising up

    Posted by Frugal on 22nd September 2008

    I have thought that gold would have dropped and continued to drop after the 700 billion rescue in the short term, and I was expecting a much less subdued reaction in currency markets. But to my surprise, precious metal miners and physical markets continued their strength non-stop. Only the first day (or rather the first hour), the market reacted stupidly.

    In currency markets, euro and commodity currencies (AUD & CAD) have been going up dramatically. US dollars are dropping very fast. Again, I thought that the markets are kind of stupid. But no, market participants are (suddenly) understanding the bullshits behind Paulson’s rescue agenda. Yes, the long term effect of the rescue plan is kind of obvious. And I have positioned my portfolio years ago in anticipation of a long term US dollar devaluation. Of course, markets in the recent past especially simply went stupid by a rising US dollar to almost 80 level. Is this a turning point and reckoning point for average market participants??

    The precious metal markets should be entering the biggest third Elliot upwave (now or) in less than 6 months I believe. Again, let me repeat that in the middle of third wave, it is when majority of the market participants are more right. The sooner the average market participants start to truly understand the future impact on the US dollar, the sooner we will get thru the mid-point of the third wave.

    I have also noticed more and more on TV and radio, whenever a rescue package is out, one of the frequently asked questions by viewers and listeners is that “where do they get alll that money?” Again, this past weekend on TV, TV hosts are asking “will there be tax increases because of the rescue package?” The average people are really starting to understand that “things are not free”. It is kind of obvious to me that both McCain & Obama simply won’t do much accounting for all these rescue packages, and United States simply cannot afford any tax increases on average people for any of the rescue packages. All the money for rescue will eventually manifest their effect as more US debts, more US inflation, and less US dollar valuation. US dollar is destined to be toast.

    You can fool some people some time, but you can’t fool all people all the time. Eventually people realize the truth that US dollar is worth nothing. It looks like the snowball for US dollar decline has been set in an irreversible motion. Make sure you position yourself long term, and never lose sight at the final destination.

    Posted in Investing | Comments Off

    All clear for rising?! I guess so. (intermediate-term speaking).

    Posted by Frugal on 19th September 2008

    I think the general stock markets have made their intermediate low. It may be hard to believe for those bearish on stock markets (myself included), but I think temporarily the clouds are clear.

    Why? I’m basing my opinion because of the following:
    1. Globally, the investor fear level is very palpable. In fact, most international stock markets experienced a BREAKDOWN. I like to look at Asian stock markets (manufacturing based, as a leading indicator for global economy) FXI (China), EWT (Taiwan), EWY (Korea), EWJ (Japan) and commodity-related stock markets (commodity are consumed for manufacturing) EWA (Australia), EWC (Canada), EWZ (Brazil). Just clicked on them for the charts. I’ve included the charts for just EWA, EWT, and FXI here. NOTE that most charts have displayed a clear pattern of A-B-C 3 elliot waves down, or double top pattern, with similar time distance and magnitude for A and C waves down.

    Australia.png
    Taiwan.png
    China.png

    2. Gold/Silver ratio indicates fear and euphoria. In this particular cycle, at the high of the ratio, it represents a credit crunch fear. The recent high of this ratio was at about 75, similar level if not higher than achieved in 2002/2003 stock market bottom. In the recent past years, it normally ranges between high 50s to low 60s. After the dramatic rise of gold on Wednesday, this ratio has started falling from 75 to about 71/72. Since 75 is a very high value in the past, I assume that reaching 75 this time probably has qualified that the peak of fear has been reached.
    gold_silver_ratio.png

    3. Reaction of the market to AIG rescue was decidedly negative. Markets reacting to a very positive news in a very negative way, is representing lots of fear. The fear is confirmed by the volatility index $VIX, going into 40, exceeding previous peaks.
    VIX.png

    So I believe that markets have reached a tradable intermediate bottom. Again, I want to re-emphasize that I believe this bottom may NOT be the long term bottom yet which probably will come in about 3 years from now, and definitely NOT the long term bottom on an inflation-adjusted basis.

    What stocks should one buy? Probably index or sector index stocks are the better ways to go. I don’t want to venture a guess here. I don’t want to concentrate my bets on neither just the financial sectors nor the energy/materials sectors. It’s going to be hard to tell where the hot money will flow back to, especially given a potentially significant consumer slowdown ahead of us. In opportune time, I will again sell the rally, unless a massive government inflationary effort morphs my projected long term bottom into a higher nominal value.

    Best luck trading.

    Frugal at 1stMillionAt33.com

    Posted in Investing | Comments Off

    AIG rescued by Fed. Markets may be turning (for now)

    Posted by Frugal on 17th September 2008

    AIG got 85 billions from Fed. Of course, the shareholders get decimated again. It’s kind of obvious by now that if you want to pick a bottom for these death spirals, you should never pick up any of the common stocks nor any preferred shares. Most of the time (if at all) only bondholders can be saved.

    Even though foreign markets didn’t pick up much steam from this news, I think we should see how US market reacts to decide how things will turn out. I think markets should be turning up, but again no one can say for sure. In any case, I’ve closed out majority of my short position last Friday and this week. There is still a bit left. But I will be waiting for “re-charging” again at the higher level.

    Hopefully the rally will be broad-based. The energy and basic material sectors have been very over-sold. I’m looking towards lightening up a little. But this low is almost for sure not THE LOW. I still think that there is a lower low coming before any intermediate term counter-rally.

    Posted in Investing | 2 Comments »

    Money market fund (RPFXX) breaking the buck

    Posted by Frugal on 17th September 2008

    If you own RPFXX money market fund, you will probably be getting just 97% back for your money. After Lehman brother failed, their debts are becoming worthless in many money market funds. This is scary! Why would you ever buy non-treasury money market funds, especially these days?

    How can you insure that you don’t lose your cash in your bank/brokerage account?
    1. Put your money in the bank, and make sure it’s under FDIC limit.
    2. Put your money in a treasury-based money market fund. The easiest way to tell is to make sure that your money market fund has a word of “treasury” in the name. Forget about any other AAA papers in your money market fund. ONLY treasury bills & bonds are “golden” (since they can always print the money for you). If the prospectus even mention any non-treasury instruments, be VERY careful.
    3. Buy treasury-related ETFs, such as SHY, TLT. However, the longer you go out in maturity, the more exposed you are for interest rate change. I think about 5-year of treasury bonds or equivalent maturity is the best trade-off. But I don’t know any ticker symbol for that.
    4. Buy foreign cash instead. Many of the “commodity” currency have come down. If you want to ride it out, FXA and FXC are probably okay, and their yield can be higher. Otherwise, in a liquidity crisis, the “golden currency” should by FXY, or Japanese Yen. Whenever the liquidity crisis happens, it is usually accompanied with a rise in yen due to the carry-trade unwinding. Therefore, FXY (which basically yields nothing) would be the safest choice.

    Make sure you keep your hard-earned cash safe. Here is a link (Crane Data) to probably the best source of news/commentary in respect to money market funds. If you’re paranoid, definitely visit their site for more readings.

    Frugal at 1stMillionAt33.com

    Posted in Investing | Comments Off

    Fed cutting rate today?

    Posted by Frugal on 16th September 2008

    Markets are not done sliding. But Fed should be cutting interest rate again. I am guessing that it is possible that Fed cuts 0.5%. The interest rate will drop to 1.5%, giving you a bank interest rate for almost nothing in that case.

    Whatever Fed says, the market reaction is the most important. Since the markets are going down before the meeting, my guess for the knee-jerk reaction would be that markets will rally back up. But it is hard to say how long the rally would last. Hopefully lasting long enough until the option expires.

    No one would be able to predict the markets. But it is obvious that markets are at the cliff. If markets are not pleased by Fed, and the Plunge Protection Team is unable to create miracles again, then I think we can easily look at another 10 to 15% drop in all indexes.

    My current opinion is that markets “should” rally for one last time, before the big water shed.

    Best luck.

    Posted in Investing | 1 Comment »