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  • Archive for January, 2009

    Depression, here it comes

    Posted by Frugal on 26th January 2009

    As days go by, I’m more convinced that the current economic slowdown will turn into an economic depression (but don’t sell your stocks before April, until the intermediate rally runs out of steam).

    This depression will be less severe than the last Great Depression at the lowest depth, but it will last much longer, possibly until 2014 to 2018 (no, that’s not a typo). The shape of the recovery will be like a W, with the two low points at the end of 2011/mid-2012, and another point probably at 2016/2017. And we simply haven’t seen the depth of depression yet for sure. I think S&P500 would go to 600 at the minimum, and possibly lower.

    Like always, in every depression, the most difficult thing that happens to a family is unemployment. In Great Depression of 1929-1932, the unemployment rate hit 25%. I think we may be looking at 12% to 15% for this current depression. Let’s hope that it doesn’t get worse than that. At 15%, about one for every eight adults is unemployed. If you don’t have any rainy day funds built up, it is probably too late to build up something sufficient to carry over you through the downturn. Make sure you don’t lose your job.

    Anything that you could do now to help yourself through?
    1. Imagine that your company cut employees by 30%. Will you be the one that remains? If not, you should make every effort to become one of the people that may remain.
    2. Apply and get all the credit cards that you can possibly get. Only spend like $10 on the card to just keep them active. You should only use these credit cards until you cannot even afford food.
    3. Cut everything to barebone. Review your budget.
    4. Sell anything that you don’t need or use now by garage sale, or Ebay. (It’s a little late, but better late than never). Don’t bother to pick up more discretionary junks at the bankrupt Circuit City or similar stores.
    5. Keep a positive attitude. Hope for the best, but always plan for the worst. Do something, and do something out of your ordinary routines. That is the only way to create different possibilities for yourself.

    At last, if you are able, please help people around you through charity. It may be very hard to give, but every dollar that you give out, means a lot more than in the heydays, by at least a factor of 3X. Charity organizations are experiencing a drought of donation. It is unfortunate, but that’s just how everything goes.

    Posted in Investing | 22 Comments »

    Obama rally

    Posted by Frugal on 20th January 2009

    With a new president, there is new hope.

    The short term correction in stock market should be over. Temporary sunny days are here I believe. This is a turning point for sure.

    However, to turn the tidal wave resulted from the biggest credit excess, it will take years, and possibly one or two terms of presidency. To think that the economy will zoom back up right away is close to naive.

    Again, I advise people to sell this Obama rally. My current projected timing is anywhere from mid-March to late April, and possibly until early June. Take the advantage of the short term rally and go to all cash or cash equivalent (including precious metals).

    Year 2010 is going to be another sobering year. Best luck to all of you.

    Posted in Investing | 5 Comments »

    I am getting “promoted”, but also getting a “pay-cut”

    Posted by Frugal on 8th January 2009

    Times are really bad, and unfortunately it’s just going to get worse going forward for most people.

    I just got unofficially promoted, managing a team of six engineers as a project leader. But the CEO of my company has come out and said that there is no salary raise for anyone this year. And he is also cutting discretionary spending which includes subsidized cafe food, drinks, and also all internet home access. Now I will need to pay my own high-speed internet access, which will amounts to about $40 * 12 = $480, and if paying out of after-tax money at a marginal tax bracket of 28%+9.6% = 37.6%, $480 will be $770 “pay cut” a year.

    But I’m grateful to just hang on to my job. I’ve heard horror stories of up-to 60% layoff in my industry lately. And layoffs will be coming in every industry and pretty much every company this year. The vicious cycles are going to continue into 2010 in the form of unemployments triggering a reduction in consumption and more home foreclosures (which mean more bad loans, more REOs, and less credit availability). Now is the time to build up your rainy day funds if you don’t have any. Don’t take any more vacation days off, since you may very likely need them as part of your “rainy days”.

    This economic downturn is truly going to be the worst experience that we will all remember as a generation. Good luck to those who are graduating, since only the top students may get some decent jobs. Best luck to everybody.

    Posted in Investing | 10 Comments »

    Markets are very positive in 2009 opening

    Posted by Frugal on 5th January 2009

    Based on how markets are opening around the world, I think it’s very positive. Obama will be delivering his inaugural speech around Jan 20. I believe that markets should be strong this month. The fact that the markets are not tanking after rising some 5 to 10% thru the thin volume tradings in the holiday seasons is an extremely positive sign. Still, we will need to see how this very first week will turn out.

    Currently, global markets depend on how China can pull thru its stimulus plan. If China can “soft”-land, then commodity prices will have a VERY strong rebound. Infrastructure/commodity-related stocks will also rebound strongly. The general markets may still stay subdued somewhat. I think markets will certainly make an anticipatory move, but if the actual economy does not confirm the move, expect another big washout and possibly new low this year.

    Currently, the most positive thing for this market is the investor sentiments. Most investors simply don’t expect anything good to come out of 2009. That should produce a sizeable counter rally. The negatives are pretty much everywhere, and I put a impending bond market pull-back to be the top of my list. It’s possible that bond markets won’t have a significant pullback in 2009, but rather later in 2010. But if that pullback starts to happen, one should get out of all stocks, and also $US. I kept thinking that unthinkable would not come (so fast), and yet things are happening at a much much faster rate especially once the ball gets rolling. I’m not counting on myself (or majority of the investors) to be able to react to it, and therefore, I have positioned myself accordingly in precious metal sectors.

    A pullback in PM sector here will be healthy, and I will probably start nibbling a little again.

    Best luck in 2009.

    Posted in Investing | 1 Comment »