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  • Archive for February, 2009

    New lows!

    Posted by Frugal on 24th February 2009

    I didn’t expect new lows to come this fast. Certainly, the April rally is turning into an April rout. Regardless, the stock markets are far from the bottom still.

    Both gold and gold stocks seem to have temporarily topped out. The initial downside targets can be $900 on gold, and $32/$33 on GDX. It is still to be seen whether gold will anti-correlate the general stock markets for the current correction. Apparently, they will be synchronized for this time. However, as time goes on, I expect that gold/gold shares to continue to diverge from the general stock markets. The strong correlation of last September to November fall should be increasingly reduced.

    Oil and oil shares are quite oversold now. The relief rally is nowhere to be seen. I’m ready to throw in the towels, and yet afraid of selling right at the bottom. I sold out my energy shares January of 2008, but picked them up way too early based on Bill Cara’s opinions. I certainly should have put the stop losses in. Certainly, no one expected such a fast and furious drop in energy.

    The markets are not looking good at all. As I have said earlier around the end of last year, playing the counter wave 4 of the Elliot wave is very hard. Now the question is whether we will make a “pseudo” double bottom here in stock markets, or we will slice through support levels and make a new panic low at about S&P 550. This week will be very critical.

    Posted in Investing | 5 Comments »

    Where to hide your money

    Posted by Frugal on 17th February 2009

    As most readers are aware of, I’m a long term “investor” in gold. I don’t trade out of my precious metal positions much at all. At least until the end of 2011, I will still be in gold.

    Here is a chart for gold in euro:
    gold_vs_euro.png
    In terms of other currencies (except Japanese Yen), gold has already shattered previous high by a respectable margin. Later this year, we should be looking at a new all time high also in the $US. I personally don’t think that there will be any place to hide your money besides gold and gold stocks. With the second major wave of option ARM mortgage reset coming this year, most of the financial stocks will probably “go towards absolute zero”. It will be the so-called reckoning day, when more bad loans will be put onto the balance sheets of banks.

    Mortgage_Reset.jpg

    You can count on Wallstreet and Greenspan single-handedly destroy the entire credit-based economy. With Congress also in bed with the greedy bankers, no bailout can save this economy. Can somebody tell me anyone going into jail because of the frauds in credit ratings or mortgage loans? If “these people” are able to unravel Spitzer’s prostitution scandal in 1 week, why can’t they put the responsible people in jail? We had a financial scandal on Wallstreet 50X bigger than Enron, and nobody went to jail because of that. Where is the outrage? Of course, Congress is still giving out bailout money. And these executes have the guts to tell the public that they are NOT mis-using taxpayer’s money. If your company is operating with huge losses quarter after quarter, any single penny paid into your pocket is coming from taxpayers. Isn’t that a common sense in basic accounting? How dare they speak!

    If the Congress let all these bad banks (Citibank, Bank of America, WellsFargo, Morgan Stanley, JP Morgan) fail, and simply start new banks, everything would be much better. But they had to save their “buddies” and cover their own trails of course. And so, until then, keep your money in safe haven like gold. One day they will destroy the last remaining asset that we have, confidence in $US and any credibility remaining in our country.

    Posted in Investing | 12 Comments »

    Cycles, Market Psychology, and Singularity

    Posted by Frugal on 6th February 2009

    My last post on depression have people called “Chicken Little”. Most people will probably think I am a pessimist. I tend to think that I am a realist.

    I’m very pessimistic on stock markets and economy in general because we just had the biggest bubble burst in human history, a synchronized global boom along with the real estate and credit boom. In terms of time horizon, we are just a little more than 1 year after the burst, while the boom is at least 4 years if counting from 2002/3 low. In fact, I would argue that the boom has been more than 20 years, if not longer. I’ve always believed in cycles. Things won’t go up forever (and I’ve called the housing top quite correctly), nor things will go down forever. Cycles or waves are how things tend to work in nature.

    Qualitatively speaking, here are some of the things that really work against a shallow recession and quick recovery:
    1. Both length-wise and size-wise, the preceding boom is simply unprecendented. Likewise, the bust needs to be similar.
    2. The global synchonization of this current boom and bust resonates with point #1. If you know how waves work in mathematics or physics, you will get the biggest wave when all contributions from different sub-waves coincide at the same time instant. That was exactly what we got, a global stock market boom and bust. By nature, a synchronized global slowdown will make the current slowdown deep and long.
    3. Most of my friends and colleagues are not worried about the slowdown at all, while I’m of course bearish. Given this relative psychology, this just cannot be right for THE BOTTOM of the economy & stock market. I am always early, if not too early. The reason is that I am usually at the more conservative /pessimistic side of the normal distribution curve, rather than at the more aggressive/optimistic side of the curve. At the bottom, collectively speaking, the average of all the market sentiments should be the very pessimistic. Since I’m more conservative/pessimistic than most, the right thing to happen is that I will turn negative and continue to stay negative, while gradually others will join me. Assuming that I’m always early in my calls, at the bottom, I should be turning positive already, while most are still very negative. Therefore, I concluded that the current market is experiencing an Obama rally, or glimmer of hope, which will eventually turn into disappointment and despair. (Not that I have anything against Obama who by all means is a fine president. He simply inherits a terrible economy caused by all the dirty greedy people on Wallstreet.)

    At last, my most scary thought (if not scary enough) is with the possibility of human growth reaching the singularity point already. I’ve mentioned this a few years ago, that we may be getting close to such point. Near the end of my post of “Why stock markets crash”, I wrote:

    Want more predictions from this book. In fact, I will be posting more on the unsustainable human population growth and its derived consequences. In the last chapter of the book, Sornette has applied his model to various other sets of data, and based on the data fitting, the growth era of human may stop at around 2050. What does that mean for the human race as a whole? Read my future posts. By the way, his prediction on USA real estate market bubble is set to peak around summer 2006. I guess that is turning out to be quite close so far. Some may date the peak of this bubble at November 2005. It depends. I personally believe that the current cycle of real estate has peaked already.


    For the math of how things or markets crash, you can read that post. But knowing that the crash date is mathematically finite in time, and also that in the physical world, it’s simply impossible to reach the crash date because the growth rate cannot go to infinity, one can know that the actual “crash” date will be always earlier than the crash date calculated/approximated from mathematics. Certainly there is some uncertainty in the 2050 date. In fact, I always thought that a more likely date should be in 2032/2033, where it coincides with the final peak of the current private wave according to Martin Armstrong’s economic confidence model.

    Now, it’s important to observe whether on a global basis, human continue to grow exponentially. If we don’t, then we are likely beyond the singularity point, and we may experience some unprecedented downturn. I think it will take some event like peak oil to kick human beings out of populating the Earth exponentially. Apparently, things seem to align up somehow. The peak oil date predicted by most geologists is anywhere from 2005 to 2100, with many leaning towards the earlier date. There is definitely a possibility that after a severe depression (which is still unfolding) that destroys/delays the economic production of natural resources, we oscillate into the other extreme of lack of production, and possibly go into lower production permanently.

    By the way, I want to emphasize that the “crash date” calculated from the log-periodic power function does NOT mean that it’s will always crash. It only “tends to crash”. Mathematically, the growth function stops in time, and after that time point, you could have ANY other function.

    I’m going to stop here before you call me crazy (if not already). I certainly didn’t make up these dates on peak oil, singularity date from Sornette’s book, and Martin Armstrong’s date of 2032/2033. Maybe I’m forcing to fit these puzzle pieces. Maybe the pieces do fit. We will see.

    Posted in Investing | 4 Comments »