My 1st Million At 33 – yes, you can do it too

As I have said that stocks should rally towards April, it had arrived quite a bit late than I expected, but arrived nevertheless. The question is how long will it last, and how far will it go?

My original tentative sell-out date was about third week of April, and it’s almost here. Since the stock markets started to rally later than I have expected, I’m willing to stay out partially into May and possibly beyond. The counter rally will continue to be VERY BUMPY with violent pullbacks and also dramatic rises. However, this is a COUNTER RALLY. What I meant by that is that I believe that there will be new lows probably within three years (at least on the gold-price adjusted basis).

It’s probably safer in my opinion to pull out maybe one fifth of your stake before third week of April. Frankly, I don’t think one would miss out too much even if the counter rally continues beyond May. S&P 500 most likely will not exceed 1000 by too much. That’s some 15% left out, but would be better than another 30% to 40% cut in the event of new low.

On a sector basis however, oil and especially natural gas sectors, and also high-tech and possibly retails will rally further than general stock market. Therefore, it begets one to possibly stay on but with extremely watchful eyes. Trade if you must, since the rally won’t do much for buy-and-hold investors.

The absolute pull-out date I believe may be in mid-October. It’s really too far to project in this volatile market. However, the further out that one goes, the more danger of facing a cliff. Most people believe that the cliff was behind us. However, I think with option ARMs 5-year initial teaser rates expiring this year and the next, coupled with rising unemployment rate, what FASB and banks cannot do even after changing mark-to-market rules, is going to be rising prime mortgage defaults. Eventually, one cannot hide from the real losses. Since stock markets look forward, I believe that the drop may start at the beginning of the teaser rates expiring in the fourth quarter of 2009, rather than at the end near about late 2011. Note that the first massive wave of subprime mortgage hit throughout the year of 2007, but stock market fell in the third quarter of 2007. Again, I assume that stock market participants may be slightly smarter this time around, and begin to sell in drove earlier. The only positive factor that works in favor of this market is that it had dropped very far very fast last round. Therefore, maybe the next cliff-drop will be “less painful”.

For the new/upgrade home buyers, patience will be required. I’ve said many times that the first real bottom for NOT arrive for home prices until 2012. Beyond 2012, home prices probably will just limp up and down slowly along the bottom. Since in all human history, a financial bubble would never come back in fashion after 20 years of its burst, you can totally forget about real estate investing with a negative or cashflow breakeven basis (accounting for tax gains) until year 2006/2007 + 20 years, which will be about 2027. (No, I’m not kidding, and I hope you would listen to me on this for your benefit.) In the unlikely event that the USA goes into very high inflation (8+% annualized), there is a chance that buying home will give you some return through leverage of mortgages. However, more than likely, in such event, hot money will rush into other inflation-fighting assets, rather than homes, especially I believe that long term interest rates will sky-rocket under such circumstances, sapping any potential demands from investing in real estate for inflation protection.

It’s easier to predict for a slow-moving train wreck (real estate) than a fast-throttling train with low and foggy visibility (stock markets). Let’s us take a step at a time slowly at this dangerous time. I beg your pardon, but the worst is ahead of us, not behind. It’s sad to see that first Black American president may get sacked totally by the worst ever credit bubble, which may in turn, prevent the next Black president to come for quite a number of decades to come. I truly hope that I’m wrong on my dire predictions, but one needs to take actions based on the facts, not based on the hopes.

Best luck.