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

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  • Archive for July, 2009

    New high for the year, what’s next?

    Posted by Frugal on 24th July 2009

    The short term rise in the stock market have been bewildering to say the least. Yes, I was short into the fall, and I have burned up my money. Nevertheless, because my net worth overall is still net long (and very long because I can’t offset my stock option positions), my net worth rose to new high for the year also after the head & shoulder pattern gave the false break.

    Recall from previous posts that I have been saying that I believe a stock market fall will come at about early July, or by August the latest. I also projected a brief temporary rise (but lower) towards the year end of 2009. With the current stock market just breaking new high thru panic short-covering yesterday, I must admit that I am probably wrong in the timing. Nevertheless, I am still not changing my view on the longer term picture.

    I guess one of my biggest mistake is to assume that market will fall over cliff right away. Since I was projecting a longer term fall into mid-2011, and that is still 2 years away, the stock market can’t possibly fall via a straight line down there. Instead, it makes a lot more sense for a longer period of counter rally since March 2009 bottom, just for the stock market to “kill time”, especially after a dramatic indiscriminate sell-off from October of 2008. To adjust this recognition, I am altering my original projection as follows:

    1. The general stock market will still trend up towards Aug/Sep timeframe. The high may either have been established yesterday, or between 3rd week of August to 2nd week of September.

    2. There will be some 10% correction before the year end. I’m guessing that it would be closer to 13% correction on indexes. The correction may last until the end of October and probably until 3rd week of November.

    3. From there stock market will rise again, making its second short-term high, right around Christmas, at about Dec 21 to January 8th. I believe that this high will be slightly lower than its last high, but there is probably some 25% chance that it will be higher.

    4. After that, stock markets should enter the lower-high, lower-low pattern.

    5. I read some pundits stating that the final low should be made after 31 months from the peak (at October 2007). I think if the second high around new year is some 6+% lower from the previous high, then I believe possibly a final low can quickly be made around April/May of 2010. Otherwise, I still lean towards a final bottom made in June of 2011. Based upon what I can observe, I think the latter case is more plausible. And the economic recovery after that may be more L-shape than anything else. Please note that the shape of the curve for stocks will certainly be different than the economic recovery.

    All in all, going forward, I think the rest of 2009 will be where both shorts and longs can’t make much money out of it. The volatility will still grind when everyone is least expected of it. 2010/2011 will certainly be much more treacherous.

    For emerging markets, I think it’s probably safe to say that they will out-perform US stock markets. You can probably add an increasing out-performing percentage along time axis to the above description, and that would be my projection. I believe coming out of 2011, emerging markets will lead both US & Euro markets in performance, finally proving that decoupling theory is correct. For now however, global stock markets are ever so synchronizing together. Decoupling is just a myth currently.

    Please also note that the above projection applies to mainly S&P 500. I think high-tech sector may (continue to) out-perform slightly, and will recover faster after 2011, especially since tech is more tied to emerging market growth. Oil, natural gas, and precious metal sectors will not apply (although I don’t mean that they won’t necessarily act similarly).

    Posted in Investing | 10 Comments »

    Paying borrow fees on shorted shares

    Posted by Frugal on 21st July 2009

    InteractiveBroker is just going nuts on charging 3% to 8% on borrowing shares. Such borrowing rate is just ridiculuous. As far as I understand, all of my shares in my margin account can be lent out for the benefit of Interactive Broker. They don’t pass those borrow fees to me, but they are charging me borrow fee for the shares that I have shorted. Even shorting widely available stock ETF shares, there is a borrowing fee of some 3%. Yeah, they used to pay some interest money on the cash proceed from shorts (only if the total amount from shorting is more than $100,000). But now their interest rate is absolute zero (worse than many online brokerage firms which are non-zero), and obviously can’t possibly compensate for any borrowing fee.

    I have checked with TD Ameritrade, FirstTrade, Scottrade. None of them will charge any borrow fees for short positions. I guess I’m going to have to close out my shorts, or transfer those short positions out right away.

    If anyone knows a good brokerage firm for option trading, please add it to the comments. I have been browsing TradeKing, Zecco, and SogoTrade. Still not sure which one to use yet. If you have any experiences with those mentioned, please let me know. Thanks in advance.

    Posted in Investing | 5 Comments »

    Dumb investors in GMGMQ.PK (the old General Motor)

    Posted by Frugal on 10th July 2009

    Sorry to be so blunt. But I really really hope that my post can save some of those hopeless souls.

    There is simply no values in GMGMQ.PK. Yes, the new GM is emerging out of bankruptcy, but the old shareholders won’t be getting anything. The new GM has been severed from the old bankrupt GM in the bankruptcy court. Whatever (government) money is going into the new GM, not the old GM.

    Sell while you still can.

    I tried to short sell the GMGMQ.PK call options again, and the market makers are NO LONGER accepting such orders. ALL options for ALL dates are in liquidation mode ONLY. You can only close the contracts. That means just today, there are 18 million dumb money went into chasing GMGMQ.PK.

    Boy, if there are people so dumb, I guess this stock market in general has a LONG WAY to fall.

    Please wake up! Anyone thinks that one can double their money in GMGMQ stock (or Citibank/AIG stock) is just nuts. If there exists such real opportunities, do you think trillions of capital around the world will let you have it?

    Posted in Investing | 6 Comments »

    How much will you get in food stamp?

    Posted by Frugal on 10th July 2009

    I finally know what EBT is, whenever I swipe my credit card at the grocery stores. EBT is Electronic Benefits Transfer, an electronic system designed to reduce food stamp fraud.

    Ever wonder how much you could get in food stamp?

    The other day when my family ate at the Boston Market, a lady pushing her toddler in a stroller came in to beg for food. She went around in the entire restaurant, begging for money and chicken. I insisted on not giving her any cash, but I will buy a meal for her. Before I had a chance to order while waiting in line, she had got what she wanted: some chicken from one of the tables, and then she left without my order. I felt a little sad for her, because she must be ordered by her husband to come out and beg for chicken. Yeah, she didn’t really want any other food, but only chicken (and cash of course). But because of her assertiveness of being an unashamedly beggar, it was a bit hard to feel lots of compassion towards her. A beggar picking her own food?! I can’t help but recall another incidence where an old man in a grocery store commanding me to pay his bill, and convinced the cashier that I would pay his bill. No, I told the cashier! He didn’t even ask me nicely. Instead it was commanding with entitlement, as if I and/or the society owed him something.

    Anyway, so I found this site where it will estimate the amount of food stamp that you will receive: http://www.snap-step1.usda.gov/fns/. Assuming zero income and no assets, a family of four can receive $588 a month, to my surprise. That’s about $5 per meal per person, for 3 meals a day. Without counting any dine-outs, I can say for sure that whenever my wife cooks, my family probably seldom exceed $5 per meal per person, and obviously breakfast is probably $1 or less. There is really no way that you can go hungry with $588 of food stamp per month.

    Of course, I reckon that one still needs to pay the rent, utility, and transportation costs. Regardless, the welfare system in United States is not that bad. I guess I don’t need to worry about people going hungry at least in this country, thank God.

    Posted in Miscellany | 8 Comments »

    Should you settle your car collision outside of your insurance?

    Posted by Frugal on 6th July 2009

    I had a perfect accident-free driving record for the last twenty years until this weekend. Coming back home from vacation during the July 4th long weekend, I hit the bumper of the car in front at a speed of less than 2 miles per hour. Why? Thanks to all the new distractions provided by modern technology, I was looking at my GPS navigator, instead of the traffics.

    Because the collision was so minor with barely visible mark on his bumper, I was going to settle with him with some small amount of cash. But this guy apparently wants to scam me for a lot more, by claiming that his bumper is tilting now due to collision (yeah right, tilting by 0.0001 inch). We exchanged insurance information like usual. At the end, he asked me for my personal phone number, possibly wanting to settle with me later. Because of his bogus claim, I was afraid to deal with him personally. I asked him to call my insurance company directly.

    My reason for wanting to settling outside of my insurance initially was that I didn’t want to have my insurance premium increase. However, after calling up my insurance company (now GEICO which matched and beat Ameriprise through Costco), I found out that actually for any paid-out claims less than $750, there won’t be any change in my current $730 annual premium. I also checked some online quotes from Ameriprise, and an incident of claim less than $1000 didn’t change my insurance rate ($900) either.

    I guess that the premium increase will probably be different for each individual. But without this incident, I would never find out that actually there is some “allowance of minor incidences” in the insuring industry. I still remember my brother’s car incident caused the insurance annual premium increase by about $1000, which last for several years. However, that was during his adolescence years, and it was more than 10 years ago. Insurance companies are more competitive now.

    I have always paid my car insurance, thinking it’s money thrown away. And I actually settled a similar collision once to maintain my “perfect driving record”. I guess the correct way of using my insurance should have been always letting insurance company do their job.

    Posted in Insurance | 6 Comments »