With Wallstreet traders returning from summer vacation, the coming September & October will probably have higher volatility for sure. Yeah, I’m also coming back from my two weeks visit to my parents.

During July & August, markets have relentlessly grinded shorts and continued its march to higher prices. Volume has not been big. While most market participants have expected some economic recovery, most of the economic indicators are still subdued. Is this the time to expect the unexpected?

With Ron Paul’s bill to audit the Fed probably passing in October, I expect that the Fed’s hands will be tightened. Furthermore, Fed is wrapping up its 300 billion purchase of treasury bonds in October. The treasury bonds will likely be facing significant upward yield pressure, further putting pressure on stock markets to compress the P/E (if there is still some Earning).

While I don’t expect an out-right collapse, caution definitely is advised. This rally still has steams behind it intermediately speaking. However, as investor optimism & speculation grows, the market becomes more precarious by day. What makes this rally/market different is that stocks & bonds are also in sync, rising. When things turn, both may turn in the same direction also. One should be more concerned about return of capital than return on capital.

Regardless, my past calls from early July until now for caution have been proven wrong. Whether I will continue to be wrong, it matters to me not. I will continue to hold my patience, and until the time is right, I will jump in with both feet. Maybe it will never come, with a V-shape economic recovery. Even with Bernanke’s re-appointment, I still doubt that he can print jobs instead of more paper money.

People say that one may have a mid-life crisis around 40s. That’s definitely true.

When I started blogging, I have always thought that I’m “young” and energetic. But a reader while in college addressed me as “Sir” as if I’m so much older. Come on, about 10 years ago, I was still in grad school. I didn’t feel that I have grown out of the school years at that time.

And just a couple of days, I asked my dad NOT to come to airport to pick me up for my upcoming trip to go back home. I needed to remind my dad that I’m almost 40, and he is almost 70, and I’m not a kid anymore. Time flew by so quickly.

I still remember when my dad was 40. He appeared to me as “old”, since I was a little kid. I wonder how my own kids look at me now. I even have white hairs that can’t be hidden anymore.

The same story goes for personal finance. I really thought that I was young and capable of taking bigger risk. After 2008 stock market debacle, suddenly I realized that I’m not as young as I thought. What I have lost from peak to bottom, I could have never recovered that by decades of saving until retirement. In reality, if I assume that one could accumulate savings from the age of 28 to 58 for thirty years, I have already used up about one third of the time. Doesn’t that sound a little bit scary?

That’s why it’s always better to start saving as soon as one can. If you save for consecutive 30 years, you multiply and compound your savings for 30 years. But saving for 40 years will be at least better by 33%=40/30-1. Now, if you only save for 20 years, you will be worse off by 50%=30/20-1. But if you could only manage to save for 10 years, well, I sincerely wish that God will bring you some good fortune. Or alternatively, you can always go out and buy a personal finance book, 99% of which is always overly optimistic. These authors always play games with “stock market return” percentage from 5% to 12%, and then tell you that by math of compounding (if stock markets consistently returns 10+%), you will just become magically rich and retire.

Is that really so? Maybe it works for this generation of baby boomers, since they’ve got all the entitlement programs supported by all the younger generations which are bigger in numbers. When a population graph looks like a pyramid, with few people retiring, and many youth working, it always work by the Ponzi scheme principle. But most of other generation won’t be so lucky, especially we are already over-burdened by trillions of fiscal deficit.

Am I too pessimistic? No, I’m advising you to take actions NOW! When you don’t let time (and money) work for you, then time will just go against you. And the only way to break the spell is to take actions now. Whether you’re on a job, or out of jobs, take actions for yourselves. Don’t just sit there, and lament what has transpired. If you don’t do something, your situation is not going to change for you. Plan for the worst, but try your best and hope for the better. Even if nothing happens, at the end of everyday, if you have tried your best in everything, whether it’s saving money, doing your job, or finding your next job, you can always tell yourself and God, that you’ve got a grade of A+ today for the 105% effort that you’ve put in. And therefore, there is absolutely no regret. That is how can a great man and a great task (saving for retirement) get accomplished, one day at a time, even when there may be a long stretch of apparently zero progress.

That was how I learned my first hard lesson in money.

From several of my friends, I’ve heard that people are bidding the homes again like crazy for the last four months. Many properties sold at the asking prices or above, receiving multiple bids. Home prices actually have gone up by up to 10% versus prices from last year. People just never learn (especially about history). Human greed and fear is always with us, and therefore there will always be bubbles.

Frankly I am totally disgusted by the “get-rick-quick” crowd and their mentality. Nobody wants to work & save diligently. Instead people are afraid of missing the next stratospheric real estate boom, afraid of missing the bottom in stock markets, and afraid of missing the next generational boom in emerging & BRIC markets. Just sit down and think a little bit. If all of these people will get rich, retiring with more than a million in net worth in inflation-adjusted dollars at the age of 55, who is going to serve the table when you go to restaurant? Who is going to be nurse taking care of elders? Who is going to be the hotel cleaning lady when you go and travel? Robots or imported cheap labor from African countries? I don’t mean to disparage the above jobs at all. For the society to function at all, everyone needs to perform their duty and job function. Everyone is indispensible (at least in a collective sense). And so, it just happens that NOT everyone is going to retire on the beach, enjoying the sunshine. That is just a fact, until robots can replace all human labor.

The recent bubble in (international) real estate has been the biggest ever in size in human history, driven by massive credit liquidity multiplication. There was a paradigm change and the credit liquidity is not going to be the same possibly for decades to come. Just remember that if real estate in Japan of just four main islands can go down in prices for 20+ years, then there are more reasons for real estate to go down in prices in bigger continents.

I’m not saying that home prices cannot go up. There are two main drivers for home prices:
1. Persistent increase in wages: I seriously doubt that it’s going to happen anytime soon. The unemployment rates are going up. There is no pressure to increase wages. Furthermore, in order to reverse outsourcing trends, either US wages go down, or US dollar goes down.
2. Long term interest rate drops more: I have doubts that the condition of low long term interest rate in US dollar can persist. Due to all the Wallstreet bailouts and fiscal deficit at Washington, at some point, the liquidity crisis will hit US bond markets again. Foreign central banks are shunning away from US bonds now. I believe long term interest rates will trend up rather than trend down. That does not bode well for home prices.

Of course, if the above two factors change to favoring home price increase, then my opinion will change. Until then, I wish those home buyers and real estate “investors” good luck. Our generation doesn’t really understand the word investing anymore. Calling speculation as investing does not reduce the risk of speculation by any tiny bit. Rather it just pampers your own greed.

Not sure if any of you catch this story from NPR (national public radio). A homeless person gave $400,000 to NPR, and several other nonprofit organization.

Richard Leroy Walters was a retired engineer from AlliedSignal Corp, but who gave up all the materialism of this world, and what could be afforded to him. Didn’t have a car (but a bike), nor a home, but looks like he did own several stock-related investment, trading over the phone at the senior center. He was an “avowed atheist” but converted to Catholicism on his deathbed. It’s amazing that someone who owned so much, and yet didn’t take any enjoyment of any materialism, while mostly remained atheistic in that process. I have always thought that if someone is atheistic, he or she must take comfort in material things. I guess there are different higher souls.

There are some readers’ comments in NPR website, a few criticizing Walters using resources for homeless people. I must say that after all, Walters gave more than he had received (whether it was given before or after his death). For many, we don’t remember that whether we own a lot of money or owe a lot of debt, when it comes to living in this world, we are consuming resources and relying on others constantly. Our debt to this world is our consumption, whether we pay it fully or not. What would be better served besides paying in full with our hard-earned money is a grateful attitude towards everything that we received.

My wife is currently on vacation with my kids, and these days, I just cook my own simple meals, and bag my own lunchbox: rice plus tofu most of the time. I barely spend any money besides gasoline. I’m perfectly content without many unnecessary stuffs. When I wash the uncooked rice, I am always reminded a Chinese saying: “every grain of rice doesn’t come easy but with sweats of the farmers”. That was of course from the ancient days when many farming was not done through modern day machinery. Regardless, I’m grateful for the abundance of food that I can eat, for there are still too many hungry people in the world.

Oh, yeah, one of my few consumption besides meals is that I did buy a new book from local bookstore, knowingly over-paying $10 for it relative to Amazon.com. Since I frequent that bookstore, I hope that extra $10 goes to their pocket so that they won’t go out of business one day.

I admire what Richard Leroy Walters did. For his gifts, the world was made better.