Here is an interesting article detailing on how the “club” of financial institutions may be profiting while all of us suffer.

When Enron and WorldCom debacle happened, the people who were responsible went to jail. When financial & mortgage (CDS, SIV, etc.) markets collapsed, NO ONE is even investigated. We are talking about trillions of dollars, and our government officials didn’t even put anybody through legal proceedings. Oh, sorry, I forgot! There is one. The whistleblower for the case on UBS collusion with tens of thousands of multi-millionaires to evade US tax got 3 years and 4 months of jail time, while ALL others at UBS and all the multi-millionaires got a free pass. Can you believe this? The rule of laws in this country are controlled by the “ruling elites” who are the bankers, lawyers, and government officials. Where is the justice for the common people? There is something seriously wrong in this country. After all, the whistleblower Bradley Birkenfeld helped US to recover $780 million dollars from UBS. For that, he got 40 months of prison time. Now, let’s see who else is going to mess around with the “big guys”.

When all the money is coming from future generations instead of our pockets, nobody is paying much attention. Yeah, just put it on our national credit cards. US is running at a rate of about $130 billion every month (average rate from July 1st to Dec 31st), which is about the entire net worth of one Berkshire Hathaway or Intel company. Who is going to foot the bill when it is due? It will be everyone of us.

If we do not voice our concerns, and take a stand for liberty and justice, we will all lose it, if not one by one. Prison statistics show this clearly. US has 5% of the world population, but has 25% of the all the jailed population in the world. Ranked #1 in the incarceration rate in the world. Higher than Russia and China. You have to wonder whether our cops are better, or US citizens are more immoral, or just maybe some innocents are jailed unnecessarily.

Year 2009 for me personally was an amazing comeback year, and totally beyond my wildest imagination.

I don’t know how many people out there can say this, but my net worth luckily almost recovered to the stock market peak of 2007. Without counting the 35+% loss in my home valuation, I’m just a couple of percentage point down from the peak. Counting the home paper losses, I’m still higher than the end of 2007. Throughout last year, there were numerous financial advisers cold-calling me to promise a retirement make-up plan. Unfortunately, most financial advisers know very little about stock markets. When the stock markets don’t behave like 2008, they are simply stunned without words. And of course, they dare to claim all the credits for the upturn of the year 2009 too.

Throughout 2009, I have positioned myself as short in the general market, and long in natural resource stocks. Most of my shorts were done through naked shorting the option markets at a higher strike prices. I phased in those shorts gradually, and before they turned into a big disaster, I have realized that the markets were not going my way at all. I probably have lost more than $30K in shorts through a notional shorting value of about $400K+, but the loss is not very significant in the grand scheme of everything. Even today, I still hold some short positions. And I plan to increase my short positions again as the year progresses.

What saved my portfolio & net worth throughout 2009 is my steadfast investing in natural resource stocks (more in mining sectors). I increased my original stake somewhat. I still hold almost 40% in cash, waiting for a pullback that never materialize. Year 2010 will be volatile for sure. I should have plenty of opportunities to put my money into work. My portfolio will not be wrecked with this high percentage of cash. Return OF capital is much more important than return ON capital.

Looking forward, I have the plan to get fully vested probably this year. The climatic fall should be behind us (or at least in the sectors that I invest). It’s possible that there is another big leg down, but that will definitely be a buying opportunity in my opinion. The long term pictures on bonds/cash are terrible. There will not be many places to hide.

Best luck to everyone,

Frugal at 1stMillionAt33.com

P.S. Just making sure that everyone gets this: I do NOT (and will NOT) invest in the general stock market, but only specific sectors. Such strategy has a particularly high risk, and it will not correlate with the general indexes. But it is the strategy that I have chosen, and I do NOT want to correlate to the general stock markets.

As the new year begins, the stock market again continues the rally that doesn’t seem to ever end, enough to convince most participants that the bear market has ended, missing the “bargain” of the century back in March of 2009. But all good things come to an end, especially the ones that are just too good to be true.

Before that happens, new highs will be in store first. The last Christmas shopping season has been exceedingly good for most retailers as far as I could see. Most stores simply ran out of popular items to sell, and heavy discounts are basically non-existent. For that reason, I think the stock market rally can very well last into late March in 2010 before any significant pullback. And of course, that is going to kill any remaining bears in the stock markets. Although I seriously doubt that S&P 500 can rise to 1200, the markets can always stay irrationally bullish than the shorts can stay solvent. Above 1200 level, I think it should be a very good opportunity to initiate short positions, assuming such bears are still alive.

Regardless, I expect downside volatility to return to the stock markets as soon as the 2nd week of January, or as late as June of 2010. I would prefer to stay on the sideline when such events happen, instead of milking out the last 5 to 10% of the remaining gain.

Energy stocks along with emerging stock markets will most likely take a cue from the general stock market indexes, correlating with extra magnification both on the upside and downside. Gold & mining stocks which have enjoyed an exceedingly good year in 2009 may or may not correlate again in 2010. Cash is always one of the viable option, although most bulls are too greedy to even consider a 1% interest-yielding account.

Bond markets on the other hand will most likely have some indigestion mid-year if not sooner. At the current pace of US debt issuance, US deficit will probably end at about 14 trillion dollars near the end of 2010. That is quite a lot of money, considering that the total worldwide stock market capitalization is only about $50 trillion dollars (see graph below). So how in the world will US pay back the debt that it owes, if the debt continues to increase at such pace? The short answer is that it simply cannot and won’t. The end game is definitely ahead of us, not behind us. When the crisis hits, and economic confidence is shattered, the rout in global bond markets will transmit its shock waves many times over to other asset classes, in such a short breath-taking period that most people cannot act to save themselves financially. However, this may still be years away, but no longer decades away.

For now, let us pace ourselves gradually. The majority of the people who made it through is often the people who lose the least, not the extremely “lucky” or smart people who gain the most. Trying to be too smart when you’re not can easily back-fire on you.