Markets have been extremely volatile. It’s best to step aside. Volatility is often a sign of nearing the big moves either way. Betting money before the market make up its mind can be hazardous.

Best luck.

Frugal at 1stMillionAt33.com

Based on the relative strength, I continue to believe that high-tech sector should be slightly over-weighed. However, since I’m already in high-tech industry, I do not hold anything in this sector besides my company shares & options.

Intermediate to longer term, precious metal-related investment should continue to go up.

Without any external events, this summer stock markets may be just range-bound to slightly trending up. Until all the banks stop to extend & pretend on their loan terms, kicking out the home squatters (not paying any mortgages for an average of 449 days), there will not be big write-offs from the balance sheets, nor a dramatic fall in financial sector. Reckoning days postponed.

Just some background on this Taiwan-based company itself. This company is arguably the biggest and most efficient manufacturer of all sorts of goods in the world. After these suicides, the company raised the salary of ALL workers at the plan by some 30%, and have some 60% additional bonus reserved for good output. Various question can be asked, but I’m mainly concerned about the big picture causes and effects from such action at the edge of tidal wave.

Through US-pegged renminbi, US monetary inflation is manifesting in Chinese economy. For all the deflationists out there, the proof of inflation is not domestic, but in China & India, and eventually will find its way back to US soil. The eventual re-evaluation of renminbi is inevitable to re-balance the living standards on the two sides of the pacific ocean.

I don’t have time to elaborate more, but point you to two excellent articles on this topic:
1. Chinese Workers Force the Issue by Peter Schiff
2. The Asian Inflation Bug by Martin Hutchinson

Gold is approaching the high ceiling again, due to stabilization of euro. It’s still the strongest currency, stronger than both euro & US dollar. If there is a buying opportunity this summer, grab it.

And sorry I haven’t paid any attention to oil & energy markets for quite awhile, since I’ve cleaned out my entire stake several months back. “Thanks” to BP, the entire sector has been sold down. And I’m not interested yet.

By the way, US debt is now 13 trillions now, not counting any of the medicare/social security obligations. Mark my words. Deficit will be at 20 trillions in less than 10 years, and US dollar will break down, creating the next big wave of inflation (at least in the US territories).

As I have been suspecting that MACD on S&P 500 may do a head fake. So far however this head fake signal only lasted 1 day. It’s exceedingly weak. The market has very little underlying support now. There are more sells than buys, and sellers are getting more panicky. Though short-term wise it’s very hard to tell whether it will be up or down. I would still advise to stay away temporarily for awhile.

Yes, markets are quite oversold, but they can stay oversold much longer than you can bear.

Technically the market is short-term over-sold, and with MACD turning up but not strongly, I don’t know if a bullish cross-over could be established (see the green arrows in the chart). If the market cannot make this bullish cross-over, it will be quite bearish, and markets will stay oversold with lower prices to come. Also, if the MACD　cross-over is not strong, it could be a fake signal, and trap more bulls in a bigger downtrend.

Most of the time I pay more attention to the fundamental side, and for obvious reasons, fundamentally this market is treading water due to European sovereign bond market problems. And they simply won’t go away in a very short time frame (in several months). In fact, I believe that it could intensify throughout this summer, and therefore I want to side-step away. My opinion has always been that since 2008 financial crisis with the biggest housing & mortgage bubble bursting, things simply won’t be the same as before. Stock markets react very fast initially, but eventually bond markets may shoulder all the pain.

For the intermediate term, I still think that it’s better to stay in cash, and miss the potential next 10%. Stock market indexes won’t be going up by another 20% anytime soon in my opinion. But when it goes down, it will go down very fast, and the escape exits will not be available.

Play safe.

Regardless of what happens in the short-term on a day-to-day basis, I still think that this summer, stocks will go down hard (on top of whatever that has already happened).

My own portfolio is not taking a big hit yet. But I expect that when the tsunami comes, it won’t stand either. After 1st or 2nd week of June, if things still don’t turn around, I will start rising cash in prep of the coming storm.

Best luck.

The European debt problem will probably get quite bad this summer. It’s just not over. I would avoid Euro dollar & any European stock markets until mid-2011. The political uncertainties may continue to exacerbate Wallstreet this year. The mid-term election this November will bring down many incumbents around the country, as indicated by a big Tea Party win by Rand Paul in Kentucky. For June 8th primary in California, I’ve marked all of my choices: all incumbents are going out. Yes, vote ALL incumbents out (except Ron Paul of course) and return the government back to THE PEOPLE.

I also expect precious metal investment to continue its march in the secular bull market. HUI may get hammer again this summer, but after that it should out-perform the general stock market (again).

Although this sounds unlike me almost, but my long-term bearish stand on stock markets since year 2000 high-tech bust, is coming to an end possibly in about 1 year. This coincides with public abandoning stock markets left & right, and fully embracing the bond markets after the 2008/2009 stock market crash. At local bookstores, the books on bond investments are placed prominently indicating the shift in public sentiment. With $376 billion flow into bond funds, public is buying all it can into bonds. What I want you to take away from here is that in the shorter term timeframe for about a year, stocks may NOT do very well. But in the longer timeframe, it will be the absolute worst timing to switch from stocks to bonds where the final phase of the bond bubble is completing. Don’t let the high volatility get to you. Bond is at its last leg. Similarly a fall in bond will raise up the interest rates in general, compromising the inflationary force in real estate (for years if not decades to come). Allocate your assets properly.

The end result is similar: a combination of a drop in living standard AND total net worth.

The second leg down is here with us. The US stock market drop has not reached the highest intensity yet. The biggest wave down may come in the month of June to August. I expect that stock markets to stay down until October. The market is at critical support now (if not broken already). After that, it would probably be another free fall.

There will be a trading opportunity for this fall, but I’m not sure if I want to participate in that yet. I’m still waiting for the current bearish cycle (starting from 2007) to be over until mid-2011. After that point, one MUST switch into gold & stocks, for bonds will be hammered in my opinion.

What is happening for Europe will definitely repeat for USA before 2015/2016: a combination of a drop in living standard and total net worth. There is no escape (unless you allocate your net worth properly).

Best luck. Take the right side.

Again and again. That is the pattern of a solid bull market in progress. Yeah, I managed to invest 24% of my cash since the year starts, but my conservative investing approach has let a big sideline cash position at 26% of my total net worth. My cash position has been dwindling percentage-wise lately, mainly due to the increase in my other invested assets, not because I have put my cash into good use.

I don’t chase prices into record high, but let me kindly remind you that in a bull market, what one should do is to follow Kelly’s criterion, and take some measured risks according to the price.

One of the biggest investment mistakes that I kept making is that I don’t listen to myself more often. Instead I subscribed to newsletters such as Jack Chan’s SimplyProfits.org, and continue to hold myself back too much (on cash). There are intuitions & emotions. The successful trader can distinguish the two, and make proper decisions.

There is a time for everything. And I know instinctively that this year would be a big year for me. I hope that you will be on the ride too. There may be 1 more good chance if you & I are lucky, but if not, I’m properly positioned.

If there is any investing secrets of mine, here it is (mainly due to lack of time to trade more often):
1. Pick the right “train”, and hold on to it for your dear life on this scary ride.
2. Eventually IF you’re successful in your pick, everybody would want to get on, and that’s the time you should get off.
3. Repeat the same successful process, but with a different vehicle.

Federal Reserve bought 1.2 trillion worth of junk toxic mortgage bonds on face value, effectively transferring money from Fed or the public to all the banks who have screwed up. Since no audits will show the true value of these bonds, they will simply rot on Fed balance sheet without nobody noticing. In the meanwhile, these big BAD banks continue to survive and siphon money out of the entire system, paying big bonuses to executives on a phony profits that are based on marked-to-fantasy book.

Since neither Wallstreet nor Fed wants to give back the money to People, nor do they want the public to find out, they are probably retrying the scaring tactics that worked last time.

Check it out, the Mall owned by Federal Reserve:
http://www.npr.org/templates/story/story.php?storyId=125764118

How could it have happened at all? Because Federal Reserve bought the particular toxic bonds from banks. Once the bonds go into default, Federal Reserve becomes the rightful legal owner. Now who is counting how much Federal Reserve lost on this particular deal (probably in excess of 60% loss)? And imagine how much money Federal Reserve has effectively transferred to banks through all those 1.2 trillion toxic bonds (which are supposedly required to be AAA to be posted to Fed)?

Unfortunately this country is being wrecked by bankers right in front of our eyes.

There were total of 286 symbols. I checked some 10+ symbols randomly. One of them didn’t go down to below 0.10. Everything else that I checked went to $0.01 or $0.001.

It’s obviously that this 2-minute feat was not performed by any human. But somebody cares to explain how so many stock symbols went to practically zero at $0.01 or less, some of which are quite big companies like EXC, or HHH (internet holder)? It can only be explained by the deliberate absence of all market makers in probably all stocks. And just go through those trading volume during those 2 minutes if you will. It’s simply not significant enough to bring about a 99.9% drop in these stocks under normal market conditions, except probably by their sheer fast speed.

Somebody did it (through executing the trading program). We should find this company. It’s also time to stop all the high-frequency trading.

This is the very reason that I haven’t placed a stop-loss order for the last 10 years. I know these market makers routinely sweep (sells into) buy orders to trigger additional stop-loss market orders. As a cardinal rule, I never leave a live (limit) order in the open market whenever I’m not in front of a computer terminal. The stock market is like a casino. And today is the best proof for it.

But dropping 1000 points (including previous 200 points decline earlier) in less than 5 minutes?? Something has gone very very wrong today.

As it happened in front of my screen, I was immediately puzzled by the relatively low volume accompanying with it. Normally such huge decline is always accompanied by HUGE volume. But NOT this one.

Going back and reviewing the trading history of some stocks, I found that there were two stocks (and according to stock exchanges that there were MANY more) whose trading were simply absolutely ridiculous. They were ACN and SAM.

ACN (one of the best consulting business) was trading at about $40, and then it went down to $0.01. SAM (beer company) was trading at about $56, and then it went down to $0.01. You would think that they were simply incorrect data passed between computers, but NO, some actual trades really happened at $0.01. Please see all the screen snapshots that I have captured from finance.google.com, quote.yahoo.com, scottrade.com, tdameritrade.com, firstrade.com below at the end of this post. Some or all of the data you won’t be able to see them ANYMORE because NYSE/Nasdaq have decreed to cancel all orders beyond 60% drop between 2:40pm and 3:00pm, possibly realizing that the “fraud” has gone too far, and they want to erase all evidences.

How can those stocks dropped to $0.01? My explanation (which is just a plausible explanation based on my knowledge, and please judge it yourself) is that the only possibility is that market makers for those stocks simply stopped making the market, and pulled ALL the bids, and let all the stop-loss market orders to execute at the worst possible price which is obviously $0.01 per share. In my opinion, what occurred today is Wallstreet terrorism. For stocks such as ACN ($27 billion market cap) and SAM ($800 million market cap), there are usually more than 1 market maker. To have no bids from market makers, they MUST have colluded together at the same time. As long as there is collusion, making stocks dropping to $0.01 is possible for several seconds.
1. Since you are the market makers or professional traders, you see ALL orders (or at least through level-2 quotes). You know exactly how many shares of market sale order to CLEAR OUT all limit orders at any instant.
2. Then you proceed to clear out all limit orders in a lightening speed, creating a vacuum of bids.
3. Supposedly at this time, market makers should come in, and offer some reasonable bids. But what happened is that since there is no actual bids, but very likely tons of stop-loss market sell orders triggered by the sudden drop in price, you have sell orders, but no buy orders for probably 1 minute.
4. Then now if the stock in question is one of those 30 Dow Jones stocks, you can basically SET the price by offering your buy order at a preset desired ridiculous price, which could cause the desired amount of Dow Jones drop, and triggering EVEN more stop-loss orders, and more panic selling orders.

But I guess that before “they” pushed the Enter button in executing the trading program, they forgot to set a reasonable price for ALL the stocks. The drop was happening for almost all stocks all simultaneously. I think only the stocks that had too many bids, and would be too costly to perform such manipulation, were dropping in a more “normal” fashion.

Come on, people! A 16 million or 1.6 million sell order, mistaken as 16 billion or 1.6 billion sell order is simply NOT possible in P&G, the supposedly “guilty” stock that triggered the drop in Dow Jones. Today the total volume for PG is 28.6 million shares. If all shares were traded at $61, that’s only 1.7 billion dollar. We know for a fact that majority of the today’s trading didn’t happen at the $55 or $40 range. WHERE is that 1.6 billion sell order getting filled under “normal” trading without glitch????

Again in my opinion, the ONLY way for today’s market actions is for ALL market makers to collude and walk away AT THE SAME TIME, AND bring in all the necessary market sell orders to clear out buy limit orders that has been put in, and then once everything is cleared, they can set ANY price (well, for just several seconds or minutes). Checking the trading tape for today, the volume for PG during those 2 minutes sell-off (& coming back up) is only 764600 shares, when today’s total volume is 28,565,275, and the volume per 5 minutes for the last twenty minutes are 741400, 546000, 742200, 588000 shares. Those 764600 shares (almost half of which are up-volume) are NOT big sell orders at all. The only way it could have worked is through super-fast computer trading clearing out & triggering stop-loss market orders. That is Wallstreet Terrorism at work.

I did a rough calculation using Dow divisor as 0.13. One only needs to hand-pick 4 or 5 stocks to cause Dow to drop 500 points today. Among today’s suspicious trading, PG dropped from $62 to $39.37, but it’s showing $56 now everywhere. MMM dropped from about $84 to $67.98. CAT dropped from $63.5 to $58. BA dropped from $69 to $62. HPQ dropped from $48.5 to $41.94. That’s 450 points of Dow Jones dropped right away (on top of previous some 200 points).

These are just NOT normal tradings at Wallstreet, and scared politicians are going to re-think their flimsy financial reforms now?? Why is that after almost 2 years, NOBODY from Wallstreet has gone to jail for all the mortgage crimes??

Oh, I forgot. This is the America, where money speaks louder than anything else.

Screen captures from 5 different data sources are here for ACN. I couldn’t get the real data from WellsFargo, since they have already “erased” the suspicious trades from their system. For TDAmeritrade and Scottrade screens, I’ve placed my mouse cursor at the interactive charting, so that it will show the volume and price range at that cursor position:

Screen captures from 4 different data sources are here for SAM. I’ve placed my mouse cursor at the interactive charting, so that it will show the volume and price range at that cursor position:

Here are just two screens showing that PG traded below $56 for many actual shares in only 2 minutes:

Hang on tight. Just make sure you’re on the right flight before things get crazier.

I have not blogged on any of the greatest financial frauds in this century because I am simply too disgusted by all the Wallstreet & banking industry. I think this matter is extremely simple, and my arguments go like this:

1. Stated income loans or Liars’ loans are frauds.
2. Banks, mortgage, and investment brokerage houses knowingly facilitate the frauds without doing much diligence, and in fact knowingly to avoid doing any due diligence.
3. Anyone who is complicit in fraud should be punished.

It does not matter whether it was an acceptable practice and/or accepted by the marketplace or not, which is the argument that Goldman Sachs tries to make. Fraud is fraud. If many people are stealing, it still does not justify that stealing is acceptable.

Of course, the root cause of the crimes in housing market goes all the way to Greenspan & Bernanke & Geithner. And we still have the biggest fraudsters reigning over our money creation. That goes to show how much faith I have in this Congress, president, and the financial industries in general.

On the other hand, I’ve been slowly exiting my long positions on my company stock options. It has been a great ride up, and it has been quite obvious that high-tech is slowly re-taking the market lead since 2000 tech bubble. Don’t expect NASDAQ to be back at 5000 for maybe another 8/9 years, but the continual reshuffling of the tech leadership attests to the power of capitalism & innovation. My options do expire, and unfortunately there is no time to wait for possibly several more profitable growth years down the road in my company.

While everything in stocks looks terrific, bond markets are at the juncture of breaking the inverse head & shoulder pattern, both in 10-year and 30-year treasury markets. This time with Fed exiting the mortgage market (supposedly), finally mortgage rates are rising along with treasury yields. Especially on 30-year bond markets, it almost looks like this year is going to be a down year for people investing in bonds. I have been parking my cash in the stupid 0% to 1% money market fund, for the fear of a rising rate in bonds. If we do break 5% on the 30-year treasury bonds (currently at 4.843%), the prognosis won’t be good for both stock & housing market. In fact, 30-year bonds have only been above 5% for just about 4 months (2006 & 2007) in the last 5 years. I’ve locked my refinancing rate back in the middle of March, right near the last low of the mortgage rates. Good rates may not come back for awhile, and possibly a long while.

If I have any positions in the general stock market, I would sell. I’ve sold all of my general stock markets long time ago or several months ago. My only (big) position & exposure to the general stock market is through my company stock options. While I’m still nervous on this stock rally, my opinions are changing as I observe the strength in this stock rally. I’ve said that this may be the last leg of rally in my last post on market, but I’m indeed impressed by the stock market advances. Possibly my forecast drop in this year won’t be as big as I have feared.

For now, I will just keep a close watch over markets. I don’t know whether this is a head fake during light trading of this spring break week. Although both DIA & QQQQ have their short-term MACD chart turned down, SPY turned down and then turned back up in MACD through making new high. If this is so, then SPY can probably make new marginal high, and the pullback may not be as severe either.

The ARM option mortgage reset wave for now has been held back by Fed’s massive money printing. Eventually the “solution” to the old problem becomes the new problem. The day has not arrived yet, but we shall see.

For purchase & refinancing through regular loan programs with 80% LTV, you can use the quotes from www.absolutemortgageco.com. I can promise to match or beat their quotes.

Frugal at 1stMillionAt33.com

Regardless of how others live their lives, I cannot live my life without standing up and voicing my concern for the crimes committed against humanity as a whole. All people whether white or black, female or male, Palestinian or Israeli, believers or non-believers, are all my brothers and sisters in-God. We are all related to each other. No one lives on an island alone. If the human suffering saddens my heart, then it must sadden a thousand times more for Christ’s heart (or any religious figure’s that you believe in). If you’re a Christian, won’t you follow the footstep of Christ, and tread on the narrow path to eternal life?

When I was much younger around 10 years old, I often wondered what is the meaning of life? If everyone is going to die anyway, what is the point of acquiring the impermanent material wealth and live a life to just to die at the end? Then suddenly it occurred to me that “the meaning of life is from death”. It is death that gives the finiteness of life, a lifetime that cannot be eternal. In this finite lifetime, everyone as an individual, will need to make his or her own choice, to spend their time and money on the things that are worthy of cause. Some people revel in material enjoyment. Some people pursue the knowledge of Truth. And there are some others who mistaken Might as being Right, taking things from the weak and poor. It is because of this finite lifetime or death that bestows the true significance of our daily action, or the life we called it. Some choice must be made, and some sacrifices are needed. The great people among us choose to sacrifice their time and money for others, even knowing that their time & resource is finite. The average people lives on without much thinking. Rachel Corrie no doubt exemplifies one of the greatest people among us. She rises above so high that her spirit lives on, even when her physical body has perished.

Here is the video of Rachel Corrie’s speech “I’m here because I care” when she was only 5th grade.

I have watched her speech several times. I can’t help but cry. She is such a wonderful caring person. She dedicated her whole life for others, and laid down her life as a martyr. In the Bible John 15:13, “Greater love has no one than this, that he lay down his life for his friends.” (New International Version). Such is the magnitude of Rachel’s love for others, and none of other kinds comes even close in comparison. Here is a couple of youtubes that I found and enjoyed. Maybe you won’t remember her a year later, but I know I will remember her for all of my life, and I will look up to her as my inspiration forever.

I believe that $US dollar will probably be strong going towards 2011/2012 initially due to all the deleveraging, but then will start a gradually accelerated pace of slow grinding down towards 2015/2016, with an initial reckoning shock at around 2015/2016, or a faster pace of drop all the way towards 2020. I am projecting these dates based upon the PI cycle, which basically hit the US financial/housing sector peak date almost exactly back in 2/27/2007. US has completed the full 224 (=8.6 x 26) years of political cycle back in 2000 since declaring independence on 1776 according to Armstrong, and I believe that for the next 10 x 8.6 years = 86 years, the international influence of USA will be declining ( 10/26 is the shortest & closest to 1 – golden ratio of 0.618). This completes the total of 6 of 6 waves of 8.6 years grand cycle (6 x 6 x 8.6 = (26+10) x 8.6) as 309.6 years in total.

Martin Armstrong, the greatest economist in this decade, in my personal opinion, is still being jailed in prison for 10 years and counting. Just last week, he was still being punished within prison for possibly speaking out against big financial institutions, and/or helping out other inmates on legal issues. During the legal proceeding back in year 2000, he was denied his constitutional rights for a jury trial. No trials at all, but a judge who sent him into jail for 7 years for “contempt of the court”. That was not even a charge based on any kinds of finding or discovery. His rights were deprived because the judge claimed that as corporate officers, he was tried as corporate, and because corporates are not persons, and therefore corporates do not have any personal rights. In this country, the laws are whatever the judges say and interpret. Supreme court has recently passed that corporates can spend as much money for political lobbying and contribution because corporates should be treated as persons with rights to free speech for this purpose. Tell me if you can reason with this logic that corporates are not people as trials, and corporates are people for political donation. When the rights to justice and rights to free speech are determined and sized by how much money one can spend on lawyers, on radio/TV advertisement, we as individuals no longer have any rights, but are enslaved inside the economic and political machines.

In our lifetime and beyond, we will witness more and more political upheavals at all levels of government, including big changes in international political arena. US would be reaping its “karmic” consequences for destroying the savings of global savers in this process. We (or those who reside in USA) will be the very people who will rise up against the financial tyranny of the government through uncontrollable waves of US dollar devaluation and erosion of living standards, bringing the political upheavals, and undermining US international influences due to domestic political turmoils and discovery of shoddy financial transactions between big government and big financial oligopoly. The student protests from last week are only a start of a series of mass rising against established authorities that are going to continue for several years.

As they said, horns have been blown, and the Revolution has already started. I invite you to join the Campaign for Liberty, and Ron Paul’s fight against big government and big corporates.

The reason is extremely simple. Paying down minimum payment on credit cards will allow the continual usage of the credit cards to pay for food & bills. Paying down an up-side-down mortgage is throwing away good money. Besides, these stupid banks are still hoping for the impossible, for the housing prices to come back right away, and not willing to write off the loans. Or I should say the bankers just want to keep their jobs so that the bank will not be declared as insolvent, and overtaken by FDIC. In the meantime, the bankers continue to siphon off FDIC & US taxpayers’ money by paying big bonuses, and the unscrupulous housing speculators continue to enjoy totally free rent on the back of the entire financial system. Of course, it takes all the number crunching for FICO to realize this, and a gigantic financial losses for bankers to come to their common sense: no one in their own self-interest is going to pay down an under-water 100% or 125% LTV mortgage that is growing to 120% to 150% LTV mortgage.

By the way, if taxpayers don’t pay bonuses to AIG, and funnel all the bailout money to these bankers/fraudsters, we will lose all the top “talents” who are too greedy to even understand the above truth.

It is apparent that most participants recognize the value of housing investment in protecting assets against inflation. It has been the preferred financial instrument, especially in Asian culture, to buy real estate because
1. It won’t go to zero, because it’s “real” estate, and you will always have it.
2. It pays out dividends in the form of rent.
3. It always “goes up” in the long term.

My colleague asked me whether I know how much real estate has gone up since 50 to 60 years ago. He told me it’s tens of thousands of percents. Well, but one must recognize the fact that since 1930, $US has depreciated 94% in buying power, according to government official statistics (and probably worse if using unofficial figures). The primary reason that real estate goes up in the long term is because of general inflation. Since a couple of decades ago, another factor that helps real estate price is that the financing costs/interest rates have been going down. However, over the long term, the average real estate prices cannot exceed inflation rate by too much and/or for too long. Why? If real estate simply returns 1% more every year than the general inflation, after 100 years, real estate price will be 270% higher than the general wages. After 200 years, real estate price will be 732% higher than the general wages. Well, the economic law of supply and demand will always balance things out. Eventually, either people cannot afford homes anymore, and younger generation stops forming families, resulting in reduction or stagnation in population, and therefore reducing demands for homes, or the home prices will simply FALL behind the general inflation rate. And I can bet you that it will happen before real estate prices are 732% higher than the general inflation rate. In fact, both Japan and Taiwan are already showing such signs of either declining population or stagnant growth. If you have so much money that you don’t need to worry about future, housing, employment, etc, and you have all the leisure time in the world, won’t you tend to have children? On the other hand, the opposite extreme scenario would probably be true also. So if the population is declining, who is going to fill up the existing housing space, not to mention that builders will always build more. Imagining a hypothetical scenario, where for every grand kid, he or she is inheriting at least 2 homes from both sides of the grandparents, and/or parents, and/or any unmarried relatives who have passed away, now won’t the housing and/or rent price go down because there are extra supplies versus demands? Of course, before long, economic law of supply and demand will kick in, and population would have increased.

What I’m trying to point out is that it is simply IMPOSSIBLE for housing prices to stay higher than inflation rates for too long. Those that bet on housing prices will increase 10% above inflation rate every year are simply delusional.

On “Valuation of Lots and Raw Land”, IrvineRenter explained in details how the valuation of an investment in raw land would work out. To sum it up, land investment works like a call option on the housing market.

On “Loan Assumption is the Appreciation of the Twenty-Teens“, IrvineRenter gave his best advice (and I concur too) that the best bet in building your home equity is probably by buying with an assumable AND fixed-rate loan. Unfortunately, as far as I know, the only assumable loans these days are FHA loans, which have higher fees in general. Why is that? A good deal to the borrowers is always a bad deal to the lenders. The scarcity of such loans automatically tells you that assumable loans are not good for lenders.

And at last, on “Fundamental Valuation of Houses – Part 1“, IrvineRenter explained in details about the math of home ownership cost. His article almost acts like a companion manual to my online java housing cost calculator. All of the factors that he has mentioned, I have included them in my online housing calculator, plus commute cost difference. But just one caveat, garbage in, garbage out. My calculator is only as good as the validity of your input assumption. If your assumption on the housing parameters such as rent/housing inflation or tax rate, are inaccurate, then the results will be inaccurate as well.

So what’s the buying strategy for the housing market? In case you missed it, it’s using assumable fixed rate loan. On a longer term, I believe that the mortgage rates will be going up. Contrary to all the unscrupulous realtors, the best time to buy real estate is when the mortgage rates are at the highest, not when they’re at the lowest. Lower mortgage rates always cause the housing valuation to expand, while higher mortgage rates will rein in the price. Assuming a forward picture of higher than normal inflation, and mortgage rates trending higher, the inflation force may arrest and balance out the decline caused by higher mortgage rates. Nominal housing prices may stagnate for a decade or even two decades, but inflation-adjusted price will continue to decline. Such picture does not bode well for many participants. The renters will see their rents going up due to general inflation. The new home buyers may still see price declining if the nominal prices have not reached bottom. Worse yet, if the equivalent ownership cost of their home is higher than prevailing rent, then they’re effectively speaking draining any potential savings that they could have built without buying a home. In such picture, the only potential remedy would be to have an assumable fixed-rate loan, so that one could recover the price benefits between future higher mortgage rates and the current lower mortgage rates.

And if you cannot find such loan, make sure you put the least amount of down payment, and borrow as much as you can for 30 years fixed. Forget about adjustable ARM. The only way to short the bond markets and US dollar simultaneously and safely without margin calls is to borrow against your real estate holding.

Here is some recap (the original quesitons are in “blue”):
(written on 1/4/2010:)
Question: If $US dollar depreciates, gold may only go up in terms of $US dollar, but may not necessarily go up for non-US holders. Isn’t that right?
My answer:
Yes, what you said is entirely plausible.

What I believe will happen is that $USD will actually appreciate first. This will result in gold prices at new high in non-USD first, to catch up with the new high in $USD that has already happened. (Actually, this statement has ALREADY been fulfilled, except in Australian currency.)

I believe it’s possible that $USD will appreciate towards mid-2011. Then there will be a depreciation of $USD towards 2015/2016. Regardless, my belief is that there will be an international government bond market crisis, which will be the trigger for the final height of gold in all currencies. This crisis either comes in 2010/2011, or 2015/2016 I believe, or both. It may be a multi-stage crisis.

Again, this is all just my own personal forecast/belief.

For non-$US holders like you, there is obviously a possibility that your gain will be much less (or turning into even a loss) relative to US dollar holders. I only watch gold price in $USD mostly, but I do occasionally check gold price in Yen, Euro, Australian, Canadian currencies. The (bull) market will always be in different phases for different currencies, producing different magnitudes of gains. Last time, gold reached new high in Euro (but reached new high in $US first), it went on and gained some 60% I think. This time, gold is much more overbought, and so I think it may take a little more time before it takes the next zoom-up again.

Regardless, I’m not in this market for a single day or a single month or a single year. You can trade in & out all you want, but 2% or 3% differences in prices are absolutely no concern to me. Not even 10%. The reasons is that
1. I don’t have time,
2. Most market timers will end up under-perform.

The bottom line is always that you should ONLY put in as much as you can emotionally handle. Keeping your emotion in check is so much more important than hitting a jackpot, because without being emotionally stable, you simply canNOT be successful in this. Your emotions will end up costing you. So it’s far better to just simply put in the “right” amount (that you can handle), instead of buying/selling a big amount at the absolutely right time. Such mythically successful person that always get everything right simply never exists. If you cannot handle the swings, I suggest you sell some. The goal is to be successful financially, but you cannot reach that goal without being emotionally composed.

Also, every person has a different investing style. So you will need to somehow adopt all the information, and fit them into your own style. You cannot follow someone blindly, and expect that it’s going to be gain automatically. Make sure you find your own style, your own “right” amount, and your own “right timing”.

Question (written on 2/11/10): I don’t quite understand what’s the benefit of actually owning physical gold instead of the paper gold. Is it to prevent the possibility of bank going bankrupt and getting nothing? Assuming the bank will not go bankrupt, holding paper gold has the advantage of not worrying about stealing and can be exchanged easily at the bank.  If the large banks go bankrupt, the money saving in banks are probably gone too.
My answer:
Many different scenarios can happen:
1. The bank/government refuse to give your paper gold back, unless it’s at the “official” but much lower price that you could fetch at black market.
2. The bank/government pass laws to over-tax any profits/transactions on paper gold, so that there is no motivation to own paper gold for any existing paper gold owners or future paper gold owners.
3. The bank goes bankrupt, and you only get part of your savings back.
4. The bank/government refuse to give your paper gold back out-right. You simply cannot “withdraw”.
5. The bank claims that part of the paper gold is lost and unrecoverable, and somehow the paper gold is not insured by the government.
6. The bank/government only allows you to SELL out from paper gold to paper. But either legally or decreed by bank that no BUY can be allowed.

Bottomline, when the bad money (paper or paper gold) drives out good money (physical gold), the good money WILL disappear from the market (except in the black market). This phrase came from Roman empire I believe. The “bad money” are the coins that have very little silver/gold. The people gradually found out, and everybody hoards the “good money” or the older coins that have much more silver/gold. At the end, the bad money drives out all the good money, because everybody will only spend the bad money, but not the good money.

There are many rumors that most of the big international banks/investment brokerages are shorting gold/silver when the customers go to buy paper gold/silver. A recent lawsuit against Morgan Stanley proved that was exactly the case at least for Morgan Stanley. Morgan Stanley simply took the money intended for silver, held a short position in silver against customers, and charge phantom “storage fee” every year.

If you simply substitute US dollar for gold in the above sentences, and just focus on some of the countries in Latin America as an example, several such things have happened exactly just like above.

—————————————————–
Please note that I’m short-term bullish on US dollar as indicated above. This can easily translate into bearish resolution in US & global stock markets, and intermediate correction in gold in $US dollar, and also mining stocks. Although I do not rule out the possibility of $US and gold rising together.

Here are the daily, weekly, and monthly MACD on SPY which clearly illustrate the current trends, and my personal take on markets going forward:

On the daily MACD chart: The fast EMA has just crossed the slow EMA. I project a short-term rally that will not break the recent high at ˙˙5.14 at around mid-March to mid-April timeframe.

On the weekly MACD chart: This is the most dreadful chart. The fast EMA has crossed the slow EMA for a little while. On a weekly basis, it almost mean that SPY will NOT make any headway. In fact, most likely SPY will have to give back a sizable portion of the gain since the rally started in March 2009. I project that in between late April to late July, it is best to stand on the sideline, or even go short.

On the monthly MACD chart: the fast EMA has crossed the slow EMA by some margin. I believe that it is basically saying that for people who project a Dow going to $4000 in a great depression scenario are very likely to be dead wrong. Quite likely, the March low was the absolute low for this bear market. However, in no ways, it gives a total green light on buying the stocks. I think long term wise, markets will continue to trade in a big sideway. The sideway range will be rather big, making most perma-bulls and most perma-bears to continue in their steadfast belief.

Despite my general bearishness, I want to emphasize that this is NOT 1929 great depression, when deflation ruled the days. In fact, at the next intermediate long of stock market probably 8 to 18 months from now, that low (which should be 20%+ lower than the current prices) should be bought. The longer term picture for financial markets is still
1. (long/intermediate term) Bonds go down.
2. Inflation goes up.
3. Stock goes up nominally, but possibly goes down if adjusted by inflation.
4. Cash will be “trash”.
5. Housing markets most likely stay flat AFTER it reaches another new low, EVEN with general inflation going up.
6. US dollar will go down, but not YET.
7. Commodity will be very volatile with upward bias.

The next big time bomb should be around mid-April to late June. Prepare to see the fireworks (and make sure your portfolio is not used as part of the fire powder). In the meantime before next big inflation comes, deflation & deleveraging will continue to put a lid on asset prices. Have patience.

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.

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.

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.

Sorry, the blog at globaleconomicanalysis.blogspot.com has been removed. This address is not available for new blogs.

I hope that there is some mistake on the part of eBlogger (belonged to Google), but my personal experience with Google Adsense was definitely not very friendly.

It is quite sad if his blog were removed. I’m sure he has made numerous enemies around the country, due to his quite negative stands against Federal Reserve & various levels of government. I would personally offer him free hosting space, since Dreamhost allows me to have two different domain names.

I hope to see his blog back online ASAP. On the internet, it’s still the big boys that get to call the games unfortunately. We cannot afford to have monopoly to degrade the internet experiences that offer us various opinions from different bloggers.

For someone along with Greenspan created the single biggest housing bubble (in size) in human history so far, bailing out all the guilty parties and mopping up all the mistakes with even greater mistakes through printing of more free money, he is “coined” as the savior of the economy from another great depression. A country does not attain prosperity through devaluing its own currency. Such acts when the confidence game is up will be met with great consequence. I have no doubts that history in the future will not have kind words for Bernanke, nor Greenspan (whose reputation has already been turning thru this financial crisis).

Aren’t you glad that banks are paying back all the TARP money? I guess all of them are hopeful eternally, and wishing that all the option ARM and alt-A borrowers will be paying back more when they start to reset to 25-year amortization schedule, starting now until the end of 2011. I think banks are very likely to negotiate all the option ARM mortgages back to 30 years or longer if possible. However, the biggest problem is that once the mortgages are re-negotiated, the mortgage payment will NO LONGER be less than the prevailing rent. Furthermore, who is going to pay down more principal towards a property that is already 10% to 20% under-water? I expect that the two factors combined will cause significant portion of the borrowers to simply walk away, or become home squatters to take advantage of one year of free rent through foreclosure process.

So when the hands of banks are tight, and they will tighten even more on the new loans. Some will probably go under and join the weekly FDIC’s Friday parade, and some may come back and ask for government money again. Ha, except that for the second time when they want to dip the “honey pot” again, the money will not be available because American and politicians will be so upset and simply shut down the institutions. If they are able to sustain without asking for more money, you can be sure that lending in economy will take a dive, driving USA onto the same Japanese-style deflationary track. But don’t worry, our beloved Helicopter Bernanke will come in his helicopter in a hurry, bombing free money from the sky at the fastest speed. It is likely that in the not-too-distant future, we will see a more volatile stock market, dropping at first due to the resurgence of financial crisis, and then zoom back up and onto new highs (higher than 2007) due to out-right devaluation of US dollar.

By the end of 2010, US fiscal deficit will probably end at 13.5 trillion dollars or more. The speed that it will increase will be exponentially faster until it collapses. Before US goes full speed on this exponential debt curve, there may be still a chance of stopping before the point of no return. But such opportunity does not exist as long as Bernanke is still in office as Federal Reserve chairman. I guess Greenspan will be remembered as the Bubble Man, while Bernanke may be remembered as the Bubble-death Man, who would blow up the final bubble in $US and US bonds, without any further ability for US to attract/wield global capital.

The bottomline is that I don’t know whether it will go up or go down tomorrow. But nobody else knows either for sure. However, recognizing your own ignorance is often better than being the best trader in the world to try to catch the lowest point and cash out at the highest point. This strategy is especially powerful in a true bull market like gold.

As I have explained in my post on Kelly’s Criterion for investing, such strategy is very well suited for an asset class that is in a bull market. Simply buy more when it falls, and buy less when it goes up. This strategy goes counter to a traders’ mind, of cutting your losses early, and placing stop orders. And as I have also said in my post that such strategy WILL bring extreme volatility beyond the tolerance of most people. The obvious risk for such strategy is that one must ascertain the validity of such a bull market.

It is clear to me that gold & mining stocks are in a major Elliot wave 3. I don’t know whether this is wave 1 of wave 3 (which I’m leaning towards), or wave 3 of wave3, but either of the up waves should be quite strong.

So the train is leaving the station. Are you on or not?

I believe that if there is a pullback, it would be more healthy. I still don’t see markets going down big time yet, despite my overall bearish stand. The real stress may come first or second quarter of next year, when banks can no longer hide the ongoing resets of option ARM mortgages. For now, the levitation act performed by Wallstreet may continue for awhile.

I will definitely be a buyer in the gold sector if it pulls back. Tech sector may be another good choice, ASSUMING that Xmas sale is good. The weak sectors will continue to be separated from the general markets, since capital around the world is still chasing quality stocks to avoid inflationary assault.

Hang on tight. Greed seems to be still the word of the day.

Here are the links to the company site for GDX and GDXJ. The complete weighting of the components are listed below:

GDX is a tracking ETF to GDM index, a mining index determined by Nyse. The component weighting cannot be determined by Van Eck. Unfortunately, the top holding ABX at 14.5% is probably one of the worst choice. ABX recently announced to dehedge its gold forward sale, which was costing ABX some 4 billion dollars. ABX is also rumored to be the accomplice of gold suppression scheme together with JPM & Fed. The other components in GDX that I don’t like are AU at 5.62%, GFI at 4.25%, HMY at 3.24%, all are deriving 100% or significant gold productions in Africa. As the gold prices zoom upward, mining gold in an impoverished (relatively speaking) continent will tend to be problematic. I expect more labor and theft and political problems. Also gold production from Africa is declining as a whole. With the exception of GFI, which has expanded its production to other continents, the other two companies are definitely not my preferred choice (especially HMY). GFI is probably the “cheapest” company among major gold producers that one can buy, since its mine life is still quite long. HMY may have the highest leverage to gold price, due to its very high cost basis. At later stages of gold bull market, HMY could easily come back with a vengeance despite the terrible management. Although one may consider shorting out those components when owning GDX, I hesitate to do that. The other company that derive its production from Africa is RangGold (GOLD) at 4.72%. This has been one of the company that has baffled me, easily outperforming all other components, without me owning it. Definitely one should not short this component out.

Onto the new GDXJ, top components (CDE, SSRI, HL, SVM) are taken by all silver mining companies instead of gold mining companies. That’s 21% of the GDXJ. My ongoing concern about investing in silver companies is that they will couple to the general stock market a lot more than gold mining companies (at least initially). In a deflation, gold/silver ratio will zoom upward, relatively depressing the price of silver. I would have hoped to have less silver components. By the way, junior companies or small-cap stocks also tend to get depressed more in a downwave. Regardless, CDE and HL (and MFN) don’t seem to have good management in shareholders’ interests, raising big amount of capital at the recent zenith of 2008/2009, diluting a big percentage of their stockholders. I suspect that the deals were hammered out with hedge funds in the Wallstreet who have shorted all these companies in the backroom. With a big short ratio, it was simply not possible to cover those short position via open market purchases without driving up the stock prices. And what is the chance of having so many companies silmultaneously raising capital all the the absolute zenith of the stock market?

Most of the rest of the GDXJ components beyond top ten are not familiar to me. And that is the beauty of investing in an ETF, not needing to know every individual company. Assuming that gold bull market continues, GDXJ will eventually outperform GDX, with much higher volatility. I expect the rallies in both will be kind of in stages, with GDX the big cap leading the way.

Both gold & mining companies are short-term overbought, and had a tremendous recovery since 2008 crash. Based on Elliot wave reading, I’m fairly certain that we are looking at major wave 3. It is hard to tell whether wave 2 of 3 has happened or not. Regardless, if you have the nerves to buy and the stomach to ride out the tremendous volatility (20% to 50% up and down probably for more than 4 times per year), I think the reward may be good.

Granted, I’m still holding back due to my expectation of a significant general stock market correction in Q1/Q2 next year. But no one can predict the stock market with certainty. The best thing to do is to pick and weigh each of your portfolio position carefully, and stand firmly to ride out the combined volatility.

Frugal at 1stMillionAt33.com

Something TRULY stinks here. No explanation has been offered for the DRAMATIC swings in this list. Where gold is concerned nothing happens by accident.

Such anomaly if it’s true would be totally outrageous. Before going into total panic, obviously one should do the due diligence first. Therefore, I spent a couple of weeks observing the gold bar list at the GLD, which can be downloaded right here from spdrgoldshares.com. I was able to obtain 2 different copies of GLD bar list. One is 855 pages long, and another is 1291 pages long, both of which can be downloaded from my site by clicking on the links.

The first thing that I noticed was that on the 855 page version, it is attributing to Bank of New York, while the 1291 page version, it is stating the rightful new owner as HSBC. This seems to be extreme slopiness on the part of GLD. Yes, HSBC has bought the ETF, but it has been quite awhile (I couldn’t google a link to verify the above, but only recalled reading GLD being bought out by the new owner.) Anyway, I don’t think anybody would make such a mistake in title regarding one’s own assets.

The second thing is obviously that the two versions did confirm what Rob Kirby said about very different length in the bar list itself. I was not able to get the versions with much shorter list. I tried Internet Archive Wayback Machine, and it didn’t have any archives for the bar list link. So I guess any archiving for observation will need to be done by oneself.

Once I begun to actually count the number of gold bars, it became clear to me that the page length has nothing to do with the number of bars. On the 855 page version, there are about 104 bars per page, while on the 1291 page version, there are about 69 bars per page. That makes the total number of bars to come out to be roughly the same or consistent with the number of bars stated in both documents.

Because of the minor differences that I still couldn’t reconcile by manual counting & estimation, I decided to write a short program (which can be downloaded here, requring a Unix system to parse) to actually go thru the entire document and count the number of bars, while also checking for possible duplication entries in the table. By the way, if anyone wants to know how to run this program, just send me an email.

Well, to no one’s surprises, the number of bars, gross weight and actual number of gold ounces are EXACTLY the same as stated in the documents. There is NO missing gold bars! BUT there are some 5000 duplicated bar entries (here is the duplicated list for the 1291 page version)!! I manually checked a few entries (such as 100341 JOHNSON MATTHEY, 813 NAVOI MINING, AA22338 JOHNSON MATTHEY) dumped out from my program, and they are indeed correctly duplicated. Besides, since my program verified the number of bars and ounces exactly, I think programming errors on my part is very low.

Then I googled the internet a little bit more. I found out that the problem of duplicated entries have been found before, and they were caused by not listing the complete bar number in the document. For example, Johnson Matthey before used two letter to encode the year of fabrication before year 2002. Therefore, the duplicated bar entries are only in the text, but not in vault.
Although I still felt that statistically having 5037 duplicated bar numbers out of 88941 bars or 5.7% is abnormally high to me, at least there is some plausible explanation.

From the investigation on the different length of the two GLD documents, I must conclude that the two other versions of 208 and 195 pages are more likely to be human errors. In fact, I believe that the same person Rob Kirby referred to on the Yahoo message board has posted and corrected his own extraction error in this very later post “Re: Barlist Missing 65,497 bars”:

….My earlier numbers reflected an issue with correct extraction…..

In fact, if there is any fraud or theft in GLD, I just don’t think that GLD owner will commit such big blunder of revealing it in a such stupid way. It will have to be more subtle and elaborate than this.

I personally like to read whatever Rob Kirby has to say. But like everything you read on internet, you should always take it with a grain of salt, making sure you have filtered out the dis-information from information. For example, on Kirby’s previous post claiming big physical transactions in gold at the end of September in gold futures market, I simply cannot find this trace of physical delivery in any of the reported futures market. That is not to say that it is not possible, but just that I cannot trust such information with certainty.

Despite the finding from my personal investigation, I will still not hold GLD, due to problematic custodian structures. In fact, if anyone doesn’t want to buy physical or too much of it, one should simply diversify the physical gold holding in various gold/silver physical ETFs: GLD, GTU, SGOL, CEF, SIVR, SLV, etc. This way in case one of the ETFs in the unlikely scenario of actual theft or confiscation by government, you will still be left with majority of your holdings intact (in paper money at least). It will certainly increase your transaction costs, but at least it’s far better to let an unpredictable future event to hit your financial well being. And I also want to add that nothing can beat physical gold/silver, because in the time of crisis (and heavy demand), there is always an added premium which is not available in the paper market.

Frugal at 1stMillionAt33.com

Some people could argue that this may be a double top. That is definitely possible. However, if gold does get up to more than $1100, then I think that argument is a little weak. Furthermore, based on the recent consolidation of gold prices, it just doesn’t look like it’s a double top formation. A double top usually falls sharply afterwards. Gold consolidation has been quite flat, indicating its continual strength.

In fact, gold has indeed climbed a giant wall of worry. Majority of gold investors have not put in more money because of fear in impending stock market correction.

I have no way to know whether the gold mining index HUI is making a small double top right here. It is certainly possible. But I try not to predict the short term moves too much. After all, it’s not easy to out-smart the markets on a daily basis.

I understand that the great trader Bill at BillCara.com has sold partially out from stock markets & gold/mining. I also know that JC, one of the very few successful traders amid 2008 stock market crash at www.simplyprofits.org have gone out of markets for quite a while. I understand that the person who called the credit market crash in 2007, Bob Hoye (normally at HoweStreet.com), has turned bearish on general stock markets, and especially on silver, for a number of months. But I kept thinking to myself that in this wave 3 up, most people/traders will be missing the bull ride. Ha, ha, myself included!!

The next big milestone if it comes will be a new high in international currency, first in Euro, and then in commodity currencies. I continue to believe that this new high will NOT come until the next big fall in the financial sector happens, which may be next March/April. From that regard, at least, for the international investors, they probably still have time to digest the current volatility in gold market. However, I wonder whether there may be some fireworks first when priced in $US before the year ends. Yeah, I know $US is supposed to rally right here right now. But is this another episode of “markets stay irrationally longer than one can stay solvent”?

Next Friday is an option expiration week. Maybe there is a chance of pullback. Maybe BillCara & Bob Hoye is right. I dare not to go in nor go out of this market. Brave trader I’m not. Patient investor I am, and I need to take actions accordingly.

Best luck,

Frugal at 1stMillionAt33.com

I definitely thought that things would be worse in the housing markets. Due to various factors that I didn’t forsee, including Obama’s home affordability programs, delays in foreclosure processes by banks, and a dramatic drop in the interest rate curve, things are not terrible as of now. In fact, in 2009, housing markets actually went up (at least in California), sucking in the last bunch of ever-hopeful real estate “investors”. Regardless, numbers won’t lie, and let’s see how the negative amortization or option ARM homebuyers are doing.

Below is a summary from the monthly payment history based on a hypothetical case that I’ve made up for a California home ($500K, 20% down). I think it is pretty representative. You can get the original complete Excel spreadsheet here. All the interest rate data are from X-mortgage. I’m listing both MTA and COFI indexes which are the two most common indexes for option ARM:

Needless to say, an increase of 71% in 5 years will be huge for anyone. Very few family will be able to make it thru a combination of salary increase, second job, and/or having non-working spouse going back to workforce. Unfortunately, refinancing to 30-years loan at today’s 4.75% will not be an option either, since the monthly payment for 30-years is about $2200, the same as the recast option ARM loan, if not more. I originally thought that these people probably would have problems with LTV or loan-to-value ratio. But Obama’s home affordability program has “solved” the LTV problems for these most of these homeowners. The monthly payment issue is still there. One cannot make an unaffordable home in the first place to be affordable.

Looking forward next year, once the home affordability program expires in mid-2010, we will probably get more defaults and walkaways from homes. Due to Bernanke’s cutting of interest rate, and a huge buying program in both treasury and mortgage market, current interest rates are temporarily held down. If the option ARM indexes like MTA and COFI rise up to 3% for example, the monthly adjustable payment will go up by another 25% to 30%. I don’t think the housing markets will recover anytime soon due to this impending supply of homes (from defaults of the option ARM loans).

So what should you do if you are one of the option ARM homeowners? There are many sites & articles that talks about foreclosure options. In my opinion, short sale would be the best choice (if you have this choice), since you won’t be liable for the deficiency judgment, and it will hurt your credit report the least. The second best choice is loan modification, although not many can negotiate a good deal with banks. The rest of the choices such as foreclosures are not ideal, but it’s probably earlier the better under the assumption that it does not affect your job prospects based on a much worse credit report.

Here is some of good sites & articles that I’ve found on foreclosure-related options. Some of the site owners are very helpful, and may be able to provide you with needed advice or services:

• Foreclosure option networtk. Hanna was particularly helpful to me on a couple of nasty legal questions.
• Foreclosure options from MSN
• More info on various foreclosure options from foreclosure university.

So do yourself a favor, and listen thru the 1+ hour of online radio. I was expecting simultaneous asset deflation and commodity deflation back in early 2008. That seems to be what Amerman is saying during his debate. However, with Mish, he is more of a total deflationist, although he also agrees with the fact that there is no way for USA to pay out all the entitlement/welfare programs at the current US dollar value. What Mish adds into the debate is the timing of the next inflation, and that he doesn’t believe in a general commodity inflation in a consumer retrenchment. I must say that I personally sides with Mish more than Amerman. Here are a couple of noted points from the debate:

1. Amerman is taking a long term view that USA may follow in the footstep of Roman/Argentine style of hyper-inflation or high inflation. Even if inflation is not that serious, it’s very true that back in 1970, USA went thru a period of high inflation, where real estate gained in nominal value, and many homeowners benefited from the reduction in the real inflation-adjusted value of the mortgage debt. There is no doubt in my opinion that Federal Reserve would like this ideal high-inflationary scenario to unfold, without getting into a hyper-inflationary scenario, where the economy and banking industry simply gets trashed. That was my primary reason of forecasting high inflation coming due to an impending collapse in real estate market back in 2006. Under a well-controlled but high inflation scenario, Fed can reflate the housing market, and therefore make the banking/mortgage industry to be whole again. However ideal (for Fed) this is, there is a very big problem. A reflation in housing market can only happen along with a wage inflation. And that is just NOT happening, due to global wage arbitrage from globalization, and high (and lasting) domestic unemployment rate. In fact, because of that, I think the likelihood for USA to follow Japanese style deflation is probably higher than most people realize.

2. Amerman keeps saying that for average Joe, the monetary inflation/deflation is much more important than asset deflation. I definitely agree with that. Mish tries to argue that there is also a price deflation besides asset deflation, while Amerman doesn’t believe in that. With certainty, commodity prices have gone thru some deflation. The notable example is the crude oil prices falling from $150 down to $40, and now back at $70. That is a lot of deflation in a short time. With my own day-to-day observation, it appears that most companies are holding the price levels as much as possible. However, the actual deflation creeps in through various means of promotions:
A. In grocery, I’m seeing tripling coupon values now. And there is a constant ad wars going on for promotional items.
B. In restaurants, I’m seeing more heavy distribution of coupons, and the serving size of dishes are REALLY getting bigger (at a small minority of restaurants). I have been surprised that ordering the same number of dishes now is leaving my family with more leftovers to take home.
C. For “monopoly” business, such as Disneyland tickets or Legos, prices are not falling at all. They have been rising. But promotions do seem to go on slightly more frequent than before. However, without promotions, I’m definitely paying 3% to 15% more on every Lego box that I’m buying for my children.
D. In government, taxes & fines are going up. And I don’t see any possibility that this trend will reverse itself.

From the above personal observation, I must conclude that most business are handling the deflationary pressure (due to less demand) via more promotions. They obviously wouldn’t back-roll the prices if they don’t need to. I don’t know if we will actually see a more pronounced deflated prices at the stores. But certainly, I think the majority of the savings from the commodity suppliers have NOT passed down to consumers yet. With this economic background, I think there will be some significant differences to your wallet whether you shop with coupons or not.
Furthermore, due to more business close-out and bankruptcy and lack of credit for new business to come in, there is LESS competition for the existing survivors. Less competition will simply mean higher prices going forward. This is the economic cycles at work here.

3. One of the most important thing to recognize in this debate is Mish’s point in including CREDIT for arguing a deflation. This is actually quite crucial. The destruction of credit has been much more relentless, relative to money printing at Fed. The money printing for stuffing the banks with good tier-1 reserve money truly came AFTER mortgage credit creation, not before. There is no ways for banks to lend out these newly minted money, since they know very well that their mortgage assets are still deteriorating at an alarming pace. This is the point that I was missing when I forecast high inflation in 2006 (at #1 above). Certainly, for much longer term, it still doesn’t change the fact that either US dollar or USA liability needs to get trashed. But the timing of such event is likely to get postponed first due to current unfolding of deflation.

Overall I tend to agree with Mish who is blasting every hyper-inflationist out there. I don’t know whether the debate really puts an end to hyper-inflation, but I do think that Japanese-style deflation may be with us for at least a couple of years. However, Mish view obviously doesn’t jibe with the current optimism on Wallstreet and global stock markets. Just be careful holding equities. When the game is up, no one is going to ring a bell to remind you that the top is behind you.

My net worth has been undergoing dramatic changes as market rallies further. I have benefited greatly from the high-tech and mining sector advances, while hurting badly in my cross-hedges in the financials and general stock market, not to mention my high cash position in $US dollar is dropping against all other currencies by day. Every component is going to the extreme (big gain or big loss), and I am not entirely sure which positions I should be trimming.

It looks like S&P500 is going to visit 1100 first before correction. However, I have bailed out most of my small positions in the general stock markets months ago back in May to July timeframe.

This week is an option expiry week. Looks like it may be the same story again, with shorts being forced to cover.

The US dollar still holds the key to this market. As soon as it reverses back up, safety bet will be in order, meaning that all anti-dollar bets & stock markets will retreat. However, with both Euro and gold breaking new high overnight right now, I assume that tomorrow will be the same again, with an upward bias.

1. Let’s start with the easier ones. Time to sell gold? NO WAY. In fact, I will be buying more if there is a 50% pullback from any short-term high that is being established. I didn’t buy more nor sell my positions. My patience is certainly paying off.

2. Stock markets continue to be very strong. The technical picture just doesn’t match up with the fundamentals. Many people believe that stock market is a predictor of the economy. Quite often that is true, but correlation simply does not mean causation. If the stock market is that smart, then we wouldn’t have a sudden fall from financial crisis at all, almost coincident along with the actual economy. The fact is that stock market is our joint front-running guesses. I expect the stock market to eventually “catch down” with the actual economy. But there are more hopeless optimists than I can ever beat up. My hedges from short positions are heavily in red, bringing 2% substantial losses of my net worth. However, I continue to hold my hedges (but may terminate hedges at any time).

3. US dollar is breaking support. If 77/76 is broken, then it would visit 70, most likely. This is probably the most crucial indicators for both gold and stock markets. Based on euro, and gold/silver ratio, it appears that this is probably what will unfold (which means that gold will go much higher, while stock markets will continue to go up). I kind of refuse to believe it, but markets know better.

4. Natural gas has fallen some 80% from peak of $13.69 down to $2.41. It reflected an over-supply and a weak economy. If the economy is turning around, natural gas must go up. So far natural gas has NOT confirmed an economic turn-around. Regardless, one thing is for sure. It won’t go down to zero. Is it a good time to buy UNG or natural gas producers or natural gas futures? I won’t bet on it, but I think the risk should be relatively low.

I continue to be investing fairly conservatively (probably over-conservatively by any measure). The uncertainties in the stock markets are still too great for any long term investment. And the worst potential volatility actually comes from currency markets. One should continue to stay extremely alert. Stop loss orders are advisable.

The best way to buy gold is simply buying physical gold, and keep them yourself. Such process can be dangerous and susceptible to theft, but in my opinion, it is far better to have these banking thieves and liars taking possession of your gold. The same is true for silver.

I have looked over the prospectus for GLD, SLV, SIVR. There is also an upcoming SGOL to compete against GLD. All of the prospectus have extremely limited legal rights for your purchased shares in their trust. Most of the time, your legal rights stop at the Trustee. Trustee can deal with Custodian, but not sub-custodians who may keep your gold/silver. It is extremely difficult legally to recover your gold/silver through layers of legal non-protections down to sub-custodians. And guess what, at every level, from Trustee, Custodian, down to Sub-custodians, all of them are big banks which can become insolvent in the event of derivative crisis.

The primary reason to buy gold/silver is to have “insurance” against financial calamity. Leaving your gold/silver to these big banks who have recently gone to the brink of failures defeats the sole purpose of buying gold/silver. You won’t know who may go belly up, shorting nakedly in gold/silver futures, until some bank really fails.