Several friends of mine have concerns about their stock account safety, due to the concern of recent MF Global blow-up. So I read through the customer’s agreement and emailed the following five commonly used online brokerage firms: TD-Ameritrade, Scottrade, FirsTrade, Interactive Brokers, WellsTrade. ALL of them spelled out exactly and replied back to me with affirmative answers that they CAN re-hypothecate (or re-pledge) any of your assets in your margin brokerage accounts. For some of them, like Interactive Brokers (and a few others), it is not possible to move your stocks into your cash side of your margin account (unless your account is a cash-only account), even when you don’t use the margin buying power in your account. But of course, any gains or losses due to the re-hypothecation of your assets are not yours. ALL stock accounts are protected by SIPC coverage ($500K, including up to $250K cash, in the event of theft). But as you know, there are probably trillions of assets protected by the very small amount at SIPC. If there is a big theft like Madoff’s Ponzi scheme, SIPC is very hard-pressed to cover everything.

The best thing to do is still to exercise your proper judgment, and go with a firm that doesn’t do any proprietary trading (usually against their own customers like many big Wallstreet firms). On paper, everything is “safe” until the money in the pot is just not enough for everyone.

I also suggest to move your assets to cash accounts if possible. When you get a dividend-in-lieu instead of a regular dividend from your stocks, or you don’t get any mails or emails about voting events for your owned stocks, you can be very sure that your “own” stocks have been sold short by someone against your own interests.

Also close any accounts at JP Morgan (or Chase bank), which has basically but “legally” confiscated MF Global customers’ funds for the failed trades by MF Global. Don’t ask me how it can be legal. Thanks to Federal Reserve for allowing this to happen.

Regardless, I think if MF Global customers cannot recover their funds and at the same time Corzine doesn’t go to jail, there is something deeply wrong in this country.

It’s (ex-)Goldman Sachs again. No surprise. The former head of Goldman Sachs ran MF Global into bankruptcy, and was almost going to pocket 12 million dollar “severance” package. What a way to finish!

Actually, I highly suspect that Corzine is that stupid to buy up European debts using a leverage of more than 40-to-1. I suggest investigators to look into the counter-party of whom selling the European debts to MF Global. Maybe Corzine was to lead MF Global to pay up what Goldman Sachs bought previously (while leaving Morgan Stanley to burn and drop).

And the story doesn’t stop there. As with all futures market, there is no equivalent of FDIC nor SIPC insurance. MF Global even dared to use clients’ money of some 600 millions to mop up their mess. That is a serious crime. People should go to jail for this, but I doubt that would happen. And that was done under the helm of ex-Goldman.

After 3 years since 2008 financial crisis, nothing is learned, and nobody went to jail. Occupy Wallstreet will only get bigger.

The article at New York Times has the best coverage in my opinion. You do need to create a guest account to read it.

Where is the Volcker’s Rule? Yeah, and Goldman Sachs became a bank in the shortest amount of time ever in 2008, and still borrowing from Fed for nothing, trading the money from the subsidy by taxpayers into oblivion. If Federal Reserve didn’t save Goldman Sachs, it would be dead by now.

Frugal at 1stMillionAt33.com

In the last two months, the stock markets have gone through a wild gyration. The bears had about 5 attempts to break lows, but they never materialized. Now that with Euro crisis “temporarily” out of way, S&P may get back above 1300.

Markets may continue to act volatile, but taking no risk equals to taking no returns. There is a good chance for the leading tech names like AAPL, GOOG, or INTC or CSCO could push for new 52-weeks highs. Financial & banks will turn up as well, although I prefer not to catch a falling knife even in a counter-rally.

For those who didn’t buy anything, maybe try early next week. The short covering will be strong today and Friday. I think it’s likely the good time will last for 1 month, but beyond that news on economy may dominate again.

Good luck in trading pits.

Frugal at 1stMillionAt33.com

Fannie Mae has this program since June 15th. It will end at the end of October. It has been extended once already a month ago. I’m guessing it will be extended again.

The 3.5% must be in the form of closing costs, which you can use for any settlement costs, and buy down the (already-low) interest rates. You do have to buy one of the foreclosed property from Fannie Mae, and it’s pretty to search through their properties online.

You can find the details of home path program here.

Freddie Mac also has a “home steps” program for extra home warranty and $1500 condo association credit. But it’s most likely less than 3.5% unless the property is extremely cheap.

I still expect the home prices to drift down further, but if you are ready to buy for non-financial reasons, by all means, you should take advantage of this offer.

It looks like euro is not going to hold past the end of October. Very likely Greek will be kicked out, and stock markets will choke before that. I’m holding only about 6% of my net worth in the general stock markets, and about 40% in cash waiting for QE3. The rest is in miscellaneous stuffs. Now, even 6% feels like too much.

Going forward, gold-related investment (not silver) is still preferred. The next is agricultural investment. When markets turn around, I will put money into tech and energy (oil & natural gas, not solar yet but no nuclear) again.

Markets have been gyrating with huge volatility. The best thing to do is to stand aside now. After storms are over however, there will be very few people left who still have the stomach & nerve to buy. That will be the time to put in the majority of your cash.

Best luck.

It is amazing how fast the markets can change in less than a week!

While it is obvious that the markets are panicking, I think it is prudent to put cash on hold. I sold out my GOOG and AAPL right before the plunge, nibbled probably using 10% of my cash, and then stopped. Both GOOG and AAPL are still good companies, but markets do what they want to do.

It definitely feels like 2008/2009 again. After my positions took a big cut on Thursday, I realized one thing: I simply look too far into the future, while the market is extremely short-sighted. Of course, the economy is not so good, and the unemployment rates still suck. But markets “apparently” are quite oblivious to these facts.

Nevertheless, I still project the stock markets to rise into 2016 due to currency devaluation & inflation mainly, not due to a better economy. The fireworks in Web 2.0 may continue and grow into a bigger bubble. But that is 2016, not 2012. In this market, anything that is 1 minute later, is too far into the future.

Both GOOG and AAPL are dropping to previous support, and it should be a fairly good entry point. I’m preserving my cash pile of more than 20%, anticipating for the final short-term pop in physical precious metals. Buying on pullback on precious metals-related complex still works better than the general stock markets (in the short term as well as in the long term). However, the volatility in precious metals is 2X to 3X higher than the general stocks, and it truly takes nerves of steel to hold onto your positions.

Obviously in my previous post, I have been mistaken. The key thing is to realize your mistake and correct it as soon as possible. My cash level went down to 26% of my total networth. It was 64% in early June, and 30% last November. I usually kept about 20% in cash in an uncertain market. I do intend to become fully invested before the end of this year.

For the first time in many years, I bought into GOOG, AAPL, and general market indexes. If it is not obvious to you, let me state it clearly: markets will be higher in two years.

I made further allocations into gold/silver mining stocks after realizing my last mistake. I would like to add more on a pullback, but I won’t be chasing prices at this level. I have quite a lot already, and much more than any “normal” portfolio. Further greed on my part could easily back-fire.

The next significant pullback will probably be in the month of September. But markets could steamroll ahead between now and then.

Best luck trading.

It’s good that today gold price is finally starting to correct. Based on the cycle of gold, it should bottom in 1 to 2 weeks. Silver however may make the final low at 30 or even 26. I wouldn’t touch silver until the second wave down is over.

Here are the new targets based on previous ratios:
1. Gold bottoms at $1442, or $1393.
2. Silver bottoms at $30.x, or $26.x. It is preferred that silver doesn’t break below $26, or else the picture may be bearish (for 12 to 16 months).
3. If GDX already bottoms at $51.10 (as I have guessed in my previous post), the next short term low would be at $52.00. If not, it should bottom at $50.46. If GDX breaks $50, then the picture turns bearish (for 6 to 9 months). Timing-wise, It will still bottom if it breaks $50. However, you will need to sell all the counter-rallies, and wait for much longer to get back in.
4. GDXJ may still break the last bottom at $32.06. It’s bottom should roughly coincide with GDX within 1 day of difference. I hope it stays above $31. Breaking $30 will be bearish again just like GDX.

I arrived these targets by using the previous peak to bottom ratio and applied to the last peak (e.g. for gold at $1563.20). There is no magic tricks here.

I think there is still a significant possibility for gold-related complex to take an extended breather here, possibly until early next year. This risk is obviously due to the parabolic behavior in the recent silver bubble. Caution and patience are required here. I think it is still a trader’s market.

The precious metal stocks have gone through a roller coaster ride like always. It looks like it probably have made the bottom for this down wave, but I don’t think the wave 2 of major wave 3 is over yet. Time-wise, it has only been 7 month correction (since last November top), and I don’t think it’s enough. I think there will be another big but short pullback probably in the month of September.

Gold however has never really corrected, and that really worries me. I am not sure how sustainable the rally will be. I have a feeling that it will see a price of less than $1400 before it can possibly hit $1850.

Putting everything together it seems that maybe this wave 2 of the major wave 3 in mining stocks could last much longer than anyone expects.

I think it is quite clear that the government authorities want commodities to have a bigger correction before they can afford putting QE3 into high gear. They also need the Congress to approve the increase of the debt ceilings first, before Fed can take the new debts onto their book. I expect that another major stimulus probably will come before the election of next year starts in earnest.

Currently stock markets probably need to go down further, so that Bernanke can rationalize the next round of money printing.

I will be buying just some more, but to go fully invested, patience is still required.

After Japan’s earthquake, I traded a small position in uranium stocks, and made a small profit.

After reading a lot more about nuclear energies, I’m much less bullish now. I think Thorium would eventually take over Uranium in nuclear energies. The current nuclear energy companies may or may not be benefited from this switch, especially given that Thorium is much more abundant than Uranium. I have held onto two positions in uranium since 2005, and I have already liquidated them.

I don’t think nuclear energies will go away, especially given oil depletion. Uranium stocks may go up again 3 to 4 years from now, if economic recovery gains steam and overheats. However, that is too far out for any prediction to be reliable, nor do I want to take that risk now.

If you really like to own Uranium stocks, make sure that you stick to the big cap companies which have existing long term contracts, and will be less impacted by any shutdowns on outdated plants and new plant proposals.

I have managed to liquidate various stock positions, and have about 50% in cash waiting on the sideline. Percentage-wise this is the second highest level of cash ever since 2008 stock market crash. Right before 2008 market crash, I reached 57% cash (but should have more). I’m raising so much cash because I feel like my risk tolerance has decreased quite a bit since 2008. I do have a feeling that I probably over-do it this time.

If I’m investing in the general market, I probably would be more relaxed. However, I’m more into commodity/PM sectors, and the volatility in this sector is at least 3X to 4X of the normal market.

Better safe than sorry. I’m actually quite content with what I have achieved so far since 2008 crash. My net worth is at least 20% higher than the pre-2008 peak. If the markets unfold as I am expecting, taking a mid-summer dip, build a base, and then comes back, hopefully I should be way on my way to get to 50+% total return in another 2 years.

So far, all the MACD indicators on mining indexes, and precious metals have made the positive cross. I have a suspicion that this may be a head-fake. However, I still have a lot in the market, and plan to just ride it out for a potential 16% fall from here. If it does fall, it will be one of the most terrific buying opportunity. If not, and the markets zoom up and leave me in the dust, my potential return will be halved, but I’m already taking lots of risk anyway.

Let’s see if my mid-June target date for another big correction in commodity will materialize. On the general stock markets (SPY, DIA related), I will be a buyer on a 10% pull-back. Furthermore, I will be buying into higher beta stocks this time. It is about time to turn bullish for the intermediate/long term (~5 years out only). Only time will tell whether I’m right.

Have a good memorial holiday. Pre-holiday market is almost always good like today.

This is just my hunch. I could be wrong, but I might as well take some guesses.

First of all, an important thing happened today. Gold appears to be entering a similar parabolic phase just like silver. The only things that haven’t joined the parties are the miners.

Let’s say that gold continues its parabolic trajectory, then I’m guessing that the following may happen:
1. Gold tops out at around $1680.
2. Silver tops out at around $56 to $59.
3. Miners (GDX) tops out at around $67.5.
The time-frame is probably within 2 weeks, until May 16th or so.

After silver mini-bubble crashes, my correction targets are
1. Silver may crash to $30, with $22 as my lower target.
2. Gold drops to $1250, with $1150 as my lower target.
3. Miners drop to $51.
Silver will enter its zig-zag Elliot wave 4 of bull market. The trading range will be from $30 to $60 for probably about 1.5 years or more to shake out both bulls & bears. In the meantime, I am guessing that miners will take lead the next phase in this PM bull market, with gold prices go to new high from about $1600 to $1850.

If the gold price doesn’t do a parabolic top, which seems to be more likely to me, then I’m guessing that the following may happen:
1. Gold tops out at $1600.
2. Silver tops out at $52 to $53.
3. Miners tops out just below $64.
The time-frame is possibly before next Tuesday or Wednesday.

After silver mini-bubble crashes, my correction targets are
1. Silver may go down to $30 to $34, with $25 as my lower target.
2. Gold drops to $1250 to $1300, with $1150 as my lower target.
3. Miners drop to $54, with $51 as my lower target.

Have fun poking the bubble! Don’t get the soapy water splashed onto your face.

Frugal at www.1stMillionAt33.com

Gold has broken $1500, and silver is almost at $45. While the rally in silver has been more than amazing, the rally in gold is quite within its normal trading range.

I have been reading Cara’s trading blog at caracommunity.com, and Bob Hoye’s podcast on Howestreet.com every Friday. I am aware that rally of silver should be “exhausted” long time ago, but one needs to have his own opinion. The latest exhaustion signal from Bob Hoye should be at the end of this week at the latest. However, I think the market may be exuberant slightly longer than that.

Gold/silver have a tendency to make a parabolic top. In fact, I almost want to say that without a parabolic top, it is simply not a top. I would never go short on this market (or at least not yet). At every market, one must decide on the bias (bullish or bearish) first, and then only move between cash & long/short (depending on the bias). I think those advertisement about swing trading that goes between long/short is really a myth. For most normal human traders, that is just a fast ticket to poverty, not to the riches.

The next correction in silver & precious metal mining stocks may be quite big. I think a minimum of 20% is almost definitely in the cards. I wouldn’t rule out a 30+% fall. However, the fall will be respected to the peak prices, and we still don’t know what the peak prices will be achieved. I am looking for silver to possibly fall to low $30 range. Based on the ratio of the last rally (from $17.35 to $31.21), and the start of the current rally from $26.38, I think it’s possible for silver to go to $47.45. If silver price exceeds $47.45, then I think the coming correction may be more extended in time to wash out the excess in bullishness. I think $50 is possible, but I am not counting on it.

While silver is very extended, mining stocks in general are not. I would think that the correction in mining stocks would be less than silver, but I could be wrong. I would be looking for GDX to pull back to low 50 at the maximum.

For gold, I think the pullback could be from $1150 to $1250. I would deploy my capital starting at around $1250. I know all the shorts out there think that gold/silver are in the final stage of bubble. But I believe the next wave is the 2nd minor wave of 3rd major wave. Yes, it’s going to be painful when it falls, but when we reach 3rd of 3rd major wave, it’s when majority of shorts are literally destroyed. Frankly, I don’t know why anyone wants to be short in this market. For the sake of your own wealth, please don’t. But if you’d like to add to my wealth, you could go ahead.

The other phenomenon that I see is that between gold/silver/mining stocks, the sync of waves has been somewhat broken. You will never see this at the final top. At the final final top, all of them should be synced up together to the top, with very small time lag. However, currently only silver is acting crazy. Given that, I’m also quite confident to state that this is simply not the final top.

I wrote an investment advice series back in 2006, advising people to buy silver Eagle and Warren Buffet’s company(BRKB). If you had followed my advice, you would have returned 260% on your silver, and 31% on BRKB since August of 2006.

Here are the entire series of My Investing Advice. The series is also listed on my Site Map at the upper left corner of every page on my site.

1. My investing advice if you only have $10
2. My investing advice if you only have $100
3. My investing advice if you have $1000 to $10K
4. My investing advice if you have $10K to $100K
5. My investing advice if you have $100K to $1M

Best luck, Frugal at 1stMillionAt33.com

The stock markets have bewildered many. I kept thinking that markets around the world will take a dive towards summer/fall time, but due to Japan earthquake, it appears that a lot of frothiness and overbought conditions have been temporarily resolved. It almost looks like markets can push higher without pulling back in the very short term.

The biggest concern that I have on markets is still PIIGS in European region. I think the problem would turn worse before getting better. However, it is really hard to predict when PIIGS will hit the market, and my projected timeframe (was from Apr to Jul) appears to be pushed further into future (May/Jun to Sep/Oct).

Although everyone’s crystal balls are quite fuzzy (including Mish & Barry Ritholtz who is about 50/50 in stock/cash), two things from the Japan earthquake and the mini-crash in May 6th, 2010 has shown that there are (or were) many people who will head to exit in an instant at any signs of troubles. The good thing is that the more we get those mini-hits, the less people would sell out in the future. In fact, maybe the coming market surprise is that there is not going to be a surprise after all, and we stay sort of flat throughout the whole year (with occasional but very few ~10% pull-back or so).

Best luck,

Frugal at 1stMillionAt33.com

Japanese stock market went down 20% in 2 days. Dow Jones, S&P, and Nasdaq futures are off by 3%. Tomorrow we will have a mini-crash.

What should a investor do now? If you haven’t sold, I suggest not to panic. But I would sell the bounce at near 1290 level at S&P. As for Japanese stocks, I’m actually looking towards buying a little (EWJ). Japan as a country won’t be defeated by this earthquake. It will come back.

Tomorrow is also a Fed meeting day. Expect Fed to be lenient for sure. If Fed surprises positively, this correction could find a short-term bottom. However, I’m more worried about markets “expecting” the positive surprises, and yet finding not enough.

As I have said several times, I expect a mid-year stock market correction, and expect QEn to kick in working overdrive after that to arrest an economic slowdown. General inflation will rise after that, and bonds are on a short-term buy (till July), and long-term sell.

I have watched AMZN rose 4 fold from 40s, but I still hesitate to buy into it today. My biggest problem with AMZN has always been with its sales tax advantage.

The pricing of goods at AMZN is extremely (anti-)competitive. It actually changes real-time against ongoing sales at various stores. The moment that there is a sale at Target or Walmart for a particular item, Amazon will lower its price correspondingly. I have observed this phenomenon through my past shopping experiences on HD camcorders, camera, etc. Sounds like a good deal at Amazon?! NO, unfortunately. The price that they lowers to always ranges from about a tiny saving of 3% to actually spending more by 3% after adding shipping. This is after considering the no-sales-tax “benefit”. Am I going to save just $5 to $10 on a $350 to $500 item, just to fatten Amazon’s employees and shareholders wallet, and short-change my local state/city government? I’m sure that many people would, but I won’t.

Therefore, I’m not surprised at all hearing that Amazon will cut ties and move out of states that threaten to recover the sales tax. The fact of matter is that when you look at the financial income statements at Amazon (for example 2010), you will see that if Amazon starts to pay a 8% sales tax out of its revenues, there is absolutely no profits left. Instead of 1.15 billion profit, it would be 1.38 billion loss. Please note that taking out 8% sales tax from the revenue is obviously not the right approach. But if the pricing is 8% higher, consumers may choose not to transact at all. Likewise, if the cost is 8% higher for Amazon, Amazon may choose not to sell the goods at all. The end result is likely to be a lot less profitable sales and shrinking revenue.

I would like to see a fair playing ground for all companies versus the internet-only companies. And I am an advocate of a federal sales tax for a reduction in income tax. In this age, there is no longer any boundaries between states, and having different sales tax rate across states simply don’t work anymore. A flat sales tax to replace all income tax would encourage savings instead of spending. A fixed percentage of the collected sales tax should go to the local state, and each state can further impose different income tax structure to supplement any necessary shortfalls.

Although the day for a flat national sales tax may never come, I hesitate to buy the stock of a company that simply lives on sales tax. I think internet business is good for certain products, but not all. Making the market to be free from all anti-competitive practices would give consumers the best stores & final prices.

This is just my personal opinion which I have been saying since 2007 housing market peak:
I am fairly certain that US housing prices will not recover its inflation-adjusted price until 2027 at the earliest. In terms of nominal prices, I am less certain but I also tend to think that housing prices will not recover its nominal prices until the same time-frame. My reasoning is fairly simply. Every financial bubble in human history will NOT repeat itself for at least 20 years. Usually it’s AFTER 20 years have passed that the same asset class can have a new chance to begin to rise in prices.

The two main negatives that have not been priced in by the current buyers are
1. Bond bubble bursting causing rise in interest/mortgage rates, AND shortening of the duration of the mortgage term. This will cause the domestic US buyers to decrease their offering prices.
2. Increasing deficits will most likely result in increase in property taxes. This will increase the holding cost of houses and therefore decrease the home ownership benefits.

The third negative that has not been priced in by the foreign cash buyers is that the current US housing price can possibly become 50%-off, once US dollar drop another 50% against the stronger Asian(Japan-excluded)/commodity currencies. These buyers will probably not flock into US after 50% off because the relative political/economical stability across regions can change in detriment to US, and that these “savvy” businessman and “corrupted” government officials won’t probably be throwing good money after bad.

Regardless, if the home ownership cost is way below the current rental cost, it obviously makes sense to buy. You could use my Rent vs Buy calculator to see if it would make sense.

Check out the two articles:

http://www.zerohedge.com/article/if-cme-hikes-gold-and-silver-margins-50-and-nobody-cared-did-tree-fall-central-banking-pm-pr

http://tfmetalsreport.blogspot.com/2011/02/wow.html

50% raise in margin requirement, and silver broke new high?!!

Why shouldn’t silver/gold be in backwardation? The reason is very simple (but many people don’t understand and deny it). The fact is both gold & silver have always been real MONEY in human history. Why would ever $10K cash up-front more expensive than $10K cash three or six months later from now, considering these kind of “cash” will never yield interest money? Three or six months from now, the same cold metals will stay as the same amount of cold metals. The only possible way for silver/gold to trade in backwardation in futures market is that they (COMEX) just DON’T have all the “cash” on hand.

There are about 60,000 open contracts into the March delivery date, and that is about 3X of the COMEX inventory on-hand.

Somebody will milk COMEX for extra premium in rolling over to the next delivery date, and I bet COMEX will demand a non-disclosure statement, but they won’t be able to get that from Sprott for sure.

My best guess is that precious metals have made a short term bottom. But I can be wrong. Intermediate term however I am still wary of a mid-year dip. A bull market often tries to shake off as many people before embarking a big advance.

Both gold & silver have made the MACD bullish crossover on the daily chart. GDX & GDXJ have both made the crossover by just about a couple of days earlier. The upturn has been quite sharp, and is subjected to sharp pullback. It’s going to take a lot more work to get this market back to bullish stand.

Based on my reading of the Elliot Wave Theory applying to gold & mining stocks, I believe that we should definitely be in major wave 3. Initially, I thought the 5 of 1 of 3rd major wave would be here. After the recent correction, I’m not sure if 2 of the 3rd major wave has begun. The second wave down is usually the most painful. GDX correct some 70% in its 2nd major wave in 2008/2009. Therefore, I would be cautious about the 2nd wave of the 3rd major Elliot wave too. The other disturbing trend for mining stocks is that oil prices are going up fast if not faster than gold. The gold to oil ratio must be carefully watched to decide on whether to over-weigh precious metal mining or oil drilling stocks.

I have been extremely busy with my day job & investment for the last month. Inevitably my blog suffers. After all, I’ve got only 24 hours a day. I’m going to make an effort to blog more regularly. Hope that my work schedule won’t get overwhelmingly busy again.

As I stated back in 2009 that US debt would be $13.5 trillion by the end of 2010, it is now $13.9 trillion today. Here is a plot based on US treasury data for total debt:

Notice the gradual increasingly slope with shortening timeframe. This is a typical behavior of a super-exponetial function that is destined to “collapse” in the future. The debt obviously won’t collapse due to payback, but possibly “collapse” through massive inflation or repudiation. This is the chart that any US citizens should keep an eye on. If the chart continues its own pattern of increasing slope with shortening timeframe for slope change. Then one definitely be prepared.

To put 20 trillion debt increase for perspective, the entire global stock market valued at $49.1 trillion in March 2010. When USA run out of other people’s money to use, the only way left is obviously to simply print more (as if USA hasn’t done it yet through two rounds of quantitative easing).

I’m not changing my current projection for a US debt/currency blow-up in 2016/2017, unless the above debt chart changes its super-exponential pattern, and/or that the time has gone beyond 2022 without any problems. Let’s see if Tea Party & Ron Paul who just took the helm of Domestic Monetary Policy Subcommittee can effect a direction change in the coming years.

I’m always interested in finding out exactly how big is the public participation on the precious metal investment. Here is just some status check:

1. A few months ago, my relative who laughed at me before about buying the “barbaric” metals asked me how high can the gold goes, because he/she is thinking of buying it.

2. A few months ago, my friend seriously considered buying metals.

3. Another relative finally bought metals, but sold again recently.

4. A trip to Home Depot last week turns out to be an education. While I was selecting repair parts, a person behind me was explaining to his friend that QE2 by Federal Reserve will create inflation, and one needs to buy precious metals, because the more hot money out there, the higher price gold will go. (Yeah, I thought that was quite obvious, but his friend was quite illiterate about financial matters.)

5. I’ve spent hours reading through the comments on the recent bearish article “Why gold is a bad investment” at Marketwatch.com. The comments were almost totally one-sided, blasting the author, and any other gold bears who decide to comment. I don’t know whether the readers of MarketWatch.com are much more financially-savvy. But definitely a very significant public participation is going on in this gold market, based on all the comments.

To wrap this up, here is what I had to say to another fellow at MarketWatch.com:

To AmericanPatriot,
Because I added you as a friend in the past, for your benefit, I hope you are not shorting gold or gold-related investment. I don’t want to elaborate my reasons, but a bubble by definition NEEDs to be parabolic. The parabolic rise won’t come until closer to the very end, when it’s visually obvious. However, the abrupt end to the parabolic rise is usually anytime, and anybody’s guess.

The intermediate correction in gold will come later. I think we have a short-term correction right now. Don’t fight the tape. Some of the people who shorted into dot-com bubble lost all of their savings. I was shorting too in early 2000. Knowing that it was an imminently bursting bubble didn’t make me any money. I learned my hard lesson about how the irrational exuberance can last longer than one’s insolvency.

Best luck.

By the way, do yourself a favor. DO NOT listen to Jon Nadler at Kitco. He is a double-talking double agent possibly “planted” by the investment banking world. You would think that at Kitco, you want somebody who is a perma-bull like Lawrence Yu in National Real Estate. For some reason, he is always the first guy who pours cold water on gold.

In any case, always remember that if you try to get rich overnight, you can also lose double of the amount in less time. Nothing goes straight up. Likewise, nothing goes straight down too (but sometimes, it does happen too in a black-swan dive).

On Wednesday, Fed will announce an update to QE2. Quantization easing is just a term to confuse laymen. To use the simpler terms, QE is simply money printing by computer entries. It is the left hand of US government Federal Reserve buying bonds from the right hand of US treasury, diluting everyone else’s US dollars. I’m expecting that it would be a little less than $500 billion in about 6 months, which could disappoint the stock market for a minor pullback. Both the forex and stock market may have already factored in this amount. So don’t expect $US to fall off a cliff after that.

The whiff of inflation is definitely in the air. This is only the first phase of money printing, with majority of the liquidity going into emerging markets, and create massive inflation in emerging economies. Sooner or later (probably 6 years from now), there will be a sudden and unexpected phase shift, with a gap down in $US currency value, destroying the savings of the middle class, and all the foreign real estate investors. The current foreign buyers of the real estate think that they’re getting a hefty discount on the real estate which might be inflated up. They probably don’t see that there is another discount factor that may come in after a $US devaluation. You may think that foreign buyers with big pockets are smart money, but investment history states otherwise. Foreign money usually participates in the last phase of the bubble. In this case for real estate, it’s still there even post-bubble.

We’re living in interesting times. The volatility of all financial instruments will continue to expand with even more hot money sloshing around the globe. Some will make a fortune, either because they’re lucky, or they see it coming. Most will lose their savings unfortunately. Are you ready?

Frugal at 1stMillionAt33.com

There seems to be a short squeeze in precious metal market. It looks like it’s going to go a bit higher. I actually sold some, and then get back into the market again.

So what’s going on with QE2? Since the news won’t be out until Nov 2/3 (the next Fed meeting), potentially the rally could keep going until that time. My guess is that it would be the “buy on rumor, sell on news” deal. Just a brief check for the health on this market:
1. Gold at new high!
2. Silver at new high (not yet breaking historical high), AND leading in terms of percentage gain.
3. GDX at new high!
4. GDXJ at new high, AND still leading in terms of percentage gain.

It appears that GDXJ/Silver are still forecasting higher prices to come. Now, it’s investor’s heaven, after suffering thru 2 years of big dip, and coming back to some 6% gain (58.5 / 55). That was the wave 2 in HUI. Now, of course, by extension, you would know what’s ahead in wave 3 according to Elliot wave. Don’t get shaken out! Actually, I will believe in wave 3 until I see it. HUI has been one of the most treacherous index ever. I just cannot believe how many times I’ve got cheated on the false breakouts. Regardless, I’m betting my money on a real breakout. Furthermore, I’m preparing to “back up the truck and load up”.

The performance of gold is quite lackluster relative to BIDU or AAPL. But there is a season for everything, and “apples” do fall from the tree. I may pick some up, but it’s just not time yet.

There is a serious mortgage paper fraud bubbling to the surface. I was aware of this several years ago, but I was not aware of the magnitude. It is so serious that I think it can easily turn the whole world up side down (for the second time, I guess).

Some background first. The US bankers and Wallstreet or more properly called “fraudsters” first selling all the worthless “mortgage-back” securities back by phantom 100% financing loans from 2005 to 2007, cheating the entire world out of savings. They turned the world up side down with the financial crisis, and then had Paulson from Goldman Sachs being the US treasurer at that time, saving their ass with taxpayers’ money, transforming or rather downloaded all the worthless mortgage paper onto Fannie Mae, Freddie Mac, and AIG. Of course, everyone thought that was a great mission accomplished.

Now, when they try to foreclose homes, but lawyers demand to see the promissory notes, they find out, “Damn, where is that piece of crap?” Imagining all the homes that cannot be foreclosed on, due to missing documentations for the promissory notes? All the mortgage-back securities now will be truly back by NOTHING!

Here is what I will venture to guess the potential outcomes.
1. The only way to foreclose these homes will be through non-judicial foreclosures (including California, the home fraud center). Rather than getting nothing for the mortgage paper, it’s far better than getting something for it. Once the avalanche starts rolling, every bank will start scrambling to sell the homes out of the flood gate. Home prices will fall by another 20% in the coming 2/3 years. Or at the minimum, the shadow inventory of the homes on bank’s balance sheet will dramatically rise.

2. If this is not resolved through Congress passing a new law, back-patching the shoddy works by bankers, and the news start to spread around the whole world, US dollar will drop to a new dramatic low. Imagine another 3 trillions loss (out of 11 trillion) on Fannie Mae/Freddie Mac backed debts, all USA government owned? By the way, if this event unfolds, stock markets will panic first, but later will reverse to break 52 weeks high. Bonds will plummet for sure. Real estate will go into extended nuclear winter.

3. New laws get passed through Congress to save the bankers’ ass. Congress initially side with home squatters in the name of protecting voters, until all the law-abiding citizens take the street, demanding fairness. Then Congress realizes that it’s too late to stop the revolution by the majority of the law-abiding citizens, turning to lawless resolutions everywhere.

Just some crazy ideas. But certainly less insane than what has been going on in US real estate markets. And all of the rotten apples (Wallstreet bankers, home speculators, and all the mortgage “consultants”) are still in there unbelievably.

GDX has broken out above $57.50 this morning. I would feel more confident about the breakout if it’s above $58, and that the closing prices stay above $58 for 2 days. But it probably won’t happen until next time.

Regardless, a new high is a new high, confirming the bullish trend in HUI. Based on how the trading tape looks like, I believe the most likely near term resolution would be another shallow pullback after reaching prices above $58. My best guess is for the pullback to come back to $52.50. But HUI is EXTREMELY volatile. In the past, it can easily pullback 30%, which would put $40.60 in range (using $58 peak price).

Markets will frustrate the maximum number of people. If I am the “market” (of HUI), that’s what I will do. Too many people got out, and want to get back in. Likewise, I see many new entrants getting into physical precious metals at the current prices. Therefore I would expect price ascent to slow down dramatically, and/or a brief pullback. In other words, I would expect the mining stocks to out-perform physical for the next (up) phase.

See you at the next top.

Frugal at 1stMillionAt33.com

These days I’m more stressed than ever. Knowing that my gold-related investment could take a (big) fall anytime is not an easy feeling. I’m sitting tight for the moment (but can change my positions anytime).

My guess is that gold may make a high around $1320 to $1340. The price from last Friday certainly qualified. It is entirely possible that the high is in the rear mirror already. For now, the general stock markets & gold are in sync, taking the cue from the fall in $US (or rise in Euro/etc). Both are quite overbought, I think it’s about time or almost time for both to pullback. For non-daytraders, I think the general trend for both is still slightly bullish. One could continue holding until the year end or early January. There is probably going to be a pullback in the middle, but the animal spirits would probably come back.

For this time, I believe Hindenburg’s omen will probably fail (to pull back significantly). I’ve never seen this technical indicator so widespread reportedly by various media. The widespread reporting is actually bullish as a contrary indicator. It was even in the Asian newspaper. But of course, the built-up of bearish sentiment could simply delay a necessary fall.

Probably before the last “lemmings” to take notice and decide to switch from bearish to bullish camp, a bigger correction would still await us ahead.

If $US index does get to 76, (which I have serious doubts that it would) I would certainly lighten up more aggressively. As long as Bernanke has his wish, a devaluing dollar is good for stocks (& gold). But of course, when pricing your “rising” US assets in international currencies again, the rise would seem much less spectacular.

“Gold closed at new high!” That was the Tuesday headline on Marketwatch.com. I checked right away, but didn’t see gold cash price breaking new high at $1265. After reading the article, it’s really just a new high in the nearest futures market.

“Investing” in gold is probably one of the hardest arguments to make, since gold simply doesn’t generate any interests nor dividends. Plus that many people who are interested in the commodity market will try to make the argument that nobody needs gold to survive. On the other hand, we all need oil/energy & grains. However, that simply doesn’t matter much for the last 10 years for gold investment. After all, everybody sells his or her investment at the end (whether it’s before or after death), and the only thing that matters is whether you are able to buy low and sell high.

After observing this market for almost 8 years myself since my initial investment back in 2002/2003, I can clearly see that the character of this market is slowly changing from stage 1 to stage 2, with more new participants coming in. Based on my judgment, it’s probably not at the mid-point of stage 2 yet. However, the price has probably reached slightly more than what its “fair price” should be. My definition of “fair price” probably will upset both gold bulls & bears. For the perma-bulls, gold should be trading at above $2200, an inflation-adjusted price from last peak set back in 1980 at about $850. For the perma-bears, gold at any price is probably too high, especially its historical record of hedging against inflation from 1980 to the low of about $250 in 1999/2001 is simply ridiculous (and that is definitely true). I take the middle ground, and would use $400 and adjust it by inflation for the last 20 years, and I would get just $1085.

Why do I use an ad-hoc $400 instead of $850? Peak prices (of $850) are crazy prices. They are always outliers. They do not make sense. A little less than half of the peak prices based on the trading around the peak of $850 before & after 1980 appears to make more sense to me.

I also believe that the inflation-hedging power for gold is valid, but it needs to be judged from a very very long term (way beyond 20 years from 1980 to 2000), just like the argument for housing prices always go up or stock prices always go up in the long term. In fact, all of them (gold/house/stock) do go up in the long term, but the only problem is that we humans only live for about 100 years, out of which we may earn & accumulate for some 40 years, and invest for just 20/30 years at best. The true “long-term” (in the order of 100 years) is simply too long for us. That makes all the differences in the whole world when it comes to “investment”. Depending on the era that we were born, we may or may not enjoy the prosperity at our respective ages.

So is today’s gold price too expensive? Based on all short-term technical indications, I think gold will soon come to a short-term top, possibly exceeding the last high. For the timeframe, I would say probably give or take 1 to 2 weeks. My own actions in this market have been mostly neutral. Try to buy the next dip if you can catch the break. Think of saving away in terms of GLD/SGOL or better yet in physical gold (so that your gold won’t shrink in size due to ETF fee). Such saving definitely won’t make you rich overnight, but at least you should be able to preserve your wealth.

Slowly through each wave of rise and fall, markets are revealing where the capitals are concentrating. The market leaders are no longer US, Japan, nor Europe, but Brazil, India, China, and Taiwan.

US market is facing heavy pressure again today. S&P 500 has broken support at 1080/1085, and then 1065/1060. The technical pictures are simply getting worse and worse. However, that is not so for Brazil, India, China, Taiwan, and other southeast Asian markets. They are far above July low by some 10%. The good news is that I believe these market leaders are not forecasting a repeat of depression, or a serious bout of recession. The bad news (for more mature markets as to emerging markets) is that the better days are not for us.

Going forward the stock markets will be increasingly selective. Given the extremely low interest rate environment, there are LOTS of hot money trying to find a home. But it’s probably not going to be in S&P 500.

I have been sitting on about 40% in cash (double at the “normal” 20% for me to compensate my high volatility stocks), trying to avoid a big fall that may have come. The last market drop wasn’t that big. In fact, it has risen back to about the mid-point of the trading range.

I’m guessing that for the next month until about mid-September, markets will stay in the bullish trend, possibly challenging the last high set in May again in all markets. When US dollar falls, it is good for all markets. Definitely you should keep an eye on Euro.

I’m going to pick up a few beaten up stocks here and there. It’s still not too late to buy something for your portfolio.

It may be difficult to fight off the deflation mentality out there. But I know in my guts that eventually the resolution is definitely inflation. This is not 1929-1932 anymore. America is not Japan either. A debtor country (USA) cannot afford a deflation. Besides, we’ve got helicopter Bernanke hyper-actively working overtime at every deflation scare.

Just a short message on stock market. If S&P 500 doesn’t hold 1040/1050 today or through this earning season, then I will turn bearish again. Holding at this level is critical to paint a chart of higher low than the last low at S&P at 1010.

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

Markets have dipped and then came back since I last commented. For the short term (months), I am moving my bearish stance to neutral because markets have moved beyond the Fibonacci levels. Staying on the sideline in this volatile market is probably the best bet for now. One should use small trading size and take profits at near resistance levels, while take a small bite at near support levels.

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.

The 10 suicides at Foxconn have happened in this year, and are no longer news. However, they are so important in the big economic picture that special attentions are deserved.

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

Stock rally is stalling a little bit. This summer until September may be quite nasty. I suggest lightening up for possible reloading later, which still needs to be qualified by technical observations.

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).

The longer stock markets don’t rally when they should, the more investors will throw in the towel. I believe there is a serious danger of breaking 1040 on the S&P 500, after which the markets will collapse at an even greater speed. I have already increased my existing cash holding by almost 50% in the last week, not waiting for the markets to give a final verdict. The counter rally is pathetically weak, and going further out into summer, the European debt complication will only get more serious.

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.

This week it looked like I was early by 1 day in calling the bottom this week (so far, if markets don’t break lower). But the bounce was weaker than I have expected so far. Regardless my game plan is still the same. I’ve bought into the bottom by covering my shorts, and I am planning to re-establish some of my short positions at the higher prices. My shorts on the general market are really hedges against my company options which I have been liquidating. But I will still be net long with the hedge.

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.

I should have realized that, just like the incessant rising up since March 2009, this going down may not have any escape. Any counter-rally if there is any is weak and would be sold.

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 needed counter rally I believe will begin this Monday (or today) but may only last about 2 weeks with European stocks going up already. My current target is about right after first week of June. I think it’s very important to get out of stock markets after the relief rally, to avoid the coming intermediate decline this summer. From June to until end of August, and possibly longer, I’m not bullish on stock markets at all. I continue to believe that the stock markets will be ranged bound, with heightened volatility (fast ups & downs) throughout this year.

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 protests on austerity measures in Europe are becoming widespread. The thing that these people don’t understand is that either way they are screwed. There are only two choices:
1. Austerity measures involving cuts on salaries & benefits.
2. Devaluation / De-link from euro.

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.

There may be a short-term top after this, but not before setting more new record prices.

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.

The potential passage in Senate of this “Audit the Fed” bill next week could be the cause of Thursday’s free fall in stock markets.

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.