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

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.

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.

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.

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.

Few technical indicators give a clear picture on the movement of stocks. Unfortunately, all indicators are often too late by the time when the markets have made their initial move. The more averaging the indicator does, the later it will give you a signal, but the signal becomes more reliable. The vice versa is also true. The less averaging you do, the earlier the buy/sell signal comes, but it becomes less reliable. MACD is one of the signals that does a pretty good trade-off between reliability and opportunities (although I must say that it is often too late to do anything about it).

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.

In my projection, stock markets may make a lower high in about March timeframe. My advice is to sell and get out.

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.

The volume is extremely low today. Anybody buying or selling out there needs to be very careful. The market will not reveal its true direction until Monday.

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.

Todd Harrison at Minyanville.com seemed to have gone long in Freddie Mac and Wachovia. A few other technicians that I followed also are turning the corner from bearish to bullish. Are we ripe for a rally?

I’m not going to try to catch the bottom here. But there is no doubt that you may double your money in some of the financial stocks if they decide to rally. If you are a nimble trader, you can definitely try. I however will just try to step aside on my shorts when it rallies. I have covered most of my direct shorting of shares. The rest is mostly shorting naked calls that are far out-of-money. I’m going to left them stand, since there are only 3 days left before they expire. But certainly anything can happen.

Intel’s after hour action on Tuesday was positive. It certainly looks like the next intermediate term rally will be led out from tech. Financials will most likely be up too, but they are in the long term bearish market. Although I cannot understand the logic of tech stocks not submitting to the general bear markets, the stock market has proven to bears so many times that it can do many acrobatic tricks.

Let’s take the market a day at a time. It will certainly turn up at some time, provided that there is not a cliff drop waiting out there. I think the cliff should come later though, not now. So let’s hold on to the roller coaster ride once more, and see.

After a big waterfall in the stock prices of Fannie Mae and Freddie Mac, Paulson and Bernanke have taken actions and made announcement before Asia’s opening. They are obviously determined to stop the crisis in confidence to spread further. I think they probably will succeed temporarily.

The markets are due for a rebound, and the rally can be very sharp. Most market participants may think that this is going to be another March low event earlier in the year. However, I beg to differ. I think this rally will last even shorter than the last one, and the eventual fall may be even worse. With the earning season upon us, I cannot see any good to come out of it, until we are all through the worst news.

As I’ve warned last Friday that this coming week is option expiration week. Markets will probably be extra volatile, and I believe the direction will be up. I will probably start covering my out-of-money naked calls, since it’s likely that they may become in-the-money with a strong rally.

But aside from the trading frenzy, remember to keep things in perspective: Indymac (IMB) has just gone under. Downey (DSL) and many others are right behind. Reset of the ARM mortgages is starting in drove, with 300,000 loans to be adjusted. The current state of financial companies is dire. We have 6 months of job losses. State and cities are cutting budget (and jobs and less money for contractors) across the board due to lower property, income, and sales taxes collected. Things are negative, and they won’t turn sunny in a dime. The recovery will take time. In the meantime, one is probably better off staying on the sideline, or just go fishing!

The trading volume for today and tomorrow before the fed meeting should be light just like yesterday. Market participants tend not to bet big before the resolution of the federal reserve meeting.

Obviously, I don’t expect Fed will raise interest rate in this meeting to “combat inflation” as if that’s really their goal. In fact, I doubt that they will raise interest rate in August either. Fed is in a bind between “combating inflation” and reducing the impact from the burst of housing bubble. Unfortunately, I really can’t see what good news Fed can bring to this market. From the recent past talks, markets simply go down further every time a Fed governor opens their mouth. In fact, to be a Fed governor, you really have to be good in talking. How else are you going to talk down the inflationary expectation, while everyone on the main street is getting used to all the fuel surcharges in all kinds of services including pizza deliveries? Therefore, I’m guessing that the main message from Fed this year will be
1. Slowdown will temper down inflation.
2. If (and only if) crude oil stops going higher, the year-to-year inflation contribution from crude will no longer contribute to the overall CPI. (Yes, if crude stays at $130 from today to next June, there is no inflation, or price increase.)

Unfortunately, in the coming year(s), there will be a lot more of cost pass-through from basic materials all the way to the end consumers, since businesses are realizing that high prices of crude oil are here to stay. The cost-push inflation will be taking the rein of the economy. At that time, I’m guessing that the main message from Fed next year could be arguing the pass-through of PPI to CPI will “soon be over” and “not expected”.

As I have argued 2 years ago before the burst of housing bubble, inflation would be almost for sure be heightened for the next decade to come, in order to alleviate a dramatic fall in the inflation-adjusted housing price to a much less price adjustment in the nominal housing prices. The primary goal or the hidden agenda from Fed will certainly be creating lots of inflation, especially the most needed wage inflation (to support housing markets). However, wage inflation is very hard to come by in the globalized economy without lowering US dollar in the process. Poor Bernanke really has got the hardest landing job ever in the US history. He will need to do a lot of double talks, losing his credibility all the way until he gets replaced eventually.

I hope that the markets or PPT (Plunge Protection Team) will do a dead cat bounce again. I have not hedged my long bets enough at all. Earning season is just right around the corner in another month. I’m expecting more dreadful writedowns from financial companies and more economic slowdown from all the companies. Better get out of the way before all the bad news come crushing the markets down.

This guy is Bernanke.

The recent “double” talk between Paulson and several Fed governors have done a great disservice to the markets. The more they talk, the worse things get. They should have just shut up. “Fighting inflation and possibly raising interest rate???” Bernanke is out of his mind. He has no tools to fight inflation. And I will give him a break: half of the rise in crude oil prices are probably not caused by Bernanke’s lowering interest rate.

Anyway. What’s really bad about this market is that both bonds and stocks are falling, and plus the US dollar too. Of course, with bond markets falling, you get a worse housing market by default. It’s simply incredible to watch how the markets fall along with their talk. In one word:

TERRIBLE.

Bob Hoye has certainly been semi-correct that ALL assets will be falling in the “second coming” of the credit crisis. Well, all assets except crude oil so far. You can hear his weekly comments every weekend at howestreet.com.

With US bonds breaking lows (yields and mortgage rates breaking new high), and US dollar coming back down to 72ish range, you bet that foreigners have zero interest in our US-dollar dominated bonds (and full of BS on fake AAA ratings). I truly don’t know how the markets can go back up, except by making another traumatic new low, and put $US on the altar for sacrifice. See, the ONLY way for stocks to stop going down is to kill the dollar. But of course, killing the dollar will also involve a dramatic higher inflation rate to come. Paulson & Bernanke have not much choice left. We have a stagflation in front of us. Unfortunately, this stagflation is unlike 70s. It’s truly going to be worse. I believe we will have more inflation than 70, but less wage inflation than 70. Why? Just go back and re-read my two posts on the most important, and second most important things about investing in the next decade.

The world is NOT coming to an end of course. Everything runs in cycle. It just needs to get worse before it gets better. Unfortunately, many of us will be spending our “prime-earning” years in this down cycle for quite some time, myself included. This era will define our generation.

Looks like my recent calls on markets have been pretty right on.

Back on May 21st, I’ve got out most of my general stock market bets, warning the readers here to get out. My posts are usually out before the market opens, and I, of course, got out on May 20th, with SPY at 141.89.

Back on March 25th, I’ve turned short-term bullish, calling to pick up some stocks if you will. SPY closed at 134.72 on March 24th, and 134.85 on March 25th.

Yesterday SPY was at 136.62.

Did you get the short-term play in the market?

Unfortunately, my short-term forecast for this market doesn’t look too good. This wave down is probably going to be terrible. I’m forecasting that markets will probably AT LEAST match the March low, if not lower.

Yak! Yak! Yeah, too bad indeed.

With the oil prices continue to stay strong, I’m in fact quite worried whether I will be left without much energy stocks going forward. This reminds me a few years back, when I pretty much sold out my energy stocks, and then Katrina hits in the same week, pushing all energy stocks to go far and beyond, leaving me in dust.

In any case, I’ve placed my bets. I’m going to wait patiently for markets to come to me.

Be careful out there. Don’t get your fingers chopped by a falling knife.

In the short term, it appears that several markets may reverse directions.

I have been saying that I believe the general stock markets will go up since end of March. I’m changing my short-term stand now. I believe that there are too many clouds in front, and the forward picture is simply not clear at all. Most likely there will be a short pull-back if not already. But more importantly after that, the markets need to decide whether to resume upward or downward move. Right now, that is not clear at all. There are simply too much uncertainties.

While I believe that the more likely resolution is for markets to trade in a range between January/March low to probably with SPY less than 150, I must admit that both breaking new lows and breaking out above 150 are distinct non-zero possibilities. I am moving to the sideline cash again on my general stock market bets.

Definitely the shorts have been hurting, but I think the longs may have gotten too gleeful and ahead of themselves.

On the other hand for precious metals, if it pulls back, I would say buy. If it breaks new low, I would say double your bets. Why? HUI has shown significant correction, on daily, weekly, and monthly charts. That should be very sufficient. Again, it’s likely that precious metals will pull back from current level. But due to the its nature of extreme volatility, the probabilities for both breaking new lows and breaking out are even more significant non-zero. Certainly, I will not want to take a bet on that, but simply staying my current course on my asset allocation.

This is going to be a short message. I caught a flu, so I’m going to be short.

I think there may be another lower low ahead of us. Buy that low. Don’t get in yet.
It’s still quite dangerous.

Right now, it’s probably best to stay in cash or short-term treasury bonds. Don’t be cute on foreign currencies. $US may be the temporary safe haven.

Stock markets are not breaking resistances yet. So be careful about heading into April expiration (in 2 weeks). Some major banks have NOT reported yet. Longs in the stock markets need to be nimble.

Best luck trading.

Frugal at 1stMillionAt33.com

Lehman has been conned for about $250 to 355 million, depending on which article you read. That’s about 1 to 2 % of the shareholder’s equity on the balance sheet, if that number can still be trusted.

Lehman is already trading at its current book value on Friday, so I assumed that this fraud is going to make lehman to go down by 1 to 2%, plus any other magnification/forward-looking effect.

In a way, these financial firms simply haven’t done enough due diligences on all the loans that they’ve underwritten or taken onto their book (knowingly or unknowingly). The mortgage fiasco simply has exposed all the greed and ineptness of Wallstreet for the world to see. If I’m a big client with them, I wouldn’t have much trust left with them.

IAI appeared to be rejected at the $40 resistance level. This is not good for the general market. Will there be a double bottom established for brokerage stocks in general? In any case, I’m going to count my money as the April expiration date approach. I’m short IAI calls in April, and at the time when I short them, the lowest available strike on these options were $40. So I went for the lowest available. Definitely markets are surprising to the most participants, except the super-bears.

Well, actually it’s probably going to be less than $2, since JPM will probably fall on Monday.

BSC is the 5th largest brokerage company in America, brought down by the housing bubble created by Greenspan & company. These are the financial innovations on Wallstreet, creating bonus and money out of toxic loans.

Gold and silver both broke new highs. Market on Monday is most likely going to be terrible. I think we may be heading towards another 20% hair cut in the overall stock market.

Your and my life are going to be seriously affected by the current credit crunch no matter what, whether it’s heightened inflation or decreased economic opportunities (layoff). The entire credit pyramid when it crumbles is just not a pretty sight. It’s called deflation. Or more correctly, it’s called asset deflation.

What I expect going forward in the coming decade is
asset deflation and
commodity inflation.

This is the most lethal combination to wealth destruction. From 1980 to 2000, it was the best combination for wealth generation:
asset inflation and
commodity deflation

Those lucky baby boomers who rode the entire up wave in stock markets were fortunate to reach multi-millionaire status. But going forward, I believe few people will be able to preserve their existing purchasing power. Collectively as a whole, the sum of purchasing power for all people has to be reduced thru the process of asset deflation and commodity inflation.

Better preserve your buying power before it’s too late. By the way, I think there is at most another 10% upside in gold. There should be a correction. If you jump in, don’t forget to jump out.

Saw the news yet?!

That was a scary tape! On my screen, everything suddenly went into free fall, and then reverse.

Bear Stearn is now down more than 80% from the top, and off 43% just today. What’s gone cannot be made back. So don’t bottom pick these financials just yet. Same thing for Citibank, and many other brokerages and banks. After all these financial blowups, these companies are NO LONGER the same companies with the same earning powers. The balance sheet impairment is going to forbid them to earn as much going forward.

Hold on there. Unfortunately, this probably is not going to be the last one.

I’ve opined before that a “coming” panic low in stock markets should give you another good chance to refinance or get your loan. However, things are unfolding in ways that I didn’t expect.

Yes, stock markets are going down.
Yes, treasury bonds are going up, which means that rates are going down.
But oh NO! Fannie Mae and Freddie Mac are imploding right now along with the credit markets, and their bonds (with implied government guarantee) are falling instead of rising along with treasury bonds.
And one more thing is that 30 year bond yields are not falling as much as 10 year bond yields due to inflation threats. So if you depend on a 30-year mortgage, your rates will probably be less good.

Since most mortgages are tied more to these GSE bonds, rather than treasury bonds, mortgages rates are going up a little instead of down.

It’s tough to see how things will unfold, but if the recent history is of any indication, you won’t get a mortgage deal at the stock market panic low, which appears that it’s going to be synchronized with the falls in FNM and FRE.

Due to this very reason, I suggest that you may want to lock your mortgage rate, if you cannot tolerate further rate increase.

I still think it’s possible for mortgage rates to come down maybe in summer or later. Federal reserve most likely will need to monetize the long end of the bond markets now. Alternatively they can probably watch the housing markets this year to go up in a bigger flame and more smokes.

A couple of people raise objections to my solution for the housing crisis. I welcome their objection, but I just want to explain further my thoughts.

I prefer my solution of tax subsidy to all homeowners much better than the secret proposal by Bank of America, where all kinds of direct bailouts to the fraudsters fester.

I also think it’s more fair to make this subsidy to all homeowners instead of new buyers. If it is not to all the homeowners, people will always find ways around to beat the system, possibly abandon the existing homes, and then buy a new one.

I personally don’t want to see any kinds of subsidy, whether it’s tax credit to big oil companies or alternative energy, or homeowners. But in light of this super-crisis, I would opt to have this solution implemented than having seen the consequences to come full fruition.

Again, few people understand how big this crisis is. What I see ahead of USA with the unfolding crisis is
1. several failed rescues via bailouts due to the bottomless pit in mortgage land.
2. A 20% lower stock market than Friday’s awful prices (and don’t think you can buy the low, because the low level will persist for 4+ years). This level doesn’t include panic lows which can go lower.
3. An $US dollar going lower continually, and with violent episodes of dropping dramatically. $US index is heading towards high 50 (today it is at 73ish).
4. A dramatically higher oil price above 200, partly due to lower $US.
5. Massive credit problems in the USA. Massive bankruptcies and job cuts at city/county levels. Serious state budget problems which require serious job cuts and raising state tax. Less and less student loans will go thru, which means less college educations for the regular folks. Elevated corporate bankruptcies.
6. Hyper-inflation will come in (some 4+ years later), and wipe out majority of the middle class and middle-upper class savings (if there is any left). The hyper-inflation will move the stock market higher, but only in the nominal prices. Adjusted by inflation, stock market returns will be going lower (but still much better than cash).

And you think if you are a renter, and you won’t be benefited by my tax subsidy proposal?? You have to think what you and your family might lose if the housing mess is not cleaned up. We are all in this big mess together, created by those unscrupulous bankers, home flippers, and debtors. Certainly, it is not our faults, but very unfortunately, we will all share the pain.

If you are a renter with the above housing crisis unfolding,
1. you will be much more likely to be losing your job (due to a weakened economy).
2. you will much more likely be UNABLE to accumulate savings, due to an increase in general commodity prices in a subdued economy. The overall living standards in the USA will continue to decrease (which translates into less net savings).
3. there will be very few investments where you can put your money and have some real return. Chances are your nest eggs will get a haircut in one of the continually unfolding financial crisis.

In other words, the fraudulent homeowners will end up with nothing, and probably similarly for majority of you and me. It’s only a matter of time.

Of course, I tried very hard to invest my money to counter these big trends and forces that will de-value everyone’s net worth. But how many of you like to have your saving and investment in something (commodity/natural resource/precious metals/etc.) that can go down by 20% to 40% in a couple of months?? It’s just extremely volatile. One has to be “crazy” like me to put so much money into such investment to cause you stomach pain and heartache on a quarterly if not monthly basis.

So if USA economy needs to take medicine, I would say, let her take the right medicine. Don’t waste more time and more money on the wrong medicine.

By the way, please don’t be appalled by my extreme bearishness. You should be happy that I don’t know you personally as a friend, because I won’t even dare to tell my friends about my bearishness because they will be totally shocked.. Only on this blog, you can see everything that’s going on in my head. But in my heart, I hope that I am just totally wrong.

I prefer so much that this world is a better and more prosperous place for everyone, than having my own investment returning terrifically. The only problem is that I MUST invest according to my mind, rather than how my heart feels for the imperfect world.

So we have stocks failing to rally, and bonds falling in values. This is just NOT GOOD. Most of the bonds are falling in value due to credit crisis, but now treasury bonds are also falling due to today’s inflation report. We now have a deflation going on in both stocks and bonds.

It appears that there is no place to hide your cash. Yes, cash is king in deflation. Before this cycle of deflation is over, you will most likely lose money in whatever assets you choose to put in.

Before government and Fed can stablize the financial markets, the downward trend is with us. I was expecting a retest low in March, but it looks like we may stay low all the way to May.

In any case, if we do have a panic low going down, it would be the last best chance to lock in your loans, since bonds will almost always rise during panic. In case you are interested, I’m collecting people’s info to collectively bargain for a better deal for refinancing or getting a loan. You can look at this post for more details on joining me.

Frugal at http://www.1stMillionAt33.com/2008/02/i-was-too-greedy-and-impatient/

I think gold markets are actually going to head down.

The chance of markets going into freefall mode is increasing as hours go by. Markets are being liquidated. The second strong sector XLE/OIH or the energy companies have fallen right at or below the lower band of Bollinger’s bands. The strongest sector GDX or the precious metals just had a sell signal from MACD signal.

I hate to sell any of my stocks right now, but things just simply do NOT look good. Tuesday opening may be down again it appears for the following reasons:
1. Financial sectors in Europe are crushed on Monday. All global markets have plunged from 4% to 8% on Monday. I have expected emerging markets to fall. But the problem is that they just started falling, with US stocks already breaking supports. Now, I just can’t imagine what would happen when emerging markets are 20%. Will US stocks be 30+% off instead??

2. US dollar index is rising STEEPLY to 76.866 (10:18 on Jan 21). This is ESPECIALLY scary. As I have said many times, for US stock markets to go up, US dollar MUST fall. Here are the currency quotes that I’ve obtained, ALL breaking recent high/low with US dollar gaining strength, except YEN:
EUR vs USD at 1.4485
USD vs JPY at 105.87
GBP vs USD at 1.9458
USD vs AUD at 0.8628
USD vs CAD at 1.0320
This is F***ing scary now, because yen carry trade unwind is in FULL force.

Initially, I expected that precious metal sectors may be spared. My expectation came from the observation of the recent stock market fall as the new year opens. All markets fell, but precious metals went straight up. The currency markets indicated the same phenomenon as of now. However, energy markets later were not spared. Now precious metals stocks have corrected with gold spot almost reaching an all time high and have pulled back to $867. If gold price breaks $850 and then $835, along with Yen strengthening, then I think the black swan dive will be here with us.

Once the market opens on Tuesday, I tentavely think that I probably will purchase puts for February or March expiration (but maybe it’s too late already). The markets show no signs of improving. The last rally on last Wednesday kind of surpised me on the lack of followed-thru, because this sick market canNOT even rally for 1 day. That particular rally was intraday, and was LESS than 1 day. Maybe it is time to face the truth.

I don’t know how ugly this market will get. But the markets are probably more over-sold than the bottom in the last bear market of 2002/2003. Jumping out of the window maybe is the best way to avoid this train wreck now. (Boy, I’m not even panicking at this point. I don’t want to see how low this thing will go when I panic.)

The recent washout has probably reached a temporary bottom or close to it, I believe.

I was expecting a bottom today on Thursday, but it looks more like the bottom was achieved Wednesday.

The following stocks have touched or reached the lower bands of the long term (upward) trend lines or channels, without totally breaking down:
INP, AAPL, AMZN, FSLR, STP, XLE, OIH, EEM

The following stocks have touched or reached the lower bands of the intermediate term (downward) trend lines or channels, and it’s not clear whether the long term trends are broken:
RIMM, GRMN, QQQQ, GOOG, FXI

All of the above stock selections are the supposedly the stronger names in this bull market. Certainly, most of the other stocks in the weakest financial, mortgage, retails, or homebuilding sectors have totally become trashed.

A bull market ends and a bear market begins when the leaders of the markets crash. Furthermore, the most speculative frothy (solar energy) stocks are the last ones to rise, and the excess must come out too.

Now the most important question right now is whether the energy stocks can continue the long term uptrends, without breaking down into an intermediate downward correction. If they can do that, mid-day yesterday was the BEST buying point. However, I do NOT believe that this correction can end without the WEEKLY (Friday’s closing) charts showing a breakdown in the non-energy/PM stocks. Therefore, I am going to conclude that the selling-into-strength (or buy for short-term trading) opportunity may be here if the stocks do turn up.

Enjoy the ride (up, hopefully) and take this precious chance to lighten up (excluding PM) if you will. This can really be the last chance before falling over the cliff.

Marc Faber, Dr. Doom, is known for his over-bearish views. However, at the recent occasion, I tend to agree with him. Here are some points taken from the the recent interview at financialsense.com.

1. Stock markets are in denial.

On a similar note, I believe housing markets have moved beyond denial phase, and into fear phase. The prevailing attitudes are stocks will do okay, while economy is not so good. This is going to be the typical attitude of clinging onto the rope of hope during the coming slide in the stock market. Denial will gradually transform into fear.

2. There has been a globally synchronized boom, and the bust will be global in nature too.

I agree with him. And therefore, I also agree with him that emerging markets will be hit harder than US stock markets. I agree with him that if given a choice, one should choose US stock markets over emerging markets. I’m not so sure whether the same extension can be applied to energy/commodity markets. However, from yesterday’s stock market behaviors, I guess he is probably right (temporarily).

3. US dollar is actually better than foreign currencies right now.

This is counter-intuitive, as I’ve blogged about this before. However, as stock markets fall, US treasury will be in high demand, and same as the US dollar. US dollar has a tendency to rise, when US stock markets fall, and vice versa. I guess that it may have to do with the international stock/currency arbitrage to produce the least amount of
variation in the values of US stock markets when priced in foreign currencies. That was the main reason that I’ve liquidated my Australian currency holding last week. Therefore, I agree with Faber with the following:

In other words, if you put a gun on my head and said, “Marc, you have to choose one currency today, for the next three months: the euro or the US dollar,” I think I would choose the US dollar. Although, I’m very negative about the US dollar in the very long run. But just for the next three months I think the dollar will hold because the current account deficit is now shrinking, the trade deficit is no longer expanding and so forth and so on; and the dollar is relatively inexpensive vis a vis the euro. Would the question be: put all your money into US dollars cash, or put all of your money in gold? As of today, that would be a very tough question because the gold market in my opinion is now somewhat overbought and could undergo easily a 10 to 20% correction.

4. Given that $US dollar may go up, it goes without saying that gold may have a short-term correction. But since I have been so bullish on gold, my brain didn’t join the two dots together. In any case however, I do think that the current rally in gold is long term in nature, and can possibly extend itself until March to even May before having a 30+% correction. But I may be wrong of course.

Good luck trading. Markets have been very unkind. Stay in cash for safety if you will.

Frugal

Sorry that I have been too busy to write about this. I have already sold all of my holdings in NAT. The coming correction will not be kind to NAT, I believe. This is the only stock that was specifically recommended by either ML or me, which I believe should be sold.

I also sold COP which was recommended by me, but I believe that it could be a mistake in selling it. The correction probably will be shallow on COP. But just in case, I’ve lightened up my energy holdings.

Most of the rest of the stocks you can probably hold. My money manager sold my holding in ADM, and it was definitely a big mistake. My recommendation in ADM still stands, even after it has risen from mid to low 30s to 45 right now.

Agriculural themes seem to be still with us, although it appears to be getting late.

I won’t be posting another message tomorrow. I hope it is still not too late to sell your NAT if you have them. Given the rich dividends in NAT, you can probably still break even.

Regards.

I’ve sold some significant percentage of my energy holding.

I also sold a few deep-in-the-money naked call, since I’m expecting a fall in stock market in the first quarter.

Maybe I’m too scared. Or maybe I’m not scared enough. We shall see.

Holding onto almost all of my precious metal companies however.

I’ve also exchanged my AUD cash back to $US temporarily.

This year will be a roller-coaster ride.

I do intend to eventually increase my energy holdings back into about 50% of my portfolio value.

I think the next level is at 1360/1370 at S&P 500. If that level is broken, we can easily see 1200 again for the S&P500. Be careful out there. This is an extremely dangerous time. 1200 is only 14% away from yesterday’s closing.

By the way, I am recommending sells for ALL sectors except gold/silver/mining. Yes, including energy. You may want to split your sell orders into 2 parts. Sell a bunch now, and if the market does bounce back magically, then sell the rest. There is probably a max of 20% downside for energy sectors I think. If you can tolerate the ride, you could hold on to it.

So far, I have not sold enough. My plan of shorting stocks at a higher level is not panning out. I think most people won’t get the chance to sell. If S&P 500 does rally back, sell at 1450/1460 level.

Let’s see if Bernanke comes to rescue. But I doubt it seriously. He is too confident and too academic.

If stock market (S&P500) doesn’t produce a rally of at least 0.6% on Monday, it is highly likely that we will go down by at least 10% or even 20% from here. The right shoulder of the head-and-shoulder pattern is close to be broken. After that, you will hear lots of screaming in the coming roller-coaster ride.

If HUI pulls back somewhat, I believe you should take advantage of it. I’m bullish on gold/silver for pretty much the entire 2008. Besides energy and emerging markets which I am still in the wait-and-see mode (after a correction first), the rest of the market is pretty much junk or toxic.

US dollar has rebounded from high 74 to 76 now. One should no doubt take the advantage of this rebound and pick up some euros, yens, canadian, or australian currency. Given that Fed is going to cut the interest rate relentlessly in the coming year 2008, $US will be left without any real support. The previous support at 80 level is now become a resistance.

I’m planning to buy some FXC, FXA, FXE, and maybe FXY. I still haven’t gone full force on precious metals, for the fear of some manipulation dumping move right before the rate cut on Dec 11 (or maybe it is over already). I still view that CEF/GLD/SLV will be safer moves than GDX because GDX is subjected to stock market selling. In any case, I’m ready to move in a big way out of US dollar. This is probably the last good chance that one can take before regretting again.

Unfortunately, you won’t be able to see my cash moves at my networth page because I will be classifying my holdings in foreign currency as cash also. Let’s just say that if you see US dollar index going back to 78, you should definitely exchange out. I will probably making my moves starting low-77 to possibly all the way to high-79 (if it gets there). You can get the quote for US dollar index at www.stockcharts.com by typing “$USD”, or search any futures quote at google.com.

And as I have said in early fall, if you really are super-conservative, you should have opened your bank CD. It’s still not too late. And do NOT ladder your CD. You want to ladder up, NOT ladder down in the interest rate curve.

This is a long weekend. Hope you all had fun.

I’m buying Canon SD1000 for $150, and Panasonic Palmcorder SDR-H18 Hard Disk/SD Card Camcorder for $350, both from circuitcity.com. I’ve shopped at many places, that seems to be the best deals around, better than Costco and BestBuy, or even Fry’s electronics. You can get better prices online, but not much better.

At the thestreet.com, Helene Meisler is one of my most respected technicians. I currently don’t have an active subscription to her publication. But occasionally I watch for her words. Unfortunately, listening to her words this time around cost me a small fortune.

I was big-shorting through naked calls into November expiration. However, last week, she put out words saying that the a bottom is likely in. Because of the big financial rallies, it scared me out of my big positions and I trim my gain/losses. Then the next day, she came out and said that because of so many bottom callers (and she is one of them), the bottoms are likely not in yet. And then she said that there may be a Thanksgiving rally coming next week. And so I covered my Dec call positions again. And this Monday, she said that Thanksgiving rallies won’t be as strong as the previous counter-rallies. Of course, Monday stocks went down again.

Oh well, thanks but no thanks. So many flip-flops are not very helpful. And it goes to show you how uncertain the times are, even for a good market technician.

I’m still planning to open short positions if the market has a short-term rally. However, I’m going to hold onto my increasingly worthless $US for a little bit longer. Don’t plan to go into markets just yet. But maybe the bottom could be quite close, although the rally could be quite short too.

Frank Barbera came out and said that gold may be in for a big rally soon, bottoming right here with a 9-day RSI value of 40. Jack Chan’s MACD indicator however has turned bearish on gold and gold stocks. I’m going to be erring on the conservative side, and sit tight.

Sometimes, the hardest thing about investing is doing just nothing.

This is an option expiration week. It’s extra volatile. Looks like a short term bottom in financials may be in. However, longer term is still a problem.
$BKX is up against some resistance, so I believe that majority of the gain is probably behind us. It should take some pause.

US dollar starts to fall a little. That should be positive for stock markets. Global stock markets are mostly synchronous. It’s hard to find a place to park your cash, when you don’t really want to be in cash.

The movement of markets is quite violent. I suggest that one should simply position oneself for the proper/suitable asset allocation, and don’t trade too much. If you do trade, you have to be really nimble, and make use of stop orders. It’s not easy to catch the exact top & bottom. And if you are caught in the wrong side of the trade, the violent movement can easily wreck your portfolio.

Be safe, and best luck.

Yesterday, my “wish” finally came true. PM stocks and physicals reverse in a big way. I can’t believe that I actually called the top for HUI at about 460. I can’t remember which post, but I think I also called the bottom at 360 to 370. But certainly, it’s of no use if I don’t act on it.

Anyway, now what?! I am not sure if 360/370 will be the correct bottom now. The way that I’ve arrived 360/370 is that it’s the previous resistance, which should act as support now. Also, 20% from 460 is exactly 368. When I arrived 460 previously, I simply used 370-280 = 90, the correction magnitude at the Aug 16 bottom, and then I just doubled 90, which gave me 280 + 90*2 = 460. Going back to 370 will give a good 50% retracement on the current rise. Everything seems to be overly simplistic. And now, I’m emotionally too scared of buying more PM, even if it falls to 370.

My biggest problem is still with PI cycle, which deems to have a bottom near the end of March 2008. Actually, since Feb of 2007 should have been the absolute peak of the credit market cycles (for a long time to come), I believe the bottom of financials may come next March, at which time, it should be safe to make a short-term trade out of financial stocks.

However, Gold/Silver seem to be trading in an entirely different frequency. I will tentatively say that if you see 370 at HUI, you should buy. But it looks like that level will come within weeks, while gold still need time to base. I think the most likely scenario would be that HUI will fall very fast to that level or lower, make a base, while gold continue to fall towards 700 to 750 level for a month or so, improving the gold versus XAU or HUI ratio to establish the next launch That is just my wild guess.

By the way, I think crude oil has made an important peak. Not so sure about OIH & XLE.

Based on my collected readings, I think HUI and stock markets may make an important bottom in two weeks, possibly right on the Thanksgiving Friday. The question of course is then whether it is tradable bottom or not.

Well, anyway. I will be too busy buying/selling stocks. So good luck to you. If you trust me, you can take my words. And I probably should start to listen to my own words more often.

Am I part of the smart money who buys early or dumb money who gets out late? I haven’t been able to figure that out one. It would be good to be 100% wrong consistently. Then you just need to do the opposite of what you think.