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stick to the big cap companies which have existing long term contracts, and will be less impacted by any shutdowns on outdated plants and new plant proposals.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.