Review On The New Gold ETF GDXJ GDX

GDXJ was debut this Wednesday. Both GDX and GDXJ (the junior companies) are offered by Van Eck.

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

Fund Holdings of GDX as of 2009/11/12

 

Number

 

Holding

 

Ticker

 

Shares

 

Market Value

 

% of net assets

 

1

 

Barrick Gold Corp

 

ABX

 

18,718,639

 

$783,749,414.93

 

14.49%

 

2

 

Goldcorp Inc

 

GG

 

14,249,524

 

$614,011,989.16

 

11.36%

 

3

 

Newmont Mining Corp

 

NEM

 

9,475,288

 

$470,353,296.32

 

8.70%

 

4

 

AngloGold Ashanti Ltd

 

AU

 

6,999,199

 

$304,045,204.56

 

5.62%

 

5

 

Lihir Gold Ltd

 

LIHR

 

8,569,682

 

$265,317,354.72

 

4.93%

 

6

 

Cia de Minas Buenaventura SA

 

BVN

 

7,114,374

 

$263,587,556.70

 

4.87%

 

7

 

Yamana Gold Inc

 

AUY

 

21,130,631

 

$259,484,148.68

 

4.80%

 

8

 

Randgold Resources Ltd

 

GOLD US

 

3,203,698

 

$255,110,471.74

 

4.72%

 

9

 

Kinross Gold Corp

 

KGC

 

13,436,964

 

$252,883,662.48

 

4.68%

 

10

 

IAMGOLD Corp

 

IAG

 

14,744,197

 

$251,536,000.82

 

4.65%

 

11

 

Gold Fields Ltd

 

GFI

 

16,291,819

 

$229,714,647.90

 

4.25%

 

12

 

Agnico-Eagle Mines Ltd

 

AEM US

 

3,748,931

 

$223,736,202.08

 

4.14%

 

13

 

Eldorado Gold Corp

 

EGO

 

16,025,187

 

$207,205,667.91

 

3.83%

 

14

 

Silver Wheaton Corp

 

SLW

 

13,420,202

 

$199,692,605.76

 

3.69%

 

15

 

Harmony Gold Mining Co Ltd

 

HMY

 

17,100,638

 

$175,452,545.88

 

3.24%

 

16

 

PAN American Silver Corp

 

PAAS

 

3,501,327

 

$82,036,091.61

 

1.52%

 

17

 

Royal Gold Inc

 

RGLD

 

1,636,283

 

$81,715,973.02

 

1.51%

 

18

 

Coeur d’Alene Mines Corp.

 

CDE US

 

3,026,689

 

$63,378,867.66

 

1.17%

 

19

 

New Gold Inc

 

NGD

 

15,532,015

 

$59,176,977.15

 

1.09%

 

20

 

Silver Standard Resources Inc

 

SSRI US

 

2,878,399

 

$56,071,212.52

 

1.04%

 

21

 

Hecla Mining Co

 

HL US

 

9,493,058

 

$50,692,929.72

 

0.94%

 

22

 

Gammon Gold Inc

 

GRS US

 

4,993,219

 

$49,233,139.34

 

0.91%

 

23

 

Seabridge Gold Inc

 

SA

 

1,505,674

 

$35,142,431.16

 

0.65%

 

24

 

Golden Star Resources Ltd

 

GSS US

 

9,492,472

 

$32,369,329.52

 

0.60%

 

25

 

Aurizon Mines Ltd

 

AZK

 

6,375,413

 

$30,219,457.62

 

0.56%

 

26

 

Northgate Minerals Corp

 

NXG US

 

10,274,632

 

$30,207,418.08

 

0.56%

 

27

 

Minefinders Corp

 

MFN US

 

2,376,917

 

$23,674,093.32

 

0.44%

 

28

 

Great Basin Gold Ltd

 

GBG

 

13,386,929

 

$20,883,609.24

 

0.39%

 

29

 

Nevsun Resources Ltd

 

NSU

 

5,149,665

 

$14,882,531.85

 

0.28%

 

30

 

Tanzanian Royalty Exploration Corp

 

TRE

 

3,603,954

 

$12,469,680.84

 

0.23%

 

31

 

Cash

 

6,655,296

 

$6,655,380.14

 

0.12%

 

32

 

Vista Gold Corp

 

VGZ CN

 

1,705,026

 

$4,569,469.68

 

0.08%

 

Fund Holdings of GDXJ as of 2009/11/12

 

Number

 

Holding

 

Ticker

 

Shares

 

Market Value

 

% of net assets

 

1

 

Coeur d’Alene Mines Corp.

 

CDE US

 

56,910

 

$1,191,695.40

 

6.42%

 

2

 

Silver Standard Resources Inc

 

SSRI US

 

51,510

 

$1,003,414.80

 

5.40%

 

3

 

New Gold Inc

 

NGD CN

 

251,160

 

$972,587.72

 

5.24%

 

4

 

Hecla Mining Co

 

HL US

 

177,285

 

$946,701.90

 

5.10%

 

5

 

Gammon Gold Inc

 

GRS US

 

89,085

 

$878,378.10

 

4.73%

 

6

 

Alamos Gold Inc

 

AGI CN

 

80,610

 

$808,060.57

 

4.35%

 

7

 

Silvercorp Metals Inc

 

SVM CN

 

117,615

 

$712,342.27

 

3.84%

 

8

 

Semafo Inc

 

SMF CN

 

187,800

 

$707,530.16

 

3.81%

 

9

 

European Goldfields Ltd

 

EGU CN

 

95,100

 

$648,543.09

 

3.49%

 

10

 

Golden Star Resources Ltd

 

GSS US

 

175,590

 

$598,761.90

 

3.22%

 

11

 

Northgate Minerals Corp

 

NXG US

 

192,960

 

$567,302.40

 

3.06%

 

12

 

Kingsgate Consolidated Ltd

 

KCN AU

 

65,010

 

$548,420.73

 

2.95%

 

13

 

Jaguar Mining Inc

 

JAG CN

 

52,200

 

$545,176.21

 

2.94%

 

14

 

San Gold Corp

 

SGR CN

 

185,925

 

$530,226.29

 

2.86%

 

15

 

Aurizon Mines Ltd

 

ARZ CN

 

112,455

 

$528,783.59

 

2.85%

 

16

 

Novagold Resources Inc

 

NG US

 

97,935

 

$509,262.00

 

2.74%

 

17

 

Andean Resources Ltd

 

AND CN

 

229,485

 

$503,424.58

 

2.71%

 

18

 

Gabriel Resources Ltd

 

GBU CN

 

147,360

 

$444,139.06

 

2.39%

 

19

 

Minefinders Corp

 

MFN US

 

43,560

 

$433,857.60

 

2.34%

 

20

 

Allied Nevada Gold Corp

 

ANV US

 

38,055

 

$428,499.30

 

2.31%

 

21

 

Ventana Gold Corp

 

VEN CN

 

38,040

 

$420,147.07

 

2.26%

 

22

 

Rubicon Minerals Corp

 

RMX CN

 

99,240

 

$411,744.96

 

2.22%

 

23

 

Great Basin Gold Ltd

 

GBG CN

 

251,820

 

$393,900.33

 

2.12%

 

24

 

Lake Shore Gold Corp

 

LSG CN

 

92,505

 

$355,567.89

 

1.91%

 

25

 

St Barbara Ltd

 

SBM AU

 

1,032,395

 

$343,436.08

 

1.85%

 

26

 

Kirkland Lake Gold Inc

 

KGI CN

 

38,685

 

$332,075.92

 

1.79%

 

27

 

Avoca Resources Ltd

 

AVO AU

 

194,325

 

$333,011.01

 

1.79%

 

28

 

Fronteer Development Group Inc

 

FRG US

 

79,110

 

$328,306.50

 

1.77%

 

29

 

Romarco Minerals Inc

 

R CN

 

245,175

 

$327,383.28

 

1.76%

 

30

 

Medusa Mining Ltd

 

MML AU

 

77,745

 

$284,326.89

 

1.53%

 

31

 

Detour Gold Corp

 

DGC CN

 

20,685

 

$271,275.45

 

1.46%

 

32

 

Gold Wheaton Gold Corp

 

GLW CN

 

759,960

 

$217,452.43

 

1.17%

 

33

 

Dominion Mining Ltd

 

DOM AU

 

55,260

 

$202,474.00

 

1.09%

 

34

 

Real Gold Mining Ltd

 

246 HK

 

127,500

 

$194,484.35

 

1.05%

 

35

 

Colossus Minerals Inc

 

CSI CN

 

37,230

 

$187,135.39

 

1.01%

 

36

 

U S Gold Corp

 

UXG US

 

61,875

 

$167,681.25

 

0.90%

 

37

 

Avocet Mining Plc

 

AVM LN

 

97,665

 

$156,218.24

 

0.84%

 

38

 

Lingbao Gold Co Ltd-H

 

3330 HK

 

210,000

 

$81,009.51

 

0.44%

 

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

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

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

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

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

Frugal at 1stMillionAt33.com

Time To Change Your Auto Insurance Company

I have noticed that Ameriprise, the auto insurance company thru Costco has been raising its price. I just have recently changed to GEICO, because when calling their sales agent, he was willing to not only match the prices from Ameriprise, but also lower the price by a little bit more.

A solid proof again that NOT everything at Costco is cheaper.

After my previous minor car accident, which cost GEICO about $500, they still did NOT raise my price as promised by their customer representative. I’m amazed, and a little guilty, since this is the first time ever that I take money out of the insurance system. GEICO was extremely unlucky in the sense that I have never had an auto claim in my life so far, which is about some 20-year driving history. For all of their great customer experiences, and my “under-water” account (a negative $130 return for the first six months), I’m giving them a thumb-up.

I’m 95% sure that you cannot beat this deal from all major insurance companies. I only pay for $370 every 6 months for two cars having

$100K/$300K body injury liability,
$100K property liability,
$1000 deductible for comprehensive on both cars
rejecting uninsured/under-insured motorists coverage
and $1000 deductible for collision coverage only on my 2-year old Honda Odyssey. My other car is a 10 year old Toyota Camry.

I believe GEICO is quite aggressive in acquiring new customers. So you should be able to negotiate with the sales agent for a little better price if you call them up.

Gold At New High In US

Gold broke all time record in $US today. It is a confirmation that the bull market is alive.

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

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

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

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

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

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

Best luck,

Frugal at 1stMillionAt33.com

Going From Thirties To Fourties

People say that one may have a mid-life crisis around 40s. That’s definitely true.

When I started blogging, I have always thought that I’m “young” and energetic. But a reader while in college addressed me as “Sir” as if I’m so much older. Come on, about 10 years ago, I was still in grad school. I didn’t feel that I have grown out of the school years at that time.

And just a couple of days, I asked my dad NOT to come to airport to pick me up for my upcoming trip to go back home. I needed to remind my dad that I’m almost 40, and he is almost 70, and I’m not a kid anymore. Time flew by so quickly.

I still remember when my dad was 40. He appeared to me as “old”, since I was a little kid. I wonder how my own kids look at me now. I even have white hairs that can’t be hidden anymore.

The same story goes for personal finance. I really thought that I was young and capable of taking bigger risk. After 2008 stock market debacle, suddenly I realized that I’m not as young as I thought. What I have lost from peak to bottom, I could have never recovered that by decades of saving until retirement. In reality, if I assume that one could accumulate savings from the age of 28 to 58 for thirty years, I have already used up about one third of the time. Doesn’t that sound a little bit scary?

That’s why it’s always better to start saving as soon as one can. If you save for consecutive 30 years, you multiply and compound your savings for 30 years. But saving for 40 years will be at least better by 33%=40/30-1. Now, if you only save for 20 years, you will be worse off by 50%=30/20-1. But if you could only manage to save for 10 years, well, I sincerely wish that God will bring you some good fortune. Or alternatively, you can always go out and buy a personal finance book, 99% of which is always overly optimistic. These authors always play games with “stock market return” percentage from 5% to 12%, and then tell you that by math of compounding (if stock markets consistently returns 10+%), you will just become magically rich and retire.

Is that really so? Maybe it works for this generation of baby boomers, since they’ve got all the entitlement programs supported by all the younger generations which are bigger in numbers. When a population graph looks like a pyramid, with few people retiring, and many youth working, it always work by the Ponzi scheme principle. But most of other generation won’t be so lucky, especially we are already over-burdened by trillions of fiscal deficit.

Am I too pessimistic? No, I’m advising you to take actions NOW! When you don’t let time (and money) work for you, then time will just go against you. And the only way to break the spell is to take actions now. Whether you’re on a job, or out of jobs, take actions for yourselves. Don’t just sit there, and lament what has transpired. If you don’t do something, your situation is not going to change for you. Plan for the worst, but try your best and hope for the better. Even if nothing happens, at the end of everyday, if you have tried your best in everything, whether it’s saving money, doing your job, or finding your next job, you can always tell yourself and God, that you’ve got a grade of A+ today for the 105% effort that you’ve put in. And therefore, there is absolutely no regret. That is how can a great man and a great task (saving for retirement) get accomplished, one day at a time, even when there may be a long stretch of apparently zero progress.

That was how I learned my first hard lesson in money.

First Fall Is Not As Ugly Yet

With Monday drop in the stock markets, sentiments have temporarily turned. I think before the first week of July, stocks may be still in the “levitation” stage, meaning that a big drop won’t come yet. Plus that today and tomorrow, Fed will come out and swing again. We are sure to see some more volatility. Unfortunately, the only thing htat I’m more certain is that it may be a short-term downside on gold. Fed is losing its credibility. Whatever Ben says may backfire now, posing risks to further bond yield rise, or US dollar fall. If US dollar falls (which is less likely in the short term), then we can party on.

I have previously stated on my blog that I believed a decline will come by July/August timeframe (please post the link if you find it sometime back in April/May. I’m really too busy to blog these days). Currently, I’m still not sure if the current decline will turn out to be the retest of the low. It is still possible for stock markets to decline moderately towards late July, and rally back up in August to establish a lower high on the chart. In any case, it seems to be fairly certain that the high of 2009 AND 2010 AND 2011 is behind us. There may be a very brief year-end rally in December timeframe, but I seriously doubt that brief rally can exceed the last high. And the financial crisis will probably replay with a even bigger magnitude either second half of this year, or in 2010. In any case, I’m also certain that Bernanke won’t have his current job in 2011.

It is my opinion that one should divest everything correlated to the general economy and go to cash.

For the aggressive traders, they can look for establishing short positions.

Banks Paying Back Taxpayers Money

Ten large banks are paying back treasury with 68 billion dollars, so that they can be freed from government meddling in paying their executives. Now that all of their accounting book is blessed with marked-to-fantasy, they don’t need the cash anymore. Can we put in a clause in the payback that “please don’t come back again even if you’re insolvent (after squeezing out more bonus for executives)?”

I’ve said many times, and I will repeat it again. Option ARMs and AltA are resetting starting from about now until the end of 2011. The wave of notice of defaults is already coming (Dr. Housing Bubble has got all the charts here). It’s not a question of if, but when (the next wave of financial crisis will hit). Mark-to-fantasy by thinking that you have not sold your stocks (mortgages on the book of these banks) after 60% losses and that they will come back to full value after 10 years will not help at all. The end game will come, when the homeowners stop paying mortgage and/or walk away from properties. When the properties go into foreclosures and get sold, banks have to mark down the losses without a choice. The fact that banks are not in a hurry to foreclose all the properties tell you that the level of losses in a foreclosure will probably destroy the banks. By choosing not to foreclose (and not mark-to-market), insolvency can persist in fantasy land.

And before they go down, CEOs are going to squeeze out more from shareholders, bondholders, and taxpayers. They’re definitely a smart bunch.

A Rally Into Fantasy Land

As I have stated, people needs to take advantage of this rally to sell out of their stocks. This is the “prayer answered” for those who have suffered big losses.

What’s ahead? My own opinion is that the rally is soon going to stall a little at about here. Many people are looking for selling out at Moving Average of S&P500 reaching 950. I’m not going to count on that. The market will always do the least unexpected. So either it stops just short of 950 at maybe 935, or it surprises every bear out there with a much stronger recovery to 1000 or above. I’m a bear, and I would definitely like to be pleasantly surprised.

The energy stocks are the stronger ones that have staying power through this counter rally. I have not sold out my energy stocks. In fact, I only just started to lighten up a little. There is a not-small possibility that they will stay strong until early July. I will continue to watch them very closely for a clean sell-out in the coming days/months.

Looking at upturns in gold stocks in the last few days, it appears that the last sector has waked up to the bullish train. And that is a bad omen. Once the last bullish guy joins, you know what happens next. Precious metal mining stocks will be subjected to stock market fluctuations. I think there is still room to run in both PM and general stock markets. The initial reaction of a stock market fall for PM stocks will be down for sure. I expect them to hold support this time, although the magnitude of fall will always be more exaggerated than general stocks due to its higher volatility.

I have pinned that stock markets with a high likelihood will not be able to go beyond August/September timeframe. In my opinion, it’s more likely that it will drop starting in mid-July with a bigger magnitude. Nevertheless, towards the year end in November/December, another counter-rally will be attempted. I hold the opinions that the second counter-rally will reach a height that is going to be at least 5% lower than the current or July height. I will not wait for that to sell, nor I won’t be shorting into Nov/December.

Let’s enjoy the temporarily sunshine for now. Best luck trading.

Sell Your Energy Stocks

With the exception of uranium, I am not so hopeful on energy industry for this year. If you don’t sell them this round, there may be one more chance after some 1 or 2 weeks of the current short-term corrections. After that, energy stocks will probably drop along the general market, with bigger percentage of course.

The inventory picture for crude oil is simply terrible. Too many speculators have been playing the contango in the commodity futures market. What has been happening is that short-term price dropped too fast, while the longer term prices held up much better. A contango (higher future prices than current prices) in the futures market encourages traders to take current delivery, store it, and sell the futures at the same time. What resulted is basically additional (false) current demands that cushion the oil producers, at the expense of increase in future supplies from the release of inventory.

When inventory increases, it simply means that oil producers are not cutting production fast enough to match the fall in demand. That doesn’t bode well at all for the future prices.

I maintain my position that we will probably see something like a double-top formation in the general stock markets, with a second top forming at about June 15, plus or minus 1 week. After the second top falls off from the support trend line, the “sell in May, and go away” will reassert its power.

A Decision Guide On What You Should Do For Your Home Mortgage

Here is just some decision flowchart on what I think you should do for your home/mortgages in many circumstances. It’s based on my personal opinion, and you should always consult professionals & legals when it applies. There aren’t many solutions for you besides out-right sale, short sale, refinancing, loan modification, foreclosures, and walkaways. But you should choose carefully on each option. Anytime you choose short sale, foreclosure, and walkways, it’s implicit that you will lose all the amount of any down payment that you have put into the home when you first bought it.

  1. Case #1: if you are “underwater”, meaning that your loan amount is greater than your home market value, your decisions should be dependent on your loan type.
      1. Case #1A: if your loan was a PURCHASE loan, meaning that you have never refinanced your loan since your home purchase, in many states such as California, where there are laws protecting home buyers from loss of incomes or jobs, you should probably walk away from your home. In such cases, you should be protected by state laws, and you should not be responsible for lenders’ loss. The laws however cannot protect you if you have lied about your income and assets on your loan application. Please make sure that you consult lawyers for specific details, because I cannot be responsible for your legal troubles. Please NOTE that if you have a second loan, but the second loan was a purchase loan which you’ve probably paid PMI insurance on, you should still be okay. However, the same does NOT apply to home equity or piggy-back loan. Home equity loans are recourse loans, and it means that banks can theoretically or legally hunt you down, extract all of your current assets and future salaries, until you file bankruptcy.
      2. Case #1B: if you have more than one loan, and the second loan is home equity loan, you should probably try a short sale first, and then try doing a loan modification. The short sale is better in the sense that your credit is just partially ruined. The banks need to take their deserved losses. If you cannot do a short sale, you should try to modify your loan thru Obama’s home affordability program. With this method, I believe that your credit profile stays the same. However, you’re stuck with your own losses, banks get off the hook, and taxpayers may be stuck with your losses if later down the road, you walk away.

    For both of Case #1A or #1B, you may want to stop or slow down on paying your first loan or the purchase loan, so that you can force bank to come to the negotiation table with you. However, you will be risking a real foreclosure. Also, in case #1B, you should continue paying down your home equity loan regularly because it’s a recourse loan.

    1. Case #1C: if you have refinanced your home loans, then you’re out of luck. Legally, you’re 100% responsible for your loans. Nevertheless, you should try contacting banks for short sales, and doing loan modifications, like in Case #1B. Both will be to your advantages, if they go through.
  2. Case #2: if you are at about the same the “water level”, meaning that your loan amount is about the same as your home market value, you should in general try to refinance, and/or short sale if you decide that you don’t want to keep your home.
    1. Case #2A: If the prevailing rent is still higher than your home cost: mortgage payment after tax benefits, plus any property tax, or potential interest credits, then you could try wait out the downturn (although I think the downturn will be much longer than anyone expects). You should at least try refinancing and see if you can lower your monthly cost. The Obama’s home affordability program will allow refinancing of up to 105% of your home value, if your mortgages are owned by Fannie Mae or Freddie Mac. You can check that at the home affordability page.
    2. Case #2B: If the prevailing rent is lower than your home cost, I think you should try to do a short sale, and forget about doing any refinance. Your short sale will be easier to go through bankers. And this way, it will prevent you from suffering further home losses down the road.
  3. Case #3: if you still have substantial equities in your home, meaning that your loan amount is smaller than your home value, you are financially sound. I would advise to do refinancing through the normal channels, cash out any equities that you can, and hold on to your cash in 5-year US treasury for another two to three years for better opportunities. The best refinancing time is either now or possibly in Oct/Nov if stock markets take a dive at that time.

Here is the Obama’s home affordability page, in case you don’t know about it. If you follow thru the links, you can find out how to verify that your loans are owned by Fannie Mae or Freddie Mac.

And for potential new home buyers, my advice stay the same: just stay put and wait for year 2012. Your patience should be rewarded (in my opinion). That $10,000 home buying tax credit cannot come close to the amount that you may gain through further home value erosion.

Considering The Impossibility

Everything is possible now with the unraveling speed of Wallstreet 700 trillion derivatives. Which of the following scenario may come true? Maybe all of them.

1. Dow at 3500 in 2011.
2. Gold at 5000 in 2016.
3. S&P 500 bottoms at 400.
4. The economic depression lasts more than 20 years until 2032/2033. This is not coming from me, but from the best economist that I know.
5. All major banks nationalized at 80% of more, with stocks trading at penny levels by the end of 2009, continuing to extract hundred of billions every quarter from taxpayers to cover their derivative losses. Why is there no one outraged by benefits going to all the counter parties of the banks? The losses of the banks are the gains for the counter parties of the banks, which are being paid by all the US taxpayers, and eventually by the entire world through monetization and inflation.

My “own crystal ball is showing” me that the stock markets will literally plummet another 50% to 60% in the second half of 2009, deflating everything until 2011, after which inflation gradually accelerates towards 2016, and wipes out all the cash holders. I predict in less than 15 years, there will be a hungry and unemployed mob rioting in the streets of Washington DC.

The other day, I donated more to Ron Paul’s calling on fighting against mis-using of taxpayers’ money. American Republic is becoming a farce of preferential money distribution. Although intellectually I believe that US will not come out of this unstoppable economic mess until wrecking itself, emotionally I must “do my part” of trying to turn things around. Who else will turn USA around, if everyone of us don’t stand up and fight together? There will be no one saving this country from even dire economic except us.

I understand that it sounds almost stupid to consider the impossibility of my little donation and my lonely voice will make any difference to the fate of this nation. But when I ask “who else” to myself, I think I might as well begin with myself, joining hands with Ron Paul’s campaign. I’m literally a “hopeless romantics”. But who says (my) love (for the nation) needs to be logical?