It looks like housing prices may find a short-term bottom this year, assuming a stable low interest rate environment. The primary reason that I’m saying this is because of an ultra-low inventory of homes on the market, about some 30% to 40% lower than last year or the year before. Furthermore, there are a couple of programs that may reduce the number of foreclosures or short sales to come to the market:

1. Bank of America converting foreclosures to rentals to delinquent borrowers.

2. Fannie Mae implementing bulk sale of REO to investors to convert to rental.

The bottom line is that in majority of the US housing markets, it is becoming cheaper to own than to rent at the prevailing mortgage interest rate. This is bringing many big or mom-and-pop investors to invest in the housing market. However because of the low interest rate, I do NOT believe that this will be the final bottom before a sustainable rise. Eventually, the real bottom will be made near the peak of a bond market interest rate. With a rising stock market for the next several years, the mortgage interest rates will be rising as well, putting a cap over whatever advances that the housing prices can make.

If you want to invest, make sure that it is both net P&L positive and cash flow positive on a 30-year fixed rate financing. The action of mortgaging will reduce the potential impact from the downward pressures of the falling bond market and therefore the rising of interest rate. With a rising rental market everywhere, it is a good time to invest in real estate as long as you can make the math works.

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

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

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

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

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

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

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

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

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

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

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

Frugal at 1stMillionAt33.com

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

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

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

Good luck in trading pits.

Frugal at 1stMillionAt33.com

I always check my taxes for next year at around end of September every year. That gives me 3 months to withhold any additional taxes for next year to avoid any under-payment penalty. I also check my accumulated capital gain/loss to plan for certain tax loss sales if any.

By paying taxes from withholding your paycheck, they get treated as if they are paid evenly throughout the year. You won’t get hit by any quarterly assessment of tax penalties, just because you pay them closer to the end of year. If you run a business, this option is not available to you, and Uncle Sam wants you to pay up every quarter.

This year due to extra stock option sale earlier in the year (before stock markets crashed), I need to withhold all of my income for the next three months. It certainly doesn’t feel good to “work for free” especially after I have already paid so much in taxes. My combined state & federal marginal bracket is at about 50%. It is amazing how much government can take, and still manage to run a deficit year after year.

Oh, well. Certainly, paying taxes is far better than taking unemployment benefit checks. My best wishes to anybody who has been left behind by the rolling recessions in the economy.

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

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

You can find the details of home path program here.

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

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

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

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

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

Best luck.

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

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

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

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

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

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

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

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

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

Best luck trading.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Frugal at www.1stMillionAt33.com

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

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

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

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

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

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

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

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

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

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

Best luck, Frugal at 1stMillionAt33.com

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

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

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

Best luck,

Frugal at 1stMillionAt33.com

With all the buzz around Chinese Tiger Mom, it is no doubt a shock to American culture on parenting. I myself know firsthand from the experience of being raised as a “Tiger Kid”, although in a less demanding way relative to what Amy Chua (the Tiger Mom) demanded from her two daughters. However, the two most important questions that need to be asked is whether the kid can become more (financially) successful and happier in life.

My mom certainly didn’t (need to) demand me as much in my academics because I was a self-motivator. I did well in my regular school curricula, and pretty much ranked top 3 in my class from grade 3 and up. However, it was that every long summer vacation that my mom really excelled in her Tiger Mom’s style of parenting. I can almost say that I was busier taking all kinds of classes during summer vacation than regular school sessions. I had to learn painting, piano, literary compositions, swimming, math, English, science, etc. when most of my classmates were out playing, having a real summer vacation. And of course, piano lessons were throughout the year and not just in summer.

What did I gain from all the extra-curricular lessons? Unfortunately, I have to say that except having mastered the basics of each subject, I didn’t excel in most of them at all. And I was certainly not happier due to all the extra stress from being asked to perform at the levels that were beyond my age. In fact, I actually cried from hours and hours of practicing piano. I didn’t like it.

Fortunately, my mom was sensible and didn’t push me for too many years. She even tried to help me learn more on the subject (science) that I was more interested in too. I was actually trying to learn college level physics (electromagnetics) when I was 11th grade through a tutor. But because my parents knew little about science, they couldn’t help me properly to follow a correct course of curriculum. You know, you just can’t learn electromagnetics without learning enough about Calculus. But my parents didn’t know, and nor did I.

From this personal experience, I think that unless the kids are interested themselves in the subject, there is no use of pushing kids to the extreme. Sure, some push are needed only because human nature is to lay back and being lazy, but going to extreme is simply not healthy. In fact, my wife’s nieces whom I personally tutored Calculus when they were still in high school got fed up by their Tiger Mom so much, such that the daughter swears to never go back home to see her parents (for many years now), and the son has a mental disorder from all the undue stress and dropped out from university. Both of them went to Stanford and Harvard, the best schools that you can ever hope for, but lives were literally destroyed from this process. Such can be the Tiger Mom’s “rewards”.

Therefore I must conclude that between Tiger Mom’s style of ruthlessly push and western style of praising mediocrity, there must be a subtle balance. Tiger Mom may or may not bring financial success, but it’s almost certain that it can easily bring unhappiness.

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.

The earthquake disaster in Japan has been terrible. My prayers go to all the suffering victims. I have been trying to find a good charity for the earthquake in New Zealand, and unfortunately there comes another one, and bigger.

On Yahoo’s news, it listed 8 charities for donation. American Red Cross is one of them. However, after some research digging at CharityNavigator.org and google, I won’t be giving my money to American Red Cross.

Most of the American charities could be as corrupted as other big institutions. Majority of all big charities have a CEO that gets paid for $300K to $600K annually. If you find a charity CEO that is only paid at about $200K, it’s pretty good already. American Red Cross pays its CEO $446,867, with the highest salaried at $566,629. What bothers me the most is that the past poor handling of American Red Cross in Katrina and Haiti. In fact, there seems to be a consistent record of such at Red Cross.

While I don’t want to put any final words or judgment on American Red Cross, I plan to give my money to Americares or Convoy of Hope. All of the amount of my donated money is hard-earned, and I want to share it with the poor victims, not the highly salaried CEOs.

One day when I can retire from my day job, I hope to start a charity. I would not take any payment from doing it because that was how naive I have always thought how any charities should have been run.

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.

Craiglist.org is probably the best free site to sell your unwanted items. It’s the internet version of garage sale. The next distant best site is kijiji.com which has been bought out by EBAY as http://www.ebayclassifieds.com/. Throughout Christmas & Valentine’s day, I have been posting some of my extra unwanted items for sale. It takes several postings & transactions to actually learn the art of selling on craiglist.

Here are some precious lessons that I have learned from my experiences of over 10 successful transactions:

1. Privacy issues: most people would post their emails and/or contact phone number within the posting. If you care about your own privacy, don’t do that. Potential buyers can always email your registered craiglist email by clicking on your post. Once you post your email and phone numbers, they get copied to so many other craiglist copycat sites. Your posts will expire after 45 days on craiglist, but on other copycat sites, it could be forever. This way it reduce the chance of getting phone & email spams too. If you really have to post a phone number, use a Google Voice phone number.

2. Do your market research: For every item that you sell, you should always think as the potential buyer, and search briefly on Amazon, craiglist, ebay, Walmart/Target, etc. for the same item. That is the only way to determine your best pricing. A good price will always sell itself. You obviously want to undercut others a little. And you should post a couple of your search result in your own ad too to convince the buyer that indeed they are getting a better price from you.

3. Pricing: if the absolute price of your item is high, it will really take a bigger effort to sell (unless it’s highly popular like ipad, Wii, etc). You have to know that people who browse & buy from craiglist probably don’t have much spare money to begin with. If they have money, most of them are extreme price bargainers. I didn’t understand this initially, but after awhile, I realize that ALL people who actually buy from craiglist always expect a price cut from your original posting price, even if the posted price is dirt cheap already. To optimize on between getting more interests versus finishing off the transaction, my advice is to post a low enough price to stir interests, and then reserve a 5% to 10% discount for price negotiation. The room should not be more than 10%, or else you may not even get any replies to your post. And give the buyer your final 5% to 10% discount to sweeten the deal or fatten up your profit margin, depending on how things go.

4. Taking a firm stand on your pricing: If you ever want to be successful in any negotiation, the first thing that you need to understand is that you need to position yourself to walk away from the deal anytime mentally. So unless you simply want to throw away your item for sale, then you need to have an attitude of not being able to sell your item when the price is not right. Why is this even important? Because there are so many craiglist trolls who would low-ball your price extremely to almost insult your common sense. If you get those low-ball offers, just ignore them. And if anybody asks for your lowest price, don’t give away all of your padded 5% to 10% room all at once.

5. Price negotiation techniques: Because Craiglist is like a silent invisible auction, there is no way for the buyer to know how many people are bidding and at what price. In a way, it’s like selling/buying a home with a given listed price. Therefore, what you need to do is to guess the buyer’s willingness and create the image of invisible bidding frenzy if possible. So if you have only one offer, you may still want to state to that only buyer that you cannot give more discount to this only buyer because “the other buyer” has given you this price already. You could risk losing out this only buyer, but it would preserve your little amount of price margins.

6. Art of advertisement: Photos are a must. Always emphasize the good points, and disclose any necessary defects that the buyer should know in the ad. Your advertisement must be honest (so that you don’t waste your time & buyers’ time besides all the legal issues). And during the entire sale process, never tell your buyers anything that could discourage the sale. I was selling a big CRT TV with HD-input at a cheap price. Because of the low price & the HD confusion with the LCD, I got more than 10 inquiries. I was over-confident and told all of the buyers as my disclosure that if they get hurt in moving the 150+ pounds of CRT, I cannot be responsible. Well, that did it, and scared away ALL buyers. I actually needed to repost my ad to sell the TV. At the end, I was still able to sell my 30+ inch CRT for about $30.

7. Prompt response: especially if your item is hard to sell. The buyer sometimes has a sudden compulsive urge. And if you don’t continue this purchasing process promptly along with him or her, the deal will simply not go through once the buying urge is gone. So in the email exchanges, not only you should be prompt, but also you would recreate buyer’s urge repeatedly by how much you cherish this item of yours but only selling it because of …(some “unfortunate” or inconvenient reasons).

8. A Big handshake to finish off: In whatever business negotiations, you should learn that only by making your customers happy, then it’s a good business. I had repeat business on Craiglist from a customer because I made him “happy” in terms of quality and pricing. I didn’t need to negotiate much at all for the second & third time because he knows that I had already “given” him the best possible price. Well, of course, I was still making a tiny amount of money (even though he still thinks that he is getting the best possible deal from me).

9. Post at the optimal time: Based on my personal experiences, I think posting on Friday and Sunday/Monday night or Saturday and Monday/Tuesday early morning should be the best. Monday & Tuesday internet traffics are always the heaviest for almost all sites. However, since it’s an internet garage sale, I usually prefer posting for the weekend on Friday. Quite often, the sale is all done before Monday, if you have priced your item correctly.

10. Don’t post too often too fast: this is just a special “feature” on craiglist. If you post too frequently (like more than 2 posts in an hour), your account can be suspended, and/or your posts will never appear. Stick to craiglist rules carefully, and don’t re-post the same item. Otherwise, you may need to find a new IP address and create a new account to continue selling. I actually found that it was quite easy to trip on craiglist’s watch for spammers.

11. Xmas season helps A LOT: one third or more of the total retail sales happens from Thanksgiving to New Year. Be part of it and go with the flow. Your asking prices can also be higher during this time (simply due to more buyers).

I learned so much from selling on craiglist that I sort of went from being a total nerd to a semi-savvy salesman. The lessons were worth so much more than any amount of money that I was making on craiglist. When my kids grow bigger, I also want them to learn these invaluable lessons firsthand by selling on craiglist. It really takes practices to be a good negotiator, and selling on craiglist is the best prep for that.

So what did I sell on craiglist? I sold PSP, Nintendo DS, baby crib, Legos, TV, several baby & kid’s toys such as tricycles. If the items were new, I made 3% to 15%. If the items were used, I recovered 40% to 100% of the original price that I paid (except the TV of course). I would say that it was a pretty darn good record.

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.

I used to donate blood before I have children. With small children in the family, my life is always extremely busy and circles around children. This year however I finally made a vow to donate blood as often as I can. What made me a little sad is that because of all the constraints & regulation, even if I donate at maximum possible frequency which is every 56 days, or about 6 times a year, there is only so much blood that I can give (1 pint per visit). Human lifetime is so limited, and we can only give so much. I was going to fill up my office wall with Red Cross stickers. I guess I won’t be able to do that.

Even though I’m often so busy that I don’t even have 1 hour to spare for blood donation, that one hour is probably the best relaxation time for me for months. I lie there, staring at the fluorescent lights, imagining how helpless the sick people must have been at the hospitals lying on the same beds. And I always make a prayer during the blood donation that whoever receives my blood can recover as soon as possible with God’s granted grace. Yeah, sometimes the donated blood won’t get used in the allowable time, but that is just part of the business.

To be able to donate blood, one obviously must be healthy. The last time I donated blood, Red Cross told me that if my diastolic blood pressure is more than 100, I won’t be able to continue to donate blood. I measured 100 exactly. She advised me to start taking my blood pressure medicine, and don’t delay anymore. When I came home, my 4 year old kept staring at the bandage around my elbow. Finally, his curiosity overcame him. He asked me what happened to me. I told him that I gave blood. And he couldn’t understand. Then I showed him a youtube on blood donation. He was a little scared, a little amazed, and somewhat confused. I hope one day when he grows up, he will understand and also donate blood for good.

I have always made it imperative to teach my children about charity. I want them to understand that how lucky they are to enjoy all the material things around them, and that if ever we own anything, it is given by God. We all come to this world with nothing, and we will leave this world with nothing. I am not sure if my kids will understand all of these one day, but I have great faith & hopes just by looking into their innocent eyes.

I’m revising my last budget made in 2008 due to inflation and various changes in spending patterns. A household budget always needs to reflect the reality. Otherwise it loses its purpose.
A budget shows where the family finance situates and allows future financial planning to be possible. If you don’t even know where the money is going out, you cannot possibly know where your finance will be 5 or 10 years from now.

Reviewing the differences between the current budget versus my 2008 budget, there are several categories that have gone up. The income in this budget has increased by $25K, but I’m budgeting a lot taxes now to reflect the fact that my marginal bracket is basically 45% to 50% (even back in 2008). The other increases are the new $230 extra-curricular lessons for my sons and $140 extra in food & dining, and about $300 extra spending for my wife & kids on toys/clothes/electronics/etc. My charity contribution has increased by about 30% too. And traveling back home & vacation has gone up too by almost $800 a year.

Looking at this budget and the corresponding increases from 2008, I can identify that my kids are not frugal at all. They are basically getting every new lego boxes out there, and lots of Wii games too. I think it is time to put up some constraints. That is probably the only item that I can cut down because all other increases are due to inflation or are necessary. Looking forward, children’s educational cost will continue to go up as kids grow up.

From above, my total expenses (in white) are $6318, and my total taxes (in red) are $3893, and the savings (in green) are $3063. Assuming a household income of about $135K, or a monthly wage of $11250, my cashflow after deducting all the above items is negative $2024, which needs to be deducted from the above savings number. Please note that the above taxes are just the taxes that one might be paying at such income level. My marginal bracket is at about 50%, instead of just 24% from the above.

My net saving has dropped (again) from $45000 to $30400 in 2008 to now at about $16000 in 2011. This is after I account for the 15% discount in share purchases of my company ESPP plan. Unfortunately, I expect my saving levels to continue to dwindle, due to the increase in the child expenses going forward. My annual cashflow now is negative $24300 from above, and that is very observable in my bank’s balance. I need to constantly infuse more cash into my regular checking account to just pay all the expenses.

I’m drawing exactly the same conclusion as in my 2008 budget:

What’s the lesson here? I’m not becoming much less frugal, but my saving drops. Inflation accounts partially for the drop, but the main reason is as stages in life progress, your saving (if it is still positive) will be dropping to its LOWEST when your children start going to college. I’ve written an entire post (boring, but truth that you don’t want to hear) on this point to advise anyone out there to start SAVING NOW. The best time to accumulate your savings is before having any kids, especially before getting married (and after you just started working). The next best time to accumulate your savings is when your kids finish college, and before you retire. The rest of the time, one should consider oneself lucky to scrap away something left after all expenses are paid. If you have any doubts about my drawn conclusion, simply ask your parents.

I’ve always chosen cashback instead of air mileages for my credit card reward. The reason is cashback goes into your pocket directly, and unlike air mileages or point systems, it is not subject to the conversion factor change in the future.

I have arranged my spending on credit cards as follows:
1. Grocery, drugstore, and any gasoline purchases not at Costco for a flat 5% cashback on HSBC Platinum Cashback Card.
2. Restaurants for 3% cashback and travel related stuffs for 2% cashback on True Earnings American Express card.
3. Essentially 2% cashback on Citi’s Driver’s Edge Option credit card for everything else. It’s 1% + 1% via submitting mileage record. I just submit it for every oil change that I need to do for my car. On this card, it’s actually by point system. I only buy $100 Macy’s gift card using 10000 Thank You points so that I can get a conversion factor of 1 point for 1 cent. Unfortunately, this program is going away now.

I have searched on the internet for a better deal to replace the Citi’s Driver’s Edge card, but I can’t find anything. EmigrantDirect had a 1.4% cashback on everything but it’s gone too. The best thing that I could find is the 2% cashback on Fidelity Rewards American Express card, but the credits go into your Fidelity brokerage account.

I will need to think about this deal, since I’m a little wary of opening another brokerage account just for that. I have consolidated most of my accounts at WellsFargo (where I trade free through PMA account) and InteractiveBroker (for cheap options). I definitely don’t want to have my cash simply sitting in the Fidelity brokerage account doing nothing. Based on my past spending pattern, I can get about $275 just from 2% Citi Driver’s edge card. If I move that spending to any of my existing 1% cashback card, I would throw away $125 per year. Hmm. Something to think about.

In any case, if you don’t use any of the cashback credit card, you are definitely missing out BIG time. I got $362 back on my HSBC, $276 on my Citi Driver’s Edge, $250 on my True Earning AMEX for a total spending of about $34700 on these three cards. That’s $888 that you may be missing.

At the minimum, you should get yourself the True Earning AMEX (assuming you buy stuffs at Costco) and Chase Freedom card for basic 1% cashback & 5% cashback on rotating categories. That’s just a little effort to “earn” while you spend. It really adds up!

Frugal at 1stMillionAt33.com

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

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

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

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

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

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

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

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

I think this deal may only be valid in California. Until Dec 12 at Albertson, you can get $20 coupon for grocery for every $100 spent on all gift cards (except Visa/Mastercard & Albertson, and limit of $500 in 1 transaction). The coupons must be used before 12/24/2010. Besides that, as long as you have the credit line, there should not be much problems.

Since I used my Chase Freedom card which has 5% off for all grocery purchase (upto the first $1500), and my old HSBC card which also has 5% off but no limit, I get a total of $25 back for every $100 purchased in gift cards. More people have Chase Freedom cards. So at least, you can get 25% off for your first $1500.

Also, a couple of restaurants are having gift card sales too. Souplantation (and Sweet Tomatoes) has 1 free meal pass for every $50 gift card. Since 1 dinner is about $9.50 plus tax, you are getting a little bit more than 20% off. Panda Express has a free two item entree for every $25 gift card purchased. That’s about $6.50 plus tax. For CA 9% tax, that will be a 28% off for every $25 Panda gift card.

So far I’ve bought up $500 in Shell gasoline gift cards at Albertson, $400 in Amazon gift cards which I will spend almost right away for a HD camcorder, and another $300 in various restaurants. That’s $1200 in gift cards, or $240 in free grocery at Albertson, plus $60 in cashback on Chase Freedom card. I figured that $500 gasoline will only last me 2 to 3 months, and I’m spending $200 to $300 on dining out anyway, these gift cards would go extremely quickly. In fact, if I could find more grocery to buy at Albertson, I could easily prepaid 3+ months of my expenses. The most tricky thing about the whole Albertson deal is that $20 grocery coupon cannot be combined, and so only $20 off per transaction. But you could go to a self-checkout and simply check stuffs out for every $20 that you have in the cart.

For a little inconvenience in managing to use various gift cards, you can get 25% off on almost everything. Not a bad deal at all. Certainly, for my marginal tax brackets at about 45%, a dollar saved is two dollars earned. With $300 already saved in my pocket, I’ve got myself a $600 “salary raise”. Maybe I should work on it some more.

25% off is quite a lot. I really wonder how these stores survive.

I “participated” in the Black Friday frenzy again this year, just to survey how retail sales were going. There were many pre-Black Friday sales going on, and I thought the sale this year was going to be soft. Many stores opened very early too, and Walmart even opened 24 hours. Based on my experience at Walmart which had a 3-phase sales (midnight to 5am, 5am to 11am for electronics, etc.), I think Walmart stole quite a lot of sales this year. The 3-phase worked really good, because I found that almost ALL stores couldn’t make more sales, simply because of the capacity of the cashiers, parking lot space, and moving space within the stores. Oh yeah, almost all the retail stores that I went to were that PACKED with people & cars. The 3-phase sales at Walmart spread out different types of crowd somewhat, and many people really liked being able to get their 1st part of buying done (since no other major retail stores were opened at midnight).

Regardless, I also found that most shoppers were extremely price-conscious. I didn’t notice that, until I went to Target and found my $36 Shark Steam Mop from Walmart, priced at $45 at Target, piled up and not moved at all. Looked like everyone has done their comparison already. Yeah, and all those items that were not on sale were not touched mostly. I went to the LEGO aisle that my kids loved most. Almost all legos didn’t get sold, except very few ones that were on sale.

And I’m sorry to report to all the Apple lovers that I don’t see IPads selling. They are well-stocked in all stores, and not moving. In fact, most electronics were not selling a lot. This includes TV, blu-ray players, and even game consoles. In fact, there were so many Wifi-ready players with just an ethernet port, trying to trick buyers to buy them. No, these units won’t stream Netflix wirelessly, and will need a $80 to $130 ethernet-to-wifi adapter, after you pay some $100+ for the blu-ray players.

The only exceptions to electronics are probably mobile phones and low-priced NetBooks. Yeah, I really wanted the $150 NetBook black Friday sale at BestBuy, but it’s all gone probably within minutes when the store opened. With NetBook selling at $150 with 160GB hard drive and SD card slots, it makes triply hard to buy the most basic IPad priced at $500. Oh, I forgot, Apple is not about price, but fashion, as long as our generations stay away from the new frugal reality. Actually, I should use $400 for comparison, because TJMaxx seemed to have this item in extremely limited supply for $400 on Black Friday (if you could bust the door in time).

Anyway, I managed to get the following items this week:
1. A 3-night stay at 4-star Planet Hollywood for $56 per night after tax at Las Vegas, plus 1 free buffet pass. This was just before Thanksgiving, when you can get really good prices without much traffics. During Thanksgiving and Xmas, there are no ways to enjoy yourself, because the lines for buffet are usually 3-hours long, converting your lunch meal to early dinner literally.

2. $89.99 1TB MyPassport portable hard drive, free shipping, bought with $100 BestBuy gift card from Albertson, which gave me a $20 coupon for free grocery, and charged on my ChaseFreedom credit card for 5% cashback (or $5). So I paid about $65 before tax, when the price has gone back up to $150 now. However you can still get this item at Costco for $99.99, but you won’t get any gift card/credit card bonuses.

3. Super-Mario Wii game at Target, regularly priced at $49.99, but got a $10 gift card when bought during Thanksgiving, and I got $5 off coupon, plus 5% off charged on their RedCard (Target’s credit card). So that was like $35, not counting taxes. You could get those $5 off coupon or 10% off coupons at the checkout if you bought anything at Target, just before Thanksgiving.

4. Slave I LEGO construction set, regularly priced at $79.99 everywhere. My son asked this for Christmas, and the only reason that he wants this is that it’s got a special mini-figure Hans Solo frozen in stone. I paid about $57 before tax, because Target had it temporarily on sale for $69.99, plus there is a $10 Target coupon just for LEGO sets, and I charged it on RedCard again for 5% off.

5. $60 Brother Color Inject MFC-J410W Wireless All-in-One at OfficeMax. This one is not a deal, since you can get most wireless printers easily for less than $100 these days. And I’m buying Brother, not HP nor Canon, because the ink cartridges are cheaply available on Amazon or Ebay at less than $1 per cartridge, without me going an extra mile to find out how to refill my own cartridges. Since I won’t print a lot, per page cost matters less to me than per cartridge cost. In the past, usually I spent like $8 to $30 on a cartridge, just to print less than 30 pages, and just to find out that my $30 investment on the cartridge is totally gone and dried up after many idle months. So I think Brother should work for me better.

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

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

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

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

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

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

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

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

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

Best luck.

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

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

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

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

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

Frugal at 1stMillionAt33.com

Someone planted virus on my site, and after a huge effort, working with my ISP, I finally was able to clean out everything after almost 1 week. My ISP even said that they may be able to trace the hacker. My sincere apology for anybody who got affected by this. I also tightened up the site security and changed all of my passwords. Hopefully, it won’t happen again.

And if you were using Firefox, you won’t get hit. Internet Explorer however was vulnerable. In any case, virus would be caught by any active virus scanner or shield.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

See you at the next top.

Frugal at 1stMillionAt33.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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