My Wealth Journey

News just broke that JPMorgan is picking up Bear Stearns for $2 a share, a huge discount from the $50 a share just last Thursday. You don’t have to be a rocket scientist to see that those numbers are HUGE. Is Bear Stearns the only firm that made the poor choices in regards to the subprime loans? Don’t be surprise if any of the other big Wallstreet Firms come out and announce that they are in worst trouble than previously announced.

So the million dollar question for you average investors, is it time to get out of the market until everything settles down? The market has been down 15% since the all time high reached in October of 2007. Lots of investors have been betting the downward trend will continue.

I don’t think now is the time to be dumping in money into the market all at once thinking we have a bottom. However, if there are good companies out there trading at a huge discount for no reason, it may be wise to start putting in incremental amounts of money into the stock to lower your cost basis. A popular strategy is to buy more when a stock drops 10%. Just be careful you are not trying to catch a falling knife.

The dollar is getting weaker and weaker by the day. Gold has crossed $1,000/ounce while oil has climbed to over $110/barrel with no end in sight! Meanwhile, the Fed almost has no choice but to continue to lower interest rates in an attempt to save the credit markets with the goal of hopefully making a speedier recovery for the housing market gone bust.

So how does an average person profit from all this? Well, if you believe Gold and Oil will continue to rise, the easiest way is to invest in the United States Oil Fun, ticker USO, and the streetTRACKS Gold Shares, ticker GLD. In laymans terms, both of these mirror the price of oil and gold. Some investors have invested in mining companies such as ABX, NEM, AEM and AUY with the expectation that as gold goes up, the mining companies’ profits will rise. This is generally the case, but the price of these stocks also depend on their management. Some would rather bet on the actual commodity than a company’s management team that I know nothing about.

I think oil will average about $95-$105 a barrell this year due to the weakness of the dollar. Gold should continue higher but is definitely due for a small pullback and should stay above $1,000 an ounce for at least a few months in the summer.

I personally have positions in these commodity stocks: AUY, SU, RIO, COP, XTO.

With talks of the Feds probably going to lower the discount rate once again to help prevent the economy from going into recession, I’ve been trying to see how I can hedge against the dollar getting weaker.

Investing in gold and commodities is my current strategy. I’ve been wanting to start investing in foreign currency, specifically the Australian Dollar. I was doing some research and found that one way some people have been playing the currency market is through forex or by opening bank accounts through banks online such as Everbank.

However, the easiest way I’ve come across is to simply invest in Rydex’s ETF funds. The ETF funds seem to match the current currency exchange rates pretty closely. For example, as of right no, the Australian Dollar Trust (Symbol: FXA) is trading about $90.5, which is just about the exhange rate between the American dollar and the Australian dollar. Check out Rydex’s site for their other available ETFs to start hedging against a weak American dollar.

The market took a huge plunge today. It happened steadily as the day went on. There were some small attempts at a rally but after the Dow started to gain 10 or 15 points, it went down another 20 points.

Why did it drop? I think it was a lot of people taking profits off the table along with bad economic news from banks with renewed worries about another credit crunch. What was surprising was that Google (GOOG) reported great profits and still barely gained 1% on the day. I did take the opportunity to buy a Google $640 Nov call.  BIDU and AAPL report next week, so it’ll be interesting to see if good news from those companies can get the market back on track. I do have positions in both of those stocks.

Is the world economy going to slow because of the US? There has been some talk about how vital the US economy is to the world economy. It’s not the center of the world economy as it was a number of years ago but any slowdown would definitely hurt the overall world economy. China exports to the US would slow.

I’m no economist but I’m still bullish on the overall economy. Housing and financials may suffer but overall, our economy should be chugging ahead.  I’m just fortunate that I did not invest or buy a personal residence in California. I still have some holdings in Texas and Utah, which I bought for cash flow. Any appreciation are bonuses for those properties. I do realize the chances of selling those homes right now are slim with the credit crunch so I am stuck with the properties.

Yahoo stock jumped up to over $33 at the time of this posting over news that Microsoft may buy the company. Is it really a good idea for Microsoft? Yahoo’s stock jumped close to 20% already just over the news that it will be bought out. So the purchase price would probably be close to $40 or so a share. Additionally, Yahoo’s P/E earnings is already higher than Google, even though investors are making a big stink about Panama.

I don’t think its a good idea for Microsoft to buy the company outright, maybe setup some kind of partnership instead. The deal would be great for Yahoo investors.

I do wonder what kind of affect this would have on SEO. MSN’s search engine results are more spammy and are a lot easier to get into which does benefit me. It’d be nice to keep their separate algorithm and to keep their brands different.

While at lunch with coworkers, we were discussing how much should you contribute to a 401k plan? The answer is to contribute at least whatever amount the company will match. So if your company will match up to 4% of your annual salary that you put into your 401k, then you are throwing away money by not putting at least 4% into your 401k plan.

Everyone’s answers will be different as far as how much more to contribute. If you have a lot of disposable income and are in the higher tax bracket, sometimes putting the IRS max contribution will help save you on taxes. Even if you aren’t in the higher tax bracket, putting money into the 401k will reduce your taxable income. However, I don’t recommend people who live close to paycheck to paycheck or don’t have at least 6 month’s worth of living expenses, which includes mortgage payments in their bank account, to contribute anymore than what the company will match.

Any money that you put into the 401k is tax deferred, meaning you pay taxes when you withdrawl. Some people believe taxes will be higher than they are now in the future and choose to just the tax now or put the money into their roth 401k account which is not tax deferred. If you think your tax bracket will be lower when you retire/withdrawl, then put as much as you can into your 401k account.

401k 2007 Contribution Limits

• $15500 for those under 50 years of age
• $15500 plus $5000 additional catch up contribution for those over 50 years of age

On March 29th, I talked about how you can make money off the Iran/UK situation by investing in energy stocks. Well, I was partly right as most energy stocks have gained 3-5% since. However, I was wrong in my prediction of oil dropping $5 when Iran gives in. I did take my own advice and picked up some SU and VLO and will be taking some off the table today. Can’t get too greedy. The ETF (VDE) is a good ETF to get into if you don’t want the risk of investing in just one or two energy related stock. I still believe we are due for a small pull back in the energy sector so if you are buying, don’t go all in at this point.

The job report came out this past Friday and the economy added about 180,000 which drops unemployment to 4.4%! That matches the lowest in 5 years! What this means? Well, it means the chances of a decrease in interest rates will be a lot slimmer now with the bond prices rising because of this.

I expect the market to fall 1 to 1.5 points on Monday because of the decrease chances of a lower interest rate.

Residential construction jobs dropped but a lot of those workers/contractors probably went into commercial.

I know that it is definitely a good market for IT jobs in Southern California. It took me 2 days for 2 interviews and 2 job offers.

The tension between Iran and the UK has increased the price of oil the past few days to over 66 bucks a barrel. A quick way to make some money is to buy in the energy sector such as Suncor (SU) or VLO.  Some believe that if Iran refuses to release the soldiers, and UK and the UN or the US attacks Iran, we could definitely see oil jump to close to $100 a barrel! Then again, if Iran gives in, we can see oil drop by $5 a barrel easily. To me, there is more upside than downside risk, so I’ve put money on a few energy stocks. Even if they go down a bit, I’m still bullish on energy.

I have a gambling nature. Not the kind that likes to go to the casino and just gamble away thousands of dollars but I love taking chances when it comes to money. Last week I shorted AKAM at the wrong time and ended up losing about $1,200 in a few days. Note to self, never short something when just about everyone and their mom are bullish on the stock.

On Tuesday, I decided to short New Century (NEW) and made back around $700 today when the stock just plunged. I do realize this isn’t a bright idea but I only do this with less than 10% of my SEP IRA.  Losing any amount of money hurts… I just bought a bit of money to my SEP IRA and bought some shares of a healthcare ETF (VHT)  at $57.30 so that I won’t try to do anymore stupid gambling with my money.