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The Coming Bear Market: Part II How to Prepare
Issue #492, October 16, 2017

Some Observations on Cemeteries
Issue #Interim Bulletin #491A, October 12, 2017

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever
Issue #491, October 09, 2017

The Market makes New Highs
Issue #490, October 02, 2017

The Importance of a New High
Issue #489, September 25, 2017

A Little Insurance: Wealth, War and Wisdom
Issue #488, September 18, 2017

Some Observations
Issue #487, September 11, 2017

How to be Successful in Your Career
Issue #486A, September 07, 2017

How NOT to Buy a Home
Issue #486, September 04, 2017

This Week in the Market
Issue #485, August 28, 2017

Is the “Trump Bump” Running Out of Gas?
Issue #484, August 21, 2017

Gold is on the Move
Issue #483, August 14, 2017

The Importance of Estimation
Issue #482, August 07, 2017

Buying Art and Collecting: Part II of II
Issue #481, July 31, 2017

Buying Art and Collecting in General, Part I of II
Issue #480, July 24, 2017

Physicians need to be More Forceful: Follow-up
Issue #479, July 17, 2017

Physicians need to be More Forceful
Issue #478, July 10, 2017

Your First “Real” Investment
Issue #477, July 03, 2017

Leasing a Watch: Don’t
Issue #476, June 26, 2017

The Importance of Your Children having a Job
Issue #475, June 16, 2017

The Problem with Medical Student Debt is—the Med Schools
Issue #474, June 12, 2017

Critters and Varmints in your Home and Yard
Issue #473A, June 07, 2017

Leveraged ETFs
Issue #472, May 29, 2017

Leasing a Vehicle: Don’t!
Issue #471, May 22, 2017

Issue #470, May 15, 2017

More on Buying Jewelry
Issue #469, May 08, 2017

Buying Jewelry: Gold, Diamonds and Pearls
Issue #468, April 30, 2017

Thomas Sowell: Part III of III
Issue #467, April 24, 2017

Thomas Sowell: Pat II of III
Issue #466, April 17, 2017

Live Close to Where You Work
Issue #465, April 10, 2017

Medtronic in Hospital Management
Issue #Interim Bulletin #464A, April 07, 2017

Thomas Sowell: Part I of II
Issue #464, April 03, 2017

A Political Contribution a an Investment: Part II of II
Issue #463, March 27, 2017

A Political Contribution as an Investment: Part I of II
Issue #462, March 20, 2017

Buffett Selling Vacation Home
Issue #461, March 13, 2017

Advanced Placement (AP) ourses
Issue #460, March 06, 2017

The Importance of a Credit History
Issue #459A, March 02, 2017

A Credit Card Scam
Issue #459, February 27, 2017

The Electronic Health Reord
Issue #458, February 20, 2017

Issue #457, February 13, 2017

Platinum and Palladium
Issue #456, February 06, 2017

Economic Outlook for 2017: Part II of II
Issue #455A, February 02, 2017

Economic Outlook for 2017: Part I of II
Issue #455, January 30, 2017

A Story From Vegas
Issue #454A, January 25, 2017

Land Donation Deals and the IRS
Issue #454, January 23, 2017

The Theory of Gambler’s Ruin
Issue #453, January 16, 2017

Student Loans: But Wait, There’s More!
Issue #452, January 13, 2017

A Second Home
Issue #Interim Bulletin #451A, January 04, 2017

The Consumer Confidence Index
Issue #451, January 02, 2017

Social Security
Issue #450, December 26, 2016

My Outlook for 2017: Part II of II
Issue #449, December 19, 2016

My Outlook for 2017: The Market
Issue #448, December 12, 2016

Medicine in 20 Years
Issue #447, December 05, 2016

Higher Interest Rates
Issue #446, November 28, 2016

Trump and the Markets: The Bad and Ugly
Issue #445A, November 23, 2016

Trump and the Markets: The Good
Issue #445, November 21, 2016

Negative Trends: The Suits aren’t Makin’ Steel
Issue #444, November 16, 2016

The New DOJ Fiduciary Rule
Issue #443, November 07, 2016

Barron’s Conference, Part IV of IV
Issue #442, October 31, 2016

Barron’s Conference, Part III of IV
Issue #Interim Bulletin #441A, October 26, 2016

Barron’s Conference, Part II of IV
Issue #441, October 24, 2016

Barron’s Conference, Part I of IV
Issue #440, October 20, 2016

This Newsletter
Issue #439A, October 12, 2016

Memoirs of US Grant: Vol II
Issue #439, October 10, 2016

More Points on Collecting, Investing and the Economy
Issue #Interim Bulletin #438A, October 05, 2016

Personal Memoirs of US Grant
Issue #438, October 03, 2016

Ideas for a High School Part-Time Job
Issue #Interim Bulletin #437A, September 29, 2016

Collecting, Investing, and the Economy
Issue #437, September 26, 2016

Free College
Issue #436A, September 22, 2016

A Military Commitment to Pay for Med School
Issue #436, September 19, 2016

When a CD isn’t a CD
Issue #435, September 12, 2016

I Made a Mistake
Issue #Interim Bulletin #434A, September 07, 2016

What is Your Spare Time Worth?
Issue #434, September 05, 2016

Credit Cards and Bonus/Loyalty Points
Issue #433, August 29, 2016

The Write-off of Student Loans
Issue #Interim Bulletin #432A, August 25, 2016

412 Retirement Plans
Issue #432, August 22, 2016

Join the Club
Issue #Interim Bulletin #431A, August 18, 2016

The Case for Precious Metals and Hard Assets
Issue #431, August 15, 2016

When the US went off the Silver Standard
Issue #430, August 08, 2016

Why NOT to Open a Restaurant
Issue #429, August 01, 2016

Some Tips on Life Insurance
Issue #428, July 25, 2016

More Observations on Negative Interest Rates
Issue #427, July 18, 2016

Issue #426, July 11, 2016

Is a PhD Worth It? Part II of II
Issue #425, July 04, 2016

Is a PhD Worth It? Part I of II
Issue #424, June 27, 2016

Avoid Part-time real Estate Agents
Issue #423, June 20, 2016

Issue #422, June 13, 2016

The Problem with Auction Reserves
Issue #421, June 06, 2016

Make Full Use of Your Capital Investments
Issue #420, May 30, 2016

The Fed’s Announcement
Issue #419, May 23, 2016

Quit While You’re Ahead: A True Story
Issue #418, May 16, 2016

The Precious Metals
Issue #417, May 09, 2016

Negative Secular Trends: Part Ii of II
Issue #416, May 02, 2016

Negative Secular Trends: Part I of II
Issue #415, April 25, 2016

Not Winning is not the same as not Losing
Issue #414, April 19, 2016

Behavioral Economics: Part II: Weaknesses
Issue #413, April 11, 2016

Behavioral Economics: Part I: Valid Points
Issue #412, April 04, 2016

The Most Important Books I’ve Read
Issue #411, March 28, 2016

Secret to Success: Take Risks and do Things Differently
Issue #410, March 21, 2016

The Over-Priced Food Presentation Hustle
Issue #409, March 14, 2016


By Robert M. Doroghazi, M.D., F.A.C.C.

Barron’s Conference, Part II of IV

Issue #441, October 24, 2016

Mary Ann Bartels
    Bartels is with Bank America Merrill Lynch. This was her first year at the Conference, and I believe she did a good job.
    She’s very bullish long term, and believes we are in a secular bull market. She likens the low of 2008/9 and the breakout to new highs in 2013 to the low in 1974 and the breakout to new highs in 1982. The NASDAQ is also at a new high and in a secular bull market, yet investors are still pessimistic from their trouncing in 2000 and 2008.
    What are the drivers of this bull? 1) Deleveraging. 2) Accommodation by the Fed. 3) Low interest rates have stimulated risk taking. 4) Corporate earnings are the most important drivers of stocks. We are currently in an earnings recession, yet stocks have held up well because of the Fed. Earnings will now start to grow, but at only 6-7%.
    The Fed will probably raise rates by 25 basis points in December, which could cause some profit taking.
    They do not recommend individual stocks, but look at sectors. 2000 was the start of the digital age, and this is represented by the NASDAQ. There are good valuations in large cap tech, and many pay a dividend. Semiconductors are required to run almost everything, and the Semiconductor Index has broken out to new highs. Demographics are important. The aging Baby Boomers require health care. They also require dividends for income, so she like Big Pharma. Travel and leisure will also benefit.
    Energy (and commodities) were the leaders of the last cycle. She would not overweight commodities, but the valuation is good.
    Financials: under-valued, but over-regulation will make it difficult for them to grow (RMD comment: over-regulation was the subject of a front-page article in Friday’s WSJ).
    Millennials: 18-35 year old. She made an analogy to the hippies of the 60s. Most turned out pretty good. (RMD comment: Disagree. The hard-working, straight-laced guys and gals like me weren’t hippies. The hard-core hippies are now the hard-core, anti-Semitic leftists of Academia). They got burned in the bear markets of 2000 and 2008, but will eventually come back to stocks. Because they couldn’t find jobs, many were forced to become entrepreneurial. They embrace change. Much of Europe and Japan don’t have Millennials to support their Baby Boomers in old age.
    Baby boomers seeking income have been forced into bond proxies (high dividend-paying stocks) because bond yields are so low, making these stocks expensive. Bond yields will stay low for some time. Our bonds are currently attractive compared to Europe and Japan, but their low rates will cap any rise in our rates.
Wm. Priest
    Priest is a founder of Epoch Investment Partners. I like him more each year.
    We have seen a rise in Russian belligerence.
    Since January, 2012, almost all of the increase in stock prices has been due to an expansion in the P/E ratio. This is due to QE. This will soon come to an end, and we will go back to relying on increased earnings and dividends to drive stock prices.
    Rise of the robots. Machines now win at Chess and Jeopardy, but they require man to program them. Judgement is the precious commodity. $2T of human labor can be programmed away by artificial intelligence. Good because it will increase profitability by substituting for labor and capital, but bad because machines don’t buy anything. There will be low inflation and slow growth, but an increase in dividends, buybacks and M&A. You just won’t need as much money to run a business. Look at Facebook (FB): they don’t employ many. Technology will further exacerbate income disparity.
    Politics: we aren’t getting at the issues. QE (which all went to Wall Street) is ending but fiscal stimulus is coming. Everybody wins in globalization, but we have done a bad job helping people who lost jobs = the rise of populism (see below).
    Look for 5-6% growth in stocks, but if interest rate rise, it could compress P/E, lowering returns. Volatility will be high. There is no real sign of inflation, and rates will remain low, but eventually there will be a sea change. A 1% increase in the long bond will result in a 30% drop in the principal of the bond. Much better off buying stocks with a yield. Likewise, note that STUD (Staples, Telecom, Utilities and Defense) will get killed when rates go up. The US is the only big market that is growing.
    Microsoft (MSFT) will earn $3 next year, and has big cash flow. They are good asset allocators. Target = $65 (RMD: MSFT was up big on Friday after good earnings).
    Alphabet (GOOG): growing at 16% per year, and has the same P/E of Proctor and Gamble (PG), which isn’t growing at all, so you want to own GOOG. Target 950-1000.
    Visa (V): Will benefit from digital wallet and acquisition of Visa Europe.
    PTC (the old Parametric Technology). Best way to play the IOT, because they will eventually dominate it. Earnings will drop in near future, but they are building subscribers and a revenue stream.
    Universal Display (OLED). They make curved glass, required in all phones.
    We are the only country that doesn’t negotiate directly with drug companies. This will change.
Byron Wien
    Wien is one of the most respected people on Wall Street. He spoke over lunch.
    Everything changed in 1980. 1) Japan started to sell things we wanted: globalization. 2) Computers led to the Internet, cell phones, etc. 3) Top 10% have done better, the rest have either barely held their ground or lost. Thus 90% have not benefitted. Business benefitted at the expense of labor: this will change.
    Central banks have increased their balance sheets from $3.5T in 2008 to $13.5T today, causing stocks to rise and interest rates to stay low. Almost all of the increase in portfolio values has come from expanded P/E. Period of monetary expansion is over.
    S&P 500 earnings have been flat since 2014. Companies have little pricing power, wages are rising and profit margins are squeezed. From 1964-2014, we had 3.6% annual growth: 1.8% from population growth, 1.8% from increased productivity. Going forward, growth will be just half of this.
    We probably won’t have a bear market this year or next, but stocks will struggle. From 1982-2007, less than 5% of stocks (excluding financials) in the S&P 500 paid a dividend higher than the 10-year Treasury. In 2016, this is 52.7%. Forget bonds, and stick with high-yield stocks.
    Great Britain left the Eurozone (Brexit) to give them better control of immigration.
    Clinton has no clue on the economy, Trump little more. Some time ago, Wien had lunch with Trump (I am paraphrasing). “He spent 15 minutes trying to determine my net worth. When he realized it wasn’t much, and I probably was of no use to him, he started to talk to the other people”.
    RMD comment: in my experience, this is the way of many of the rich and powerful.
    Priest had free copies of his book Winning at Active Management: The Essential Roles of Culture, Philosophy, and Technology (Wiley). I took one when about 2/3 were gone, and went over to Priest, who was answering questions. I waited my turn and said “Mr. Priest, can I have your autograph, please”. He replied “You are the first person to ask. Certainly”.
    US Steel (X) is cutting its North American workforce from 29,000 to 20,000.
    RMD comment: for perspective: immediately after WW II, US Steel alone employed more than 100,000 (There was also Bethlehem Steel, Jones and Loughlin, National Steel, Republic Steel, Granite City Steel, etc.). In 1973, the last year I worked at GC Steel (“The Mill”, now US Steel, Granite City Works), they employed about 7,500. As of 2 years ago, the Granite City Works had a workforce of about 2,300 (and put out more steel than in 1973. Thus an increase of about 5-6x in productivity). The Mill then closed. Some units have re-opened, but employ only about 350. Most of those not called back are out of unemployment insurance and have lost their health insurance.
    China has about 5B tons of steel capacity. All of North America has about 1B tons. Now add in Korea, Europe, Japan, Brazil, India, etc. I am a believer in free trade, but this is the reality of globalization. Many good, hard-working people are out of a job. 
    I turned 65 earlier this year. With the “Senior Discount”, I saved on the bus ticket from Manhattan to NJ to visit cousin Tony and the train ticket from Manhattan to CT to visit older son John and family.
    RMD comment: Senior Citizen discount = good. But—I was not carded: either they never ask for ID, or I clearly look older than 65, and they don’t need to check = maybe not so good.
    The Cubs made it to the World Series for the first time since 1945=71 years. You’d have to be at least 77 or 78 to remember that. The Cubs last won the Series in 1905. For perspective on how l—o—n—g that is: There are only 23 living Americans (all female) born before October 1, 1905. The oldest was about 2 years and 10 months when the Cubbies last won. Younger son Mike lives in the Cleveland area, so I’m for them. 
    Quote of the week:
    I made Chicken Paprikas (chicken with dumplings) for John and family. 6 year old grandson Joseph said “Hungarian food looks funny on the outside, but it tastes good on the inside”.

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