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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.

Economic Outlook for 2016

Issue #402, January 25, 2016

    This is from a talk given every year in Columbia by Scott Colbert and Joe Williams of Commerce Trust in Kansas City (division of Commerce Bank, CBSH).
    In 1992, advanced economies accounted for 83% of world GDP. By 2014, this had fallen to 60.9%, mostly because of the growth in China and the countries that supply China with commodities, such as Brazil. Going forward, the secular slowdown in China will hurt these same emerging markets.
    Prior to the economic collapse of 2008, GDP growth in the US averaged 3%: in the future, 2% will be the norm. GDP grows by 1) increased productivity, and 2) more people. (RMD comment: this is why immigration is so important, and why Japan and especially Italy are having demographic problems). Population growth here is 0.8%, but just as many people are dropping out of the work force as are being added. Productivity growth has been slow. Borrowing pulls future growth to the present, but because of already high debt levels, there will be less borrowing.
    The consumer is in reasonable shape. US Household debt is less than in 2007, while income is up 27%. Debt service has fallen from 19.5% of income to 15.4% (low interest rates have been a big contributor to this improvement). There are 140M households, and we generate about 1M new households, with an average of 2.3-2.4 people, per year. There should be good demand for autos and housing in the future. We generated 4M jobs since 2007, an average of only 500K per year, yet 1M people come into the work force each year: 10% of people are underemployed, although job growth is accelerating (RMD comment: job growth is a lagging indicator).
    We have no inflation because commodity prices collapsed, driven by the collapse in demand from China. This, and low interest rates abroad, will keep interest our rates low. 
    They feel the single most important factor is the high debt levels in China: 282% of their GDP, vs. 269% in the US and 256% in Germany. Constructing a building requires about 4 times as many people as are subsequently employed at the building. Now that the building boom in China has run its course, the economic activity will fall off.
    RMD comment: I love facts like that: a way to look at fundamentals. The principle behind Uber will be an important force of the future: a profitable use is found for the down time of a person’s second most expensive capital asset.
    The market is saying the Fed won’t raise interest rates as much as some think. (RMD comment: I noted in my Outlook for 2016 that interest rates would remain low because of weak economic activity. People at this week’s Barron’s Roundtable feel the same).
    Most of the decline in commodity prices occurs in the first 5 or 6 years of a cycle. Since prices peaked in 2011, we are approaching the time of maximum pain. (RMD comment: there will probably be one more down leg in the precious metals. That will be the bottom.)
    The latest bull market in the US Dollar started only 2 years ago, so probably still has 3-5 years to run. This will hurt US manufacturers, foreign stocks and commodities. They recommend an underweight in international stocks, and are very negative especially on China and Brazil. They feel there is a good chance the US market will be down 5-10%. It’s OK to have some cash.
    2016 Major Themes:
    1) Developed economies will do (relatively) better, while emerging markets will cool.
    2) The slowdown in China will hurt everyone
    3) Be US centric, although we may be down 5-10%
    RMD comment: Our market peaked in May, 2015: the bear market in the US has started. I believe there is little upside potential and significant downside risk for stocks here and everywhere. Preserve your capital: cash may be the best investment in 2016. I believe 2016 will show (again, as in 2000 and 2008) the myth of buy and hold.
    The market will probably bounce over the next 4-6-8 weeks. Don’t get drawn in: this is a rally in a bear market.
    4) Stay with large caps and quality stocks: avoid the commodity space.
    RMD comment: Don’t be seduced into buying the stocks that are down the most: their price has fallen for a good reason. The best stocks in the next bull market are the ones down the least in the preceding bear market. They are also the first to rebound, so watch relative strength (a number routinely generated by Investor’s Business Daily).
    Agustin Carstens, Governor of the Bank of Mexico, told the Financial Times that “Emerging markets need to be ready for a potentially severe shock. The adjustment could be violent and policymakers need to be ready for it”.
    RMD comment: I had the pleasure and honor to have supper and lunch with Carstens 3 years ago when he received a Distinguished Achievement Award from our Alumni Association at the University of Chicago. He’s very smart, and a nice, and humble, man.
    Tuesday morning: no hot water. Fortunately, easily fixable problem, but the visit from the plumber was $55. Thursday: furnace people came out for biyearly routine visit = $525.
    RMD comment: a home is not an investment: a home is a depreciating asset that is a place to live. This is why I recommend people have 25% saved up to buy a house. 1) It’s the traditional down payment. 2) You avoid mortgage insurance, and 3) you need 5% for other expenses, such as appliances, yard tools, etc.
    Wall Street Journal (1/21/16): “Americans are flooding the government with appeals to have their student loans forgiven.”
    RMD comment: whenever something goes bad, people look to blame someone else rather admit that they made a mistake.
    More important: this is what happens when the government gets involved: the process becomes politicized. What if all of the people with student loans wrote their Senators and Congressman? Several of the Presidential candidates have proposed free college. Remember the saying: if you think college (or medical care, or whatever) is expensive now, wait until it’s free. 
    I saw a Ford pickup with “Built without your tax dollars” stenciled on the tailgate.
    RMD comment: In 2006, Ford borrowed $23.6B by mortgaging all of the company’s assets. CEO Alan Mulally said this was to finance a major overhaul and to provide a “cushion to protect for a recession or other unexpected events”.  Wow! What a call! GM and Chrysler were forced into a government-financed bankruptcy, while Ford did fine.
    I turn 65 in March.
    1) One of my favorite colloquialisms is “This is the greatest thing since sliced bread”. Well, I can assure you that Medicare is—hands-down, no questions asked, a Darrell Dawkins, Chocolate Thunder, gorilla slam dunk—the greatest thing since sliced bread. It will save me at least $15K per year. I plan to make this the topic of a newsletter in the near future.
    2) On my 65th birthday, I intend to A) bench press my weight (about 153 lbs.), B) stand on my head, C) perform 8 chin-ups, D) walk 4 miles in one hour with a 25 lbs. pack on my back, and E) make at least 70 of 100 free throws. I’ve started training: did 2 miles in 23 minutes with 20 lbs. in the backpack in the snow at 9 degrees. Pretty safe that I don’t have coronary disease.       

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