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The Kids Birthday Party Hustle
Issue #518A, April 18, 2018

A Pension Question: Part II of II
Issue #518, April 16, 2018

A Physician is an Executive
Issue #517A, April 11, 2018

A Pension Question: Part I of II
Issue #517, April 09, 2018

Is the Correction Over?
Issue #516A, April 05, 2018

Used Car Dealers, Student Loans, the Chinese, and Uncle George’s Rule
Issue #516, April 02, 2018

Starter Homes
Issue #515, March 26, 2018

Redecorating: Beware!
Issue #514, March 19, 2018

NASDAQ Closes at Record High
Issue #513, March 12, 2018

A 40% Chance
Issue #512, March 05, 2018

Several Things
Issue #511, February 27, 2018

Human Capital, Education and Wealth
Issue #510, February 19, 2018

Another Stock Market Update
Issue #509A, February 18, 2018

Some Thoughts on Savings
Issue #509, February 12, 2018

A Stock Market Upfate
Issue #508S, February 10, 2018

Who Can You Trust? Part II of II
Issue #508, February 05, 2018

The Christmas Decoration Pre-worn Jeans Hustle
Issue #Interim Bulletin #507A, February 03, 2018

2018 Outlook for Financial Markets
Issue #507, January 29, 2018

Who Can You Trust? Part I of II
Issue #506, January 22, 2018

Life Insurance Settlements
Issue #505, January 15, 2018

Commodities and Buying the Breakout
Issue #504, January 08, 2018

Buffett Wins His Bet
Issue #503A, January 04, 2018

Practice Real Estate and Free Agency
Issue #503, January 01, 2018

Outlook for 2018: Part III: Stocks and Bonds
Issue #502, December 25, 2017

My Outlook for 2018: Part Ii: Precious Metals
Issue #501A, December 21, 2017

Outlook for 2018: Hard Assets: Part I of III
Issue #501, December 18, 2017

More Thoughts on Bitcoin
Issue #500A, December 14, 2017

Fees and Good Relations with Bankers
Issue #500, December 11, 2017

Salvator Mundi
Issue #499A, December 07, 2017

Should You Rent or Own a Home?
Issue #499, December 04, 2017

A Gift Subscription
Issue #Interim Bulletin #498A, December 02, 2017

Stocks vs Real Estate: Asset Allocation: Part II of II
Issue #498, November 27, 2017

When Good Enough is Fine
Issue #497A, November 22, 2017

Stocks vs Real Estate: Asset Allocation. Part I of II
Issue #497, November 20, 2017

The Saudi Arrests and the Perils of Foreign Investing
Issue #496, November 13, 2017

Gambling and Las Vegas
Issue #495, November 06, 2017

Some Tips on Auto Insurance
Issue #494, October 31, 2017

Bitcoin and the Digital (Crypto) Currencies
Issue #493, October 23, 2017

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


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

More Observations on Negative Interest Rates

Issue #427, July 18, 2016

    Everything has an intrinsic value. A Picasso painting has an intrinsic value as a decoration on your wall: the huge price is driven by desirability. A chair has a value when you want to sit down, and an order of McDonald’s fries has a value when you are hungry. A piece of land has value because it can produce a crop, or be used to build homes. The tractor the farmer purchases has a value to cultivate the land.
    Money itself has a value of about 3-4% per year, the return that can be expected from a loan made to a borrower that will repay in an environment with no inflation. From the mid-18th century, the British Consol Bonds (a perpetual bond with no maturity) paid between 2 1/2-4% interest (the last Consul Bond was redeemed in July, 2015). After expenses, farm land generates a real return of about 3-4% per year (see Issue #222, 8/13/12, on farm land). Timberland (Otto von Bismarck’s favorite investment) generates a real return of 3% per year.
    This brings us to the topic of this week’s newsletter: why are interest rates so low, and in many cases, negative? It goes against centuries of precedent—and logic: you are guaranteed a loss on your hard-earned money. There may be other reasons I don’t appreciate, but I think there are only 2 real possibilities:
    1) the signals sent by the bond market are accurate: we are headed for a period of significant deflation. If prices fall 5% and interest rates are (-)1%, you still have the traditional “real” return of +4%. This would suggest early-30s, Great Depression-like deflation. It would be a disaster. All debtors, and many investors, would be wiped out.
    2) Experimental Central bank policies and their funny money have taken us into the unknown. The bankers want to goose the economy to encourage lending and generate inflation of about 2%, but the more they lower rates, the less successful they are (One of the first things we learn in Medicine is when what you are doing isn’t working, do something different).
    Investors are guaranteed a loss on their money. Those dependent on fixed-income investments, such as foundations, insurance companies, and especially retirees, are in trouble. MOSERs (Missouri State Employee Retirement Fund) is ratcheting down the returns they anticipate from their investments. Bottom line: it is becoming more difficult for all pension funds to match assets to liabilities. The same for insurance companies: many have stopped offering annuities because they can’t guarantee a return of even 3%.
    How will this end? The answer is easy: I don’t know because I don’t think the central bankers know either. The discussion so far is (hopefully) interesting and intellectually stimulating, but the real question is: What should you do with your money? You have to put it somewhere. How do you preserve your wealth?
    1) Gold. Interest rates are THE #1 driver of the precious metals. Gold costs money to store, and pays no dividend. When a fixed-income investment produces a risk-free real return of 4-5%, gold isn’t competitive. When you’re guaranteed a loss on a bond or CD, gold shines, because it represents a storehouse of value. It preserves purchasing power.
    Gold went from $255 in 2001 to $1,900 in 2011. It then backed off, and I believe the bottom is now in, and we are in a new bull market. Gold has gone straight up from $1,055 since December last year. If you are interested in the precious metals, I suggest you start to accumulate on any weakness. I recommend a 5-10% position, and will discuss this topic more in the near future.
    In the meantime, watch the US Dollar Index. It has been bouncing between 93 and 97. If it breaks out to the upside, the precious metals will almost certainly weaken. If it breaks down below 93, gold will probably take off.
    2) Cash. If sovereign debt produces a negative return, cash at least preserves wealth. It’s not sexy, but it’s better than a loss, especially if stocks reverse. Cash also provides flexibility.
    3) A well-chosen piece of real estate purchased at an advantageous price with cash or appropriate financing is always a good investment. The same can be said for a high-quality collectable.
    4) Bonds. Because of the unprecedented drop in interest rates, the 30-year Treasury so far this year has produced a significant total return (dividend + capital appreciation). It appears that interest rates will stay low for the foreseeable future. Likewise, the yield on the 10-year Treasury was up more than 20 basis points this week. When yields do turn higher for good, it won’t be pretty.
    5) Equities are a tough call. People are essentially being forced into stocks in search of a return. TINA: there is no alternative. The market has just broken out to new highs: does it sense more QE? The Japanese market was up more than 6% in the 2 days following the re-election of Abe, with a presumption of the continuation of his easy money policies. I still believe we are transitioning from a bull to a bear market. You might even consider selling into any further rally, taking some money off the table. You never go broke taking a profit.
    Overall, I’m bullish on gold, and it never hurts to have a little more than not quite enough cash. Otherwise, it’s tough to be dogmatic. Stay tuned: it will be interesting.
    The lead article in today’s Barron’s is positive on Royal Dutch Shell.
    RMD comment: I just finished Breaking Rockefeller: The Incredible Story of the Ambitious Rivals who Toppled an Oil Empire (Doran, Viking) about the founding of Royal Dutch Shell. The title is exaggerated: Royal Dutch didn’t topple Standard Oil, but they were able to survive and compete, in good part by inventing the first oil tanker. 
    A subscriber who helped with the original newsletter on embezzlement provided further insights. He feels that if a doctor’s office has been open for 10 years, it is almost inevitable (80-90%) there has been significant embezzlement.
    RMD comment: accept it. And remember, it will be your most trusted employee. If there are any questions, you should have a forensic audit.
    A young lady in NJ wished to join a convent, but they wouldn’t take her because of student loans. Through crowd-funding, she paid off the loans and will join the Sisterhood in September.
    RMD comment: Student loan debt is one of the most important secular issues of this generation. This is a perfect example of how it affects major life choices. Also note there are only 3 things for which there is no statute of limitations: 1) murder, 2) income taxes, and 3) student loans. It is almost impossible to wipe out students loans in bankruptcy: you borrow the money, you need to pay it back (as it should be).
    When I asked the Dean of the Vet School why 85% of graduating Veterinarians are female, he said it was due mostly to a lack of males. Although it is still possible for a graduating Vet to go directly into practice with no further training, most will do an Internship and Residency (another 1-3 years). He notes that many males prefer a career in engineering or business, which requires less training time, less student debt, and can generate a higher salary.
    RMD comment: My entire thesis in writing the “Negative Secular Trends in Medicine” articles is that Medicine is losing its competitiveness for the smartest kids in the class. One of the reasons is “Long Training Periods” (appeared in the April issue of The American Journal of Medicine). It appears that Veterinary Medicine is losing its competitiveness for males for exactly this reason.
  More than 80 innocent men, women and many children, including at least 2 Americans, were butchered in Nice, France.
    RMD comment: make no mistake: the goal of radical Islam is to destroy our Liberal Western Democracy. These people want to return to the Middle Ages. They treat women as chattel, and anyone who believes in free speech or freedom of religion is beheaded. The threat is as serious as the Fascism of Hitler and Tojo, and the Communism of Lenin and Stalin.           

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