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The Dark Side of Student Loans
Issue #528, June 25, 2018

The Cost of Out-sourcing Convenience
Issue #527, June 18, 2018

Social Security: 66 or 70?
Issue #526, June 11, 2018

Student Loans: There’s (Unfortunately) a Lot More!
Issue #525, June 04, 2018

Co-signing a Note
Issue #524A, May 31, 2018

The Knight Frank Luxury Index and Collectables
Issue #524, May 28, 2018

The Importance of Diversification: The Myth of Diversification
Issue #523, May 21, 2018

How to Save Thousands on Your Food Bill
Issue #522, May 14, 2018

MoviePass and Other Things
Issue #521A, May 10, 2018

Degree Inflation, Long Training Periods, and “Certification”  Part III
Issue #521, May 07, 2018

Degree Inflation, Long Training Periods, and Certification” Part II of III
Issue #520, April 30, 2018

Follow-up on Several Things
Issue #519A, April 25, 2018

Degree Inflation, Long Training Periods, and “Certification”: Part I of II
Issue #519, April 23, 2018

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


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

My Outlook for 2017: Part II of II

Issue #449, December 19, 2016

    Interest Rates:
    The 35 year bull market in bonds is over. Consider: the 10-year Treasury now pays almost 2.6%. If you buy a 10-year Treasury, that’s what you will receive, year-in and year-out; 2.6% per year until 2026.
    The “standard” portfolio for those with a 30-50 year time horizon, such as pension funds and University endowments, is 60% equities and 40% fixed income. Although the market has rallied hard since the election, the strong pop in interest rates has caused a similar loss in the bond positions, so that the average portfolio has seen little net gain.
    Here is what I recommend:
    1) 2.5% has been significant resistance over the last 3 years on the 10-year Treasury. There was strong action this week to go through that level. At present, speculators (“dumb money”) have a huge net short position (they think rates will go higher, decreasing the value of bonds), while commercials (the “smart money”) have a huge net long position. In the short-term, rates may come down—or—the shorts may be forced to cover, driving rates higher.
    2) Even with the rate increase to 0.5-0.75%, the Fed is still behind the curve. The 2-year Treasury is most closely related to Fed policies, and it ended the week at 1.27%.
    3) After the next mean reversion, rates will most likely again head higher, and over the course of approx. 3-5 years, will probably normalize, with the 10-year around 5%.
    4) I have several subscribers who inherited a laddered bond portfolio (the wealthy would often do this with municipal bonds). Ex: a 10-year bond matures every 3 months, with the proceeds rolled into another 10-year bond. These folks have experienced years of pain. Now their income will increase as rates increase.
    5) This is probably the most important point of this letter. I believe you should decrease your allocation to fixed-income. I am not referring to cash reserves of at least 6 months living expenses that all prudent people should have, but rather the allocation to fixed income in your investment portfolio. As Peter Lynch notes “Over the long term, it’s more profitable to own the company (stocks) than to loan it money (bonds)”.
    In Issue #305 (3/17/14) I discussed Warren Buffett’s Model Portfolio. Buffett calls long-term Treasuries “Certificates of Confiscation”. He recommended a portfolio of a small amount of cash to take advantage of buying opportunities, otherwise, put everything into an S&P 500 Index fund. The average business cycle is 5-6 years, so if you are less than 50 years old and more than 10-12 years (2 business cycles) from retirement, I would suggest you take Buffett’s advice. For those nearing retirement or even in retirement, I believe you should also consider more stock exposure. Bonds provide income and insurance in a downturn. Only stocks (and real estate) provide growth and can track inflation    
    Real Estate:
    The higher interest rates go, the more of a drag it will place on real estate. Likewise, if rates go up slowly, and not a lot (define that how you like), the market will adjust.
    There is a pent up demand for single family homes. Last week it was reported that the Homebuilders Index was up 7 to 71, the highest since 2005, and the largest monthly jump in almost 25 years. Households are being created faster than homes, esp. starter homes, are being built. If you buy a home, or if you currently have a variable rate note, be sure to take a fixed-rate mortgage (see below). Remember: you must own a home at least 5 years to be able to cover the “round trip” fees to buy and sell, which usually total about 10%.
    As interest rates rise, those on the fence will realize they need to fish or cut bait. If they want a home, now will be better than later.
    If the economy and wages improve, and there is tax reform, it will be a positive.
    Lumber futures are higher. They often lead interest rates (see above) and the housing market, suggesting home-related stocks will do well next year.
    This is always the big dog, and it looks like the US Dollar is breaking out to new a new 14-year high. A strong Dollar hurts commodities, the commodity-producing countries, and emerging markets in general, because their trade is usually denominated in US Dollars (one benefit of the US to have the world’s reserve currency). A strong Dollar will eventually hurt big US multinationals, but not right now.
    Also note that for many years our 10-year Treasury was about 1.5-1.7% higher than the German 10-year. That has now widened to above 2%, meaning there has been a significant change in the fundamental picture.
Precious Metals:
    Gold isn’t going anywhere with the Dollar flexing its muscle. If you were looking to pick up some physical gold and silver as an insurance policy against future inflation, now would be a good time. Gold is currently over-sold and due for a pop, but otherwise, direct your investments elsewhere.

    1) For the intermediate term, months, the stock market should continue to perform well. Stick with it.
    2) The 35-year bull market in bonds is over, and rates are headed higher.
    3) Decrease the allocation to fixed-income in your investment portfolio, and redirect the proceeds to equities.
    4) In the intermediate term, the precious metals aren’t going anywhere.
    5) Much of this depends on Mr. Trump behaving, both personally, and not starting a trade war, and the Republicans able to implement their agenda of cutting taxes and simplifying regulation. At present, the market feels pretty good about the chances.
    It is hard to think of a bigger waste of money than Private Mortgage Insurance (PMI), which is required if you have a down payment of less than 20%. I don’t blame the banks for requiring PMI: they are just protecting their interests. When you are finally able to drop PMI, you will realize that you have received nothing in return. Note also that PMI usually doesn’t automatically drop off when your home equity exceeds 20%. Rather, you often need to refinance (which entails more fees).
    RMD comment: Don’t buy a home unless you have a 20% down payment. Also remember there are all kinds of other expenses to start a household, such as appliances, furniture, yard tools, etc., so plan to have another $10K in addition to the down payment. 
    This is from a subscriber who is as tuned in to Academic Medicine and the politics of Medicine as anyone on my recent newsletter “Medicine in 20 years.
    “Terrific Commentary. One thing that may end up different than you predict is that if there are more mid-levels (Nurse Practitioners and Physicians Assistants), they will need MD supervision. This would be similar to our Fellow’s Cardiology Clinic: they see the patients, then I pay a short visit to confirm the decisions. One Cardiologist supervises 5 or 6 Fellows. With Primary Care, one physician could supervise even more NPs. Every other point you make is 100% on target”.
    The average salary in the NBA is $5.2M per year. The average playing career is about 5 years, so the average NBA player pulls down $26M in their lifetime (this doesn’t count endorsements). The average physician’s salary is $250K per year. Over a 25-year career (paying off student debt over a good part of the time), the average physician will make $6.25M.
    RMD comment: Is the average NBA player worth 10-20 more to society than a physician? The market place says they are. I make this point to show the priorities in our society, and because policy makers in government and the insurance industry will continue to squeeze physician’s income.
    Had my 5th colonoscopy last week. Clean (I’m 65, that’s it). The preparation is clear liquids the day before, so I drank plenty of apple juice and cranberry juice. I always look at the nutrition labels. Cranberry juice: 15 cal/oz. Apple juice: 13.75 cal/oz.
    RMD: as if I needed another reason to drink Coca-Cola, its only 11.75 cal/oz.
    When I showed up they asked for a picture ID.
    RMD (thinking): Do you guys think I’m going to fake this? 

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