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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

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


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

Outlook for 2016: Part II of II

Issue #398, December 28, 2015

I believe your principle goal for 2016 should be capital preservation.
Real Estate
    The industry says a small rise in interest rates won’t hurt residential real estate. I believe that people have become so accustomed to these abnormally low rates, that any rise will affect home sales and prices. That said, it is quite possible that rates will stay lower for longer than people think.
    General advice: 1) A home is not an investment, it is a place to live, a depreciating asset. 2) Have a 20% down payment that you have saved (because you avoid PMI, Private Mortgage Insurance, see below). 3) The average American family owns 3 homes in their lifetime, so start small and move up (see below).
    Multi-family rentals: 360K rentals were built in 2014, more than in 2 decades, so over-supply could become an issue.
    Commercial real estate: every deal must be evaluated on its own (see below).
    REITs (Real Estate Investment Trusts): They could profit from a change in laws allowing easier foreign ownership, but could be hurt by rising interest rates.
    Recreational land, second home: I can’t believe that prices will be strong. At least at the Lake of the Ozarks, prices have not returned to their pre-2008 levels. If the economy slows, prices will weaken.
    Farm land: with grain prices soft, the agricultural economy is hurting. Farm land prices are dropping. The implement makers aren’t “moving steel”. I think 2016 will be too early to get back into this sector.
The Stock Market
    At the Barron’s Art of Successful Investing Conference in October, 2014, Felix Zulauf thought that 2015 would be fine but there would be problems in 2016. At the Conference in October, Zulauf thought the market would rally into the end of the year or into early 2016, then turn significantly lower.
    Lowry’s, who I believe are the best technical forecasters around, in business since the 1930s, feel the market has topped or will soon, and then turn down. They note the internals of the market continue to weaken, and that more and more stocks are dropping into their own individual bear market. Whether or not the large averages make a nominal new high in the weeks ahead, I believe that by this time next year there is significantly more downside risk then upside reward.
    Say you are retired and have an investment portfolio of $2M, and your living expenses are $120K per year (6% of your portfolio). If you have a relatively standard asset mix of 60% stocks, 25% bonds and 15% real estate, you are receiving about 3% in dividends = $60K per year. In most years, the stocks and real estate will appreciate enough so that you will have a larger portfolio by the end of the year. If we are entering a bear market, your portfolio will be down by this time next year.
    It is standard advice to have 3 years of living expenses in cash and cash equivalents (money market, CDs), so that when bear markets come along you don’t have to sell at depressed prices to generate living expenses. Considering that the market is up about 170% from the lows of 2009, you could take some profits now to be sure you had living expenses covered.
    Summary for 2016:
    1) Currencies will continue to be the big story.
    2) If the US Dollar breaks to new highs, commodities, commodity producers, and emerging markets and the precious metals will feel the pain.
    3) Likewise, when commodities finally bottom and turn up, it won’t be subtle. There will be some important news, like the Fed announcing QE 4, to cause the dollar to dive. Commodities will be up big on multiple days on big volume.
    4) The Fed raised interest rates, but rates may stay low for longer than many think.
    5) I believe the major risk in the stock market is to the downside.
    I believe that Private Mortgage Insurance is a hustle. The best option is to have a 20% (or more) down payment so it isn’t required. If you don’t, the options are PMI, or a slightly higher interest rate. Choose the latter. 1) The bank determines when you can drop PMI, and they won’t let you out easily. 2) You receive absolutely nothing in return for the cost of PMI, its money down the drain. 3) At least the money spent on the slightly higher interest rate is tax deductible. 
    I note in The Physician’s Guide to Investing that a near slam-dunk real estate investment is to keep your first home as a rental. This presumes you have a solid down payment for your next home, and you will remain in the area.
    1) No one knows the home better than you.
    2) You save the 6% real estate commission, plus other fees and expenses that total another 1-2%.
    3) A very important and overlooked point: You can keep the original note. The most favorable terms on a mortgage are for an owner-occupied home. If you go out to buy a home as an investment, you need a larger down payment, the terms are not as favorable, and long-term financing is difficult to obtain.
    I was talking to a local real estate agent about commercial real estate, and asked about the current capitalization rate (return). He said he saw a warehouse in the Denver area advertised with a 12% cap rate.
    RMD: There’s got to be something illegal. Is it a storefront for the Mob?
    Agent: Close. It is a warehouse for legal marijuana. 
    OPEC says oil will return to $95 per barrel in—2040.
    RMD comment: When a corporate CEO goes out of their way to say things are OK, you know they aren’t (think Lehman Brothers). Since oil is such an important commodity, it will have a general relationship to business activity. Ex: if it takes 25 years for oil to triple, does that mean it will take 25 years for the DJIA to triple? That means the DJIA would be up less than 5% per year through 2040. Bottom line: oil will be back to $95 a barrel sooner than 2040. If not, we’re in trouble.
    In the current Forbes (12/28/15), Steve Forbes suggests a return to the gold standard.
    RMD comment: Until recently, Forbes dissed gold. For some time I have considered a newsletter on the gold standard, but could never pull the trigger. Forbes’ discussion is excellent, and encourages me to discuss the subject in a future letter.
    In the meantime, what better way to start off the New Year than the next newsletter being about con men.     

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