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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.

When a CD isn’t a CD

Issue #435, September 12, 2016

    Everyone understands a CD. It’s about the most straight-forward, simple investment vehicle available. You deposit your money, and at the end of the pre-specified period of time you’ll get your money back plus interest (see below). There is no charge to open a CD, and no charge to redeem it, although there may be a penalty if you wish to withdraw the money (bust the CD) early. They are safe: at institutions that participate in the FDIC/FSLIC, your deposits are insured up to $250K. It really is “money in the bank”.
    There was a front-page article in the Wall Street Journal on Wednesday, 9/7, describing “Market-Linked or Structured CDs”. The only ones who profit from these are the bankers that created the product and the selling agent. The buyer, the investor, like you, gets hosed. Here’s why.
    1) There is a commission. For a traditional CD, every penny is invested. Just as there is never a reason to buy a mutual fund with a load (commission), there is never a reason to buy a CD with a load. It’s like whole life insurance vs. term, or an annuity: the agent pushes them because they make a larger commission. Such a product is in their best interests, not yours. In my opinion, if a banker or investment advisor or agent recommends one of these to you, I would find a new banker or investment advisor.
    2) These are complicated. I continually emphasize the importance of KISS: Keep it Simple. If you don’t understand something, or as Peter Lynch says, if you can’t illustrate it with a crayon, it is to be avoided. The name of one of the “CDs” is “GS (Goldman Sachs) Momentum Builder Multi-Asset 5 ER Index-Linked Certificate of Deposit Due 2021 (RMD comment: what does that mean?). Goldman Sachs says the product is clearly explained in the accompanying 266 page document, which feature calculus, hypothetical back-tested data and flow charts. For comparison, the New Testament in my Revised Standard Version (A.D. 1952) of the Bible is 224 pages.
    3) Returns often under-perform that of traditional CDs. The Journal analyzed 147 market-linked CDs issued since 2010 by Bank of the West (partner of BNP Paribas). 62% produced returns lower than a traditional 5-year CD, while almost one-quarter have yet to pay any return.
    4) How are returns calculated? Most are based on an “adjusted” version of the basket of securities actual return. The potential upside is usually capped at an amount smaller than the potential downside that can be captured. For the Barclays CDs, the adjusted performance was 28% lower than the actual performance of the underlying stocks. Investors in the CDs also forfeit the dividends they would have received had they owned the stocks. RMD comment: dividends provided 62% of the gains realized by stocks in the 20th century. Dividends are important.
    RMD recommendation: Market-linked or Structured CDs are a hustle. They aren’t for widows and orphans. In fact, they’re not for anyone. If you want a CD, buy a CD. If you want to invest in the stock market, buy a no-load product based on the S&P 500, such as the ETFs SPY or VOO, or the Vanguard S&P 500 Index mutual fund. If your financial advisor or banker recommends one of these products, you know they are not acting in your best interests: move your accounts and get another banker. If you already have one of these products, you may need to contact your state securities regulators to assist you in getting your money back.   
    The interest on a CD can be straight or compounded. If a $10K CD pays a straight interest rate of 5% (those were the days) and is posted only once at the end of the year, you have $10K + $500 = $10,500.
    Say the interest is posted and compounded quarterly.
    1st quarter: $10,000 x 1.25% = $10,125.
    2nd quarter: $10,125 x 1.25% = $10,251.50
    3rd quarter: $10,251.50 x 1.25% = $10,380
    1 year: $10,380 x 1.25% = $10,509
    RMD comment: Obviously, the more often the interest is posted and compounded, the better for you. It is attention to detail like this that separates those who can accumulate wealth from those who just struggle along.
    South Korean shipper Hanjin declared bankruptcy. About $14B worth of merchandise is stranded in their ships at sea: no port will unload the ships because they aren’t sure they will be paid for their work.
    In 1981, a grain elevator in the Southeast Missouri town of Puxico went bankrupt. The soybeans of farmer Wayne Cryts were considered an asset of the elevator, and were to be liquidated to satisfy creditors. Cryts and fellow farmers defied Federal Marshalls and FBI agents to unload their 30,000 bushels of beans, worth more than a quarter million dollars. Cryts spent some time in jail.
    RMD comment: stick with me, because there is a very important point here. I use the above examples to make an analogy: What about the contents of your safe deposit box if the bank goes under? Are they yours or the banks? The answer is clear. When you open a safe deposit box, you sign a rental agreement: the assets in the box are clearly yours, not the bank’s. This is in comparison to a CD, where you have loaned money to the bank.   
    Rick Santelli is my favorite on CNBC. He asked the question: why would a large institution buy a bond with a negative yield: where they knew they would lose money?
    Central banks around the world, the BOJ (Bank of Japan), the ECB (European Central Bank), the Bank of England and our Federal Reserve have bought up so many government and other securities that there are almost no sovereigns left to buy. Our Fed owns more than $4T. Institutions buy government bonds with negative yields because they know they can resell (flip) them to a central bank for a profit.
    RMD comment: This is bizarre: it will not end well. Santelli calls it “Central Bankers Gone Wild”. There was a piece on 321Gold this week noting that the Central Banks of Switzerland and Norway have augmented their holdings of physical gold by purchased a basket of gold mining stocks.
    I am physically upset to my stomach about the upcoming election. To quote my hero Thomas Sowell: whoever wins, it will be a catastrophe. But there in one issue that I am taking quite personally. The socialists buy the votes of the poor by expanding welfare, Medicaid, Food Stamps, and Disability Insurance. At the same time, the elites note in a dismissive, derogatory way that many of Donald Trump’s supporters are non-college educated.
    Below are the hard-working, non-college educated people in my family.
    Grandma and Grandpa Doroghazi           Grade School
    Grandpa Kish and Grandpa Nagy           Grade School
    Grandma Nagy                               8th Grade
    Parents John and Irene Doroghazi           High School
    Uncle George and Aunt Cel Doroghazi     High School
    Uncle Steve and Aunt Helen Doroghazi     High School
    Uncle Dave and Aunt Audrey Nagy         High School
    Uncle Steve Elonka (Gma Nagy’s brother)  8th grade
      (wrote more than 40 books on boilers
      and heating systems for McGraw-Hill)

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