Newsletter Archive
Issues older than 90 days

Available Issues

Strange Things in the Precious Metals
Issue #531, July 17, 2018

Buying Years of Retirement
Issue #530, July 09, 2018

Rent-A-Kid for Retirement
Issue #529, July 02, 2018

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


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

Starter Homes

Issue #515, March 26, 2018

    In last week’s Newsletter, I noted that the housing supply, especially of starter homes, was not keeping up with the formation of new households.
    Wall Street Journal, front page, Monday, March 19. “The Next Real Estate Crisis: A Shortage of New Homes”. I’m going to focus on the question of starter homes from 2 points of view, the builder and the buyer.
    1) The cost of construction has clearly increased. There is also a lack of skilled labor. There are too many indebted college grads with worthless degrees and not enough carpenters and brick layers. There is a scarcity of available land, esp. in desirable areas. And don’t overlook increasingly onerous regulations. Ex: The Michigan Residential Code has swelled from 556 pages to 862 pages in the last 2 decades. In 2016, the National Association of Home Builders estimated regulatory costs added nearly $85,000 to the cost of a new home, up more than 30% since 2011. Not only the large, publically traded builders, but even regional and some local builders, avoid the low end of the market, the starter homes, because of low profit margins. They prefer to build the high-profit margin McMansions.
    RMD comment: I make an analogy to the US auto market in the late 70s. At the time, GM had 60% of the North American market, Ford 20% and Chrysler 10%. The Big 3 had become arrogant, and dissed the small cars coming out of Japan as being of low quality, and declined to produce them because of the low profit margins. In short order, the Japanese showed that you could build quality small cars, and make a lot of money doing it. They busted the Big 3’s chops.
    Last October, Diane and I drove by the home on East 27th in Granite City, IL, where we lived until I was 5. I estimate it at 550 sq. ft. tops: front room, kitchen, 2 bedrooms and a full basement. The yard was 40-45 ft. wide at the street, and about 70 to maybe 80 ft. deep. The homes were built between WW I and WW II. All are brick and the neighborhood was tidy and well-kept.
    2) I believe a good part of the problem with starter homes and the current generation is their expectations don’t fit with reality. They don’t want to start at the bottom. They want their first home to be as big as their parents. The higher the education level, the greater the reality mismatch. This is a real problem with physicians who have just finished their decade or more of training and are entering practice. Although their salary has tripled or quadrupled overnight, they have no other savings, and almost certainly don’t have a 20% down payment for the home they would like. Accept it: your first home can’t be as big as your senior partners. Note that the average American family has 3 homes in their adult lifetime.
    Compare this to 1946. Millions of GIs were coming home. There was 17 years of pent up demand: little construction during the Great Depression and none during WW II. People wanted to start families and needed a place to live. Builders met the peoples’ needs, and responded by putting up blocks upon blocks of identical, cookie cutter houses on tiny yards. They sold like crazy. You can still see these in any big city: Long Island, Chicago, St. Louis, etc.
    In summary, my solution to the problem of starter homes is that builders and buyers need to ratchet down their expectations. You can put 12 homes of 550 sq. ft. on a 40 ft. by 80 ft. lot, similar to the home we lived in when I was born, on one acre. Constructed right and priced right, the builder can make money, and the buyer can realize their dream of home ownership.   
    The US Dollar was spanked last week. Not surprisingly, gold was +$30. More when the Dollar Index breaks support at 88 and/or gold breaks above resistance at $1,370.
    Stephanie Pomboy, one of my favorites, was interviewed in today’s Barron’s. “QE (Quantitative Easing) was designed to punish responsible financial behavior”.
    RMD comment: That’s a profound statement. Say going into the financial crisis of 2008/9 you were a good boy: you kept your debt to a minimum, and your savings in CDs and stocks. After the crisis, you still had your debt, your stocks were crushed, and your CDs paid 0.01% rather than 5%. But you were a Wall Street bank leveraged 20-30 to 1. The government, i.e., the guy who was careful with his money, bailed you out.
    Before the financial crisis I read The Creature if Jekyll Island: A Second Look at the Federal Reserve (G. Edward Griffin, American Media). At first I thought it was kind of conspiracy-theory like, but I found it insightful. What really impressed me is that it gave the MO of the Federal Reserve: bail out the big banks, which is exactly what they did in 2008/9. The Fed was created to bail out the banks, and to allow the government to borrow as much as it wants. Considered from this perspective, it has been wildly successful. I recommend this book to you. 
    General Mills (GIS) was crushed last week, down 12.4%, citing higher freight and commodity costs, and cut its earnings forecast (see chart below. It doesn’t get much uglier than that). It broke through a long-standing support level of 50, to close at 44.21. The dividend yield is now 4.4%. Should you buy?
    RMD comment: Haven’t you learned from GE? Let it go.
    There was a feature article in the early to mid-90s (as I remember) in Forbes, just when the Internet was gaining traction (the IPO for Netscape was in 1995). It said the Internet would be the greatest protector of freedom ever, because it would allow the dissemination of information beyond the control of dictatorial governments.
    RMD comment: It appears that Facebook (FB) mines data, and that it voluntarily or involuntarily allowed the political campaigns of 2012 and 2016 access to the data. The Chinese government is using a person’s social credit score to determine their access to transportation and other goods and services (see Issue #508, 2/5/18, Who Can You Trust?: Part II of II: Trust in the Digital Age).
    What if the Internet turns out to be the greatest threat to freedom?
    With my offer to give a friend or associate a gift subscription when you extend your subscription, or to allow family members to piggyback on your subscription for $25, subscriptions are up 50%. Some people have not yet checked into the website to activate their subscription. You may wish to contact them, and encourage them to follow up on the opportunity. 
    Many of you have inquired about how I’m doing post back surgery. I think my progress is best described by the musical term adagio: moderately slow but moving.   

Site by Delta Systems powered by ExpressionEngine