HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
A lot of people think that are contrarians, but are just fooling themselves. Holding only 22 of the 30 stocks of the DJIA does not make you a contrarian. You must stake out a position completely different than the lemmings or the penguins (depending if you are at the North or South Pole).
I remember in March, 2000, when the NASDAQ hit 5,000. I walked into the doctor’s lounge and said “This is the short of the century”. I began buying the precious metals in the fall of 2003, when gold was $380 per ounce. I sold our rental condo at the Lake of the Ozarks in June, 2005, within weeks of the top of the real estate market.
What made me think about this was that I was recently talking to a subscriber, a physician’s wife I have known for many years. We discussed my comment that “Buy and Hold was a Myth”. “Bob, I got out of the market in October, 2007 (the absolute top), and went to 100% cash. Now, because of my reading, and your newsletter, I am in the precious metals”.
RMD comment: Smart girl.
I have come to these conclusions about why it is so difficult to be a contrarian.
1) Not a lot of people can think for themselves, look at the facts, and draw conclusions different than the crowd.
2) People don’t like it when you disagree with them. You are unpopular. And no matter how logical, well researched, and well reasoned your arguments; you are dismissed as just being out there. “You did what?? You bought what?? You sold what?? You’ve got to be kidding! I thought you were a smart guy”.
3) Time passes. It is counterintuitive, but the best result (for your popularity) is if you were wrong; because then you are open only to ridicule. “We told you not to do that”. The worst possible outcome, when things really get ugly, is if you were right! Only a few will admit this to you, and a unique few will admit they actually admire you for having the guts to speak up and follow your own convictions when you are in a minority of one. For the vast majority; they are mad at you (because they know you were right and you know they know it). The most common response: “It was just luck”.
So what are some possible contrarian positions? (Before proceeding on; let me say it is very unlikely any of the following scenarios will occur if there is a true fix to our budgetary problems, which would require cuts in entitlements and an increase in taxes).
Although more people are coming to appreciate the precious metals, most are still skeptical. That’s actually good, since when they finally become convinced, they will buy, which will push the market higher.
I think the US dollar, all paper money, will continue to lose value. Just play it all out in your mind; more borrowing, the unfunded liabilities, etc. When the final decline in the dollar occurs, signified first by the loss of our AAA bond rating, then by a failed Treasury auction, it will cause a financial crisis that will make late 2008-early 2009 look like a pool party. Buy physical gold.
One of my earliest newsletters reviewed Barton Biggs’ book Wealth, War & Wisdom. Biggs has been part of the Wall Street establishment since the 1960s, a successful, sophisticated, thoughtful investor. The book really had a great influence on me, and I again recommend it to you.
Biggs’ main point is that once or twice a century bad things happen, often without warning. The only time to prepare is yesterday. In the 1920s, the Jews were an integral part of German society. The had fought heroically for the Kaiser in WW I, owned many of the German businesses, esp. department stores, made up a good portion of the German professional class, and had won many Nobel Prizes. By 1945, they had either fled Germany, or were exterminated along with the rest of the Jews in Europe.
I’m not saying something bad will happen here—but could it? In 1814, the British burned the Capitol and the White House. In the 1860s there was the Civil War, in the 1930s the Great Depression. Seventy years of the greatest prosperity in the history of the world has made us in the US naïve. Seventy years is a long time.
What if we do have a real financial crisis? Unemployment will be high; some people will be hungry. States and localities will be forced to cut their budgets. Take what went on in Wisconsin by more than 50. Add in all the others who had a cut in benefits. If the US government is forced to seriously cut Social Security and Medicare, there could be 20 million elderly on the streets. There could be a huge tax increase.
Could there be social unrest in the US? We had social unrest in the ghettos in the 1960s. Remember Watts? Likewise, I am not preaching Armageddon. The chance of real social unrest is not high. In fact, it is quite low. But my point is that it is not zero. All I ask is you think about it; watch events, keep your eyes open, draw your own conclusions.
So what do I suggest? The easiest, most obvious, straightforward, the one that has been extremely profitable so far, and that I believe will continue to be profitable: physical gold in your personal possession. The University of Texas Endowment recently took physical delivery of $1B of gold bullion.
It would be even more desirable to have physical gold outside the US. Roosevelt called-in (confiscated) the gold in 1933. Also at the time, the US abrogated the gold clause in bonds; the US technically reneged on their debts. The government makes the rules; they can change them at any time. Be cognizant of the portability of your wealth; such as art, quality collectables, and jewelry.
I make the following recommendation with some trepidation, for fear of losing credibility. Keep some canned goods, staples and supplies in your basement. If you believe there will be significant food inflation (we already have significant food inflation), then it is actually a solid investment. You are exchanging paper money for real things that you believe will be more expensive in the future.
RMD
Consider this: Government policies penalize responsible citizens. Say you work hard, save your money, and stick to the established dogma that you must have 30-40% of your money in fixed-income. You loan your money to the US government and buy a 2-year T-bill. Current policy is keeping interest rates artificially low, so your return is a miniscule 0.7% per year. The government encourages debt and discourages savings by making interest tax-deductible and taxing capital gains, interest and dividends. After taxes, you receive about 0.5% per year.
As they say on the TV commercials; “But wait, there’s more”. Official government figures say inflation is about 2%. I have seen very well-reasoned article which show that, for at least the last decade, inflation has been under-estimated by about 3% per year (Remember; because Social Security and many other payments are tied to inflation, the government has a strong vested interest to keep the official numbers as low as possible).
All you need to do is go food shopping, or buy any staples, or fill up your gas tank, and you know that the official government inflation figures are completely bogus.
RMD comment: You work hard, save your money, loan it to the US government, and lose 3-5% purchasing power per year. Inflation is the time-honored way for governments to repudiate their debts. Inflation is a cruel and insidious tax that steals your wealth. I again suggest you convert your paper money to real assets—buy some gold.
Is gasoline cheap, or is silver expensive? Throughout most of the 50s and 60s, “Becky” (regular gasoline. The high-test premium was “Ethyl”), was 20-30 cents per gallon. Let’s make the numbers easy, and say the average=25 cents. One silver quarter would buy exactly one gallon of gasoline.
Pre-1964 US silver was 0.9 fine. An unworn silver dollar contains 0.77 ounces of silver. A quarter has 0.18 ounces of silver. At $45 per ounce, this is $8.10. With gasoline at $4 per gallon, a silver quarter can now buy 2 gallons of gas.
So: Is gas cheap, or is silver expensive? At least right now; some of the former and some of the latter (see more on silver below). I provide this example to 1) show the importance of studying history, and 2) being able to compare one thing to another provides a perspective that is often not available when viewing something in isolation.
I bought some platinum coins. These are my reasons.
1) Should the gold be called-in, platinum should be OK.
2) It provides diversification.
3) Platinum has industrial uses.
4) Although the desirability waxes and wanes, platinum is used in high-end jewelry.
5) I just wanted some platinum (I admit, a pretty weak reason, but occasionally just wanting something is OK. Likewise, if it wasn’t a solid investment, be assured I wouldn’t have done it).
I am not necessarily recommending you invest in platinum. Note that 1) to my knowledge, no central bank holds platinum in their reserves, and 2) platinum does not have the universal acceptability of gold or even silver. But interesting food for thought.
Silver has been on a monster tare (chart of SLV, below), up 150% since last August. Note that the premier silver stock, Silver Wheaton, SLW, which lead silver on the way up, has already turned down (see chart, next page). SLV has been up 13 of the last 14 weeks. Nothing goes in one direction forever.
I would be hesitant to make any commitments to silver right now. If you want to take profits in paper silver (SLV, etc); that’s up to you (I sold my SLV about 10 days ago). If you own physical silver (I do hope you have some) then hold it.
Forbes: May 9, 2011. “Femme Fatale” talks about Lynn Tilton, chief of private equity firm Patriarch Partners. Forbes wondered “How did Tilton turn $10M into billions of dollars in just a decade? Her answers baffled us (She claimed that all six of her funds returned 20 to 60% per year). Our questions angered her. Tilton’s lawyers sent threatening letters”. There is a full page discussion of the dozens of complaints and lawsuits filed against Tilton.
RMD comment: 1) Be concerned whenever there are returns above 20% year in and year out. The higher the return, the more you should be concerned. 2) I suggest you scrupulously avoid anyone with a history of previous lawsuits, formal complaints, or run-ins with the authorities. There are so many honest people out there that there is just no reason
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