HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
I believe you should have a 5-10% position (or even higher if you are comfortable with it) in the precious metals. As a general rule, a position below 5% is too small to have an appreciable effect on your portfolio. It must also be noted that positions larger than 15% decrease diversification.
Your core position should be US-minted gold coins kept in your personal possession at the safe deposit box at the bank (see below). If you keep them in your home, even in a safe, you run the real risk of getting stuck-up, as happened to one subscriber to this letter who made a lot of money in the last precious metals bull market. If just one person outside your immediate family knows, or even seriously thinks, you are keeping gold in your home, you are compromised.
I suggest you start with the 1 oz US Gold Eagles. The mark-up of about 4.5-5% over the spot price seems high when compared to the $8 or $9 commission to trade a block of stocks on-line, but remember; you are not buying gold coins to “trade”, you are buying them as a very long-term investment and insurance policy.
In the past, I recommended you avoid the smaller denomination coins because the mark-up, in absolute terms, was about the same as on the larger coins, and thus, in relative terms, represented a higher percentage. However, if gold goes far into 4-figures, a one ounce coin will be worth serious money and a pound of gold could approach 6-figures. Smaller denomination coins will be more liquid.
I also believe you should consider owning some physical silver. The problem with silver is that it is so much bulkier than gold. However, silver does have advantages.
1) Silver out-performs gold in a precious metals bull market. Historically, it takes about 50-55 ounces of silver to buy an ounce of gold. At the top of the market in early 1980, gold was above $800 and silver was $50/ounce; it took only 16 ounces of silver to buy one ounce of gold. The current ratio is about 62, suggesting silver is cheap.
2) Although gold is real wealth, the vast majority of daily routine commerce was transacted with silver. You didn’t take a Double Eagle (a $20 gold piece) to the store to buy bread or a sandwich or take the street car, you used a dime or quarter or half-dollar.
3) Silver would not be called-in, confiscated (see below).
4) One ounce US Silver Eagles are perfect for gifting. I love my nieces and nephews, but not enough to give them a gold coin. A Silver Eagle, or silver dollar, is perfect for a birthday or Christmas.
You must take personal delivery of your gold bullion coins. Do not accept paper certificates or let others hold the gold for you, because it might not be there. You also must deal with reputable dealers. Over the years, Stephen Davidson at Blanchard & Co. has given me good service (888-830-2646). For the record: I receive no commissions. I make this recommendation for your convenience, because Blanchard has been in business for decades and was one of the firms recommended by James Turk and John Rubino in The Coming Collapse of the Dollar and How to Profit from It (Doubleday, 2004. This book should be on your shortest reading list).
What about platinum, or any other rare/precious metal? I have no real opinion on this, but I would note that no central bank owns platinum.
In 1933, one of Roosevelt’s first acts after becoming President was to call-in the gold (confiscate is a more appropriate term. Since the 1790s, one ounce of gold was $20.66. Roosevelt immediately re-valued gold to $35, in effect confiscating billions of dollars of wealth from the good American citizens).
I suppose the gold could be called-in again, but I just can’t see it. I put the chance at less than 5%. If you are really concerned about this possibility, I would suggest pre-1933 circulated gold of numismatic value (this was exempt in 1933) and silver, and possibly platinum.
In the next issue, I will discuss how to invest in the precious metals in your brokerage accounts, and the miners.
RMD
Wall Street Journal, 4/10-11/10. On Friday federal regulators closed Beach First National Bank of Myrtle Beach, S.C., the 42nd US lender to fail this year. There were 140 bank failures in the US last year, the most since 1992, costing the FDIC more than $30B. Twenty five failed in 2008, only 3 in 2007. The number on the FDIC’s confidential “problem” list rose to 702 in the 4th quarter from 552 three months earlier.
RMD comment: We are not out of the woods yet. Do not go over the FDIC-insured limit at any bank. Although others may disagree with this advice, if you are over the limit, I would bust the CDs, take the interest penalty, and move the money to another institution. If the bank goes bust, you could get zero for whatever you are over the limit. Also again make sure all of your money market accounts are in US Treasury paper, and monitor the financial health of any financial institution where you do business, including your stock or commodity broker (s).
In 1981, Puxico, MO farmer Wayne Cryts had 33,385 bushels of soy beans at a grain elevator that went bankrupt. In the bankruptcy ruling, he lost the beans, then physically tried to take them back, was arrested by Federal Marshals, spent time in jail, lost his farm, and ended up as a janitor (my father became a custodian after he lost his job of 37 years as a foreman at General Steel). Many, including me, consider Cryts a hero; someone willing to stand up for something that appeared blatantly unfair.
With this, and the above bank failures in mind, I wondered about the legal status of the contents of your safe deposit box if the bank goes under, so I queried the bank presidents who subscribe to this letter. This was the most detailed response.
“The customer clearly owns the contents. The bank is only a bailee; a balement being a delivery of goods to a third person (bank) for holding pursuant to a contract and never owned by the bank. It is like a trust, the trustee never has any ownership of the trust assets, only the duty to hold and protect them, the breach of which never alters ownership of the contents. Thus any creditors, claimants to the bank’s assets, would never be able to touch the assets of the safe deposit box.
Never in any bank takeover by the FDIC has the safe deposit contents been broached by anyone other than in a case of abandonment or non-payment of rent in which case there are provisions in the contract for the box”.
From Scott Orr, who is an attorney and who also is an Advisory Director at Jonesburg State Bank, Jonesburg, MO.
RMD comment: Scott is a smart guy, I mentioned him in the acknowledgements to the second edition of my book. These are the sorts of out-of-the-box things you need to think of that might occur once in your life…and if you are on the wrong end, will cost you dearly, just as it did Mr. Cryts.
In 1950-51, the tiny town of Puxico, MO won all 40 games and captured the Class “B” Missouri State BB Championship. They repeated as state champs the next year.
Although all 5 starters played Division I NCAA ball, Puxico’s stud was Alva Winfred “Win” Wilfong. As a sophomore at the U. of Missouri, Wilfong was All-Big 7. After serving in the Armed Forces, the 6 ft 2 inch Wilfong returned to Memphis State and lead the nation in rebounding. He was chosen as the 4th over-all pick in the 1957 draft by the St. Louis (now Atlanta) Hawks, and played on the Hawks 1958 NBA champs.
I believe Oscar Robinson’s Crispus Attuck’s (Indianapolis, IN) team was the greatest high school basketball team ever (my med school roommate grew up in Indianapolis. He saw the “Big O” score 66 points in a game against his school).
Some team has to be second best ever, and I would nominate Win Wilfong’s Puxico Indians. An argument could also be made for the Bogey Redmon-lead 1961 Collinsville, IL team, and the Adrian Smith (played on the Cinn. Royals in the 60s)-lead Kentucky state champs, from a school so small that the 6th player was a girl.
Follow up. In Issue #99, entitled “Bonds Have Seen Their Best Days”, I thought interest rates were headed up and suggested you decrease exposure to fixed-income investments (bonds). On CNBC on Monday, Bob Doll of BlackRock (BLK) thought you should over-weight higher risk assets such as stocks and corporate bonds and under-weight low-risk assets such as cash and Treasury bonds.
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