HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
Why we are Having Problems and How to Resolve Them.
Part IA: Historical Background Through 1940
The US dollar is no longer “as good as gold”. We; our government and our people, are burdened with obscene amounts of debt. The US government borrows 40 cents of every dollar it spends. Our housing market is a disaster and shows no signs of improvement. Our financial system; the worlds’ financial system, is fragile. Unemployment remains stubbornly high.
In this series of articles, I will start by providing historical perspective, then define what I believe are the problems, and finally provide some suggestions on how they can be addressed. You may or may not agree with my interpretations. Rather, my goal is for you to be have the information and data to be able to play out in your mind how our current financial problems might end, so you can take appropriate steps to protect your wealth.
The US has suffered through many economic panics/busts/recessions/depressions. Rampant speculation in western land (think of the recent housing bubble) ushered in the Panic of 1837. The severe economic contraction (depression) lasted 4 or 5 years and cost Martin Van Buren, Jackson’s hand-picked successor, the election in 1840.
There was a panic in 1873. The downturn in 1893 was so nasty that by January, 1895, the US government was within one day of running out of gold to redeem its bonds (i.e., the government would have defaulted), only to be bailed out at the last minute by a deal brokered and backed by JP Morgan. The Panic of 1907 only ended when (again) JP Morgan came to the rescue, locking all of the big New York bankers in the study of his library until a plan was formulated to restore confidence.
The first point I would like to make is that the US has experienced many panics and recessions and depressions prior to the Great Depression of the 1930s, but always bounced back even stronger. The reason was because our system was self-correcting. Poorly run and managed businesses closed, debt was liquidated, and the people who made the bad decisions and were over-leveraged were the ones hurt most. Prices fell until they were low enough that people began to buy and business activity picked up. Since debt is often the final common denominator of panics/crashes, these events served to remind people of the importance of prudence and thrift.
After the Panic of 1907, during the Progressive Era, 3 changes occurred in the fabric of our society and our government, which I believe have interrupted this capacity for the system to correct itself, and which I believe are contributing to our current problems.
1) In 1913, the XVI amendment to the Constitution was ratified, allowing the direct taxation of incomes.
2) Just a few months later, the XVII amendment allowed the direct election of senators. We were becoming less of a republic and more of a democracy.
3) The Federal Reserve was created in December of the same year. Politicians now had the ability to create paper money.
The stock market topped out in late 1929 and then crashed, taking the economy with it. But the Great Depression of the 1930s was more prolonged and more severe than any in our history, and really only ended when we geared up for WW II. Could the inordinate length and depth of the Great Depression have been because of government interference?
In the next Interim Bulletin, I will complete the historical perspective, reviewing from WW II to the present day.
RMD
The DJIA was down 240 points on Friday, and is again approaching that critical 10,700-800 level, the low of early August (see chart next page). That level has already been tested twice, and held. Will it hold again?
The three stocks I have been watching most closely are Freeport-McMoran (FCX, the stock market proxy for copper), Goldman Sachs (GS, the “Masters of the Universe”), and Bank America (BAC). FCX continues to drop, GS is 15% below its level of early August, and BAC is hanging on by its fingernails.
RMD comment: This is all very scary. I really don’t know where the market is headed. My advice to you is not to do anything stupid. There is nothing wrong with just sitting in cash to wait and see how things shake out.
What about gold? Was the recent overnight low of $1,535 the final low for this move? Look at the chart of Newmont Mining (NEM, page 4). NEM pays a dividend of almost 2 %, about the yield of the 10-year Treasury, and it will increase the dividend pari-passu with the price of gold. NEM has recently far out-performed bullion, which I consider bullish. Also note that NEM has not even touched its 50-day moving average (the blue line in the graph), which I consider very bullish.
I don’t know if we have seen the final low for this correction, or how long it will last, but if you were looking for an entry point to re-establish or add to your position in the precious metals, this might be it.
On 9/29/11, Bob Pisani of CNBC said he was at a conference in the wine country of California, and noted there was a lot of interest in owning physical gold.
I called the local coin dealer on Saturday. “I don’t have any gold bullion coins. Everyone is buying, no one is selling”.
RMD comment: buy some physical gold
One of my best newsletters was “Being Efficient” (Issue #63, 5/4/09). Here are more suggestions to help you and the nurses and others you work with to do a better job.
1) Even the best workers cannot do a good job without adequate direction and instruction; if they don’t know what is expected of them, what they are supposed to do. Make it clear you are only to be called with information that will result in a change in therapy. You will never again receive a call “I just thought you should know”.
2) When I was on call, I routinely called all the floors where we had sick patients, such as the Medical Intensive Care Unit, Cardiac Intensive Care Unit, Surgical Intensive Care Unit, the Cardiology floor, and the Emergency Ward, before I went to bed. The nurses saved up their calls. They were happy because they knew I would call and they could get their questions answered, and you are doing a better job. It also made it much less likely I would later be awakened for a call of marginal significance.
Son Michael forwarded me an article On the Valuation of Psychic Returns to Art Market Investments (Economics Bulletin, Vol. 25, #5, pp. 1-12). The article attempts to estimate the psychic returns “since art has a superior goods consumption aspect”. By looking at the prices charged for renting fine art and alpha from the art market applications of the CAPM (Capital Asset Pricing Model, a tool to calculate the expected return using its risk relative to the market) coupled with transaction cost data suggests that the psychic returns from investing in art to be about 28%.
RMD comment: Note that the first method used to estimate the real value was rental rate. This removes “potential” appreciation, depreciation (tax laws change), emotion (the psychic return), and everything else from the equation. It provides a value based upon the cash money people are willing to pay. Remember this when you are buying a house.
From a (devilish) subscriber:
“My wife made a pirate-themed cake for our 4-year olds’ birthday party complete with fake coins. I substituted two Silver Eagles and made sure to give those pieces to adult family members. No one noticed the real silver coins. Had I placed a $20 bill on the cake everyone would have noticed immediately. People have gotten so used to our IOUs (paper money) that they don’t recognize the real thing when it’s in front of their nose”.
OO, TX
RMD comment: Stories, anecdotes, are often more effective and better remembered than statistics to illustrate a point. We are so naïve in the US; most people don’t even
Site by Delta Systems powered by ExpressionEngine