HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
Last Monday I received a phone call from a man who calls about every 6 months or so with a tip on a “penny” stock. Every time he calls I ask (tell) him not to call back. He called back again two days later.
RMD comment: Such “cold” calls are often from brokers of marginal veracity with a “pump and dump” scheme. The business of a standard legitimate brokerage is to execute your trade. Ex: you wish to buy 100 shares of GLD. They buy the GLD on the market, place the position in your account, and charge you a fee for the transaction.
With the pump and dump operators, they buy a block of a cheap, sometimes even questionable, stock for their own account, “pump” it up, and “dump” it onto you. It is safe to say they will never be hawking stocks such as Berkshire-Hathaway (BRK), Proctor and Gamble (PG), or Caterpillar (CAT).
The worst-case scenario is they are just plain crooks. I suggest you read Born to Steal: When the Mafia Hit Wall Street (Weiss, Warner Books, 2003) to see what could happen by dealing with such characters.
Bottom line: There is never a reason to buy anything; stock, insurance, raincoat, a pair of shoes, from a phone solicitation.
Leveraged ETFs.
The first ETF, the SPY (representing the S&P 500), is about 20 years old. Then came “inverse” ETFs; if the S&P was down 2%, it went up 2%. More recently, there are leveraged long or short ETFs, which can move 2 (a few even move 3) times the average or the inverse of the average they track.
You must be aware that the results of the leveraged ETFs often “decay”; they do not track the average perfectly. Ex: ZSL is supposed to move twice the inverse of silver. On Thursday (5/12), SLV closed at 33.32, -1.07 (down 3.11%). ZSL closed at 28.10, +0.10 (+0.03%). If ZSL moved double the inverse of silver, it should have been up about 6%.
RMD recommendation: The leveraged ETFs have their place, they can be very useful, but they are not perfect. They are short-term trading tools, to be held a day or a week or so. Get in and get out. They are not investments.
In my opinion, the best vehicle for a leveraged investment is futures.
The market is at an inflexion point. It has been going almost straight up since the low of March, 2009. Defensive stocks, such as health care, have been performing well, and the period through October is often weak. I suggest you watch two stocks.
Copper is an integral component in almost all industrial and construction activity. I consider Freeport-McMoran (FCX) the stock market proxy for copper. As noted many times over the last year, FCX has led (anticipated) the market on both the way up and down. FCX is at the lows of mid-March and late December (chart below). If it breaks down, it could mean trouble ahead.
The ETF XLF (Financials Select Sector SPDR) is a basket of the largest financial stocks, including JP Morgan (JPM), Wells Fargo (WFC), Berkshire-Hathaway (BRKB), Citigroup (C), Bank America (BAC), and Goldman-Sachs (GS). It closed at a new low for the year (see chart, next page).
There has been tremendous volatility in the precious metals. For example, SLV has moved 5% or more on some days. You can take advantage of volatility by placing limit orders to buy or sell. For long-term investors, this is useful if you have been following a stock that you thought was over-priced and were looking for an entry point at a lower price. Put in a “wish” price and it just might get hit. Traders love volatility. If SLV opens at 34, you buy it on a dip at 33.5, and it closes at 34.5, you are up 3%.
St. Louis Post-Dispatch, 5/9/11. Top, front-page article. Columbia, MO. “Quiet College Town? More like Boomtown. Population surge, enviable unemployment rate feed vitality of 100,000-plus Boone County city”. The article goes on to detail the high educational level in Columbia, the stable, white-collar industries, such as the University of Missouri, health care, insurance, such as the home office of Shelter Insurance and the regional office of State Farm, and that last year Columbia was #8 on the Forbes “best small places for business and careers” list.
Columbia Daily Tribune, 5/12/11. “Almost 40% of Columbia Public School students qualify for the federally funded free or reduced-price lunch program”.
RMD comment: This doesn’t add up; a vital, growing, desirable city—yet 40% of the students qualify for subsidized lunches. A contrarian might conclude we don’t need to subsidize 40% of the school lunches in a city with less than 6% unemployment. The same argument could apply to those with a BMI (Body Mass Index) of 35 or more (i.e., very obese) who receives food stamps.
The next sentence in the Tribune article says “But there’s another population of students who need help—families that don’t qualify for the federal program but still struggle to pay for lunch”
RMD comment: This highlights two points about government aid. 1) If 40% of the people receive it, then the 41st percent feel cheated. When they receive aid, then the 42nd percent feels cheated, and so on. 2) It is the desire of those who believe in big government to make as many people as possible dependent upon them. These dependents (voters) are their power base.
With the back-off in prices, now might be a good time to add to your position in the precious metals.
RMD
The Columbia Community Band has played at various graduation ceremonies of the University of Missouri for years. I played at the J-School graduation on Friday night. Several of the graduates weren’t wearing shoes as they walked across the stage to receive their diploma.
RMD comment: EVERY DAY of the 23 1/.2 years I was in cardiology practice I wore a suit and tie to work. If you want people to respect you, you must dress and act to earn their respect.
There was an article in Forbes Magazine many years ago about the cities with the lowest unemployment rate. Seven or eight of the top ten were Midwest college towns (including Columbia, MO).
Over the ups and downs of the business cycle, the most stable employers tend to be education, government and health care. Contrast this to other cities and towns. My grandmother was raised in East St. Louis, IL (she was eye-witness to the race riots of 1917, the worst ever in the US). My mother was born there.
My grandmother said that prior to the Great Depression; if you couldn’t find a job in East St. Louis; such as at the stockyards, you couldn’t find a job anywhere (She worked as a cleaning lady at Shell Oil, and saw a man jump out a window and die on the sidewalk in front of her after the market crash of 1929). She noted that “The Depression never left East St. Louis”.
In the 1950s and 60s, Granite City, IL (my home town), was an All-American city, with tens-of-thousands of jobs at Granite City Steel (where my maternal grandfather worked, and where I worked during the summers), General Steel (where my father and uncle worked), NESCO (National Enamel and Stamping Co, makers of the Granite ware that gave Granite City its name, where my fraternal grandfather worked), American Steel, National Lead, AO Smith, Union Starch, and the Army depot.
Granite City Steel (United States Steel, Granite City Works) now employs just a tiny fraction of the number it did in the 1950s. General Steel is closed. NESCO is closed. American Steel is closed. National Lead is closed. Union Starch (the stinkiest plant in a town with a lot of stinky plants) is closed. The depot is closed.
Times change. The downtowns of both cities are now deserted.
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