HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
For 5 years, I have attended the Barron’s Art of Successful Investing Conference in Manhattan. I consider it one of the highlights of the year.
Zulauf
Felix Zulauf has been a Barron’s Roundtable member for years His advice is insightful and profitable.
In this currently conventional environment, gold in the next 2 to 3 years could go to $2,500 per ounce. But we will eventually have an unconventional situation (see below) and gold will go much higher. He watches the DJIA/gold ratio. It will eventually go to one (I have emphasized this many times). There will be corrections along the way, but these will all be buying opportunities.
Although current valuations in our stock market are not attractive, because of QE (Quantitative Easing), the downside of the DJIA is limited. But QE is not costless. After the current deflationary pressures finally abate in 3 or 4 years, Zulauf fears hyper-inflation. Stocks do provide a hedge against inflation.
There is much risk in the developed world. Emerging markets are currently at a premium to the developed markets, but they are also the main beneficiary what the Fed is doing. Money invested in emerging economies will also profit from currency changes.
He feels Singapore has the best government in the world and the strongest currency of the emerging countries. The fundamentals are strong and they have both a short and long-term perspective. There is a lot of Chinese money in Singapore, at least partially because Europe is moving in the wrong direction.
It will be a different world in 10 to 15 years. There will be currency restrictions. The OECD (Organization for Economic Co-operation and Development) will punish those that are successful. The Chinese will make sure your money is safe in Hong Kong
The Achilles heel in China is the next 2 or 3 years. There is both over-investment and mal-investment. Their real estate is more fragile than the government will admit. A real estate hit in China would be bad for everyone. The Chinese banks will hold up longer (than elsewhere) because of government control. Long term, China will do well.
His overall favorite investment is physical gold. You can hardly rent a safe deposit box in Switzerland because they are all full of gold. Many wealthy people think things are going wrong; they want to increase their gold holdings from 3-4% to 10-15%.
Commodity prices are determined by the amount of paper money flowing into the market; current economic weakness does not justify their price. Leading indicators are topping out everywhere and will go down into 2011; the economic surprises could be on the downside. A positive is the US Federal Reserve printing money.
The ECB (European Central Bank) is trying to unwind the QE they did in 2009. Short-term rates are up; liquidity is less available. This could trigger another crisis, maybe in Portugal or Ireland. Most US banks are unsound, but the European commercial banks are worse. There will be one mini-crisis after another.
Europe, lead by Germany, will go toward deflation, thus the Euro will do “relatively” better than the dollar. If Britain does what they say they will do (austerity measures), there will be a recession. But it is better than what the US is doing. (The next is one of his most important points, and I have been saying this for some time). The US must have a painful period that finally cleans things up. The easy way out is to print; but this destroys the system. All fiat currencies will eventually collapse. There will be more regulations, and it will be difficult to move your money.
The Euro is a misconstruction. They have tried to force many systems into one, and it won’t work. The real test will be Spain. It may look good, but their banks are in bad shape. Spain is too big (for the other European countries) to digest. It would end the Euro. Germany is propping up Greece, but the German people will eventually say enough is enough.
Zulauf’s recommended investment portfolio:
1) 20% gold.
2) 30-40% equities, majority in emerging markets.
3) Remainder; the currency of your choice in bills and notes of short duration (3 years or less). When there are corrections, take money from here and buy more #1 and #2.
He feels platinum is the least attractive of the precious metals and wouldn’t buy it. Silver has good fundamentals but has little monetary demand.
What will be the end-game? Without policy intervention (in 2008), it would have been worse than the 1930s. But at “QE 33 or 34”, the Federal Reserve will own the system; there will be hyperinflation and an eventual destruction of the currency. Gold will play a special role in the new currency system. There will be a relative decline in the power and influence of the US and the currently industrialized world and a rise in the underdeveloped world. The biggest risk for investors is political.
RMD comment: People in the US are so naïve. The Great Depression was a terrible time, but the last real break in the basic social fabric of our society was the Civil War, 150 years ago. As Barton Biggs notes in Wealth, War and Wisdom, once or twice a century, really bad things happen. I doubt if Washington or Franklin or Jackson would trust the government as much as we do. Buy some gold.
RMD
At the conference, I talked at length with a subscriber, a very successful New York City physician. He said “Bob, your newsletters are great, I learn a lot, and I have made money from your advice (ex, buying Silver Wheaton, SLW). But your letters leave me depressed, they are too bearish”.
RMD comment: He’s (partially) right. I have mentioned before that I need to adjust my internal thermostat a few more degrees to the bullish side.
I am naturally skeptical, because it is good to be careful and I hate to lose money. As I have noted since I began my financial writing; everyone is happy when things go well. I try to provide advice to protect you for the times when things don’t go
Although superficially my advice would appear pretty bearish, note it has been pretty right-on. I cautioned about the real estate bubble, cautioned about taking on debt, cautioned about the bear market in stocks. I am bullish on one thing—the precious metals.
An interesting stock you may wish to watch is Alexion Pharmaceuticals (ALXN).
New York City is something: Very stimulating and very cool. But by gosh, it is expensive. It is also just about the only place that people on the sidewalk walk as briskly as I do. My usual, leisurely, “cruising” speed is about twice as fast as everyone else. In NYC I was not consistently pushing past everyone else.
I was also impressed with the lack of obesity of the people in the Manhattan. Since this is a newsletter for physicians, I will take this as a chance to make a point: Want to lose weight, look better, feel better, and get your blood pressure, cholesterol, and blood sugar down?
Take the stairs. In general, there is almost no limit to how many floors I will go down. Going up: I take the stairs 2 at a time (I am convinced it is more efficient), and can easily go up 4 stories without breathing hard. Unfortunately, I can’t tell you the last time I have passed anyone, going up or down, on the stairs. I have seen people run for the elevator to avoid taking the stairs, even down just one floor. It’s really kind of pathetic.
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