HELPING PHYSICIANS ATTAIN FINANCIAL SECURITY
By Robert M. Doroghazi, M.D., F.A.C.C.
Throughout the history of humanity, three things have been universally accepted as wealth.
All of the basics of life, either directly or indirectly, come from the land.
The second is human capital. In bygone times, one human could actually own another, and profit from their labor. Now, every person has the ability to profit from their own hard work. As a physician, your most valuable asset is not your home or your vehicle or anything else you might own, it is your ability as a physician to generate income.
The third is gold. Gold does not rust, it does not tarnish, it does decay. It is estimated that 85% of the gold ever mined is still above ground. Humanity must have some storehouse of wealth, some medium of exchange, something that can only be created by the sweat of a man’s brow rather than on a whim of a monarch (or politician), and it has chosen gold.
Before proceeding on, let me say something about those who disparage gold as a barbarous relic and refer to those who are bullish on gold as “gold bugs”. I just don’t understand, and I see no reason, for this dismissiveness (sometimes with a tone of almost vehemence). I have never been a fan of bonds (I prefer CDs at your local bank), but don’t refer to those who invest in bonds as bond bimbos or bond boonies. Bonds are a very important class of investments I just don’t happen to like. My only conclusion is that these people don’t understand gold, and as so often happens, it is easy to say bad things about something you don’t understand.
I have quoted from Jim Roger’s Hot Commodities many times, where he provides data which shows to my satisfaction that financial assets and hard assets alternate leadership in bull markets that last 15 to 18 years. Since the commodity bull market began in 1999 and the stock bear market in early 2000, it suggests there are still many years to run in this precious metals’ bull market.
Short-term market fluctuations can de driven by anything, but long-term trends are driven by fundamental forces that represent a basic change. The bull market of the 1920s was driven by the automobile (as I’m proof-reading this, that was an unintended pun), electrification, refrigeration, and the radio, the bull market of the 50s and early 60s by America’s political and industrial hegemony, and the bull market of the 80s and 90s by advances in storing, processing, and transmitting information.
The fundamental factor driving this bull market in the precious metals is the depreciation, debasement, of the US dollar, of all paper currencies (some paper currencies will do better than others, but none are completely safe). The dollar is no longer as “good as gold”, having lost about 98% of its value since the creation of the Federal Reserve in 1913.
The federal budget deficit was $1.6T last year, and will be a similar figure this year. Politicians are taking the time-honored way of servicing this debt; they are inflating (counterfeiting) it away.
WSJ, 3/8/11. The current interest payment on the deficit is $200B a year, and is projected to rise to $928B in 10 years. “That would be 17% more than the government would pay to the elderly through Medicare that year…If interest rates rise more than expected…the chances of a downward spiral are high, not low”.
We are so naïve in the US when it comes to gold. Just read history; gold has always been money. Gold is still money the world over. When things get tough, after saving their skins, the next thing people save is the gold. If gold wasn’t important, why did Roosevelt call in the gold in 1933? Before the US entered WW II, why did he require the British to transfer, via a US warship, all of the gold they had kept in South Africa, to Canada?
Another quality possessed by gold is that it stands alone, it has no counter-party risk A CD or a bond requires the counter-party have funds when it matures. An insurance policy is worthless if the counter-party, such as Lehman Brothers or AIG, cannot live up to their end of the deal, as was so rudely discovered in the financial system meltdown of 2008-9.
I again recommend that the primary position in your investment portfolio be gold-bullion coins in your personal possession (at the safe deposit box). This can be supplemented by “paper gold” in your brokerage account, via ETFs such GLD, SLV, CEF, GDX, GDXJ, etc. Remember, gold is not going up; the value (purchasing power) of your paper money is going down.
Although gold has been up10 years in a row, history suggests that, although there will be corrections along the way, as we are experiencing now, there is still a long way to go. In the last precious metals bull market in the 70s, gold went from $35 to $850, a 24-fold rise. Gold bottomed at $255 in 1999 (Coincident with the Bank of England selling one-half of their gold hoard: just another example of governments making bad decisions). A 24-fold increase would take gold to $6200. I also believe that gold will probably appreciate faster than the US dollar depreciates.
Major secular bull markets; stocks in the late 20s, gold in 1979/80, Internet stocks in 1999/2000, real estate in 2005, tend to end in a blow-off, speculative phase. When you hear people that you know are poor, naïve investors touting the latest gold or silver play, bragging that they have doubled their money in one month on a precious metal stock(see below); then you know it’s time to get out. I believe that is still years away.
RMD
I started to short the NASDAQ in January, 2000 (it peaked 3 months later). I remember a physician bragging in the doctor’s lounge that he had doubled his money in one month on a stock I had never heard of. This is a disparaging, but I believe true, comment, but I consider physician sentiment to be a contrary indicator. I knew it was time to get out of the market when this guy was bragging about how easy it was to make money.
If you wish to but physical gold and/or silver, I suggest Stephen Davidson at Blanchard & Co (1-888-830-2646). Blanchard has been in business for decades and over the years Stephen has given me good service. Note: I receive no compensation for this referral.
This is from a subscriber who has been with me since I started the newsletter in September, 2006, in response to last week’s letter about why money is important and why it is important to manage your own finances.
“Money is important, especially if you don’t have enough…(I) am able to help our children and grandchildren whenever the need arises because I have been meticulous about what is happening with our finances.
One reason my retirement fund is healthy and ready to use when and if I ever stop working is because I took your advice years ago and invested in the precious metal stocks and a Fidelity Chinese stock fund…Thanks for your good advice”
JA, AZ
RMD comment: I suggest you remember and think about that. “Money is important, especially if you don’t have enough”. It will go in the next edition of my book. I think it is the quote of the year.
It’s not evil to honestly accumulate money. To the contrary; I believe thrift is a virtue (it is the ninth point of the Boy Scout Law). Money in the bank gives you peace of mind and allows you to help your family (and society). Financial insecurity can be devastating.
We don’t use testimonials in medicine, but the comment that one reason his retirement fund is so healthy is that he took my advice is just too good to pass up.
Wall Street Journal, 3/9/11. “Patients are demanding doctor’s orders for over-the-counter products because of a provision in the health-care overhaul that slipped past everyone’s radar. It says if people want a tax break to buy such items with what’s known as flexible-spending accounts need to get a prescription first…
The new requirements create not only an added burden for doctors, but also new complications for retailers and pharmacies”
RMD comment: As I have been saying for some time, one theme for the foreseeable future is increasing government interference in your life.
“Slipped past everyone’s radar?” Our laws are so long and complex it’s obvious our lawmakers have not read them or considered the consequences. We need some new lawmakers.
Skill in intellectual card games, such as bridge and Texas Hold’em, often go hand-in-hand with successful investing, because they both require the ability to identify, quantify and handicap risk.
To refresh your memory, in Texas Hold’em, 2 hole cards are dealt to each player. Then there are 5 “community” cards, the first 3 dealt as the “flop”, the next card as the “turn”, and the last card as the “river”. The players use these 7 cards to make the best 5-card hand. Occasionally, the board is the best hand or the players hold the same cards; the pot is then split.
Last week, in an on-line tournament, I was low on chips. In this situation, you just wait for a reasonable hand and shove “all in”. I had Ace-six. A player called with a pair of tens (a sound play on his part). I was about a 7/3 underdog.
The flop was 8-8-8. He now has a full house, eights full of tens. I have 8-8-8 with an Ace-high. The turn: another 8. His pair of tens was “counterfeited”; it went away. My 8-8-8-8-A beats his 8-8-8-8-10.
RMD’s Texas Hold’em/Investing Lesson #1: Don’t confuse obscene luck with skill, and start to think that just because you are making money you’re an investment genius.
When signing up for an online poker account, everyone supplies a screen name that is yours forever, or else the really good ones would just continually change their name. Some people (like me) make notes on the playing styles of opponents.
I didn’t know this, so I had to choose something right then. Obvious names like “Doctor D” and “Heavy D” were already taken, so I chose “Doctor D443 (part of my phone number).
Now that I’ve had a chance to think about it, I would be (say it rapidly):“Youth-In-Asia”.
A friend was in a local pawn shop looking for a gold bracelet. A pretty “rough” looking younger lady came in with a ring for which she had paid $100. Owner: “You can pawn it for $25 or I’ll buy it for $30”. She took the $30 and left.
RMD comment: If you need money so badly that you have to go to the pawn shop to get 30 bucks (and take a 70% loss on your investment), you’re in tough shape. My point: if you’ve got a solid job that makes a decent living; count your blessings and don’t complain. It could be worse, a lot worse.
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