"See this dark spot on your x-ray?" The pretty lady doctor at Patient First was pointing to a shadow on an x-ray of my chest. "That's where your lung has collapsed."
Boy, I thought, that sounds bad. "Are you sure? I mean, I just have a bad cold. I know I've been coughing for about a week... but a collapsed lung? I don't feel that bad. Are you sure it's not just a little congestion or something?"
You know the look I got in response. Women, in particular, are gifted at delivering the "denial ain't just a river in Egypt" look. And you probably know how much doctors like it when you question their diagnoses... especially if you're using something as reliable as common sense.
Of course, I was having trouble breathing. My blood pressure was way up. And my chest hurt quite a bit. "Look," she continued, warming up into full I'm-the-doctor-you're-the-patient lecture mode, "if you don't go to the hospital immediately, you could die. If that's OK with you, then just go home. Otherwise, I've called ahead to [Greater Baltimore Medical Center]. They're waiting for you. Would you like me to call an ambulance for you, or can you drive there yourself?"
Telling folks your chest hurts and you're having trouble breathing is the surefire way to cut ahead in line at a "doc in the box" place like Patient First. Likewise, when I arrived at GBMC, they had the red carpet waiting. Within minutes, the staff had stuck an IV in my arm, taken blood samples, and glued various sensors to me in what felt like 37 different places.
But once they felt sure I wouldn't die without setting off an alarm, not much happened. It took about three hours for the hospital to take another x-ray of my chest. It took another couple of hours for a doctor to actually look at it. And then about two hours for them to finally bother telling me that, in fact, I didn't have a collapsed lung at all. "It happens all the time," the head nurse told me. "The doctors at Patient First aren't working there because they graduated at the top of their class, you know..."
This misdiagnosis cost me 250 bucks and about six hours of my life. It probably cost my insurance company 10 times more. Sure, I'm glad I didn't actually have a collapsed lung... but I couldn't help but worry about our health care system. About five minutes after I'd been wheeled into a holding bay at the emergency room, the head nurse had come in to see me. He was a young guy, probably about 30. He had the bearing of a serious man. He was in extremely good shape. He looked like an experienced Army medic – he probably was a medic before he became a nurse.
He asked me a handful of simple, common-sense questions. How long had I been sick? How much difficulty was I having breathing? How much pain was I in? He had me stand up and listened to my breathing. He looked at me carefully – he even looked into my eyes and just stared at me for five or 10 seconds.
Then he said, "There's nothing wrong with you. You don't have a collapsed lung, I promise. Relax. You'll be here for a while, until we can prove it, but I'm sure you're going home tonight. Tell your wife not to bother coming down..."
We need a system that rewards people like that young nurse – people who have a gift for medicine. Instead, we have a system that rewards people who are good at following rules and procedures – people who don't know the first thing about health care.
What will happen once the government fully takes over health care? I don't know. But my bet is the government won't be any better at rewarding excellent doctors and nurses than the big insurance companies. My bet is the rules multiply. The lines get longer. And health care gets worse and worse.
Speaking of health care... Last weekend may forever be remembered as the end of America's honeymoon with OBAMA! Remember during OBAMA!'s presidential campaign, when he promised to deliver health care to the American people without raising taxes on anyone who earns less than $250,000? That's what he promised.
The math never made any sense, but who cares about reality in the midst of a presidential campaign? Now that the calculators are out and the checks have to actually clear, the story is changing. Last weekend, two of the president's economic heavyweights were subtly hinting at the obvious: Tax increases. Big ones. For everyone.
"There is a lot that can happen over time," Economic Council Director Larry Summers said. "It is never a good idea to absolutely rule things out, no matter what." Treasury Secretary Tim Geithner also chimed in: "If we want an economy that's going to grow in the future, people have to understand we have to bring those deficits down. And it's going to be difficult, hard for us to do... We're not at the point yet where we're going to make a judgment about what it's going to take."
People end up getting what they deserve – not what they expect. If you voted for universal health care, congratulations, you're about to get it – fast and hard.
Real estate investment trusts (REITs), which own everything from shopping malls to apartment buildings, have soared 60% since bottoming on March 6. But as Dan Ferris has been covering in The Digest for several months, we think there's much more pain to come in the commercial real estate (CRE) sector. Here's what the REIT bulls don't know – or are choosing to ignore...
REITs have $152 billion of debt coming due through 2013. These companies will either be forced to roll over the debt – a difficult task in the midst of a credit crunch – or default. And a lot of these companies already have dangerously high debt levels. Maguire Properties has 94% debt to capital. Meanwhile, occupancy rates are still decreasing, meaning cash flow is decreasing... Office REIT Kilroy Realty saw its occupancy rate approach 85% – the minimum level allowable under its loan covenants. It had to get the banks to waive them.
Investors buy REITs for their large yields. Near the March bottom, the average REIT yield was an impressive 10% (T-notes were yielding 2.65%, corporate bonds 7.35%). Now, they're down around 4.7% – less than much safer and stable investment-grade corporate bonds.
Plus, Samuel Lieber, president of Alpine Woods Capital Investors, has found the commercial real estate market lags housing. He told Bloomberg, "Housing stocks peaked in 2005, and REITs in February 2007, so REITs have two more years in their recovery cycle."
We're not the only CRE bears out there. At the end of the first quarter, Deutsche Bank expected the delinquency rate for CRE loans to reach 3.5% by the end of the year. But last week, Deutsche released some revised numbers... saying things will get much worse. As of June 30, Deutsche now expects defaults to reach 7% (from a current 4.1%) by year's end – doubling its previous estimate in a matter of months. The bank says the rate of deterioration exceeds the 1990s, following the S&L crisis, and has increased by 360 basis points (3.6%) in the past 10 months.
Things look so bad for the commercial property market, even Wall Street analysts (aka cheerleaders) are bearish. The Wall Street Journal notes Ross Nussbaum, UBS analyst for commercial real estate, lowered every one of his remaining buy recommendations to neutral last week.
To learn exactly how Dan Ferris is playing the coming crash in commercial real estate in Extreme Value, click here...
New highs: None.
In the mailbag... not as much venom as we expected, given our Friday Digest about the burdens of wealth. But... there's still time: feedback@stansberryresearch.com.
"I'm still shaking my head over your statement in the 7/29 Digest that you're thinking about paying 5,000-7,500 a month to rent a 3,500-5,000 sf luxury home because 'with rent that cheap, why buy?' I'd venture a guess that most of your subscribers are like me – hardworking and making less than $100,000/year and found that statement totally unbelievable. You could buy a 5,000 sf luxury home in my fair city (Spokane, WA) and pay for it in a year or less for what you'll spend in 'cheap' rent for a year in Miami. I can't imagine what you're willing to pay for a condo. I do appreciate your advice and the fact that, given your obviously enormous wealth, you are charging a very reasonable price for your newsletter." – Paid-up subscriber Jan
Porter comment: It's all relative, Jan. We have lots of readers who think spending $90,000 renting a house in the Hamptons for one week is normal and do it every year. I happen to love Miami. I've been waiting for prices to fall low enough to buy a small condo there, just to use as a weekend vacation spot. I believe if I can get a good enough price, I'll end up owning it for free. But what I've found is rents have fallen even more than home prices. So instead of buying a small place, I'm going to rent a huge place – at least for now...
The home we're going to rent is also for sale. The owners are asking $3.5 million. It's a six-bedroom, totally refurbished private house, with a pool, two blocks from the beach and two blocks from Lincoln Road in South Beach. It is one of the few private homes in the historic art deco district. Two years ago, this property would have sold for $5 million-$8 million. Today, the annual rent is around $100,000. That's only 2.9% of the asking price of the home. So... we could rent this house for seven years before we would have even spent the equivalent of the down payment. If you don't think real estate prices are likely to soar over the next three to five years (and I don't), you might find renting is a relative bargain.
"Porter, thanks for telling us how hard life is for rich people. I needed a good laugh, and I laughed out loud at that one." – Paid-up subscriber Tom Mackin
Porter comment: You don't see me offering to trade places with anyone, do you?
"Porter your wealthy and I be poor as far as money goes... but I don't understand why that takes a lot of bucks to be rich in life. If your lovable love is free and much more enjoyable then if you have to buy it. Health; live right, eat right You got it. Studes have shown enviroment does cause illness also but thats mostly in neihborhoods in citys or in rural areas where there is little water and poor qauility food. Adventure; the closer you are to things the more adventurious it is in my oppinion... A kyak through white water would offer more adventure then passing by a coast a mile out in a yaht. Security Is found within knowing no matter what, you can handle it.
"A simpler life is a more secure life. More money in my case I need very little to be happy but if I need more money I use one of my many skills to make it... but to me money is not security, after readying this artical seems to be a source of agravation and worry about keeping it. Seems to me true wealth would be found if you was to share your talents and know how with the less fortunate for a minimal amount then start some elitist club... you know, since you already have enough money to last you more then a lifetime. plus you will find like minded peeps... every one wants love, security, adventure and mo money. just different degrees I rekon.
"I truly hope your happy and you amase as much money as you think you want... I just hope it does not put you in a early grave worrying about how to hold onto it or go into deep depression if Bonner is right and those bucks become less valuable then tiolet paper.enjoy your life... spend the rest of your life blowing that money and die broke." – Paid-up subscriber "B safe"
Porter comment: I agree with just about everything you wrote – especially the idea that to be safe and secure in life you need skills, not just money. Henry Ford said it best: "If money is your hope for independence, you will never have it. The only real security a man will have in this world is a reserve of knowledge, experience, and ability."
Understanding this is a big part of The 400 Club. Having money doesn't make you happy or secure. But being a respected member of a group of friendly, likeminded people from around the world – people who are willing to share their experience and knowledge – that's a kind of wealth money alone can't buy.
"I signed up for PSIA on the recommendation of a good friend and brilliant economist Dylan Grice. He simply said 'these guys are smart.' I have put on small positions, cherry-picking the ones that made sense to me and felt I understood. Trailing stops a must. On Friday (I'm UK based), I was up 29% on my PSIA portfolio. I look at it this morning and thanks to FSLR I am up 47.67%. That was nine months of trading (so 63.5% per annum). For me you are the missing link to my trading. You do a lot of hard work digging for the gems, and in the main, you know the difference between iron pyrites and gold... My next trade is to become an S&A Alliance member. This will be paid for from the profits I make from your intelligent, timely, and succinct ideas. With much thanks..." – Paid-up subscriber Andy
Porter comment: Thanks for the wonderful compliment Andy... and for your business.
Regards,
Porter Stansberry
Baltimore, Maryland
August 3, 2009