Sunday, April 23, 2017

April 23, 2017, Bob Brinker's Moneytalk: Stocks, Bonds, Economy and Investing

April 23, 2017....Bob Brinker hosted Moneytalk live today.....(comments welcome)

STOCK MARKET....Brinker commented that the S&P is at 2348 - 2% under its all-time-high. The Dow closed at 20,547.

ANOTHER ARMAGEDDON FORECAST SHOT DOWN....Caller Debbie from Oregon asked if the stock market was in danger of collapsing since Treasury yields were the "lowest they had ever been."

Brinker indignantly responded that what she said simply is not true - that Treasuries have been lower in the past.  "It's just another Armageddon Forecast coming out like a tsunami over the past weeks."  Here are Brinker's comments thanks to this short clip from  dRahme. 

BOND MARKET/10-YEAR TREASURY....Brinker didn't talk about bond fund duration today, however he did comment that the 10-year Treasury yield is 2 1/4%.

MARKETIMER RECOMMENDS 20% INTERNATIONAL STOCK FUND ....Brinker said: "Right now, in our investment letter (Marketimer) model portfolios,  we are using about 20% ratio international."

Honey EC: While it is true that Marketimer model portfolio I and II have 20% international stock holdings (Vanguard FTSE All-World), it is not true for model portfolio III (balanced) - which has only 10%. 

BOB BRINKER SAID: "Schwab is a blue chip firm. Chuck Schwab is a friend of mine and he's been on our show."

Honey sez...Brinker almost never mentions Schwab when recommending brokerage firms to Moneytalk listeners. He almost always mentions Fidelity and Vanguard. With friends like that, "Chuck Schwab" doesn't need any enemies. 


==> Caller Richard from LA asked about a service offered by a brokerage firm that would provide you with a computer printout of selected exchange-traded-funds with a total cost of .06. Brinker argued with him that no one would provide that much service for so little fee.

==> Later,  caller Tom from Wisconsin called and stated that Vanguard Total Stock Market Index charges that much. Brinker agreed and stated that he knows because he owns that fund, but that was not what caller Richard was saying.

Honey EC: Now if your head is spinning over those two calls, here is a short clip that contains them both, thanks to dRahme. :)

CONGRESS AIMS TO AVERT GOVERNMENT SHUT DOWN AND REPEAL OBAMACARE....BB comments.... "Dysfunctional" Congress returns from recess next week facing a possible shut down Friday night....if there is any common sense left in Congress, they will temporarily extend the funding.....very costly and a waste.....National Parks will all close....

Thanks to dRahme for a short Moneytalk clip of Brinker's opening monologue.

FRANCE ELECTION (FREXIT COMING?).....BB comments: "France voter turnout makes a mockery of what happens here. They have 80% turnout."  It looks like a run-off between LePen  and Macron.

Honey EC: If Le Pen can win, she will likely be instrumental in bringing about a Frexit. Thank to dRahme, here are Brinker's comments about the election in France. 

PRESIDENT TRUMP PRESENTING NEW TAX PLAN NEXT WEEK....BB said: "The president has promised this Wednesday he will announce the largest tax cut in the history of the United States."

Honey EC: Brinker gave his perspective on the possible upcoming tax cuts. Over the years, I have noticed that he is usually agin' em.....see dRahme's clip and my list below. 

BRINKER "DON'T KNOW ANYTHING" BUT....BB speculated about what loopholes and deductions Congress may look at to make up for cuts. Thanks to dRahme for this short clip. 

CALIFORNIA'S MORE EQUAL RETIREES.....Caller Susan from the San Francisco area, whose husband was retiring from a State University, needed help deciding whether to take a lump sum or monthly lifetime payouts.  
The lump sum offered was $1.8 MILLION. The monthly payouts were indexed for inflation and totaled $10,800 monthly = $130,000 per year.  
Susan claimed that her husband "didn't make that much" during his years with the University, but their net worth was about $2 Million. . 
Brinker advised her to take the lump sum and invest it in a balanced portfolio of stocks and bonds. 
Susan said that her husband was listening to the call and laughing because he agreed with Brinker - whereas, Susan wanted the monthly $10,800. 
Honey EC: As a Californian, I will refrain from commenting - but I did need to be pulled off the ceiling. 


On today’s show Bob Brinker mentioned some tax reform measures soon to be considered in The Swamp. Don’t assume it will all be rainbows and unicorns – that was the message from Bob and it is also the message from Jason Zwieg, author of The Intelligent Investor Column in the Wall Street Journal on April 22, 2017.

Mr. Zweig warns us that there may be some unappetizing changes to 401(K) plans in the offing. Why? Because an estimate he gives in his column is that if pre-tax 401(K) type contributions are taxed, that would generate $1.5 Trillion over the next decade. This is just too big a pot of money for the Swamp Creatures to ignore.

Will the Trump administration put the kibosh on this? Unknown. Gary Cohn, late of Wall Street and now director of the White House National Economic Council discussed ideas that would remove pre-tax benefits from retirement accounts with the Senate Banking Committee recently.

The four “legs” of a sturdy retirement stool are: a 401(K) type plan, a pension, personal savings and Social Security. Only 13% of employees nationwide have BOTH a 401(K) type plan AND a pension according to the article. What percentage of Congress has both? The number is 100% according to Mr. Zweig. If that was your guess, then go to the head of the class.

What is a Congressional pension worth? The average of recently retired swamp creatures in 2015 was $41,316. But if you’ve been in the Swamp for 30 years or so, you slither away with anywhere between $104,600 and $ 130,500!

The government (uh… I mean the taxpayer-Serfs) match 5% of what the Swamp Creatures choose to put into their retirement fund. Even if they contribute nothing, the taxpayers kick in one percent of their $174,000 salary. That’s $17,400 of free money for Swamp Creatures whereas the maximum for the Serfs is $18,000 and most of that money comes out of their own earnings.

"No man's life, liberty or property are safe while the Legislature is in session." A quote from Gideon Tucker, a 19th Century American lawyer, newspaper editor and politician.

Honey here: Thank you for that educational wake-up call. Brinker didn't mention any of that. He did list these items as possibly being in the crosshairs of "The Swamp Creatures." 
  • Taxing employer paid health care benefits
  • Ending mortgage deductions
  • Ending destructibility of state and local taxes.
Brinker did not have a guest-author today.

Radio Stations:
710KNUS Denver
KION 1460  Monterey

Sunday, April 16, 2017

April 16, 2017, Bob Brinker's Moneytalk: Stocks, Bonds, Economy, Interest Rates

April 16, 2017...Bob Brinker hosted Moneytalk live today....(comments welcome)

STOCK MARKET....Brinker comments:  S&P 500 all-time-closing high was 2395. It is now at 2328 = 2 3/4% decline.....Brinker told some callers today that he is still recommending dollar-cost-averaging for new money and he maintains a fully invested position. However, as always, he recommends a "balanced" asset allocation for those in or near retirement.

Honey EC: Brinker considers the stock market "fairly valued," but believes it has the  "potential to make gains into the 2400s range." 

EXCEPTION TO THE 50-50 IN RETIREMENT RULE....Caller Jeff from Chicago said he is 50 years old,  and has achieved the Land of Critical Mass.  He said he has an $85,000 yearly pension,  buukuu bucks in investments, with 70%  in stocks.   He wanted to know if Brinker thought that was the correct stock allocation for him.

Brinker advised Jeff to lower his ratio to 65/35  "as long as the outlook for the economy and market is favorable."

Honey EC: Nope, Jeff didn't not say he had "buukuu bucks." That was my sarcasm. I wonder why Brinker no longer asks which branch of the government these "more equal" people retired from at age 50 to get a pension that would make most who worked longer in the private sector drool. 

NON-DEDUCTIBLE IRA OR S&P 500 INDEX.....Caller Tony from Chicago that Brinker says he "loves - loves the Windy City," asked which is a better choice for investing a chunk of money tax-wise: is it better to put money in a non-deductible IRA or simply buy the S&P 500 Index Fund.

Honey EC: Is that clear as mud? I hope some of the BRT (Blog Research Team) will add to what I said. Unfortunately, my recording of that portion of the program was corrupted and I could not replay it. 
==> BRT member dRahme came to my rescue and has made a short audio clip that contains lots of IRA info and also the call from Tony from Chicago.  The call begins about half way in. 
PRODUCER PRICE INDEX....Down 0.1% for the month of March....First decline in seven months.

CONSUMER PRICE INDEX.... Declined in the month of March...."Don't lose sleep over the issue of inflation." 

CONSUMER SENTIMENT.... "Continues to be strong....even though the economy looks really weak in first quarter.'

GROSS DOMESTIC PRODUCT....BB comments: There is nothing happening right now that suggests growth acceleration in the first quarter....."Last year, we had real GDP in the 2% area, which is where it has been on average for several years.....Motor vehicle sales slightly down - sluggish.

HOUSING.... on a upswing, but not overheating.
==> Thanks to dRahme a short audio clip of the opening monologue which contains a lot of information and data. As he said, one of the better Moneytalk shows.
NATIONAL DEBT AND DEFICIT....Brinker comments: The national debt is very close to $20 trillion....There was a large increase in the annual deficit last year, ending September 30th....The budget deficit soared 35% to $588 Billion, which is added on to the National Debt....The budget deficit over the past 12 months is $653 billion. That's 3 1/2% of GDP, which is higher than almost anyone thinks it should be as a percentage of GDP. It's the largest....since the end of 2013.

DEFICIT NEXT YEAR. Brinker comments: The Office of Management and Budget is projecting a $600 billion deficit for the year ending September....That would anticipate some tax revenues coming in between now and September that will take it down from the current $653 billion......But even that would be higher than last year which was 35% higher than the prior year.  went on to make some negative comments about this projection, claiming it does not include tax cuts, increases in defense spending, infrastructure etc.

Honey EC: Since President Trump took office, Brinker has been harping on the debt and deficit almost weekly. So much so that again today, he got confused between the deficit and the debt. He really needs to get a grip on that.  During the 8 years of Obama Administration, the National Debt doubled what it was for ALL other presidents combined, but Brinker seldom brought it up. At least he gets credit for now pointing out what happened last year. 

POLITICS... Brinker sang the praises of the Congressional "Freedom Caucus" as being the "only group standing up for fiscal responsibility." ....."on April 28th.....if they fail to extend government funding "we could be looking at a government shutdown." Congress is on a two-week recess until April 24th.....It's generally expected that they will pass a funding bill by the 28th.

Honey EC: I don't s'pose there is any political bias in Brinker. He told us a couple of weeks ago that he had no pony in the race, or was that a dog in the show, or.....? :) 

NORTH KOREA.... BB comments: "North Korea is a hotspot, that could affect what we spend on military this next year."

Honey sez: Ya think? Too bad something wasn't done to take the nukes away from the madmen over there back when it would have been cheaper and SAFER. 

Bob Brinker's guest-author today was Barbara Weltman - the tax lady. She recommended the website for JK Lasser. I took a look and see a lot of questions and answers there, or you can ask your own.

* Taxes due on April 18th this year because of weekend and holidays.
* You can apply for a federal six-month extension - check with  your state if it has tax.
* No dramatic changes to tax code this year
* Some new numbers - don't carry over numbers without checking.
* Traditional IRA: $5500 individual maximum
* Traditional IRA = withdrawals start at 70 1/2
* Roth = tax free, no required distributions.
* Waltman holds hope that there will be some new tax simplification. Brinker is cynical about the possibility.

Bob Brinker highly recommends Sheela Kolhatkar's book  "Black Edge."  FrankJ read the book and has done a book review on it.  Frankj. has generously shared his book review with us. Enjoy!


Book review of “Black Edge, Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street.”

About two months ago, Sheela Kolhatkar was Bob Brinker’s third hour guest on MoneyTalk. Sheela is a former hedge fund analyst and is now a writer. Her book, “Black Edge” was published in January 2017 by Random House.

Bob was enthusiastic about the book during his February 26, 2017 interview with the author and for good reason. It is a compelling narrative of the federal government’s efforts to prosecute insider trading by hedge funds. The title, “Black Edge” is a reference to insight taken to the extreme, that is, “insight” that comes about as “research” in the form of illegally obtained inside information. Prior to the book’s publication, Bob made statements on the show reflecting his disdain for the hedge fund model and skepticism on how they could earn outsized profits without using inside information.

Having recently finished the book, I can say Bob’s take is right on and reading it was well worth my time. I’d go so far to say that anyone invested in stocks (or bonds) should consider reading the book. At about 300 pages it is not overly long. The author describes a multi-agency and multi-year investigation into a number of hedge funds in a way that keeps the reader’s interest and presents the right amount of background on the main players on both sides of the law.

The subjects of these investigations display a number of human traits, none of them admirable: greed, dishonesty, arrogance, jealousy, vindictiveness, fear, betrayal, and misplaced loyalty. Sure, there are the sometimes extravagant philanthropic acts, but they seem to be more of an insurance policy against bad press and a “buy in” to certain social circles than anything else.

The book opens with the investigation into Raj Rajaratnam, head of Galleon Capital, a hedge fund that was cracked by the FBI using phone taps. Raj was arrested in October 2009 and sentenced to eleven years in prison in 2011. This investigation alerted the FBI to various groups of insiders talking to one another and passing along inside information. ­­The names SAC and Steve Cohen kept coming up, leading investigators to begin looking at the firm.

SAC Capital and its owner, Steven Cohen became the ultimate target of the investigators. Cohen is described in the book as a hub within a wheel. The spokes were traders and portfolio managers feeding him investment ideas with “conviction” ratings from 1 to 10, the highest. When an investment idea sported a 9-rating, the implication is that it was based on inside information. Employees at SAC were tasked with bringing in this “edge.” The firm’s profits depended on these advantaged trades and so did the compensation of the employees. Those garnering the information leading to profits were generously rewarded and those who did not were fired.

One of these was Matthew Martoma who was mentioned by the author in Bob’s interview and written about extensively in the book. Martoma was not a sympathetic character by any means; indeed he was one of the more slippery and duplicitous players in the story. He managed to get himself expelled from Harvard Law School in his second year. After that he “remade” himself, changing his name from Ajai Mathew Mariamdani Thomas to Matthew Martoma and enrolling in Stanford’s MBA program in 2001.

He started at SAC in 2006, in the pharmaceutical area, a favorite hunting ground of Cohen’s.

Martoma’s interest in Alzheimer’s research led him to a medical doctor named Sid Gilman. This “match” was made through a consulting firm (an expert network) used by SAC to connect its people with experts in various fields. Gilman, in his seventies but still very active, was part of a group following the trials of bapineuzumab, (“bapi”) a drug being jointly developed by Elan and Wyeth.

These experts were paid handsomely for their information. In each of three separate years, income from consultations easily outstripped Gilman’s university salary of $310,000. In theory, experts like Dr. Gilman don’t reveal non-public information but in fact, that is exactly what Gilman did when he showed Martoma the PowerPoint slides summarizing the results of bapi’s Phase II trials nine days before they were made public.

The results were mixed but Gilman believed the drug still had some promise. But Martoma knew how Wall Street would react. His black edge allowed SAC to unload all its shares in Elan and Wyeth (worth over $1 billion). Then they shorted $960 million worth of Elan – all before the public knew the outcome of the Phase II trial.

Martoma had maintained contact with Dr. Gilman over a two year period for one reason, to obtain the “black edge” he needed to succeed at SAC. The company avoided a catastrophic loss on the long end, and made $276 million on the short trade. His $9.38 million dollar bonus in 2008 put him at critical mass.

There were no laurels to rest on though. His next big pharma deal went south when the FDA pulled the plug on a drug under development by InterMune. SAC’s 4.5 million shares went from $45 to $9 per share. Cohen’s top guys wanted to fire him but Cohen gave him a reprieve which didn’t last long. In May of 2010 the “one trick pony” was out.

Martoma moved his family to Florida, bought a $1.9 million dollar house, and plunked $1 million into a foundation named after him and his wife. The foundation gave them a nice tax write off and a way to charge $22,000 in travel and expenses.

Karma caught up with Martoma in the driveway of his home when FBI agents confronted him and said “We want to talk about Elan and July 2008.” He was convicted in February 2014 and sentenced to 9 years in prison. The Feds confiscated the house, savings and investments and the foundation money. Stanford clawed back the MBA degree because his expulsion from Harvard came out during the trial -– a fact he neglected to mention on his application to Stanford.

The story is not without drama on the Fed’s side of the table. Two FBI agents B. J. Kang and David Makol were fiercely competitive, each wanting to get the “edge” on the other. The SEC was smarting for having let Bernie Madoff fly under the radar for so long. And, the SEC enforcement staff had been discouraged from chasing big cases by the chair, Christopher Cox who served until Mary Shapiro was appointed in 2009. Once these agencies started to turn over rocks and began seeing what was underneath, the investigation expanded.

The media conscious US Attorney for New York’s Southern District, Preet Bharara was eager to rack up some wins against Wall Street Wise Guys. Bob Brinker expressed his anger on a MoneyTalk broadcast after US Attorney Preet Bharara was fired. New administrations replace US Attorneys; it is a fact of political life. Bob probably figured there is much more work to be done and I agree. We’ll know if the new administration is up to the task in the fullness of time.

Despite pressure from the Feds, Martoma never “flipped.” Others caught in the Fed’s net turned in friends, college buddies and former co-workers to get themselves a better deal. The author explores the possible reasons why Martoma did not implicate Cohen.

I liked the fact that the author included a cast of characters at the end of the text. With so many people involved on both sides of the table, the reader will find this is helpful in keeping track of the good guys and the bad guys during the 10 year time span of the narrative. The book includes 30 pages on notes and sources and an index.

I recommend the book with a “sure thing” conviction rating of 10.

Here is the link to Frankj's Summary of Sheela Kolhatkar's appearance on Moneytalk February 26, 2017.
Radio Stations:
710KNUS Denver
KION 1460  Monterey

Sunday, April 9, 2017

Bob Brinker's Moneytalk: Re-Runs and Spliced Old Calls - Honey's Brinker Update

April 9, 2017....Bob Brinker did NOT host  Moneytalk live  today. It was all re-runs.....(comments welcome)

STOCK MARKET....Today, Brinker chose several old Moneytalk calls that back up his current stock market views..... (Which is no change from fully invested, but he recommends a balanced asset allocation for those near or in retirement. NOTE: Brinker is expecting the market to register several new highs this year, but would view a short-term correction as a "favorable development."

MARKETIMER APRIL ECONOMIC ANALYSIS....In the April issue of Marketimer, Brinker reviewed the five root causes of a bear market.  These indicators are part of the information Brinker uses in his "timing model."  

Indicator data and paraphrase some of Brinker's conclusions: 

==> TIGHT MONEY.....The Federal Reserve is using a 2% target for inflation.... and has raised  interest rate twice since December 2016, but even so, they still have a "highly accommodative" Fed Funds rate - now  in the 0.75% to 1.0% range....if the economy continues to grow moderately, Brinker expects the Fed to raise rates two more times this year.....The Federal Reserve is on record stating that "gradual adjustments" are to be expected going forward.

==> RISING RATES.....The FOMC is on record estimating that Fed Funds rates will gradually increase until it reaches an equilibrium of about 3%......the latest projections are for them to rise to 1.38% by the end of 2017;  2.43% by the end of 2018; and 3% by the end of 2019.....
Brinker said he continues to monitor the yield curve, which remains in an uptrend...."The absence of an inverted yield curve strongly suggest that the economy will remain in its moderate growth path." Over the past half-century, an inverted yield curve has served as the underpinning for recessions.  
==> HIGH INFLATION....The PCE price index (Fed's favorite), continues to show overall inflation below the Fed's target of 2%.....The FOMC median forecast for PCE inflation for year-end 2017 is 1.9%, and long-term forecast is 2%.

==> RAPID GROWTH....Brinker estimates a moderate, but slightly higher growth rate for 2017. He said: "We estimate real GDP growth for calendar year 2017 will be within a range of 2% to 3%, with a midpoint estimate of 2.5%......" Brinker's estimate is higher than the Federal Reserve estimate of 2.1%.....

.....The housing sector continues to gradually improve... New home sales rose 6.2% in February to a 592,000 unit annual rate. On a 12-month average basis, the sales rate is at its highest level since August 2008. The median new home price rose 3.8% year-over-year.

==> OVERVALUATION.....Brinker estimates 2017 S&P 500 Index operating earning within a range of $129 to $131....and maintains a price/earnings valuation range of 17 to 18 times operating earnings. Stock market valuation is still below the 1999-2000 bubble level where the S&P  reached about 30-times operating earnings at the peak in the first quarter of year-2000 - which was followed by a 49% bear market.

Honey EC: So it looks like all is well in the economy and no bear market looming, at least until valuations, interest rates, and/or inflation spikes. 

MONEYTALK  RE-RUN COMEDY....Brinker found an old call (I remember laughing the first time it aired) where he says he has no political bias. He preached about how "both parties" have their radio pundits who receive talking points every morning and go on the air to sell them. But - the big one - claims that he does not do that. He claims that he has no "dog in the hunt,"  has no political-party bias, and that he is registered Independent.

Radio Stations:
710KNUS Denver
KION 1460  Monterey