Sunday, September 21, 2014

September 21, 2014, Bob Brinker's Moneytalk: Stocks, Bonds, Investing, Economic Show Summary

September 21, 2014....Bob Brinker hosted Moneytalk live today......(comments welcome)

STOCK MARKET....Brinker said: "We are looking at the S&P 500 trading very close to an all-time historic record level; a Dow Jones Industrial Average that has been making all-time historic new highs."

Honey EC: Absolutely no change in Brinker's stock market outlook. He still recommends being fully invested and dollar-cost-average new money. He recommends a balanced asset allocation for those in or near retirement.  

ECONOMY/JOBS/HIGH CONSUMER CONFIDENCE AND GROWING CORPORATE EARNINGS....Brinker continued:  "And we are looking at all of this in the context of an economy that continues to grow – despite the naysayers that are out there – that are trying to pretend that it's not true.  We are seeing growth in this economy.  We are seeing new jobs in its economy.  We are seeing a relatively high level of consumer confidence that has been coming in consumer confidence surveys.  We are seeing all of this within the context of growing corporate earnings, which is – by the way – a very important piece of the total picture."

Honey EC: Wow, if I could carry a tune, I'd start singing "Happy Days are Here Again." :)

BONDS/DURATION.... Brinker still touting low duration bond funds and willingness to trade credit risk for interest rate risk. Brinker said: "I don't have concern right now about credit risk. I like the credit risk in this economy as a trade-off against duration."

ALIBABA HOT IPO....Brinker said: "Hey did you see that Alibaba initial public offering?  We talked about it the last couple of weekends on Moneytalk.  And we said that all the buzz on Wall Street was that this was a hot IPO and a hot IPO is supposed to go up the time after the initial public offering is priced.  The initial public offering was a big one, it was priced on Thursday night at $68 a share which was the very top of the estimated price range.  And it traded on Friday in the $90 range all day long – reached $99 at the high point of the day and then fell back -- up sharply for the first day around $93 a share.

BRINKER SEZ HE TOLD YOU SO..... Brinker continued: "So as we said on the broadcast, if you are able to get IPO price shares at $68 a share,… You were in line to get a nice pop in the stock on the first day… That is exactly what happened and it was what investors expected to happen.  It was tough though especially for individual investors, it was tough to get their hands on shares.  Because this was an IPO that was institution oriented really by necessity in a way because there was such a large distribution of stock on this IPO.  So as a result, it was thought that the best way to  market this was to go right to the institutions – and the institutions gobbled up a lot of shares.  That's where a lot of the stock went.…

AND HERE'S HOW IT WILL PLAY OUT.... "Brinker continued: "So if you were listening to the program, you know my feeling on this.  This now will play out based on the fundamental development of the company – how the company does going forward in terms of meeting their objectives and executing their business plan.  That's what will be the driver one way or the other of the shares going forward.  The easy money was made on the first day when it went from 68 to the 90s.  That was the hot IPO money opportunity for those that didn't get shares on the IPO price.  Beyond that it's back to the fundamentals – the business plan and how the company develops going forward."

HEDGE FUNDS AND GOING TO BIG HOUSE....Brinker comments: One of the things that we have talked about on Moneytalk many times is, what has gone on with the hedge funds.  Many have had their eyes wide open ever since the news came out that some of these hedge fund gains are resulting from inside trading.  And as you know, there are hedge fund managers who are going off to the big house to serve their time as a result of insider trading violations that were made when they were running their hedge fund operations.  Some of gone off to the big house, some were sentenced to the big house but are on appeal, and others were able to buy their way out by paying enormous fines measured in the billions of dollars.  But by paying these enormous fines so far at least they been able to buy their way out of jail." 

HEDGE FUNDS PERFORMANCE AND CALIFORNIA SELLING THEM OUT....Brinker continued: "Now that we've learned that inside trading has been responsible for some of the gains that hedge funds of game,  and now that we've also learned that we've seen five consecutive years of poor performance out of the hedge fund industry, and lo and behold, Sacramento California sa this week breaks the news that the That the California Public employees retirement system – this is the largest United States pension fund – announced that it is pulling out all of its money – $4 billion – invested in hedge funds.  Calling them too costly and too complicated.…  Now this is a big deal because CALPERS was one of the very first large pension funds to get involved with hedge fund investing, and here they are pulling their money out of 30 firms in order to get away from the hedge fund industry.…  The fees they charge are ridiculous.  They typically charge 2% annual management fee and 20% of profits.So we'll see whether other companies follow the lead of CALPERS and pull money out of hedge funds.  Don't be surprised if it happens.  It could very well could happen because CALPERS has been a leader in terms of the hedge fund industry."

Honey EC: Coincidentally, I received an email from a reader last week asking my opinion about buying hedge funds.....hmmmmm......

Brinker's guest-speaker was James Galbraith: The End of Normal: The Great Crisis and the Future of Growth

ETF1_Robert's comments sum up the interview very well:
I think the author has a lot of ideas that differ from BB's.......he wants to enforce the 35% tax rate on businesses and not lower it. I was a bit surprised that he defended it and would like the Treasury to act and if necessary Congress, to enforce and put an end to inversions....wants to raise the minimum wage to $12/hour. Even thinks people should retire earlier to create room in those jobs and pass those jobs onto the next generation..... I think he said "the system" is not as secure as people had hoped it would be, that we now realize that military power can't accomplish much, that technology reduces the need for jobs, that the current generation will have a much harder time with respect to finding new jobs and good wages than the post WWII generation, our financial sector is not contributing to economic activity as much as it did in the past
These comments also sum up the James Galbraith interview:

Anonymous said...
Disappointing interview with Prof. Galbraith today. It could have been a lively exchange, but the opportunity was wasted. Brinker did not challenge the Professor's ideas at all; the closest he came was to ask for a clarification on the Prof's view on taxation of overseas profits just before the first break. He got a brief non-answer and never came back to the topic the rest of the interview. Prof. Galbraith could not be more wrong. His is standard Liberal stuff about taxing corporations more, higher minimum wage, yada yada. Nothing there. By the way, the correct tax rate for corporations, wherever profits come from, is zero. There are better ways for the government to extract more revenue from the economy with less damage.

Jeffchristie's Moneytalk Final Exam Question

Today Bob Brinker said some hedge fund managers were off to:

A) The Hamptons. B) The races. C) The poor house. D) The big house.

Answer

San Francisco, Ca. KSFO 560: 1-4pm (KSFO archives Moneytalk Free on Demand for seven days after broadcast. You can download and listen on the go.) 

Sunday, September 14, 2014

September 14, 2014, Bob Brinker's Moneytalk: Stocks, Bonds, Investing, Economic Summary

September 14, 2014, Bob Brinker hosted live Moneytalk today. (comments welcome)

STOCK MARKET....No questions or discussion about the stock market except about asset allocation and recommendation to dollar-cost-average new money.

Honey EC: I was hoping that Brinker would say if he believes we have had any "weakness" yet. We know that he has predicted a correction this year. He did not mention that prediction in the September Marketimer, but said that ".....the S&P 500 Index has the potential to rise well above the 2000 level going forward."

ASSET ALLOCATION IN/NEAR RETIREMENT....Brinker comments:  Talking about asset allocation, when we start out talking about somebody in retirement, we start with the notion that they will start out thinking 50-50 between the stock market and the bond market.  But then we can tweak it and we can change it depending on personal circumstances… Now Carol thought that she might be more comfortable with 30% in the stock market and 70% in income securities.  Keep in mind that Carol has stipulated that she has millions of dollars in investment securities, so she can afford to take a 30-70 breakdown.  She's controlling risk very sternly with that breakdown, but at the same time she's sleeping like a baby.  And your sleep quotient is a big part of figuring out your risk tolerance.

ALIBABBA HOT NEW ISSUE......Brinker comments:  We talked about Alibabba last week.  First of all, it said to be a hot new issue.  By definition, a hot new issue is a stock that comes out at a set price and then immediately trades higher.  So if Alibabba turns out to be the hot new issue that it is said to be, you should expect....the time to buy it would be on the initial public offering.  Because you should expect the price to be trading higher if what we're told is true --  that there is a lot of demand for the stock.

Remember this is a huge offering, one of the largest initial public offerings of all time.  And as I said on last week's program, I think that the future of the stock as an investment -- and I think I gave all the pluses and minuses last week -- but in terms of the future, I think it's a question of growth… So if it can deliver going forward, then I think shareholders can be rewarded.  It's going to depend on the results that are generated by the company.…  My guess is if you buy it after the initial public offering, it will be at higher prices – we don't know what that number would be, but obviously, when you bid this price up that increases your risk and reduces your potential return.…  I think if you are going to buy it, the ideal way to buy it --  if that is something you want to do -- is to buy it on the initial public offering price because I think price-wise you will get your best deal that way.  If you're just in the aftermarket chasing the stock, that's a whole different deal.

Honey EC: Later in the program, Brinker referred to the Alibabba IPO as a "feeding frenzy." You can read Brinker's comments about Alibabba last week HERE

BOND/DURATION.... Several times, Brinker repeated his recommendation to keep bond fund durations short.

MARKETIMER PORTFOLIO HOLDING: FIDELITY FLOATING HIGH INCOME BOND FUND (FFRHX)  Brinker said: I published an investment letter and I have investment recommendations in their and our current average duration is 1.1 years. (caller said: I know.  Fact I have some of my retirement money in the Fidelity Floating High Income Fund.)  What you don't have a duration problem there.  You have a credit risk, but you don't have a duration problem.  But I'll tell you what, in an improving economy, I'm willing to accept credit risk – as I've stated.  So that's the trade-off you make.

Honey EC: Brinker has other high credit risk bond funds in both the balanced and fixed income portfolios.
Blogger Jim said...

I just checked using the performance numbers from MSN Money which appear to be updated each day. Thus far in 2014 his current "income" portfolio is +1.95% YTD. Had he held on to the funds he sold he would have been +4.52% YTD. His one fund, Fidelity Floating Rate(FFRHX)has a TR of +1.87% but appears to have a slightly negative NAV in 2014. Not many bond funds have a negative NAV this year. Overall a dismal performance for his low duration funds.
Here's a comparison to the funds that Brinker sold and replaced in the Marketimer income portfolio. Thanks go to ETF1_Robert for doing the research.
Now: 

DLSNX, 1.47% YTD
FFRHX, 1.87% YTD
MWLDX, 1.28% YTD
OSTIX, 3.18% YTD

Previously:
VFIIX: 4.5% YTD
DLTNX: 4.81% YTD
MWTRX: 4.15% YTD
DODIX: 4.56% YTD
Each of the four funds in the income portfolio has a weighting of 25%, so a simple average of the four gives a result of 1.95% YTD.
CONGRESS WON'T PASS BARACK OBAMA'S PROPOSAL TO CHANGE RULES ON ROTH IRA.... Brinker said: "A proposal was made in Washington from the White House to change the rules on the Roth IRA.  Now the reason I have not commented on it is, I don't think it has any chance whatsoever, zero chance, of becoming law given the current constitution of Congress.  Therefore, I think it's pretty much a waste of time to even talk about it.  But there has been a proposal out of the White House to change the rules on the Roth IRAs.  The reason I'm not worried about it – zero chance of happening under this Congress.  And zero chance of happening under the Congress that we will have following the election on November 4th.…  Because is going to be a Republican House, just like it is today.  And it's either going to be a closer Senate or it's going to be a Republican Senate, depending on the outcome in a certain few states.  The bottom line is instead of it becoming more likely to strip Roth IRA provisions, it's going to be even less likely – they're not even going to consider this before the election – and I still think a zero chance after the election......

Continued: .....I don't like policies that are aimed at changing the rules after the game is started.  And it seems to me like when you establish something like a Roth IRA, that you have a moral obligation to maintain the provisions – if you want to loosen them fine.  But then to turn around and try to restrict them, that's wrong in my opinion.  And I think any politician that does that, they might be just doing it for political reasons – for fund raising reasons, or something along those lines.  Very much like the Keystone Pipeline holdup.  That strictly to raise money from anti-Keystone pipeline environmental groups.  There is no logical reason to hold it up.

SCOTLAND'S INDEPENDENCE VOTE PAINS BOB BRINKER.....Brinker comments: Regarding the Scottish independence vote coming up later this week on Thursday the 18th.  It's like, well, what about the currency? Well, I don't know..  What about the central bank in the monetary system – well I don't know.  Vote for Scottish independence.  Don't worry, be happy.  It's beyond belief that the people of Scotland would be asked to vote on independence without their having their currency resolved, their central bank resolved.  It's mind-boggling.  And I'll tell you something else – I hate to say it because I'm part Scottish, so I really hate to say it being part Scottish, but it's really stupid to ask the people of Scotland to vote on this issue without resolving currency and central bank.  And it really pains me to say that for that part of me that's a Scotsman.  But it's really stupid.  We'll see how it goes.

FED RATES WILL REMAIN THE SAME NEXT WEEK.....Brinker said you can take it to the bank.

Frankj's Summary of Third-hour Guest-Speaker:

Chris Farrell is the author of Unretirement: How Baby Boomers are Changing the Way We Think About Work, Community, and the Good Life, and was Bob’s guest on the Sept. 14, 2014 third hour.

Farrell’s theme in the interview was that the coming wave of baby boomer retirements is not dire news as is often reported. Instead, it can be a good thing for the economy.

· Boomers are better educated.

· They tend to be healthier than past retirees.

· One-fourth of retirees go back to work within 2 years, either part-time, full-time or as contractors.

· Retirement planning needs to include what you are going to do with your time after saying goodbye to the boss and your co-workers.

· Active retirees can take their skills to a different sector of the economy (non-profits for example).

· An incentive for retirees to work would be that they and their employers no longer have to pay into Social Security. (Bob threw cold water on this notion saying the gov’t is not about to do without this source of income.)

Callers:

· Helen said if older workers hang on, doesn’t that displace younger ones? The guest gave a roundabout answer that amounted to “no.”

· Jim from Indiana said forced retirements of older workers meant that companies could employ younger ones for less money. The guest put a happy face on this, describing transition programs that some companies offer to retirees. He mentioned IBM, HP and Intel as examples.

· Eddie from Chicago said that George Soros thinks the stock market will crash and the caller wanted to know how that affects people’s behavior with their 401K’s. The guest said we’ve had bear markets and we’ll have them again. Last time, (that would be 2008-2009, the bear that Bob Brinker doesn’t discuss directly) people worked longer. Part time work brings in some income and takes pressure off the need to take distributions from retirement plans.

Bob asked what should people do pre-retirement? The guest said start about 5 years before and figure out what you want to do. Recognize that people will hire you or work with you based on what you know and your network. Your network is your best asset.

On the topic of incentives to keep people working:

· The guest cited an upcoming federal program for federal employees that will allow them to work part-time and take a reduced amount from their retirement accounts.

· The guest agreed with Bob that the proposals to change the rules on Roth-IRAs was troubling.

· Chris Farrell said for traditional IRA’s why force withdrawals at age 70 ½ ? Why not push it out to age 80?

· 401K plans were designed terribly when first introduced but they have improved with lower fees, better choices and no one forced into company stock.

Bob wrapped it up at 3:51.

Jeffchristie's Moneytalk Final Exam Question:

Bob Brinker referred to next Thursday's vote in Scotland to secede from the United Kingdom as.

A) A political fiasco. B) A financial debacle. C) A sticky wicket. D) A disaster waiting to happen.

Answer:

San Francisco, Ca. KSFO 560: 1-4pm (KSFO archives Moneytalk Free on Demand for seven days after broadcast. You can download and listen on the go.)