Sunday, May 1, 2016

May 1, 2016, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

May 1, 2016.....Bob Brinker hosted Moneytalk live today....(comments welcome)

STOCK MARKET.....Brinker did not mention the stock market today. 

MARKETIMER DIVIDEND-PAYING STOCK ETF....Ed from Corte Madera said:  I have a good portion of my portfolio in dividend paying stocks in an ETF that you have recommended in your newsletter.  It's done very well.  What I'm wondering is what it would be in the market or interest rates that would affect it and make it go down.

BB replied: I would look at three areas, the health of the economy,  the health of the financial sector because the financial sector has sizable representation in that fund, and I would look at interest rates.

IN EDIT MONDAY MORNING:  Yesterday, Brinker announced that the May Marketimer would be available online this morning. I have now read it. I now seriously question the authenticity of caller Ed from Core Medera. I think he was a plant who already knew of a mutual fund change that Brinker was making on his old, boring list of "recommended" mutual funds. I am aware of the difference between mutual funds and ETFs, but I think that is a distinction that Brinker MAY have ignored yesterday when he answered Ed.  (I'll follow up as soon as I can and still stay within copyright laws.)

 Honey EC: Brinker's Marketimer model portfolios have no ETFs in them, so Ed must have been referring to DVY which is on Brinker's short list of "individual issues." This entire list is off-the-books as far as Brinker's performance record. He never reports on how they have done, and almost never makes any changes. 

The only stocks on that list are Microsoft and Suncor. Microsoft has been there for a very long time and Suncor since 2009. Right now, Suncor is trading lower than his original buy price. The remainder of the list is the most common index ETFs.

DVY has been there for at least a decade and got creamed in the 2008-2009 megabear market. At one time, Brinker actually told a caller that the ETF was very safe.

GDP HITS SOFT PILLOW...errrr PATCH....  BB said: We got the Gross Domestic Product figures and it comes out just as we expected at a sluggish pace.  We talked on the program recently… about a very soft patch in the economy.  There is certainly nothing unusual about a soft patch in the first quarter.  We have seen a soft patch in first quarter year after year… In 2014 and 2015 we had a soft first-quarter, but when it was all said and done, real GDP growth came in again at 2.4%, which is a good figure compared to the rest of the world - with the exception of China.  And here we go again - the first quarter at 0.5% annual rate of growth.…  This was the preliminary number and will get a final revision - and it can jump around a little bit.  We all know that the long-term real GDP expansion in the US has been in the area of 3 1/4%.  So why are we running lower than the long-term trend?  The answer is, some things have changed and they are contributing to the slower growth.…  One is the lack of improvement in productivity in recent years…

UNEMPLOYMENT AND GLOBALIZATION.... BB continued: We know that employment has been doing quite well, with the unemployment rate down to 5%.  Not everybody has the job that they would like to have but you can credit some of that to globalization.  And globalization is not going away.  I hear some of these political candidates out on the stomp telling the people nonsense such as, we're going to bring high-paying jobs back to the United States.

GLOBALIZATION and POLITICAL  POMPOSITY.... BB continued:  I hear some of these political candidates out on the stomp telling the people nonsense such as, we're going to bring high-paying jobs back to the United States.  I always wanted to ask these individuals what are you talking about – where are these jobs going to come from.  I always want to tell these presidential candidates what they apparently have either forgotten or never knew - which is, hey wait a minute, globalization means the companies take jobs and relocate the jobs so they can pay people less to do the jobs.  Typically in the US high-paying jobs are sent to other countries so they can become lower paying jobs – which is what they are.  Does any presidential candidate – and I don't care which party they are in - do they really believe they are going to get CEOs to fire the workers outside the country that are working for the company and lower wages, and bring those jobs back to the US at higher wages?  Why would they do that?  There are not going to do that.  There is no possibility that would happen, so don't tell people you are going to to do something that can't be done.  But I digress.

PRODUCTIVITY PLUNGES.... BB continued: If a company is using employees instead of investing in new equipment then productivity is affected by that decision.  Because technological changes and productivity advances promote improvements in living standards..Think back all the stuff that's been invented over the last century.  Think back of the productivity advances that have been derived from those inventions, gadgets, whatever you want to talk about.  And that promotes improved living standards.  If there is less of that going on – and there is – then that's a drag on growth.

CONSUMERS  IN CATBIRD SEAT.....BB continued:  Obviously consumers are benefiting from things that are going on today – employment gains are helping, low oil prices help.  When you spend less at the pump you have more to spend elsewhere.  It's like a tax cut.  Lower oil prices and lower gasoline prices are a de facto tax cut.  You are driving out of a gas station with more money in your pocket.  And of course, low mortgage rates help the housing sector as well.  So there are number of positives that have managed to support moderate growth rate in the economy in recent years.  Going back five years is very close to 2% on average.

YO FOMC, GET REAL....BB continued.....When you look at this 0.5% growth rate for the first quarter, you have to ask yourself, if you were sitting in a room with members of the Federal Open Market Committee that voted to raise the rates at the December meeting – you'd like to ask, are you for real?.  I mean the economy grew at 1.4% annual rate in the fourth quarter, we have a 0.5% in the first quarter.…  Are you for real, voting to raise interest rates at the December meeting?  What were you thinking?  What data, Mr. and Ms. Fed governor,  were you looking at that compelled you to vote to raise rates?  It's a fair question.  You do not have to raise rates when GDP growth is below its long-term trend and inflation is below the Fed's target figure.

FED WORKING FOR MORE INFLATION....BB continued: The Fed has been trying to get the inflation rate to 2% four years.  Still haven't reached that level – in fact, their favorite inflation gauge, the headline number right now year-over-year is 0.8% – even the CPI is 0.9%.  Both gauges are below 1% year-over-year right now.
 
LET'S KICK HIM AGAIN, HE AIN'T DOWN YET.....BB said: Always keep this in mind, that when a high-paying job is being located overseas to make it at lower paying job to save the company money on salary and benefits, it is no longer a US high-paying job and it is never going to be one.  It doesn't make any sense for a CEO to reverse course, increase cost to the company, and increase the price of the product, which can affect the price of the products competitive status on the shelf against other products.

NOW ALL YOU FIFTH-GRADE SYCOPHANTS TAKE NOTE...BB continued:  "Any fifth grader knows that once a high-paying job leaves the country, it's not going to be a high-paying job here anymore.  It's now a low-paying located overseas.  This stuff is so basic that your head spins some time when you hear these candidates making these false promises.  Globalization is here to stay.  Nobody has ever come up with a plan to end globalization – and they won't.  It can't be done.  It's not going away regardless of what any presidential candidates tell their sycophants in order to try to win votes.  It's baked in that cake.…

BUTT WE WORKERS ARE FEELING THE PAIN....BB said: "But we have a lot of work to do in the USA economically.  We have over 6 million working part-time because they can't find a full-time job.  Chair Janet watches that figure closely, so she should continue her effort to provide a accommodative monetary policy for that reason right there.

JUST SAY NO TO CURRENT I-BOND PURCHASES.....Brinker told Christine from Albuquerque to steer clear of current I-bonds.

JUST SAY NO TO NUMISMATIC COINS....Brinker told caller Louise that the mark-up on numismatic coins is very high and they should be avoided.

Honey EC: In the past, Brinker has stated that he does not consider the American Eagle gold and silver coins numismatic.  

CAPITAL GAINS TAX BREAK ON HOME SALE....Brinker explained to caller Alise from Santa Rosa that she and her husband could sell one of her three homes and get a $500,000 tax break if she had lived in it 2 out of the last 5 years.

Honey EC: For a single person, the amount is $250,000. Our fair government in play again....  Here in the SF/SJ/Monterey Bay areas, it doesn't take long to get above that amount of equity in our homes.   

FRANKJ'S SUMMARY OF THIRD-HOUR GUEST-AUTHOR: CHINA'S ECONOMY

Bob’s third hour guest on this first day of May 2016 was Arthur Kroeber, author of :  China's Economy: What Everyone Needs to Know. 

Mr. Kroeber’s book was reviewed recently by Forbes and the link to the review is here:

Getting China's Economy in Perspective: The View From the Inside 

As the title of the book suggests, most of the interview was about China’s economy.  It has stabilized for the short term thanks to some government stimulation.  But they aren’t out of the woods, there could be more problems long term.

Trading on their stock market takes place at a frenetic pace.  Retail investors have only had access to stock trading for about 20 years and they seem interested in making up for lost time.  There are no big institutional investors involved (I think he meant from inside China) and trading is often based on sentiment or inside information.  Some participants view the market as a casino.   Even so, only about 5% of the total wealth in the country is in the market, he termed it “play money.”

What about government involvement in the market and overall economy?

The Chinese government took a lesson from the Soviet Union which had a static economy that did not raise living standards.   China wants a growing economy but hasn’t let go of the reins yet.  They were cheerleaders for investments in the stock market as long as it was headed up, but when things reversed they clamped down on people’s ability to sell shares.  They viewed the market performance as a popularity poll on government policies.

The current leader has tried to stamp out corruption among business and government officials.  Tens of thousands have done the perp walk. 

Government HAS managed the growth numbers – they do it to smooth things out.  The guest said this tendency goes way back to the 1950’s when the “numbers” said one thing, but 20 to 30 million people starved to death.   The current model, a combination of capitalism and central control will last another 10 to 20 years and then China will mature into a consumer economy.   In order to develop further, the economy needs creativity and innovation.

Along this line, the guest described two main tracks in the economy.   Infrastructure, building stuff domestically like steel mills, roads, dams etc. is contracting.  Half the economy is now “services” and this broad sector is expanding.

Bullet points:
  • Advice to the central government:  axe a lot of state owned businesses.  They borrow too much and deliver too little in returns.

  • Put more trust in the markets and quit intervening.

  • Their education system trains lots of engineers and scientists, but there is lots of rote learning and not much creativity or teamwork.

  • Beijing is a modern city.  Adding subway lines. 

  • The air pollution is getting better – that is to say, it is less than in the past.

  • The middle class is estimated at 200 to 300 million by the World Bank.
     
  • China is a complicated place.  There are no simple explanations for what goes on.  We need to cut the Chinese people some slack and give them more respect.
     
  • Chinese influence on North Korea is not as great we may think.
     
  • If NK collapses, China will have a huge refugee influx into a depressed area of NE China.
     
  • If NK collapses, China will have a problem if NK becomes reunited with South Korea which is a US ally.  China will end up with South Korean and possibly US troops near its border.
     
  • Good policy for China is to keep NK as a buffer.  
There was only one caller …. that guy, Keith from Rochester, who has called several times before.  He has a very aggressive way   of   speaking and today was no different.   He wanted to know when someone in this country was going to stand up to the “commie bosses,” and stare them down, and tell them to start being a good world citizen. 

Well, this guest was probably the wrong person to put that question to, having lived half his life in China and splitting his time between Beijing and NYC.   He merely said China has been a “good global citizen,”  and said they may have broken some rules in trying to get to the top, but “we broke rules getting to the top.”  Once at the top he said countries start to do better. 

Finally, what would an interview be without Bob working in Donald Trump without naming him?   He asked the guest about China’s manipulation of its currency.   I heard two answers to the question.  One was, that the issue was a “red herring.”  The other answer was, “yes, they manage their exchange rate because if they didn’t there would be huge inflows and outflows of capital.”

Honey here: That was a very interesting interview - thanks for the great summary. I sometimes wondered about where Kroeber's true loyalty was....He didn't seem to be able to be critical of China without making some moral equivalency to the US.  Although, he did mention that his children were being educated in the US....

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION

Bob Brinker referred to the first quarter GDP growth rate as a:

A) Weak spot.  B) Poor stretch.  C) Soft patch.  D) Low point.

ANSWER

Honey here: Brinker made it very clear that he expects higher growth as the year goes on, and that we will end up where we were last year (and in 2014). I'm not so sure....

WNKT Talk Radio: 1-4pm PDT

PODCASTING:
Los Angeles. KABC 790. Moneytalk plays two hours later in the evening. They podcast and ARCHIVE podcasts.

Sunday, April 24, 2016

April 24, 2016, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

April 24, 2016....Bob Brinker hosted Moneytalk live today....(comments welcome)

STOCK AND BOND MARKETS....Brinker did not mention either - and there were no callers who asked questions about them.
 
PRINCE AND COPYRIGHTS....Brinker opened the show talking about the death of Prince a "music legend." Brinker said:  ".....many of the principles that were bought to the fore by Prince many years ago when he fought for the protection of his copyrighted material – as he should.  As a result, some of these artists of today… Have pushed for more control of their intellectual property.  And that's a good thing to see.

Honey EC: The only other person that I recall Brinker paying respect to when they died was Bill Flanagan. So I think that Brinker's interest was based on an opportunity to comment about copyrights - a subject that Brinker has obsessed over for years.

NATIONAL  DEFICIT AT $460 BILLION ....BB continued opening monologue: I was looking at these figures this week because the federal government posted a budget deficit for the month of March at $108 billion.  That was very close to the Congressional Budget Office estimate… So now we have a 12 month trailing total deficit in the US of a little over $460 billion.  That's 2.6%.

IS THERE ENOUGH GROWTH TO SUPPORT IT.....BB continued: We've talked many times in the past about what level of deficit spending can be supported in the United States as  long as we have an economy that's growing.  It's not growing the way it used to for a number of reasons – population growth and productivity are the major reason… Basically the growth has been about 1% below the post-World War II average of  around 3 1/4% - the more recent trend closer to 2 1/4%.  We've had two straight years of 2.4% actually…  Right now, on a trailing 12 month basis, 2.6%.…  This is the lowest level of deficit spending since the middle of 2008.  You remember what happened in 2008 – economy fell off a cliff as a result of the financial crisis, led by the housing meltdown.  That was a very dramatic time financially and the deficit swelled to enormous levels in 2008.

TAXES UP,  GOVERNMENT GETS MORE AND SPENDS MORE.....BB continued:  The reason that we have been able to see this percentage of GDP figures decline is because taxes received at the federal level have been rising more  than spending.  This is a 12 month running total, federal receipts which are mostly taxes are up 6%.  Spending is up 3.8%… And by the way in terms of individual income taxes, that figure is up 9% year-over-year.  But the tax on corporate profits is down – they declined 2.4% as we've had some softness in corporate earnings over the last 12 months.

INTEREST COSTS HAVE GONE UP, BUT HAD A LONG WAYS TO GO....BB continued:  We've had some net increase in interest costs but it is nothing compared to what would happen if we were ever to see interest rates normalize.…  10 year treasuries yielding less than 2% is a long ways from normalization – historically.  It may not be as far from future normalization given the way things are going.…

CAN'T FAKE THIS MONEYTALK FINAL EXAM QUESTION.....BB continued: Remember on the Moneytalk Final, a  guaranteed definite question will be - you will have to show that you know what you are talking about. You won't be up to fake your way through this one  – and that will be the difference between the budget deficit and the national debt…(political propaganda redacted). 

FREE-RIDING ON $19 TRILLION NATIONAL DEBT....BB continued: That's why I say it's one thing to pay the interest on $19 trillion national debt when rates are near the record low, but it's something entirely different to pay the interest in a normalized interest rate environment.…  (Political propaganda redacted)… We are getting the equivalent of free riding here…When you owe almost $20 trillion and you're paying historically low interest rates.  Because the reality is, over the long-term, you are not going to be able to free ride.  There will be some consequences to the cost of paying the interest and servicing the national debt.  The cost will go up dramatically as interest rates normalize – if and when they do.  So when we're looking at future budget deficits, we have to look at cost as something that can't be controlled.

VOLKSWAGEN SHAREHOLDER DISASTER....BB said: The notion of specific stock risk has jumped out at shareholders of Volkswagen.  This is a company that has seen its stock decline over the last year by about 40% as a result of the scandal which is related to the emission from certain products sold by the company..  It's a matter of fact this particular emissions cheating scandal has now forced the company to budget over $18 billion to cover the cost of repairs and buybacks.  It's been a disaster for the common share.

SUN EDISON FILE CHAPTER 11 AND KEEPS TRADING....BB said:  It's not unusual for a company that files Chapter 11 to continue to have it shares trading in the open market – at least during  the process which is underway now.  In the case of Sun Edison, the company filed Chapter 11, which means it will continue to operate rather than simply liquidating and going away…in an effort to try to improve the situation. …  They will in some cases re-issue  new shares....they will cancel the existing shares – this is quite common – which means they are worthless.   Then sometimes, the company can then find financing to come out of bankruptcy and come out with new shares at that point.  However once they cancel the old shares, they are worthless.

SOME STILL BUY THOSE UGLY-ASS SHARES....BB continued: Why are people willing to pay anything for company trading in bankruptcy – I'm not quite sure why.  There always seem to be people who are hoping things are going to turn around, so they'll bid pennies on the dollar for a stock in bankruptcy - basically trading on hope.  The only way I can describe it,  because the Sun Edison situation is a gigantic mess when you consider the current liabilities, when you consider the lack of liquidity, when you consider the shareholder lawsuits, it's just pretty ugly

UK VOTES, WILL THEY OR WON'T THEY LEAVE EU....BB said: This is really about sovereignty, it's about politics, it's about self-rule.  The ability of the UK to govern itself… The most clear-cut catalysts for this… has been the wave of migration that has come into Europe – especially over the last 12 to 18 months – as people fled the violence in Syria and ISIS in Iraq.  Read about it: The BREXIT Vote Explained

=> RUDE CALLER OF THE DAY.... The second caller in the first hour -  Don from Lake Charles was concerned that the dollar was becoming worthless and wanted to know what Brinker recommended as a safe substitute. Brinker tried to get a few words in edgewise to tell Don that the dollar had been (and is) very strong. Don kept interrupting and demanding that Brinker answer the question - and eventually inferred Brinker had lied, which prompted Brinker to ask Don why he had called him a liar about four times. However, Brinker showed remarkable patience with the man, but basically never answered the real question. 

=> ENTERTAINING CALL OF THE DAY....The last caller in the second hour was Linda in Honolulu. Linda wasn't pleased with her CPA's suggestion to help with her huuuuge problem, so she called our Starship Captain.  Linda said she was a retired federal employee with a $100,000 yearly pension, but no Social Security.  She lives in a paid-off $million home in Honolulu. She took out an equity loan and line of credit for $100,000 to remodel her home "just the way she wants it." She wanted Brinker's opinion about  reverse mortgages.   She wants to do some traveling and "needs a little bit of extra money." She is divorced - no children.  (Nope, Honey doesn't have her phone number.)

Brinker does not recommend reverse mortgages, and assured Linda that she should be able to just get an additional loan on the propert and get the tax deduction - and with $100K in income she should be able to handle it. 

Honey EC: Hopefully,  ABC will podcast hours one and two for those who want to listen to those calls.....if they podcast them I will post  links for you. 

FRANKJ'S MONEYTALK GUEST-INTERVIEW SUMMARY

Today, April 24, 2016 we heard from Lawrence Jacobs author of Fed Power: How Finance Wins. Desmond King of Univ. of Oxford co-wrote the book. Lawrence R. Jacobs is the Walter F. and Joan Mondale Chair for Political Studies at the Humphrey School of Public Affairs and the Department of Political Science at the University of Minnesota.

A theme in this interview, from the guest’s point of view, is that the Federal Reserve has drifted from its mandate to look after the money supply and gotten into fiscal policy decisions. He backed this up by pointing out that after the financial crisis, the Fed decided which banks got loans in the tight credit markets …. and which banks did not. These loans amounted to half the Gross Domestic Product.

Bob paraphrased Ben Bernanke as saying, “our job is to avoid collapse.” Bob asked the guest if there was anything wrong with that? The guest said the type and scope of things the Fed did was unprecedented. He cited the Bank of England which faced the same conditions we did but they attached conditions that the British banks had to help homeowners and businesses avoid bankruptcy.

Bob said, “the Fed believes they’re doing things right.” The guest said the Fed doesn’t understand the firestorm of criticism they’ve created. He cited calls to rein in the Fed by candidates in the primary and Congress. Regional banks elect two-thirds of the board members of the 12 Federal reserve regional banks. This is too self-serving. He would like to see more public input. The Fed needs to be prepared for the next crisis. They’re audited sure, but the guest said there is a lot that the Fed does not make available for review.

Bob brought up Bernie Sanders, who has said little about Fed policies. The guest, Prof. Jacobs said “what’s in the book is not widely known in Congress.” Bob asked the guest whether being the lender of last resort does not mean that the Fed is called on to do the extraordinary? The guest did not disagree, but pointed out that the TARP program was about $700 billion and what the Fed did was “10 times larger than TARP.”

After the break, Bob read a favorable quote from Norman Ornstein about the book. (This would be Norman J. Ornstein, political scientist and scholar at the American Enterprise Institute, and not Norman Orenstein, Canadian composer, musician and record producer.)

The guest reiterated his point that the banks in the US should have done more (or have been made to do more) to help homeowners facing foreclosure. The housing debt suppressed spending on consumer goods and dragged down the economy. “The big boys on Wall Street got help but Main Street did not.”

Likewise this was the author’s view on student loan debt which Bob pegged at about $ 1 Trillion. Repaying this debt edges out spending on consumer goods. Prof. Jacobs said the Democrats see the student loan debt as a hindrance to the economy.

Canada avoided the problems US banks had. There was no bank crisis and no bailout because they were prevented from engaging in mortgage backed securities trading.

Tom from Nevada supplied the obligatory question on interest rates after praising MoneyTalk on Demand to Bob. The guest said the Fed is treading water. They see a potential recession over the horizon so if they do raise rates it will be a face saving move and it won’t be a large raise.

Bob launched missiles at this point, not at the guest but at the Fed. MoneyTalk regulars can probably finish this paragraph…. “data dependent,” “rubber chicken circuit,” “too many speeches by Fed members,” “the Vice Chair said there will be 4 rate hikes this year.”

The guest said the Fed sets itself up as an expert, with insight no one else has, yet history has shown them to be wrong. As an example he said they did not regulate finance on the run up to the financial crisis in 2008. Alan Greenspan said that the financial system was self-regulating.” (Indeed. In the book All the Devils Are Here, the author quoted Greenspan as having said this a number of different times. In my opinion, this is THE BOOK to read on this crisis if you are going to read any.)

Walt from Ohio asked the guest what might have been discussed at the recent White House gathering between Joe Biden, Pres. Obama and Janet Yellen. The guest said there is always speculation about the Fed being influenced but since Volcker held the job, the Fed chair generally goes in his or her own direction. He said he’d be surprised if Yellen caved. Bob asked, “Why cave to a lame duck?” The guest said possibly to curry favor if the next president is Mrs. Clinton.

Speaking of Mrs. Clinton, Bob asked the guest about the $675K speeches she gave to Goldman Sachs. (He did this very adroitly, without mentioning her name.) The guest pulled no punches. He said the role of big $ is shameful, it looks terrible, but it fits with the general story in the book: “big finance lives by other rules.”

Honey here: FrankJ,  Thanks for another great summary. I was more than a little surprised that the guest said that the Fed sees a "potential recession out there." Brinker is so adamant that there is no recession "on the horizon." 

Also, I think the guest is correct about the Fed doing too much "fiscal policy" and they should stick to managing the money supply. Personally, I find it very worrisome when I hear that Obama meets with Chair Yellen, one on one....

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION

Which one of the following did Bob Brinker say today would be on the Moneytalk final exam?

A) Where is the catbird seat located?
B) Who is the author of the Brinker fixed income newsletter?
C) Explain the difference between the annual budget deficit and the national debt.
D) Why were the discussion boards at BobBrinker.com discontinued?

ANSWER

Brinker's guest was Lawrence Jacobs:

 

PODCASTING:
Los Angeles. KABC 790. Moneytalk plays two hours later in the evening. They podcast and ARCHIVE podcasts.