Sunday, March 1, 2015

March 1, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

March 1, 2015....Bob Brinker hosted Moneytalk live today....(comments welcome)


BERKSHIREHATHAWAYdotCOM....Brinker devoted the opening monologue to Warren Buffett - Berkshire-Hathaway. Buffett's latest "letter to shareholders" is available at the link above.

Brinker comments: A lot of the investments that have been made by the Sage of  Omaha have done very well.  As usual, in his shareholder newsletter this year, he talks about the best years being ahead for the USA.  He also makes an interesting point that stocks will always be more volatile than many other investments… like bonds.  But he disagrees with business school teaching that volatility is synonymous with risk.…  I can understand while he feels that way because of how much money he's made in equities over the past 50 years…

WARREN BUFFETT, RAGS TO RICHES....Brinkr continued: I remember reading that the first purchase that Warren Buffett made, the New England-based Berkshire Hathaway company was basically 100 shares at seven dollars.  A $700 investment… And if you go back to the beginning of Berkshire Hathaway in 1964, you will see the book value was $19 a share and today the book value is $146,000 per share -- giving Warren Buffett a 50 year record of 21.6% compounded annual growth of book value of his company.  Over that same 50 years, the S&P 500 rose at a compound annual rate of about 10%.  So he basically doubled up on the annual rate in return of the S&P 500. Just a small investment in the company 50 years ago is now worth a lot of money.

BOND MARKET DURATION...In answer to Stan's question about bond funds, Brinker replied: I would check the duration on the funds.  I think that in the economy we are in right now, that is the most important thing to be aware of.  If it has long-term duration, what that is going to mean is, if you get a normalization of rates down the road, you are going to be taking net asset-value-risk that you may not want to take.…  Right now, we are using an average duration of less than two in our income portfolio in the investment letter.


INVESTMENT RISK GUIDELINES: BALANCE ASSET ALLOCATION...Carl  asked how to manage risk in retirement to preserve Critical Mass......Brinker replied:  We use a guideline for a balanced portfolio.  A conservative guideline would be 30% to 50% in equities.  A more aggressive guideline would be 50% or more inequities -- that's a rough guideline.  I would say 30 to 50 would be conservative – 50% to 70% would be aggressive and the midpoint all the way down that line is going to be 50-50.…  One way to minimize volatility is to decrease the amount you're going to place in the stock market.

AND DIVERSIFY....Brinker continued: The other answer is diversification.  You are going to have a broadly diversified portfolio -- and as a consequence, you are going to have most of your money in US stocks.  You are going to have some of your money in international stocks.  You are going to have fixed income securities in there.  In a balanced portfolio you are going to have some volatility when things go against you, but it's not going to be comparable to somebody who is 100% in the stock market.

ALTERNATIVE TO RISK IS NOT ATTRACTIVE...Brinker continued: Now in this zero interest rate world we live in, the alternative  is particularly unattractive – and that is the alternative of just keeping your money in short-term AAA rated securities.  The problem with that is, there is very little in the way of investment return in the current situation where the Federal Reserve is keeping rates close to zero.  So that's the answer – diversification and asset allocation.

SHOULD INVESTORS STRIVE TO OUTPERFORM THE MARKET..... Caller John asked if it was a good idea to try to outperform the total stock market.  Brinker replied: the answer is no.  I don't think an investor should ever be preoccupied with trying to outperform the market given the difficulty of trying to do so over the long term -- especially.  But I think that investors should over the long-term try to do as well as the market.  And I think that can be done – and I think that is really the bottom line. I think those investors that are preoccupied with trying to beat the market run the risk of taking too much risk in their portfolio in order to do it.

WHY PAY FOR ADVICE AND NOT EVEN KEEP UP WITH THE MARKET....Caller John followed up:  "What are we paying for?  All these mutual funds and investment advisers, a look at these management fees and all these loads. What are we paying for if their expertise is not getting as the results that are better than just buying the diversification of an index fund.  Why are we paying all this money?"

HAND-HOLDING, BABYSITTING, COMPANY ON THE JOURNEY COSTS MONEY....Brinker replied: I think that the people that pay all that money, basically, are paying for hand holding.  It's like having a pacifier to go to when you feel pain.…  John makes a really good point and that is, that the people who are out there promising you that in return for large management fees that they are going to beat the market, they are probably not going to beat the market.  You pay the fees but they are not going to beat the market.  In fact if you check, you'll see that a lot of them don't do as well as the market over the long-term.  So what do you pay for -- the answer has to be babysitting.  The answer has to be company along the journey.  What else could be the answer?  I think it's a reasonable.

Honey EC: So now we know why people pay for newsletters that don't match the market.  You have to go back many years before Brinker's Marketimer model portfolios matches the S&P 500.  It certainly didn't happen in 2014. Here are his performance numbers for 2014.....Note that owning Vanguard Total Stock Market Fund returned 12%: 
Marketimer Portfolio I: 8%
Marketimer Portfolio II: 8%
Marketimer Portfolio III: 6% (balanced portfolio of equity and fixed-income securities)
Active/Passive: 9%
Vanguard Total Stock Market: 12% (VTSMX)
 Jim has some comments also:
Jim said...
During the first hour Bob Brinker had one caller ask why so many people pay high fees for managed funds and investment advisors. Bob Brinker responded by saying it's because they need hand holding. I couldn't help think that's also why many subscribe to investment letters.
QUESTIONABLE ETF INFORMATION ABOUT MARKETIMER....Brinker said: I publish a list of Exchange Traded Funds in the investment letter and those represent funds that I'm certainly comfortable with within the context of Exchange Traded Funds.  And we also have an Exchange Traded Fund portfolio – an alternate active-passive portfolio in the newsletter.

Honey EC: I had to listen to this answer a couple of times before it became clear that Brinker was not referring to a model portfolio, but to the "active-passive" portfolio that almost never changes,  which consists of 80% in VTSMX and 20% in VFWIX -- and he includes the corresponding ETFS: VTI AND VEU. Mystery solved -- that's the portfolio he is talking about. But the other reference to his list of ETFs has to be the Individual Issues list that is strictly off-the-books and is a mostly just mainstream index ETFs. 


Brinker made comments about the "dysfunctional congress" extending the Homeland Security vote for one week. Some comments have been posted. Here are JM's
jm said...
Honeybee mentioned that she almost gagged on BB's remarks about a shutdown of the Dept. of Homeland Security.

There was plenty more where that came from. For example, BB and a caller dueled over whether honesty or modesty best described the Sage of Omaha, who stands for weighty things which many heartland folks abhor, like abortion, higher taxes on the rich, and oil carried by railcars (his) instead of by the Keystone XL Pipeline.

I couldn't help myself and composed this little limerick to memorialize the call. I hope you enjoy it:

There once was a dame misnamed Modesty
who met up with a cad they called Honesty
he exclaimed with a leer
Ah, excuse me my dear
but your d├ęcolletage is delightfully chesty.


Frankj's Summary of Third-Hour Guest Speaker:

Charlie Ellis was Bob’s third hour guest today, March 1, 2015. Charlie is the author of a new book titled, Falling Short, the Coming Retirement Crisis and What To Do About It. (Co-authors: Alicia Munnell and Andrew Eschtruth). Charlie has been on the program before, but as Bob noted it has been a long time.

Half the people who work for private companies work for small ones that are not able to offer retirement benefits. Among the other half, chances are the retirement plan is a 401K plan, not a traditional defined benefit plan. Charlie said this is not a good thing. Placing the employee in charge of creating his own adequately-funded retirement program has not worked out when you consider that at age 65, the MEDIAN value in 401K plans is just $110,000.

Prior to 401K plans, the company offering a pension plan did all the work. The funded it, chose the managers and changed them when necessary. All the employee had to do was tell the company where to send the pension checks when he or she retired. All that has changed and the employee is now responsible for understanding the risks involved in fund choices, how much to invest, when to re-allocate, when to begin drawing out, how much to draw out. Ellis said individuals are simply not trained to make these type of decisions. Combine this with his prediction that the next 10 years return (in the market) will be “below normal,” and the result is, many people will not be able to fund a successful retirement.

Charles and Bob got on the subject of fees. The guest likened fees to termites which gradually eat away at a structure and, given enough time, can do considerable damage. A one percent fee as a portion of ASSETS may sound like very little. Now look at it as a percent of say, a 7% RETURN. The one percent management fee just ate up 15% of your return.

How long should people work? Mr. Ellis said he’s 77 and still working a 70 hour week. He recommends people stay in the work force until age 70 if they are able. If you can plan for it, good that’s better than suddenly finding out you have to. Charlie touched on the subject of when to take Social Security and he is in the camp of last week’s guest, wait until you are 70 if you can.

Bob Brinker took a detour and brought up a peeve he has with some private schools that build up huge endowment funds. The guest took a different view on this, calling these endowments one of the best value propositions the American people have ever had. He waxed on about how the schools use the money to do research and referred to the help Yale gives deserving undergrads ($10,000) per year. He referred to the use of the endowment money as a “great bargain for our nation.”

Al from San Jose is age 64 and saved for his own retirement, he has no pension plan. He asked a rhetorical question, why didn’t the information on the state of retirement funding go out 20 years ago? This is where the guest cited the $110,000 number given above.

Scott in Columbia, MO sounded a bit under the weather asking what happens after 30 years if you give them 1% a year? Bob interceded with a question on another favorite topic of his, his theory that with the government having clamped down on insider trading, hedge fund returns have suffered. Again, Charlie Ellis did not take the bait. He said you have to look at the reporting of the numbers. Hedge funds don’t have to report their returns so poor performance is not reported. Good performance on the other hand attracts more people into the business, making it more competitive which can lead to lower returns for all.

Jim from Colorado Springs, CO objected to a one-size-fits-all approach to Social Security. He may have been thinking about last week’s guest who recommended people wait until age 70, as well as Charlie’s earlier-stated opinion. Jim said maybe someone wants to preserve a retirement account to leave to children and this could be a valid reason for substituting SocSec income for retirement distributions. Sure enough, before Ellis could answer, Bob jumped in with his own opinion that one should NOT plan to leave a legacy from retirement money. Charlie advised that people not take a general statement like “wait until 70” and act on it when there is specific advice available for their own situation – advice that takes into account assets as well as family longevity. (One might also apply Charlie’s view to Bob Brinker’s oft-stated general objection to people planning to leave a legacy to heirs using retirement money!)

Gary from Las Vegas rolled the dice with a question on limiting the money in retirement accounts. Would Mr. Ellis put a limit on it as was proposed recently by the White House? Answer: NO.

By way of wrap up, the guest said that lots of smart people have gotten into the business in the last 50 years. Whereas you used to have to call a broker to learn the price of a stock, now stock prices are ubiquitous. The SEC requires that a publicly traded company disclose material information simultaneously, to everyone. Active investors have gotten so good at what they do that it is nearly impossible from them to outperform the overall market. Sixty percent of mutual funds underperformed in the last 12 months. If you go back further, these numbers increase: 70% underperformed over a 10 year period, and 80% over a 20 year period.  

Brinker's guest-speaker was Charles Ellis: Falling Short: The Coming Retirement Crisis and What to Do About It

Honey here: Thanks Frankj...Very interesting guest and a great summary! 

Jeffchristie's Moneytalk Final Exam Question:

Which one of the following stories in the news this week did Bob Brinker NOT cover today?

A) Warren Buffet's annual newsletter.

B) Home land security funding.

C) Veto of the Keystone pipe line bill.

D) Janet Yellen's Congressional testimony.


Honey here: Thanks Jeff....I have noticed that since the newly-elected congress passed the Keystone Pipeline Bill, Brinker hasn't said anything about it.  Whereas before, he has talked about it at length and has gone so far as to call it a "no-brainer" for Obama to sign.  And as the answer to your question shows, he didn't talk about Obama vetoing the Bill. Guess he wants those dangerous trains to keep on running -- adding to Warren Buffett's $billions.  

San Francisco, Ca. KSFO 560: 2-4pm  UPDATE January 2015: KSFO no longer carries the first hour of Moneytalk. KSFO archives Moneytalk (2pm & 3pm) Free on Demand for seven days after broadcast.

(Summary posted at 6:50 PT)

Sunday, February 22, 2015

February 22, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

February 22, 2015....Bob Brinker hosted Moneytalk live.....(comments welcome)


Brinker began the opening monologue with a long explanation of "The Land of Critical Mass."  Then he devoted the remainder of the monologue to Greece. 

GREECE WANTS BAILOUT.....Brinker comments:  The big story this week is one that has been in and out of the financial headlines for the past several years -- and that is Greece.  I was amused this week that the new Prime Minister of Greece, Alexis Tsipras, was  talking  to members of the  European Union, the  International Monetary Fund  and the European Central Bank  as though he had some currency in the negotiations.  Now I ask you, in real terms,  what currency does he have  negotiating for more bailout money… from the European Union and the other parties..…

HATE TO TELL TSIPRAS BUT GREECE IS BANKRUPT.....Brinker continued:   Alexis Tsipras represents a country that is technically  bankrupt.  Let's tell it like it is even if nobody else will.…Greece is technically bankrupt.....Greece cannot pay its obligations without additional bailout help  from the European Union and the others in the group.…I hate to tell Prime Minister Alexis Tsipras this reality  because he seems to live in some fictional land that tells him that because he was elected he has some currency in these negotiations..  He does not.  The only reason  that the European Union and the European Central Bank and the  IMF  have any interest in helping him   in these negotiations is because  they are trying to  keep the 19-nation euro-currency group together.…

EURO NATIONS AFRAID OF CONTAGION.....Brinker continued: Why is it so important to keep this group together when in the case of Greece, we're talking about a tiny percentage of European gross domestic product?  And the answer is, because they are afraid if Greece is forced to leave the European Currency group that they'll then have to deal with a new problem called contagion. Contagion is a worry for those acting as good Samaritans to Greece in these negotiations, but the reality is, it also presents a problem for Greece because you can't just elect a new prime minister and make all kinds of demands.  It's unrealistic, and they have not received any satisfaction on those demands yet.  What they have right now is a four-month extension called kicking the can down the road for 16 weeks while some sort of an agreement is attempted. ....We don't know what's going to happen to Greece in 16 weeks, but what we do know is that their economy is in a shambles.…

NEW GREECE PM SPENDING MONEY HE DOESN'T HAVE.....Brinker continued: Some of the things that the new prime minister is trying to implement seem ridiculous within the context of the fiscal situation in Greece.  The new prime minister has pledged to raise pension payouts.  Say what?  With what?  He has also pledged to rehire some government workers that will cost even more money.  He has also pledged to put a stop to most of the state asset sales which is a source of cash for a cash troubled nation.

EU, IMF and UCB SHOULDN'T BOW DOWN TO  GREECE....Brinker continued: "I don't know where it will all end up with Greece.  You've seen the effort being made to keep Greece in the euro block.  It is a huge effort on their part.  But they don't need Greece… What they are trying to do is avoid contagion.…  Now whether there would be contagion or not we don't know.  If Greece is unable to come to reasonable terms with them, then theoretically they could be thrown out of the euro block.  But would that lead to contagion?  Maybe not.  Because they would not receive the concessions they've demanded.  If there is any contagion, the thing that is going to cause it is to bow down to the demands of the newly elected prime minister in Athens and you have a risk of contagion because then Spain might say what about us -- why don't you reduce our terms for our bailout money.  And Rome might say what about us -- can't you reduce our terms for our bailout money?  And Rome might say what about us?  So you see the problem… If it's me seeing the signs, contagion only applies if they bow down to the demands of Athens.  If Athens makes the demands and they don't get anywhere and they have to leave the euro block, then that's on Greece.  And this would presumably need to drachma 2.0..... That would be a very tough deal for Greece.....But we're not there yet....

Honey EC: Brinker seems to be mighty interested in Greece even though he's on record saying this just last month. This is from FrankJ's summary of third-hour guest, Robert Likan:
The guest expects with the leftists in control in Greece there will be a showdown with the Germans and the Finns. The Greeks want the rest of Europe to write off their debt or they will abandon the Euro. In response to the guest’s suggestion that this turmoil could make for a rocky week in the stock market, Bob pointedly asked what do we know now that we didn’t know Friday? The guest’s answer was that it (the leftists getting control in Greece) actually happened.

Bob said “Who cares? The Greek economy is only 2% of European GDP.” The guest said Greeks saying goodbye may tempt countries like Spain, Italy and Portugal to do the same. If the Euro is abandoned it will upset a lot of trade that exists, based on the Euro. 
And Jayceezy wrote: 
re: Greece - I recall Bob rightly stating back in 2010 that Greece was too small to impact the world market, but would be a huge embarrassment to the Euro-pimps. This is from Honey's blog back then..."May 8, 2010 Moneytalk, Bob Brinker said: "....I do not believe that the crisis in Greece is going to derail the United States economic recovery. And as a consequence of that belief, I do not believe that the crisis in Greece is going to produce a bear market in the United States. Bear markets are defined as losses in the major indexes, such as the S&P 500, in excess of 20% on a closing basis."

STAY FULLY INVESTED: Caller Scott from Chicago said he was 70% in stocks and 30% in bonds with $250,000 of inherited money -- and after mentioning the lofty stock prices, asked Brinker if he should make changes.

Brinker replied: I would not be making any changes to it at this time.  You're fully invested, and I think that taking everything into consideration, that I would leave it as it is for now.

Honey EC:  In the January Marketimer, Brinker reviewed his timing model indicators and found they were still bullish. I summarized Brinker's conclusions HERE.

DOLLAR-COST-AVERAGE THE PRICE OF A HOME IN PALO ALTO INTO PORTFOLIO ONE:  Caller Ken from Carmel said: Longtime subscriber and listener.  A close friend of ours has passed away and she passed on through the sale of the house in Palo Alto, a fairly large sum of money.  My wife is the executor and the idea is to pass it onto my children who are ages 17 through 23.  And since it will be in cash, one question I have is regarding the dollar cost averaging you often speak about. And I guess I never had a good feel for over what time period that would occur – and especially in consideration of today's market which is kind of up there in P/E.…  The question is, given the kids ages, would we be better off in portfolio one for them?

Brinker replied: Well, considering these youngsters age what about the need for money for  education.....Scott explained that the "youngsters" education was mostly paid.

Brinker continued: I don't have any problem with the decision to invest this money over a period of time given the ages of the individuals – 17 to 23 years of age.  I do agree though with the concept of dollar cost averaging, and when possible, dollar cost averaging during periods of weakness.  And we've certainly had periods of weakness, in and out over the past couple years.  They've all been, on a closing basis, less than 10% from the closing high.  But there's been numerous periods of weakness off the highs over the past couple of years which have provided individuals looking for periods of weakness, opportunities to put money to work without chasing rallies..…  After all, we are looking at an S&P 500 index here at 2110, which is the highest closing level in the history of Wall Street.  In all the recorded annals of Wall Street, as we speak today, this is the highest closing level ever for the S&P 500 at 2110.  So I  certainly think you are on the right track when you think in terms of dollar cost averaging.  I would throw into that that when possible dollar, cost averaging during periods of weakness such as the many that we've had in the past couple of years makes a lot of sense as well.

Honey EC: Brinker may not know that it would be difficult to buy an average home in Palo Alto for much less than a $million. Brinker never asked Scott how much money he had actually inherited, but it might have been sizable. Brinker's comments fit right in with his bullishness on the stock market and economy.


TREASURY BONDS AT HISTORIC LOWS.... Brinker said:  It's fascinating to see that the yield on the 10 year treasury at 2.1% is still way, way higher than you're going to get on the 10 year sovereign bond in Germany.  The 10 year sovereign in Germany, backed by the full faith, credit and taxing power of Germany is trading closer to one half of 1%.  Compare that to the 2.1%, which is still historically, very low yield on the 10 year treasury.  The 10 year Canadian sovereign is trading at an annual yield of 1.4%.  That gives you some idea of what's going on out there.

Honey EC: Brinker still talks about duration occasionally, but his ardor has cooled considerably. And he has moved some of his bond fund holdings into slightly longer duration. However, Vanguard Ginnie Mae Fund and Vanguard High Yield Bond Fund just keep doing extremely well. Selling those two funds was a mistake. I covered his latest changes HERE after he discussed it on Moneytalk.

IRA REQUIRED MINIMUM DISTRUBUTIONS.... Brinker comments: If you have multiple IRA accounts, you can take all of your RMDs from just one of them.

POLITICS....Honey EC: There was some political discussion today, but it is not my usual policy to cover politics. However, there are some great discussions  in the comments section about it. A caller made the statement that Brinker is conservative, but Brinker never replied one way or the other.  Jim said this (and I agree): "IMO Bob Brinker is a conservative on fiscal issues but a liberal on social issues." 

SAUDI ARABIA HANDING OUT MONEY LIKE WATER.....Brinker said: Did you see the story about the new King of Saudi Arabia, the fascinating story about King Salman handing out money like water.  Handing it out by the billions and billions – make it tens of billions.  The new King says it's the goodwill gesture.  A cynic would say what a great way to buy the loyalty of the masses.  Yes, I'm a cynic.  Needless to say the new king is already the most popular king of all time in Saudi Arabia – giving away money like there's no tomorrow.  Does he know something that we don't?

$30 BILLION TO MALES ONLY....Brinker continued:  Looks like over $30 billion in total giveaway money.  It's going to a large swath of the Saudi Arabia population.…  And yes if you guessed, just about all of this money goes out to the male population of Saudi Arabia because in Saudi Arabia if you are a woman, you are by definition a fourth class citizen…

Honey EC: What this has to do with investing, I don't know, but Brinker may tie it in to it some day, so I wanted it archived. It would have been nice if he would have made a connection to what's going on with our oil supply and oil prices -- if anything.  BTW: With all the accusations about "wars on women" wonder why we never hear any complaints about how women are treated in some middle east countries -- "fourth-class citizen" indeed!  Harumphhh.... :)


Frankj is a bit under the weather, so I am grateful to ETF1-Robert for this third-hour summary. This is a shocker! ETF1-Robert wrote: 

Notes from the interview with Laurence Kotlikoff

BB: “Larry is professor of Economics, Boston University and has provided advice to many around the world including a number of Central Banks and the IMF and the World Bank, to mention a few”………

Economics teaches us that we need to take a look at the worst case scenario when it comes to insurance and SS is really an insurance mechanism because it provides benefits for as long as we live, so it is really insuring us against living too long, against excess longevity

Maximum age of life is the key metric you should use in making decisions about SS (such as when to collect) ---Not your expected lifespan, but your maximum lifespan…the most you could live to

“Worst case scenario”=you live to 100

“You can’t count on dying on time”……

“You can’t plan on your home not burning down” [with respect to home insurance]

“You have to deal with the worst case scenario which is living off of cat food at 100”

If you are absolutely certain you can’t live beyond say age 85 or 90, you could plan on that, but otherwise generally best to make SS decisions based on living till 100

SS has a huge payoff from waiting to collect

If you wait to collect SS until age 70, you collect 76% higher SS monthly payments compared to collecting at age 62 adjusted for inflation (over and above inflation).

Each year from age 70 till 100 you will get an extra 76% social security payments versus collecting at age 62

Being patient=one strategy he teaches

Time your benefit collection so you can collect all the benefits available to you=another strategy he teaches in the book

Take one benefit early and let the other benefit grow; you can only maximize things by taking one benefit at a time

Most Americans take SS around age 62. Their view is ‘I better take it because if I die, I will have lost it’. “That’s exactly the wrong thinking here”………..the real issue is not dying, the real issue is living, that’s the real risk of life here

SS is enormously complicated. Depending on the situation, collecting early can be a value…. (Then he presented a complicated case scenario where filing early was a benefit).

In many cases it is best for one spouse to wait till age 70, and generally it is best for both spouses to wait till age 70 if possible.

One of the spouses can collect a spousal benefit for free starting at FRA if they play their cards right.

BB: “So your recommendation in general is to postpone taking SS until you get to age 70”?

In general, if you didn’t have any spousal benefit or widow benefits….if you’re single, you’ve never been married, you want to wait till age 70 to collect SS but even for a single person planning on taking SS at age 70, at full retirement age (FRA) you should “file and suspend” (file for your benefits and then suspend collecting them), so if you need money in an emergency you can get all those suspended benefits in one lump sum check

[My note: FRA is either age 66 or 67 depending on your date of birth. Here is the reference for you: calculators

SS is very user unfriendly, extremely complicated, tons of rules that most people don’t know about

There are 2,728 rules……and there are literally hundreds of thousands of rules in the SS Program Operating Manuals

SS is in terrible long term fiscal shape

BB: Many people think that ‘Down the road, that money will not be there to pay SS benefits’

He would be much more worried about holding long term government bonds than getting paid the SS benefits if he was close to getting SS or was already getting it……because our gov’t is printing tons of money to pay for expenditures….this has been called QE, but to me this is just a precursor to very high inflation, and if you’re holding gov’t bonds you are going to get paid in watered down dollars

SS is not protected by the full faith and credit of the US Gov’t

But it is ‘protected’ by a much stronger force, the AARP who has 50 million members and is the strongest lobbying group in Washington…….

People age 55 or older should be able to count on collecting SS………one of the adjustments that the fiscal system will make is just printing money and we’ve seen that already for years now starting in 2008

BB: Where’s all the inflation from QE, we’ve been waiting year after year after year, where is it?

If people think inflation will be low, it can stay low for a very long time….once they think it will kick in, it can go up much more rapidly

The public doesn’t understand how deeply broke the country is, and once they get this in their brains, that it is printing money like crazy and that this has to continue….that’s when inflation will go much higher. So I think inflation is coming.

The Fed has increased the base money supply by over a factor of 4……all the money that was printed back in 2007 was about 800 billion dollars

Now we have close to 3.5 trillion dollars the Fed has printed since its entire inception

Over the past 8 years, we have more than quadrupled the basic money supply. Most of that money is sitting in the banks in the form of reserves, but as soon as that money gets out into the bloodstream of the economy……..Then it will have a big impact on the inflation rate

Bob in PA: I think it is a lot of baloney waiting till age 70…I took mine at 62……if you dollar cost average that money into the stock market it makes the break even age go up to about 90……plus I don’t trust the gov’t….they could cut SS….I think they would cut SS before they told the Chinese they are not going to pay them back their bond money

LK: We will pay the Chinese back with watered down dollars

The reason you are wrong with your SS calculation, you are not adjusting for risk in the stock market. If you take SS early, the apples to apples comparison is putting the money in inflation indexed bonds, not putting it in the stock market, as the stock market is risky, it can drop in half like it did in 2008-2009………

SS is paying an internal real return of about 3%

The yield on long term TIPS is 80 basis points……so you gave up 220 basis points of return that you could have made for free with no risk…………and you took a gamble that has so far worked out [in stocks]

If you are under age 66=FRA, I recommend that you claim and suspend your benefits and start up again at 70, because it will be 8% higher every year added to your benefit………if you suspend at age 66, at age 70 your benefit will be 32% higher, it can be restarted

Eric, you’re on with Larry: What does Mr. K foresee as the necessary increase in income taxes to cover the entitlements ahead?

LK: It’s not just entitlements, it’s a combo of low taxes and high spending………projection for defense spending and all other expenditures etc…….projected out for 75 years………..CBO’s numbers…..the fiscal gap, the present value of all the spending commitments minus the present value of the present tax receipts the CBO projects the gov’t will receive…..that gap is 210 trillion now…that is 58% of federal revenues on an ongoing basis……we need a 58% immediate and permanent tax hike in income tax, corporate income taxes, all taxes……that whole stream of revenues has to be 58% higher….OR we can cut all gov’t expenditures and benefits by 38%, including SS, Medicare, all expenditures of the gov’ a country we are in a very deep hole, we need to fix things immediately…………we economists think the country is broke……deficit accounting is just what congress wants to put on the books…… most of the liabilities are “off the books”, the country is broke…congress has been engaged in something that would make the folks at Enron and others blush in terms of their fiscal accounting……we are in a very deep hole and that’s why we are printing so much money….......

BB: Larry, why do you think we’ve had such a strong dollar with all the money that’s been created?

The rest of the world is a troubled place, Europe is in pretty bad shape…….............

Europe is our major competitor and in many parts of Europe are in depression, Japan is aging, China is uncertain with respect to their policy and what they are up to, so it’s natural for the dollar to be valued highly and maybe overvalued

Why hasn’t inflation taken off? Part of it is how strong the dollar is.…….I still think we are going to have a lot of inflation……….there are a lot of geopolitical concerns that lead people to think the dollar is a safe bet. People also think the Swiss Franc is a safe place to store your money, your purchasing power.

Will in Ft. Myers: I took my SS at age 62, I’m now 77…….I have probably taken out 3-4x as much as I put in……………waiting till age 70 is a major mistake

LK: If you had waited till age 70 to take SS, you’re benefit check would be 76% higher, over and above inflation……………your check could be 76% higher, so I think you made the wrong move…………….it’s very important for people to maximize their SS benefits, because that asset for most Americans is the most important retirement asset so you don’t just want to take it casually………worry about the worst case scenario which is living till 100

Tom from Carson City: ……….I think one of these days SS will be means tested as far as whether you will get it………where are we headed with an 18 trillion dollar debt

LK: The real debt is not 18 trillion…..the Fed has printed up 5 trillion……..the debt in the public’s hands is 13 Trillion… but the real debt of the country is the fiscal gap…it puts everything on the books…...but the fiscal gap puts everything on the books, not just what Congress wants to reveal……..the fiscal gap is 210 trillion, so we are looking at the wrong number…….our obligation is 210 trillion…….no politician has been discussing the fiscal gap……the country is broke……over 1200 economists from every single top university…including 17 Nobel Prize winners have endorsed fiscal gap accounting….fiscal gap accounting is what needs to be used……..we have a nuclear economic time bomb [of debt and obligations] that is about to explode unless we fix it by making radical reforms.

BB: We have a dysfunctional gov’t, why should we be surprised at more dysfunction as you describe it?

LK: ….SS has thousands of rules, and thousands of rules about those rules….the book is helping people sort those out…it shouldn’t be that our basic savings system is a user’s nightmare……and it shouldn’t be that we have congress hiding the fiscal facts from the public and the press buying into near Enron type accounting…….It’s time to look at the actual reality……..We are in a deep hole, we need to fundamentally reform SS for younger people……..the healthcare system is still a mess……we have a system now with 4 major healthcare systems (Medicare, Medicaid, employer based healthcare and Obamacare) which are basically being paid in large part or totally by the government…and all those systems are driving us broke collectively ……….the tax system is another ridiculous fiasco……’s time for economists to take over and show the politicians what to do to make a system that is simple and straightforward………..

 Brinker's guest-speaker was Laurence Kotlikuff: Get What's Yours: The Secrets to Maxing Out Your Social Security
Jeffchristie's Moneytalk Final Exam Question
What did Bob Brinker say about greed today?

A) “There is no fire like passion, there is no shark like hatred, there is no snare like folly, there is no torrent like greed.”

B) "Greed is good."

C) "Be fearful when others are greedy and greedy when others are fearful."

D) "Greed does not excuse behavior."

ANSWER: "Greed does not excuse behavior."

Honey here: Jeff, now Brinker is doing stand up comedy too, huh?   :)

San Francisco, Ca. KSFO 560: 2-4pm  UPDATE January 2015: KSFO no longer carries the first hour of Moneytalk. (KSFO archives Moneytalk (2pm & 3pm) Free on Demand for seven days after broadcast. 

(Summary published at 8:40pm PT)