Sunday, May 22, 2016

May 22, 2016, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

May 22, 2016...Bob Brinker hosted Moneytalk live today....(comments welcome)

Honey EC: This is something new on the blog - a very short audio link. I hope to be able to occasionally bring you more clips of really interesting comments from Moneytalk. 
 DID BB CHANGE THE MARKETIMER TIMING MODEL AFTER 2008 MELTDOWN....Caller Rob from Lincoln and Brinker's response.  You can listen to this fascinating call. Many thanks to dRahme for this short clip from Moneytalk - LINK. 
 THREATENING TO RAISE RATES HAD NO AFFECT ON STOCK MARKET EXCEPT VOLATILITY.....BB comments:  The FOMC minutes revealed that the Federal Reserve believes that a rate increase in June would likely be appropriate if the economy continues to improve.…  It had very little effect on the stock market because the market went up.  The S&P 500 gained about six points for the week – finishing the week out at the 2052 level – a gain of about 3/10 of 1% for the week.…  Although it did cause some intraday volatility.…

GDP AT 1% AND GOING TO 2% MEBBE....BB continued: Most Fed watchers were really surprised when they saw the minutes from the April meeting because they believed that the Fed would not raise rates at the June meeting.…  One of the reasons is because, based on current information,  the rate of increase of the economy in the first quarter this year is running at a slow rate of less than 1% annualized.  Another reason is because the estimates of annualized real GDP growth in the second quarter....are running in the general area of 2%… Which certainly is below the long-term growth trend of the United states economy.…

UNEMPLOYMENT "NUMBER" LOW, BUT LOTS ARE OUT OF WORK.....BB continued:  The unemployment rate is about 5.0 – that is certainly a number to bring smiles to the faces of Fed participants… But then when you look at the underemployment rate, there's no reason to smile - no reason to feel satisfied with that - because it is close to 10%.…

WHAT IS FED'S GAME - NOT EVEN ANY INFLATION.....BB continued: So one has to begin to wonder what is the end game at the Federal Reserve.  The Fed has stated that they have a goal of 2% inflation.…  They don't want deflation - but they're not there.  The annual rate of inflation right now.....is in the general area of 1%.  We don't have a pressing inflation issue right now.  And when you look at the global markets, they are easing on steroids right now.

HEY RUBBER CHICKEN GUYS (AND GAL) WHAT'S THE BIG HURRY… BB continued: What is the hurry to raise rates?  Where is the pressure coming from that is forcing these Fed governors to go out on the rubber chicken circuit and tell the world we have to raise rates – maybe even have to raise two or three times this year. …  Higher rates are designed to a as a means to an end to keep the economy from overheating. …  Is that the case – no way.

HEY MADAM CHAIR, DON'T DO IT JUST 'CAUSE YOU CAN....BB continued: But higher rates are not an end in-and-of themselves.…  The Federal Reserve should not be raising rates just to raise rates.  The Federal Reserve should not be raising rates just so they can fulfill their earlier forecast that they were going to raise rates.…  Think back to what happened last December…

DOLLAR PEAKED, CONSOLIDATED, THEN REVERSED....Brinker comments: We have seen a reversal trend in the US dollar.  The dollar had peaked out close to the beginning of the year – then it consolidated until late April and now it has reversed to the upside, and has been putting on a strong performance since mid April - but I would say especially so this past week.…

STRONG DOLLAR CREATES A CONUNDRUM....BB continued:  The strong dollar creates a headwind for the US economy.  This is one of the conundrums that the Federal Reserve has to deal with as they decide what to do with rates… When the dollar is strong our exports become more expensive overseas… At the same time, our imported products here tend to become more price competitive and put more competition on the shelf against domestically produced products.…

BJ CLINTON AND HIS TRADE TREATIES.....BB continued: We've had a couple of really huge trade deals under William Jefferson Clinton – which he heavily promoted – NAFTA, the North American Free Trade Agreement that has become highly controversial.  And Clinton also promoted GATT, the Gen. Agreement on Tariffs and Trades.…  He is also the one who signed the legislation killing the Glass-Steagall act that did such a good job in the 1930s until he killed it with his signature in November 1999.

ON THE OTHER HAND, YOU DON'T "GET NO SATISFACTION" ERR CREDIT, ONLY WHEELBARROW LOADS OF NEGATIVITY.... BB continued: But you heard the old saw, you don't get too many compliments but you get all the complaints… People are reluctant to compliment you no matter what you have accomplished… But they will dump of wheelbarrow of negativity on you on the other side.  That's what I think you're seeing with the trade agreements.....Globalization is here to stay and you can't blame job losses on any one Party.

US ECONOMY RELATIVELY AND COMPARATIVELY SPEAKING.....BB continued: On a relative basis, compared to other industrialized nations around the world, the United States is done relatively well. the reason I say that is, we had been growing in recent years a little bit over 2% – adjusted for inflation – real growth in gross domestic product.  And we also lower the unemployment rate to 5.0.  I think the underemployment rate is a little bit higher than we would like to see it.  And we also have kept inflation down.  So relatively speaking, we have done pretty well.

FED GETS ALL THE CREDIT BECAUSE.....BB continued: Unfortunately, I have to give all that credit on that to the Federal Reserve.  The reason I have to do that is because the only government body that has done their job is the Federal Reserve.…
DONALD TRUMP MAY BE YOUR GUY, BUT GIVE BRINKER A BREAK - HE AIN'T PART OF THE MEDIA....Caller Marvin fretted about the cost of the military.   Brinker responded: "You may have your candidate.  Donald Trump has been asking about why we have tens of thousands of American troops in the demilitarized zone between North Korea and South Korea on our payroll… He's been campaigning on why we have so many troops in Germany so many decades after World War II.  Why we have so many military operations in Japan.  Your candidate could be the Donald."

Marvin replied:   "You guys are not going to hold their feet to the fire.  You guys are going to give them a pass.  They promise this  stuff and then when they are elected, they are not going to do it.…  You guys in the media do not hold their feet to the fire."
BB bristled and said: "Marvin please, give me a break will you.  I'm not in the government, I have no legislative power to do anything.  Give me a break.  Putting that on me is ridiculous.  Putting that on me is absurd.  You are losing your credibility quickly."

Marvin: "Listen, the media is as big a part of the problem as the politicians."

BB responded: "You can't possibly count this program as a media broadcast.  This is not a news broadcast or a cable channel broadcast.  That is not what this program is about.  What are you talking about?.  If you listen to this program today, we talked about many different topics.  I don't know what you're talking about."
 POLITICS: The vast majority of the program today involved politics either directly or indirectly. I covered a few of Brinker's comments about Donald Trump and Bill Clinton. Bill Clinton is pertinent to Hillary Clinton's candidacy because she stated last week that she intends to put her "husband" in charge of the US economy.

FRANKJ'S MONEYTALK GUEST INTERVIEW SUMMARY

Today’s guest on the May 22, 2016 3rd hour of MoneyTalk was former Minneapolis Fed president Narayana Kocherlakota, who served from Oct. 2009 to the end of 2015.

As one might have expected, Bob led off with questions about why various Fed governors hit the rubber chicken circuit almost weekly and talk about what might happen with regard to interest rates. The guest said it fits with their need to communicate to business and the public about Fed policy. They make it clear they are expressing their own thoughts on what should be done and that they are not speaking for the Chair, Janet Yellen.

No rate hike next month if it were up to him. The guest said we’re in a challenging time given what the rest of the world is doing. We don’t want to do something that will come back and bite us.

Will Bob Brinker address the Fed Open Market Committee? He won’t (but he’d probably love to.) He would tell them that interest rates are not an end in themselves, they are a means to an end. The guest agreed. The FOMC is too caught up in the objective of a path to normalization of interest rates. Instead, they should focus on where the economy should be. He was clear that he does not think it is time to raise rates.

Are savers left out in the cold? Yes, but it’s all in a good cause. That cause being the desire to stimulate consumption. Savers may lose out but borrowers win out and have better income. The Fed wants to create incentives to spend today. He added that the world wide supply of safe savings assets has shrunk.

Does politics play a role in Fed policy? It did in the 60’s and 70’s as old Fed minutes indicate, but no more. Joe from San Clemente asked whether Janet Yellen’s recent visit to the White House involved politics. The guest said he did not think so. The White House leaves the Fed alone to do its thing. The guest gave an example of Fed policy being indifferent to politics by noting that QE2 was announced right after the Nov. 2010 election. (Ed. comment: I don’t see how this demonstrates Fed independence.)

What would a Fed discussion be without talk of auditing them? The guest knocked this one out of the park by saying this talk in Washington has mostly to do with Congress wanting to get its nose under the Fed policy tent. Their actual books are audited by name brand accounting firms.

Caller Mary from Albuquerque missed her turn at bat as lead off caller, but got back in the game later with her question about gold. How safe is it, and is there risk of another 2008? The guest was sanguine about another 2008: “lots of safeguards.” As to gold, the two reasons people own it are when there is general uncertainty and when there is inflation risk. No inflation risk now, in fact, inflation is down – a point he made several times.

A caller from Overland Park, Kansas asked why is economic growth so slow? I’m not sure the guest gave a solid answer. Interest rates haven’t helped that much and they’re about as low as they can go. The Fed bought bonds but that didn’t make a big difference. Finally he said fiscal policy is needed to help. (It would have interesting to hear him elaborate on the fiscal policy point. Fed = monetary policy. Congress = fiscal policy, i.e. spending).
 

Caller Danny from Atlanta was the first caller to MoneyTalk in my recollection who was the on the receiving end of a snarky little introduction by Bob Brinker before he came on the line. Bob, obviously disagreeing with what Danny was about to say, said “not all calls have a valid premise.” Danny’s question was in regard to inflation and the Fed’s pursuit of a long-term 2% inflation figure. “Why does the Fed think devaluing my wages is good policy?”

I’m not sure Danny was convinced with the guest’s answer which was: a little inflation is good for him because it stimulates people to spend more now, which means more consumption, more hiring…

I think we experienced another MoneyTalk first with the final caller, Michael from Chicago listening on WLS. When Bob went to him, we heard only the sound of a toilet flushing. Bob made a smooth recovery and wrapped up at 3:51 pm.

Honey here: Outstanding interview and summary - thanks, Frankj!

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION

Bob Brinker referred to the latest comments coming from the FED as:

A) Slight of hand.

B) Smoke and mirrors.

C) Hijinks and mystery.

D) Lies and deceit.

ANSWER 

Honey here: Thanks Jeffchristie...I especially enjoyed the first part of the answer. 

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

Sunday, May 15, 2016

May 15, 2016, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

May 15, 2016...Bob Brinker hosted Moneytalk live today....(comments welcome)

STOCK MARKET..... Brinker said:  "The S&P 500 closing out the week at 2046.61. Profit taking during the week of 1/2 of 1%.    S&P 500 losing approximately 10 points on the week....and now stands, counting cash dividends, stands a little bit over 12% above its correction low on February 11th of this year -  which was 1829 on the S&P 500.

STOCK MARKET HIGHS LOWS AND IN BETWEENS.....Brinker continued:  "Right now moving forward to the current date, it's been close to  3 months  since that correction low. And the total rate of return on the S&P 500 since that date standing right around 12%.  Now in terms of the all-time record high for the S&P 500 of 2131 last year, if you take the total return from the S&P 500 from the all time high of May of last year till now, then the total return has been about -2%.  Because the S&P 500 has paid about a 2% cash dividend over the past year. So on a total return basis, it's standing about 2% below its all-time high, as well as about 12% above its correction low,  which was registered on the close on February 11."

BRINKER'S MUTUAL FUND AND  ETF RECOMMENDATION.... Caller Peggy from Hawaii asked Brinker to recommend a good mutual fund. Brinker recommended Vanguard Total Stock Market Fund and its ETF equivalent, VTI, or Fidelity Spartan.

Honey EC: Brinker, for some strange reason avoids recommending Charles Schwab, even though when he is penned down, he has nothing but praise for "Charles." Schwab's mutual fund prices are competitive, if not better now,  and they certainly offer all index funds - including the Total Stock Market. 

MARKETIMER BALANCED PORTFOLIO III..... Caller Andy in Corvallis said he was a currently in  Marketimer portfolio III. Brinker replied:  That is a balanced portfolio, for the uninitiated.  It has roughly half of its money in the stock market and half of its  in fixed income investments.…

Honey EC: Brinker's stock portion of that portfolio is mostly in the index fund that he recommended to a caller earlier today - Vanguard Total Stock Market (VTSMX). The bond portion is divided between 3 bond funds: DoubleLine Low Duration Bond, DoubleLine Total Return Bond Fund and Osterweiss Strategic Income Fund.  Osterweiss has a large portion in low-rated "junk" bonds, which is strange because he sold Vanguard High-yield Fund from Marketimer in 2012.

VANGUARD WELLESLEY FUND (VWINX)....John from LA asked Brinker his opinion of Vanguard Wellesley. Here is the conversation:
BB replied: I think it's a good conservative fund – reasonable expenses, has a cash dividend of over 2%, and it has 65% exposure to bond market and about 35% bonds,.

John followed up: "The question is, in this time that we are living in, do you think that that allocation is just right or should I have more bonds?"

BB replied: John that depends on the person's individual investment objectives.

John: "I'm talking about safety of principal."

BB replied: I would say it's a conservative fund, and that means that I don't think you are going to get wild fluctuations in the share price.  The tendency of that fund has been slow and steady

John: "Okay will then you like it?"

BB replied: I would say that as a conservative, low-cost, diversified, and well-managed no-load fund, they have done a very good job.

John: "Do you think the allocation of 65 and 35 stocks is, in this troubled times – the up-and-down – you still think that is good?"

BB replied: John,  I don't think everybody should have an allocation of 35% stocks and 65% bonds.…  But I do think that an investor that has a conservative investment profile – which also includes relatively low tolerance for risk – doesn't want to see a lot of volatility in the net asset value, yet wants to have some exposure to the stock market along with some exposure to the bond market - I think it's a good, conservative investment choice on that basis. 
 Honey EC: How interesting that Brinker would not give John a direct answer to his question. Wonder if he wanted to make sure that John didn't ask him why he sold all Marketimer Vanguard Wellesley Fund holdings in October 2012. At that same time he sold all Vanguard High-Yield and ALL  Nasdaq holdings.

YOU AND SPOUSE IN OR OUT OF HOUSE IRAs.....BB said:  IRA contributions really have become generous when you consider if you are single under 50, you are putting in $5500-  if you can afford to – whether it be traditional or Roth.  You have to qualify for the Roth under the income requirements.…  If you are 50 or more, $6500 can be put in, but you can double those amounts if you can cover them with earned income – not pension money.  And you put up to $11,000 for a single contributor with the spouse.  So $5500 for the single person who is working – you are married, but you are the single person who is working because your spouse is not generating earned income… There is a provision for that, and that's the spousal contribution. It has to be covered by the breadwinner's income up to $11,000 – or 13,000 if your age 50 or more.

SHOULD YOU HAVE A LIVING TRUST....Caller Larry from Chicago asked if Brinker would recommend a living trust.

BB replied:   "....during your lifetime, a living trust doesn't really do anything for you.… I'm not sure what the case would be for you to have a living trust at the age of 53, assuming you are healthy. Obviously, you can avoid probate if that's important to you. But there are various other ways to avoid probate – obviously one of them is to name a beneficiary to inherit your assets, and these plans have gained wider acceptance in recent years. At the age of 53, I don't see any pressing reason why you should have a you living trust. There are expenses attached… A single person today can leave over $5 million with no estate taxes. I think the biggest factor in deciding whether to develop a living trust is wealth, and your wealth is substantial at 1 1/2 million dollars… My lean on this would be that at the age of 53 and in good health, with assets of 1 1/2 million would be not to do that.

Honey EC:I'm not a lawyer, and I don't play one on this blog, but I think that was very simplistic advice that Brinker gave to Larry. There are many reasons to have a living trust where  age or wealth don't matter at all. And exactly how does one avoid probate without one? 

INTEREST RATES UP - NOT IN OUR LIFETIME....Caller Paul in the second hour asked Brinker when he thought interest rates would be going up.

BB replied:  Do you think it will happen in our lifetime Paul? .....I think it is the great unknowable right now.

NO POPULATION OR PRODUCTIVITY GROWTH NO FED RAISING RATES.....BB continued:  because the reality is we have a situation where the economy has managed to grow a little bit over 2% a year.  Right now we don't have the population growth and we don't have the productivity growth to justify a high gross domestic product growth rate.

FOOL ECONOMIST SHOULD KNOW.....BB continued:  And when I hear these people out there – and they are fools because they should know this – economist I speak of here, they are fools because they should know this.  In order for the Federal Reserve to be able to to justify a normalization of interest rate, you would have to have something that would drive that decision.…

RAPID GROWTH AND HIGH INFLATION WILL DO THE TRICK....BB continued: Rapid economic growth certainly could drive that decision.…  High inflation could drive that decision although, only to a certain degree because they may have to tolerate inflation if that becomes an issue if the economy is not growing more rapidly than it is right now because they do not want to precipitate a recession.

LOOK AT FED IF THEY CAUSE A RECESSION....BB continued:  Suppose inflation became a little bit more of a problem than they wanted it to be, but suppose the economy is still limping along at 2 to 2 1/2% per year, then they have a real problem on their hands because if they raise rates to fight inflation and cause a recession, I promise you they will get blamed.

SO JUST STICK TO MARKETIMER'S BOND PICKS....BB continued:
  I'm okay with the income portfolio because we've taken care of the interest rate risk issue by keeping our duration low.  So we  side-car'd  the interest rate part of it but now we are focusing on getting a reasonable rate of income and so far this year it has been going well for the income portfolio – and that's the whole purpose behind it.

BRINKER POLITICAL COMMENTS ABOUT DONALD TRUMP:
 "You have to give The Donald credit because he gave some publicity to this. He was on a national presidential debate stage, and he said in the debates – it’s all on the record, to his credit – that he gives money to politicians and he expects a return on his investment, and they always do what he tells them to do. I paraphrase his debate comments. Giving money to politicians, expecting return on investment and getting what is expected.

That’s why, when I hear politicians say, I take money from this interest or that, but I would never do anything to favor them, it really rings hollow. I really makes no sense. And I think The Donald told it like it is and he did everybody a big favor when he did that. He put it right out there on the table. Because the reality is, the politicians are like puppy dogs when it comes to delivering the goods to their contributors."
FRANK'S SUMMARY OF THIRD HOUR GUEST-AUTHOR

The third hour guest today, May 15, 2016 was Edward Humes, author of the book,  Door to Door: The Magnificent, Mysterious World of Transportation

 In my opinion this interview was one of the least interesting I’ve listened to for several years. As such, it is worthy of just a bullet point summary:
  • Building more traffic lanes “induces” demand. Example a recent widening project in Los Angeles known as “Carmaggedon” did not reduce travel times.
  •  I-710 connecting the Port of Los Angeles and Port of Long Beach is one of the most important routes in the nation and it is overcrowded.
  •  The federal gas tax has not risen since 1993 so after inflation takes it bite, the real revenue is down 39% since then.
  •  Gas tax money doesn’t always go for improving highways, sometimes it is spent on mass transit projects.
  •  Internet shopping has given rise to more truck trips in the form of home deliveries.
  •  1% of male drivers are “psychotic.”
  •  The late George Carlin said anyone driving slower than him is an idiot. Anyone driving faster is a manic.
  •  Electric cars and cars getting high mileage don’t use much gas so this affects the intake of gas tax revenue.
  •  The guest said big rigs do 10,000 times the damage to roads that cars do. (Ed. Comment: Sounds a bit exaggerated to me.)
  •  No one, neither car drivers nor truck operators pay enough in gas taxes to maintain roads properly.
  •  Driverless cars will reduce traffic deaths because so many injuries and deaths are caused by driver misconduct: drunk, high, texting, putting on makeup, eating, etc. Ninety percent of fatalities will go away if we had all driverless cars.
There were three callers. Gus from Portland, Oregon, Forrest from Aurora, CO, (who disagreed with Gus) and Ray from Honolulu who alluded to shenanigans with the gas taxes raised in the Sandwich Islands.

Honey EC: Thanks Frankj...I was surprised that Humes claims that 90% of vehicle wrecks are caused by driver misconduct. That is HORRIFYING, and goes a long ways to explain rage at other drivers who so cavalierly put others in danger. 

However, I think that Humes needs to be able to show the statistics of how many fatalities driverless cars will cause before making that assumption. I do not believe it could be zero. 

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION

Bob Brinker said when it comes to delivering to their contributors, politicians are like:

A) Alley cats.
B) Rotting fish.
C) Puppy dogs.
D) Sewer Rats.

ANSWER

Honey here: Jeffchristie, I love the picture, but I think Brinker is way too kind. :)

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