Sunday, August 31, 2014

August 31, 2014, Bob Brinker's Moneytalk: Neale Godfrey Fill-in Host

August 31, 2014....Bob Brinker did not host Moneytalk today. Neale Godfrey filled in. (comments welcome)

Honey EC: I decided to cover one call today because it gives a clear picture into Neale Godfrey's qualifications to give financial advice on national airwaves -- and why I have no interest in seriously covering her broadcast.
Frank in New York said  "I have been dollar cost averaging money into the market for years.  And fortunately, I have come into some new – $200,000.  I have been waiting patiently, as Bob has expressed in weeks and months past.  But not having invested,  I feel like I have lost out in the run-up of the market… Do I start putting this money into the market now – over what time frame would you recommend, three months, six months,  a year?  How should I approach this?"
Neale Godfrey said: "First of all I want you to think where you see rates going.  If you think we're in the trough and they are going to go up then start putting the money in.  That's the whole kind of game that you're playing with the dollar cost averaging.  That's a question you can have to answer for yourself.  Are you missing out?  Do you need to get the money in there or do you want a kind of laid back and wait for what is perceived as the trend?  If we were all smart enough to know when that happened – it's hard to tell until it's over.  I don't want you to miss the opportunities in this.  The other thing is just for the fact that you got that money, it should be invested in something because by definition on a present value basis you are missing out on a return that you could be getting."
The only other call of note was from Steve from Oklahoma who made the false statement that Bob Brinker has said that it is a "good idea" to have some gold in your portfolio. Brinker has never said anything close to that. Even when he had GLD in his  Marketimer "off-the-books" list of individual issues, he never made any recommendations whatsoever.

BOND MARKET UPDATE: Speaking of Bob Brinker. where does he currently stand on bond market?   I think you know that he is touting low-duration bond funds. He prefers close to one year over anything longer than that. He has sold all GNMA Funds because he considers the duration too long. 

STOCK MARKET UPDATE: Brinker said this in the August 2014 issue of Marketimer: "We continue to maintain our fully invested position in all of the Marketimer model portfolios in anticipation of additional stock market progress into next year." Brinker recommends dollar-cost-averaging on periods of short-term weakness. He defines short-term weakness a "a short-term interruption of an ongoing uptrend." He believes that if a correction develops, it will lead to a lower-risk buying opportunity.

Frankj's Third-Hour Guest Summary:

Neale Godfrey’s third hour guest this Labor Day weekend was Brad Thomas, a nationally known expert on REITs (Real Estate Investment Trusts). I was very pleased to hear that he was the guest because I have followed his work on the financial website SeekingAlpha.com for a few years now.

Brad’s bio is posted at www.SeekingAlpha.com. Or, you can visit his website, IREITINVESTOR. You can type his name into the search box AT SeekingAlpha and find his articles. His most recent one is good introduction to the subject, here is the link:

http://seekingalpha.com/article/2459755-the-pathway-to-creating-wealth-with-reit-diversification

The interview started promptly when Neale returned from the break.

Brad pointed out that REITs have been around as an asset sector for 50 years. REITs are obligated to return 90% of their taxable income to investors in the form of dividends. This “have to” requirement sets them apart from normal C-corporations who may pay dividends but are not obligated to do so and can freeze, lower, or cancel their dividend. REITs generate income from rent payments, lease payments or from selling appreciated properties.

People can own REITs in the form of individual securities, mutual funds or ETFs. Individual REITs may be owned as publicly traded stocks, or private, REITs. Private REITs (non-traded) are more risky because they are not fully liquid and you cannot easily get your money out if you want it. Also, loads and fees are paid because these are often paid through financial planners.

Neale went to calls and Fred was first up … no question, just praise for covering this topic.

Next at bat was Harry who recited his profitable experience with REITs until the Thai baht melted down and squashed the US yield curve in 1997. He bailed out. Mr. Thomas fielded the call by pointing out that the recession in 1997 affected mortgage REITs which are not quite the same as brick and mortar REITs because mREITs are more volatile.

Rich from Florida called next to ask what would happen when interest rates go up and what did Brad think about the rental market (Rich had three rentals). Brad said that the Fed will raise interest rates when the economy strengthens. This means real estate will be getting stronger and landlords will be able to increase rents. He referenced the business cycle for real estate is 18 years long and for the overall stock cycle it averages about 5 years. There is a more complete explanation of this in the ”pathways” article link above.

Rich’s second question concerned rentals. Brad expressed his own experience at dealing with the “3 T’s” (Toilets, Trash and Taxes). Some people might be willing to put up with these headaches.

Since the recession, REITs have pruned their holdings and locked in longer term fixed debt at attractive rates. His big concern with rising interest rates is how they might affect the tenants – those businesses who write the rent checks. He ran through the average lease lengths: “triple net leases” and health care facility leases tend to be 10-12 years with annual rent increases built in.

(A “triple net” lease is one where the tenant pays the property taxes on the building, takes care of the maintenance and pays the insurance on the building).

Judy from San Jose is taking distributions from mutual funds, including one that is invested in a REIT. She had a question about tax treatment. Brad suggested she contact him through his website, IREITINVESTOR  and he said he would try to answer it.

(Editoral note: If you have the option, the place to own a REIT is in a ROTH-IRA. REIT dividends do not get the favorable tax treatment that normal dividends get. And, if you own a REIT in a traditional IRA, you can re-invest your dividends, sure, but ultimately, those dividends will come out and be taxed as ordinary income.)

Alan from Chicago wanted to know what was the “safest” REIT to invest in? Neale jumped in probably to prevent Brad from making a specific recommendation. Brad answered indirectly saying the safest would be one that had a long record of increasing dividends. He said there is one out there that has such a record for 46 years.

Albert wanted to know about REITs that held mall properties in their portfolios. Brad said there haven’t been any major malls built in 10 years and malls can be tricky if there are weak tenants, mentioning Penney’s and Sears. He mentioned factory outlet malls and Tanger Factory Outlets as an alternative.

Neale wrapped up the interview at about 3:55.

Honey here: Thank you so much Frankj...as always another outstanding guest summary. And it's nice to know that you have found this guest worthwhile to follow for some time. I will be checking out his website. If I heard correctly, he also sells a newsletter.


Jeffchristie's Moneytalk Final Exam Question:
What term does Bob Brinker use to describe it when a US company acquires a foreign company and then relocates its headquarters to that country to now be taxed at that countries lower rate?

A) Subversion; B) Tax evasion; C) Inversion; D) Perversion.

Answer: 
 Jeffchristie.....Thank you for another hilarious Final Exam question. There is no excuse for anyone missing any answers  if-and-when the Starship Moneytalk takes its final voyage  "To the third star on the right and on until morning____Captain James T. Kirk 

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


Sunday, August 24, 2014

August 24, 2014, Bob Brinker's Moneytalk: Stocks, Bonds, Investing, Economic Summary

August 24, 2014....Bob Brinker hosted Moneytalk today.....(comments welcome)

I was unable to listen because I have been very sick for a  few days and my daughter decided it was time for some TLC and some home made soup today.

However, we are very fortunate to have two guest-writers, Frankj and Jeffchristie,  who have summarized the broadcast:

Frankj summarized the first hour

Bob Brinker hosted MoneyTalk today, August 24, 2014 and led off the show with a review of what it takes to reach the Land of Critical Mass: Patience, Discipline and Knowledge. These three elements are what the show is all about.

Bob mentioned the earthquake that struck near Napa, CA at about 3:20 am this morning.

In breaking financial news, Bob mentioned the purchase of an Australian based drug company, Intermune (ITMN) by Swiss-based Roche Holdings. Roche is paying $74 per share for ITMN which is a 63% premium over what ITMN was trading at on August 12. The small (450 employees) company developed a drug for treating lung disease. The deal should close by the end of the year.

Rich from Novato was first in the batting order of callers. He asked Bob about Warren Buffett’s investment strategy for when he shuffles off this mortal coil. Buffett has left instructions to invest 10% in short term government bonds and 90% in a low-cost, no-load S&P 500 Index fund. Rich wanted to know Bob’s thoughts.

Bob disagreed with the choice of equity fund, recommending instead a total stock market fund. This would pick up the mid cap and small cap components of the US market which the S&P 500 fund does not. Bob also disagreed with the allocation of 90% equities, calling it too aggressive but consistent with how Mr. Buffett thinks.

Bob mentioned that he has always said, going all the way back to the start of the show in 1986, if he had to choose just one equity fund, it would be a low-cost, total stock market fund.
Paul from Missouri led off his call by saying he is a long term subscriber “TO BOTH OF YOUR NEWSLETTERS,” and he is mostly in cash now but wants to move into the income portfolio, Portfolio 3. Bob did not advise him that his son actually edits the fixed income newsletter. He did advise him to plunk half his money into the fixed income part of the portfolio and to dollar cost average the other half into the equity side of the portfolio. Bob mentioned that the fixed income side is protected against loss of net asset values because of its short duration.
Next up was Mark from Illinois, a military retiree who is employed, has a 401K with a 65% equity/35% bond allocation, and plans to work another 8 years. He wanted to know how aggressive he should be with his allocation. Bob said his allocation was just fine for someone in his situation.

Howie from Dartmouth batted in the clean-up position with a question on the Osterweiss Strategic Income fund, one of the funds in Bob’s income fund stable. Howie said the fund has a duration of 1.94 but a yield to maturity of 4.03… what’s up with that? Bob explained that duration is the measure of the percentage a fund’s net asset value will move if interest rates move up or down by 1 percent. The bond portion of the income portfolio currently has a 1.1 duration, Bob said.

Mike from New York wanted to know if the charitable deduction for IRA’s was going to be renewed by Congress for 2014. This provision allows someone to donate money from their IRA directly to a charity and avoid counting the distribution as income, while also taking a deduction for a charitable contribution. This is attractive for people who are in the land of the Required Minimum Distribution, but may not need that income for living expenses.

Bob said he did not know if the provision was going to be renewed and it is unlikely we will find out until after the fall election. Bob went on to prognosticate that the Republicans will maintain control of the House, they may take the Senate but they won’t have 60 votes there. Thanks to gerrymandering there is not much turnover in the House. Politics is, he said, “all about the money.”

Dave from Oklahoma City has $650K in a Roth-IRA and he wants to know if he can use any of it before he hits age 59 ½. Dave mentioned that his father is his financial adviser. (Why not ask him?) Anyway, Bob advised that there are certain circumstances where you can withdraw money from a Roth-IRA if you have held the account less than 5 years and before you are 59 ½. He gave some examples but anyone really interested in knowing this information is advised to go to the IRS website and look up the rules, or talk to a CPA or qualified tax preparer.

Teresa from Kansas has been retired for 1.5 years, she’s sitting on a retirement fund of $1.8 million, and is looking at taking her required minimum distribution in 6.5 years. Should she be tinkering with her 40% equity, 60% bond allocation in anticipation of this future RMD? Bob’s answer was no.

Betty from Waterloo missed her turn at bat.

Tom from Moses Lake, WA is 46 and looking at retirement at 59 ½. His 401K is 100% in stock funds and he projects it will be worth between $1.5 and 2.0 million when he retires. He said he won’t need the money right away when he retires, so should he reallocate? Bob’s advice was to re-allocate a little at a time, 3% per year, in order to get to a 50% - 50% allocation by the time you retire. (Does this get to a 50% allocation by age 59 ½? It does not by my Jethro Ciphers. By age 62, it does get to 50%. Was Bob listening closely?)

Jeffchristie summarized the second hour of the broadcast:

Bob started the second hour by encouraging moneytalk listeners to max out their contributions to IRA's and 401k's.

George in Petaluma owned two homes in the bay area. Property A has been his principle residence for 6 years. He paid $670,000 for the house and feels it is now worth $1.2 million. Property B is a rental property that he bought for $185K and he thinks he can sell it for $850K. Bob noted that if he sold property A he could get a $500k federal tax exclusion on the sale and this looked like the way to go.

Linda from Kansas wanted to know what her I bonds were paying. Bob told her there was a base rate and an inflation component. She should look at the yield in the print out she had from the government web site.

Harvey in Carolina retired 2 1/2 years ago. His company did not offer a sump sum a that time. Now they are. He is receiving $55k a year and his wife would get half of that if he dies. The option is a lump sum of $696K. Since he didn't need to add that money to his estate Bob suggested he should continue with the monthly payments.

Carl from Chicago ask about the PE for the S & P 500. Bob told him that he is using the 2015 operating earnings and gets a forward PE of 15.3.

Ryan in Utica New York has 9 years to retirement. He has most of his investments in the market and Bob suggested he get to 65/35. He should plan on a 4% withdrawal rate when he retires. This would net him around 20 to 24K a year based on the numbers he provided.

Mark in Portland said he was in a total bond fund. Bob noted that the duration was 5.7 and that was too risky for him. A 1% rise in interest rate would cause a 5.7% drop in the value of the fund.

Honey here: I can't thank both of these gentlemen enough for coming to my rescue today.