Wednesday, March 25, 2015

March 25, 2015, Bob Brinker's Cyclical Bull Ate His Secular Bear Market

March 25, 2015....Several readers have been talking about Bob Brinker's old-standby  market-timing selling-tool, the secular/cyclical trends, so let's bring it up-to-date.

Over the past 15 or so years, Bob Brinker has gotten a lot of mileage out of talking about secular vs cyclical market trends. In the past, he wrote extensively about them in Marketimer and discussed them on Moneytalk.

By his own words, the current secular bear market must have ended  -- without a whisper from Brinker, except to say that they never mattered anyway.  That seems almost comical, but it sure filled a lot of pages in his newsletter. This is how he defines the end of a secular bear market:

  Brinker told a Moneytalk caller in February, 2007:
“……..But what we do know is within secular trends there are no cases where a secular trend has gone beyond the previous peak by more than, by more than 10%. It's never happened, so I think it's fair to say that until that happens, the secular trend is intact.".Now the secular trend that began in year 2000 when the S&P was up in the 1500s, awww, that remains intact. The S&P 500 Index - and this is measured by the Index itself - has not gone above the prior high of 1527 close. In fact, in remains in the mid-1400s at this point. In order for it to move beyond an existing secular trend, such as the one we've had the past seven years, you would have to exceed it, I would think, by at least 10%.......”
(That definition was posted on my original Bob Brinker Blog.)

Brinker totally messed up his secular bear calls.  He declared that the one that began in 2000 had ended in 2006 -- he did that retroactively in 2007. Then he had to admit in 2009 that it had not ended after all.

June, 2007, Marketimer, Bob Brinker said:
"In our view, the valuation based secular bear market that was established following the March, 2000 closing high for the S&P 500 index (1527.46) and following the January, 2000 closing high for the DJIA (11723), reached its conclusion on June 13, 2006 at the bottom of the mid-term off-presidential election year correction."
In May, 2009, just months after the market had dropped 55%+, Brinker changed his mind and said that the secular bear megatrend hadn't ended after all.

May, 2009 Marketimer, Bob Brinker said:

"Although it appeared to us that the secular bear megatrend that began in year-2000 had reached its conclusion, there is no  question that the secular bear megatrend remains intact...."
The final time that Brinker wrote about the secular bear market was in the December 2012, Marketimer, Brinker wrote:  
"We would not be surprised to see the current secular bear megatrend reach its conclusion within the 2014 to 2020 time frame. This would suggest that we will experience at least one more cyclical bear market within the ongoing secular megatrend that began in Year 2000.....In our view, the absolute low for the current secular bear megatrend occurred during the U.S banking crisis on  March 9, 2009."
It was also in December 2012 that Brinker seemed to subtly give himself an out regarding secular bear calls: 

December 2012, Marketimer, Bob Brinker said: 
 "While we take note of the secular market trend within the context of analyzing market history, all Marketimer asset allocation and model portfolio decisions are based solely on the market signals generated by our stock market timing model. The Marketimer stock market discipline focuses entirely on cyclical price trends."
So much for secular bears -- who needs them anyway? :)  Now he only mentions the ongoing cyclical bull market:

April, 2013, Marketimer, Bob Brinker said: 
"Given the fact that this cyclical bull market is now in its fifth year, we remain vigilant with regard to our stock market indicators."
May, 2014, Marketimer, Bob Brinker said: 
"While it is true that the mid-term off-presidential year history of the market suggests that a correction is likely this year, it is also true that the Marketimer stock market market timing model continues to suggest that the underlying cyclical bull market fundamentals remain intact. "
So what is Brinker's definition of a cyclical BEAR market? I don't know....


Sunday, March 22, 2015

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

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

HOUR ONE

LAND OF CRITICAL MASS...Having enough money to throw away your alarm clock and be your own boss. 

STOCK MARKET.....There is no change in Brinker's bullish stock market outlook. He still recommends that listeners and subscribers be fully invested with their stock market allocation. And when near or at retirement,  balanced 50-50 stock/income securities, or 40-60 or even 30-70.

BRINKERS NO-BRAINER MODEL PORTFOLIO III......Caller Kathleen from Maryland, who has started managing her mother's investments, asked about moving her away from a paid financial advisor and into Marketimer model portfolio III.
Brinker replied: And the reality is,  Kathleen, at the age of 92, your mother's portfolio could be totally simplified in my opinion.  Let me give you an example of what I'm talking about.  At the age of 92, it would not bother me at all – this is just my opinion – it would not bother me at all if your mother had a 30-70 assets allocation where she would have 30% of her money in something like the total Stock market Index to oversimplify.  And 70% would be diversified the income securities, no-load mutual funds of bonds, things of that sort.  To me this is just about a no-brainer portfolio.…  You're familiar with the investment letter.  You know exactly what I'm talking about.  Take a look at model portfolio three – only constructed on a 30-70 instead of the 50-50 with the emphasis on income securities.  I basically believe that less risk is appropriate at that age. 
Honey EC: Brinker likes to brag about his Marketimer model portfolio III now, since his income portfolio only did about 1% last year -- according to Hulbert's Financial Digest.  But model portfolio III has risk in the bond fund holdings. In spite of that, it performed only about  1/2 as well as total market did last year. Before investing in it, it is a good idea to do your own due diligence:

Akre Focus Fund (AKREX) = 05%
Vanguard Dividend Growth (VDIGX) = 05%
Vanguard FTSE All-World (VFWIX) = 10%
Vanguard Total Stock Market (VTSMX) = 30%
DoubleLine Low Duration Bond Fund (DLSNX) = 20%
DoubleLine Total Return Bond (DLTNX) = 20%
Osterweiss Strategic Income Fund (OSTIX) = 10%

BRINKER RECOMMENDS INDEX INVESTING IN MARKETIMER AND ON MONEYTALK...Caller Dan from PA asked about the advantages of index fund investing.
Brinker replied: When you speak about a financial advisor, you're not generally talking about somebody who is promoting investing in indexes.  It's true that on Moneytalk, we've talked about including index investing pretty much back to the start of our program.  And the proof is in the pudding – all of our model portfolios in the Marketimer include – I'm speaking here of model portfolios 1  2 and 3, and the active-passive – all of our model portfolios that have equity positions include index investing… In the balanced portfolio that I recommend, right there in the percentage column we have 50% in the stock market and 50% in the bond market.
Honey EC: It isn't true that Brinker has always recommended index investing. Back in the late 1980's when I first started listening to Moneytalk, he was actually against it and preferred managed no-load funds. Sometime in the early 1990's, he did an about face and never looked back.  To his credit, he did qualify what he said by saying "PRETTY MUCH back to the start of the program."


MARKET MOVES WHEN INDEXES AND ETF'S BUY SHARES WHEN STOCKS ARE ADDED....Caller Rick from Illinois asked if markets were moved when new stocks are added to indexes.
Brinker replied: Rick, I think they do move the market. I think it's clear if you watch index positions being accumulated or dropped. I think they do move the market, and I think they do it very close to the appointed time when they make the changes. And I think it's something that happens on an ongoing basis. I have seen stocks with a lot of strength at a time when index fund are buying their position and weakness on the other side when they are selling. They tend to do it in a very short period of time. Some of them will announce in advance when they are doing it, but I do believe that's the way it handled. And the reality is that they try to follow as closely as they can when the indexes themselves change. They don't want to depart from the index because if they depart from the index, their performance departs from the indexes and they don't want that. They want their performance to be as close as possible to the index. As far as block trading, believe me, if there's anyone out there in the marketplace that is good at block trading, it's an index fund because they do it all the time.… And I would say that their trading departments are among the best block trading
TOO EARLY TO KNOW ABOUT VANGUARD SHORT-TERM INCOME FUND (VUBFX)....Caller Chuck from Benecia asked what Brinker thinks about this new fund.
Brinker replied: I think it's too early to assess that fund.  I don't think we know enough yet.  We have to know more about what's in that fund.  We have to know more about how that fund behaves in various market environments.  We don't know that yet.
FEDERAL OPEN MARKET COMMITTEE (FOMC) MEETING LAST WEEK..... Brinker comments:  We had a Federal Open Market Committee meeting this week.…  And at the meeting, the word patient was taken out of the official statement on monetary policy.…  But the Federal Reserve Chair Janet Yellen made a big effort at her news conference to make it clear that the Federal Reserve is still data dependent and patient does not mean that they are going to raise rates tomorrow.… I think they want to be confident that the economy can grow on its own…

FED'S TWO 2008 EMERGENCY POLICIES.....Brinker continued: There were two levels of emergency policymakers that went into effect as a result of the financial collapse in 2008.  One of them was known as Quantitative Easing, which is now been copied by the European Central Bank… And the other emergency measure was known as ZIRP, Zero Interest Rate Policy… And that emergency major is still in place, because the Federal Funds rate since the end of 2008, has been between zero and 25 basis points…

FED IS LOOKING AT LABOR MARKET....Brinker continued: The Federal Reserve wants to see strength in the labor market.…  And certainly we've seen a lot of improvement in the unemployment rate, but the underemployment rate has remained stubbornly high.  Unemployment was down to 5.5% in the month of February and that's a good improvement.  But we have not seen as much improvement in the underemployment rate where you count in those working part-time for economic reasons,  and you count in those who are looking for work because they have not been able to find work.

FED ALSO LOOKING AT INFLATION.....Brinker continued: Now the Fed is also looking at inflation.  They are looking at headline inflation, but they are especially looking at core inflation.  Core inflation excludes food and energy..... When you exclude food and energy, you exclude key components that have had a volatile history......We've seen that recently with what's happened with energy prices… They are using the 2% number as a target rate on core inflation and we've been under that.

LOW WAGE GROWTH KEEPS CORE INFLATION LOW....Brinker continued: One of the reasons that we have seen core inflation so low is we really have not seen much in the way of wage growth… When you look at the numbers that affect core inflation, the biggest numbers of all is wage growth.  And we haven't seen a whole lot of it.

INFLATION EXPECTATIONS LOW WITH ENERGY PRICES.... Brinker continued: What about inflation expectations?  We haven't had a whole lot of high inflation expectations either.  And part of the reason for that is what's been going on here with energy prices down, with the economy only at a moderate pace of growth but no real bottlenecks in the system there's been no reason to look at it that way.

WHEN WILL FOMC RAISE RATES.....Brinker continued:  They are not in a hurry to raise rates… Bottom line in all of this is, they are not going to raise rates right now.  They do not appear to be ready to raise rates at their April meeting.  So the earliest that it appears right now that they could look at a rate interest rate increase would be the June meeting.  But maybe not.  It depends on the data coming in.  They are data dependent.

GROSS DOMESTIC PRODUCT (GDP) WILL BE SOFT BECAUSE OF WEATHER....Brinker continued:  It won't be very long till we will see the first quarter Gross Domestic Product figure – total goods and services.  We'll have that figure coming in and guess what – it's not going to be a big number.  Because the first quarter was soft for a variety of reasons, not the least of which is another harsh winter.

"FREEZING TO DEATH" BECAUSE OF GLOBAL WARMING....Brinker continued: I told you, if you've been a Moneytalk listener, I was the one that told you that this global warming thing, everybody was going to freeze to death.  I told you that years ago – that the only possible outcome of global warming is that everybody freezes to death.  Well look at these winters we are having.  We had one last winter and now we've had another one.  So no surprise there.  But the bottom line in all of this is that it does have an impact on the economy and it's going to happen again when the first quarter's numbers come out – it's going to be soft.  And that is not a reason to be expecting a lot of inflation.

Honey EC: Brinker may regret his bit of global warming levity or maybe not. So far, the comments are about 9 to one in favor of what he said. But I think his comment is hilarious. :) 

HOUSING MARKET NOT GOING BANANAS: Brinker said:   Right now, the FHFA house price index is showing year-over-year gains a little bit in excess of 5%.  So within a modest increase in housing prices – nothing dramatic.  Certainly a proven and prices helps those underwater to get back at least comparative with their mortgage.  The other important thing about keeping these increases modest is that we are in a situation where house prices are not going bananas.  And that's important because we want house price affordability to stay reasonable.…  Home sales of improved from the trough, but they are nowhere near their peak level of several years ago.  There's no overheating going on in the housing market.

FRANKJ'S THIRD-HOUR GUEST-SPEAKER SUMMARY

Brinker's guest-speaker was Gerald Jensen: Invest with the Fed: Maximizing Portfolio Performance by Following Federal Reserve Policy

This was an interesting interview with Gerald Jensen who is one of the authors of the above book and a professor at Northern Illinois University. From Amazon website’s description of the book:

“The authors of Invest with the Fed take the simple position that correct interpretation of Federal Reserve policy actions leads to better investing decisions. To this end, they present strategies that will help you design a portfolio that takes Fed policy into account. The result of three decades of research, Invest with the Fed reveals how the nation's bank routinely signals important clues about its future policy--and it explains how you can use these clues to enhance your portfolio performance.” 
 (Honey here: FrankJ was detained for a few minutes at the beginning of the hour and with his permission, I am adding the following paragraph.)  Brinker began the interview by reviewing most of what he covered about the Fed in the opening monologue which I covered above. 

Professor Jensen responded "In February 2010, the Fed increased the discount rate which traditionally that's a signal to the market to get ready, expect that interest rates are going to increase.  And what we saw is when they did that, the Federal Funds Rate was at 13 basis points and over the next few months it actually increased to about 20 basis points.  And I think what the Fed decided is that if they kept increasing the Federal Funds – the short-term interest rate – they were going to squash the fragile economy – the fragile recovery that was occurring.  And we've seen them reversed course, and this is basically unprecedented.  Generally when the Fed signals a tighter environment is upcoming, they actually follow through.  But here we are five years later and the Federal Funds rate is at 11 basis points.  When we go back, it hit a high of 20 basis points back in 2010.  So really, they have not increased the short-term interest rate at all."
 Bob and the guest agreed that the Fed is very careful about public statements, more so than ever before. Prof. Jensen said that Janet Yellen is afraid about being blamed for killing the recovery. As a result we get communications that say the Fed may no longer be “patient,” but this doesn’t mean they are going to be “impatient” about raising rates.

The guest said when they have signaled in the past that they anticipate raising rates, the “short term” rate goes up. In the past, people watched the Fed Funds Rate closely.

Why is the Fed Funds Rate so important? From Investopedia.com:

“The (fed funds rate is the) interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. ... The federal funds rate is one of the most influential interest rates in the U.S. economy, since it affects monetary and financial conditions, which in turn have a bearing on key aspects of the broad economy including employment, growth and inflation. The Federal Open Market Committee (FOMC), which is the Federal Reserve’s primary monetary policymaking body, telegraphs its desired target for the federal funds rate through open market operations.”

Bob asked if an interest rate move from 3 to 6% was more important than one from zero to 3%? The guest said the direction is more important than the level of change. The major fear (of the fed and others) is that the economy will tank when rates go up. He said he thinks the Fed Chair is handling things well, waiting for inflation to appear before starting to tighten interest rates. Bob said we are not seeing inflation and the guest agreed.

There followed some discussion of Europe, Greece and the Euro. Prof. Jensen said he thinks Greece will be “cut loose” at some point. This was in answer to a question from caller Terry from KSFO Country. So far there has been a reluctance to do so because of European banks that held Greek debt. QE in Europe so far has been successful and good for European stocks. He mentioned Scandinavian countries as a sector that can be good investments when our Fed is tightening. They tend to be fiscally stable and are not linked strongly to the US via trade.

Turning back to the US, the Professor answered a caller (Bob) from Henderson, NV (not that Bob?) who asked about the consequences of NOT raising. The professor’s answer was that small stocks do well in easy money periods. (Bob the Caller was coming at this from the standpoint of a retired franchise operator). The professor added that the regulatory burden “has hurt.”

Bob Brinker mentioned something he has stated before, that the Fed seems to be doing all in its power but not getting any help on the fiscal (spending) side from Congress. Among the things in its power to do has been the purchase of bonds by the Fed. This was explained to Fred from New Orleans when he asked where the money comes from? The Fed has been buying mortgage backed securities and Treasury backed securities and putting them on its balance sheet. The Fed has done this in the past, but under the quantitative easing program they have been increasing the money supply “on steroids.”

Bob wrapped up with some of his favorite topics.

On the notion of the Fed being audited, the guest said that in effect, they are already audited and the skilled people there should be kept independent and allowed to do their jobs.

Bob asked how could so many people have been wrong about quantitative easing leading to inflation, a spike in gold prices and a collapse of the dollar? The guest explained that those making these predictions were basing them on what happened in the past. He said we are dealing with an unprecedented time in history. He added, we should hope for some inflation because it means the economy is growing.

Editorial Comment by Frankj: The notion of watching the Fed and acting accordingly takes me back to the good old days when Lewis Rukeyser would have Marty Zweig as a guest. He was credited as having put it very succinctly, “Don’t Fight the Fed.” The advice is not new, but something investors need to be reminded of, especially during a bull market that has gone on now for over 6 years.

For a link see this:

A Forecaster Who Made Headlines and Moved Markets

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION

What did Bob Brinker say he predicted about global warming?

A) The oceans will rise and Florida will be under water.

B) The whole world will be on fire.

C) We will all freeze to death.

D) It will be summer all year long.

ANSWER 


Summary posted at 7:45 PDT
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