Sunday, August 21, 2016

August 21, 2016, Bob Brinker's Moneytalk: Stock, Bond, Economy and Investing Summary

August 21, 2016...Bob Brinker arrived a half-hour late, but hosted Moneytalk live today...(comments welcome)

STOCK MARKET....Today, there was no financial or investing talk, and the stock market was only mentioned once when caller Roger from Pendleton asked the hypothetical question: "If I was going to set up a portfolio for every orphan in the US from prenatal to 17, where should I invest it." 

After having Roger explain where Pendleton was located in Oregon, Brinker replied that at 17, the "young sprouts" would need college money - therefore, he would start them out in the Total Stock Market Mutual Fund (or ETF).  Then later, as they approached college age, move them into a 65% equity and 35% fixed income portfolio.

Honey EC: According to the September issue of  Bob Brinker's Marketimer, his  portfolios are still 100% invested - no cash raised since March 2003. His S&P 500 target range is now mid-2200s.

MEDIAN INCOME FOR MIDDLE INCOME LOWER THAN IN 1999....Brinker's shortened opening monologue (the program started with a re-run of Tom Vacar from last week), he discussed how real  income adjusted for inflation is not as high as it was in 1999.

FEDERAL RESERVE NO RATE RISE ANNOUNCED.....Brinker bashed Fed vice-chair, Stanley Fischer, once again for his statement that interest rates would be raised four times this year, then said that Fischer backed off of that in his  speech at the Aspen Institute posted today.

ECONOMY, INFLATION, JOBS....Brinker discussed several points that are in Stanley Fisher's speech, so I will just post some excerpts from that speech that are exactly what Brinker covered - that way it comes directly from the horse's mouth (so to speak):
The Fed's dual mandate aims for maximum sustainable employment and an inflation rate of 2 percent, as measured by the price index for personal consumption expenditures (PCE). Employment has increased impressively over the past six years since its low point in early 2010, and the unemployment rate has hovered near 5 percent since August of last year, close to most estimates of the full-employment rate of unemployment. The economy has done less well in reaching the 2 percent inflation rate. Although total PCE inflation was less than 1 percent over the 12 months ending in June, core PCE inflation, at 1.6 percent, is within hailing distance of 2 percent--and the core consumer price index inflation rate is currently above 2 percent.....So we are close to our targets.....
OIL PRICES  AND NEGATIVE INTEREST RATES CONCERN FED....Brinker did not, and mostly has not, talked about the precipitous decline in oil prices - which have rebounded a bit recently. Fisher continued:
And there have been other issues of concern to those particularly interested in monetary and macroeconomic policy, though probably of less explicit concern to the public: The decline in estimates of r*--the neutral interest rate that neither boosts nor slows the economy--which is related to the fear that we are facing a prolonged period of secular stagnation; the associated concerns that (a) the short-term interest rate will be constrained by its effective lower bound a greater percentage of time in the future than in the past, and (b) that the U.S. economy could find itself having to contend at some point with negative interest rates--something that the Fed has no plans to introduce; the fear that very low interest rates present a threat to financial stability; and concerns that low rates of real wage growth are increasing inequality in the distribution of income.
WORKER PRODUCTIVITY DECLINING AND IT'S GLOBAL: Brinker talked about low productivity, as did Fischer:  
The combination of strong job gains and mediocre GDP growth has resulted in exceptionally slow labor productivity growth. Most recently, business-sector productivity is reported to have declined for the past three quarters, its worst performance since 1979.
Are we doomed to slow productivity growth for the foreseeable future? We don't know.  On the encouraging side, the technological frontier appears to be advancing rapidly in some sectors, and there are hints that the firm start-up rate is improving.  On the more discouraging side, investment continues to disappoint--and so the current capital stock is smaller and embodies fewer frontier technologies than might otherwise be the case--and the productivity slowdown is a global phenomenon, suggesting that it may not be easily or quickly remedied.
FED SEZ THEY HAVE BEEN THE ONLY GAME IN TOWN.......Some interesting insight into where other factors could be put in play: 
Let me conclude by mentioning briefly one aspect of the low interest rate and low productivity growth problems--the fact that the Fed has been close to being "the only game in town," as Mohamed El-Erian and others have described it.12 At least one part of the solution can be found in the observation that overall macroeconomic policy does not have to be confined solely to monetary policy. In particular, monetary policy is not well equipped to address long-term issues like the slowdown in productivity growth. Rather, the key to boosting productivity growth, and the long-run potential of the economy, is more likely to be found in effective fiscal and regulatory policies. While there is disagreement about what the most effective policies would be, some combination of improved public infrastructure, better education, more encouragement for private investment, and more-effective regulation all likely have a role to play in promoting faster growth of productivity and living standards--and also in reducing the probability that the economy and particularly the central bank will in the future have to contend more than is necessary with the zero lower bound.
Here is a link to the whole article for those who want to read more of it:  Vice Chairman Stanley Fischer At the "Program on the World Economy" a conference sponsored by The Aspen Institute, Aspen, Colorado August 21, 2016

HE'S NOT TALKING ABOUT CANDIDATES - NO REALLY HE'S NOT.... Caller Darryl from Wisconsin brought up the subject of jobs moving out of the country.   Brinker comments: Apple products are mostly made in China....low-paying jobs and no benefits....CEOs don't care about U.S. workers... they are making mega-fortunes and  money for shareholders. "The only possibility to change all this is political change. Do you think you are going to see political change in this general election?....I'm not talking about presidential candidates....I'm talking about government policy.....We have had gridlock for a long time. I expect gridlock to continue for a long time.....This general election year is not going to result in any significant change in policies that are now on the books.

Honey EC: I believe Brinker fibbed when he said he wasn't talking about presidential candidates. I believe there is an outsider who if elected, would  "change policies that are now on the books." I also believe that Brinker knows about that candidate - the caller even mentioned him negatively - which made Brinker realize he wasn't being as clever as he thought he was, so he tried to cover his tracks. 

I would tell Brinker to be a man - and say what you mean.  We are all smart enough to know that  no one can talk about "government" and not be political. 

ETCH-A-SKETCH, WALMART AND INFLATION.....Caller Alan from K.C said that  in a small town that manufactured "Etch-a-Sketch," Walmart told them that if they raised the price over $10, that they would no longer carry the item.  Consequently, hey moved overseas to manufacture them so they could continue to sell Etch-a-Sketch at Walmart.  Alan thought it not a proper thing to do, but that Walmart did help keep down inflation.

Brinker comments: I cannot agree to give Walmart all of the credit for low inflation....One of the major factors in holding down inflation has been technology, including automation and robotics......I would give most of the credit to technology....I lived in and worked in Jasper, Indiana.

SO ARE WE ALL LIVING BETTER WITH TECHNOLOGY......Caller Bob in Henderson, Nevada asked about considering standard of living when considering median wage....

Brinker replied: I think that because of technology, you could argue that the standard of living is better than it was many years ago. We were talking about 1999....Things like the development of the internet, the smart phone....because of improvement in safety features of cars....It's better than it was in 1999...... We still have to argue whether the quality of life is better than in 1999....Today, people get bogged down at work with 24/7 emails, for example....Today, when people are so preoccupied and distracted by their gadgets  away from real time activities, which includes family time.....Is that an improvement in quality of life. I think you could make an argument that would be pretty tough on that one.

Honey EC: I agree that, like with most things in life, the internet is both good and bad.  It has done amazing things, and horrible things. On a personal level - where Brinker went to - my family has a policy of  putting away all smart phones, Ipads, laptops and  computers during family time. (now if there was just some way to shut off the doggone landline phones) :) 

FRANKJ'S MONEYTALK-GUEST SUMMARY

Bob’s guest today was Laurence Ball, Chair of the Economics Department at Johns Hopkins University. Professor Ball examined the financial meltdown and wrote a lengthy research paper on the topic. Kudos to a member of the Blog Research Team for locating the paper. You can download this from the site below:

Econ2: People/Ball/Lehman PDF

Bob and the guest spent much of the time dissecting the Fed decisions to not bailout Lehman Brothers and then a short time later, to bail out AIG. Bob added a coda to the interview in the closing minutes of the show that at the time he thought it was a bad decision by the Fed and he was glad that the guest agreed with him.

To review: Some months earlier in March of 2008 the Fed made an emergency loan to Bear Stearns so it could avoid collapse. Then it was acquired by JPMorgan. Next up was Lehman Bros. in September 2008. But in this case, the Fed opted not to intervene. The guest pointed out that the Fed’s justification was a legal one: they could lend only if there was good collateral. Later in the interview the guest said that Lehman did have good collateral.

There had been backlash against the Bear Stearns bailout and the government’s propping up of Fannie Mae and Freddie Mac. Treasury Secretary Hank Paulson did not want to become known as “Mr. Bailout.” So, goodbye Lehman Bros.

Within 24 hours global credit markets froze.

The Fed did not want to compound the damage and therefor decided to bail out AIG.

Professor Ball said that the Fed saw what happened when Lehman failed and they knew if AIG followed there would be worse destruction.

Did personalities enter the equation?

Hank Paulson had been Chairman of Goldman Sachs. Richard Fuld ran Lehman. There was talk of “animus,” as Bob put it. The guest did not bite.

Bob asked why has there been so much criticism in the years following Sept. 2008.

The guest said that Bernie Sanders didn’t like Wall Street’s recklessness and the subsequent tax payer funded bailout. Conservatives like free markets and minimal government involvement. He said the rescue of the banking system was a pragmatic thing to do. The policymakers insist that letting Lehman go was not a mistake, but the guest differed. He said it was a mistake to let Lehman go, but he would still give them a good grade in the overall handling of the situation, given its complexity.

Ron from Washington State said AIG had a great deal of counterparty risk and companies today have even more than existed at the time. Why doesn’t the government force them to unwind these deals? The guest seemed to agree that the underlying problem (of counterparty risk) has not been rectified. He said Dodd Frank may not be a strong enough set of rules to protect against similar risks in the future.

“Until the political influence of Wall Street changes there will be no financial reform.”

Eric from MN brought us the phrase of the day referring to Dodd Frank, the big banks and Wall Street: “We have a longer fuse but a bigger bomb.”

Bob ran the repeal of Glass Steagal up the flag pole asking if it was just a coincidence that after its repeal the collapse took place. The guest said Bear Stearns and Lehman were not affected by GS.

Walt in Toledo wanted to know what part did Goldman Sachs play, having sold securities that they knew were backed by toxic mortgages? The guest was not quick to condemn them. He said there was plenty of blame to go around on selling these and there was no smoking gun on criminal activity. People “made mistakes” and there was “reckless risk taking.” Investment banks held onto some of the same bad securities such as Goldman’s designed-to-fail package which they sold to European banks.

David in Washington State asked about the failure to bail out Washington Mutual – was it personal? The guest did not answer.

Editorial note: The collapse of Washington Mutual was the largest bank failure in the US. They operated in 15 states and employed over 40,000 people. Their slogan was “Whoo Hoo!” In September 2008 their credit was downgraded and depositors began pulling money out. Like Bear Stearns, they were acquired by JPMorgan. 

During the interview the guest said he is looking for a publisher and would like to use this research paper as the basis for a book. Bob said he’d like to have him back as a guest after the book is published.

Bob wrapped up at 3:51.

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION:

Bob Brinker said that he thought Stanley Fischer the vice chair of the Fed was:

A) Dreaming.
B) Out of his gourd.
C) Not the cat's pajamas.
D) High on something.
ANSWER

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Friday, August 19, 2016

August 19, 2016....Honey's Very Sad Week

August 19, 2016.... A good-bye memorial post to Lama, a very special cat.

For about 3 months now, I have known that my beautiful 18 year-old white, Flame-Point Himalayan cat was not going to be with me much longer. But like we all do with cherished pets, I wanted to delay saying good-bye as long as possible.

Last week, I realized that his health had deteriorated to the point where he was suffering, and that I was being selfish by allowing it to continue.

So I decided to give myself just a few more days to lavish him with love and attention, but I still set a deadline by calling my veterinarian and making an appointment to take him in on Monday.

Monday, I held him in my arms as the vet gently put him to sleep for the last time. He is now running free in green meadows - Once again playing with his brother and sister, Dolly (on the left) and Yoda (on the right).