Sunday, December 10, 2017

December 10, 2017, Bob Brinker's Moneytalk: Stocks, Bonds, Economy and Investing

Frankj's Moneytalk Summary: (comments welcome)

MoneyTalk Program Dec. 10, 2017

Honeybee, hostess of this blog had a conflict today with a hand bell recital that is an annual event.   So, after elaborate preparations to insure coverage of today’s show,  Bob Brinker pulled the rug out  by running a repeat show.  The tip off was the usual lack of giving out the phone number in the first few minutes of the show.  Instead, Bob gave his well-rehearsed presentation on the importance of getting to the Land of Critical Mass.  
The quote of the day from Bob, in response to the last caller of the day was:  “It is not realistic to expect we’re never again going to have another bear market.”  
He gave a definition for the Land of Critical Mass:  “a state of freedom from worry and anxiety about money,”  where you can work if you want to, like Warren Buffett.   Bob reminded us it is an accumulation of assets that gets us to the LCM.   Sure, what you earn is important, but more important is what you save and invest out of your earnings.  
After the first commercial break Bob went right to calls.
Garrett, a disabled veteran from Massachusetts, does not qualify to invest in a Roth-IRA because he does not have earned income.  Bob referred him to the VA for any savings programs he might qualify for.
Alan from Georgia was definitely on an earlier program.  He wanted to know if he bought a certain business how much longer could he declare losses due to depreciation?   He and Bob got out into the weeds, I won’t attempt to dissect the call.
Emily in Seal Beach bought iBonds in 2001 – 2005.  Should she pay the taxes on the interest earned or continue to defer it?   Bob advised to put off paying the taxes on the interest earned until the bonds mature.  
Andy in Corvallis, OR is in the catbird seat with $1.8 million in the bond part of his portfolio.  He wants to go into Bob’s balanced portfolio 3 but instead of investing in Bob’s recommended funds, want to establish a bond ladder.  Bob gave Andy the green light with the recommendation that he buy quality bonds, AA or above and buy in lots of $100K.  
Paul in Santa Rosa had a very similar question.  Destination for some of his money:  portfolio 3, but he wants to use Treasuries instead of Bob’s bond funds.  Bob said, OK,  “but don’t go out far.”   The caller said he would switch into bond funds once normalization of interest rates began.  This gave Bob an opportunity to take a swipe at economists who predicted a more normal GDP growth rate of 3% -- calling them fools.   (The current estimate of the annual GDP rate is just above 3%, based on third quarter data.)
Beverly in Florida got a nice surprise recently, notification that she is going to get a windfall of $32,500 (lump sum)  or, she can take $282 per month.   Bob led her through his normal analysis of such a situation.  Would the monthly income make a difference to her? Answer: No.   How would it affect your net worth?  Hers is $100-110K so it would increase it by about one-third.   It sounded like she was leaning toward taking the lump sum.  
Rick in San Jose had an interesting question:  He has been appointed as trustee/executor of his father-in-law’s trust/estate and wants to do the right thing in terms of the IRAs and the beneficiaries.  Rick asked for a book recommendation.  Bob didn’t give one, but I will:  look at Ed Slott’s books on IRAs for some good guidance. 
Bob said to find out who the IRA beneficiaries are and confirm that those persons are who the father-in-law wants.   Bob said it is common for an IRA owner to overlook making the beneficiary designation.   (Editorial comment:  There is NO EXCUSE for this, it is very easy to make the designation using the custodian’s website.  If you use a financial advisor, this individual should make sure you make the designation(s).)
In closing, Rick said he wanted to set things up in the most tax efficient way possible.  All the more reason to check out Ed Slott’s writings.  
Bob advised Daniel from Walnut Creek to read “Common Sense on Mutual Funds” by John Bogle.
Peggy from Hawaii threw Bob a hanging curve ball that he knocked out of the park:  she asked him to recommend an index fund.   All over the US,  MoneyTalk trekkies hollered, “the Vanguard Total Stock Market fund …. Or Fidelity Spartan.”
Bob confirmed for John in LA that the Vanguard Wellesley fund is a conservative, low cost, diversified fund and does a good job.
Bill in Denver wanted to talk about fair trade.  Bob gave him a short lecture in what happened after the Smoot – Hawley tariffs were put in place in the 1930’s.
Tim in IL ended up with slightly damaged credit after he applied on-line for a loan.  The on-line place made multiple inquiries into his credit.   He spent time running back and forth to Office Max making copies.  He said his credit monitoring service told him “Yes, these multiple inquiries HAVE lowered your credit score.”  What to do?  Bob told him to withdraw the application.
Alex in NYC has more than three accounts and wants to consolidate them at one brokerage.  But will there be enough SIPC coverage?  Bob told him to check with the brokerage to see if they offer additional coverage over and above the SIPC limit.
John in WI bought double E savings bonds 30 years ago on Bob’s recommendation.  He called to tell Bob that he invested $15K and recently redeemed them at $69K…. and, they are free of state taxes.  Bob called it a home run.  
Steven from Portland, OR said a financial advisor told him that 80% of the QE money went to investment banks and this resulted in the run up in the market since 2008.  Bob disabused him of this notion.
Alex, listening on KKOH in Reno is in the Land of Critical Mass and wanted Bob’s recommendation for vacation spots.   New Zealand was mentioned but the caller has been there already.  Bob hopes to go someday.   I’ve been there and it is a great place to visit.
Shirley in CA is worth $1.3 million, has already given a bunch of money to her children who are in their 50’s and 60’s and wants to give more.  She has $8000 available to give to each of her 4 children.  Bob said use the Vanguard Total Stock Market and dollar cost average it in.
A caller from Fairbanks who is approaching age 64 and is semi-retired wants to know if he should keep contributing to his Roth-IRA account.   Bob asked if what he was contributing was “earned income.”  The caller said yes.  This call was humorous because every time Bob thought he had the guy pinned down that it was indeed, earned income, the caller would say something implying it might not be.  They finally got past this stumbling block and Bob told him to go ahead and keep contributing.
Madeline listening on KKOH in Reno has grandchildren aged 15 and 17.  The children’s mother (her daughter) passed away passed away and there is some money invested in Franklin – Templeton’s Global Bond fund that she wants to invest for the grandchildren.  It sounded like this was in an inherited IRA.  Bob confirmed that it is not needed for college and therefore recommended the Vanguard Total Stock market fund or Fidelity Spartan.
Bernie in CA is hot to buy a condo priced at $350K that he says is worth $450K.  It will be “non owner occupied” and he can get a 4% loan.  He wanted to know if he should put down about 25%.  This got into a discussion of where the money would come from since he told Bob he didn’t have this amount in cash laying around.  Bernie was ready to take it out of his personal account and tax sheltered account.   Bob waved the yellow caution flag and said not to take it out of the tax sheltered account.  Nor was he crazy about Bernie invading the personal account and incurring capital gains taxes on the withdrawal for the down payment.  
Sharon in Chicago had a question about Universal Life Insurance and investing.  I couldn’t follow it.
Bob gushed all over two questions asked by John in Park Ridge.  One had to do with how Bob calculated the Year over Year CPI in the newsletter.  The other had to do with how inflation affects valuations of stocks.   The value of a stock is the discounted value of future earnings so if inflation is low, the current value of a stock is higher than if inflation is higher. 
Oops – There were a few minutes of last week’s interview with Dan Ariely before the audio switched to a caller from West Palm Beach.  
More gremlins popped up in the middle of a call from Mike in Des Moines asking whether he could take out some of what HE contributed to his Roth 401K account, i.e., leave his employer’s contributions untouched.   My audio cut out and when I got back Bob was ‘splaining the difference between Vanguard’s VTI ETF and their 500 index fund to a woman caller. 
Marcus in VA is invested in an interesting real estate venture.  It is not a publicly traded REIT, nor a non-publicly traded REIT.   He has $300K invested in this outfit that owns properties all across the US.  He gets about a 5% return each year, and has also received about $250K over 25 years.   These proceeds come from the turnover of properties.  His question was should he consider this as part of his fixed income portfolio.  Answer: Yes.
James in Chicago who is 60 was advised to draw from his Personal account first, then the Roth-IRA, and finally from the Traditional IRA at age 70, when the Required Minimum Distributions dictate that he must withdraw.  
Finally, Mike in Glendora, CA is 62 and has about $130K in assets.  He wanted to know if Bob thought it was possible for him to grow this to about $ 1 million in 8 – 10 years.  Bob gave a fairly careful answer:  “It is not realistic to expect we’re never again going to have another bear market.”  
If Mike invests nothing more, his $130K would have to grow at 29% each year for the next 8 years to get to $ 1 million.  Contributions would make it possible at a lower growth rate. 
Radio station:
710KNUS Denver
Honey here: Thank you FrankJ,  for that fabulous summary of Moneytalk today. I was in this room this afternoon, ringing bells along with a choral group. We did an old-fashioned Christmas music program:

Sunday, December 3, 2017

December 3, 2017, Bob Brinker's Moneytalk: Stocks, Bonds, Economy and Investing

December 3, 2017....Bob Brinker hosted Moneytalk live......(comments welcome)

TAX BILL PROPOSALS...Brinker's  main topic of the day was the tax bill that  had passed the House, and on Friday, passed the Senate.  It now goes for reconciliation. As BB said, it is still  only proposals.  A finished product may or may not reach President Trump's desk by Christmas. Thanks to dRahme, audio clip of Brinker's opening political-tax talk

STOCK MARKET....Brinker commented that it's hard to find tax losses this year and talked about how much the market has gone up since the low in 2009.

Charlie from Carson City, a "decades long subscriber to the newsletter" asked:  "I've been looking at the newsletter for the last few months and struggling to understand the arithmetic as it relates to the S&P 500 and the price/earnings ratio." 

Brinker replied: "As we have explained....again in the December newsletter, there is always the potential for period of over-valuation - and of course that's the answer to the question." 

Honey EC:  Hmmm, that answer left a little to the imagination so I picked up my December Marketimer (I subscribe so that I can be sure I am writing only facts.) and looked at what it says about price-earnings that Charlie was "struggling with"

It says that Brinker estimates 2018 operating earnings will reach the $142 level and he is maintaining his P/E estimate  of 17 to 18 times earnings. Based on that estimate, he projects that the S&P 500 has  the potential to trade into the 2700s.....He added that "extended bull markets can bring stock prices into overvalued territory in some cases,"  but he does  not expect to see it reach the 30 times earnings over-valuation that it did in year-2000.  

MARKETIMER ACTIVE/PASSIVE PORTFOLIO....Caller Jay from Chicago asked about the Marketimer 80-20 Active-Passive Portfolio.    BB replied: "In our Active-Passive Portfolio, we have a significant allocation to the market at large by using index fund investing." 

Honey EC: For decades, Brinker has included the Active-Passive Portfolio in Marketimer. it is simply 80% Vanguard Total Stock Market Fund, and 20% Vanguard All-World Fund. Over the years, this simple approach has often out-performed the portfolios with some managed funds in them. 

BRINKER'S RECOMMENDED STOCK ALLOCATIONS....Caller Dan from New York asked about  his 40/60 stock allocation at age 80. Brinker replied that a 40% equity allocation at his age "would not trouble me, assuming that you have a favorable market outlook." Then BB added: "I would be comfortable with the allocation that you have right now." 

Honey EC: It is clear from BB's advice to that caller that he "has a favorable outlook on the market."  He is fully invested and he recommends dollar-cost-averaging new money. 

KEEP INDIVIDUAL STOCK HOLDINGS TO 4%....Brinker reminded listeners not to own more than 4% in  any one stock. 

IT'S BEEN A VERY GOOD YEAR SO SPREAD IT AROUND... Brinker reminded listeners that this was a good time of the year to "spread around" some of the fantastic gains that the stock market has made this year.  He mentioned UNICEF. 

HONEY EC: It's a good idea to check your charities to find out how much of your money goes to help the people you want it to help. There are huge differences. Some have lots of highly paid people at the top  and others don't.  Salvation Army is one of my favorites. 

ELIMINATING THE STATE TAX DEDUCTION: Caller Michael from Carson City, Nevada, and BB have lovefest about the joys of living in a non-tax state, and why they shouldn't be responsible for irresponsible states like California and Illinois.  Thanks to dRahme, audio clip of BB's comments.

NATIONAL DEFICIT AND DEBT.....Brinker stated as "accepted fact" that the tax proposals will increase the national debt by  $1 1/2 trillion and claimed that he had not heard an of the GOP even mention the national debt. He had no problem with caller Paul from New Mexico calling them "hypocrites."  

Honey EC: I submit that Brinker is deliberately ignoring the increase in the economy that has happened already - last two quarters, GDP came in at over 3%. 

WHERE WAS THE PRIOR CALLER DURING THE PRIOR 8 YEARS....Referring to a prior caller complaining about the national debt, Tom from Carson City, wanted to know where he was during the past 8 years when it doubled - up about $10 trillion.

Tom also mentioned that he was going to have lower taxes under the tax bill, in spite of what "talk show hosts"  may say.  Brinker hung up on him and then condescendingly told him that "he was in the right category" to get the tax breaks. 

WHO WINS AND WHO DOESN'T WITH TAX PROPOSAL....Brinker's conclusions. There are only three winners: 
1. Business owners
2. High earners
3. High net worth. 

Honey EC: I submit that logically speaking, Brinker's conclusions are not possible.   


Bob’s third hour guest today, Dec. 3, 2017 was Dan Ariely, a professor of Behavioral Economics at Duke University.  Dan’s newest book is:  "Dollars and Sense: How we Misthink Money and How to Spend Smarter"  Dan has a co-author on this book, Jeff Kreisler. 
(Editorial comments in italics.)
Bob had to filibuster for a few minutes past the usual time when a guest comes on.  Then he went to the phone to bring Dan in and there was dead silence.  This has to cause a knot in the stomach of talk show hosts, but Bob abided and in a few moments, Dan was there. 
Bob led off by asking Dan what he thought about the pending tax reform.  After a detour into some research he did, the guest said that our relationship with the government is adversarial with regard to taxes.   The tax code is too complex, people feel disenfranchised and personally, he experiences fear and worry that he might have made a mistake on his taxes.   
He added, the government should give taxpayers a receipt showing where there taxes go, and added people should have a choice as to what their taxes pay for. 
I think that would be real interesting to see.  The IRS could add a non-binding survey to the tax return and simply ask people to rank various areas of spending or, assign a percentage. 
The guest went on to say he’s worried we aren’t getting the goals right.  We seem to be meeting the goal of reducing taxes on  businesses and large estates but the goals for individuals were not clear.
Dan’s Theory of Relativity:   This was interesting.  Suppose you are about to buy a pen for $15 and the clerk tells you the same pen can be had a few blocks away for just $5.  You save $10 … is it worth it to you to walk a few blocks?  
Now suppose you are buying a nice suit for $1015 and the same thing happens – someone mentions that you can go a few blocks down the street and buy the same suit for $1005.  Again the savings is $10.
Would you walk a few blocks to save ten bucks on a pen?  Would you walk a few bucks to save ten bucks on a suit costing over $1000?  
I would take the walk for the pen, but not for the suit.  Taking a page out of Herb Cohen’s book, “You Can Negotiate Anything,” I would nudge the suit salesman to throw in a tie to go with the $1015 suit.  
In another example of behavioral economics he cited the purchase of a phone.  One model costs $100 more than another.  The purchaser will spend about 1000 hours per year on the phone.  Will the extra cost and presumably extra features and convenience make a difference or is this a price only transaction?
He did an experiment with Duke Univ. students where he ran a lottery that awarded coveted basketball tickets to winners.  Then the winners were asked how much they would sell their ticket for?   Some said they wanted more than $2000.   Those who didn’t win a ticket were asked what they’d pay for one.  Answer: $150. 
The guest said this demonstrated the ownership can dictate perspective.   And, this concept is clearly demonstrated when someone is dickering with a car dealer over the value of their trade-in. 
He didn’t call it this, but there was an example of “Keeping Up With the Joneses.”  In ancient times wealth was measured by how much livestock you owned vs. your neighbor.   The wealth was out there on the hillside for all to see.  Today we cannot “see” other people’s wealth – but we can see their spending.  So this illustrated his point on how money has become invisible.   He said there was a study that showed when someone won the lottery their NEIGHBORS’ spending went up.  This got a chuckle out of Bob. 
The Pain of Paying – with cash that is.  When we fill the gas tank we know exactly what we’re going to pay because we see the numbers rolling by on the meter right next to us.  If we pay for an expensive dinner with cash we have a better sense of the cost than if we use a credit card.   People who pay their energy (utility) bills with automatic deductions pay less attention the actual cost than those who write a check to the utility.  Result:  the auto deduction crowd ends up increasing their energy use about 4%.
Take away:  Try to analyze your own behavior. 
Honey here: Thank you for that great summary!  And they say you can't make a "silk purse" etc. :) 
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