Today's show summary written by pen-name Frankj, who came to my rescue again today:
Bob Brinker hosted MoneyTalk this Sunday, October 19, 2014 and actually mentioned the stock market!
He downplayed the recent volatility, chalking it up to fears about the Ebola virus spreading in the US. Bob said that there are a few people affected here in the US and it will not affect markets unless it “moves to the next stage.” Bob said despite all the volatility, the S&P 500 is only down one percent for the week.
He said fear is helping drive intraday volatility, and speaking of fear, fear of deflation in Europe is contributing to poor returns. Bob said the volatility is not due to Putin, Ukraine or chaos in the Middle East. Those things are nothing new. Later in the show he said Putin has really screwed things up in Russia and referred to him as a “hack.”
Austerity is the cause of Europe’s problems. You don’t “do austerity” in a recession, you do what the US did, hold the reins loose on the money supply.
Bob went to phone calls and Tom from Tucson was the lead-off batter, asking Bob if he saw double digit inflation coming in medical care and medication costs? Bob’s answer: Doubtful.
David from Knoxville has to make a choice between a fixed annuity at $900 per month and a lump sum of $139,000. This type of call has come up many times on MoneyTalk and Bob usually breaks down the analysis in the same manner:
· interest rate the monthly income represents annualized against the lump sum, (7.7%);
· Is the income adjusted for inflation – (NO);
· what are your other assets? (David had about $1 million in net worth);
· and finally, “do you need the $900 monthly income? (Answer: No.)
Bob’s recommendation was to put the money in a self-directed IRA in a balanced (50/50) fund.
John from KSFO Country had questions about Bob’s Active/Passive portfolio and whether the Vanguard ETFs are the same as the Vanguard Mutual funds in Bob’s Portfolio. Bob’s answer was yes.
Bob in Idaho asked about the 4% recommended rate of withdrawal in retirement – how do you go about doing it? Bob again, referenced the balanced portfolio and said you can take withdrawals from interest, capital gains and dividends and these earnings might make up most or all of the 4%. Channel them into a money market account and use it like a “holding pen.” Then write checks when needed.
Bob then went on to mention the 4% withdrawal rate, referring to how long he’s been talking about it on the show. The uninitiated would be excused for thinking that the 4% withdrawal concept was Bob’s own. For info on the origin of this rule-of-thumb, here is a link. http://en.wikipedia.org/wiki/William_Bengen#The_Four_Percent_Drawdown_rule
Bob told Diane from Santa Rosa to “hold tight” to her I Bonds. She is at critical mass and holds some with a base rate of 2%. Her journey to Critical Mass started with a passbook savings account when young.
Jamie from Massachusetts is working on getting to critical mass, with $570 in IRAs and $280 in other investments. She and hubby want to buy a $400K house. With $150K in income, Bob said they should be able to handle a mortgage and advised them to make a healthy down payment but don’t take it from the IRAs.
Bob in Seattle visited Australia recently and needed to buy Crestor, a common prescription for reducing cholesterol. He paid $45 for a 90 day supply. This would have cost him $230 here at home and that is WITH his insurance paying part! Bob and Bob kicked this around a little and agreed that we get the best government that money can buy.
A caller from Chicago said he read David Stockman’s book and is upset about government debt. Bob said eventually Congress will get control of the deficit. We have been borrowing on the cheap to fund our nearly $18 trillion debt and low interest rates have made Congress dangerously complacent.
Serge from Washington asked about short term bond funds vs. TIPS and Bob said he thought the base rate on TIPS was too low.
Dennis from Atlanta owns the “F” fund in his federal Thrift Savings Plan. It is similar to Barclay’s AGG ETF. Bob said he would not own it, alluding to the fact that the duration is longer than he wants.
Linda in KSFO Country is worried about new IRA rollover rules coming in 2015. Bob got her straightened out: these rules will limit an investor to just one rollover in any 365 day period, but they apply when the investor takes the money directly and then rolls it over. They do not apply to rollovers from one custodian directly to another custodian.
Bill, listening on KXL in Portland, OR rang in with The Call of the Day. He is close to retiring and has all his money ($700K) in stocks. A financial advisor proposed a plan that would result in Bill paying 3.14% in advisor fees and mutual fund fees. Credit Bill for seeking a second opinion and credit Bob for maintaining his composure in advising Bill that that fee level was outrageous. Bob advised him to seek a balanced approach.
Dottie from Lincoln (?) needs to turn her and her husband’s finances over to a fiduciary because her husband is in a senior care situation. She’s worried about getting fleeced. Bob advised her to avoid any local Mom and Pop advisors and go with a more established institution, mentioning Vanguard.
Ginny in Virginia Beach, VA owns two houses. She’s still working but her husband is 65 and retired. The connection was poor so I didn’t get all the details, but Bob advised her that they could handle the payments on both houses, given their equity and the low rate on one of the houses. Interestingly, Bob didn’t explore their other assets in making the recommendation.
Brinker's guest-speaker was Steve Forbes (yes, THE Steve Forbes): Money: How the Destruction of the Dollar Threatens the Global Economy – and What We Can Do About ItThird hour guest Steve Forbes on MoneyTalk, October 19, 2014
Before starting the interview with Mr. Forbes, Bob Brinker reviewed the week ahead. There will be a number of economic announcements including: existing home sales, new home sales, inflation (which he said is zero), jobless claims, the purchasing managers’ report and leading economic indicators.
Steve Forbes has written a book called “Money” along with co-author Elizabeth Ames. At the start of the interview Bob mentioned Bill Flanagan, who wrote for Forbes and passed away several years ago. Bill was the “go to” substitute host in the era before Lynn Jimenez and Neale Godfrey. Bob thanked Steve for making Bill available.
Much of the interview dealt with monetary policy, the gold standard, and tax reform. Mr. Forbes wrote the book so people would have a better understanding of how monetary policy affects the economy. He blames income stagnation on bad policy. If the dollar had a value pegged to gold, we’d be better off. He suggested gold should be valued at about $1200 per ounce and the money supply could be added to or tightened as needed to keep the dollars per ounce ratio stable.
He said the dollar value has gone up and down like a yo-yo because of bad monetary policy. Europe has had problems with the Euro as a common currency because their fiscal standards for individual countries were too lax. He mentioned Illinois, saying that it is our equivalent of Greece, but added they won’t default on their debts. (Editorial comment: we’ll see.)
In response to a caller, Steve Forbes said in the early part of the 20th Century, Great Britain was not successful with linking gold to the British pound because they got the ratio between the pound and gold wrong and following World War 1, they failed to reduce taxes.
Is there enough gold in the world to back currencies? Forbes said there is -- 6 billion ounces of gold are available. China is interested in gold as a backing for their currency but they are NOT seeking to corner the market on gold as a caller suggested. (The part about there being enough gold in the world to back currencies is in direct conflict with what a prior third hour guest had to say.)
Steve Forbes is a proponent of the flat tax because the current tax code is too complicated and it breeds corruption. Getting rid of our current tax code should be a priority, and it would put about half the lobbyists in Washington out of work. He said he knows of 4 people considering a run for the presidency in 2016 and they are each formulating a version of the flat tax. His vision is: no tax on savings, no estate tax (he called it a death tax). A family of four would pay no federal income tax on the first $46,000 of income and then a flat rate of 17% on anything above that. He thinks this could happen after 2016 but “it will take a mandate from the people.”
Regarding politics, Forbes thinks the Republican party will do well “despite themselves,” in the upcoming election, both in Congress and in the governor’s races. He added that doing well this year does not mean victory again in 2016.
Honey here: FrankJ, thank you so very much for coming to my rescue again this week.
NOTE: Brinker has made no changes in his fully invested position. He calls this latest market gyrations "volatility."
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.)