Sunday, July 24, 2016

July 24, 2016, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

July 24, 2016....Bob Brinker sat in the pilot's seat of the Starsip Moneytalk today.....(comments welcome)

30 YEARS OF STOCK MARKET JABBERFEST... Brinker said: Here we are today on this penultimate weekend in July, looking at the S&P 500 at its highest level of all time 2175. Just since our most recent correction buy signal in February the market has a total return of over 18%.....Going back to when this whole thing got under way in March of 2009, you are looking at a triple in the S&P 500. And all of this has happened in an interest rate frame-work that in many cases to zero. Unprecedentedly low rates. And to make it even better, it's happened in an environment where inflation has been really low, which means that the value of those profits is very real.  So in my point of view, and I've always been glad over the 3 decades-plus of our jabberfest, that so many Moneytalk listeners agree - you really don't have any choice - you have to take control of your personal financial future. Let those sharks swim on buy and don't be their prey.

BREAKING NEWS ON WALL STREET.....BB comments: Stories are flying that before the market opens on Monday, Verizon is going to announce that they are going to buy the internet operations of Yahoo for $4.8 to $5 Billion.....Last year, Verizon purchased AOL,  and paid $4.4 billion for that company....This is not a complete takeover of Yahoo....Yahoo has struggled for years.....

BOO ON THE DOOM-AND-GLOOMERS LIKE CARL ICAHN....BB comments: This has to do  to with a caller earlier reiterating the negative outlook that Carl Icahn has had on the market during a period of time the market has gone straight up. One wonders why so many of these people have been so wrong about the market.....

WHY THE  FEAR-MONGERS ARE WRONG....BB continued:  The answer is, they just missed the picture.....The fact of the matter is that we had an excellent jobs report in June......We had a number in the 200,000.....And then we had a lot of investors who that the BREXIT was one of those end of the world moments......Perhaps they were fear of contagion....But a few days after that, we had the election in Spain and there was no sign of it.....

TOO BAD FOR YOU IF YOU MISSED OUT.....BB continued; It's unfortunate for those who have missed this significant market rally, especially now that we sit at all-time historic record highs.....The market is designed to fool most of the people, most of the time. And when we look at the cash reserve levels that are out there today - very high historically. In one category, they are the highest since 2001 - amazing. In one category, they are the highest since right after 9-11. So look at that that money out there that has missed all of this great run. That is why it is so gratifying to me that I know that our Moneytalk listeners - and our Marketimer subscribers in particular - have been in this market and profiting from this market.

BONDS - FIXED INCOME....Caller Nick for  St Louis asked about his asset allocation on $3.9 million dollars - saying he only had 35% in fixed income and 45% equities.
 BB replied: We publish an income portfolio and a balanced model portfolio III that has fixed income far this year, we are doing very well in that portfolio. It depends if you want to accept the risk that in inherent in those fund.....Would you rather be in FDIC CDs until you wait for some sort of a normalized world. Nobody knows right now when that will be because the world has become very strange in a financial sense since 2008.....And I would not be taking 2175 on the S&P 500 to be increasing one's equity ratio....If you wanted to develop some kind of a dollar-cost-average on weakness program, that's another thing. But I would not be making lump sum commitment at this time. 
Honey here: . Note that Brinker is still recommending dollar-cost-averaging for new money.  And his is balanced model portfolio III that he talked about  is identical to  the income portfolio - except the balanced portfolio has none of the Metrowest Fund: (DLSNX; DLTNX; MWCRX; OSTIX)

INTEREST RATES...BB comments: Mortgage rates have not been going anywhere...I am rating the chance that the Fed will raise rates this week at almost zero. It's extremely unlikely that you will see a rate hike this year before the election.  September will be data-dependent and there's no way to make projection right of the reason that we have low interest rates in the US is because of what's happened in European countries - where the rates are near  or at zero. US right now 1.6% for ten years is attractive.....Expect no change in interest rates at the FOMC meeting next week.  

NFL PLAYERS DIDN'T LEARN THE DIFFERENCE BETWEEN ASSETS AND INCOME....BB comments: Just having a high income is not enough. You need to build an asset base that is properly diversified and invested, then you are in the Catbird Seat.  You don't want to end up like those NFL players that file bankruptcy a short time after their playing career is over....Here's  the key: You must translate your income into assets in order to reach the Land of Critical Mass. If you don't, when that income stream goes away, you are Tap City or waiting for a Social Security check.

KEY TO FINANCIAL SUCCESS....Brinker said: "The key to financial success is working hard, saving and investing, patience and persistence." 

CARL ICAHN WRONG SO FAR.....Caller Stewart from Santa Monica asked Brinker about Carl Icahn's prediction of a market crash. BB replied: I have followed this prediction that Mr. Icahn has been making for some time. This is not a prediction he made yesterday.....And it's not just the stock market. It's also the high-yield market.....During the time that he's been professing his beliefs, the market has steadily climbed upward, and high-yield bonds have steadily rallied. So it's been completely wrong....When I heard his predictions, I wondered what he looking for that the rest of us do not see.... I do not agree with him obviously because our investment letter is fully invested......I still do not know the reason behind his predictions...(Here's an article about Icahn's prediction: Carl Icahn Predicts Stock Market Crash in 2016 -17; Should We Trust Him?)

 Honey here:  Note that Brinker is still fully invested - as he has been since March 2003.  However, he sold all of his Marketimer Vanguard High Yield Fund holding at the same time he sold all Nasdaq holdings about 3 years ago. He also sold all Vanguard Ginnie Mae Fund in 2013. 

GROSS DOMESTIC PRODUCT REVISION FOR Q2....BB comments: We are looking for a decent bump up from that soft patch first quarter figure of 1.1 - the consensus figure is 2.6%.....It's baked in the cake that second quarter GDP will improve over the first quarter.

WHAT TO DO WITH ALL THAT DOUGH AFTER YOU PAY TAXES.....Caller Jim from Lafayette with a net worth of $4million was griping about the government making him take more out his IRA as he get older. At age 82, he said he had to take out 5.85% this year.
BB responded: You are free to re-invest if you like - after you pay the tax. "I  look at IRAs as a rare gift from Uncle Sam."
BRINKER'S FAVORITE CALLER OF THE DAY, MEBBE EVER: Roy from Minnesota. said: "You do a tremendous service for the people that listen to Moneytalk and also for youR investment letter - Marketimer......I want to thank you for the tremendous job that you have done....You are one fantastic man." 

Honey EC:  It was interesting to me that at least half of the callers today were Marketimer subscribers. 


Mervyn King was Bob’s third hour guest on the July 24, 2016 edition of Moneytalk. The guest was a governor of the Bank of England from 2003 to 2013. He is the author of a recent book,  The End of AlchemyMoney, Banking and the Future of the Global Economy.

Bob started by asking about Brexit. Mr. King said most of the world’s ills do not stem from Brexit. In 30 to 40 years we’ll look back and wonder what all the fuss was about. As to whether it will really happen, the guest said it would. He said it was not a recommendation by the voters, it was a clear expression of what they wanted their government to do. He mentioned that the UK was not a member of the “passport free” community. The European Union faces a couple of existential problems. One of them is migration from outside the EU into EU countries.

We did not learn lessons from the 1930’s as to how to deal with a financial crisis. Low interest rates, 8 years on now, have not stimulated the world economy. We failed to understand what was wrong with the banking system because banking changed and outstripped the remedies that would have worked in the past.

Keynesians on steroids? Bob mentioned John Maynard Keynes recommendation that some deficit spending was OK on the part of government, but he wouldn’t have gone along with the running up of government debt to the levels seen here today. The guest agreed.

The bank crisis in the US (the last one) is now over, according to the guest. But Europe is going through its own banking crisis, Italy in particular. He said the entire Italian system is in trouble. Deutsche Bank in Germany has problems.

Negative interest rates are not going to solve things. Cutting interest rates seemed like the way to stimulate the economy but it turned out not to be the answer. We need to get back to normal amounts of spending and borrowing and at more normal interest rates. Central bank monetary policy is increasingly ineffective these days.

Bob went to the “Way Back Machine” setting the controls for the fall of 2008 and asked the guest about the proposed purchase of Lehman Bros. by Barclay’s Bank. Mr. King said the UK government was asked to back this deal to the tune of several 10’s of billions of dollars but they said no. Why would they agree to put UK taxpayers on the hook for debt the US was not willing to put on its taxpayers? He said it very politely.

In a note of irony, a few weeks after Lehman disappeared beneath the waves, AIG got bailed out.

Chris from Iowa asked about Glass Steagall. The guest gave a long answer that included:

· The Glass Steagall act was ok in the 1930’s but he felt it was no longer needed.

· The Dodd Frank Act is far too complicated with thousands of pages and lots of attorneys needed to understand it.

· Since 2008 we have not solved the problem of Too Big To Fail.

· He thinks banks should have enough assets in cash or collateral to lodge with the central bank as an insurance policy against runs on the bank.

Jerry from Washington said all the right things at the start of his call. He said Bob’s show is better than an Econ 101 course in college and that he planned to buy Mr. King’s book. (We hope Jerry will come to Ms. Honeybee’s blog and click on it there.)

Then Jerry launched into a long, wordy build-up to his question which ended up being, “with today’s low interest rates, why would anyone save?”

The answer was equally if not more lengthy.

· We must provide an incentive to save.

· Saving is unbalanced around the world, the Chinese and the Germans are saving too much.

· Governments have to work together to correct things. Central banks can’t do this alone.

Bob wrapped up at about 3:50 pm. 

Honey here: Thanks Frankj....I thought Mervyn was a very interesting guest, but I noticed that Brinker didn't ask him if he thought the financial markets were going to crash. Maybe because he had already been making fun of other gurus who have been wrong up to now.  However, thanks to Jeffcrhistie for discovering that Mervyn is one of those calling for an imminent crash. This was written in February 2016.
Excerpts and read more here: "New Financial Crash 'Certain' Says Former Bank of England Governor, Mervyn King." Another financial crisis is "certain" and will come "sooner rather than later", the former Bank of England governor has warned. Another financial crisis is "certain" and will come "sooner rather than later", the former Bank of England governor has warned.  

Which one of the following did Bob Brinker say was good today?
A) Greed.
B} Complacency.
C} Worry.
D) Risk.

Honey here...Thanks, Jeffchristie. Doesn't Brinker's answer kind of contradict all of his preaching today? :)

Radio stations
710KNUS Denver
KION 1460  Monterey 

Los Angeles. KABC 790. Moneytalk plays two hours later in the evening. They podcast and ARCHIVE podcasts. 

Sunday, July 17, 2016

July 17, 2016, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

July 17, 2016......Bob Brinker hosted Moneytalk live today....(comments welcome)

STOCK MARKET.....Brinker said: "We have the S&P 500 at its highest level of  all time, on any weekend in history....2161 on the S&P 500. Since our correction buy-signal in February, we have seen a gain of over 18% in the S&P 500, in just a few months."

NOT SMOKE AND MIRRORS - IT'S A SHINING CITY ON A HILL....  Brinker said: " A lot of people are looking at the market and they are thinking this is all smoke and mirrors, that none of this makes any sense. Keep in mind that the world is awash in liquidity. There are no liquidity issues.  The world is awash in money as a result of the Central Banks reaction to the financial crisis back in 2008, which seems like a generation ago to investors. The US economy has been growing at a moderate rate....when you look at the major industrial countries of the world, it really has been like shining city on a hill......Because an economy that is growing in the area of 2% and allowing companies to gradually over time, grow their profits. And economy that is blessed with low inflation. And a corporate America that is blessed with low interest rates with which they can borrow. Investors like that stuff. That's what's going on out there. It's not smoke and mirrors as some would have you believe. 

SHOULD WE BE SKEERED AND PULL SOME OUT OF THE MARKET.....Caller Rolf from LA said: "You nailed that buying opportunity a few months ago.....Right now, what should we do. We are at an all-time-high. Should I get scared and pull back a little bit of my investments in the market?" 

BRINKER RESPONDS: INDICATORS SAY NO CHANGES.....Brinker replied: "We look at the indicators every single day. And I would tell you that based on what I am seeing right now - and we always know that nothings going in a straight line, even though it seems that way since February - what I'm looking at right now, I'm making no changes as of today in what I published in the July investment letter."

Honey EC: Brinker indicated with that answer that the answer to Rolf's question is no, don't "pull back."  It's good to know that he actually "looks at the indicators every single day," even though it does stretch credibility just a hair. 
July 5, 2016 Marketimer, Bob Brinker wrote: We are estimating S&P 500 operating earnings of $120 for 2016 and $127 for 2017.  Our estimate for stock market valuation is based on a price-to-earnings ratio range of 16.5 to 17.5 times operating earnings.  This is slightly above the long-term average of 16 to 16.5 due to the ongoing level of low inflation.  Applying this PE range to our 2017 operating earnings estimate of $127, the S&P index has the potential to challenge the 2200 level going forward.
VANGUARD GINNIE MAE FUND (VFIIX).... Caller Martha from Saganaw said that she has 50% of her investment portfolio in GNMAs and 50 in equities and wanted know if at 77 years of age if Brinker thought that was okay.

Brinker replied to Martha: "You have a balanced portfolio. I think your asset allocation is okay. I don't have a problem with it....."

Honey EC: When Brinker asked her, Martha said that she had "acted on" on his buy signal in February. I think it is very disingenuous of Brinker not to tell Martha that she missed his sell-signal on all Ginnie Maes in 2013. However, it's clear why he didn't do that. It was a huge blunder! VFIIX has been a stellar performer since he sold all of it out of Marketimer. Jim sent some commentary: 
Jim said...
When Martha told Bob Brinker she had all her fixed income in the Vanguard GNMA Fund I expected him to tell her to diversify a little bit, but after doing some research I think I know why he didn't. I looked at the current duration of that fund and right now it's only 1.9 years. That's right, it's exactly the same duration as Brinker's Fixed Income Portfolio. It had been higher at one time, but right now anyone owning that fund isn't taking any more interest rate risk than Brinker's other funds. We also know that the GNMA fund is all AAA bonds, just the thing for someone 77 years old.

NEGATIVE BOND RATES....Brinker comments....This week one of the nations in the Eurozone with a high credit rating, sold long term bond with a  (Germany)  negative interest rate - 5 basis points negative.  A ten-year sovereign would give back  you back $99.50 on $100.  In the 1990's, and before 2008, you could not have found someone in the "canyons of Wall Street" who would believe negative interest rates would happen - they would have considered it a "kooky idea." ....There is not one example yet of a country that has successfully stimulated their economy with negative interest rates.....

ROLLING MONEY FROM REGULAR IRA TO ROTH IRA...There were several callers today who asked about rolling traditional IRA into a Roth IRA because they think taxes will pay higher later on.   Brinker always advised against paying tax ahead of time - and said that it is impossible to know what your tax rate will be in 10 to 20 years. 

BANK PREFERRED STOCKS.....Brinker said the downside risks are:  earning power in a negative interest rate environment, fees, interest rate risk - if rates rise, it would affect preferred negatively.....Always do due diligence and always diversify.....

BRINKER'S WARNING OF THE DAY:  "There are many shark-infested waters out there. More than I've seen in a long time. Keep you eyes on your money at all times."


Bob’s third hour guest this 17th day of July, 2016 was a professor from Cornell University, Robert Frank. His book is  Success and Luck: Good Fortune and the Myth of Meritocracy.”

Editorial comments in italics as usual.

My notes from the first part of the interview, before the half-hour break are pretty sparse. The only thing I learned was that Bryan Cranston was the third choice for the lead role in Breaking Bad. The first two were John Cusack and Matthew Broderick.

It is hard to picture either one of them in that role at this point, isn’t it?

After the break Bob said caller George from Tennessee had a question that Bob couldn’t wait for the guest to answer. After a little dead air, George got on and asked if LeBron James was a lucky guy. This led to a discussion between the guest and Bob about the pay for professional athletes and then the pay for university football coaches.

Haven’t we beaten this topic to death yet? 

The guest thinks they’re overpaid and this has created morale problems on campus. (Among faculty it sounded like, but he didn’t say.)

Mike from Sacramento called in just to say hi and he planned to read the book. He mentioned Malcolm Gladwell’s book, “The Outliers.” The guest liked this book.

My son recommended it a few years ago, it was worth reading. 

Another George rang in, this one from Kansas City. He took the author to task telling him his premise “reeks of confirmation bias.” In other words, if all your examples of people who have been successful have ALSO had a dollop of good luck, then of course you’re going to conclude that it takes both hard work AND luck to be successful.

This led the guest to bring up the speech given by Obama in 2012 in Virginia: the “You Didn’t Build That” speech. The guest echoed what the current occupant of the White House said, mentioning roads used to move your product, schools that educated your employees, police and fire that protect your business, blah, blah.

As if the business owner pays no property tax. As if the business owner doesn’t pay state and federal taxes. As if the business owner doesn’t pay fees to the state for permits, licenses, etc. As if business owners both large and small aren’t hit up relentlessly to support charitable causes, like they are in my small town.

There was one more caller, Tino from CT who also took the guest to task telling him the examples in his book were mostly anecdotal.

Bob wrapped up this interview at 3:51.

Honey here: Thanks for another great summary. I was astonished when the guest told us what Obama "really" meant when he said "You didn't build that." How nice that the guest is so smart he can read minds.   Otherwise I would never have known what Obama actually meant since Obama did not mention any of the things the guest referred to.  Next time, perhaps he can explain what Obama actually meant when he said the "wealth should be spread around." 


How long into the broadcast did it take before Bob patted himself on the back for his February buy signal?

A) 5 minutes.
B) 10 minutes.
C) A half hour.
D) One hour.

Thanks Jeffchristie.... Brinker not only bragged very soon after the program began, he found a couple of other opportunities to repeat it. 

Radio stations
710KNUS Denver
KION 1460  Monterey 
WLS 890 Chicago 

Los Angeles. KABC 790. Moneytalk plays two hours later in the evening. They podcast and ARCHIVE podcasts.