Sunday, January 25, 2015

January 25, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Investing, Economic Summary

January 25, 2015.....Bob Brinker hosted Moneytalk live today......(comments welcome)

BRINKER'S EUROPEAN REPORT.....Brinker's opening monologue was about the election of radical leftists in Greece, and the  implications to its sovereign debt, its status as one of the nations using the Euro  -- and the possibility that Germany just may tell Greece to pull out its printing press and start printing Drachmas.

Brinker said: "What Super Mario is saying here is very clear, the European Central Bank is not going to purchase the sovereign debt of Greece in the face of a radical leftist government that could lead to the risk of default.  I'm a 100% was Super Mario on this."   Wall Street Journal: Leftist Sweep to Power in Greece

ANOTHER WEEK ANOTHER OBAMA TAX-INCREASE PROPOSAL....Brinker said: "Believe it or not, we talked last week about a tax increase proposed by the president, and now this week we are going to talk about a new tax increase proposed by the president.  This one has to do with dramatic changes for new investment in 529 plans.  This is a topic we are going to discuss on today's program – it's a stunner, it's a shocker -- and very much an anti-middle class proposal, which surprised some people.  But look, it's a tax increase which shouldn't surprise you, considering the source,  all that much… Are there enough votes for this Republican Congress to approve this bizarre idea?  I think not.  I certainly hope not."

MORE.....There was discussion of this topic throughout the program, including one seminar caller who had all the Democrat talking points down pat.  Nasdaq: Obama Proposal to Cut 529 Tax Benefits Meets Opposition

GOOD NEWS ABOUT THE LAME DUCK IN THE WHITE HOUSE.....Honey comments: Later in the program, Brinker said something that "shocked and stunned" me in light of how he has been so silent about Barack Obama for six years now. I could count on one hand the number of times Brinker has even uttered his name on the air. Today Brinker said: "The good news is that there is only two years left in this lame-duck term."

STOCK MARKET.....Caller Meryl from Illinois said: "Earlier this month there were some days when the stock market 200, 300 points, up and then down in the same day even.  And I was wondering if there was any significance to this kind of market volatility in the stock market that occurs periodically."

Brinker replied:
  "There certainly is because really it's related to the level of the Dow Jones Industrial Average – the point swings that you quote are the point swings in the Dow Jones Industrial Average.  It's an average of 30 stocks that are not market-cap weighted.  They are simply thrown together.  As a result, as the divisor for the.Dow has become less and less over the decades, you get tremendous volatility when the overall number is as high as it is right now.  And right now the Dow Jones Industrial Average is in the upper-17,000s.  So that means to get a swing of just 1%, you need 170 points – just for 1%.  And to get 2% you need over 300 points.  And so the points don't really matter.  If I were you, I'd look at it in percentage terms."

Honey EC:   It seemed to me like Brinker was playing obtuse with Meryl. I think that what Meryl really wanted to know is if there was any reason to be concerned about the roller-coaster days that have been happening lately.   I'd like to know what Brinker really thinks about that too. He didn't mention it in the latest Marketimer -- maybe he really thinks it's "noise." 

Brinker still recommends:  "dollar-cost-averaging on weakness" as he remains fully invested. He expects "stock market gains in 2015" and his target range is S&P 500 Index "mid-to-upper 2100s."

                    BOB BRINKER'S MARKETIMER INCOME PORTFOLIO

Caller Lee from Reno said: "In your Marketimer, you have an income portfolio, it has a current yield of 2.8% and the duration is 1.4 years...." (Brinker interrupted)

Brinker interrupted and replied:  "Now Lee, so listeners will not be misled, those are the figures on our former portfolio.  We made significant changes to that portfolio in early January and those numbers have changed.  I want our listeners to be aware of that and we will be publishing the new numbers in the February investment letter."

Honey EC: Last week Brinker talked about the bond funds that he sold from portfolio III and Marketimer income portfolio -- and also the funds that he bought. I covered these funds in detail in last week's show summary.  The effective date for these changes was January 9, 2015, so the January issue of Marketimer was already out. Therefore, the portfolios in that issue had not been updated. 
January 5, 2015 Marketimer, Page 3, Bob Brinker wrote: "These changes will be reflected in the February Marketimer and will produce a significant increase in portfolio quality and a modest increase in duration.  The current yield will also increase slightly.  DoubleLine Total Return Fund has a current yield of 3.7% and a duration of three years, while Midwest Unconstrained Bond Fund has a current yield of 1.66% and a duration of 1.2 years.
It's starting to look very much like Brinker realizes that his major moves into the low-duration bond funds in 2013 was a big mistake. The funds he moved out of -- like Vanguard Ginnie Mae Fund -- have done very well, and the funds he moved into are a bust. Matter of fact, his Marketimer income portfolio only made about 1% last year, and his model portfolio three only made about 6% -- about 1/2 what the Total Stock Market returned. 


FrankJ's Summary of Third-Hour Guest-Speaker (Philosophy about Economists Thrown in to Show Some Respect): 

Bob’s third hour guest on January 25, 2015 was Robert Litan author of the book, Trillion Dollar Economists: How Economists and Their Ideas have Transformed Business.

As to why he wrote the book the author said he is an economist and a lawyer and he observed that after the financial crash in 2008, economists got an “unfair amount of blame.” The public thinks that most economists sit around and forecast, and since most of them missed predicting the financial meltdown, the public thinks they blew it.

Economists are not appreciated. (Rodney Dangerfield: “I don’t get no respect…”)

The motivation for the book was to explain better what economists do and how they have benefitted American business.

“We have 2 classes of forecasters: Those who don't know . . . and those who don't know they don't know. “ - John Kenneth Galbraith – American economist.

Bob asked why did so many miss the 2008 meltdown? The answer was inertia and a mindset that what happened in the past will happen again. Bernanke and Greenspan both missed it. Greenspan apologized later and Bernanke did his best to mitigate the problem.

The guest gave some examples of how economists help boost the economy. He cited math techniques known as linear programming and quadratic programming as big assists to the transportation industry in moving goods. (These have been around for 40 plus years.) The internet retail system that exists today could not exist without the efficient transportation system we have today. Trucks and trains used to be highly regulated and the regulations were eased. He did not explain exactly how economists aided in that effort.

Litan also referenced the oil and gas industry, natural gas in particular which was highly regulated. The deregulation started under the Carter administration and continued under President Reagan. He did not explain exactly how economists helped in the deregulation efforts.

(Ronald Reagan: “if economists had invented the game of Trivial Pursuit there would be 100 questions and 3000 answers.”)

(Harry Truman told his Chief of Staff that the next time an economist came to the oval office he should have only one arm, I’m sick of them answering my questions with, “Well, on the one hand
….”

After the break Bob and Bob got on the subject of quantitative easing in Europe. The guest explained it is the third best choice available, the first two are undoable. European countries cannot remove and reduce regulations that impede their economies, particularly regs on hiring and firing. Fiscal stimulus is out because southern European countries are already heavily in debt and northern European countries with an older age demographic don’t want to add debt. That leaves QE.

The guest expects with the leftists in control in Greece there will be a showdown with the Germans and the Finns. The Greeks want the rest of Europe to write off their debt or they will abandon the Euro. In response to the guest’s suggestion that this turmoil could make for a rocky week in the stock market, Bob pointedly asked what do we know now that we didn’t know Friday? The guest’s answer was that it (the leftists getting control in Greece) actually happened.

Bob said “Who cares? The Greek economy is only 2% of European GDP.” The guest said Greeks saying goodbye may tempt countries like Spain, Italy and Portugal to do the same. If the Euro is abandoned it will upset a lot of trade that exists, based on the Euro.

(Two economists were shipwrecked on a desert island. They had no money but over the next three years they made millions of dollars selling their hats to each other.)

The only caller was Bob from SF who has called the show before. He wanted to know when the interest paid on Treasuries starts to climb, won’t this create so much demand that it will squash yields? The guest said the Fed only controls short term rates and he thinks long term rates will stay low for a long time. He went on to say something that was music to Bob Brinker’s ears, that critics of quantitative easing here in the US said it would lead to inflation but they were wrong.

Decreases in the price of oil helped the economy, the guest predicts a 3% growth rate for the economy.

The book explains how economists helped with the rise of the internet.

Economists helped facilitate on-line dating.

(An economist takes a woman he met on-line to a cheap restaurant, their daily special of meat loaf and mashed potatoes arrives. She looks a bit miffed and he says, “assume filet mignon and champagne!”)

Bob and the guest decried the lack of financial education required in US high schools. The guest said economics could easily be made a part of math classes. (I agree completely.)

If people had basic financial literacy few might have gone for the ruinous loans in the last decade.

                                Jeffchristie's Moneytalk Final Exam Question

Bob Brinker refers to the president of the European central bank by which one of the following Nintendo characters?

A) Pokemon.  B) Captain Toad.  C) Super Mario.  D) King Dedede.

ANSWER

Honey here: Looks like Jeffchristie and Brinker both assume that everyone knows about Nintendo characters.  :)

Sunday, January 18, 2015

January 18, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Investing, Economic Summary

January 18, 2015.....Bob Brinker was Live on Moneytalk......(comments welcome)

STOCK MARKET....Caller Robert from Pennsylvania asked about Brinker's model portfolio III which has both stocks and bonds in it.  Robert wanted to know if he should  lump sum into the stocks and bonds.   Brinker's answer gives his opinion of the stock market.

Brinker said: "I'm comfortable buying the fixed income portion.   I would dollar-cost-average  into the equity portion given the level of market.

Honey EC: This is the same stock market advice that he has been giving for years -- "dollar-cost-average on weakness."

BOND MARKET.... Brinker did not talk about the Fed like he used to or interest rates. He made no comments about the fact that interest rates dropped to a new low last week.  

BRINKER'S JANUARY 2015 MARKETIMER BOND FUND CHANGES.... Jackie in Las Vegas (39 minutes into the second hour) asked about the Fidelity Floating  Rate High Income (FFRHX) and the Metrowest Unconstrained Bond Fund (MWCRX).

Brinker replied:   "We don't own the Floating Rate Fund anymore, so it's out of the portfolio.…  The Floating Rate Fund that we sold was a different fund and it was a different fund company also.  As far as the Unconstrained is concerned, there are many unconstrained funds out there.  If you're not comfortable, you should not make the change.…  I do believe that those who are investing in unconstrained, I think it has a place in the portfolio at this point.  That doesn't mean you have to do it.…  Because what you're talking about with unconstrained funds – and there are many of them out there – what you are talking about is a fun that is going to invest in a highly diversified portfolio.  They are going to use varying maturities.  They are going to be unconstrained by managing against an index.  They are not going to be held to investing against an index.  The duration of the portfolio can vary substantially with the management opinion at the time… And all of those things come into play." 

Brinker continued: "Unconstrained also in the sense than you are giving the portfolio manager considerable leeway in terms of how he or she wishes to invest the portfolio.  That's really what it means… Now again, anytime you are uncomfortable with any type of fund, you shouldn't be in it – period.  From my point of view, and anybody obviously that subscribing to the newsletter is interested in my point of view, I'm sharing with them my opinion that within the context of a diversified income only portfolio – because that fund only appears in the income portfolio (3 unintelligible  words).  And I'm saying that within the context of that type of portfolio, I think there's room for a plum like that at this point.

Honey EC: As Brinker said, he sold all Fidelity Floating High Income Fund from his Marketimer off-the-books income portfolio (BrinkerJr sold it last month) and also from Marketimer model portfolio III -- as of January 9, 2015.  He replaced it with DoubleLine Total Return Bond Fund (DLTNX)  which he had sold in 2013. He also sold MetroWest Low Duration (MWLDX) in model portfolio III and replaced it with MetroWest Unconstained (MWCRX). Notice that he did a bit of a sales pitch on the Unconstrained Fund.

If you are wonder why he is now selling some of the low-duration funds that he has been touting for so long, the reason may be under-performance. Brinker's model portfolio III only made 6% last year and the income portfolio made 1.1%...Bond-timing can bite you in the hind-quarters as Brinker has now found out. :)

NOPE, BRINKER WAS BUYING QQQ AS THE DOT-COM BUBBLE WAS BURSTING...Caller Rob from Michigan first made the claim that Bob Brinker was the only market-timer to call the "dot-com thing back in time."

Honey EC: Brinker ignored the comment. He had no choice unless he wanted to set the caller straight, because Brinker most certainly did not call the "dot-com" bust. Just the opposite, he had his followers sink large amounts of money into QQQ just before the dot-com dropped over 75%.

GOLD NO INTRINSIC VALUE SO KATY BAR THE DOOR....Caller Rob's follow up question was about gold and silver as an investment.

Brinker replied:  "Well as I say it is a speculation.  From my point of view, it has no intrinsic value at all other than its speculative value which means what people are willing to pay for.  Now you have to understand the reason that there so much of a push to buy gold – you always hear buy gold, buy gold, buy gold regardless of where it is in price.  I mean there was just as much emphasis recommendations to buy gold at $1900 as at any other price, as far as I can see – if not more.  And I think that the reason that happens is because it's unregulated.  In a time that you have something that is unregulated, it's Katie bar the door!  And since there's no regulation on recommending gold, you'll sometimes see a tsunami of recommendations regardless of price on gold.  I think it is the ultimate greater fool asset… Absent intrinsic value, it's a pure speculation what people are willing to pay for it. I don't own it and I don't have any plans to own it, Rob."

Honey EC: Brinker added this  "speculation"  GLD to Marketimer in 2009, then took it out in 2013 -- with zero guidance coming or going. As for "intrinsic value," what intrinsic value does paper money have? As for silver, Brinker has not talked about that since the program when he was touting GLD (while it was in Marketimer) and he told the audience that silver (SLV) could be used interchangeably with gold for investment purposes.

SWISS FRANC LOST ITS PEG AND SOME HAVE ENTERED A HOUSE OF PAIN....Brinker said:  "Of course, the other thing that happened this week was the Swiss franc having its peg removed against the euro.  The Swiss were trading euros for 120 for a period of about three years in an effort to protect their export account because they do a lot of business with European Union countries that transact in the euro.  There are 19 of them now that transact in the euro.  Swiss franc is an independent currency and they decided to let the franc trade freely against the euro this week.  It caught a lot of people off base and tag down and there are some companies that are out of business as a result of what happened.  In fact, there probably will be more that we are going to hear about in the investment community that basically got caught short the franc at the worst possible moment."

Brinker continued: "In fact, there was a hedge fund with about $800 billion in it that is now out of business, which was short the Swiss franc.  They announced this weekend that they were going to close the fund basically because the money is gone..... One of the things that absolutely astounds me, and this is totally wrong by the way, people have been allowed to speculate on current  with 2% margin requirement, so you could borrow 98% of the money that you're speculating with.  For example, on $100 million speculation, you could borrow $98 million and put up $2 million.  Imagine if you did that short the Swiss franc when the Swiss franc soared 41% on the first day against the euro.…  You've got to be kidding!  So there are companies out there that have basically entered The House of Pain."

WILL THE US DOLLAR COLLAPSE?
..... In caller Rob's  third follow-up question he asked if Brinker saw any "major collapse" of US currency "down the road."

Brinker ranted:  "Rob, I'm glad you said that, let me just tell you, I don't know anybody in the world that's been more wrong about what you just said than the people who said the dollar was going to collapse.  These people, whoever they are – I don't even want to know who they are – these people who've been telling people that the dollar is going to collapse should hang their collective heads in shame for the bad advice they have given people.  Not only has the dollar not collapsed, it has skyrocketed in value.  It's the strongest currency of any major currency on the planet.  And they should be ashamed of themselves for what they have wrongfully told people about the dollar – ashamed.…  Beyond that Rob, these people seem to be the same people that are those Nattering Nabobs of Negativism......that are out there, wrong every day, telling people the economy hasn't recovered, it's in recession.  Or the dollar has collapsed, what?  Installations through the roof, what?  These people are nuts!  When we just say it, Rob? They're NUTS!  They need help.  They all need help!"

Honey EC: Yikes....That was one of Brinker's wildest rants. (The call was in the last half of the second hour) I'm not sure about all of the people who Brinker was ranting about, but I do know who he meant about the recession. That would be Lakshman Achuthan. 

MAJOR LEAK OF OBAMA'S STATE OF UNION SPEECH: WANTS TO RAISE TAXES....Brinker said that Tuesday evening during the SOU speech, Obama will propose huge new tax increases, but Brinker thinks there is no chance of it getting enough votes from congress.

Honey EC: Brinker started the program covering this subject, but I won't cover all the details since we can all listen to the speech on Tuesday. But I will say that it sounds like huge capital gain and other proposals that will get your attention.

                 FRANKJ'S THIRD-HOUR GUEST-SPEAKER SUMMARY

Interview with Peter Timin on January 18, 2015

Bob’s third hour guest was Peter Timin, professor at MIT and author of the book, Keynes: Useful Economics for the World Economy.

Editorial comments in italics: I was torn between listening to this interview and listening to the end of the Seahawks vs. Packers game. The guest spoke slowly enough that was able to do both.

We all remember Keynes, right? He’s the British economist who advocated government spending money and running deficits to stimulate the economy when needed. What many forget about Keynes is that he also advocated reducing government spending and reducing deficits when economic conditions improved.

Useful trivia fact: Keynes was a low-level delegate to the proceedings that led to the Treaty of Versailles after World War I. The British and the French (especially the French) wanted their pound of flesh and more out of Germany for having started the war. Keynes said the conditions to be imposed on Germany were so harsh as to lead ultimately to more conflict and he was right.

The guest said people today vilify Keynes because attacking his ideas is a way to justify reducing the size of government. Obama’s stimulus was designed to increase demand by stimulating consumption, but it didn’t do enough according to Professor Timin. He said no one understood how big the problem was; demand was low because of drop outs in the labor force. Unemployment measures did not give the whole picture, it was the participation rate that was more important. Since the recession, private demand has recovered, but “demand” resulting from government employment has fallen because the number of government employees has fallen.

He referenced the late Milton Friedman, another economist, and said Friedman was active during inflationary times. It is different now, we are worried about deflation. He then gave a long explanation of what deflation is. I’ll summarize it: too many people and businesses hang onto their money because it will buy more goods and services later. The Professor said that deflation is a signal we are wasting resources: banks sit on reserves, companies defer investment, people don’t buy stuff. Deflation starts a downward spiral.

Right now, there is a lot of spending that could take place before it led to upward pressure on prices and the inflation that would follow. The Professor thinks that austerity is popular with some political groups because it means programs they oppose would be cut back. He specifically mentioned that some people are opposed to government helping people by educating the poor, providing medical services for all, and helping the elderly. He asked the question, “What is government for if not for helping people?”

He said the call for austerity here in the US is driven by the same notions as in Europe, i.e., a desire to reduce the size of government. Tim from Torrance CA took an opposing view of the Professor’s enthusiasm for government spending. He said if we spend more and more money, eventually we will go bankrupt. The Professor said there is no risk of us going bankrupt because “everyone is clamoring to buy our bonds.”

Bob interjected something about the government owning the printing press as a difference between an individual going bankrupt and a government going bankrupt. Timins agreed, “yes, the government has been increasing the money supply,” and when the economy works better, that’s the time to cut back.

This might have been an opportunity for Bob to ask the guest what will happen when rates “normalize,” i.e. for example when the 10 year Treasury rate works its way up to 5 or 6 percent? Bob has mentioned this many times in reminding listeners what this will do to the amount of interest the Treasury must pay out. Currently, when some bonds mature they are not paid off, they are merely rolled over at the prevailing (low) interest rates.

John from CT wanted to know what will happen when the Chinese stop buying our bonds?

The guest pointed out that they only own about 5% of our bonds right now. He admired what they are doing, building infrastructure, calling it “Keynesian.” He said countries don’t work that way, suddenly dumping our bonds.

Given the guest’s stated views, Bob Brinker threw him an easy pitch as a last question, “how do we get out of this?” The guest said we need spending. If the private economy does not spend enough to get the economy growing again, then it’s up to the government. Muddling along like we are doing now wastes resources and makes for ugly politics.

Bob closed out the interview at 3:52.

The State of the Union address will be given soon. My guess is, the guest will be cheering on every call for more spending by the President. 

                            JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION

Last week the Swiss government decided to let the Swiss frank trade freely against the Euro. Bob Brinker said that brokerage firms that got caught being short the Swiss frank are entering:

A) The poor house. B) The Ronald McDonald house. C) The house of pain. D) The crazy house.

ANSWER