STOCK MARKET.....Brinker did not mention the stock market today.
MARKETIMER DIVIDEND-PAYING STOCK ETF....Ed from Corte Madera said: I have a good portion of my portfolio in dividend paying stocks in an ETF that you have recommended in your newsletter. It's done very well. What I'm wondering is what it would be in the market or interest rates that would affect it and make it go down.
BB replied: I would look at three areas, the health of the economy, the health of the financial sector because the financial sector has sizable representation in that fund, and I would look at interest rates.
IN EDIT MONDAY MORNING: Yesterday, Brinker announced that the May Marketimer would be available online this morning. I have now read it. I now seriously question the authenticity of caller Ed from Core Medera. I think he was a plant who already knew of a mutual fund change that Brinker was making on his old, boring list of "recommended" mutual funds. I am aware of the difference between mutual funds and ETFs, but I think that is a distinction that Brinker MAY have ignored yesterday when he answered Ed. (I'll follow up as soon as I can and still stay within copyright laws.)
Honey EC: Brinker's Marketimer model portfolios have no ETFs in them, so Ed must have been referring to DVY which is on Brinker's short list of "individual issues." This entire list is off-the-books as far as Brinker's performance record. He never reports on how they have done, and almost never makes any changes.
The only stocks on that list are Microsoft and Suncor. Microsoft has been there for a very long time and Suncor since 2009. Right now, Suncor is trading lower than his original buy price. The remainder of the list is the most common index ETFs.
DVY has been there for at least a decade and got creamed in the 2008-2009 megabear market. At one time, Brinker actually told a caller that the ETF was very safe.
GDP HITS SOFT PILLOW...errrr PATCH.... BB said: We got the Gross Domestic Product figures and it comes out just as we expected at a sluggish pace. We talked on the program recently… about a very soft patch in the economy. There is certainly nothing unusual about a soft patch in the first quarter. We have seen a soft patch in first quarter year after year… In 2014 and 2015 we had a soft first-quarter, but when it was all said and done, real GDP growth came in again at 2.4%, which is a good figure compared to the rest of the world - with the exception of China. And here we go again - the first quarter at 0.5% annual rate of growth.… This was the preliminary number and will get a final revision - and it can jump around a little bit. We all know that the long-term real GDP expansion in the US has been in the area of 3 1/4%. So why are we running lower than the long-term trend? The answer is, some things have changed and they are contributing to the slower growth.… One is the lack of improvement in productivity in recent years…
UNEMPLOYMENT AND GLOBALIZATION.... BB continued: We know that employment has been doing quite well, with the unemployment rate down to 5%. Not everybody has the job that they would like to have but you can credit some of that to globalization. And globalization is not going away. I hear some of these political candidates out on the stomp telling the people nonsense such as, we're going to bring high-paying jobs back to the United States.
GLOBALIZATION and POLITICAL POMPOSITY.... BB continued: I hear some of these political candidates out on the stomp telling the people nonsense such as, we're going to bring high-paying jobs back to the United States. I always wanted to ask these individuals what are you talking about – where are these jobs going to come from. I always want to tell these presidential candidates what they apparently have either forgotten or never knew - which is, hey wait a minute, globalization means the companies take jobs and relocate the jobs so they can pay people less to do the jobs. Typically in the US high-paying jobs are sent to other countries so they can become lower paying jobs – which is what they are. Does any presidential candidate – and I don't care which party they are in - do they really believe they are going to get CEOs to fire the workers outside the country that are working for the company and lower wages, and bring those jobs back to the US at higher wages? Why would they do that? There are not going to do that. There is no possibility that would happen, so don't tell people you are going to to do something that can't be done. But I digress.
PRODUCTIVITY PLUNGES.... BB continued: If a company is using employees instead of investing in new equipment then productivity is affected by that decision. Because technological changes and productivity advances promote improvements in living standards..Think back all the stuff that's been invented over the last century. Think back of the productivity advances that have been derived from those inventions, gadgets, whatever you want to talk about. And that promotes improved living standards. If there is less of that going on – and there is – then that's a drag on growth.
CONSUMERS IN CATBIRD SEAT.....BB continued: Obviously consumers are benefiting from things that are going on today – employment gains are helping, low oil prices help. When you spend less at the pump you have more to spend elsewhere. It's like a tax cut. Lower oil prices and lower gasoline prices are a de facto tax cut. You are driving out of a gas station with more money in your pocket. And of course, low mortgage rates help the housing sector as well. So there are number of positives that have managed to support moderate growth rate in the economy in recent years. Going back five years is very close to 2% on average.
YO FOMC, GET REAL....BB continued.....When you look at this 0.5% growth rate for the first quarter, you have to ask yourself, if you were sitting in a room with members of the Federal Open Market Committee that voted to raise the rates at the December meeting – you'd like to ask, are you for real?. I mean the economy grew at 1.4% annual rate in the fourth quarter, we have a 0.5% in the first quarter.… Are you for real, voting to raise interest rates at the December meeting? What were you thinking? What data, Mr. and Ms. Fed governor, were you looking at that compelled you to vote to raise rates? It's a fair question. You do not have to raise rates when GDP growth is below its long-term trend and inflation is below the Fed's target figure.
FED WORKING FOR MORE INFLATION....BB continued: The Fed has been trying to get the inflation rate to 2% four years. Still haven't reached that level – in fact, their favorite inflation gauge, the headline number right now year-over-year is 0.8% – even the CPI is 0.9%. Both gauges are below 1% year-over-year right now.
LET'S KICK HIM AGAIN, HE AIN'T DOWN YET.....BB said: Always keep this in mind, that when a high-paying job is being located overseas to make it at lower paying job to save the company money on salary and benefits, it is no longer a US high-paying job and it is never going to be one. It doesn't make any sense for a CEO to reverse course, increase cost to the company, and increase the price of the product, which can affect the price of the products competitive status on the shelf against other products.
NOW ALL YOU FIFTH-GRADE SYCOPHANTS TAKE NOTE...BB continued: "Any fifth grader knows that once a high-paying job leaves the country, it's not going to be a high-paying job here anymore. It's now a low-paying located overseas. This stuff is so basic that your head spins some time when you hear these candidates making these false promises. Globalization is here to stay. Nobody has ever come up with a plan to end globalization – and they won't. It can't be done. It's not going away regardless of what any presidential candidates tell their sycophants in order to try to win votes. It's baked in that cake.…
BUTT WE WORKERS ARE FEELING THE PAIN....BB said: "But we have a lot of work to do in the USA economically. We have over 6 million working part-time because they can't find a full-time job. Chair Janet watches that figure closely, so she should continue her effort to provide a accommodative monetary policy for that reason right there.
JUST SAY NO TO CURRENT I-BOND PURCHASES.....Brinker told Christine from Albuquerque to steer clear of current I-bonds.
JUST SAY NO TO NUMISMATIC COINS....Brinker told caller Louise that the mark-up on numismatic coins is very high and they should be avoided.
Honey EC: In the past, Brinker has stated that he does not consider the American Eagle gold and silver coins numismatic.
CAPITAL GAINS TAX BREAK ON HOME SALE....Brinker explained to caller Alise from Santa Rosa that she and her husband could sell one of her three homes and get a $500,000 tax break if she had lived in it 2 out of the last 5 years.
Honey EC: For a single person, the amount is $250,000. Our fair government in play again.... Here in the SF/SJ/Monterey Bay areas, it doesn't take long to get above that amount of equity in our homes.
FRANKJ'S SUMMARY OF THIRD-HOUR GUEST-AUTHOR: CHINA'S ECONOMY
Bob’s third hour guest on this first day of May 2016 was Arthur Kroeber, author of : China's Economy: What Everyone Needs to Know.
Mr. Kroeber’s book was reviewed recently by Forbes and the link to the review is here:
Getting China's Economy in Perspective: The View From the Inside
As the title of the book suggests, most of the interview was about China’s economy. It has stabilized for the short term thanks to some government stimulation. But they aren’t out of the woods, there could be more problems long term.
Trading on their stock market takes place at a frenetic pace. Retail investors have only had access to stock trading for about 20 years and they seem interested in making up for lost time. There are no big institutional investors involved (I think he meant from inside China) and trading is often based on sentiment or inside information. Some participants view the market as a casino. Even so, only about 5% of the total wealth in the country is in the market, he termed it “play money.”
What about government involvement in the market and overall economy?
The Chinese government took a lesson from the Soviet Union which had a static economy that did not raise living standards. China wants a growing economy but hasn’t let go of the reins yet. They were cheerleaders for investments in the stock market as long as it was headed up, but when things reversed they clamped down on people’s ability to sell shares. They viewed the market performance as a popularity poll on government policies.
The current leader has tried to stamp out corruption among business and government officials. Tens of thousands have done the perp walk.
Government HAS managed the growth numbers – they do it to smooth things out. The guest said this tendency goes way back to the 1950’s when the “numbers” said one thing, but 20 to 30 million people starved to death. The current model, a combination of capitalism and central control will last another 10 to 20 years and then China will mature into a consumer economy. In order to develop further, the economy needs creativity and innovation.
Along this line, the guest described two main tracks in the economy. Infrastructure, building stuff domestically like steel mills, roads, dams etc. is contracting. Half the economy is now “services” and this broad sector is expanding.
- Advice to the central government: axe a lot of state owned businesses. They borrow too much and deliver too little in returns.
Put more trust in the markets and quit intervening.
Their education system trains lots of engineers and scientists, but there is lots of rote learning and not much creativity or teamwork.
Beijing is a modern city. Adding subway lines.
The air pollution is getting better – that is to say, it is less than in the past.
The middle class is estimated at 200 to 300 million by the World Bank.
is a complicated place. There are no simple explanations for what goes
on. We need to cut the Chinese people some slack and give them more
- Chinese influence on North Korea is not as great we may think.
- If NK collapses, China will have a huge refugee influx into a depressed area of NE China.
NK collapses, China will have a problem if NK becomes reunited with
South Korea which is a US ally. China will end up with South Korean and
possibly US troops near its border.
- Good policy for China is to keep NK as a buffer.
Well, this guest was probably the wrong person to put that question to, having lived half his life in China and splitting his time between Beijing and NYC. He merely said China has been a “good global citizen,” and said they may have broken some rules in trying to get to the top, but “we broke rules getting to the top.” Once at the top he said countries start to do better.
Finally, what would an interview be without Bob working in Donald Trump without naming him? He asked the guest about China’s manipulation of its currency. I heard two answers to the question. One was, that the issue was a “red herring.” The other answer was, “yes, they manage their exchange rate because if they didn’t there would be huge inflows and outflows of capital.”
Honey here: That was a very interesting interview - thanks for the great summary. I sometimes wondered about where Kroeber's true loyalty was....He didn't seem to be able to be critical of China without making some moral equivalency to the US. Although, he did mention that his children were being educated in the US....
JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION
Bob Brinker referred to the first quarter GDP growth rate as a:
A) Weak spot. B) Poor stretch. C) Soft patch. D) Low point.
Honey here: Brinker made it very clear that he expects higher growth as the year goes on, and that we will end up where we were last year (and in 2014). I'm not so sure....
WNKT Talk Radio: 1-4pm PDT
Los Angeles. KABC 790. Moneytalk plays two hours later in the evening. They podcast and ARCHIVE podcasts.