Sunday, June 26, 2016

June 26, 2016, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

June 26, 2016.....Bob Brinker hosted Moneytalk live today.....(comments welcome)

OPENING MONOLOGUE BREXIT KEY POINTS...... Brinker comments: There is an old Chinese bromide "may you live in interesting times" –  well, here we are.  Are the times interesting enough for you right now or do they have to become even more interesting than they became when the votes were counted in Great Britain at the end of the plebiscite to leave or remain in the European Union.  When they totaled  them all up 52% said get us out, 48%.… The clock doesn't  begin ticking in the UK until  article 50 is implemented Article 50 did not even exist before 2009.  It was created to accommodate Greece.  Greece has been on a slippery slope since 2009 but never used it.…Now Great Britain is expected to use it as a result of this vote.....There is no timeline on article 50.  "I love this stuff.  It's so fascinating."

What is BREXIT Article 50? 

Honey EC:  I also enjoyed the evening of the vote when it did the "ginormous" turnaround. It was very exciting to see that there is still some spirit of 1776 people left in the UK!  For those not aware, the EU tyrannically dictates to the UK rules that they have to live by - all the way down to which teapots  that they can use.  They tell them how many people they must import into their country, and they take twice as much money out of the UK as they give back. Who in their right mind would want to live like that?

 STOCK MARKET
 Brinker comments: I think we should put the US stock market in perspective this week and I'll tell you why.  When it was all said and done at the end of the week, the S&P 500 index was down 1.6%, which is solidly in the category of stock market noise.… 

What happened this week in the stock market was, you had a BREXIT rally that had a foundation of quicksand.  Let me specify......I'm talking about the US stock market rallying smartly this week because enough investors believed the polls which were saying that "remain" was a slam-dunk.  By the time it got to Thursday – at one point, the odds in the London bookmaking shops reached 1 to 12.… 

That would be a horse - if you equated to a racetrack payoff – that would be a horse that would pay $2.08 for two dollars, roughly.  Can you imagine wagering on a horse race, picking a horse  that was so heavily favored that if the horse won, your payoff would be $2.08 for a two dollar wager.  You would make eight cents but you risk two dollars.  How ridiculous is that… So many things can happen during a horse race… In the case of this election, there was a point on Thursday where it was so evident to bettors – the bookies don't make the odds, the bettors make the odds – there was no question it was going to be remain.  It got to 1 to 12.....And of course everything changed as the results started to come in.

With the first couple of results came in, I remember commenting to someone that these results are lead results.  One of the first places that came in was supposed to be 6% in the "remain" camp And it was only 1%.…  At that point you had to say whoa.....And of course the result went the other way eventually, even though it was close at 52 to 48......It was amazing that the markets believed that and they rallied.…  What happened in the US market was the big gains that was rallied up going into the vote count was given back +1.6% – that's what happened.  That's why you must look at the week as a whole.  You can't just look at Friday.…
NEW FIDUCIARY RULE TO PROTECT INVESTORS.....BB comments: There is a new fiduciary rule that is applicable to investors that is coming on stream.  There has been some discussion of this but I wanted to boil it down as to what this new rule means.  What this new rule means is that if someone is giving you advice about your retirement money – that would be your tax privileged accounts, 401(k), IRA's, that kind of thing – they have a real fiduciary responsibility to do what is best for you, not what is best for them, from the standpoint of commissions.…  Now incredibly, there is some push-back out there from the industry on the new rule.…  We'll see how it plays out but I will say this to you......Based on my observations with what people get away with it by selling products in the various mediums… One can only hope that this has some impact.  Some of the things that I hear in terms of sales programs are… definitely not in the best interest of the investor – but are in the best interest of the seller.  And I hate to see that happen.

INTEREST RATES......BB comments: I think that it is unlikely that the Federal Reserve is going to have much flexibility in the near term to do anything with interest rates.…  If we continue to see what we see right now, and if the economy stays at a moderate pace, I think that the interest rate situation right now is unlikely to change materially going forward.  Now going forward means certainly in the weeks ahead I don't see a change likely in interest rates.....I don't even see it this summer… Because they have made it clear at the Fed that they are looking at the international situation.  And they like to see stability in the international situation and that is the reason they are unlikely to do anything with rates right now.

EUROPEAN UNION MORPHED INTO DICTATORSHIP.....BB comments:  In 1973, the common trading market – giving more power to the European nations - that makes sense to me.  But to morph into this sovereign body is just very strange to me.

Honey EC: As the EU became a "sovereign body" the countries that belong to it lost their sovereignty.  It's not strange to me. We see the same thing in the US as the Federal Government becomes more and more powerful at the expense of the rights of the states.

USA PRESIDENT AND S.O.S. BUTTING IN TO BREXIT.....Brinker said: "Secretary of State John Kerry went before the cameras and made this statement about how he's going to go over there, and about how the United States is going to continue with good relationship with UK.....My reaction to that was, why are you doing this?  This is not about the United States.  This is not about the Secretary of State.  It's not about our relation with Great Britain.…  Why are we imposing our presence over there on them.  Why would we do that?  For our president to go over there and tell them to "remain" – it's none of our business.  When I heard it, I thought this is definitely going to result in more people voting to leave."

Honey EC: Not only did Obama say that they should "remain" in the European Union, he told them that if they did not, he would see that they were put at the end of "the queue." 

FRANKJ'S MONEYTALK GUEST SUMMARY

Bob’s third hour guest on this Sunday, the 26th of June 2016 was a professor from Harvard, Hal Scott. From the start, the interview was plagued by a poor audio connection, so I was not able to hear some of the professor’s answers to Bob’s questions.

Editorial comment in italics as usual. 
 
As advertised earlier by Bob, the topic was Brexit: Britain’s exit from the European Union in case you’ve been news free for the past few months.

Bob referenced the “false run up” in the market in anticipation of Britain staying in the EU. That didn’t happen. On Thursday they voted to leave. So on Friday the SP 500 was down 1.6%. (For the week, from the prior day? Bob didn’t make it clear.)

The guest said he was shock on the “leave” vote. He had been looking at polls and expected them to stay, not realizing as Bob has been pointing out, that the polls are inaccurate in the UK.

So… the prof must not be a MoneyTalk regular.

The guest said investors should be a little worried but not overly worried. The vote was driven by pushback against EU policies, along with immigration. Scotland and Ireland want to stay in but they were over ridden by voters in England. As for Scotland, it is not impossible for them to stay in. They’ll have to work out the currency issue though.

Bob brought up Spain and their recent elections which came out as expected, i.e., no major changes to their governing body.

Great Britain retained their own banks and currency when they joined the EU so they won’t have currency issues to deal with upon leaving. One example is re-denominating bonds and the headaches and possible lawsuits that might occur. Leaving might be a bigger problem for other countries though. Then there are some countries like Greece who the EU would be happy to see leave.

After the break, Bob asked about any impact this might have on US GDP growth which has been weak. The guest gave a long and somewhat rambling answer, hearkening back to the Lehmann bankruptcy in 2008. He seemed to be saying that the Brexit vote wouldn’t have a big effect, but some other event (like Lehmann) could tip us over because the same safeguards that protected the US economy then are no longer in place. He said we have restricted the Fed’s ability to act and taken away things the Fed had in place after Lehmann.

Then he and Bob had a little chuckle on how the taxpayer came out to the good as a result of Tarp and Fed actions.

(Tell that to people  who had their fixed income investments blown up, particularly people who wanted to be in CDs. Tell it to people who reached for yield and took on more risk than they realized and in some cases got burned.)

The prof thinks the “leave the EU” vote was a mistake for three reasons:
  • Finance is a big part of the British economy and banks will find it harder to function in GB after the exit.  
  • New trade agreements will be needed and higher tariffs could hurt. 
  • The UK and Germany were the adults in the room with the EU and with the UK gone, so too will be their moderating influence on economic policy.
Now comes Keith from Rochester, the only caller of the day. He is now a third hour regular and will soon qualify for a reserved lounge chair on the MoneyTalk Starship along with baseball cap, windbreaker and coffee mug. Keith has a very aggressive delivery easily recognizable to listeners. Some might say he is abrasive, nevertheless Bob let him go on.

“There are too many bureaucracies, people are willing to keep handouts and be enslaved… is there going to be a buildup of courage among people in the world?”

The guest said, “I’m all for that,” probably in reference to the courage statement. Then he went on and said Keith’s question doesn’t have much to do with the topic.

I’d say the question was on topic, and maybe the guest just wasn’t equipped to answer that maybe the people voting to exit were tired of policies that undermined their nation’s sovereignty. Maybe they didn’t see the benefits of citizens of any country in the EU being able to emigrate with few or no restrictions.
 

There was discussion of negative interest rates and the guest said they are perplexing, could have a bad impact and they can be a “little” negative but not too negative.

So, what should US investors do in light of Brexit? Stay alert but don’t be nervous. US investors should not make changes on the basis of the vote – that’s the professor’s opinion.

Bob wrapped up about 3:52 pm.

Honey here: Thanks for that great summary of a very current subject! His view was diametrically opposed to Brinker's, but they seemed cordial about it. Sounds like the Professor doesn't think very highly of the citizens of Great Britain - they can't be trusted to handle their own finances.  Wonder how the air is up there in that ivory tower?

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION

Bob Brinker said that 62% of the people of Scotland wanted to stay in the EU and as a result of the vote to leave they are:

A) Mad as hell.
B) Ticked off.
C) Bent out of shape.
D) Burned up.

ANSWER

Honey here: Thanks Jeffchristie. I suspect this had something to do with the resentment that many in Scotland and Ireland feel toward the monarchy. And now with Scotland talking about actually leaving the UK, who knows what might happen. I know this blog has readers from those areas. I would love to hear opinions from over there.  

WNTK 
KION 1460  Monterey 
WLS 890 Chicago

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

Sunday, June 19, 2016

June 19, 2016, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

June 19, 2016....Bob Brinker  Captained the Starship Moneytalk  today....(comments welcome)

STOCK MARKET.....Bob Brinker made  a couple of pertinent comments today:
  •  .....a lot of people have gone to cash because they are fearful about the BREXIT vote.
  • The stock market is within 1% of its all-time-high, so dollar-cost-average. (see below for details.) 
 HOW TO BUY STOCKS AT THESE LEVELS... Caller Jim from Tuscon said he was looking at establishing a $10,000 position in VTV (Vanguard Value ETF) and wanted to know what approach to use.

S&P 500 AT ALL-TIME-HIGHS SO DOLLAR-COST-AVERAGE....Brinker replied: I think that given the fact that the market is essentially at all time total return highs – right now, if you look at total returns of the total Stock market Index,, you are within 1% of the all time total return high.  As a consequence, I would be dollar cost averaging in any such position.  But one would have to ask why would you want to limit yourself to that sector, when you could simply invest in VTI, the total stock market index ETF.…

AND WHACHER APPROACH.....Jim followed up:  "In general, when you are making a buy in an ETF, what is the approach when you are looking at an all-time high?  Would you then subtract 10% off that, and put in a buy at 60 days or 90 days?  Do you have a suggestion on some sort of an approach for doing that?

BRINKER PULLING HIS OWN CHAIN......Brinker replied:   The approach that I use, and the approach that we use in the investment letter,   is market timing.  I'll give you a specific example.  When the correction back in 2010 to the S&P 500 index down close to the 1000 level, we issued a buy signal in the investment letter which allowed subscribers to put money in the market that we identified as an attractive time.  The market has not traded at that level since that time.  A year later, in the autumn of 2011 - it was in September - there was a correction that took the S&P 500 down into the lower 1100s.  Once again, we issued a buy signal for investment letter subscribers identifying that as an attractive level to buy and many of our subscribers did just that.  And the market really never traded down in that area again after that happened.  Within a matter of days it had turned around.  Then again, it happened in the first quarter of the share – February of this year  – after the correction that occurred, we issued a buy signal – came out after the close on February 10.  If you had bought no-load funds on the close the next day on February 11, you actually caught the low for the correction which was S&P 1829.  So we use our indicators which for this purpose are largely technical to try to identify buying opportunities in an ongoing up market.  And that's the approach we take.

OKAY-DOKIE, I'M A PUNY NON-SUBSCRIBER AND OUT IN THE COLD, SO HOW DO I DCA......So Jim asked for more detail on exactly how to dollar-cost-average.

IT'S ALL RISK TOLERANCE JIM, DONCHA KNOW Brinker replied: I think when you're talking about a stock market that is essentially at  all time historical highs, what you are looking at is your personal risk tolerance.  In other words how much risk can you  stomach in case  the market corrects after you put money in.  You don't want to get in a situation where you are investing and then selling out because it didn't go your way for a few days or weeks.  It's really your personal risk tolerance…"

 Honey EC: So Brinker has bragging rights for riding the last three corrections down 10 to 20% and then calling a buying opportunity for those that have money to put in the stock market. 
  • He doesn't tell you that the same subscribers that got the "newsletter" buying opportunity are already in the market because he never raised cash before the market corrected.
  • And he doesn't tell you that he also calls fully-invested buying-opportunities as the market drops. He called five different market-bottom buying-opportunities in 2008 as the market fell of the cliff each time.
FEDS AND RAISING INTEREST RATES....Brinker talked at length about a very recent speech by the President of the Federal Reserve Bank of St Louis, James  Bullard, where he infers that the FOMC won't be raising rates any time soon. Here is the very interesting document:   The St Louis' Fed New Outlook for US Economy
 EXCERPT:  "Multiple real rate regimes Another important fundamental is the real rate of return on short-term government debt. This is very low today by recent historical standards, perhaps less than negative one percent. In our framework, we view this as a low real rate regime. The alternative regime, which has been observed historically, is for a considerably higher value of this rate. Again, we view the current low real rate regime as very persistent, and so for purposes of forecasting, we simply assume we will remain in the low real rate regime through the forecast horizon. A switch to the higher real rate regime is possible, and if it occurred would likely affect many variables in the system, 5 including the appropriate policy rate, but the possibility of such a switch does not enter directly in the forecast. Instead it is a risk to the forecast." 
 WILL BRITAIN SAY YES OR NO, BB SEZ YES!.....Jim from Omaha pointed out how important it is for a country to have sovereignty, and asked Brinker how he would vote if he had a vote in BREXIT,   Brinker  adamantly replied: "I would vote to leave." 

NORTH AMERICAN UNION WILL NEVER HAPPEN (ACCORDING TO BB)....Jim from Omaha continued by mentioning that there had been talk about  a North American Union, loosely based on the European Union.

HEY JIM, DON'T ARGUE WITH BRINKER....Bristling, Brinker replied: "There has never been a serious effort to merge Mexico, Canada and the United States.…(Jim interjected that there was talk about it.)....People can talk about jumping off a cliff, that doesn't mean anything.  There's never been a serious effort. (Jim again said that there had been talk about it.)...  They can  talk about anything – that doesn't mean anything. (Jim again interjected that there had been talk about it.)...  There's been talk about everything.…  There's never been a serious effort to merge Canada, and Mexico and the United States.  And anytime I've heard any talk like that, one has to consider the source.  And then when you consider the source of any such talk, you realize it's not serious.  It just isn't, it never was, and  in my opinion it never will be.  Those who are trying to equate the upcoming plebiscite in Britain with anything like that are just playing with words.  In my opinion."

Honey EC: There has been a  LOT  of talk about The North American Union
on both sides of the aisle. Check out some the politicians involved. 


BRITAIN HAS ALREADY TAKEN IN MORE IMMIGRANTS THAN IT HAS ROOM FOR...BB said: "I'd like to point out on the immigration front that Britain has been very active in legal immigration for a long time.  In fact to the point where a number of cities in Great Britain are flat out quite it right now as a result of that policy.  So they had been part of that for a long time."

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION:

Last week Bob told a caller that the cost of Marketimer was:

A) Chicken feed
B) A kings ransom.
C) Peanuts.
D) Dirt cheap.
ANSWER

 Brinker's guest-author today was Nathan Bomey:

 

WNTK 
KION 1460  Monterey 
WLS 890 Chicago

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