Sunday, May 24, 2015

May 24, 2015, Bob Brinker's Moneytalk

May 24, 2015....Bob Brinker hosted Moneytalk live today. (comments welcome)

STOCK MARKET....Brinker recommended fully invested asset allocation today. For those who are retired or near retirement, he recommends a  50-50 stocks and bonds allocation. He also recommended dollar-cost-averaging for new money.  Brinker's latest S&P 500 Index target range is the "low-2200s going forward."  However in the latest Marketimer, he says:
"Given the fact that the stock market has not experienced a major correction in 43 months, we would not be surprised to see the periods of profit taking and a possible short-term pullback as investors cash in on the enormous gains of recent years."
STOCK MARKET REACT TO SMALL RATE INCREASES....Brinker said: Right now we're talking about the possibility that the Federal Reserve will raise the short term rates one quarter of 1%… Eventually I think that it will be more than that.  When you think about the normalization of short-term rates I think I would be looking at 3 1/2 to 4% eventually as normalization.  But I think that is down the road.  Even Chair Yellen said that that could be a period of years – we shall see because this is all data dependent.  But to answer your question specifically, what will the impact be of a Federal Reserve rate hike.  Let's say they do raise the rate one quarter of 1% this year.  Or maybe they raise it twice, one quarter at a time to one half of 1%, what effect would that be on the stock market?  I think it is hard to imagine that a quarter or half a point on the Federal Funds rate would have a dramatic impact on the stock market.

ANY OLD EXCUSE FOR A STOCK MARKET CORRECTION.... Brinker continued: Now if investors want to use that as an excuse for correction, so be it.  You know we have not had a major correction since 2011.  And so it may be that investors will use any excuse for a market correction but in terms of impact on the economy, showing off the recovery, a quarter or a half percent – I just don't see it

WHAT ARE EXCHANGE TRADED FUNDS....Brinker said: A lot of people don't realize that exchange traded funds – the key word there is funds – they are exchange traded mutual funds… They trade like a stock.  In a sense, they trade like a closed end fund.  The exception is, with exchange traded mutual funds, they are almost at exactly, or very close to, the net asset value.  Whereas with closed-end funds, sometimes due to the supply and demand, and the limited trading, they can trade at a variance from their net asset value.  That is not true in a mutual fund.  A mutual fund trades at its actual net asset value at the close of the trading day on an ongoing basis.

INTEREST RATES/FEDERAL RESERVE CHAIR, JANET YELLEN.....Brinker comments: Chair Janet Yellen was on the rubber chicken circuit on Friday in Providence Rhode Island.  She made some interesting comments – not shocking comments – I don't expect to see too many shocking comments out of chair Janet.  She is more interested in levelheaded policy… She talked about a number of topics, including the labor market.  She said the labor market was getting better.  But she said, quote, we are not there yet".  Meaning that she doesn't think the labor market is ultimately where she wants it to be even though there certainly has been good progress in the labor market.  She went on to say… That if the economy continues to do better – as she expects it will - then, quote, it will be appropriate at some point this year, unquote, to start raising rates.  

CHAIR YELLEN'S STATES FED'S MONETARY POLICY.....Brinker continued:  So this isn't the first time that chair Janet has commented publicly on monetary policy since the end of March.…  She has reminded us ad nauseam that all of the policy decisions of the Federal Reserve are data dependent.…  We have been told repeatedly by the Fed Chair.…  We also know as the data keeps flowing, we observe that data in order to find out whether it is leaning in that direction of the increase in short-term rates that chair Janet says will be appropriate at some point this year if the economy continues to improve as she thinks it will.…

EVERYONE ON EVERY CONTINENT KNOWS RATES WILL RISE -- SOMETIME.....Brinker continued: There is probably no one left on any major continents of the world who don't already know this.  We have been looking for the Federal Reserve to actually raise short-term rates for some time.  And it certainly appears that if the economy continues to improve, we could see the first rate hike down the road.…

Honey EC: Yep, Brinker made changes to his fixed income holdings to lower duration back in 2013, including selling all Vanguard Ginnie Mae Fund and Vanguard High Yield Fund. What he put in their places performed very poorly by comparison. So he is certainly aware that it has been "some time," and his followers know it too. I submit that making these costly changes so far in advance negates his bragging rights when rates finally do rise. 
  
INTEREST RATE NORMALCY WOULD BE 4%.....Brinker commented:   Janet Yellen said that the best way for monetary policy to proceed would be by proceeding cautiously, which I would expect to mean that it will be several years before the Federal Funds rate will be back to its normal longer run level.…  If you're wondering what would be a general area of normalcy, for the Federal Funds rate, which has been held close to zero since the end of 2008.  A general level of normalcy would be in the vicinity of 4% – 3 1/2, 3 3/4, 4%.…  Something in that vicinity would be normal for the Federal Funds rate.…  So it looks like from this comment from the Federal Chair, that it could take quite a while for the Federal Funds rate to normalize in a 4% vicinity somewhere down the road.

FOMC TWO CRITERIA FOR INCREASING RATES (LABOR MKT AND INFLATION).... Brinker continued:  Chair Janet also commented on the two criteria that the FOMC has for increasing short-term rates.  She said, I will need to see continued improvement in labor market conditions - that's one - and I will need to be reasonably confident that inflation will move back to 2% over the medium term… Chair Janet also commented about the economy - and  said that the US seems well-positioned for continued growth.…

THAT EXTRA $700 IN YOUR WALLET.....Brinker continued: And one of the things that she is looking at is the fact that purchasing power – has been increased by about $700 per household on an average basis as a result of lower gasoline prices.  I know it doesn't sound like lot of money, but the reality is $700 per household - additional consumer discretionary spending power - it is significant enough to provide a boost to consumer spending.

Honey EC:  First caller of the day, George from New York, challenged Brinker and Yellen about the $700 that is supposed to be going into everyone's pocket now. He wanted to know in what time frame and indicated that Brinker did not say whether it was a week, month or year. Brinker became furious with George and talked over him for a long time and then clammed up and left poor George twisting in the wind.  Then abruptly, Brinker said thank you and hung up. Having listened to the tape and transcribing Brinker's exact words, I can see that George was correct. Brinker did not specify the time frame, but it seems logical that it would be a year.

BRINKER LUVS JANET YELLEN....Brinker said: May I also say this about Chair Janet.  I think that in her first year as Fed Chair – and she's now in her second year – I think she's doing a marvelous job - I think she is doing a marvelous job!  There was never a question, never a question about her credentials.…  I always thought it made good sense to put Janet Yellen into the Fed Chair and crash down the glass ceiling at the Federal Reserve on the Chair.  And that is what she has done.…  And I think she is doing a splendid job 17 months in as the Chair.

BRINKER'S REPORT ON GREECE.... Brinker said: Well it's still going on, the so-called negotiations with Prime Minister Alexis Tsipras, the newly elected top dog in Greece.  That meeting that occurred this past week in Latvia failed to yield a breakthrough on the bailout funding.  There have already been to gargantuan bailouts of Greece, now they want to third.  They are not going to get it unless they can make a deal and those that have been bailing out Greece are nervous about making a deal because Greece held an election, elected Prime Minister Tsipras.  He was elected on a platform of where not to take it anymore – my words not he has – as a consequence we had a breakdown in trust between the sovereign nation of Greece and what it owes, and whether it's got to make good on the payments that it owes.  Prime Minister Tsipras wants to have relief on pensions, he wants to have relief on sales taxes, yet he doesn't want to do all the things his predecessors promised to do.  See the problem?  He cannot hold an election and walk away from the deal because you lose credibility, that's what you're looking at.

Honey EC: This blog gets lots of hits from Greece -- also Ukraine and Russia.

FRANKJ'S SUMMARY OF THIRD HOUR GUEST SPEAKER:

Bob’s third hour guest today was Edward Kleinbard, a tax expert and law and business professor at University of Southern California.   The professor has written a book titled We Are Better Than This: How Government Should Spend Our Money

According to the professor, the question of whether we are taxed too much or too little is not the right question we should be arguing about.  It reflects a basic misunderstanding of the facts.  He said Congressmen are not the smartest bunch but they do have finely tuned antennae  and the public’s gripes with the tax system register loud and clear.  (Ed. Comment:  I like this allusion to Congress as insects.  It goes along with the saying:  Congress is interested in you as a taxpayer, much the same as fleas are interested in dogs.) 

 Instead, the professor would have us consider what useful things should the government do and which of those things can we afford?  

Bob asked the guest to explain how taxes became the third rail of politics, citing Walter Mondale’s statement in 1984 that he would raise taxes if elected.   The guest didn’t answer directly but if the election results are any indication, the message did not resonate with voters:  Mondale won electoral votes only in Washington D.C., and in his home state of Minnesota where he eked out a victory by less than 3800 votes.    The professor pointed out that 1) he voted for Mondale, and 2) we are the lowest taxed (as a percentage of national income) of the largest 34 world economies, but “we are at the top in whining.” 

Bob pointed out that in California taxes can run as high as 57% -- a way of sounding out the professor on just how much is “enough.”   This gave the professor an opportunity to state what must be one of the major points of his book:  we don’t need more taxes heaped on top earners, we need more revenue.  He mentioned a Value Added Tax.

Bob held the reins loose and let the professor gallop ahead.  Seventy percent of transfer payments made by the government  go to the elderly and the number of elderly will double over the next 25 years, so revenues must go up.   He wants more money to go to the poor, so revenues must go up.   He channeled Paul Krugman saying that when government can borrow at 2-3%  “we’re leaving money on the table” by not borrowing more and spending more.  

Editorial comment from FrankJ:  This is when MoneyTalk regulars pounded the table and shouted “What happens when rates normalize, professor?”  

The professor launched into an outpouring of ideas and statements.  
  
·        We confuse “good politics” with free markets (he called it market triumphalism).  He characterized this as the Republican’s view and said it is “fundamentally immoral.”

·        Any interference with the market must be suspect.

·        There has been a “descent to narcissism.”  

·        Great luck helps us succeed.  He said, “We (the successful) have been lucky at every turn of our lives.”

·        Insurance is a principal role of government.

·        We don’t choose our parents.  (Presumably he meant some are lucky and some unlucky.”)
·        “Government should do something about that.” 
 
·        “Government can mitigate outcomes”  (it) can invest to make a wealthier and happier society.

·        We spend a disproportionate amount on the military. 
 
·        We have a screwed up healthcare system.  The ACA did not go far enough.  The economics of insurance means we must get everyone into the insurance pools.  

·        And the one you were waiting for:  Government needs to invest more in education.”  We need better equality of opportunity – we spend more on rich kids than on poor kids. 

There were only three callers.  Last week the first caller missed his turn, and this week the first caller, Gus, listening on KXL in Portland OR almost missed his.   Gus’s question was right in the professor’s wheelhouse:   “What about reducing tax expenditures?”    Starship Trekkies know that “tax expenditures” is fancy talk for tax deductions and tax credits.   The guest was off to the races after assuring us this call was not a set up.   Answer:  yes, the tax code should be revised – for example, the mortgage interest deduction allows people to buy a 4 bedroom house, when all they need is a 3 bedroom house.    Professor Kleinbard, better check with the National Assoc. of Realtors on this one, they’re a major political contributor and one might suspect the reason is to keep the mortgage interest deduction in place. 

Keith from Rochester called and rightfully pointed out that there was no mention of waste by the professor.  He said something else that caused Bob to hit the dump button so it did not go out on the air.

It was around here at 47 minutes into the third hour  that the professor said “what makes government great is that it exercises sovereign power via the tax code.”     I have tried to quote accurately, but the archive is not available on KSFO for me to check,  so if this is not accurate, I hope someone will jump in.  

Caller Bill took issue with the professor’s criticism of our health care system.  He said it may be expensive, but it is the best.  He said before Medicare came on line, we didn’t pay much, but the government’s involvement drove costs up.   The professor disagreed and among other things said that the US has the highest infant mortality rate of any developed country.   

Bob wrapped up the interview at about 3:50. 

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION
Bob Brinker calls non traded REITS:

A) A shark attack.
B) A fraud.
C) A travesty.
D) A con game.

There are two correct answers.
ANSWER
ANSWER
Summary posted at 7:50pm PDT

Sunday, May 17, 2015

May 17, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

May 17, 2015....Bob Brinker hosted Moneytalk live today.....(comments welcome)

STOCK MARKET....Several times today, Brinker told retired callers and those near retirement age, that he was still comfortable with a fully invested 50-50 (stocks-bonds) asset allocation -- and he recommended dollar-cost-averaging. All Marketimer model portfolios are fully invested -- two of them are all stock funds.

DON'T HAVE INVESTMENT MONEY IN CASH...In response to Cindy from Iowa who was paying to have her portfolio managed, Brinker made this statement: "I would question having a large percentage of a portfolio in a cash position."

ASSET ALLOCATIONS AND MARKETIMER BOND FUNDS.....Frank from Pennsylvania asked about his asset allocation 3 years from retirement.
 Brinker replied:  I think I would be moving toward a 50-50 balanced portfolio to begin with given how close you are to retirement.  And I would dollar cost average any money you are going to add to your stock market portfolio.  But on the bond market side, if you are following the investment letter, then I am comfortable with the bond funds that we are recommending in the investment letter.  I'm comfortable with investing in those funds.  We have a short duration of less than two years and we have an excellent current yield of 3% in that portfolio.  So I'm comfortable with that side of it, but on the equity side yes, I would be dollar cost averaging.
Honey EC: Brinker was referring to his off-the-books bond fund portfolio in Marketimer which now contains four bond funds: DoubleLine Low Duration (DLSNX); DoubleLine Total Return (DLTNX); MetroWest Unconstrained (MWCRX); and Osterweis Strategic Income (OSTIX).

BRINKER'S BRILLIANT NEW IDEA FOR RETIREES: Brinker said: I recommend that investors who start the withdrawal from their portfolio in retirement, that they start out with a 4% figure in your number one.  See how that works each year.  Remember each year you see how the past year worked so that you can make a decision on where to go forward.  And I have another idea which I think is a great idea.  And that is, take one year aside and always be one year ahead.  In other words, if you always have one year expenses reserved and you're going to use that, then you don't have to be taking money out of your portfolio that year.  If you are in a dire situation, then you don't have to do it.  So I like the idea of keeping one year ahead and then using the 4% withdrawal guideline and reevaluating it every year.

Q1 GDP REPORT WAS SOFT AND HERE'S WHY....Brinker comments: There is going to be a revision to that weak first-quarter Growth Domestic Product report that came out earlier this month.  That was the one that said that the first quarter real GDP growth was at an annual rate of 0.2%.  And we talked about the reason that the first quarter was such a weak number -- and don't expect the revision to be a gonzo-upside revision.  It's going to stay very, very soft for the first quarter even after they revise it.…  There were many factors – we talked about them on money talk – that West Coast port strike headquartered in Long Beach… There's no doubt that the strong dollar has an impact on our exports account because it makes our goods more costly overseas… And the fact that you've had a major slowdown in capital spending in the energy sector due to the change in the level of oil prices.…  And of course, the first quarter was a rough weather quarter – you could throw that in the hopper.…

WHAT WILL ECONOMIC GROWTH BE FOR Q2 AND END OF YEAR....Brinker comments: So what kind of the second quarter might we look for when that number is announced several weeks down the line this summer.…  Right now, based on the data that's coming through on a weekly basis, I think there's every reason to expect that slow to moderate growth is the best we can hope for in 2015.  I mean we've already dug a hole this first-quarter… So we have to climb out of that hole for the next three quarters in order to get the annual rate of expansion for the economy.  So there's no change in my view that when it's all said and done at the end of the year, it'll be something in that 2 to 3% range.…  We've been in that range year after year – so no shock there.

DON'T WORRY: INFLATION IS MUTED AND LACKING.....Brinker comments: It's interesting what's going on with the lack of inflation.  Did you see that wholesale price report that came out this week?  Wholesale prices in the United States declining in the month of April.  So inflation remains very well contained.  If you're worried about inflation right now, you're wasting your time.  The Producer Price Index declined 4/10 of 1% in the month of April after gaining 2/10 of 1% in March.  Now you put those two months together, that's an annual rate of decline of over 1%.…  And that 2% increase in March was the first time in five months that the wholesale price index had shown a positive sign before the number.  So there's no doubt about it we have a muted inflation situation.

DON'T BOTHER BRINKER ABOUT THE 100% BRIDGE TOLL INCREASE…… Brinker continued:  I know there's somewhere that somebody will pay $.50 for a bridge token that used to be a quarter and they'll say inflation is 100%.  I've heard it many times over the years.  Of course it's not true because when you talk about inflation figures, you're talking about a basket – throwing in a lot of things, not just the cost of a bridge token.

CHINESE CURRENCY A THREAT TO US MARKETS? When caller Barbara from Oregon asked if the US stock market might be negatively affected by the Yuan's affect on the dollar.....Brinker replied: As far as our currency is concerned, the dollar  has been one of the strongest currencies on the planet..   It had a tremendous rally..   It's given back a portion of that rally, but it's still been very strong on balance..…  As far as the yuan is concerned – the Chinese currency –  I don't have any problem with  wider acceptance globally  of the yuan in the financial system.  We are nowhere near a point  in the development of the yuan  where that currency could become  the world's reserve currency....

SHARKS SCARE PEOPLE INTO BUYING SOMETHING FROM THEM....Brinker continued: Barbara, let me comment on something you said about  the various things you read online  or maybe even in print.   Keep this in mind..   The best way for you to sell something  is to scare  a person out of their wits..  Remember that.  Listen to a lot of the advertising that you hear  and that you watch and noticed  how much of it  is aimed at daring you to death..  And then the sharks figure if they scare you enough, maybe you'll buy something from them and they can make a big fat commission..  That's the way the game is played Barbara..

Honey EC: Brinker needs to take a look in the mirror.   Over the past couple of years, he has "scared" many people out of investing in the stock market with his cautions on the air and  in Marketimer about looming trouble ahead from lack of stock market corrections.  For months on end, he warned that he was being "vigilant" and that subscribers should watch for a "special online bulletin."   He has cautioned to only dollar-cost-average new money into equities "on weakness" which he never defined -- and for the most part, never came.

DON'T BE SCARED: WHAT COULD CAUSE THE DOLLAR TO COLLAPSE...In answer to Tom from Minnesota's follow up question about the dollar collapsing, Brinker said: The real question is, what would cause the dollar to collapse?  I know the same people that have been saying the dollar was going to collapse for years, and they've been totally wrong – 100% wrong – they are still saying it.  That's because I think they are trying to scare people.…  It's very hard to make a case right now that I could believe that the dollar is going to collapse.

 FRANKJ'S  MONEYTALK'S "SUPER SUNDAY" GUEST INTERVIEW SUMMARY:

Today’s super star guest was Dr. Alan Blinder, former member of the Federal Reserve and a professor of Economics at Princeton. Dr. Blinder has been a frequent 3rd hour guest and is a sometime columnist for the Wall Street Journal.

From about 3:15 down to the bottom of the hour the discussion covered when interest rates might go up. Dr. Blinder said, “It’s gonna happen sometime…”

He made these important points.
· “Liftoff” at probably a 0.25% increase is a “so what” increase if you’re an investor.

· If you’re a trader in NYC, London, or the Far East, it is a much bigger event and WHEN it occurs matters a lot to them.

· The guest thinks the Fed will raise in December, not September however …

· He cautioned that a rate increase is dependent on the Fed seeing some upward movement in inflation and wages. There will need to be improvements in the labor market.
Dr. Blinder said the Fed uses a metric known as the Personal Consumption Core Index as an indicator of inflation. To them, it is the Holy Grail. It is now at 1.3% and they want to see it at 2%.

Before the break Bob swerved into one of his favorite topics, the notion that the Fed should be audited. The guest pointed out that they are already audited in the conventional way. The populist proponents of this “audit” talk want Congress to have oversight on monetary decisions of the Fed. Bad idea to politicize monetary policy by allowing Congress to meddle.

After the half-hour break, Bob immediately went to calls.

Mark from Minnesota would have been first at bat, but he never got into the batter’s box. “Earth to Mark, turn down your radio if you want to get on the air.”

Jim from Des Moines thought the name Fed was a misnomer because it is really a private organization operating in a clandestine manner. Blinder said they operated in secret decades ago, but now they are the most open central bank on the planet.

Al from Santa Clara posited that the ultimate source of inflation was the practice of fractional reserve lending by banks. This led to a discussion of banks who are sitting on excess reserves which they hold at the Federal Reserve and are satisfied to receive 0.25% interest vs. lending the money to businesses. Bob said banks report that they can’t find qualified borrowers. Dr. Blinder said he can’t believe that’s true. I don’t think Bob believes it either. Blinder liked Bob’s suggestion that the Fed should reduce the interest they pay the banks on these reserves.

Bob and the guest wandered off in a discussion of productivity with Dr. Blinder pointing out productivity is not increasing and this needs to recover (increase) for the economy to get going again.

David from Virginia Beach asked whether the Fed’s low rate policy slowed the recovery and is it continuing to do so? Alan Blinder seemed to give this some credence saying that monetary expansion (low interest rates) reaches a point of diminishing returns. The Fed’s computer models predicted things would have been much worse had they kept interest rates at say, 2%. Monetary policy alone has not revived the economy.

Phil from Myrtle Beach asked a long question about banks as trading houses. The guest said the larger banks do trading but not as much as they did in 2007. The more local you get the less trading takes place; small community banks do no trading.

Bob wrapped up at 3:51 pm.

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION:

When you rollover into an IRA and maintain the same asset allocation it is called:

A) A dangerous move.
B) A smooth move.
C) A sideways move.
D) A dumb move.
ANSWER 

NOTE: Los Angeles  KABC 790 (Thanks to StevieD for this update): KABC since March now airs all three hours of Money Talk with Bob Brinker Sunday nights at 9 PM. You can listen to the stream live using TuneIn Radio on the web, Android or iOS apps. Or catch the archived podcasts going back to early March at feeds.  MoneyTalkBobBrinker.

Summaries posted at 6:30pm PDT