Sunday, June 25, 2017

June 25, 2017, Bob Brinker's Moneytalk: Stocks, Bonds, Economy and Investing

June 25, 2017....Bob Brinker (mostly) hosted Moneytalk live today....(comments welcome)

Brinker was at the helm for the Flight of the Starship Moneytalk for Multi-Millionaires today.
  • Caller Adam from Albuquerque: $3.4+ million 
  • Caller Dan from Ontario, CA: $2.8+ million
  • Caller George from Virginia Beach, CA: $2.3+ million
  • Caller Bernie from Westlake Village, CA: $4 million (and gets a cool $120,000 a year County pension - but looking for a way to avoid CA taxes). 
INVESTING BASICS...Brinker's opening 20-minute monologue covered the basics of investing that is usually played for re-run programs. The sound quality then changed at 20 minutes after the hour, so I believe that Brinker actually started the live broadcast at that time.

STOCKS....No mention of the stock market today.....Brinker seems to be avoiding talking about the amazing stock market gains that have happened since the new president was sworn in.  That is quite different from all the raving he was doing last year over the rally from  2009.   After the Mega-bear market of 2008-2009,  his fully invested Marketimer portfolios rode down  the S&P 500 Index over 50% to a low of 676.....

BRINKER'S MARKETIMER STOCK MARKET PROJECTION NOW:  As of the June issue, Brinker's S&P 500 Index projection "going forward," is the "into the upper 2400s range." 

HOW MUCH INTERNATIONAL STOCK......Caller Joe in Wyoming asked Brinker if 40% international stocks was an "unusually high" percentage to own.
Brinker replied: I think it's a large number given the fact that a large percentage of corporate revenue is earned overseas in terms of the S& 500.  If you take a look a that Index, you have close to 40% of the revenues come from overseas and that would translate roughly into the same percentage of profits....For that reason, I think 40% is a really high percentage for international.....We use 20% at this time in the investment letter (Marketimer)......
BONDS/INTEREST RATES.....Caller Joe in Wyoming then moved on to "bond side," asking about duration.
Brinker replied:  "Our duration in the investment letter (Marketimer) right now is about 1 1/2 years.  And the reason is, I don't think it makes any sense long term to have a 10-year Treasury yielding under 2 1/4, in a situation where the economy is growing 2%. And where inflation is another 2% - that's the long-term target of the Fed....That's a 4% GDP nominal growth rate......then I don't think it makes any sense to have a 2 1/4 10-year Treasury, so I don't have any interest in those intermediate and long-term bonds, and we are keeping our duration short. So short that our average duration is just 1 1/2 years in our income portfolio.
HOW MANY WAYS ARE THERE TO SCAM AN AUDIENCE FOR MONEY.....Caller Joe in Wyoming ended with this.  He said: I've been listening to you since you first came on the radio in the late 80s......And I've had your newsletters close to 20 years for the Marketimer and maybe over 10 years for the Fixed Income, and I've been buying your suggestions from both of those and creating a mix.....
(Brinker interrupted and moved back to Joe's original question)  "......I don't think I'd want to have 40% equity rating percentage-wise international when I already that about 40% of U.S. Companies earned their money overseas.....For me, that would be redundant......Now the caller in Laramie mentioned Brinker Fixed Income Advisor. For information you can go to Brinker AdvisorXXXX.....or call 800-660-xxxxx. It's as simple as that....Jerry is with us in Napa, California." 
Honey here: In my opinion, an honest man would have stated clearly that he was only a consultant for the Brinker Advisor. It  is written by, published and edited by his son (a jr. Bob Brinker) and his son's wife, Lisa. 


Bob’s guest this 25th of June 2017 was journalist Jack Ewing whose book is "Faster, Harder, Farther: The Volkswagon Scandal“  Mr. Ewing was calling in from Portugal. He writes for the New York Times and Business Week and has covered this scandal for a while now from his perch in Germany. The connection was good but the guest’s volume was low. Bob asked him to speak up at one point, which helped marginally.

Back in 2007, VW decided they wanted to become the worldwide sales leader and to do that they’d have to sell a lot more cars in the US. They opted for a “clean” approach: their cars would be advertised as low in pollution. It worked in Europe, why not the US? It turns out there was a fly in the ointment: the diesel engines which were touted for their high miles per gallon, could not meet the US pollution requirements.

What to do?

Program a software fix to run the engine so that pollution levels meet the US standards when the vehicle is being tested. The software detected when the car was “on rollers,” i.e. not on the road. Back out on the road, the software went back to “normal” conditions, which resulted in better mileage and higher nitrogen oxide emissions. The guest said the emissions could be up to 40 times the legal limit. This agreed with a Car and Driver article I looked at, which pointed out that the emissions did not always run 40X, it varied by the type of driving one was doing.

What went wrong?

Things were going swimmingly until 2014 when a group of grad students at the University of West Virginia got a modest grant of $70,000 to test the VW diesel vehicles on the road. Whoops! They found the nitrogen oxide emissions were higher when on the road than when in the lab. The findings were reported in 2014, without any accusations. But that was enough. Regulators, particularly in California pounced.

What corporate culture led to this cheating?

The guest pointed out that VW is not especially shareholder friendly. A big chunk is owned by the Porsche family and another chunk by the German state of Lower Saxony. He implied that employees understood the objective (increased sales) and did what it took to get there … cheat on the emission system. The result has been that the CEO resigned. Other members of the “C-suite” claim no knowledge of the cheating, but people in the next layer down did know of it.

Investigators are nosing around VW in Germany but the guest mentioned that Germany doesn’t have an extensive record of jailing white collar criminals. As far as extradition to the US if charges are filed, Germany does not extradite its own citizens. One employee, Oliver Schmidt, a VW engineer made the mistake of flying into Miami and was taken into custody.

Three callers weighed in: Bridget in NY state and Vena in Lake Tahoe, CA. Bridget’s husband has terminal lung cancer, but never smoked. Vena’s brother died from lung cancer and never smoked. Both wondered if there could be a link to the nitrogen oxide emissions. The guest was diplomatic in his answer. It is hard to isolate among different factors what led to the cancer.

William, calling from Charleston, SC started to point out that the pollution from these VWs had to be “miniscule” compared to what a truck puts out. Bob shut William down quickly and Mr. Ewing corrected the record: the VWs put out more pollution than a long haul diesel engine truck.

What is the result for VW?

Instead of boosting sales, the scandal cut into sales in both Europe and the US. They’ve lost the “green” image they hoped for. People in Germany are disappointed that a German firm would cheat like this. A few believe it is a plot by the US to suppress VWs sales. The author said VW faces suits in the US, Australia and other countries.

This article from April 2017 discusses fines and penalties for the company.


Radio Stations:
710KNUS Denver
KION 1460  Monterey

Sunday, June 18, 2017

June 18, 2017, Bob Brinker's Moneytalk: Stocks, Bonds, Economy and Investing

June 18, 2017....Bob Brinker's Moneytalk....Live show on Father's Day....(comments welcome)

Honey here: Great gratitude to Frankj for coming to my rescue today. I have been too under the weather to write the Moneytalk Summary today. 


MoneyTalk, June 18, 2017: Father’s Day.

Miss Honeybee asked me to help out today but I didn’t realize it until almost 1:30, so I was late to the party.
==> Thanks to dRahme, short clip of the opening monologue that includes Brinker's report on the Federal Reserve.   
Bob’s first call concerned what might happen with bond yields, given the Fed’s recent raise. Bob told David in Santa Clarita that he had doubts about the level of demand for long term bonds. Investors in 10 year bonds are making about zero interest when inflation is factored in. The high quality of German sovereign bonds makes them competitive with US gov’t bonds.

David in St. Louis called to tell his company merged with another and the new entity made some tweaks to the 401K plan. They upped their match, from half of the first 6% to 100% of the first 6% the employee kicks in. But the Fidelity Spartan 500 fund is no longer available and it paid dividends 4 times per year. The new 500 fund, from State Street only pays dividends once a year. Bob said the frequency of dividend payments would make a difference over a long period of time. The two funds have similar expense ratios. I think the increase in contribution by the new company outweighs the frequency of the dividend payment.

What kind of house would $1 million buy in your town? 

In Santa Barbara, it buys a “starter” house. Caller Carol’s son is 26 and makes about $140K. He wants to buy a $1 million dollar house and rent it out. He lives in a rental with other people now and will stay there. Carol wanted to know what Bob thought about her co-signing a loan for $800K since he has scraped together a $200K down payment.

As a MoneyTalk listener, Carol credited Bob with her building a nest egg of $2.5 million. She owes $131 on her own house and has a very low interest rate. Bob and Carol batted this issue back and forth. Bob wasn’t keen on the idea, that was obvious. In the end he wished her good luck.

Meanwhile, in North Carolina, Todd was mulling this over and he called in later. His suggestion was for Carol to buy the house, “be the bank,” and her son could pay her back with 4% interest. Bob threw cold water on this idea, asking Todd what he thought would happen if Carol had to foreclose.

Are you a member of the club?

Bob opened the second hour with a rundown on the richest people, a lot of whom are in the USA. The statistics came from a study by a Boston consulting firm. America is the land of opportunity: of the total millionaires around the world, 40 % are in the USA and they control 63% of the wealth in this country.

Don’t get in a bidding war with Jeff Bezos for Whole Foods. Amazon’s market cap is about $500 billion. Bob said Amazon’s offer for Whole Foods (Whole Paycheck) is $13.7 billion – “rounding error.” Will other bidders come out of the woodwork? Maybe, but what’s the point in trying to outbid Bezos? Will the Whole Foods locations become distribution hubs for products bought on Amazon? We will know in the fullness of time.
==> Thanks to dRahme, here is a short clip that covers how many millionaires worldwide, Whole Foods and Amazon.
Bob helped Jim in IL with some simple math. Jim has $400K in money market and the only bond fund available to him is one with a 6.8 duration. How much should he move from money market to the bond fund to obtain an overall duration close to what Bob recommends for his $400K in fixed income. Answer: move $80K. I think Bob did the calculation in his head, this would give Bob an average duration of 1.36 on his fixed income.

Another Carol called in, this one from Ft. Myers, FL. She is looking ahead and worried that the Fed policy can lead to recession. The Fed’s tightening could result in problems for people with adjustable rate mortgages. They tossed this topic around quite a bit. Bob ended up agreeing with her. He said all we have is monetary policy – fiscal policy (the role of Congress) is absent without leave.

George in San Diego: You’re 69. It is good you’re thinking about your upcoming RMD. Put about 4% of your retirement value in a money market inside your retirement account, take it out the year you turn 70 ½.

Another George, this one in Monterey wanted to know if he’s in the Land of Critical Mass with $8000 in monthly income and $600K in a retirement account. Bob thought he was. (I think George has called before with a very similar question).

Third hour

Bob’s third hour guest today was Mohamed A. El-Erian's “The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.” (Now out in paperback originally published in 2016). Mr. El-Erian was the former CEO at PIMCO. Bob listed his many other activities including being a contributor to various news outlets and his association with the Harvard Endowment. 

The Fed has three things they said they’re going to do. They hiked the Fed funds rate by 25 basis points, which was expected. They indicated there will be three increases next year (not expected). And they will shrink their balance sheet by letting $600 billion in bonds “run off,” (also unexpected).

With about 2% GDP growth, can we afford to raise the Fed funds rate three more times? The guest’s answer was no.

Can we afford to continue with a 2% GDP growth rate? Again, the answer is no. This low rate puts a strain on the economy. There is the perception that the benefits in the economy are going to a handful of people and this breeds resentment. The problem is self-inflicted, something the guest mentioned twice. We need more investment, infrastructure projects and tax reform. Demographics has an impact on GDP: even with an ageing population we can support a 3% growth rate but probably not a 4-5% rate.

With the Fed funds rate so low, the ten year government bond, has negative real returns when inflation is figured in. The guest said people (organizations) accept this because they may have a mandate to invest in “safe” US government bonds. Or, people invest because they think the rate could go lower!

After the break Bob asked Mr. El-Erian what he would do if he was the Fed chair. He would commit the Fed to normalize interest rates. Then he would carry through on the commitment. And he would visit Congress A LOT to convince them we need a policy handoff, that is, they need to do THEIR job with fiscal policy, a theme Bob has pounded on for years.

The guest’s medical analogy: The economy is impaired. It can walk but not run. The ministrations of the Fed are the equivalent of painkillers. We cannot continue with this regimen without risking more serious harm. The GOP has been critical of the Fed so now is their chance to take some of the burden off the Fed. Wall Street drove growth by financial engineering. After 2007 it was the Fed bank in the driver’s seat. We need to get back to growth based on the expansion of businesses.

CEOs face an uncertainty scenario with regard to tax reform so they wait to see what might happen. Low interest rates encourage people to do things they would not do in normal times such as corporations doing stock buybacks. Borrow money at low rates, buy back your own stock, reduce the number of shares, the share price goes up. Executives with stock options exercise them and increase their income. What’s not to like?
For a different view on the Fed and a number of other government regulatory agencies, one might consider John A. Allison’s book, “The Financial Crisis and the Free Market Cure.” (2013). Mr. Allison is the former CEO of BB&T, an Atlanta-based bank. He served as president and CEO of the CATO Institute from 2012 to 2013. Mr. Allison explains the failings of government agencies and particularly the Fed in a clinical and incisive way. 

==> Thanks to dRahme, here is a clip of  The Week Ahead and Carol's Fascinating House  Call! 

Sunday, June 11, 2017

June 11, 2017, Bob Brinker's Moneytalk: Rerun Today, Calls Summarized

June 11, 2017.....Bob Brinker's Moneytalk Not Live.  Even though the program was reruns, many times the calls are educational - and it's likely many listeners missed the first time around.....(comments welcome)

  Frankj has done a review of the Moneytalk calls today! Enjoy!!!

Bob Brinker was not live today, June 11, 2017. If he doesn’t give out the phone number right off the bat, he’s not live. He gave the usual comments about what the show is all about. Achieving Critical Mass and “tell the sharks to swim someplace else….”

Then he launched into a summary of a “communique” he got from a follower. Way back when, she and her husband (an accountant) both took lump sum payouts from their jobs and rolled them over into self-directed retirement accounts. They sold their house and downsized to an apartment. They listened to MoneyTalk while relaxing by the pool with adult beverages, an image Bob liked.

They dodged the dot com meltdown by going 60% to cash in early 2000, per Bob’s call. (No mention of whether they followed his advice late in that year to go into the QQQQ’s in his now infamous countertrend rally trade. Regulars here on the website know how badly that episode ended.)

He said they went back into the equity market with his March 2003 buy recommendation. At some point they bought another house and her husband passed away. She’s now sitting on a $2 million plus portfolio.

Today’s show had a lot of similar calls it seemed, if the show had a title, it would be “The 50-50 Show.” There were questions about RMDs and a number of questions about asset allocations, some with the complexities of how to get there while minimizing taxes.

Generic calls for the most part. I think if you’re not going to announce it is a spliced-together show and pass it off as “current,” then yeah, you better just use generic calls. One slip up was when they came back from the break at 2:30 and Bob said “there are all kinds of things to do between now and the end of the year,” a comment we’re more likely to hear late in the calendar year.

I know this is a repeat show but not everybody who comes to the website hears every show, and they probably don’t read all the summaries, so there might be something useful here.

Jim from Atlanta has 7 grandchildren and he wants to give each of them $10,000 so they have “spending money “ when they get to college. Bob complimented him on his generosity and recommended he use a total stock market fund. Maybe because of the “spending money” phrase, Bob did not recommend a 529 plan. Such a plan would grow tax free which is a big deal. The 529 has to be used for certain college expenses though, so there are limits, but I believe the tax advantages outweigh the limitations. Also, if one of the grandkids decides NOT to go to college, that grandchild’s 529 can be allocated to the others.

Howard, listening on WLS asked “how does the RMD affect the 4% rule?” He was talking about the 4% withdrawal rule, not Bob’s general recommendation to not have any more than 4% of your portfolio in a single stock. OK, Bob said, whatever your RMD withdrawal amount is you have to take it out. If you don’t need to spend all of it on expenses, invest the surplus in a personal account.

Another caller from the WLS listening area called about RMDs. He seemed to want to know what to do with it. Bob told him to spend it, give it away or re-invest it (in a personal account).

Jerry from Lynchburg, VA is 67 and his wife is 57. He has money in a 2020 target retirement fund and in a Vanguard 500 Index Admiral fund. Jerry attended a dinner seminar where fixed index annuities were pitched. (BTW, sometime attendees to these lunch or dinner meetings are derogatorily referred to as “plate lickers” by the firms that host these seminars).

Jerry said this is a no lose annuity. You do not lose money in a year that the market is down. (This is because you don’t get all of the upside when the market is up, the insurance company keeps some.)
Bob armed Jerry with questions to ask the annuity salesman when he meets with him.

1. What is the cap on the return when the market is up?

2. Can the company lower this cap later on?

3. Do you get the total return including dividends, or just the return based on the price change of the securities held?

4. What about taxes?

5. Is return of principal included in the income?

6. What are the costs if he needs to withdraw some for an emergency?

Tammy from Albany, Oregon asked about spending from her Roth-IRA vs. spending from a Traditional IRA. I confess I could not follow what Bob recommended nor exactly what she was asking. Her second question was how do you know if you are at critical mass? Bob’s answer was the standard one: when you have sufficient income so you don’t have to work.

After the break at 2 pm, Andy from Tucson weighed in with a home purchase question. Bob told him to put down $100K on the $350K house he wants. Take out a $250K loan, sell the existing house for $200K, pay off the loan. Don’t invade your Traditional or Roth IRA. Problem solved.

Carl in San Francisco was overthinking the whole business about rebalancing to a 50-50 allocation. He has a bunch of equities in a personal account and wants to minimize the tax hit. My eyes glazed over. Good luck Carl.

George in Nevada wants to know what Bob thought about some local financial guy who can said he could guarantee someone an 8% return on an investment. I think the regulars here know what Bob’s answer was.

Robert in San Jose is at critical mass, will work an additional 4-5 years and like so many callers today, had an allocation question: stay at 60% stocks, or drop to 50%? He said his financial advisor said “why not go to 40-50% stocks, why take the risk?” After Robert mentioned this, Bob said he didn’t have any problem with this advice given the level of the market now.

Randy from Michigan asked about Dow futures. Bob said they trade when the market is closed.

Another 50-50 recommendation went out to Joy who is 62, plans to work for 4 more years owes $33K on her home and is about 60-40 in stocks and bonds.

Kim in Virginia threw Bob a hanging curve ball: what is the difference between Admiral and regular funds. The answer (not the same on Bob gave) is at Vanguard, many of their Investor class funds have a minimum investment of $3000. There are some that are lower. Admiral funds have a lower expense ratio but a higher minimum investment, some at $10K and some at $50K.

Mary in Davenport, IA wants to build a portfolio of individual bonds. Bob had no problem but strongly warned her against getting hosed by principal trades. Either buy new issues or do agency trades. He mentioned Vanguard.

Willie said he bought 5 shares of Standard Oil of California (now Chevron) when he was a teenager. With dividends reinvested over 40 years, those shares grew to 604 shares worth $80,000. His basis is $3200 he said. Bob said it was better than a kick in the teeth. Really stupid remark by Bob.

I called my friend, Jethro Clampett for some “ciphering” and he said that is about an 8.4% compounded return. Willie was an early adopter of the Dividend Growth Investment strategy, something not talked about much on MoneyTalk because it involves purchasing individual stocks. Here’s a suggestion for those interested: You’ll be amazed at the info contained therein.

Don in Chicago: You can’t take your wife’s Soc Security and invest it in an IRA because it is not EARNED INCOME.

Bill in Denver now knows that Bob would not recommend, nor would he own a bond fund with a duration of more than two years.

Tom in CA got a lesson in how the changes in the gold ETF fund GLD works, but that wasn’t what Tom was asking. He wanted to know how his shares in the fund would be distributed if the stock market crashes. Once he asked the question a second time, Bob ‘splained that he would not get actual gold, he would get a check.

Nick in Charleston, SC wanted to know about secured credit cards. Bob said the point of a card like this is to build credit. Credit is based on the ABILITY to pay and the WILLINGNESS to pay. The secured card proves the ability to pay, and you have to demonstrate the willingness to pay.

Bob told John in Houston he was OK if John took a lump sum pension buyout which is now in cash and lump summed it into short duration bond funds. This would move John closer to a retirement – type of allocation. John is 61 and plans to work for a while longer.

Dale from Oak Brook IL was offered a job by a new employer. He’s getting a 20% increase over his current job and has asked for an additional 10% over what they offered.

I didn’t listen real closely to what Bob told him, but good luck to Dale. Larger companies usually have a range of salary levels for a given job. Like “value” stock investors, they like to buy talent at a discount so their offer is probably less than what they’re willing to pay for a candidate they really want. It can’t hurt to ask for an additional 10%. They’re not going to withdraw the offer. They’ll either meet it, or meet it partway, or stick with their original offer. How badly do you want the job?

Bob Brinker told Bob in Albuquerque that it is interesting to look at company earnings on a GAAP basis and a pro-forma basis. GAAP stands for generally accepted accounting principles. See Investopedia for discussion on these terms.

John in Peoria IL has been buying individual municipal bonds. Bob ‘splained the advantage of well-chosen munis vs. a muni bond fund. I wonder if John’s bonds are state of Illinois issues? Illinois’ finances are in really bad shape. I hope John doesn’t end up with a haircut.

Clair in Missouri: I-bonds. Bob: “hold ‘em.” Sounded like he reinforced what she planned to do anyway.

Chuck in Homer Glen (IL ?) liquidated his nest egg to save his house from foreclosure some years ago. He owed taxes and got behind and is now paying off a $50,000 debt to the IRS. He has been paying $675 per month for 5 years and he still owes $30,000. He is sick of paying and wanted to know if he should take money from a retirement account and pay the balance. After a lot of to and fro, Bob advised him not to blow up his retirement fund. He’s still working and can make the payments.

The last caller was Pat who is 60 years old and wants to get his $2.25 million retirement account to a 60-40 allocation. Pat is aware that bond funds can take a hit when interest rates move up. Bob said take some of the equity money and put it in CDs. It will accomplish the goal of moving money into fixed income. He can then move it into bond funds at his own pace.

Honey here:  Frankj:.....Thank you so much  for taking over today! 

BTW: Is that Jethro Clampett the same one who touts his diploma from  gradeeating  the sixth grade? 

Radio Stations:
710KNUS Denver
KION 1460  Monterey