Sunday, December 16, 2012

December 16, 2012, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

December 16, 2012.....Bob Brinker hosted Moneytalk today.....(comments welcome)

STOCK MARKET: Brinker never said a word about the stock market today and no callers mentioned it either.

Honey EC: Why Brinker's long silence about the stock market? My personal opinion is that Brinker is playing the carrot-on-a-stick game to the hilt right now. The carrot he is dangling is the possibility that he may sell some or all of his equity holdings. He's been hinting for a couple of months now that he is "keeping an eye on" his so-called Marketimer timing model©. The Marketimer timing model consists of four components: Economic Outlook; Monetary Policy; Equity Valuation; Investor Sentiment.  (Bob talked about his timing model at a public Leukemia event in San Jose a few years back.  I double-checked in Marketimer -- it has not changed.)

In the December 2012 Marketimer, Brinker reviewed the history of secular/cyclical markets like he has done so many times in the past.  He said that while studying secular markets is fun, he focuses on cyclical trends,  and depends on his Marketimer timing model for his forecasts. It's been a while since Brinker reviewed the "5-root causes of a bear market," but you may want to read what he was saying last year. 

GOLD...Caller Bob from Oregon said he was largely in cash and wanted to know if he should buy gold. Brinker told him that would depend on how much he was willing to speculate since gold is a speculative investment.  Brinker also told him that if he decided he wanted a "hedge" in gold, he should buy GLD and stay away from numismatic coins. Brinker said: "I would keep it small. That means I would keep it at 5% or less." 

Honey EC: Since May 2009, Brinker has included GLD on his short list of recommended individual issues, along with MSFT, VOD, Suncor and several large index ETFs. Brinker has never given any Marketimer guidance on how much  to buy or what price to pay. Today he said 5% or less but made no comment on price. 

FISCAL CLIFF...The only thing NEW that Brinker reported on this subject is that Boehner has offered tax increase for entitlement cuts.

BRINKER FIXED INCOME PORTFOLIO AND BALANCE PORTFOLIO....Caller Ronnie from Alabama said he had been listening to Moneytalk since 1986. He said that he had gone from negative net worth to "critical mass" of about $1 million. Brinker asked him how he did it. Ronnie said that, in addition to "paying himself first" out of a largely six figure income,  he took more risk than Brinker advised and had bought gold when it was about $1200 an ounce. Ronnie said that he was working toward a goal of 50-50% asset allocation and asked:  "What I've done on my asset allocation right now is 70% stocks as mirrored by your Marketimer portfolio #2 on page eight. And then my 30% in bonds is mirrored by your Marketimer income portfolio on page 7. Is that the correct way to do it?"

Brinker replied: "You can do that. I've talked about hybrid portfolios a number of times. You may have heard it on the broadcast....Now we publish a balanced portfolio on page 8, the model portfolio III....We publish fixed income as part of that portfolio  but we also publish a separate income portfolio on page 7.  If someone wants to substitute the income portfolio on page 7 for the income portion of the balanced portfolio, they can do that. That would be a hybrid.....Right now, we don't have any money in the stock in the income portfolio on page 7.  There have been times this year when we have had up to 10% in the stock market in the portfolio......"

Honey EC: Did you get all of that? The fixed income portion of the balanced portfolio III "on page 8" are also in the fixed-income portfolio "on page 7."  Was Ronnie a plant? I don't know, but he sure knew the jargon Brinker uses to hawk his wares. :)

Brinker sold all the Vanguard Wellesley Income Fund holdings in October from both portfolios.  It seems odd to me that Brinker has now sold all of the Vanguard funds in the fixed-income portfolio, except Vanguard Ginnie Mae Fund, and replaced them with funds that have much greater expenses. 

The "new" funds in the income portfolio are all higher expenses. DoubleLine Total Return Fund charges three times more than Vanguard funds. Metro West Total Return Bond Fund, which basically replaced Vanguard High-Yield Fund, charges almost three times as much. Dodge and Cox Income Fund (DODIX) is about twice the price of Vanguard's funds. I compared the performance of all three of those funds with Vanguard's High-Yield Fund and it's astonishing to see that the high-yield fund has outperformed all of them over the past year. 

IRA BENEFICIARIES AND WITHDRAWALS FOR CHARITY:  FrankJ, who knows taxes, covered this call for us:
Caller William from Oregon asked about making a charitable contribution with a distribution from an IRA. He also asked whether he should will his IRA "to an old person or a young person?" 
Bob advised that age should not be so much of a consideration as simply who do you want the money to go to? He also advised William to consult a CPA or enrolled agent for advice. 
Expanding on BB's answers a little: with regard to the charitable contribution, you can direct your IRA trustee to make a direct payment to a charity. You do not get to deduct this as a charitable contribution, but you do not have to count the contribution as part of your taxable income. Oddly, (and I looked this up on the IRS's site,) you must be 70 1/2 or older to do this. 
On willing your IRA to someone else, William and his adviser will no doubt review the rules surrounding an IRA willed to someone other than a spouse. The recipient is obligated to take minimum distributions and these are governed by the recipient's age and the value of the IRA. If there are multiple recipients, they should consider splitting the inherited IRA into separate accounts because the required minimum distribution will be set by the age of the oldest recipient. There is a time limit on splitting the account, so if you snooze, you lose. 
If you don't go the req'd minimum distribution route, then you have to distribute the entire IRA in the 5th year following death. So if death occurs in 2011, the IRA must be distributed by the end of 2016.
Guest-writer FrankJ has done a summary of  the third hour speaker for us:

Today’s MoneyTalk guest was William L. Silber, author of Volcker: the Triumph of Persistence. Mr. Silber is a professor at NYU’s Stern School of Business and has been an advisor to the Federal Reserve.

FrankJ's (Editorial comments are in italics). 

BB asked Silber his reaction to what is going on in Washington, DC right now?

The guest said that the credibility of the Fed is at stake, that monetary integrity is affected by fiscal integrity (or lack of it). Bob asked a follow-up question about how our debt affects the long term integrity of the dollar. Mr. Silber said the rest of the world still uses the dollar as an exchange medium, citing for example, China paying Japan in dollars. But he was not sanguine about how much longer the world will continue viewing our dollar in the same way as they have in the past.

Bob asked about entitlement programs, specifically Medicare – pointing out that, by a 2:1 margin, people do not want any reductions in benefits. Mr. Silber said at some point, Congress will have to face reality and pointed out that one way to make Social Security more sustainable is to raise the retirement age.

Bob then turned the topic to Paul Volcker, the subject of the guest’s recent book.

Mr. Silber pointed out that most people know that Alan Greenspan was the Fed Chair before Ben Bernanke but very few know that Paul Volcker was the Fed Chair before Greenspan. Those who do remember Paul Volcker probably also remember the soaring interest rates, out-of-control inflation and the persistence he demonstrated in bringing inflation down to 4% from 12%. In so doing, he restored the purchasing power of the dollar, and the credibility of the Federal Reserve.

Bob asked the guest what he thought about Obama bringing in Paul Volcker for advice early in his administration.

The guest said his reactions were mixed. The world reacted with enthusiasm because he is still viewed today, as the most trusted man in the world of finance. Mr. Silber’s view was there might have been a quicker response to the crisis we faced if Mr. Volcker had been brought in as Secretary of the Treasury, but he speculated that Mr. Volcker’s independent streak may have given the administration pause.

Bob turned the subject to the current Fed Chair, Ben Bernanke. In an assessment of Bernanke’s performance, Mr. Silber said he would have graded him an “A” or “A+” for opening the credit floodgates in 2008. Then he quoted Mr. Volcker, who once said, there will be fallout “for remaining too easy for too long.” And, “you can’t wait until you see inflation,” (before tightening).

This mild criticism did not upset Bob, who is usually very quick to put down any criticism of the Fed Chair’s job. 

Bob did ask about risk to the economy by tightening credit in the face of an economy that is barely growing. The guest agreed, and said OK to not tighten right now, just don’t ease anymore. He alluded to the thin line the Fed Chair walks, by pointing out that the Fed Chair knows that Congress can pass legislation to abolish the Federal Reserve.

MoneyTalk regulars would at this point, recognize that Bob could have launched into his oft-heard (and correct) rant about the danger of Congress being in charge of monetary policy. 

Bob asked about the Fed’s recent announcement to keep buying debt and the guest did not address this directly, but pointed out the need to return to long term fiscal integrity and he mentioned Medicare and Social Security once again. (Fiscal policy is the responsibility of Congress).

The guest pointed out that if we had followed the recommendations of the Simpson-Bowles committee, we would be on the road to fiscal integrity.

Caller John from Pierre, South Dakota made a short speech and then asked if welfare recipients should pay back their benefits at some point. The guest said the real problem was Social Security and Medicare.

Bob asked about the debt limit and Mr. Silber said that we are one of the few nations in the world with a debt limit. He said having a debt limit has helped in the past because it acts like a “speed bump” and forces Congress to think about what they’re doing with regard to spending.

(FrankJ) EC: The federal budget includes discretionary and non-discretionary spending. Defense, education and agriculture are examples of discretionary spending, appropriations for discretionary spending are made in Congress each year. The elephants in the room are the non-discretionary components: Social Security, Medicare, interest on the debt and federal pensions. These non-discretionary programs, whose spending was set by their enabling legislation, are simply on auto-pilot. For the 2012 budget of $3.57 trillion dollars (about $1 trillion of which is borrowed), these programs constitute 63% of the budget. So Mr. Silber was correct in his several references to SocSec and Medicare as the keys to re-establishing the nation’s fiscal integrity.

Brinker's guest-speaker was William Silber: Volcker: The Triumph of Persistence


Jeffchristie's Moneytalk Final Exam Question:

Because of the current situation with the fiscal cliff, Bob Brinker said that we are all passengers on:

A) The Soul train.
B) The good ship Lollipop.
C) The ship of Fools.
D) The Orient express.
ANSWER

Moneytalk Free on Demand for seven days after broadcast. You can download, save and listen on the go:  KSFO 560 Radio -- Seven Day Archives

21 comments:

Anonymous said...

Regarding the archives on KSFO, it is sad that they are no longer available on their webpage.

Replay Radio works. I think this is the easiest way, but you have to make sure the web stream (radio station) isn't playing football games, basketball games, special news prorams, etc.

Another way is Tunein radio on any apple iPad or iPhone, which allows you to record the web stream that you are listening to. The iPhone or iPad has to be on with the Tunein radio app running.


Honeybee said...

Yes, it is very sad that KSFO is no longer allowed to archive Bob Brinker's Moneytalk.

In this case, it's very likely that lawyers talked. He makes a lot selling Moneytalk on Demand.

However, we have another free alternative that TFB sent. I intend to download the program next week. Here is the link:

Free Sound Recorder

Anonymous said...

It looks like the KSFO archives have been back on line for a few days.

By the way, I doubt it was Brinker's lawyers who got them worried, probably the other host who recently returned to San Fran Sissy Co ( or as he says Sicko) after a long hiatus.

birdbrain said...

Just listened to the KSFO archive. Caller of the day was Chris at 2:40 PST who asked if the federal govt could force CA to reign in its deficit spending. It would help if Congress first demonstrated fiscal responsibility themselves.

The following is written with apologies to Clement Clarke Moore:

Twas the day of the Starship
When all through the show
No mention of the market
Not even a portfolio

Politics and opinion
Dominated the day
Which caused frustrated listeners
To cry out in dismay

Do you see a downturn in stocks?
Sell now and lock in cap gains to pay?
Did you adjust the timing model?
They were all screened away.

Yet the host whose main goal
Is a newsletter to hawk
Says with a straight face
This is Moneytalk

Happy Christmas to all, and to all a good night.

Anonymous said...

"I compared the performance of all three of those funds with Vanguard's High-Yield Fund and it's astonishing to see that the high-yield fund has outperformed all of them over the past year."

Apples and Oranges. You are comparing a junk bond fund with core funds and only for ONE YEAR. That is meaningless.

Also, on "willing" your IRA. What you write in your will is also meaningless re: your IRA. You must name a beneficiary on your IRA itself. That's what determines who gets your IRA...NOT your will.

agent

Anonymous said...

Agent you are correct about the beneficiary needing to be stated on the IRA paperwork. Thanks,

--Frankj

Mark said...

On Brinker going to cash assuming he does. I follow my own advice, and that is not to follow Brinker's cash and stay invested.

Anonymous said...

One of the more disturbing things is Da Brink revealed yet another glimpse into his ignorance of the structure of our form of governemnt and the Constitution.

In the past he made glaringly ignorant commentary that were mentioned in this forum and he seemed to bone up the aforementioned area during the week and addressed the issue with more knowledge and substance on the subsequent show.

My sincere advice to Bob is to go to the following url:

Heritage guide to the Constitution

Keep it handy during the show also. Bob, disagreements aside, I have never slighted your intelligence. You have the intellect to absorb this material and elevate your show.

This is an excellent guide that explains the meaning and origin of the various clauses of the Constitution.

I encourage everyone to spend some time at this site. While it is not the end all in understanding our form of Government it is a good first step .

tfb

Honeybee said...

Birdbrain,

A masterpiece! Thank you. :)

Honeybee said...

Good news!!! KSFO has re-instated its seven-day archive for Bob Brinker's Moneytalk

KSFO Seven Day Archive

Anonymous said...

Birdbrain - awesome.

Bartee said...

it is stated on the internet that brinker is worth 25 million ,, well he has been on the air 26 years so I assume he make this dough from his newsletters,,, just a though,,, merry christmas honeybee and everyone

Honeybee said...

Bartee,

I think that is a VERY safe assumption. Why else does someone work Sunday afternoons after he is well past 70 years of age?

In 2005, his middle-aged son decided to leave the computer technology field that he was trained in and started selling newsletters under the famous name "Bob Brinker."

Brinker staying on the air has an opportunity to give the impression that it is his newsletter. He almost never corrects callers who are deceived on the subject.

"It for the young sprouts" you know.

Honeybee said...

Bob Brinker has been bragging about his Marketimer fixed income portfolio for some time now.

In my opinion, it's a no-brainer. For example, until recently it was 25% High-Yield. He sold that but replaced it with three funds that he probably considers less risky: DoubleLine Total Return fund, Dodge and Cox Income Fund and Metro West Total Return Bond Fund.

What happens when the money stops flowing out of stocks and into bonds? FrankJ sent this article:

Through the first 11 months of 2012 investors have poured a net $346 billion into bond mutual funds and exchange-traded funds (ETFs) according to Morningstar data. Our collective appetite for stocks? A net $11 billion.

Just to reiterate: For every dollar of net inflow into stock funds and ETFs there has been about $31.50 plunked into bonds. Despite the fact that major stock indexes have thumped bond returns. Both the SPDR S&P 500 ETF (SPY) and the iShares MSCI EAFE ETF (EFA) have total returns triple the gain for the Vanguard Total Bond Index ETF (BND).

Astute profit taking? Nah. This is just a continuation of a trend that has not let up since the financial crisis: investors shedding equities and camping out in bonds. It hasn’t mattered much whether stocks have been up or down. Investors just aren’t buying stocks.

Yet there is no sane scenario you can point to that bonds are a timely investment. Unless you venture into junk, yields aren’t keeping pace with inflation. And there’s scant room left for bond prices to rally; you need rates to fall for that to happen. Sure, a recession or global jolt could trigger another flight to safety; but any dive in yields from here would be akin to jumping from the pool’s edge, not from the high-dive platform.

The $346 billion bet on bonds certainly isn’t being stoked by the big money. When was the last time you heard a money pro recommend a tactical shift out of stocks and into bonds?

Even the folks stuck investing in bonds aren’t trying to talk up their stomping grounds. Pimco’s bond chieftain Bill Gross takes every opportunity to dial down expectations. In his December commentary he opined that “ Investors should expect future annualized bond returns of 3–4% at best.” That’s not to suggest Pimco is finding lots to love in equities either. Gross said equity returns should be “only a few percentage points higher” than bonds. Still, those are some potentially crucial few extra points. The long-term rate of inflation is about 3.5%. So Pimco is pretty much saying bond market returns will at best match inflation’s historical trend. If you’re investing for a long-term goal-say retirement, which is the bulk of mutual fund money-bonds aren’t how you’re going to maintain your standard of living.

Doubline’s Jeff Gundlach, another bond maestro closely followed by the Street has been spending a whole lot of time talking up stocks, not bonds. Just last week he told Barron’s “I would not be surprised to see some [upward] pressure on Treasury rates next year.” He’s looking for a drift up, not some dramatic spike. But any rise in interest rates is going to hurt bond performance; as yields rise prices fall.

Read more and see charts

Anonymous said...

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
HoneyBeeBadger,

This is off topic so feel free to delete, I just found it interesting.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

This has to be one of the stranger financial article s I have read.

Herbalife tanks on 'pyramid scheme' criticism

Ackman told CNBC that he's been researching Herbalife and thinks it's a "pyramid scheme." He said he has been short on the shares for seven to eight months. Herbalife sells protein shakes and vitamin supplements, among other products.

Intersting Article


My comments:

You mean this genius fund manager just suddenly realized Herbalife is essentially a BS pyramid scheme? He had to research to figure this out? Uh, try Google. I don’t buy it, who does not know that Amway, Shaklee, and Herbalife are only thinly veiled pyramid schemes. The only reason they can skate the law is they actually involve product sales.

Here is a good resource for info on pyramid schemes:

http://pyramidschemealert.org/

Below is a short of Penn&Teller’s famous Pyramid Scheme Episode with a good comment of Social Security. Caution, adult language and partial nudity.

Penn&Teller Bullshit – Pyramid Schemes – Short out takeArticle

And here is the full show.

Penn&Teller Pyramid Full Episode

tfb

Anonymous said...

"What happens when the money stops flowing out of stocks and into bonds? FrankJ sent this article:"

The same thing that always happens. Stocks and bonds have cycles just like anything else and to try to time the either market is just plain silly IMO.

You have a well diversified portfolio allocated based on your age and risk tolerance and just stick with it.

The road is littered with people who shorted the bond market because "everybody" knows rates are going up.

holder

Honeybee said...

Jeffrey Gundlach, the "most successful bond manager in the world," speaks about the fiscal cliff and the fed.

Anonymous said...

Fidelity says, rising rates mean falling bond prices, and rates are at such a low starting point that they probably have to rise, but he sees a muted impact:

If you ladder bonds, you will have the opportunity to add higher-yielding bonds as you replace maturing ones.

If you own a bond fund, a similar dynamic should unfold as low-rate bonds mature and are replaced by higher-yielding ones. Remember, over the long term, interest income—and reinvestment of that income—has accounted for the largest portion of total returns for many bond funds. Over time, the impact of price fluctuations may be somewhat offset by income and reinvesting at higher coupon rates (see box for an example).

In fact, because of income and the potential to reinvest at higher rates, bond investors don’t necessarily experience losses in a rising rate environment. During the last period of rate increases, from April 30, 2004, to June 30, 2006, there were 17 rate hikes of 25 basis points (0.25%). But bond indexes saw positive returns: The U.S. 5–10 Year Treasury Index returned 4.45%; the Barclays Aggregate Bond Index returned 6.11%; and the Credit Bond Index—which measures investment-grade corporate bonds—returned 5.61% during the same time period.

http://blogs.barrons.com/incomeinvesting/2012/12/20/fidelity-dont-count-on-bond-bubble-or-a-bursting/?mod=BOLBlog#

fido

Honeybee said...

Bob Brinker sold all of his Marketimer fixed-income portfolio holdings in October.

Looks like Brinker is alone. From ETF Trends:

"The two largest high-yield bond ETFs alone have pulled in nearly $8 billion of fresh assets this year as investors clamor for income in a low-interest-rate environment.

In fact, trading in high-yield ETFs is rising at a faster rate than transactions in the underlying junk debt “as buyers seek a faster way to take advantage of a market returning 15.5%this year,” Bloomberg News reports.

Year to date, iShares iBoxx High Yield Corporate Bond (NYSEArca: HYG) has seen net inflows of $4.6 billion while SPDR Barclays High Yield Bond (NYSEArca: JNK) has hauled in $3 billion, according to IndexUniverse data.

The funds are paying 30-day SEC yields of more than 5% while yields on 10-year Treasury notes are hovering around 1.8%.

“Speculative-grade bond ETFs are attracting record amounts of cash this year as Federal Reserve efforts to stimulate the economy by holding interest rates at almost zero since 2008 push investors into riskier assets,” according to Bloomberg. “Bond buyers from retirees to the biggest banks are increasingly using shares of high-yield bond ETFs for fast access to debt with an annualized return of 21.8% since 2008, even as the risk of losses tied to rising interest rates is the greatest since 2007.”

Read more: High-Yield ETFs

Honeybee said...
This comment has been removed by the author.
Honeybee said...

Kirk Lindstrom wrote a Seeking Alpha article -- gives Bob Brinker "honorable mention." Excerpts:

Warnings:

One issue with QQQ is it can become concentrated in a few stocks after periods of exceptional performance compared to the average stock in the index. Back in 2000 national radio show host Bob Brinker recommended QQQ to his listening and subscribing audience. I managed a discussion forum for investing at Suite101.com where we got thousands of hits per day from readers looking for information on this advice. At that time, I recommended my readers avoid QQQ in large part because it was too concentrated in Microsoft (MSFT) and Cisco (CSCO). Since then, those two stocks are still down so much that even with the exceptional performance of Apple (AAPL) over the same period, QQQ has yet to surpass 2000 highs.

Read more: Annual Changes to Nasdaq 100 Index Highlight Opportunity and Risk