STOCKS....(The S&P 500 ended this first week of May with a small 0.24% loss - down 1.2% YTD and 7.3% below its record close.)
Today, Brinker repeated his current stock allocation advice for retirees - maintain a balanced approach of about 50% stocks and 50% fixed income. Otherwise, Marketimer advice is 100% all in, with dollar-cost-averaging new money on "weakness."
Honey EC: Brinker is still looking for an S&P 500 level that he considers "attractive for purchase" so that he can issue a "special bulletin buy-signal." Theoretically, since Brinker has his followers fully invested AND dollar-cost-averaging, a buy-signal would only apply to those that suddenly come into a pile new money.
BONDS....(The U.S. Treasury closing yield on 10-year notes at 2.95%.) There were no calls today about bond funds and BB did not repeat his advice to keep duration very low, but he has made no changes in Marketimer.
GOLD....Vince in Delaware asked about buying gold. Brinker did his usual disclaimer about not recommending gold because it is "speculative." He does not recommend buying numismatic coins or bullion. But if you do decide to buy gold, he recommends the Exchange Traded Fund GLD. (BB said that Bitcoin is also speculative.)
Honey EC: Brinker actually had a recommendation for gold (GLD) in Marketimer's off-the-books list of "individual issues" for several years. However, he never gave any reason why, how much to buy or what price range to buy it. Then all of a sudden one month, with no comment whatsoever, GLD disappeared.
INFLATION....2.4% year-over-year
JOBS REPORT.... Brinker gave his usual long-winded report about the latest job report and unemployment numbers, along with the educational and racial demographics.
(BB did not say this, but: Black and Hispanic unemployment rates have hit record lows.) BB has concerns about a tightening labor market. Not only is unemployment lower than it has been since the turn of the century (3.9%), but even the other numbers are way down too. The current U6 unemployment rate as of April 2018 is 7.80.
BB EXPLAINS OPTIONS MARKET: COVERED CALLS AND PUTS..... Brinker's reply to caller David from Virginia Beach: "This is a reasonably sophisticated operation. The vast majority of investors do not get into the options market.....What you are doing with writing covered calls is basically you are trading off the potential for upside in the stock, and in return you are getting current income. The current income you are getting is the premium that you receive on the calls that you sell on the stock that you own.
Keep it simple. Let's say that you own 100 shares of a stock that is trading at $50. And let's say that you are a long-term owner of the stock - that you really don't have any plans to sell the stock......but you are willing to sell the stock if it is called away from you, so you write a covered call. So you sell to somebody else for a price, the right to buy your stock at what's called the strike price for a limited period of time.....Let's say a three-month call-option.
So you own the stock at $50, somebody is willing to buy it from you at $55 and they will pay you cash money to buy it from you at $55 over a three-month time frame. So if the stock goes up beyond the cost, they are going buy it from you and you are out at $55, plus you get to keep the call-option money that you made when you sold the call. So you return is, you get the gain to $55 from $50.......and you keep the premium that was paid to you for that option.
On the other side, the buyer gets to buy the stock at $55 and anything above $55, minus the cost of the call option. That is the trade off that you make. Yes, you get cash income for selling that option but at the same time, you only have upside up to the strike price. After the strike price is realized, they are going to call the stock away from you and it will be out of your portfolio. And it may be that you are going to have to pay capital gain on the stock if you had one.....
So it's really a trade off. Do you want the gain potential or would you rather have the current income. Now if you get lucky and the stock stays at $50 or anything below the $55 strike price, you get to keep all the cash income that you make....That is the ideal outcome when you get to keep the call premium that you sold. That's the ideal outcome."
FRANKJ'S MONEYTALK GUEST-AUTHOR SUMMARY
Well, I got my wish: a break from the Conga line of
futurists. And what a break! Bob’s third hour guest on May 6, 2018 was
venture capitalist Bruce Cannon Gibney, author of the 2015 book, “A Generation of Sociopaths, How the Baby
Boomers Betrayed America.”
Editorial comments in italics, as usual.
That book title is designed to attract attention,
for sure. What is a sociopath? There are definitions all over the web, here
is one of the milder ones: “a person
with a personality disorder manifesting itself in extreme antisocial attitudes
and behavior and a lack of conscience.”
I’m a boomer but I’m not a sociopath.
I don’t know any sociopaths either.
With regard to the national
debt and fiscal irresponsibility on the part of Congress, Bob and the guest
could be joined at the hip, with the guest being the more strident of the
two. The guest said that fiscal
responsibility (in DC) “died in the 80’s.”
(He was born in 1976 he said).
The Republican party was known for its fiscal conservatism but no
longer. Bob chimed in that he has seen
no fiscal responsibility from either party.
The entitlement regime
(Social Security and Medicare in this context) is not sustainable. He mentioned later in the interview that
Social Security cannot continue past 2030 with some major changes. Bob asked why hasn’t there been more
pushback in Congress against these out of control programs?
Bob knows quite well and so do regular listeners –
he was lobbing a softball for the guest to knock out of the park.
He said 1) boomers want to
spend more; 2) this portion of the
electorate (boomers) have high voting rates; 3) politicians are focused on
maintaining entitlements. Bob added
that fooling around with either one is “the third rail of politics.”
If you are a newcomer to this country, and
unfamiliar with that term it refers to the rail in a subway system that carries
the electrical current. Touch it and you
die. Propose cutbacks to entitlement
programs and you will lose your next election.
The guest said he favors a
progressive federal tax system like we have.
The result though is a relatively few people end up paying the bulk of
taxes. He pointed out that despite
various tax reform measures over the years, the “percentage take” in taxes has
remained “shockingly constant.” My guess
is, he meant taxes as a percent of GDP.
In the same breath he said boomers benefitted from the 2008
bailout. I would have liked for him to elaborate on this point. Maybe Bob would have too, but he held the
reins loose for most of the interview.
After the break Bob asked
about state, county and city funded public pensions – will they be paid? The guest gave a long answer which included
the fact that California has the highest state tax rate on high earners, (him)
equaling 13.3 percent. Public pension
plans verge on fraud. Assuming a 7.5
percent return on assets as plans have done throughout this extended period of
low interest rates is an example of the type of fraud he meant. The long term returns are not that high and
the result is “wild underfunding.” The
Netherlands is doing things right, requiring that pension funds be funded at a
105 percent level. The Dutch have always been good with money, even Tulipmania worked out
well for some.
He bashed Illinois (which deserves to be bashed) but
didn’t mention California’s public pension system that I heard.
He mentioned wealthy people, like himself, who
get in on the ground floor of a tech company (in his case, PayPal) then make a
pile when it goes public, get rich and move (out of California presumably).
Callers did not get much
useful information because there were no pat answers to their questions.
Joe, listening on WLS in
Chicago wanted to know how to protect assets when the national debt becomes a
problem in 8 to 10 years. The guest
rambled all over the place – I don’t think he was really prepared to answer such
a question. He said there is no easy
place to hide and cash is the “least pleasant” place to be.
Caller James said he took
his pension as soon as he could and when he discusses fiscal issues with
friends they don’t seem interested.
There is no great place to earn a good return. The guest advised investments in tech –
something that is truly growing. He
mentioned Google, Apple (“a utility company”), Facebook. He said you want to invest at a reasonable
price in a growing company.
Well, duh!
Keep a large stockpile of
cash so that when there is an opportunity “to buy America on sale,” you’ll have
the dough. Wait, he just told Joe that cash was … never mind.
Jerry from Green Bay, WI
took exception to the guest’s description of Social Security and Medicare as
entitlement programs. To him, they are
his pension and it is no different than a government entity paying out a pension
to retired public employees. Gibney rattled off a bunch of statistics from
a government website that he encouraged Jerry to visit. This site reported that people pulled out
$1.53 in benefits for every $1 they paid into Social Security and
Medicare. Does this include the employer’s portion? Inquiring minds want to know.
The take away? Vote out the politicians who made this
happen. Bob wrapped up a little early
at 3:50.
Do you
agree with me that the subtitle is just a way to attract attention? Would you be interested in the book if the
subtitle was: How CONGRESS Betrayed America. No, that would be a big Ho Hum to most
people. The blame doesn’t rest with the
Jims, Joes or Jerrys who called the program today. If anyone should be blamed it is Congress who
set up Social Security and Medicare on AUTO PILOT. Congress does not vote on appropriating the
money for these programs. How
convenient for them! So I’m clear, if
anyone cares, both parties are to blame.
Honey here: My apologies to FrankJ and to readers. I failed to add the last page of Frankj's summary last night - some of the best parts. It is now complete! Very sorry!
