It was a waste of my time to listen to the first two hours of Neale Godfrey, so I won't cause you to waste your time reading a summary of it. However, the third hour guest was interesting, even though there will be some who do not agree with him.
Guest-writer, FrankJ's summary and editorial comments:
Special Guest Peter Diamond,
Jan 6th 2013
Peter Diamond is an economist, and Institute Professor at MIT, where he has been on the faculty since 1966. Professor Diamond received the Nobel prize in economics, in 2010 (along with two associates, Dale T. Mortensen and Christopher A Pissarides.) The guest authored a book on saving Social Security with Peter Orszag, former Obama administration official. See below. The host, Neale Godfrey pointed out that the current Fed Chair, Ben Bernanke was once a student of Professor Diamond.
Frankj’s editorial comments are in italics: I have listened to many, many teases and introductions to third hour guests on MoneyTalk, and Neale Godfrey’s build up to Peter Diamond’s appearance has to be one of the most lavish.
Neale said the (Nobel) prize is “considered the most important prize in the world,” and the guest is “amazingly cool” because he threw out the first pitch at a Boston Redsox game. With regard to the former, the guest acknowledged Neale’s mention of the Nobel prize, but did not mention either of his two co-winners.
We do not know if his pitch was thrown from the pitcher’s mound, nor if it bounced before it reached the catcher. When a politician, celebrity or now, a college professor, throws out the first pitch anywhere, we want only two things: if it is a guy, we want him to throw the ball in a coordinated way, i.e., not like a girl. And we want the ball to reach the catcher without going into the dirt. I hope Prof. Diamond qualified on both counts.
She opened the interview by saying she wanted to hear his comments on unemployment, Social Security and the government as a whole.
Peter Diamond’s answer to Neale’s somewhat awkward opening was to define the difference between a crisis and a problem. A “problem” is something that can turn into a crisis, and he said, unemployment is a crisis, something that has to be dealt with, now. The guest said that federal government debt is a problem.
She opened the interview by saying she wanted to hear his comments on unemployment, Social Security and the government as a whole.
Peter Diamond’s answer to Neale’s somewhat awkward opening was to define the difference between a crisis and a problem. A “problem” is something that can turn into a crisis, and he said, unemployment is a crisis, something that has to be dealt with, now. The guest said that federal government debt is a problem.
Neale jumped in and began to ramble, then seemed to realize she was rambling and clammed up.
Diamond continued with his point about unemployment: young people just starting out are especially affected because their wage growth is held back in their early, critical earning years. Paraphrasing: “in a garden variety recession, this effect can last over a decade – but we are not in a garden variety recession, it is referred to as the Great Recession.” Farther up the age spectrum, the older, long-term unemployed become less valuable to the economy and sometimes end up earning lower wages if they do find jobs.
Diamond then changed the subject to debt, and continued with the “problem vs. crisis” theme. Greece, Italy and Spain are examples of economies in crisis, because people are only willing to lend to them at higher and higher interest rates. He thinks the US is not (yet) in that same fix. We still enjoy low interest rates because the bond market has not concluded that we are incapable of repaying our debts. The downgrade in 2011 was more due to “bad politics” than about the nature of the economy.
He allowed as how our debt trajectory is “unsustainable,” and we need to phase in changes, but cautioned against cutting or raising taxes significantly right away, such sudden changes would hurt the economy. We have a decade or more to address this problem.
Neale said that makes her sleep at night.
The guest then discussed Social Security, saying the professional staff of non-political actuaries have said that the trust fund will run out in 20 years, and there could be a 25% benefit cut from one month to the next. This, he said, would be a crisis. He said that there is time to address this with tax increases and benefit reductions for those who can afford it. She asked whether they are listening to you, meaning those in Washington, DC. Peter Diamond said “hearing and listening are not the same thing.”
Just before the break at 3:30, Neale paraphrased the late Milton Friedman’s notion that Social Security is a mechanism that transfers wealth from the poor to the rich – citing the differences in life expectancies between rich and poor. She wondered aloud “are the poor and middle class bearing the brunt?” Diamond jumped in with the statement that “all that is wrong,” adding that he thought it was important to get the word in, in case people tune out during the commercial break, he didn’t want them tuning out thinking that Friedman, as quoted by Godfrey, was right. Neale Godfrey said, she has been told she was wrong before – but he wasn’t referring to her.
After the break Neale re-iterated Prof. Diamond’s accomplishments. But instead of getting back to him on his thoughts about Social Security – which is probably what he expected, and what everyone listening expected, she took four calls. I won’t summarize these in the interest of space.
As the hour wound down, Neale asked Prof. Diamond for his solution to unemployment.
Diamond said we need to continue aggregate spending and boost growth. He cited education spending, basic research and infrastructure. Spending in these areas as a percent of GDP has shrunk over 30 years. With regard to education, “throwing money at the problem hasn’t worked, but taking money away doesn’t work either.” With the idle labor and equipment available, and the low cost of borrowing now is the time to spend the money on these programs.
(If Paul Krugman, another Nobel prize winner, was listening, he was probably pounding the table in agreement because all through this meltdown and recession, he has been pounding out column after column calling for more spending, more deficit, more debt).
Not part of the interview was the fact that Peter Diamond was nominated to the Board of Governors of the Federal Reserve, 3 different times beginning in 2010. Ultimately, he withdrew himself from consideration in June of 2011. His op-ed piece on his decision to withdraw can be accessed here:
When a Nobel Prize Isn't Enough NYTimes
I quote one paragraph from it because it is in line with something that Bob Brinker has mentioned repeatedly with regard to the need for the independent Federal Reserve.
Diamond continued with his point about unemployment: young people just starting out are especially affected because their wage growth is held back in their early, critical earning years. Paraphrasing: “in a garden variety recession, this effect can last over a decade – but we are not in a garden variety recession, it is referred to as the Great Recession.” Farther up the age spectrum, the older, long-term unemployed become less valuable to the economy and sometimes end up earning lower wages if they do find jobs.
Diamond then changed the subject to debt, and continued with the “problem vs. crisis” theme. Greece, Italy and Spain are examples of economies in crisis, because people are only willing to lend to them at higher and higher interest rates. He thinks the US is not (yet) in that same fix. We still enjoy low interest rates because the bond market has not concluded that we are incapable of repaying our debts. The downgrade in 2011 was more due to “bad politics” than about the nature of the economy.
He allowed as how our debt trajectory is “unsustainable,” and we need to phase in changes, but cautioned against cutting or raising taxes significantly right away, such sudden changes would hurt the economy. We have a decade or more to address this problem.
Neale said that makes her sleep at night.
The guest then discussed Social Security, saying the professional staff of non-political actuaries have said that the trust fund will run out in 20 years, and there could be a 25% benefit cut from one month to the next. This, he said, would be a crisis. He said that there is time to address this with tax increases and benefit reductions for those who can afford it. She asked whether they are listening to you, meaning those in Washington, DC. Peter Diamond said “hearing and listening are not the same thing.”
Just before the break at 3:30, Neale paraphrased the late Milton Friedman’s notion that Social Security is a mechanism that transfers wealth from the poor to the rich – citing the differences in life expectancies between rich and poor. She wondered aloud “are the poor and middle class bearing the brunt?” Diamond jumped in with the statement that “all that is wrong,” adding that he thought it was important to get the word in, in case people tune out during the commercial break, he didn’t want them tuning out thinking that Friedman, as quoted by Godfrey, was right. Neale Godfrey said, she has been told she was wrong before – but he wasn’t referring to her.
After the break Neale re-iterated Prof. Diamond’s accomplishments. But instead of getting back to him on his thoughts about Social Security – which is probably what he expected, and what everyone listening expected, she took four calls. I won’t summarize these in the interest of space.
As the hour wound down, Neale asked Prof. Diamond for his solution to unemployment.
Diamond said we need to continue aggregate spending and boost growth. He cited education spending, basic research and infrastructure. Spending in these areas as a percent of GDP has shrunk over 30 years. With regard to education, “throwing money at the problem hasn’t worked, but taking money away doesn’t work either.” With the idle labor and equipment available, and the low cost of borrowing now is the time to spend the money on these programs.
(If Paul Krugman, another Nobel prize winner, was listening, he was probably pounding the table in agreement because all through this meltdown and recession, he has been pounding out column after column calling for more spending, more deficit, more debt).
Not part of the interview was the fact that Peter Diamond was nominated to the Board of Governors of the Federal Reserve, 3 different times beginning in 2010. Ultimately, he withdrew himself from consideration in June of 2011. His op-ed piece on his decision to withdraw can be accessed here:
When a Nobel Prize Isn't Enough NYTimes
I quote one paragraph from it because it is in line with something that Bob Brinker has mentioned repeatedly with regard to the need for the independent Federal Reserve.
“But we should all worry about how distorted the confirmation process has become, and how little understanding of monetary policy there is among some of those responsible for its Congressional oversight. We need to preserve the independence of the Fed from efforts to politicize monetary policy and to limit the Fed’s ability to regulate financial firms.”Here is a link to a summary of the Diamond-Orszag for saving Social Security.
Saving Social Security: The Diamond-Orszag Plan, Brookings Institute
Honey here: Thank you so much FrankJ -- great summary. I would like to add just a few personal comments:
Honey here: Thank you so much FrankJ -- great summary. I would like to add just a few personal comments:
Today, Peter Diamond did a first on Moneytalk. He interrupted Godfrey (who was paraphrasing Milton Friedman) and said, "Let me just jump in and say it's all wrong. But we'll get back to that, just in case some listener turns off and goes elsewhere or somebody in a car...." At that point, Godfrey interrupted Diamond and tried to make light of it by saying that he wasn't the first person to say that she is wrong, and went to a break. As FrankJ said, Diamond was referring to her citing Milton Friedman. When the break was over, Godfrey again sang Diamond's praises and immediately went to callers. Diamond never got a chance to defend his assertion. Did they discuss it during the break and decide to drop it?
I happen to believe that Milton Friedman was an economic genius and would trust his judgment over Diamond's regardless of the awards Diamond sports.
Jeffchristie's Moneytalk Final Exam Question:
Neale Godfrey's stepson is Josh Savaino. He played Paul Pfeiffer Kevin Arnold's best friend on the TV series The Wonder Years. He was the inspiration for which of the following characters on the Simpsons.
A) Apu
B) Krusty the Clown
C) Millhouse Van Houten
D) Sideshow Bob
ANSWER
San Francisco, Ca. KSFO 560: 1-4pm (KSFO archives Moneytalk Free on Demand for seven days after broadcast. You can download and listen on the go.)
16 comments:
I only listened to a small portion of the show, but toward the end of the second hour she took a call from a 43 year old man and made some unusual comments. One he would likely be retiring in 30 years so at 73, okay maybe…and then asked him how he envisioned the other ¾ of his life, implying he would live to be 172 years old. She also made several odd statements that made me wonder if she was off her meds.
tfb
The S&P index reached an all-time intraday high of 1,552.87 in trading on March 24, 2000 so the buy and holders really have done anything for about 13 years.
Who cares if we are setting new highs with dividends reinvested? We are still just about where we were 13 years ago.
TFB: She might have been assuming he would reach critical mass at age 73 and then be taken on board the Starship MoneyTalk, where the aging process slows drastically.
I would add, he better have a darn good dividend paying stock portfolio, because the 4% withdrawal "rule" might leave him without life support.
-- Frankj
I tend to agree with you Ben. Figuring the index with dividends re-invested is not the norm and it's not realistic.
And it's not the way that the media, Bob Brinker, or any financial professional reports it.
The all-time-high for the S&P was in October, 2007 -- at 1565, so it actually broke slightly above the March 2000 high.
That is when Bob Brinker claims the secular bear market began. Sure looks like he is right.
"The all-time-high for the S&P was in October, 2007 -- at 1565, so it actually broke slightly above the March 2000 high."
Thanks. That's my point, we are right now bouncing around where were in 2000 and again in 2007 which shows to me that buy and holding isn't such a good idea.
Thirteen years and you are just about where you started. Obviously in hindsight, holding income producing bonds during the period would have been much better.
Bob Brinker has made Metro West Total Return Bond Fund (MWTRX) a part of his fixed income portfolio. (Remember that he does not make that portfolio part of his "official" record.)
First he said it could be used as a substitute for the Vanguard High-Yield Fund when it was closed to new investors.
Brinker also uses Double Line Total Return Bond Fund (DLTNX) in the fixed-income portfolio and also model portfolio III.
Here's an article about the managers of these bond funds:
By TOM LAURICELLA
In recent years, the usually dull world of bond mutual funds has come to be dominated by outsize personalities such as Pacific Investment Management Co.'s Bill Gross and DoubleLine Capital LP's Jeffrey Gundlach.
But a team of unassuming bond-fund managers is also quietly vying for the crown: Tad Rivelle, Laird Landmann and Stephen M. Kane, the trio who oversee $85 billion in bonds across 26 mutual funds and other portfolios for TCW Group Inc.
With little fanfare, the team is providing investors returns that in some cases best both Mr. Gross and Mr. Gundlach.
The firm's flagship, the $24 billion MetWest Total Return Bond, ranks in the top 10% of its Morningstar Inc. category for the past one, three, five and 10 years. For each of those time frames, the fund has posted better returns than Mr. Gross's main charge, Pimco Total Return . And over the past year, the TCW fund is ahead of Mr. Gundlach's flagship, DoubleLine Total Return Bond, which doesn't yet have a three-year record.
Ahead of the Herd
The Los Angeles-based bond group at TCW seeks out corners of the bond market that appear inexpensive based on estimates of long-term values. The managers aren't afraid to buy or sell well before the herd, even if returns trail those of rivals in the short term. "They are pretty disciplined," says Miriam Sjoblom, an analyst at Morningstar. "They are more longer term, and aren't going to scramble and change the portfolio to try and outperform in every environment."
Read more HERE
==================================
Off topic - HoneyBee feel free to delete
==================================
Ya'll might want to look at this. It is about Social Security being in more trouble than thought - no news flash, but buried in there is one very disturbing comment:
The professors believe the nation faces some stark choices if Social Security is to be saved. Among the options ...And with that research in mind, they wonder if retirement should be optional.
Let that one sink in a moment. Consider this is how the left trial balloons ideas. They just floated the idea, out of the hallowed halls of academia, that the government should decide when you are allowed to retire on an individual basis.
Reference:
Click for Social Security Article.
tfb
"...that the government should decide when you are allowed to retire on an individual basis..."
The article doesn't say anything about the government deciding when you can retire on an individual basis.
"The professors believe the nation faces some stark choices if Social Security is to be saved. Among the options they suggest are raising the retirement age to as high as 69 or 70, increasing payroll taxes, limiting annual cost-of-living adjustments and reducing benefits."
FICA
Hi Fluffy friend,
I read the article that you posted. The first thing I noticed was that the people involved are "professors," so likely of very liberal persuasion -- so to speak.
Looks like they want to meddle in people's lifestyles and make personal judgments about when they should retire -- for the good of Social Security, of course.
I notice that nothing is ever said about the "retirement age" of immigrants who come here and go on the system without ever paying in a dime. Will they send them back to their country of origin to work a few more years -- for their own good, of course. Excerpts:
"The professors believe the nation faces some stark choices if Social Security is to be saved. Among the options they suggest are raising the retirement age to as high as 69 or 70, increasing payroll taxes, limiting annual cost-of-living adjustments and reducing benefits.
They also point to new research that suggests that retirement, while popular, may in itself reduce a person’s life span "by breaking lifelong routines and disrupting deep social connections." And with that research in mind, they wonder if retirement should be optional.
You might recall that El Presidente Bush pushed for what would have been a disastrous totalization agreement with Mexico, that was defeated. For those who do not know, such agreements allow a foreigner to claim credit in their host country’s social security system based on time worked in their native country. So Mexican nationals would get U.S. social security credits for the credits they earned in Mexico. Naturally they paid nothing into our system but would have their benefits based on their time in the U.S. and Mexico. Be aware they are breathing new life into this idea once again. We have totalization agreements with several developed countries whose social security systems are on par with ours, this would be the first agreement with a LDC though. Watch for it emerging again.
tfb
Bob Brinker's favorite Bond guy speaks out on Barrons:
January 8, 2013, 4:46 P.M. ET
DoubleLine’s Gundlach: Watch Out For Washington Snakes
By Michael Aneiro
As Bill Gross recently carried on at length about inflation dragons, DoubleLine‘s Jeff Gundlach has spent much of a webcast this afternoon on the subject of snakes. With the Chinese calendar approaching the Year of the Snake next month, Gundlach noted that 2013 is specifically the year of the water snake, symbolically lucky with finances and an adventurous spirit that likes to take risks.
“I think this is a year when the snake will not just remain coiled, we’ll see a bite or two,” Gundlach said, speaking metaphorically about financial markets, we think. “The snakes in Washington may bite us once or twice more, or for real.”
Beyond the snake talk, Gundlach has been entertaining participants with a 63-page PowerPoint presentation (we were up to page 24 half an hour into the call) that defies easy summation but has painted not-so-great pictures of economic indicators and bond and stock markets in a host of global economies. He says investors shouldn’t expect a continuation of the stability enjoyed in 2012. In an effort to boil all of this down to some quotes and bullet points:
Gundlach reiterated some downbeat expectations for REIT performance.
Asked about Apple (AAPL), he reiterates his $425 target price and says he has a “very high conviction that Apple will break below $500.”
Gundlach reiterated that there’s rising risk in corporate bond markets, largely due to growing leverage risk, but “I do not think we’re about to see a blowup in credit risk.”
“I do not think Treasury bonds are relatively overvalued compared to other fixed income.”
“I actually like the U.S. Treasury bond market when it’s up around 2% or so. There are plenty of asset classes that yield 4% with a lot more risk…. I’m not really negative on US Treasuries at all even though yields are puny.”
“It’s very difficult to see how we’re going to see the type of economic acceleration that… risk markets have been pricing in.”
“It’s hard to be in love with the Japanese stock market today since it’s rallied so much. It’s probably due for a correction.”
But in the long term: “If you’re going to get an inflationary world I’m almost certain you’re going to get a better return in the Japanese stock market than in the S&P 500.” He sees potential for another 1,000 points of rising in the Japanese stock market
“I like the Shanghai, I like the Nikkei. I know they’re overbought, but so is the S&P 500.”
“Gold would be a great volatility play. One way or the other you’re going to see a big move in gold in 2013.”
By one measure, Gundlach said investment-grade corporate bonds are the most overvalued they’ve ever been.
“I really don’t think high yield is going to fall apart, but the valuation isn’t very good.”
Gundlach sees emerging market bonds as overvalued. “I’m not really negative on these assets, but the value is not good. You should not be deploying new money into these asset classes.”
“The most negative thing for stocks would be a rise in bond yields.”
Read more here
"Her Ladyship," (the nicest thing that Bob Brinker called her) remains bullish:
Excerpt...
"GARZARELLI: Well, I have 13 indicators in the stock market and they’re at 82 percent. Anything below 30 percent would be a major sell signal or a bear market signal and below 42 percent would be a correction of 10 to 15 percent. So that’s a very, very high level and the indicators include monetary policy, economic cycles, sentiment and valuation. The valuation indicator is very bullish, suggesting a 10 to 15 percent gain in the market over the next year."
Video and transcript: Elaine Garzarelli - NBR Market Monitor 1/11/13
"the indicators include monetary policy, economic cycles, sentiment and valuation."
Sounds slightly familiar because those are the four components of Bob Brinker's Marketimer timing model©.
Guess that copyrighting publicly used words does not work so well. Maybe he could try to copyright "model portfolios." LOL!
Maybe Bob Brinker will talk about this today. Seems like they are trying to make our money market funds less "safe":
Money market funds are back in the spotlight with some managers recently announcing increased disclosure, including releasing the value of money funds on a daily basis. I still think this story isn’t getting the press it deserves.
With $2.7 billion in assets under management, or twice the size of the exchange traded fund universe, a good chunk of wealth is in the cross-hairs as regulators consider reforms to prevent a potential run on money market funds. The nation’s oldest money fund was forced to “break the buck” during the financial crisis because it owned Lehman Brothers debt.
There has been talk the SEC could require money market funds to move to a “floating” net asset value, or NAV. This would be a sea change. Money market funds are yielding about zero, but at least investors have the peace of mind that they can’t lose money.
Regulators want to reform the money market fund business, but oppose a strong lobby with deep pockets. The fund industry is not in favor of a floating NAV and would rather keep the implied government backstop for money market funds in place.
Yet who is going to tell grandma her money market fund may not be safe if the business moves to a floating NAV?
The Financial Stability Oversight Council is considering various options for U.S. money market fund reforms, including a floating net asset value, which would allow money funds to shift away from $1; a capital buffer of up to 1% of the fund’s value, along with a delay on redemptions; or a buffer of up to 3%, reports William Fry for Lexology.
With a floating NAV, money markets would be impaired in a rising rate environment. Moreover, any added regulations and restrictions would further weigh on their returns.
Reform talks stalled after the SEC did not receive majority vote to proceed. With SEC Commissioner Elisse Walter, a supporter of Chairman Schapiro’s proposed money market fund reforms, to step in as SEC Chairman, the SEC may not abandon the reforms.
Money market reform has gained momentum in recent years after the world’s largest money funds “broke the buck,” or dipped below $1 per share, after the collapse of the Lehman Brothers, one of the fund’s investments. The collapse fueled wide spread panic, with investors making a run on the fund.
According to Federal rules, money funds are not allowed to deviate from $0.9950 and $1.0050 per shares. In the event the fund dips below $0.9950, a money market fund could face liquidation.
Read more:
Who’ll Tell Grandma Her Money Market Fund May Not Be Safe?
January 13th at 6:14am by Tom Lydon
The chief source of "new money" for most people would seem to me to be savings from your salary, which you would dollar cost average according to your preferred allocation at this time. I dont know why this is such a controversial statement on this blog unless everyone is retired.
Anonymous claims that salaries are a source of "new money" to take advantage of Bob Brinker's "attractive for purchase" calls.
Not really, because as far back as the eye can see in Marketimer and on Moneytalk, Brinker recommends "dollar-cost"average on weakness." Whatever that is.
Perhaps you are not aware of what it means to dollar-cost-average money into the market.
Post a Comment