STOCK MARKET...The only time that Brinker mentioned the stock market today was in answer to a caller who asked what "runaway inflation" would do to the stock and bond market. Brinker said that historically, the stock market did not like runaway inflation -- that it would be very challenging situation....The worst case outcome for investors is runaway inflation....That generally leads to chaos when you have a situation like that.
SYSTEM TO PROTECT AGAINST RUNAWAY INFLATION....Brinker said: "This is one of the reasons that you really want to have a system that does not encourage runaway inflation. I think it's a very important thing to protect the integrity of the dollar. The charter of the Federal Reserve requires them -- they are under orders from congress....that's why you see Ben up on Capital Hill answering questions....The Federal Reserve has received orders from congress on what their mission is, and their mission is a dual mission -- stable inflation, which defined right now as less than 2%, which where we are, and maximum employment. Boy,they are having a hard time on that. We are at 7.9 unemployment as we speak."
HOUSING MARKET....Improving all the time. Case Schiller Index comes out again next Tuesday.....Prices are up, up and away....San Francisco up 28% year-over-year. Brinker said: "Wow, that is a huge year-over-year increase."
Honey EC: Friday, I was talking to a realtor in the Santa Cruz area and he is actually getting worried that we are headed for another real estate bubble. In this area, and in San Jose, buyers are bidding up the buying prices on homes.
SEQUESTRATION.....Brinker said: "The thing about this story that is hard to understand is why such a small amount of spending reduction would cause such a reaction.....The actual amount of spending reduction through September 30th, starting on March 1st, comes to 44 billion dollars....In terms of government spending it is a little bit more than 1%....And it's 1/4 of 1% of GDP.....For several years, we've been running deficits in excess of 1 trillion dollars a year.....The $44 billion dollar number is dwarfed by the big picture....Both sides reacting as though this is one of the worst things that ever happened.....How are we ever going to get closed to a balanced budget with this kind of rhetoric."
WHITE HOUSE WANTS MORE TAXES....Brinker said: "The policy that's come forth from the White House is to raise revenue sufficiently to pay for the sequester cuts by changing the deductions on income tax returns.....The White House wants to raise revenue to pay for the proposed problem....And so then we don't have to have spending cuts....So you see this is really a proposal out of the White House to continue the spending at the same level as now but to pay for it with increased taxes....How are we ever going to get a handle on our spending problem if the only way that anybody can up with to resolve it is to raise taxes....We already discussed what the deductions are that are at risk if the deductions are changed."
Honey EC: Here is Brinker's list from last week's summary where he thinks high-earner will see tax increases caused by these reduced deductions. 1. Reduce mortgage interest $million cap or means test (second home deduction). 2. Remove deductions for state and local taxes (They've already done it for AMT victims.). 3. Set income cap on charity deductions (president already proposed cap). 4. Tax employer health care benefits. 5. Change rules on municipal income taxes.
WHITE HOUSE REALLY LIKES TO GO AFTER HIGH-EARNERS....Brinker continued: "The White House really likes to go after high-earners. That's their favorite thing to do when they raise revenue. They just did it at the first of the year when they raised the rates on high-earners to 39.6% federal. Which means if you're in California.....you're in the 53% bracket right away and if you own your own business you're closer to 57% because you pay both sides of the uncapped Medicare."
NEW GOVERNMENT PROBLEM WORSE THAN WE THOUGHT....Brinker said: "Now we have a new problem which worse than the problem we thought we had.....We have a government that right now is raising Cain in the media as you know. You've heard the drill, planes aren't going to be able to fly. We have a government that is so dysfunctional that they can't trim a little bit out of the budget without declaring Armageddon. And that's a new problem that's worse than we thought we had."
BRINKER'S SOLUTION TO DEBT PROBLEM: Brinker said: "Now I know you want a solution, let me give it to you. Until our dysfunctional federal government stands up to the need for entitlement reform, you're not going to see a solution to the problem you are observing. They must reform entitlements. They can do it with adjustment for today's younger people, not current recipients. They can do it with subtle changes in the Medicare program. They can do it, but until they are willing to tackle entitlements, you're not going to see any significant progress."
CONTINUING RESOLUTION....Brinker said: "In addition to the spending cuts starting next Friday, we have the continuing resolution issue in the last week of March."
ECONOMY...Brinker said: "The GDP will be revised Thursday. The median estimate is for 1/2 of 1% annual and that is called slow.....About the annual deficit as a percent of Gross Domestic Product....The economic community will tell it's about 3% and that as long as you have an economy that is growing at a reasonable pace, you can tolerate about 3% figure on the annual deficit divided by GDP. Right now, we are at roughly 6%. We've come down from 10, but we were coming out of an economic travesty there in 2008 with the banking system teetering. We have to get it down to at least 3% in order to feel better."
ITALIAN POLITICS....Brinker talked about the elections in Italy next week. (Honey EC: I'm not going to cover this topic, but here's an interesting take on it from the Guardian. Italy Elections: an end to sleaze and cronyism?
WHERE TO FIND DIVIDEND HISTORY OF AN INDIVIDUAL STOCK: Caller Ken from Albuquerque asked how to find the dividend history of an individual stock. Brinker told Ken to to go to the library there in Albuquerque and look in the Robert D. Fisher Manual of Valuable and Worthless Securities. Honey EC: FrankJ sent this website that might save Ken a trip: Tesselation Also, Jeffchristie said you can get it at Yahoo Finance.
BRINKER'S FAVORITE MONEYTALK LISTENERS ARE NOT HUMAN....To caller Gordon from Santa Barbara, whose poodle, Sophie, went "woof, woof," Brinker said: "We have a lot of listeners in the canine community. We have shown nothing but respect for them. Tell me about your canine. (Gordon replied: "This is Sophie, the standard poodle.") Sophie has just been on radio in 50 states and part of Canada and online worldwide. By the way, did you get a chance to see the 137 edition of the Westminster Kennel Show? Was it fantastic or was it fantastic? That big sheepdog got the runner-up. I think the judge had to throw that bone out because the audience had gone bonkers for it. What did you think of that affenpinscher that walked away with all the Kewpie dolls?.....Please give my very best to Sophie and tell Sophie that she is one of many in the canine world that are regulars on Moneytalk and we love everyone of them -- Santa Barbara Sophie, that's great."
HOW BRINKER BUYS HIS OWN TAX-FREE BONDS.....Brinker said: "I think the best way to own municipal bonds is to own them in a date-certain way. That's the way I own them. I own municipal bonds of several states, also New York City.....I have no concern about credit risk in any of my holdings. My plan is to hold them to maturity and be paid off at maturity and collect the interest in the interim. This way, I don't have all of this other risk that these people that are out there in the long-term municipal bond funds, they have all kinds of interest rates risk in those funds. I don't have that because my plan is to hold to maturity."
Honey EC: How interesting that Brinker is totally against owning tax-free bond funds, but Bob Jr. has a whole portfolio full of them in his Fixed Income Advisor -- at least he did according to the October 2012 complimentary issue on his website. The portfolio includes Vanguard High-Yield Tax-Exempt Fund (VWAHX). The other funds in it are VWITX, VMLTX, VWLTX and VWSTX -- pretty evenly divided.
CHASING JUNK BOND YIELDS.... Brinker made the comment that the Federal Reserve is concerned about investors "chasing junk bond yields." Honey EC: My question is, why is it any of the Fed's business if people buy junk bonds? Is he going to bail them out if they need it?
MARKETIMER MODEL PORTFOLIOS AND INCOME PORTFOLIO....Brinker said: "We have the Vanguard Short-Term Investment Grade Fund (VFSTX) in our balanced portfolio. At this time, we do not have that fund in the page 7 income portfolio. That fund is not part of the page 7 income portfolio as we speak, but it does still have a small allocation in the model portfolio III which is on page eight."
Honey EC: Brinker is right, VFSTX is only 10% of his Marketimer "balanced" model portfolio III, "as we speak." The other bond funds he has in that portfolio are Vanguard Ginnie Mae Fund (VFIIX) and Double Line Total Return Bond Fund (DLTNX) -- these two funds are also in the page 7 "income portfolio" in equal proportions with Dodge and Cox Income Fund (DODIX) and Metro West Total Return Bond (MWTRX).
Brinker's guest-speaker was Dean Clancy.
Jeffchristie's Moneytalk Final Exam Question:
Today on Moneytalk Bob took a call from Gordon. During that call Bob acknowledged a K-9 listener who we could hear in the background. The name of this pooch is:
A) Bailey, the Black Lab from San Jose.
B) Sophie, the Black Poodle from Santa Barbara.
C) Bo, the Portuguese water dog from Chicago.
D) Barney, the Scottish Terrier from Dallas
Answer: B) Sophie, the Black Poodle from Santa Barbara.
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.)
34 comments:
Oaktree's Howard Marks put out this memo today on high-yield bonds --> http://stks.co/bLUM $HYG $JNK
Anonymous, please try to post a valid link when you send stuff to this blog. I don't mind making it hot if you don't know the HTML, but I don't have time to do your searches.
Junk Bond volatility Gains in Split With Stocks
hour 3: Have I been transported to the Senate chambers in Washington DC? Am I listening to a filibuster? This is some of the most boring stuff I've heard on this show in a long time.
-- Frankj
FrankJ,
It's a tossup as to what is the most boring today -- hour 3 monologues or the stuff about Italy's election.
Like Moneytalk listeners are just dying to hear Bob Brinker talk about Italy's elections. LOL!
Bob mails it in again, boring !
he never mentions the 47% that pay no federal tax and we have to carry them and all their wants. I listen just hoping to hear maybe one item to take to the bank but for many years now it's been blah blah blah. I think he is out of ideas and doesn't care anymore.
I used to listen to Bob all of the time. He reminds me of some old, washed up, out of shape athlete who is going through the motions just trying to play out the string and get one last paycheck. He is losing stations and the last time I listed to him his show was filled with public service announcements "Cars for Kids" and a couple of advertisements for guess what? Vanguard of course. Perhaps he is trying to pave the way for Junior Brink but little boy Brink needs to step up to the mike if he is going to take over.
If Bob were a worn out athlete which one would he be? I offer this a a little contest to your readers. The winner will get a partial copy of my free sample of an old little boy brinks newsletter (S&H not included).
The current Bob reminds me of movies I've seen of a fat bloated Sonny Liston trying to survive a fight my clutching an hanging on to a younger contender. Any other contenders?
The sequester has been grabbing everyones attention if Bob doesn't mention it today I think his show will have serious problems going forward. As mentioned before Bob used to be a teacher but has developed different priorities most notably just trying to sell his newsletters..I guess he figures ten years from now no one will remember Bob Brinker so why bother doing the right thing just grab what you can NOW,,,
John, hang on a little longer. When the interview finally got going they did talk about the sequester, with the guest.
There will be a summary. The hold up is that KSFO hasn't made the archive of the third hour available yet. Need to listen to it again for some details and accuracy.
-- Frankj
he current Bob reminds me of movies I've seen of a fat bloated Sonny Liston trying to survive a fight my clutching an hanging on to a younger contender. Any other contenders?
Are you sure you are thinking of Sonny Liston? His last fight was against the very durable Chuck Wepner (who would have been a champion in any other era)and Liston looked fine to me outside of the premature aging in the face. Liston was very adroit in that fight, slipping punches, body feints not tying up Wepner, where as Wepner was grabbing behind the head and pulling Liston toward him.
And I don't remember Liston clutching. Are you confusing Liston with BoneCrusher Smith by any chance?
Curious,
tfb(once a boxing fan)
Seems to me that Brinker is worried about higher taxes ,, because ..it will affecthim,,,and his dough,, and he has muni bonds ,, just like suzy orman... notice he never before spoke about HIS investments,,, and like Apple stocks ,, he suddenly came forward to speak about his private investments.. isn't that interesting
Thanks Anonymous brinker did step up to the plate finally. I agree with his points made and that entitlements have to be addressed. Unfortunately with this president that will not happen unless congress forces his hand. It is going to be interesting going forward my bet is something drastic is going to happen which will cause a big change in this country for the better. Hopefully us americans can develop our spiritual values and start being satisfied with what we have. Thanks for the post Honeybee.. John
Honeybee asked: "CHASING JUNK BOND YIELDS.... Brinker made the comment that the Federal Reserve is concerned about investors "chasing junk bond yields." Honey EC: My question is, why is it any of the Feds business if people buy junk bonds? Is he going to bail them out if they need it?"
I see it as the same as the housing bubble. The Fed might have to bail out a government that has to bail out its retired folk who see their retirements crushed when rates normalize and money pours out of these funds if rates suddenly soar.
Remember we have a government that felt it was OK to use taxpayer funds to bail out homeowners who bought homes they could not afford.
BTW, Brinker might feel he has no risk holding bond funds to maturity, but if he holds them at his broker, then they are "marked to market" to show the price he could sell them. Thus he will see a loss in value if rates soar. Sure he will get his original investment back, but it will be worth much less due to inflation. It is similar to saying you don't see your house burning down because you have your head buried in the sand. Also, rates will go up if there is inflation above two percent.... so the bond will lose significant value to inflation. There is no free lunch.
John said:
"I agree with his points made and that entitlements have to be addressed."
Bob has now proved to me that he is just another LOW INFORMATION VOTER. A path towards a balanced budget including major reforms to Medicare was presented in the house by Paul Ryan last year. It passed the house and the president responded to it like a squealing pig.
Barack Obama vs. Paul Ryan: House GOP Budget Plan
Correction.
My mistake:
"BTW, Brinker might feel he has no risk holding bond funds to maturity, but if he holds them at his broker, then they are "marked to market" to show the price he could sell them."
Corrected Version:
"BTW, Brinker might feel he has no risk holding individual bonds to maturity, but if he holds them at his broker, then they are "marked to market" to show the price he could sell them."
Sorry for any confusion!
"Also, rates will go up if there is inflation above two percent.... so the bond will lose significant value to inflation. There is no free lunch."
The FED said they will not raise rates if unemployment is still above 6.5%.
I don't know about bonds "losing significant" value when rates rise. I've heard that for the past 4 years as the bond market has boomed. The experts were wrong. Bonds were the place to be for the past decade.
Does anybody here really see soaring interest rates in the next 4 to 5 years? We have hard core unemployment that practically guarantees no action by the FED as long as inflation is tame.
I would like to see rates go up but I am not holding my breath.
CDer
CDer,
I don't think anyone, including Bob Brinker, "sees soaring interest rates" anytime soon.
If you read what Brinker said, you would know that like his talk about runaway inflation, he is simply talking about a hypothetical.
Of course, we all know that will change some day and interest rates will have to "normalize." At that time, IMO, it's Katy Bar the Door!
We will have interest rates rising, and everything else dropping like a ton of bricks.
"Of course, we all know that will change some day and interest rates will have to "normalize." At that time, IMO, it's Katy Bar the Door!"
Japan has been waiting for over twenty years now. I may not be around long enough for rates to "normalize" whatver that is.
And I don't think rates will "soar" overnight. The FED will gradually increase rates with little real impact on bond funds. Income will increase faster than NAV will decrease which matters little to the income investor.
CEer
The total bond and GNMA funds are Vanguard are down YTD and down even more since rates bottomed last year.
Check out US Treasury Rates at a Glance where you can see the 10-yr US Treasury bottomed at about 1.5% last summer and now it is 2.0%.
That is half a percent higher and negative returns for bond funds even after QE3 was announced.
On a weekly basis I track the money going into stock and bond funds and it is incredible how much is still flowing into bond funds. When the tide turns, words like tsunami will be common to explain what happens to many portfolios.
Japan has been waiting for over twenty years now.
Japan is only now turning on its printing press as it joins the new world war of the money printing presses. Japan also made many other mistakes like not marking to market its real estate disasters. We still have some toxic loans but with our presses running full speed, inflation and a search for return has most QUALITY real estate recovered or at new highs.
I may not be around long enough for rates to "normalize" whatver that is.
You should lose weight, add muscle with resistance training or yoga and do cardio exercise. It is amazing what those three things can do for living longer and enjoying it. At the very least, it will make you a bit more optimistic for the future as most experts I respect think we will "normalize" in 2014 or 2015. The bond market will probably get hammered before then as investors sniff it out.
Frankj:
The "turn" in interest rates has been a topic of discussion here, on MoneyTalk, and elsewhere for years. Individual bonds, held to maturity will be unaffected, but bond funds will be hurt, the longer the average maturity, the greater the pain. This is something the informed already know.
My question relates to the "suddeness" of an interest rate increase. This will not/should not be Black Swan event. We've been hearing about it for years. So how rapidly would NAVs of bond funds erode?
Seems junk would among the first to get hit hard, also long term govt. Thoughts?
You should lose weight, add muscle with resistance training or yoga and do cardio exercise.
Maybe the funniest comment in this forum in some time.
tfb
Giovani
Honeybee said:
It's a tossup as to what is the most boring today -- hour 3 monologues or the stuff about Italy's election.
Honeybee,
Perhaps our election should be given more interest. It appears to be having an effect on the US markets today.
1:30 pm : The S&P 500 continues to trade in the red as investors appear to be favoring the wait-and-see approach amid frequent updates from Italy. It should be noted official word is not expected until 15:00 ET when the results of the Lower House vote are scheduled to be released. Meanwhile, Senate results are expected to come through around 18:00 ET.
Ciao!
Giovani
"My question relates to the "suddeness" of an interest rate increase. This will not/should not be Black Swan event. We've been hearing about it for years. So how rapidly would NAVs of bond funds erode?"
I don't know the answer Frank but from the comments I've seen, it seems like some here are advocating timing the bond market before rates rise.
Even if bond funds take an initial hit as rates rise, they will eventually recoup as maturing bonds are replaced with new, higher yieldding bonds.
I'm an income investor so raising rates will eventually result in higher income, fluctuations in NAV are really of secondary importance.
If portfolios are going to be hit by a "tsunami" as rates rise then a golden opportunity is there to short the bond market. Is anybody here up for that?
Bond shorts have been creamed for at least the past 4 years as they finally capitulate and admit they can't time the bond market either.
I am holding on to a substantial portfolio of well balanced fixed income funds.
CD
CD: I guess I am of a similar mind about bond funds. A holder of individual bonds can ignore the effect of interest rate changes if he intends to hold to maturity.
The investor in a bond fund really has no solid maturity, being invested in a basket of different bonds, with varying maturities. But, it that investor intends to hold the bond funds as some sort of permanent holding, then they might see the NAV decline -- but what difference does it make?
The fund will be replacing maturing bonds with newly issued ones which presumably, have a higher interest rate attached.
Am I missing something?
With regard to Anonymous' comment, I, too, was wondering why Bob, Jr., has not guest hosted, at least not that I've heard. Perhaps he is mic-phobic or has a lousy radio voice.
Good point, Honey, about Bob's inconsistency re: tax-free bond funds. Holding a ladder of them until maturity is a sound idea unless we get serious inflation. In that event, the purchasing power of these dividends will likely be degraded to the point of a negative return.
Might be better off in a money market fund if this happens.
2/25/2013 @ 11:00AM |17,998 views
Gary Shilling: Why You Should Sell Stocks And Buy Treasurys
Steve Forbes: Gary, good to have you back. Your record has been phenomenal. I think you’re about the only person I know who has consistently, for years, said, “Be in treasuries and you’ll do better than the market.” And indeed that has been the case.
Gary Shilling: Thirty-two years now, Steve. Since 1981.
CD
http://www.forbes.com/sites/steveforbes/2013/02/25/gary-shilling-why-you-should-sell-stocks-and-buy-treasurys/
The apple doesn't fall far from the tree. Bob Jr. (now known as "Bob Brinker") thinks Fed (Bernanke) is the only smart guy in the room:
Bob Brinker @BobBrinker
.@BrianSozzi you can hear the frustration in his words as the $FED is full throttle and has to combat fiscal morons
Colortini said: "With regard to Anonymous' comment, I, too, was wondering why Bob, Jr., has not guest hosted, at least not that I've heard. Perhaps he is mic-phobic or has a lousy radio voice."
Nope, Bob Jr. has never guest-hosted Moneytalk. It's anybody's guess why not. I suspect he got his mother's voice, not his dad's velvet pipes. :)
Other radio hosts whose son's enter the financial realm have included them in their programs.
I'm thinking about Jim Jorgenson, in particular. Of course, there was a difference, Jim's son was not using using a name that would cause anyone to mistake him for his dad.
That said, if Bob Jr. comes on the air and makes it clear to the vast audience that "Bob Brinker" and his Fixed Income Advisor is NOT the same Bob Brinker who published Marketimer and has done Moneytalk for 27 years, it might affect his bottom line significantly.
Vanguard's Total Bond market fund has had only ONE year [1999] in the past 15 years when the total return was negative [-0.76%] but even in that year the income return was 6.02%.
Who cares about temporary fluctuations in the NAV when your goal is long term consistent income?
IMO, folks who have been sitting on the sidelines because they "know that rates are going to rise" have been missing the boat.
Take a look at the consistent income stream of the total bond market fund....
https://personal.vanguard.com/us/funds/snapshot?FundId=0084&FundIntExt=INT#tab=1a
CD
Sunday, Bob Brinker mentioned that after Sequestration comes Continuing Resolution which is even more scary.
Maybe he read this article which was published the same day:
After the sequester: Why March 27 is even scarier
By Richard E. Cohen
Feb 25, 2013
The debate over government spending is shifting from across-the-board cutbacks in agencies to a more sweeping focus on all federal accounts. With a March 27 deadline to extend a vital continuing resolution and prevent a shutdown of all operations, President Obama and Congress—who have tied themselves in knots in budget debates—face the challenge of finding new steps to loosen the policy stranglehold.
The latest challenge was put in place last September when both parties, on the eve of the election, agreed to kick the spending can down the road and retain existing levels for another six months. With the lawmakers’ continuing failure to resolve the fiscal issues, and with the voters’ decision to retain roughly the political status quo, the same decisions again are front and center. But this time, the players have shown that they are less amenable to deal-making.
Since January, leaders in both parties have been struggling over steps to avoid more than $80 billion in spending cuts and their consequences from the budget sequester that was scheduled to hit Pentagon and domestic discretionary accounts on March 1.
The sequester appears increasingly likely to go into effect. But the omnibus spending bill poses an even larger threat for already distressed federal employees and contractors. Instead of furloughs and spending delays, they may have to contend with a shutdown—and uncertain prospects for how and when the funding cutoff eventually will be restored.
The steps to resolve the latest conflict seem clear. Leaders of the congressional appropriations committee—who have a long tradition of bipartisan cooperation—could craft a compromise on overall spending for the next six months. Such a step also offers the convenient opportunity of relaxing the sequester, where the debate between the White House and congressional leaders had bogged down on political talking points.
House Appropriations Committee chairman Hal Rogers (R-Ky.) and Senate Appropriations Committee chairman Barbara Mikulski (D-Md.) offered good intentions and constructive proposals. "I am hoping that Congressman Rogers can pass this [spending extension] and that the Senate can get to work on it," Mikulski told reporters in late February. But it was far from clear that the once-powerful appropriators had the leverage or the clout to make a deal.
Only a couple months ago, the spending panels contended with unexpected obstacles before they finally passed a nearly $60 billion emergency spending bill for the victims of Hurricane Sandy, which caused huge devastation in the Northeast last October. But 179 House Republicans and 36 Senate Republicans voted against that measure—dramatic signs of the GOP’s aversion to once-routine spending, and the breakdown of the appropriators’ consensus-building approach.
Read more
Not to worry about the "sequester" says NY Mayor Bloombert. The US has access to an infinite amount of money.
"When it comes to the United States federal government, people do seem willing to lend us an infinite amount of money. … Our debt is so big and so many people own it that it’s preposterous to think that they would stop selling us more."
It's scary to think people vote for and elect blooming idiots like Bloomberg!
Brinker's letter is out today, does anyone have any info on this month's offering ?
Anonymous,
If you want to know what Bob Brinker's Marketimer says on the day it is issued, you will need to subscribe. You will not get that here.
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