June 7, 2015, Bob Brinker's Moneytalk:

June 7, 2015....Bob Brinker was not live on air today.  Moneytalk was unannounced re-runs of ancient monologues and calls....(comments welcome)

A CHUCKLE:  Some have asked why Brinker has never written a book. Well, maybe he has:

Bluce said:  "......"Bob Brinker's Morality and Integrity Handbook" with the "New, expanded edition including 'How to Run a Phony Radio Show'."

STOCK MARKET: There has been no change in Brinker's bullish stance on the stock market. He is still fully invested. However, for some time now, he has been warning of a needed correction. He is on record stating that he believes the next correction will not exceed the 10 - 15% range. He recommends dollar cost-averaging on weakness for new money.
 

Marketimer Stock Market Timing Model Update: 

Brinker has stated that he uses several disciplines to evaluate future stock market potential. In the June 2015 issue of Marketimer, he reviewed them.  All of the information  contained in this review is available in the public domain, and  I will summarize it here:

1: Accelerating Inflation....The year-over-year rate of inflation as measured by the consumer price index now stands at -0.2% - one of the lowest in the past 50 years - well below the average annual gain of 2.1% over the past decade.  Over the last six months, the CPI has declined at an annual rate of 1.6%.  The core CPI year-over-year inflation readings stands at 1.8%.  (This figure excludes the food and energy sectors.)

The Federal Reserve's favorite inflation gauge is the personal consumption expenditure index – PCE – and it stands at 0.3%, with a core reading of 1.3%.  The Fed's target is 2%.  They closely monitor the underemployment rate, which is elevated at 10.8%.  In the spring season of 2007, the underemployment rate was 8.2%.

2: Declining Employment.....Jobs have gained  243,000 per month since the beginning of 2014 - the largest increase in 17 years.  And the unemployment rate declined to 5.4 in April - the lowest since May 2008.  Additionally, average hourly earnings edged up 0.1% in April to 2.2% above a year ago.  Aggregate payroll income rose 4.7% over the past year ago - this relates to potential consumer spending growth going forward,  and helps to indicate a favorable employment outlook.

3:   Rising Unemployment Claims.....A rise in the number of individuals filing for unemployment insurance for the first time, suggests deteriorating labor market conditions.  The key indicator to follow on this is the four-week moving average of claims. This  smooths out sharp fluctuations.  The four-week moving average of claims is currently 271,500 – the lowest in 15 years.  If this figure remains below 300,000, the risk of a recession should remain minimal.

4:  Inverted Yield Curve.....The yield curve shows the relationship between short-term rates and long-term rates -  based on the US Treasury yields.  When short-term rates exceed long-term rates, investors think that the economy is deteriorating,  and that long-term rates will continue to decline.   But when the yield curve is not inverted, the risk of a recession is low.   Right now, the yield curve is in a clear upward slope - three-month Treasury Bills are yielding close to 0%, and the 30-year Treasury Bond is yielding close to 3%.

5:  Leading Economic Index....The Conference Board Leading Economic Index (LEI), and the Coincident Economic Index(CEI) continue to show progress, which is to the benefit of stock market investors – a combination of moderate economic growth, low inflation, and very low interest rates.  Consequently, the stock market has returned to valuation levels which are consistent with the 50-year average on a price/earnings ratio basis.

The NAHB/Wells Fargo Housing Market Index (HMI), have readings ranging from 52 to 59 over the past 10 months - and gained nine point since last May.  Builders view readings above 50 as good.  The median price for new homes rose 8.3% from a year ago, to $297,300..  Housing starts and single-family home starts are up – rising sharply.  Building permits rose 10.1% to a 1.143 million unit annual rate, the highest since June 2008.  This suggests that residential construction spending will grow into next year.  Year-over-year, housing starts rose 9.2% and building permits are up to 6.4%.

Jeffchristie's Moneytalk Final Exam Question (Honey EC: not a re-run.) 

Which radio talk show host referred to the star ship Moneytalk as the good ship moron?

A) Rush Limbaugh.

B) Glenn Beck.

C)  Mark  Levin.

D)  Rick Edlemann.

Answer

          Our thanks to the Fluffy Bunny for recording this.
 
Honey EC: Notice that recording was made in 2012, as the market was poised to make  losses never before seen in our lifetime, and the economy almost collapsed.

PODCASTING:
Los Angeles. KABC 790. Moneytalk plays two hours later in the evening and they podcast it.

CHUCKLE TIME....Some people think Brinker is a Bozo when he plays fast and loose with listeners who trust him -- pretending to be live on the air:

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May 31, 2015 Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

May 31, 2015....Bob Brinker hosted Moneytalk live today....(comments welcome)

IN EDIT!  HERE IS THE LINK TO THE PODCAST OF THE THIRD HOUR OF MAY 31st MONEYTALK: KABC 790    If more become available, I will post them.

STOCK MARKET....(in response to Larry from Ill. who asked about investing 100% of his kids college funds in the stock market)  Brinker said: The real question for you is going to be what the market does between now and the time that you need to spend this money.  You know what the market has done – it's tripled in the past six years.  So nobody that I know is jumping up and down and saying this is the buying opportunity of a lifetime.  The reality is this tremendous market run and surge that we've had has brought us to this point.

Honey EC: I think the "point" that Brinker was referring to is the near all-time record highs that the market has been reaching and nipping at. But he is still fully invested in all Marketimer portfolios.

STOCK/BOND ALLOCATION 50-50 NOT 60-40 IN RETIREMENT....In response to Frank from Milwaukee, who asked about being 100% in stock market, Brinker said:  That's not something that would work for me.  I don't see any reason to have 100% stock ratio in retirement, even if you have a pension.  I would not be willing to go more than 60/40 and that's the absolute most I would go in retirement - and that would only be because you have a guaranteed pension.…

MODEL PORTFOLIO III.... Brinker said: In portfolio III, we have a duration of around two, which is very very low.  And we have a current investment yield of about 3%.  So in terms of duration we have controlled investment risk there by limiting duration.…  You always have the alternative of using a laddered FDIC insured CDs if you are uncomfortable owning any bonds.  And that way, your principal is not at risk.…  For anybody that is worried about it.  – That would be for a zero risk tolerance income investor.

Honey EC: I found it interesting that Brinker gave the duration and yield for his Marketimer model portfolio III bond funds. I don't think he has ever done that before.  That is his balanced portfolio that he recommends for retirees. The other two portfolios are all stocks. (All fully invested.)  There are three bond funds in P-3: DoubleLine Low Duration Bond (DLSNX; DoubleLine Total Return Bond (DLTNX); and Osterweis Strategic Income Fund (OSTIX). Percentage-wise, these three funds make up 50% of the portfolio, but dollar-wise -- for those who have been in the portfolio since 2008, when it dropped like a rock, it is close to 70-30 (stocks over bonds).

Honey, the Curious: I wonder if Brinker got confused and thought he was talking about his income portfolio since he does not include portfolio III duration or dividend yields in Marketimer. It would be great if one of you great mathematicians would figure out the duration and yield on those there funds that I listed above.

VANGUARD GINNIE MAE BOND FUND....Caller Bruce from Chicago said: I retired and I have my money divided between Ginnie Mae and the total Stock market Index.  I'm not making any money on the Ginnie Maes but I do want to be safe.  Can I ask you if there is something else that I could possibly consider where I would get a little bit more interest?

 Brinker replied: If you don't want to take any risk, then you are getting fairly close to a risk free investment scenario.  And if you want to go there, I have to tell you, you're not going to get much these days because of the Fed's policy of keeping short rates low.…  If you don't want to take any risk at all been you could put together a ladder of FDIC fully insured Certificates of Deposit.  Your interest rate is going to be very low, but you're going to get your money back on maturity and have the freedom to reinvest as you seek at that time.

 GINNIE MAE AND MARKETIMER MODEL PORTFOLIO III....Carol (Marketimer subscriber) from Illinois said: I've always followed your model.  I'm a retired person – have my 401(k) with Vanguard.  And late last year, I converted my Ginnie Mae into the money market waiting to hold on to see what would go on with the interest rates.  I'm still in the money market but I'm thinking about your recommendation for your model three portfolio in the bond area.

Brinker replied: I think that we have addressed this issue a number of times.  I feel reasonably comfortable with the approach we are taking which is, we are keeping our durations down – our durations are down roughly in the area of 2.0 – a little bit less.  At the same time we are doing that, we are generating a nice investment income – right now it's about 3%.

Honey EC: Brinker did not tell either caller that he  sold all Marketimer Vanguard Ginnie Mae Fund holdings in July 2013 -- almost two years ago. Research proves that this cost investors  dearly since GNMAs have done much better than most of the funds Brinker moved subscribers into.... That includes Carol who moved out of Ginnie Mae into money market funds. Brinker's advice was to move the cash into Fidelity Floating Rate Fund -- he  has since sold all of that too.

BRINKER IGNORES CALLER AND TALKS ABOUT INCOME PORTFOLIO ON PAGE 7 INSTEAD.....Brinker continued talking to Carol:  "If you take a look at that income portfolio on page 7 where we spell this out, you'll see it's yielding about 3% investment income and the duration has been held down close to 2%.  We are taking some credit risk in the portfolio because in an expanding economy, I feel comfortable taking some credit risk.  Certainly during the period that the economy is expanding and we anticipate that is going to continue at as low to moderate pace.…

Honey EC:  Even though Carol asked about model portfolio III, it was very clever of Brinker to tell Carol about his Marketimer income portfolio since he had already discussed portfolio III.  Kind of like a two-fer advertisement. :)  However, the "page 7" income  portfolio is  the same as the bond portion of portfolio III, except it has a fourth bond fund in it: Metrowest Unconstrained (MWCRX). 

Or maybe he REALLY WAS confused when he answered the first caller.

BOND FUND INVESTOR WILL WEEP AND GNASH THEIR TEETH....Brinker continued: I continue to believe that there is interest rate risk out there because of the fact - first that the Fed has held the rates down here a very long time.  And they have been quite vocal that they would like to raise interest rates when conditions merit that - and that could happen going forward.  And at the same time, given the very low rates you are seeing in the long-term, you obviously have a substantial level of interest rate risk that is out there.  And I can pretty much guarantee you that when that happens, when you see a move toward normalization of interest rates, you will see weeping and gnashing of teeth in the income investment community when they see their net-asset-values heading south.  They are not going to like it one bit

THERE IS A LOT OF RISK IN BOND MARKET....Brinker continued: The situation is with short rates where they are – and with long rates – after all, you looking at the 30-year treasury trading in the vicinity of 3%.  With that kind of rate structure, there certainly is a lot of risk in the bond market.  The longer your maturities, the longer your durations, the more risk you are accepting.

COMPARING STOCKBROKERS WITH ADVISORS..... Caller Bill from Oregon asked: "Have you ever compared the results between stockbrokers and advisers with the fiduciary relationship with their clients?"

Brinker replied:  Here's the problem with trying to do that.  Do you know many stockbrokers that publish certified audited results?.  (answer: "No")  Well there's your problem because without those results, you'd be hamstrung.  (caller: "Which one would you choose?")  I like no-load mutual funds.  We've talked in detail about keeping your expenses down, and that's where some of these very low-cost index funds come in – no-load funds in all cases.…  Sometimes people will say what about ETF's?  Just the same thing - they are exchange traded mutual funds.  They just trade during the day instead of pricing at the close.  Mutual funds are mutual funds – whether they are mutual funds that are no-load or whether they are exchange traded mutual fund. 

 BETTER TO ROLL 401K INTO IRA WHEN YOU RETIRE.....Caller Mike asked: "When a person retires and they have a 401(k), should they leave it in the 401(k) or move it to something else when they retire?"  Brinker replied: I like rolling it into an IRA - and I'll tell you why – because first of all there can be some estate benefits -- but also, you can take control.

GROSS DOMESTIC PRODUCT REVISED TO LOUSY....Brinker comments: Gross Domestic Product in the first quarter was just as lousy as we thought it would be.  We said it would be lousy, it was lousy.  Announced in preliminary form at the -0.2 annual growth and the revision put it at -0.7% annual growth.  Now there will be one more revision in June – the final revision.

SLAMMING CONGRESS AND THE USA....Brinker comments: It's true, when too many craven politicians are bought and paid for by the lobbyists who whistle Dixie with their money and their power, that is when you have the best government money can buy.  Welcome to the USA!

Honey EC; At least three times today, Brinker viciously slammed congress, but he never says a critical word about what's coming out of the White House...I wonder why? 

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION:  (Honey EC: Old-time Starship Trekkies will know the answer to this, but most of those who recently beamed aboard will have to look up the answer.) 

Bob Brinker has shown animosity to all but one of the following people:

A) Rush Limbaugh
B) Maria Bartiroma
C) Larry Kudlow
D) Lou Rukeyser
ANSWER 

FrankJ did not think the guest-speaker today offered anything that would be helpful or interesting to investors. I certainly agree. 

Brinker's guest-author was Brent Schlender: Becoming Steve Jobs: The Evolution of a Reckless Upstart into a Visionary Leader
                                    
HEADS UP: There is some podcasting of Moneytalk available at KABC 790 in Los Angeles. 
Podcast: Link to hour 3, May 31st 

Podcasts: Sunday May 24th. 
Link to hour one podcast
Link to hour two podcast
(Older programs are also available.)


                                      

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May 24, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

May 24, 2015....Bob Brinker hosted Moneytalk live today. (comments welcome)

STOCK MARKET....Brinker recommended fully invested asset allocation today. For those who are retired or near retirement, he recommends a  50-50 stocks and bonds allocation. He also recommended dollar-cost-averaging for new money.  Brinker's latest S&P 500 Index target range is the "low-2200s going forward."  However in the latest Marketimer, he says:

"Given the fact that the stock market has not experienced a major correction in 43 months, we would not be surprised to see the periods of profit taking and a possible short-term pullback as investors cash in on the enormous gains of recent years."

STOCK MARKET REACT TO SMALL RATE INCREASES....Brinker said: Right now we're talking about the possibility that the Federal Reserve will raise the short term rates one quarter of 1%… Eventually I think that it will be more than that.  When you think about the normalization of short-term rates I think I would be looking at 3 1/2 to 4% eventually as normalization.  But I think that is down the road.  Even Chair Yellen said that that could be a period of years – we shall see because this is all data dependent.  But to answer your question specifically, what will the impact be of a Federal Reserve rate hike.  Let's say they do raise the rate one quarter of 1% this year.  Or maybe they raise it twice, one quarter at a time to one half of 1%, what effect would that be on the stock market?  I think it is hard to imagine that a quarter or half a point on the Federal Funds rate would have a dramatic impact on the stock market.

ANY OLD EXCUSE FOR A STOCK MARKET CORRECTION.... Brinker continued: Now if investors want to use that as an excuse for correction, so be it.  You know we have not had a major correction since 2011.  And so it may be that investors will use any excuse for a market correction but in terms of impact on the economy, showing off the recovery, a quarter or a half percent – I just don't see it

WHAT ARE EXCHANGE TRADED FUNDS....Brinker said: A lot of people don't realize that exchange traded funds – the key word there is funds – they are exchange traded mutual funds… They trade like a stock.  In a sense, they trade like a closed end fund.  The exception is, with exchange traded mutual funds, they are almost at exactly, or very close to, the net asset value.  Whereas with closed-end funds, sometimes due to the supply and demand, and the limited trading, they can trade at a variance from their net asset value.  That is not true in a mutual fund.  A mutual fund trades at its actual net asset value at the close of the trading day on an ongoing basis.

INTEREST RATES/FEDERAL RESERVE CHAIR, JANET YELLEN.....Brinker comments: Chair Janet Yellen was on the rubber chicken circuit on Friday in Providence Rhode Island.  She made some interesting comments – not shocking comments – I don't expect to see too many shocking comments out of chair Janet.  She is more interested in levelheaded policy… She talked about a number of topics, including the labor market.  She said the labor market was getting better.  But she said, quote, we are not there yet".  Meaning that she doesn't think the labor market is ultimately where she wants it to be even though there certainly has been good progress in the labor market.  She went on to say… That if the economy continues to do better – as she expects it will - then, quote, it will be appropriate at some point this year, unquote, to start raising rates.  

CHAIR YELLEN STATES FED'S MONETARY POLICY.....Brinker continued:  So this isn't the first time that chair Janet has commented publicly on monetary policy since the end of March.…  She has reminded us ad nauseam that all of the policy decisions of the Federal Reserve are data dependent.…  We have been told repeatedly by the Fed Chair.…  We also know as the data keeps flowing, we observe that data in order to find out whether it is leaning in that direction of the increase in short-term rates that chair Janet says will be appropriate at some point this year if the economy continues to improve as she thinks it will.…

EVERYONE ON EVERY CONTINENT KNOWS RATES WILL RISE -- SOMETIME.....Brinker continued: There is probably no one left on any major continents of the world who don't already know this.  We have been looking for the Federal Reserve to actually raise short-term rates for some time.  And it certainly appears that if the economy continues to improve, we could see the first rate hike down the road.…

Honey EC: Yep, Brinker made changes to his fixed income holdings to lower duration back in 2013, including selling all Vanguard Ginnie Mae Fund and Vanguard High Yield Fund. What he put in their places performed very poorly by comparison. So he is certainly aware that it has been "some time," and his followers know it too. I submit that making these costly changes so far in advance negates his bragging rights when rates finally do rise. 
  
INTEREST RATE NORMALCY WOULD BE 4%.....Brinker commented:   Janet Yellen said that the best way for monetary policy to proceed would be by proceeding cautiously, which I would expect to mean that it will be several years before the Federal Funds rate will be back to its normal longer run level.…  If you're wondering what would be a general area of normalcy, for the Federal Funds rate, which has been held close to zero since the end of 2008.  A general level of normalcy would be in the vicinity of 4% – 3 1/2, 3 3/4, 4%.…  Something in that vicinity would be normal for the Federal Funds rate.…  So it looks like from this comment from the Federal Chair, that it could take quite a while for the Federal Funds rate to normalize in a 4% vicinity somewhere down the road.

FOMC TWO CRITERIA FOR INCREASING RATES (LABOR MKT AND INFLATION).... Brinker continued:  Chair Janet also commented on the two criteria that the FOMC has for increasing short-term rates.  She said, I will need to see continued improvement in labor market conditions - that's one - and I will need to be reasonably confident that inflation will move back to 2% over the medium term… Chair Janet also commented about the economy - and  said that the US seems well-positioned for continued growth.…

THAT EXTRA $700 IN YOUR WALLET.....Brinker continued: And one of the things that she is looking at is the fact that purchasing power – has been increased by about $700 per household on an average basis as a result of lower gasoline prices.  I know it doesn't sound like lot of money, but the reality is $700 per household - additional consumer discretionary spending power - it is significant enough to provide a boost to consumer spending.

Honey EC:  First caller of the day, George from New York, challenged Brinker and Yellen about the $700 that is supposed to be going into everyone's pocket now. He wanted to know in what time frame and indicated that Brinker did not say whether it was a week, month or year. Brinker became furious with George and talked over him for a long time and then clammed up and left poor George twisting in the wind.  Then abruptly, Brinker said thank you and hung up. Having listened to the tape and transcribing Brinker's exact words, I can see that George was correct. Brinker did not specify the time frame, but it seems logical that it would be a year.

BRINKER LUVS JANET YELLEN....Brinker said: May I also say this about Chair Janet.  I think that in her first year as Fed Chair – and she's now in her second year – I think she's doing a marvelous job - I think she is doing a marvelous job!  There was never a question, never a question about her credentials.…  I always thought it made good sense to put Janet Yellen into the Fed Chair and crash down the glass ceiling at the Federal Reserve on the Chair.  And that is what she has done.…  And I think she is doing a splendid job 17 months in as the Chair.

BRINKER'S REPORT ON GREECE.... Brinker said: Well it's still going on, the so-called negotiations with Prime Minister Alexis Tsipras, the newly elected top dog in Greece.  That meeting that occurred this past week in Latvia failed to yield a breakthrough on the bailout funding.  There have already been to gargantuan bailouts of Greece, now they want to third.  They are not going to get it unless they can make a deal and those that have been bailing out Greece are nervous about making a deal because Greece held an election, elected Prime Minister Tsipras.  He was elected on a platform of where not to take it anymore – my words not he has – as a consequence we had a breakdown in trust between the sovereign nation of Greece and what it owes, and whether it's got to make good on the payments that it owes.  Prime Minister Tsipras wants to have relief on pensions, he wants to have relief on sales taxes, yet he doesn't want to do all the things his predecessors promised to do.  See the problem?  He cannot hold an election and walk away from the deal because you lose credibility, that's what you're looking at.

Honey EC: This blog gets lots of hits from Greece -- also Ukraine and Russia.

FRANKJ'S SUMMARY OF THIRD HOUR GUEST SPEAKER:

Bob’s third hour guest today was Edward Kleinbard, a tax expert and law and business professor at University of Southern California.   The professor has written a book titled We Are Better Than This: How Government Should Spend Our Money

According to the professor, the question of whether we are taxed too much or too little is not the right question we should be arguing about.  It reflects a basic misunderstanding of the facts.  He said Congressmen are not the smartest bunch but they do have finely tuned antennae  and the public’s gripes with the tax system register loud and clear.  (Ed. Comment:  I like this allusion to Congress as insects.  It goes along with the saying:  Congress is interested in you as a taxpayer, much the same as fleas are interested in dogs.) 

 Instead, the professor would have us consider what useful things should the government do and which of those things can we afford?  

Bob asked the guest to explain how taxes became the third rail of politics, citing Walter Mondale’s statement in 1984 that he would raise taxes if elected.   The guest didn’t answer directly but if the election results are any indication, the message did not resonate with voters:  Mondale won electoral votes only in Washington D.C., and in his home state of Minnesota where he eked out a victory by less than 3800 votes.    The professor pointed out that 1) he voted for Mondale, and 2) we are the lowest taxed (as a percentage of national income) of the largest 34 world economies, but “we are at the top in whining.” 

Bob pointed out that in California taxes can run as high as 57% -- a way of sounding out the professor on just how much is “enough.”   This gave the professor an opportunity to state what must be one of the major points of his book:  we don’t need more taxes heaped on top earners, we need more revenue.  He mentioned a Value Added Tax.

Bob held the reins loose and let the professor gallop ahead.  Seventy percent of transfer payments made by the government  go to the elderly and the number of elderly will double over the next 25 years, so revenues must go up.   He wants more money to go to the poor, so revenues must go up.   He channeled Paul Krugman saying that when government can borrow at 2-3%  “we’re leaving money on the table” by not borrowing more and spending more.  

Editorial comment from FrankJ:  This is when MoneyTalk regulars pounded the table and shouted “What happens when rates normalize, professor?”  

The professor launched into an outpouring of ideas and statements.  

  

·        We confuse “good politics” with free markets (he called it market triumphalism).  He characterized this as the Republican’s view and said it is “fundamentally immoral.”

·        Any interference with the market must be suspect.

·        There has been a “descent to narcissism.”  

·        Great luck helps us succeed.  He said, “We (the successful) have been lucky at every turn of our lives.”

·        Insurance is a principal role of government.

·        We don’t choose our parents.  (Presumably he meant some are lucky and some unlucky.”)

·        “Government should do something about that.” 

 

·        “Government can mitigate outcomes”  (it) can invest to make a wealthier and happier society.

·        We spend a disproportionate amount on the military. 

 

·        We have a screwed up healthcare system.  The ACA did not go far enough.  The economics of insurance means we must get everyone into the insurance pools.  

·        And the one you were waiting for:  “Government needs to invest more in education.”  We need better equality of opportunity – we spend more on rich kids than on poor kids. 

There were only three callers.  Last week the first caller missed his turn, and this week the first caller, Gus, listening on KXL in Portland OR almost missed his.   Gus’s question was right in the professor’s wheelhouse:   “What about reducing tax expenditures?”    Starship Trekkies know that “tax expenditures” is fancy talk for tax deductions and tax credits.   The guest was off to the races after assuring us this call was not a set up.   Answer:  yes, the tax code should be revised – for example, the mortgage interest deduction allows people to buy a 4 bedroom house, when all they need is a 3 bedroom house.    Professor Kleinbard, better check with the National Assoc. of Realtors on this one, they’re a major political contributor and one might suspect the reason is to keep the mortgage interest deduction in place. 

Keith from Rochester called and rightfully pointed out that there was no mention of waste by the professor.  He said something else that caused Bob to hit the dump button so it did not go out on the air.

It was around here at 47 minutes into the third hour  that the professor said “what makes government great is that it exercises sovereign power via the tax code.”     I have tried to quote accurately, but the archive is not available on KSFO for me to check,  so if this is not accurate, I hope someone will jump in.  

Caller Bill took issue with the professor’s criticism of our health care system.  He said it may be expensive, but it is the best.  He said before Medicare came on line, we didn’t pay much, but the government’s involvement drove costs up.   The professor disagreed and among other things said that the US has the highest infant mortality rate of any developed country.   

Bob wrapped up the interview at about 3:50. 

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION

Bob Brinker calls non traded REITS:

A) A shark attack.
B) A fraud.
C) A travesty.
D) A con game.

There are two correct answers.
ANSWER
ANSWER

Summary posted at 7:50pm PDT

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May 17, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

May 17, 2015....Bob Brinker hosted Moneytalk live today.....(comments welcome)

STOCK MARKET....Several times today, Brinker told retired callers and those near retirement age, that he was still comfortable with a fully invested 50-50 (stocks-bonds) asset allocation -- and he recommended dollar-cost-averaging. All Marketimer model portfolios are fully invested -- two of them are all stock funds.

DON'T HAVE INVESTMENT MONEY IN CASH...In response to Cindy from Iowa who was paying to have her portfolio managed, Brinker made this statement: "I would question having a large percentage of a portfolio in a cash position."

ASSET ALLOCATIONS AND MARKETIMER BOND FUNDS.....Frank from Pennsylvania asked about his asset allocation 3 years from retirement.

 Brinker replied:  I think I would be moving toward a 50-50 balanced portfolio to begin with given how close you are to retirement.  And I would dollar cost average any money you are going to add to your stock market portfolio.  But on the bond market side, if you are following the investment letter, then I am comfortable with the bond funds that we are recommending in the investment letter.  I'm comfortable with investing in those funds.  We have a short duration of less than two years and we have an excellent current yield of 3% in that portfolio.  So I'm comfortable with that side of it, but on the equity side yes, I would be dollar cost averaging.

Honey EC: Brinker was referring to his off-the-books bond fund portfolio in Marketimer which now contains four bond funds: DoubleLine Low Duration (DLSNX); DoubleLine Total Return (DLTNX); MetroWest Unconstrained (MWCRX); and Osterweis Strategic Income (OSTIX).

BRINKER'S BRILLIANT NEW IDEA FOR RETIREES: Brinker said: I recommend that investors who start the withdrawal from their portfolio in retirement, that they start out with a 4% figure in your number one.  See how that works each year.  Remember each year you see how the past year worked so that you can make a decision on where to go forward.  And I have another idea which I think is a great idea.  And that is, take one year aside and always be one year ahead.  In other words, if you always have one year expenses reserved and you're going to use that, then you don't have to be taking money out of your portfolio that year.  If you are in a dire situation, then you don't have to do it.  So I like the idea of keeping one year ahead and then using the 4% withdrawal guideline and reevaluating it every year.

Q1 GDP REPORT WAS SOFT AND HERE'S WHY....Brinker comments: There is going to be a revision to that weak first-quarter Growth Domestic Product report that came out earlier this month.  That was the one that said that the first quarter real GDP growth was at an annual rate of 0.2%.  And we talked about the reason that the first quarter was such a weak number -- and don't expect the revision to be a gonzo-upside revision.  It's going to stay very, very soft for the first quarter even after they revise it.…  There were many factors – we talked about them on money talk – that West Coast port strike headquartered in Long Beach… There's no doubt that the strong dollar has an impact on our exports account because it makes our goods more costly overseas… And the fact that you've had a major slowdown in capital spending in the energy sector due to the change in the level of oil prices.…  And of course, the first quarter was a rough weather quarter – you could throw that in the hopper.…

WHAT WILL ECONOMIC GROWTH BE FOR Q2 AND END OF YEAR....Brinker comments: So what kind of the second quarter might we look for when that number is announced several weeks down the line this summer.…  Right now, based on the data that's coming through on a weekly basis, I think there's every reason to expect that slow to moderate growth is the best we can hope for in 2015.  I mean we've already dug a hole this first-quarter… So we have to climb out of that hole for the next three quarters in order to get the annual rate of expansion for the economy.  So there's no change in my view that when it's all said and done at the end of the year, it'll be something in that 2 to 3% range.…  We've been in that range year after year – so no shock there.

DON'T WORRY: INFLATION IS MUTED AND LACKING.....Brinker comments: It's interesting what's going on with the lack of inflation.  Did you see that wholesale price report that came out this week?  Wholesale prices in the United States declining in the month of April.  So inflation remains very well contained.  If you're worried about inflation right now, you're wasting your time.  The Producer Price Index declined 4/10 of 1% in the month of April after gaining 2/10 of 1% in March.  Now you put those two months together, that's an annual rate of decline of over 1%.…  And that 2% increase in March was the first time in five months that the wholesale price index had shown a positive sign before the number.  So there's no doubt about it we have a muted inflation situation.

DON'T BOTHER BRINKER ABOUT THE 100% BRIDGE TOLL INCREASE…… Brinker continued:  I know there's somewhere that somebody will pay $.50 for a bridge token that used to be a quarter and they'll say inflation is 100%.  I've heard it many times over the years.  Of course it's not true because when you talk about inflation figures, you're talking about a basket – throwing in a lot of things, not just the cost of a bridge token.

CHINESE CURRENCY A THREAT TO US MARKETS? When caller Barbara from Oregon asked if the US stock market might be negatively affected by the Yuan's affect on the dollar.....Brinker replied: As far as our currency is concerned, the dollar  has been one of the strongest currencies on the planet..   It had a tremendous rally..   It's given back a portion of that rally, but it's still been very strong on balance..…  As far as the yuan is concerned – the Chinese currency –  I don't have any problem with  wider acceptance globally  of the yuan in the financial system.  We are nowhere near a point  in the development of the yuan  where that currency could become  the world's reserve currency....

SHARKS SCARE PEOPLE INTO BUYING SOMETHING FROM THEM....Brinker continued: Barbara, let me comment on something you said about  the various things you read online  or maybe even in print.   Keep this in mind..   The best way for you to sell something  is to scare  a person out of their wits..  Remember that.  Listen to a lot of the advertising that you hear  and that you watch and noticed  how much of it  is aimed at daring you to death..  And then the sharks figure if they scare you enough, maybe you'll buy something from them and they can make a big fat commission..  That's the way the game is played Barbara..

Honey EC: Brinker needs to take a look in the mirror.   Over the past couple of years, he has "scared" many people out of investing in the stock market with his cautions on the air and  in Marketimer about looming trouble ahead from lack of stock market corrections.  For months on end, he warned that he was being "vigilant" and that subscribers should watch for a "special online bulletin."   He has cautioned to only dollar-cost-average new money into equities "on weakness" which he never defined -- and for the most part, never came.

DON'T BE SCARED: WHAT COULD CAUSE THE DOLLAR TO COLLAPSE...In answer to Tom from Minnesota's follow up question about the dollar collapsing, Brinker said: The real question is, what would cause the dollar to collapse?  I know the same people that have been saying the dollar was going to collapse for years, and they've been totally wrong – 100% wrong – they are still saying it.  That's because I think they are trying to scare people.…  It's very hard to make a case right now that I could believe that the dollar is going to collapse.

 FRANKJ'S  MONEYTALK'S "SUPER SUNDAY" GUEST INTERVIEW SUMMARY:

Today’s super star guest was Dr. Alan Blinder, former member of the Federal Reserve and a professor of Economics at Princeton. Dr. Blinder has been a frequent 3rd hour guest and is a sometime columnist for the Wall Street Journal.

From about 3:15 down to the bottom of the hour the discussion covered when interest rates might go up. Dr. Blinder said, “It’s gonna happen sometime…”

He made these important points.

· “Liftoff” at probably a 0.25% increase is a “so what” increase if you’re an investor.

· If you’re a trader in NYC, London, or the Far East, it is a much bigger event and WHEN it occurs matters a lot to them.

· The guest thinks the Fed will raise in December, not September however …

· He cautioned that a rate increase is dependent on the Fed seeing some upward movement in inflation and wages. There will need to be improvements in the labor market.

Dr. Blinder said the Fed uses a metric known as the Personal Consumption Core Index as an indicator of inflation. To them, it is the Holy Grail. It is now at 1.3% and they want to see it at 2%.

Before the break Bob swerved into one of his favorite topics, the notion that the Fed should be audited. The guest pointed out that they are already audited in the conventional way. The populist proponents of this “audit” talk want Congress to have oversight on monetary decisions of the Fed. Bad idea to politicize monetary policy by allowing Congress to meddle.

After the half-hour break, Bob immediately went to calls.

Mark from Minnesota would have been first at bat, but he never got into the batter’s box. “Earth to Mark, turn down your radio if you want to get on the air.”

Jim from Des Moines thought the name Fed was a misnomer because it is really a private organization operating in a clandestine manner. Blinder said they operated in secret decades ago, but now they are the most open central bank on the planet.

Al from Santa Clara posited that the ultimate source of inflation was the practice of fractional reserve lending by banks. This led to a discussion of banks who are sitting on excess reserves which they hold at the Federal Reserve and are satisfied to receive 0.25% interest vs. lending the money to businesses. Bob said banks report that they can’t find qualified borrowers. Dr. Blinder said he can’t believe that’s true. I don’t think Bob believes it either. Blinder liked Bob’s suggestion that the Fed should reduce the interest they pay the banks on these reserves.

Bob and the guest wandered off in a discussion of productivity with Dr. Blinder pointing out productivity is not increasing and this needs to recover (increase) for the economy to get going again.

David from Virginia Beach asked whether the Fed’s low rate policy slowed the recovery and is it continuing to do so? Alan Blinder seemed to give this some credence saying that monetary expansion (low interest rates) reaches a point of diminishing returns. The Fed’s computer models predicted things would have been much worse had they kept interest rates at say, 2%. Monetary policy alone has not revived the economy.

Phil from Myrtle Beach asked a long question about banks as trading houses. The guest said the larger banks do trading but not as much as they did in 2007. The more local you get the less trading takes place; small community banks do no trading.

Bob wrapped up at 3:51 pm.

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION:

When you rollover into an IRA and maintain the same asset allocation it is called:

A) A dangerous move.
B) A smooth move.
C) A sideways move.
D) A dumb move.
ANSWER 

NOTE: Los Angeles  KABC 790 (Thanks to StevieD for this update): KABC since March now airs all three hours of Money Talk with Bob Brinker Sunday nights at 9 PM. You can listen to the stream live using TuneIn Radio on the web, Android or iOS apps. Or catch the archived podcasts going back to early March at feeds.  MoneyTalkBobBrinker.

Summaries posted at 6:30pm PDT

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May 10, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

May 10, 2015....Bob Brinker was NOT live on the air today.  The broadcast was all repeat monologues and spliced together old calls. No announcement, of course. Brinker shows total lack of respect and consideration for his audience. 

These comments sent this afternoon by someone who wants to remain anonymous, sum it up very well:

Does this guy Brinker ever work? Every other radio show that I hear (Dave Ramsey, Mark Levin, etc.) gives the listener a heads up that it's not live and simply best of or pre-recorded. In my opinion, Brinker and ABC are a bunch of crooks and charlatans to allow this nonsense to take place and trick the listeners.

                                           NOT A RE-RUN:

Jeffchristie's Moneytalk Final Exam Question:

Bob said that the most frequently ask question on Moneytalk is:

A) Is today's show live or is it old calls spliced together?

B) Does Bob still like Ginnie Mae's?

C) What is critical mass.

D) Does Bob write two newsletters?

ANSWER

Please don't miss my article about Bob Brinker selling all Nasdaq and how that has worked out, LINK HERE.
 
NOTE: Los Angeles  KABC 790  Plays one hour 10-11pm and archives it for several weeks 

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May 9, 2015, Bob Brinker's Marketimer Nasdaq Blunder - Another One!?

May 9, 2015...... It may come as a surprise to new listeners or new subscribers, but back on October 9, 2012, Bob Brinker sold all Nasdaq holdings in Marketimer, and announced it on Moneytalk the following month.

For old-time subscribers still holding QQQ from October 2000 -- Brinker's all-time-worst Nasdaq blunder -- Brinker finally ended that disastrous trade too. (Note that the last time that Marketimer mentioned this trade was in March 2003.)   But sadly, after holding for 12 years, he had subscribers sell too early to even recoup all of their losses. 

October 2012 Marketimer, Page 3 Paragraphs 6, Bob Brinker wrote: In addition to our recommendation to eliminate Rydex Nasdaq 100 Fund from our model portfolios, we also recommend the sale of any QQQ shares that are held by subscribers, with reinvestment of the proceeds in either the Vanguard Total Stock Market Index (VTSMX), or the corresponding exchange traded fund (VTI).

On Moneytalk the following month, Brinker talked extensively about making these changes. Here are excerpts from my November 18, 2012 Moneytalk summary:

ALL NASDAQ SOLD FROM MARKETIMER:  Caller John from San Diego said: "I've been a subscriber of yours for almost as long as you've been on the air.....Recently, I noticed that you made some changes in your I and II portfolios.... (Brinker interrupted and asked what's your question).....It has to do with exposure the Nasdaq and I understand you...."

Brinker interrupted and replied:  "We don't have it anymore, John. In early October, we sold all of our Nasdaq direct exposure. So that meant that we sold our mutual fund that was invested in the Nasdaq 100....That came out of model I and model II and we also extended that to QQQ shares, which are also invested in the Nasdaq 100. We also sold any QQQ shares that subscribers held. All of those share in the Nasdaq 100, whether they be in the mutual fund or in the Exchange Traded Fund were sold in early October. So they're out of there. There's no more direct Nasdaq exposure anywhere in model I or in model II or anywhere within newsletter subscriber positions. We sold them out in early October. I felt at that time, based on all that I had seen in the Nasdaq that that was an opportunity to sell that index and that's what we did."

Since Brinker made those changes, the Nasdaq Index has outperformed the Total Stock Market Fund by about 15%.  I don't pretend to be a mathematician, so that is my guestimate based on comparing charts. If anyone wants to do the exact math, that would be great!

RYOCX sold at $17.87....now at $26.10
QQQ  sold at $64.79.....now $108.69.
VTSMX  sold at  $34.21........now $53.25

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May 3, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

May 3, 2015....Bob Brinker hosted Moneytalk live today. (comments welcome)

"From the Sandwich Islands to Sandwich Mass, Moneytalk is unique."__ Bob Brinker

MAY MARKETIMER NOW AVAILABLE....Brinker announced this today.

STOCK MARKET

Today, Brinker commented that the S&P is very near its all-time-high -- and said that he recommends dollar cost averaging into equities for new money. He remains fully invested.

SELL BERKSHIRE HATHAWAY TO GET DIVERSITY AND DIVIDEND.... Caller Tom from Naperville said his aunt gave him 3 shares, worth about $216,000 per share, and wanted to know if he  should hold it or sell it.

Brinker replied:  If I'm starting out from a no tax liability standpoint, and if you haven't heard in stock, you should have a date of death value on it.  So if you inherited the stock yesterday the value of the stock would be the same as the date of death.  So then you would not have a tax liability because you would have the date of death cost basis.  If I were in that position, I would rather own something like the Total Stock Market Index or the S&P 500 for obvious reasons which would be diversification reasons.  And the other reason would be they pay a cash dividend.  You get a cash dividend of close to 2% on those holdings whereas you're not getting any cash dividend on the shares you own.  So I'd rather own a diversified, dividend paying security rather than just own shares of any one company including Berkshire.  (Tom would have a tax liability because he inherited the stock over 12 years ago.)  

CONSUMER SENTIMENT HIGH.... Brinker said: We've talked about consumer sentiment and how consumer sentiment has been firm.  University of Michigan Wolverine consumer sentiment index came out this week and it was unchanged – staying at 95.9.…  It's the highest level in three months.  Consumer sentiment has been helped by lower gasoline prices and fuel prices that place more spendable income in the pockets of consumers.  And yes, consumers benefit from that.

Honey EC: Expanding on Brinker's Moneytalk comments above:  In the May issue of Marketimer, which is now available, Brinker reviewed his stock market timing indicators. One of them is "Sentiment." 

Page 2;  Paragraph 6; Brinker wrote:  "Advisory service sentiment measures continue to indicate a high level of bullish investor sentiment.  This suggests that many investors are fully invested and that means potential demand may be reduced by relatively low stock market cash reserves.  In our view, the risk of a short-term correction is elevated due to the high level of advisory complacency.  In the absence of a major exogenous event, we would expect any short-term weakness in the near term to be limited to the single-digit percentage range.  The combination of low interest rates and the plethora of share buyback programs is likely to cushion any weakness that may develop near-term."

 FIRST FOMC 0.25% RATE INCREASE MAY NOT IMPACT BOND MARKET.....Brinker said:  When they (Federal Reserve) talk about a quarter percent, what they are talking about is that the expectation is, the first time that the Federal Reserve raises short-term interest rates – and that will be data dependent as chair Janet has said repeatedly (she said it again this week in her statement), that they expect that the most likely amount of the rate increase would be one quarter of 1%.  That doesn't mean that there would only ever be one one quarter of 1% rate increase.  It would mean that the expectation is that the first time the Fed raises rates – whenever that turns out to be – that it would be one quarter of 1%.  That may or may not turn out to be a factor in the bond market because it's such a tiny increase and it's coming off basically a zero level.  It may not have a whole lot of impact.

TWO CALLS, TWO OPPORTUNITIES TO BE HONEST ABOUT GINNIE MAE

VANGUARD BOND ETF (BND)...Caller Dave from Albuquerque said he owned BND wanted to know Brinker's opinion about the duration and told Brinker that he only cared about collecting the interest and didn't care about a net-asset decline if interest rates rise.

Brinker replied:  If you don't care about the underlying value of the portfolio – in other words it swings in either direction don't concern you one way or the other, if your only concern is getting the regular interest payments, then it doesn't make any difference to you what they price of the ETF is because you only care about the interest.  So is that the category you are in? (John: "Yes")  Well there you go.  You see I've said this before – for those who don't care at all that don't care at all about the underlying net asset value of the securities, they're only interested in the interest, then that is where the focus is.…  For my taste, 5 1/2 years is too long a duration.  It's not my recommendation.  It's certainly not my approach to fixed income at this time.  But if somebody doesn't care about the underlying value, it doesn't make any difference at that point.

Honey EC: Brinker laid the groundwork for the next call on Ginnie Maes -- putting the focus on John not caring about net-asset-value on a 5.6% ETF,  thus establishing a red herring so that he could talk about Ginnie Maes  as a comparison and avoid mentioning what a disaster it was for him to sell all Marketimer GNMA holdings in July of 2013 - Next call:

VANGUARD GINNIE MAE FUND (VFIIX)....Caller John from New York said that about 65% of his portfolio in VFIIX -- should he sell?

Brinker replied: They have a duration right now an average of 3.3 years.  So that's not a big number.  That's way different than our prior caller who doesn't care what happens to the net asset value in the terms of volatility.  He said that point blank when I asked him.  But his duration was 5.6.  Your duration is 3.3, which means you have much less volatility than a 5.6.  For every one point increase in corresponding rates, you have about 3.3 net asset value risk.  So in a situation like yours, where you are comfortable with the holding, we get back to the same question, how much do you care whether the net asset value of the security goes down?......

.....I would say this, you are comfortable with the holding, you don't seem to care a whole lot about net asset value fluctuation, you could have a capital gain if you're a long-term holder… Your duration is not much different than the duration I am recommending.  The duration I'm recommending is close to two and you are at 3.3.  So there isn't that much difference there.....The amount of risk that John is taking holding a 3.3 is basically if rates went 3%, he's taking a 10% price risk, but 3% would be a lot right now.....

.....The Federal Reserve is having a hard time raising rates at all.…  In order to get 3%, you'd have to have an acceleration in the economy – and we don't see that right now.…  You've been looking at zero interest rate since December 2008, and you've never had an acceleration of the economy.  Just about every single year you've had growth about two and a fraction… And the absence of that acceleration has been the reason that rates have been able to stay where they are.…  So I don't think  in John's particular case, it's a really big deal, especially given the fact that his duration is low to begin with.  Not as low as I would like but nonetheless it's low.

Honey EC: Spin, spin, spin.... Brinker used to reassure callers that the NAV of VFIIX would fluctuate between $9.50 and $10.50. That was before the NAV grew to over $11.00. Then he started telling people that if they couldn't tolerate price declines, they could use FDIC-insured CDs.   

Brinker held VFIIX until it dropped to $10.37 and sold all Marketimer holdings in July, 2013. He put that cash into Fidelity Floating Rate Fund.

VFIIX is now selling for $10.79 and still pays almost 3% dividend. And Brinker has now sold all FFRHX and returned to DoubleLine Total Return Fund (DLTNX) which he had sold for a much shorter duration fund.

GROSS DOMESTIC PRODUCT DOWN TO 0.2 in Q1 - HERE'S WHY....Brinker comments: The news has been coming fast and furious in terms of investments.  Not the smallest story of the week was something we predicted on last week's program, if you were with us.  And that was a lousy Gross Domestic Product report which came out at the end of the week.  Real GDP was up just 2/10 of 1% in the first quarter.  Certainly better than the first quarter of 2014 which was in negative territory – hold number territory.…

HERE'S WHY GDP REPORT WAS LOUSY.... Brinker continued: Couple of factors that jump off the page and one of them is weather.  We had one of the coldest February's of all time.…  I've said it before – the whole global warming thing, we are all going to freeze to death – just be patient.  Another factor in the first quarter which happily is no longer with us was the West Coast port strike.  We had an extended and extensive strike affecting the Long Beach California port....These factors are behind us and will not return soon.

ONGOING GDP KILLER - STRONG DOLLAR.....Brinker continued: A couple of other factors that are still out there and must be respected for what they are.  One of them is the strong dollar.  The greenback has just been on a tear and as long as there is this kind of strength in the dollar, US exports, when they go overseas on the shelves are more expensive.  Therefore, competitive products overseas have a better shot at getting the sale.  And there is also another issue which is the products imported into the US,  they are cheaper when the dollar is this strong. This gives those who import products the opportunity to be more competitive.

DECLINE IN OIL PRICES ALSO GDP KILLER.... Brinker continued: Now the other thing that has been going on is one that we have talked about many times, which is that the decline in oil prices has led to a decline in capital investment in the energy area – which has always been a very strong area in capital investment.  Yes we have seen a pretty good rebound in the price of oil back into the mid-to-upper 50s, up from the low 40s… But the reality is that the number of rigs that have come out of service in the past several months has been amazing.  The rate count is way down and that affects capital investment as well.

EXPECT BETTER ECONOMIC GROWTH IN Q-2.... Brinker continued: We should certainly expect to see some improvement in the second quarter real GDP numbers.  Remember what happened last year?  We had that really rough first quarter and then the economy rebounded quite well.  In the last year, real GDP has risen 3%.…  Which by the way is fairly close to the long-term growth track.  So on a 12 month basis, we've had a decent economy.

BRINKER'S FUN QUOTE OF THE DAY: "In my opinion, being on a golf course is as close to heaven as you are going to get on this planet."

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION OF THE DAY:

Bob Brinker used which one of the following scandals to describe the current business news?
A) IRS abuse.
B) Fast and furious.
C) Benghazi.
D) Solyndra.

ANSWER  

Brinker's guest-speaker was Michael Casey: The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order

Note: Frankj thought this guest was boring (several others agree with him), so he didn't summarize the third hour. However, Brinker had another guest on talking about Bitcoins in July of last year. Frankj did a summary. You can read it HERE.

Frankj sent a picture of his three visitors. Notice the beautiful Chinese Wisteria tree in the background. I'm sure his special cat, Hobbes, was somewhere nearby when this was taken. 

Summary posted at 7:06pm PDT
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April 26, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

April 26, 2015....Bob Brinker hosted Moneytalk live today......(comments welcome)

STOCK MARKET....Brinker told a couple of callers that he was "comfortable" with them having their full stock allocations invested. Several callers today asked questions pertaining to the stock market -- which I have covered below.  Brinker's answers indicate that he is still fully invested and bullish.

STOCK MARKET FLASH CRASH..... Brinker comments: Big news this week about the 2010 flash crash.....It was a big deal because it had a big impact on many retail investors.....It was basically an event where about $1 trillion in stock market value was erased in a matter of minutes.…  There was a 36 minute period, starting at 232 Eastern time in which the market had a collapse and rebound the likes of which has never been seen in such a short period of time.  The velocity of price action was mind-boggling....At its intraday low point, the Dow was down 998 1/2 points, or at that time was about 9% of its value in a matter of a few minutes.  Now much of that loss was subsequently recovered but it was the second largest point swing of all long time.

Here is the link to the article that I posted in comments last week: Trader Arrested in Manipulation That Contributed to 2010 Flash Crash

STOCK MARKET FALLOUT FROM FLASH CRASH....Brinker continued:  And a lot of fallout came after this and was unfortunate because there were people who looked at the flash crash and said, you know what, that's not for me.…  And that's why stock market investors pulled out about $25 billion from the market right after the flash crash.  And that's why mutual investors pulled out almost $100 billion from US stock funds over a period of about eight months – week after week....And when the investigation was held as to what had happened, well people were not satisfied.…

HIGH-FREQUENCY TRADER ARRESTED.... Brinker continued: As of this week we have a new explanation because the Commodities Futures Trading Corporation, along with the Justice Department, claim claim that a 36-year-old London high frequency trader made $40 million from 2009 on by programming and illegally manipulating the futures market – specifically what is known as the E-mini futures market.  He's accused of doing this by making it appear that there were more sell orders than by orders.  There's a Wall Street term for this and that term is layering.  But in the case of this individual, the layering was a little different because he had the ability through his computer set up to cancel old orders and add new orders so fast that the sell side pressure went on and on and on.…

PANIC STOCK MARKET SELLING FOR WEEKS.... Brinker continued: Following this catalyst there was a selling panic on the stock exchanges. So this is the latest twist, if you will,  on the flash crash....For all of that money, over $100 billion, to get subsequently withdrawn from the market.

STOCK MARKET SUBSEQUENTLY WENT STRAIGHT UP.... Brinker continued: It's a shame because look what the market is done since then… Since that time of the flash crash the market has soared – it's skyrocketed.  And from that point on, with an exception of a correction in the summer of 2010, and a correction in the autumn of 2011, the market has almost been straight up.  Yes there have been correction but not big corrections.  The biggest correction cents the autumn of 2011 on a closing basis in the S&P 500 has been 9.9%.  And we only had one of those.

 WHATTA SHAME INVESTORS GOT SCARED OUT.... Brinker continued: So it's very unfortunate that this happened, because a lot of people left the market as a result of it and never came back.  And therefore have missed out on gargantuan stock market gains in recent years.  And that's a shame because you don't like to see people missing out on giant stock market gains – especially for a reason like this.…  This is not a good reason – because somebody is playing computer games and manipulating prices.  That is not a good reason to get shaken out of the market.  But it happened to a lot of people and that's most unfortunate.

Honey EC:  Brinker needs to take some of the blame for people getting scared out, and being afraid to get back in. For a couple of years now, he has been very been negative because of the lack of corrections -- issuing warnings and cautioning listeners and subscribers about being "vigilant," only dollar-cost-averaging "on weakness," which never came. 

SOLID PENSION AS FIXED INCOME PORTION OF PORTFOLIO....Caller Frank from Michigan said: "I get a pension, like a regular pension that people used to get in America.  And I was wondering, can I count that as, I have a 401(k), and I have almost 100% in the S&P.  Can I say that my pension is balancing my risk?"

AT 100% STOCKS EXPECT VOLATILITY..... Brinker replied: If you're going to stay invested all the time, the one thing you have to accept is a lot of volatility.  It's not always going to be like the last six years which is been pretty rosy for the stock market.  It's not always good to be like that so if you're going to maintain that regardless you're going to have to accept the volatility.

COUNTING ON BRINKER FOR STOCK MARKET WARNING.....Frank followed up: "I was hoping I'd get a news bulletin from you like I did – not the last bubble, but the one before that, the tech bubble."

Brinker replied: "That would be wonderful.  That would be wonderful.  I agree with that."

Honey EC:  It's shocking that so many people believe that Brinker called "a tech bubble" in 2000. Just the opposite, he was advising buying with cash reserves that he had raised from model portfolios as the Nasdaq dropped about 70%. I have covered this before, but he only raised 65% cash from equities in 2000 and put much of those cash reserves back into QQQ and lost 70% of it -- with a special bulletin that Frank mentioned.

COUNT PENSION AS FIXED INCOME.....(after finding out Frank's pension was secure Brinker continued):  If you would count that $50,000 a year as $1,000,000 dollars in the bond market yielding that, you would have an equity ratio of less than 25%.…  I mean if you look at the where yields are today.…  You could do it in a diversified way with high grade bonds.  You'd have to be way out on the maturity scale so you'd have to hold them to maturity because rates being as low as they are now.  They're not going to stay here forever.…  If you want to look at it that way, now, you could do it.  Some people would say, you have $400,000 in the stock market and you have nothing in bonds.  But you could say, I have $50,000 in annual solid, annual pension income.…  If you woke up tomorrow and your 400,000 was worth 200,000 because people thought the world was coming to an end, it wouldn't really change anything for you – you'd still have your pension so that's why I think you can get away with it. 

HOW WILL THE STOCK MARKET REACT WHEN FED RAISES INTEREST RATES.... Karl from Chicago wanted to know when the fed would and how the Fed would interest rates and would it shock the stock market.

Brinker replied:  I think that the markets understand that the Federal Reserve eventually will move in the direction of normalizing rates.  I think that the markets are learning that the Federal Reserve, as you said, are very nervous about the notion of raising interest rates.  And the reason that they are nervous is because they realize that the economy is growing very slowly.  We are going to get a lousy, with a capital L, report on first-quarter Gross Domestic Product next week.…  The Fed knows all of this.  The theory is that the economy is going to do better the next to the year – and I think that is a reasonable assumption at this point.

25 BASIS POINT INCREASE WON'T CHANGE ANYTHING...Brinker continued: But let's face it, a 25 basis point increase in the federal funds rate is not going to change anything.  It's not going to slow down the economy.  It's not going to have a dramatic impact on intermediate and long-term rates.  It's the first baby step toward normalization.

FEDERAL RESERVE HAS A STOP AND START POLICY...Brinker continued: And now we also know that the Federal Reserve has a stop and start policy that they are willing to implement, which means that if they raise rates 25 basis point at a meeting, that does not mean that they are going to do it every meeting.  They are willing to stop and start – monitoring the economy is.  Also remember that the Fed knows if and when they increase rates in the current environment, they are doing the opposite of what other countries are doing.  The European Union is easing.  Japan is easing.…

FEDERAL RESERVE IN A TOUGH SPOT...Brinker continued: I think that they are caught in a tough spot because I think they really would like to increase rates very very much.  There's no question in my mind that they would be much happier if they could increase rates – get toward normalization because they believe that it gives them more flexibility than having a zero rate policy.  They have this zero rate policy that when an in December 2008 and they been stuck with it every sense because they haven't been able to do anything about it.  So they had to invent a new easing policy known as quantitative easing – which they did.  So they feel like they would like to have rates go up so that they could bring rates down if they had to – but they're afraid to put rates up because the economy's been fragile and now we're going to see a lousy first-quarter number.…  On the other side of the coin, is the fact that the Federal Reserve has the ability to keep rates down because there is no inflation.  The year-over-year CPI is negative – 0.1.…

NO CHANCE OF FED RAISING RATES NEXT WEEK....Brinker said: "I would say there is no chance that the Federal Reserve will raise rates at this week's upcoming meeting and they are going to remain data dependent – just as they have said."

$18 TRILLION NATIONAL DEBT ....Caller Bruce from Milwaukee said: "The United States has $18 trillion in debt now and we keep electing politicians that don't balance a budget.  How much more debt in the US handle?"

NATIONAL DEBT NO PROBLEM WITH 3% GDP.....Brinker replied: I think the answer to your question is, I think the country can handle debt that is less than 3% of Gross Domestic Product in annual interest serviced, which is where we are now.  We are at two and a fraction.…  As long as the economy is growing.  But I think that when the debt service becomes more than 3%, then I think we have a growing problem.

POLITICIANS DON'T ADDRESS PROBLEMS.... Brinker continued: You are correct, we do have politicians in Washington that are not addressing the future.  They have failed to address the infrastructure in our country… They have failed to address the problems with Social Security and worst of all, they have failed to address the Medicare problem – the imbalance in future Medicare expenses and income.…  They're not addressing it because it's unpopular politics… It's not a good way to get elected.  And politicians like to get elected – they don't like to spend money and time losing.  Why do the voters let them get away with it?  That's a very good question.…  I don't see any prospect right now of balancing the budget… Especially with the slow growth that we have.…  Were already controlling spending quite tightly on a year-over-year basis.  So I would say with moderate growth even, I don't see that we're going to balance the budget.  Do I think it's important?  No.  As long as we keep the interest service below 3% of GDP on a annual basis.…  But I think the bigger problem is, as we go forward the deficit is going to increase.

Honey EC: Brinker's choice about what needs to be addressed in Washington D.C. is very subjective. I can think of several things that are much more critical to the national debt.

ECONOMY....Brinker said: "We are going to get a lousy, with a capital L, report on first-quarter Gross Domestic Product next week.…"

THERE IS NO INFLATION...Brinker said:  "On the other side of the coin, is the fact that the Federal Reserve has the ability to keep rates down because there is no inflation.  The year-over-year CPI is negative – 0.1"  and he commented that inflation is very low everywhere except San Francisco where it is 2 1/2%.

NASTY CALL OF THE DAY....Caller Joe from Florida said that brokers and fund managers were just below child molesters. Brinker replied that there was no hope for him if he believed that.

Frankj's Third-Hour Guest Summary:

Bob interviewed Paul Sullivan a New York Times columnist and author of the book,  The Thin Green Line: The Money Secrets of the Super Wealthy

The Thin Green Line, The Money Secrets of the Super Wealthy. Paul said he wrote the book because he wanted to see how he and his family could get on the “wealthy” side of life.

He lunched with a group of wealthy people who meet once a month. To be part of this elite group you need at least $10 million in assets and you also have to be willing to pungle up $30,000 a year to pay for lunch. Paul said they don’t trade stock tips or estate strategies, they talk about more weighty issues like how wealth will affect their kids and grandkids, how to deal with charities.

With regard to charities, the guest said the very wealthy grapple with problems on how to give money away so their giving is effective. An eBay co-founder worth 8-9 billion is trying to give money to educational causes but wants to know his giving will have a measurable effect. He cited John Huntsman Sr., a multi-billionaire who regularly tips with $100 bills. Mr. Huntsman supports cancer research.

Bullet points:

· Don’t fret over taxes. Don’t cheat. Taxes are what we pay to live in a free society. He cited an example of a rich guy who put money offshore and ended up paying much more when caught, and, the financial guy who facilitated it got jail time too.

· If you have young sprouts, age 3 to 8 that is the time to teach them perseverance and resilience two traits that will serve them well.

Tim in Honolulu asked whether the wealthy subjects of the book had opinions about the student loan bubble. Sullivan said this was not a topic but Tim’s question opened the door to discussion. Paul said at age 17 – 18 students are not in position to understand the implications of how student loans can affect one’s life. Bob weighed in with his mantra that college should be free in the US. The guest said something that I think was very important (paraphrasing): Four years of college will not determine what type of person you become intellectually, but the debt you incur can determine a great deal about your life after college.

Bob and the guest proceeded to beat up on institutions that seem to build up endowments just for the sake of doing so. Sullivan said that colleges will sometimes pay the tuition for a top student whose family is below some income level but they still want students who pay the full ride, either from Mom and Dad’s bank account, or from loans. Some with huge endowments could give everyone a free ride if they chose to.

Bill in Omaha asked whether Dems or Repubs give more to charity. Paul Sullivan didn’t deal with that in the book, he said they give to different charities.

Paul Sullivan went to Kansas State and got wired up with some electrodes to take a stress test on money. He learned he is “money vigilant,” meaning he is aware of incoming and outgoing, and this can sometimes affect decisions and you end up depriving yourself of something you can actually afford.

Other categories include money avoidance (don’t want to think about it); money worship, money status (your self worth = money).

Here is a link to this work, it is a scientific paper but you can read about these “money scripts” starting about 14 pages in.

Psychology Today:money-beliefs-and-financial-behaviors-development-the-klontz-money-script-inventory-jft-2011.pdf

Bob wound things up at about 3:50.
 
Jeffchristie's Moneytalk Final Exam Question of the Day.....

Bob Brinker said that the 2010 flash crash was caused by:

A) The Koch brothers.

B) A trade entered by the money manager of the Clinton foundation.

C) A 36 year old Indian trading in London.

D) A sell signal issued by a newsletter writer.

ANSWER

Summary posted at 7:05pm PDT
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