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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April 19, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

April 19, 2015....Bob Brinker hosted Moneytalk live today....(comments welcome)

I want to sincerely thank Jeffchristie and Frankj. for coming to my rescue while I spent time with family who were here visiting from Utah.

Jeffchristie's First-Hour Moneytalk summary:

Bob started with the standard opening. Become your own financial manager etc. He spent the rest of the first segment talking about Greece.  The new government ran on unrealistic reforms.  The current bailout  from the EU is valued at a quarter of a trillion dollars. The way Greece is going, Bob does not see how they can pay it off.  Will Greece remain in the Euro or print their own money?   Will the government and the banks default on their loans?  We shall know in the fullness of time.

Joe from Fort Lauderdale wanted to know if he should include the required minimum distribution from  his IRA as part of his annual  4% withdrawal.  Bob said he didn't have a problem with that. 

Bob from Missouri, a Marketimer subscriber, has his ROTH IRA in Portfolio 1 and his income producing assets in a taxable account.  He wanted to know if he should swap.  Bob told him to look at the tax consequences.  In general Bob said he felt it is better to keep the income portion of your portfolio in a tax privileged account.

Clay in Medford Oregon wanted Bob to tell him what the future exchange rate would be for Bit coins vs. the US dollar.  Bob told him that Bit coins were extremely volatile and no one can predict their future.

Rowan in Illinois wanted to know if he was at critical mass.  He inherited a rental property from his mother and he also has Social Security and another monthly disability payment.  Bob said that critical mass was having enough income to live on without requiring you to work.

Richard in Maui said it was too hot for him there in the summer time and he was looking at a place in Catalina.  He was thinking about selling a rental property .  As they talked through the tax consequences he decided it would be better for him to rent in Catalina.

Nathen  in San Diego  had rental property  he wanted to sell.  Bob sais he should look at a 1031 like kind exchange.

Clarence in Utah had several hundred thousand dollars that he was considering investing in gold and silver.  Bob said he didn't own either and advised against it.

Kevin in Indiana wanted advice on an annuity.  Bob advised against it.

FrankJ's Second-Hour Summary

China is easing its monetary policy, announcing a reduction of 1% in the reserve requirements for lenders. The accommodative policy sets the new reserve requirement at 18.5%.

A study conducted by Morningstar and published on April 13th in the New York Times compared the mutual fund performance of funds owned by investment banks like J. P. Morgan and Goldman Sachs with Vanguard. The investment bank funds underperformed their benchmarks. The managed funds at Vanguard outperformed 80% of their peers over the last decade.

Vanguard emphasizes its index funds, but they do have some very good managed funds with low expense ratios.

Bob then went to calls, beginning with Estelle from WLS Chicago country. She is 86 and is widowed, with about 500 thousand at Vanguard and 1.5 million in laddered CDs. Bob advised her to move the CDs over to Vanguard and get their help with reinvesting as they mature.

Lee from Iowa is trying to get his portfolio configured to be like Bob’s Portfolio III. He has money in a REIT mutual fund that is worth $35,600. And he has $112,000 in GNMAs and I Bonds. Bob advised him to go 50% equity and fixed. Bob made no comment on the GNMAs. It sounded like Bob was OK with the REIT allocation as long as Lee was.

Next up was George from Illinois. I did not catch whether he said he was a long time listener, but based on his question, I would be surprised if he was: “I have my IRA at a bank that is charging me a 2% management fee, I am thinking of moving it to a brokerage firm where I’ll have more choices.” Bob cut to the chase and told him to move it to a large no-load outfit like Vanguard or Fidelity. George asked about Schwab and Bob said, “sure,” Vanguard is my first choice but you can use Schwab, Chuck Schwab has been a guest on the show.

Bob got back into the Greek Tragedy with caller Alan from Missouri who wanted to know the short term (2-3 month) effect on the stock market if Greece is kicked out of the Euro. Bob brushed off any effects and went into a rant against the Greek leadership and the people who put them in power that ran the clock down to the bottom of the hour.

After the half hour break, Christopher from Charleston called with a long, sad story about his daughter’s foray into gold investing. From the sound of it, she got scammed BIG TIME. She invested $7500 when gold was trading at about $790 per ounce. Instead of getting the actual metal, she got certificates. Then after it had doubled in price she tried to cash out and ended up with only $2900. Bob called the whole thing a scam. Coincidentally, on the station I was listening to, WLS Chicago, there was an ad for gold investments at the close of the second hour.

Social security came up a couple times in the second hour. Tony from Texas and his wife are approaching age 62. They have a couple of adopted kids under 18. Tony heard that you could get additional money from Social Security for these 2 dependents. Bob rightfully referred him to a local office of the SS Administration. A caller from Fairbanks wanted to know the future for SS. Bob said he thought those receiving benefits now are OK, but long term changes are needed. The system is very generous which makes it “unsound” long term considering fewer workers are paying in per recipient.

I thought one of the more interesting calls came from Carey in Illinois who asked Bob about the most recent jobs report and its effect on the market. Bob said that the S&P is now over 2000 (at 2081) and back in early 2003 there was a buying opportunity in March when it was at 800.

He said, “yeah, there was a lot of volatility in 2008 but it came and went.” This was about 45 minutes into the 2nd hour if anyone wants to hear this dismissal of the market meltdown with their own ears.

(Honey here: Frankj dropped me an email and told me that I needed to carefully listen to Carey's call and Brinker's reply, which was truly astonishing. I transcribed it and posted it below.)

Bob went on to explain the jobs report as being affected by cold weather, the West Coast port strike in Long Beach. But these have “come and gone.” Still with us is a weak energy sector and strong dollar.

Another interesting call came in from David in Michigan who gets income from SocSec and has a portfolio of individual stocks worth $250,000 in total. Bob quizzed him on the largest holding and David said about $5000. He inherited these and there are considerable capital gains if sold. He wants to gift the stock to a daughter. David seemed to favor selling them and booking the gain and buying them back, then giving or willing them to his daughter with a higher basis. He thought he would not actually have to pay much or anything in tax on the gain since his income was low and consisted of SocSec only. Bob mentioned gifting and David’s 5 million dollar lifetime exclusion on gifts.

If he gifts shares to his daughter, a bit at a time, there are no tax consequences for him, but she takes on his low cost basis, so if she sells, she might have a big capital gain tax hit.

If she inherits after his death, then she gets a stepped up basis, that is the value of the stock on the date of death or 6 months after becomes her basis.

Patricia from Novato CA wanted to know what effect China’s decision to change its reserve requirement would have on the world at large. Bob said “It is Sunday, it just happened!” So, no prognostications were forthcoming. Then she asked for the title of a book she could read to understand bonds better. Bob recommended one from the reading list called The Bond Bible. Another one is by Larry Swedroe, The Only Guide to a Winning Bond Strategy You'll Ever Need: The Way Smart Money Preserves Wealth Today.


Frankj's Third-Hour Guest Summary:

Bob’s third hour guest on April 19th was Ben Parr, author of the book,  Captivology: The Science of Capturing People's Attention

This is going to be short because I found the topic boring but that’s just me. Also, the interviewee must have been calling on a cheap phone, or using a can with a string attached because some of the interview was hard to understand.

Capturing people’s attention is important to anyone who wants to sell stuff, particularly startups. One of the ways you do it, capture their attention, and retain it, is to violate people’s expectations. Two TV shows were mentioned, The Sopranos and Curb Your Enthusiasm. In fact they spent a lot of time talking about TV shows, series and media. Breaking Bad was another example of a show that violated our expectations.

There had not been a similar story line in anything previously. It became a mystery for viewers as how Walter would keep going, so that kept people watching. And, we were interested in looking at a world that most of us would never be part of.

This author identified three “stages” of attention. Immediate, like when a car backfires. That gets your attention but only momentarily. Then, short term, like a song you like from an artist. Then, long term, when you go out and buy everything that particular artist ever released.

The guest said that inattention can result when you are trying hard to keep the audience’s attention. He cited a teacher giving a Power Point presentation with imagery on the slides, bullet points on the slides, and at the same time, explaining the slides. The children get distracted looking at the slides and bullet points and don’t hear the teacher. Just put an image on the slide and drop the bullet points.

He linked the “violates our expectation” concept to humans once being hunters and gatherers where paying attention could be a matter of survival. This is why we take notice of stuff in our everyday lives that is unexpected or out of place. Is that clown that just came through the door at Starbuck’s a threat? That kind of stuff.

Honey here: I agree. I heard the last half hour and found the guest-speaker boring, but Frankj found some interesting points anyway. :)

The following is a transcription of Brinker's 2008 "volatility" and "dollar-cost-averaging opportunities" in 2008. The call was 45 minutes into the second hour: 

Caller Carey said:  "My question is with the weaker jobs creation the last time they reported it, and the lower long-term rates which I think in the past you have said where significant, and now that China has eased further, what are your thoughts about the markets going forward.  Is it time to add additional money or are you becoming a little more cautious at this point."

Brinker replied: "We are already fully invested.  We have been fully invested since the S&P 500 was basically at the 800 level.  We took the money out early in the last decade and put it back in March 2003, we put it all back in – the S&P was around 800.  Now the S&P is over 2000 and we've been fully invested during that entire period.  Obviously, it's been an incredibly rewarding run.  Yet it was a lot of volatility in 2008, but it came and it went.  In fact it provided additional dollar cost average opportunities throughout that period.

Honey EC: For those of you who have been following Brinker since 2000, please bear with me while I review the FACTS that Brinker either FORGOT or? You be the judge. 

 1. Brinker SAID: "We took the money out early in the last decade and put it back in March 2003. The S&P was around 800.  Now the S&P is over 2000 and we've been fully invested during that entire period.  Obviously, it's been an incredibly rewarding run." 

 Truth: Brinker took out a total of 65% from equities in his model portfolios in year 2000  and  put  it back in March 2003 -- where it has been ever since. 

2. Brinker SAID: "Yet it was a lot volatility in 2008, but it came and it went. In fact it provided  additional dollar cost average opportunities throughout that period."

 Truth: SAY WHAT? Did Brinker really ignore the fact that the S&P did another complete round-trip to BELOW 800 in 2008-2009?  The S&P was at 800 in March 2003, but it had climbed to over 1500 in October 2007, then dropped to a low of 677 in March 2009!   

3. Brinker said:  "In fact it provided additional dollar cost average opportunities throughout that period."

Truth: I'm just suuurree that Brinker simply forgot all the gift-horse buying opportunities that he put out during 2008 as the market dropped. 

 In 2008-early 2009 Brinker called several "buying opportunity" bottoms. Yep, that's it, he just forgot. Here's the list of them:

• January 4, 2008, S&P @ 1411: "Mid-1400's"
• Feb 10, 2008 S&P @ 1331: "Low-1300's" (delivered via "special bulletin" - no mention of January Marketimer mid-1400's buying opportunity)
• Aug 5, 2008 S&P @ 1285: "1240 or less"
• Sept 2, 2008 S&P @ 1282: "Low-to-mid 1200's"
• September 16th -- rescinded low-to-mid 1200's (recommended dollar cost-average only)
• January 2009 S&P @ 931: “bear market bottom range of 750 to 850."
• Feb. 2009 S&P @ 826: “low-to-mid 800’s"
• March 5, 2009, S&P @ 696: said waiting for a "bottom and a test of that low." NO DOLLAR-COST AVERAGE IN MARKETIMER or buy levels.

Jim explains another Truth that Brinker "just forgot":

 

 Jim said...

I was so shocked hearing Brinker describe 2008 as merely "volatility" that I missed the lie about putting ALL of his money back in during 2003. You can't put ALL the money back in unless you had already taken ALL the money out. As we know after taking only 65% out he told aggressive investors to put half back into QQQ shares. So those people only had 32.5% left to put back in during 2003. 32.5% is far from being ALL the money.

April 20, 2015 at 8:24 AM

 Jeffchristie's Moneytalk Final Exam Question:

How many times has Greece defaulted on its sovereign debt since 1800?

A) Three B) Four C) Five D) Six

ANSWER

Summaries Posted at 7:55pm PDT
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April 12, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

April 12, 2015....Bob Brinker was not live on the air, but he tried real hard to make us think he was -- twice, today's date was spliced in to the old recorded monologues. All the callers were from various old shows. (comments welcome)

THREE CALLS FROM TODAY THAT WERE FIRST BROADCAST OVER A YEAR AGO

1. Crack Blog-Researcher (CBR), Chris from ATL, said:   "I think the "Jerry from Binghamton" call was first broadcast on March 30, 2014." 

Sure enough, here is the transcription of this call from over a year ago. Note that it gives out information that is no longer true. Brinker sold all FFRHX in January 2015:

FIDELITY FLOATING RATE HIGH INCOME (FFRHX) VS VANGUARD GINNIE MAE FUND (VFIIX)... Caller Jerry from Binghamton (?) said: I'm a long time listener and a market time (SIC) subscriber. My wife and are retired and we pretty much have critical mass. Question for you is, our portfolio is -- the money is between model portfolio two and three. I kind of have a combination of both..... That leaves us with 20% in the Floating Rate Fund. Is that is conservative as the Ginnie Mae – over all these years we followed you on Ginnie Maes. I know I got weak there (non-discernable)..... but the Floating Rate, as I understand it, is a high-yield but is tied into the market rate. As interest rate goes up that fund should increase to have a high-yield. Is that correct?

Brinker replied: "I think that that would be accurate. And by the way as I said many times, we prefer credit risk at this time over interest rate risk. And that is the reason that we prefer not to be in Ginnie Maes at this time because we don't want that extended maturity that is generally found in a Ginnie Mae Fund. We like short-term maturities much much better. And the fund that you are talking about in that portfolio has a duration of only an average of three months. So that is extraordinarily low even though our overall duration is closer to one year. And we do prefer to control the duration aspect of the portfolio to minimize interest rate risk, but were perfectly comfortable with accepting some credit market risk in an expanding economy. So basically I would say yes, as rates go up the rate on the fund would go up. And this is what's most important, the net asset value of rates going up should be minimized in a fund of that nature because of the very low average duration in that fund. So that fund is giving us everything that we want in an income security at this time. A short duration, a reasonable yield, and certainly some credit risk in a portfolio, which again, in an expanding economy, I think that's the best place to be."

2. CBR Chris from ATL found a second call that was covered by this blog. He said:  "The current "Doris from Williamsburg" call was first broadcast on the Apr 20, 2014 show"   (Jeffchristie wrote the summary of this original call in April 2014)

 "Doris in Williamsburg ask about critical mass.  Bob told her that if you have assets that generate enough income to live the way you want you have reached it."

3. CBR Jeffchristie remembered caller Abraham from Albany who mentioned the "$16 trillion national debt. Take a look in the right hand column of this page and you will see that we are now well over $18 trillion national debt -- in one year! Now that is skeery!  Here is the original coverage of Abraham from Albany written in April 2014 by Jeffchristie:

 "Abraham from Albany said he attended a presentation where the speaker said the dollar was worthless.  Bob told him that was nonsense."

BRINKER'S LATEST ANALYSIS OF FIVE ROOT CAUSES OF A BEAR MARKET

Bob Brinker analyzed the five primary (root) causes of a bear market in the April issue of Marketimer.

1. Tight Money: Brinker has talked about rate normalization for over a year now. He likes to point out that the end of quantitative easing did not damage the stock market. He has said that the Fed is now interested in ZIRP (zero interest rate policy), but lately, he seems to be backing off a bit on his predictions for rising rates. He predicted that the Fed will remain accommodative "at least into 2016."

2. Rising Rates: Based on very low PCE and core inflation rates, Brinker said: "We expect any short-term interest rate increases this year to be minor.  Small rate increases would not impede the current economic expansion in our view."

3. High Inflation: Brinker said: "The incoming data continues to show a benign inflation pattern.…  As long as all of the major inflation indexes remain below the Federal Reserve inflation target of 2%, there is no pressure on the Fed to tighten monetary policy to any significant degree."

4. Rapid Growth: Brinker defines rapid growth as a rate of real gross domestic product (GDP) expansion above the historical average of 3% to 3 1/2%.  As he has said on Moneytalk, the impact of harsh winter weather is expected to dampen first-quarter activity.  He expects the full year of 2015 real GDP to be within a range of 2 to 3%.  However, he still expects the first quarter to be soft.

5. Overvaluation:  Brinker said; "Operating earnings estimates for the S&P 500 index extended $128 for 2015 and a preliminary figure of $135 for 2016"   Brinker agrees with the Federal Reserve 2016 real GDP forecast of 2.3% to 2.7%.

He concluded that the S&P 500 index has the potential to "Trade into the upper 2100s range going forward."    Brinker is maintaining his favorable stock market view, but is aware that there has not been a correction of 10% or more since the autumn of 2011.  He would regard such a correction as a "health-restoring event based on the current Marketimer stock market timing model outlook."  He still recommends dollar-cost-averaging for investing new money -- and he recommends taking advantage of short-term market weakness to dollar cost average.  Brinker's model portfolios remain fully invested as they have been since 2003.

Jeffchristie's Moneytalk Final Exam Question

Since today's Moneytalk was a repeat the final exam question will also be a repeat.

Bob Brinker calls Presidential candidate Hillary Clinton:

A) The Wicked Witch of the West Wing.
B) Evita
C) Madona
D) The Queen of Mean

ANSWER

                                                  Summary posted at 6:45pm PDT

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April 9, 2015, Bob Brinker "2014 Bond Timer of the Year" According to Timer Digest

April 9, 2015....Beware! There are lots of sharks out there waiting to "shark" your wallet. They swim as phony rating services or phony fan clubs or fabricated Brinker Groups

If I told you that I had declared Bob Brinker Bond Timer of the Year for 2014, it's likely that you would think I had been drinking the cooking sherry -- and rightfully so! But that's what Timer Digest has done in spite of Brinker's sad-sack performance last year. 

ETF1-Robert, one of the crack blog research team, sent an email to let me know that Kirk Lindstrom has done an article about Timer Digest naming Bob Brinker and James Stack  2014 "top bond timers."

Kirk said: "Congratulations to Bob Brinker!!!  2014 Bond Timer of the Year! On January 2, 2015 the venerable Timer Digest named James Stack and Bob Brinker as "Bond Timers of the Year." They were bullish all year and matched the T-Bond index.

I have no idea what method  Timer Digest  used to conclude that Brinker's Marketimer bond holdings "matched the T-Bond index."  Let's take a look at what Brinker did last year besides stay fully invested -- as he has been since March 2003.

Firstly, Brinker's Marketimer only has a fixed income portfolio that consists of four bond funds, and  a balanced fund that is approximately 50% invested in three of the same bond funds -- that's it! There are no other bonds in his portfolios. (NOTE: Brinker's income fund is off-the books of his performance record.)   Jim, a member of the blog crack-research team, did an analysis and  reported that the income fund performance for 2014 was 1.1% and the balanced model portfolio III only made 6%.

It's important to know that in 2013, Brinker moved into all low-duration, high-credit risk funds. Jim researched how much these moves cost Brinker's followers in missed profits. Please carefully read Jim's numbers:

Jim said...

I've taken a look at Bob Brinker's final performance numbers for his fixed income portfolio. For calendar year 2014 his Income portfolio was +1.10%. If he had not made any changes from his prior holdings he would have been +6.11%. Here is the breakdown: DLTNX +6.47 vs. DLSNX +1.35, DODIX +5.48% vs. OSTIX +1.26%, MWTRX +5.83% vs. MWLDX +1.39%, and finally VFIIX +6.65% vs. FFRHX +0.41%. All this was calculated using the numbers from M*.

Using the numbers from Yahoo Finance I've come up with the performance from the point he made his changes. They are as follows: DLTNX +7.66% vs. DLSNX +2.02%, DODIX +6.99% vs. OSTIX 1.79%, MWTRX +6.54% vs. MWLDX +2.09%, and finally VFIIX +8.2% vs. FFRHX +2.23%. Overall that computes to an average of 7.35% vs. 2.23%.

Using either time frame Brinker's funds that he sold outperformed the funds he bought by 5+%. It's going to be difficult for his followers to ever make up the 5+% of additional gains that they missed by following his bond timing advice.

January 2, 2015 at 9:44 AM

Brinker made some bond fund changes, backing off of the low-duration in January 2015. Here are some excerpts from my January 18th summary of Moneytalk:

BRINKER'S JANUARY 2015 MARKETIMER BOND FUND CHANGES.... Caller Jackie in Las Vegas (39 minutes into the second hour) asked about the Fidelity Floating  Rate High Income (FFRHX) and the Metrowest Unconstrained Bond Fund (MWCRX).

Brinker replied:   "We don't own the Floating Rate Fund anymore, so it's out of the portfolio.…  The Floating Rate Fund that we sold was a different fund and it was a different fund company also.  As far as the Unconstrained is concerned, there are many unconstrained funds out there.  If you're not comfortable, you should not make the change.…  I do believe that those who are investing in unconstrained, I think it has a place in the portfolio at this point.  That doesn't mean you have to do it.…  Because what you're talking about with unconstrained funds – and there are many of them out there – what you are talking about is a fun that is going to invest in a highly diversified portfolio.  They are going to use varying maturities.  They are going to be unconstrained by managing against an index.  They are not going to be held to investing against an index.  The duration of the portfolio can vary substantially with the management opinion at the time… And all of those things come into play." 

Brinker continued: "Unconstrained also in the sense than you are giving the portfolio manager considerable leeway in terms of how he or she wishes to invest the portfolio.  That's really what it means… Now again, anytime you are uncomfortable with any type of fund, you shouldn't be in it – period.  From my point of view, and anybody obviously that subscribing to the newsletter is interested in my point of view, I'm sharing with them my opinion that within the context of a diversified income only portfolio – because that fund only appears in the income portfolio (3 unintelligible  words).  And I'm saying that within the context of that type of portfolio, I think there's room for a plum like that at this point.

Honey EC: As Brinker said, he sold all Fidelity Floating High Income Fund from his Marketimer off-the-books income portfolio (BrinkerJr sold it last month) and also from Marketimer model portfolio III -- as of January 9, 2015.  He replaced it with DoubleLine Total Return Bond Fund (DLTNX)  which he had sold in 2013. He also sold MetroWest Low Duration (MWLDX) in model portfolio III and replaced it with MetroWest Unconstained (MWCRX). Notice that he did a bit of a sales pitch on the Unconstrained Fund.

My conclusion is that Timer Digest's "timer of the year awards" are not to be trusted, much like Hulbert's silly "Honor Roll" awards.  They are similar to so many other shark attacks from phony Brinker groups and fan clubs, it's all about selling newsletters by any means possible -- in my opinion.

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April 5, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

April 5, 2015....Bob Brinker hosted Moneytalk live today -- as usual, Easter is the only holiday that Brinker works. (comments welcome)

I want to thank the fabulous Blog Research-Team for covering the program for me today. As it turned out my family celebration was scheduled for the exact hours Moneytalk was on the air.  My sincere thanks to Jeffchristie, FrankJ and ETF1 Robert!

Jeffchristie's Caller's Summary from HOUR ONE and TWO:

* Bob began by saying that the latest jobs report was soft. Estimates for 1st quarter GDP are also soft. Reasons are cold weather, the port strike, oil price collapse and the strong dollar.

* Matt from Washington wanted to prepay his mortgage. Bob advised against it.

* Mike from Missouri wanted to how to know when he had enough to retire. Bob told him to figure a 4% withdrawal rate on his investment portfolio then add that to his other retirement income and see if he can live off of the annual income.

* Mark from Arizona was one of the most interesting calls in the history of Moneytalk. He met his future wife on an online Christian dating service. They will marry in a few months and she will inherit around $70,000.000. He told Bob that the money was invested in natural resources. Bob told him to look at the fees that are being charged.

 Honey EC: What this caller said was either a late April Fool's joke on Brinker or he was about to become shark bait. Brinker played him along by asking if he had known about this money coming to his "future wife" BEFORE he decided to marry her. He said he didn't know about it, that her deceased father's attorney had contacted him after they decided to marry, and told him that her father set it up so that she couldn't touch the $70 million until she married. And then.....yep....wait for it....Then the new husband would be given control of it. ROFLOL!

* Bob from Des Moines was underwater in his Mortgage and wanted to know if he should take money from an annuity to pay down enough of it to refinance at a lower rate. Brinker chided him for buying an annuity that had a withdrawal penalty. He told the caller to think about a part-time job.

* Bob started the second hour by saying he sees no reason for the Fed to raise interest rates given the economy and jobs data. His estimate for GDP growth for this year is 2 to 3%.

* Dave from Alabama said he was enjoying todays show. He wanted to know the number for the Christian dating service that Mark was using. He noted the possibility that Mark was being scammed. Bob said if he was ask to wire money so he could get the inheritance he should watch out.

 Honey EC: Yes, Dave also said that in Alabama these kinds of hookups are called Mating Services. LOL!

* Bob praised the WSJ for an article exposing non traded REITS. They called them Zombie investments.

* Connie from Kansas city was 60 years old and fully invested in portfolio 1. Bob suggested going 60/40 using the income portfolio on page 7 or the fixed income funds in portfolio 3. She thanked Bob for getting her in and out of the market at the right times over the years.

Frankj's Summary of HOUR TWO:

MoneyTalk: 2nd hour, April 5, 2015

Bob started the second hour discussing the March jobs report which came in at a net of 126,000 new jobs. He sees no way that the Fed will increase rates at the April FOMC meeting. The economy is expanding although gradually:

· Home sales up year over year, 5%

· Home prices up 4.7%.

· Mortgage rates are close to the bottom of range for the last 12 months.

· Collection of withholding tax is up 7% -- another sign of expansion.

Bob predicts 2-3% GDP growth for 2015. He said his prediction is in line with the Fed’s estimate.

He spent a while talking about the headwind to expansion which is the strong dollar. When the dollar is strong, our EXPORTS cost more to buy overseas. US companies may have to cut prices to stay competitive. The things we buy here that are IMPORTED cost less, which is nice, but if there is a competing product made in the US, the domestic company many have to cut its price to stay competitive.

After 2:20 Dave from Alabama called and he and Bob ran out the clock to the bottom of the hour bantering about a caller in the first hour who met someone on-line and could come into $70 million if he married her. 

Honey EC: Again...LOL!

After the half-hour break Bob lauded Robbie Whelan’s March 24, 2015 article in the Wall Street Journal which shone a light on non-traded REITs, or “Zombie REITs” as they are referred to in the article. You can find this article simply by typing that term into a search engine. Billions of dollars are tied up in these securities and shareholders, in some instances, can’t get out. Bob reminded the listeners that he has been warning people away from these investments.

Connie from Kansas City called with a couple questions. She and her husband are 60, plan to work to age 70 and have a cool million in equities. Bob advised a 60/40 or 65/35 allocation, stocks/bonds and pointed Connie toward the Income Portfolio on page 7. A listener with access to the newsletter could better follow this call as Bob jumped back and forth between the Income Portfolio and another one of his (numbered) portfolios that contains bond funds.

Interestingly, Bob said that “we’ve solved the bond market problem…” referring to the page 7 portfolio yielding 3%. Connie said she’s signed up for Bob’s alerts. Her next topic: the business they own has its 401K plan with a company other than Vanguard and she asked about switching to save money. Bob helped her with the math: if they have $2 million in this plan and Vanguard charges 18 basis points and the current firm charges 36 bp, then she’ll save $3600 per year.

 Honey EC: Brinker's answers to Connie were very important in that Brinker claimed the risk has been taken out of his bond fund holdings. That is not so. I will be writing more on this subject later.

David from Chicago wants to up his 15% allocation in fixed income to a 25% allocation. He asked whether he should use a managed account or mutual funds. Bob sounded a little suspicious that a managed account might not add much value given the low interest rates on bonds. A one-percent annual fee from a financial planner could wipe out a significant part of any bond yield.

ETF1 Robert's Summary of Brinker's second hour monologue:

2:08 pm Monologue: BB says he can’t think of any reason the Fed would want to raise rates with the recent report that came out………[I think this was a poor employment report]
 
BB says he doesn’t think the Fed will raise rates anytime soon……..and no way they will raise rates at their April FOMC Meeting

BB’s 2015 forecast: 2-3% real GDP growth

We had a negative GDP figure in the first quarter, a lot of which had to do with the cold weather……..but the weather will not affect the economy for the rest of this year since ‘Spring has sprung’

The Long Beach port strike is now over……….it was a factor in the first quarter but won’t be a factor the rest of the year

The dollar is something we have to tune into…….there are a lot of benefits to a strong dollar, such as attracting foreign capital into the US………….but some negative factors with a strong dollar:

1. Exports cost more overseas on the shelf for the foreign buyer…….when the dollar is strong. So our price competitiveness is degraded…….the foreign products we are competing with have an advantage [price advantage due to a strong dollar]. So you are either going to have reduced sales…..or the company can reduce their prices overseas, which will reduce the profit margins…….

2. Imported products available here are cheaper…….due to the strong dollar……….so increased price competition for products produced in the US and sold in the US…….imported products are cheaper than the products produced in the US and sold in the US……

Both of these factors are important. The winter of 2014-2015, and the port strike is over……but the above 2 factors caused by the strong dollar has a headwind effect on the economy; it is very very real

Frankj's Summary of  Third-Hour Moneytalk Guest:

Bob’s third hour interview, April 5, 2015

The ever popular Barbara Welkman was Bob’s guest in the third hour. She is an editor of the J.K. Lasser Tax Guide. J.K. Lasser's Your Income Tax 2015: For Preparing Your 2014 Tax Return
Previously she has been a regular on December MoneyTalk shows, advising on last minute things to do as the tax year closes out. My own comments are in italics.

The biggest change to the 2014 tax returns concerns the Affordable Care Act, requiring filers to check a box that they had a government approved health care plan in force during 2014. Barbara pointed out that if you did not, then you may have to make a “shared responsibility payment.”

Here is a link to the 14 ways you can get an exemption from having to have health care coverage.

14 Ways To Avoid The Obamacare Tax (Actually 15 if you include 'brief incarceration')
“Shared responsibility payment” is “Newspeak” (hats off to George Orwell) for a tax, as the Supreme Court called it, or a penalty as Barbara called it. It is based on “household income,” which Barbara referred to as a new tax term. Bob threw her a softball question, “Why is it called the Affordable Care Act?” Barbara said that was part of politics intended to sell the plan.

Procrastinators can submit a Form 4868 to the IRS before April 15 and get a no questions asked extension to October 15. But… you must send in a payment representing what you think you’ll owe. AND, you if you are subject making quarterly tax payments, you’ll need to send in your first quarterly payment for 2015 taxes by April 15.

Figuring out whether to itemize or not should be easy if you go to a preparer or use a tax software package or do it on-line. Otherwise, be aware of the standard deduction for your filing status and whether you might have itemized deductions that add up to more than the standard deduction.

You can Google “Schedule A” to see what the one page Itemized Deduction schedule looks like. Be aware of a couple important things:

· Medical expenses can be deducted only to the extent that they EXCEED 10% of your Adjusted Gross Income. (Thanks, Obama, Pelosi and Reid!). So, if your AGI was $90,000 and you had 10,000 in medical expenses, you can deduct only $1000. This hurdle used to be 7.5%.

· Some expenses you might deduct have to exceed 2% of your AGI, then you can deduct the amount in excess of that 2% number.

More bullet points:

· Barbara said that because Congress makes tweaks to the 2014 rules on into 2015, Lasser offers an on-line supplement to people using their tax guide.

· When considering a Roth-IRA, a Traditional IRA or a 401K, make sure you qualify. Generally this means checking your income against the income limits. Then, figure out how much you can afford to contribute. Barbara thinks choosing a Roth-IRA makes sense if you are young.

· When to use a tax expert? Consider how much time do you want to spend preparing your taxes and realize there is a free, on-line filing option for people who make up to $60,000.

· Be very skeptical of the ads for help in shedding tax debt.

· Watch out for advice you might get from the IRS help line …. That is, if you can get through. Ask for the name of the person and their tax ID and write it down in case you get bad advice, you can refer to who it was who gave it to you. They will give this information when they take the call, but I guarantee you will not get it the first time. Don’t be afraid to ask them to repeat themselves.

· Mistakes people make, whether filing on-line or on paper: they transpose numbers, drop zeroes (1000 becomes 100), end up with the wrong filing status.

· Bob asked with 18 trillion if national debt do we have to worry about Congress changing the rules on taxability of Roth-IRAs? Barbara said yes, the “Congress could decide tomorrow,” (to change the rules.

· As for getting rid of the IRS, it isn’t going to happen. Some dept. of government needs to collect the revenue. They were called the Internal Revenue Bureau prior to 1954.

· Simplifying the tax code will result in more revenue in Barbara’s opinion.

Margaret from San Leandro asked something about audits. Her phone connection was so bad I couldn’t hear what she said. Barbara said most audits take the form of a correspondence audit. The IRS computer generates a form letter if it identifies an error. Then you respond. These can identify an error that resulted in underpayment or one that resulted in overpayment, in which case you get a refund.

Joe from Chicago gets $10K a year from Social Security Disability Insurance. He wanted to know if he has to file taxes. If that is his ONLY income, then no. But Barbara made it clear she was not on the show to offer specific tax advice to individuals.

Becky from Kansas wanted to know about converting the RMD from a 401K account to a Roth-IRA. Barbara said when you take a RMD you cannot put it back in a Roth-IRA, but you can convert a 401K to a Roth 401K or a Roth-IRA.

Jeffchristie's Moneytalk Final Exam Question:

Bob referred to non traded REITS as:

A)  Vampire investments.

B)  Voodoo  investments.

C)  Zombie investments.

D)  Phantom investments.  

ANSWER

San Francisco, Ca. KSFO 560: 2-4pm  UPDATE January 2015: KSFO no longer carries the first hour of Moneytalk. (KSFO archives Moneytalk (2pm & 3pm) Free on Demand for seven days after broadcast.
 Los Angeles, Ca. KABC 790

Summaries posted at 7:59 PDT
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