January 22, 2017, Bob Brinker's Moneytalk: Summary of Stock, Bond and Economic Comments

January 22, 2017...Bob Brinker hosted Moneytalk live today....(comments welcome)

STOCK MARKET.....Brinker comments: Dow now at 19,827 and S&P at 2271 - very close to all-time-closing highs.....lacking volatility recently - going sideways. Investors are looking for changes in policy - a reduction in the corporate tax rates.....a possible reduction in individual tax rates....

Honey EC: Brinker told a caller today that he is still recommending dollar-cost-averaging on weakness for new money going into the stock market. He also said that he was watching all indicators very closely and his market outlook could change. We've been down this road before -  Christmas and long vacations can get very expensive. :) 

WILL  2017 BE A BEAR LIKE 2000.....Caller Mike from Glendora wanted to walk down year 2000 bear market memory lane.  Brinker was happy to join him:

TWO REASONS FOR BEAR MARKET - ONE IS KNOWN.... BB said:  The differences between the top in the first quarter of 2000 and right now. One is known and the one forecastable but unknowable in advance...You had historically high overvaluation in 2000. In fact, the S&P 500 was trading at close to 30 times earnings....Historically,  the S&P  trades in the area of 16 times earnings.....That was one of the reasons that we issued the sell signal in January of 2000....close to the all-time-high.....

SECOND FORECASTABLE REASON FOR BEAR NOT KNOWABLE.....BB continued: The other thing that was going on then was the impending recession in  that happened in 2001....Right now, we are no where near 30 times earnings in the S&P 500, so the valuation disparity that existed then does not exist now. Having said that, the market is generously valued. It is not bizarrely valued like then.....Certainly not sitting on  bargain table right now. The other factor, which is unknowable, but forecastable - right or wrong - is the recession.

NO ECONOMIC INDICATION OF AN IMPENDING RECESSION RIGHT NOW..... BB continued: That's where you have a real problem right now - forecasting a recession because you don't see in the economic data flow, you don't see the kinds of conditions that would bring about recession right now. So in the absence of a recession, it's more difficult to be looking at a  bear....

BRINKER IS NOT TAKING HIGH RISK FOR HIMSELF.....Caller Mike (age 62)  said he was 100% invested in stocks.

 Brinker replied: That's a big number.....Why take on a high risk right now, I'm certainly not doing it....I'd be about 50 to 60% equities....What we have said is dollar-cost-average during periods of weakness. We also publish a model III that is 50-50 portfolio. 

Honey EC: If Brinker was being truthful about his own investing, one would have to conclude that he is not following Marketimer model portfolio I and II - which are both 100% equity funds. 

PRESIDENT DON'T MATTER TO  THE STOCK MARKET.....BB said:  I have said this for 31 years: Investors have a tendency to attach too much importance to politics.....I think this business of attaching politics to the stock market is misdirected....I'm not saying ignore it, but in my opinion, it is not the driver of investment returns and that is what I care about.

MARKETIMER PORTFOLIOS BOND FUND SWITCH.... Caller Jerry from Florida said:  "In your newsletter you actually switched bond fund from the DoubleLine, and I wanted to ask you what the reason for the switch was...."

Brinker replied: They are short term bond fund....We feel very strongly at the newsletter that this is the time to keep your duration short. We had a great year with an annual return of 4.7%....Here in 2017, we have further shortened our duration. Our duration is down to 1.3 years and that is the shortest duration we've ever had.....I have no problem with including some credit risk in there....Our primary credit  risk holding 2016 did fantastically....Yes, you can invest in the bond market - keep your durations short. You can have credit risk as a trade-off to the low interest rate risk....And I think you are going to see the Federal Reserve increase interest rates if the economy remains on track. 

Honey here: Two weeks ago when a caller asked about why Brinker sold DLTNX in his income portfolio and his balanced model portfolio III, Brinker said he would talk about it "next week." Brinker then took two weeks off and Moneytalk was re-runs.  

Clearly, Brinker thinks interest rates are headed up and the economy is going to do well. The cash from selling DoubleLine Total Return Fund was put into MWCRX in the balanced portfolio. In the income portfolio, there are now only three fund holdings - the cash from the DLTNX sale divided between them: MWCRX, OSTIX and DLSNX. 

FEDERAL RESERVE DUAL MANDATES... a) Maximum employment b) Price stability.
Short clip by dRahme: Brinker explains how Fed views these mandates 

HEDGE FUND THAT TRIPLED OVER 5 YEARS....Caller Ken from Carmel had a tax question about a hedge fund that he had owned for 5 1/2 years that had tripled in value. Thanks to dRahme, beginning at 3.20 in this clip, Brinker gives Ken a lengthy and negative answer. 

Thanks to dRahme: Short clip of what's coming up next week in the "Canyons of Wall Street."
=> Existing home sales
=> New home sales
=> FHFA Housing Index
=> Jobless claims number - job market continues to improve
=> Leading Economic indicators - economy gradually growing
=> Busy earnings week - examples

FRANKJ'S MONEYTALK GUEST-AUTHOR SUMMARY

Bob’s third hour guest on January 22, 2017 was David Smick, author of the recently published book, “The Great Equalizer, How Main Street Capitalism Can Create An Economy for Everyone.” Mr. Smick is the Chair and CEO of Johnson Smick International, a financial advisory firm in Washington DC. A previous book by him is, “The World is Curved,” written as a response to Thomas Friedman’s book, “The World is Flat.”

As to why he wrote the book, the guest said that half of the households in this country don’t even have $500 saved for something like a car repair emergency. And, there is a distinct lack of upward mobility today, unlike previous generations who were able to climb the economic ladder. The guest cited a lack of small business start-ups for this stagnation. “Goliath always wins,” was how he summed up the state of affairs in Washington DC today where the government has been taken over by corporate capitalists.

The conversation quickly turned to the new president, Donald Trump. The guest said that he is pretty good at the “top down manipulation of CEOs.” He said exports are only 13% of our GDP but did not expand on this or make a connection back to his statement about CEOs. Bob asked, “if you were a CEO who had off shored your work force, why would you bring manufacturing back?” The guest said they’re not doing it. Then he seemed to give some reasons why some “bringing back” might happen: corporate tax relief, lower health care costs, and that some jobs might be filled by robots.

He stressed that start-ups are the “equalizer” because they create jobs here whereas job creation by US multinationals takes place mainly overseas.

There was some discussion of the border adjustment tax in lieu of a tariff. The BAT is like a Value Added Tax and is therefore more compliant with the rules set up by the World Trade Organization. He said the Trump administration loves tariffs because they make a bold political statement, but if anything along those lines takes place it will likely be a BAT. Bob asked about “a box of widgets going from Indiana to Mexico and one coming into the US from Mexico.” The BAT would have more of an effect on the price of the Mexican widgets than the US-produced widgets.

You can find all kinds of references and discussion on this border adjustment tax by Googling those three words.

Moneytalk regulars might want to take note of the guests comments about the strong dollar. He said there is $20 Trillion in dollar denominated debt all over the world. If the dollar strengthens (and he thinks this is a goal of the new administration) this could prompt some defaults in emerging market debt. As well, it could affect equities in those markets.

Bob wrapped things up at about 3:50 pm.

Honey here: Thanks FrankJ - interesting interview. I know that you lost power for a short while during that third hour. The only thing important that you missed was when Mr. Smick said that if the dollar became too strong it would create  problems for the Central Bank of Europe. That could cause them to put pressure on Chair Yellen not to raise interest rates. 

Now wouldn't that be a fine kettle of fish for Brinker now that for the second time, he has done an all-out push for very short duration in all bond fund holdings.

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION

Bob Brinker said if the economy takes off we will have a whole new set of:

A. Tools.
B. Books.
C. Gremlins.
D. Golf clubs.
ANSWER

Radio Stations:

710KNUS Denver

WNTK  
KION 1460  Monterey 

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