January 29, 2017, Bob Brinker's Moneytalk: Stock, Bond, Economy Commentary

January 29, 2017....Bob Brinker hosted Moneytalk live today....(comments welcome)

STOCK MARKET.... The only comment that Brinker made today about the stock market is that the it has had a great run for several years.

PENNY STOCKS....BB said: "I'm not a penny stock fan."

BOND FUNDS VS INDIVIDUAL BONDS ....(Brinker was talking about muni-bonds, but the same rule applies to all bonds.)  BB said to caller Bill from Modesto, who owns individual bonds: If you hold these bonds to maturity, and they are quality bonds......you are going to receive your interest payments and your principal back at maturity.....That is an option that you have when you own individual bonds. It is not an option when you own a bond fund. A bond fund is going to move in an inverse manner to interest rates....A major distinction between owning a bond and owning a bond fund.....

MARKETIMER INCOME PORTFOLIO....BB said: "That's a great call from Bill because that's the reason that we are holding down the duration of the bond funds that we use in the Marketimer investment letter. We don't see the benefit here of taking a lot of interest rate risk....We would rather take some credit market risk- which we are comfortable with and has worked out very well.

Honey EC: Here are the three bond funds that Brinker has in the Marketimer income portfolio.

Metrowest Unconstrained: MWCRX;
Osterweis Strategic: OSTIX;
DoubleLine Low-Duration Bond Fund:  DLSNX. 

FOURTH QUARTER 2016 ECONOMY DECLINED...Brinker said it was expected, but the GDP came in lower at 1.9%. Thanks to dRahme: short clip from hour-one of BB's explanation of why economy cooled. 

WHEN RATES GO UP BOND FUND NAV GOES DOWN.... Caller Pat from San Rafael said he was watching a Vanguard webcast with CEO, Bill McNabb, who said that  he wants interest rates going up for bond funds. He said that as long as your time horizon was longer than the duration of the fund, you will make money off of rising rates.....Can you clarify that for me?  I thought the NAV went down with rising interest rates. Thanks to dRahme, we have Brinker's extensive analysis of rates in this clip beginning at 7.10.

FEDERAL RESERVE WILL NOT RAISE RATES NEXT WEEK, BUT.... BB says he does not expect any increase in federal funds rates at the next week's FOMC 2-day meeting. However, as you heard in the clip above, if the economy picks up steam in the future, The Fed expects to begin normalizing interest rates this year and going forward.

MORE THAN 4% IN ONE STOCK - PICK UP THE BALL AND LEAVE THE COURT.....Bill in Cedar Rapids has the majority of his $1.5 million invested in his company stock. Brinker was horrified. The call is on this short clip - thanks to dRahme, starting at 6 minutes in. 

REPORTS COMING OUT NEXT WEEK...Thanks to dRahme: short clip of BB's reports and analysis for next week from hour-three.

FRANKJ'S MONEYTALK GUEST-AUTHOR SUMMARY: THE CURSE OF CASH - DOING AWAY WITH BIG BILLS. 

Today, January 29, 2017 guest Kenneth Rogoff, a Harvard professor, explained the advantages of phasing out large denomination bills. The professor is the author of  The Curse of Cash
Under President Nixon the US got rid of the $1000 bill. Now the guest thinks it is time to gradually phase out the $100 and $50 bills.

There are 34 one-hundred dollar bills in circulation for every man, woman and child in this country, yet 95% of people have never touched one. The professor argues that most of these large bills are “unaccounted for.” While his aim is not to go to a cashless society, he says that large denomination bills make it easier for criminals to move money around for illicit purposes. Among other things, we learned that if you fill a briefcase with ten dollar bills, it will contain $100,000.

Fifth grade math problem: If one briefcase can hold $100,000 in ten dollar bills, how much money can a briefcase hold if stuffed with $100 bills? 

Don’t phase bills out like the country of India did. They recalled the 1000 and 500 rupee bills, announcing that they would not be accepted in trade “four hours hence,” and people had 50 days to turn them in. (Can you say STAMPEDE?) These denomination bills were worth $14.80 and $7.40 respectively and comprised 86% of the money supply. The guest said the transition was “disruptive but popular.”

Bob posited that with inflation, the large denomination bills have a place. The professor didn’t bite.

After the break Bob and Kenneth Rogoff touched on bitcoins. The guest said bitcoins represent a great technology but they will not become a substitute for cash, credit cards or debit cards. They are fine for anonymous transactions which is precisely the problem governments will not allow them widespread use… too hard to track.

Tracking (and being tracked) was what Joe from CT called about. He said removing the large denomination bills was the first step toward a government-controlled, digital currency, mentioning the “Fed coin.” This is digital currency on a chip. The guest said his book discusses this, and again, mentioned interdicting crimes relying on money laundering. He does not recommend getting rid of paper currency completely, we should keep a physical currency, just smaller denomination bills.

Irv calling from Naples FL wanted to know how you’re supposed to pay for a used car costing $5 or $7 thousand dollars… are you supposed to pay for it with a stack of $20’s? He got the brush off too, the guest said there would be some inconveniences.

Ray in Atlanta carries around hundred dollar bills regularly – and so do his family members. He has two in his wallet right now. The guest took a gratuitous swipe at President Donald Trump during this call by speculating that maybe he would recall the hundred dollar bills with Ben Franklin’s picture on it and replace them with his picture.

Leanne in CA continued the pushback saying that she is no criminal but likes to do certain transactions in cash. She said she uses credit cards for web purchases and for business, but likes the privacy that cash affords.

Doug in Iowa almost missed his turn at bat but Bob got him back on. He said while dining out with 3 people the tab could run to $150 and are you supposed to whip out a wad of 20’s? He was making a point about a shopping cart a Wal Mart easily adding up to over $100 and he has seen people paying for purchases with this size bill. Bob cut him off.

The interesting call came from Cathy age 61, in Utah who uses cash exclusively. She must be off the grid because she said she has no credit cards, no checking account, no debt and goes into town to pay her electric bill and her insurance. She did not say how she pays her phone bill, presumably she has a phone since she was calling the show. In any event she uses cash. The question not asked: where do you GET that cash?

Extra credit math problem: If a briefcase will hold $100K in ten dollar bills, how much money will that same briefcase hold if the number of bills inside is divided equally between $50’s and $100’s? 

Honey here: That was a very interesting subject and thank you for the great summary. I noticed that several of the callers really got riled up. As you said, Cathy in Utah, took a lot of pride in paying cash for literally everything. She used up her time and did not say whether or not she uses big bills. And as you said, how does she get that cash. Unless she is only working for cash, she has to have some affiliation with the "grid." 

BTW: FrankJ....I'm going to flunk your class. I didn't get the fifth-grade question - never mind the extra credit. Math is not my cuppa tee. :(

JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION (AND CLUE)

Bob Brinker told a caller if he had an advisor who recommend taking money out of an IRA and putting it into a fixed annuity he would:

A. Think about it.
B. Do it.
C. Fire him on the spot.
D. Act immediately.

ANSWER

Honey here: Thanks Jeffchristie..... I laughed at the way Brinker said that. He almost sounded like he was the one who had practiced saying it instead of this famous man. :) 

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