February 12, 2017, Bob Brinker's Moneytalk: Stocks, Bonds, Economy Commentary

February 12, 2017....Bob Brinker hosted Moneytalk live today.....(comments welcome)

STOCK MARKET....Brinker commented that the Dow is now at 20,269 and the S&P is at 2316 - all-time-historic-highs. "How sweet it is."

S&P 500 INDEX: STARSHIP MONEYTALK'S FAVORED MEASURING TOOL....BB said: The reason  is because the S&P 500 Index, which is comprised of the 500 largest companies in the USA, is an index that contains large cap, and to some degree, large mid-cap.....It is not an index that is dominated by mid-cap and small cap. It's an index dominated by large companies as measured by their market capitalization. Market capitalization is derived by the number of shares they have outstanding times the share price.....The index is also market weighted...which means that your impact on changes in the index is measured by the size of your company....

NO DOW BASHING, JUST THE FACTS MA'AM.....BB continued: This is the problem with the Dow Jones Industrial Index. I'm not going to bash the Dow because the tradition that is baked  into tracking the DJIA is so deep - it's one of the deepest traditions that I can think of in the Canyons of Wall Street - and therefore, we continue to track the Dow.

IT'S ALL ABOUT THE ANCIENT HISTORY....BB continued:  And that's okay too because the Dow has a way longer history than the S&P 500 Index. That is very important when you go back and look at what happened in the crash of 1929 when the Dow declined 89%....So we need to know about market history, and that is why the Dow remains relevant today....

LADY GAGA SAID IT SO GETCHER  "A+" ON THE FINAL EXAM..... BB continued: To paraphrase Lady Gaga, which we don't do every day on Moneytalk, I can think of a million reasons to leave, just give me one reason to stay....One reason to stay - show respect - for the Dow is history.....And if this is on the Moneytalk Final Exam, if we have a Moneytalk Final Exam, and this is on the test, here is your answer: history.....A+ on that one.

ROUND NUMBERS ATTRACT THE BIG-MOUTH CARP.... BB talks about how the sellers are like carps waiting with open mouths for the round numbers (covered at the end of this audio) from dRahme:  Short clip of the opening monologue that covers Dow history

MICROSOFT IN MARKETIMER SINCE 1990..... Caller Victor from Chicago asked BB if there was a buy and hold stock that he would recommend. Brinker replied that he had recommended Microsoft in Marketimer in the 1990s at slightly less than $2 per share on a split-adjusted basis.  MSFT is now in the $60 range and is listed as a hold in Marketimer.

Honey EC: Thanks to FrankJ for doing the comparison between owning the total stock market and Microsoft during the years since Brinker recommended it.

VFIAX 10,000 grew to 115,220 from Jan 1 1990 to present.
MSFT grew to 1,556,560 (from 10K invested) over the same period.
Source: Morningstar graphs, comparison.

Honey EC: Jeffchristie sent a reminder that Bob Brinker has always put a 4% limit on holding one stock. Therefore, to follow Brinker excellent MSFT recommendation to the land of Critical Mass, one would have had to ignore that rule and let it all ride. 

TREASURIES UP - MARKETIMER DURATION DOWN....BB comments: The Treasury yield is up about 100 basis points off its low....I'm okay with the bond portfolios that we have. We have an average duration  in our income portfolio of 1.3 years.....It's yielding over 3%....

MARKETIMER INCREASED CREDIT RISK TO KEEP DURATIONS DOWN....BB continued: Remember, we've designed it to minimize interest risk by taking some credit risk and so far, the credit risk has paid of extremely well. In fact our major holding in the credit risk category had a gonzo year in 2016 - up close to 10%....We had the bond funds in portfolio number III....

MARKETIMER MADE CHANGES TO LOWER DURATION IN JANUARY....BB continued: Remember we made a change on January 10th - further reduced the average duration of model portfolio III and the income portfolio by making a change in fund holdings which reduced average of duration.

January 2017; Bob Brinker's Marketimer:  

Model Portfolio III (balanced): 
SELL: DoubleLine Total Return Bond Fund (DLTNX)
BUY: Metrowest Unconstrained Bond Fund (MWCRX)
Income Portfolio:SELL:  DLTNX
BUY Additional: DoubleLine Low Duration Bond Fund (DLSNX)
BUY Additional: MWCRX
BUY Additional: OSTIX

BOB BRINKER'S VIEWS ON POSSIBLE TAX CHANGES....Thanks to dRahme for this clip of BB's tax and tariff  commments

STATE OF ILLINOIS IS RUN FOR BENEFIT OF GOVERNMENT EMPLOYEES....BB comments: Muni-bond holders may want to be warned.....The State of Illinois has real financial concerns....Pension and benefits promises have been made to public employees which exceeds $100 billion.

WHAT'S HAPPENING IN THE CANYONS OF WALL STREET NEXT WEEK....Thanks to dRahme: Short clip about the tsunami of Fed-speak, housing, possible rise of inflation,

FRANKJ'S MONEYTALK GUEST-AUTHOR SUMMARY 

Well, today February 12, 2017 we were subjected to a really boring interview with an economist from Berlin.  Philip Lepenies (Lep-en-eze) author of the book   The Power of a Single Number: A Political History of GDP   (Editorial comments in italics as usual.)

It had to be frustrating for Bob too because getting an answer out of this guest was like trying to use a fork to stab one frozen pea on a plate!

Cutting to the chase, here is the ONE thing this guest said with any conviction:  In response to Bob’s question toward the end of the interview about guaranteed incomes, the guest said, “It might work in Finland.” 

Anyone looking for anything more substantive can stop reading now.

Politicians always say economies have to grow but the guest is not sure if growth is good or bad.   So Bob asked is it realistic to grow, or for an economy to stay flat for a while?   The guest said he didn’t know if it was realistic or not.

Bob, took another run at the subject:  “How would we measure the growth of an economy if we threw out GDP.”   The guest said he didn’t know.

Bob switched gears to one of his totems, education (or lack of it).  After a short speech he threw it to the guest who brought up the author/economist John Kenneth Galbraith and his book “ The Affluent Society.” 

 (This brought back some bad memories from a college Econ course I took so I don’t know what the guest said.)

Bob kept pitching and the guest kept fouling them off.   He asked him what he thought of the recent inauguration speech by President Trump and what he might have had to say if he were in his shoes.   The guest pointed out that he couldn’t be president because he wasn’t born in the US.   He said he would not have claimed that he would double growth.  Bob asked him what he WOULD do and the guest did not have an answer. 

Jim from Lafayette, CA made a speech about robotics/hamburger flippers/education.  Technical developments keep moving ahead and they don’t necessarily “make room” for those lacking in skills.   Business owners know that robots don’t talk back, don’t join a union and don’t take sick leave.  

To which we could add:  they don’t get hurt on the job, don’t need bathroom or smoke breaks, don’t steal stuff from the company, don’t harass each other and don’t fill their water bottles from the water cooler before they leave to go home. 

Bob from Atlanta made a speech about the populist movement.  He said the people in the middle are mad because they’ve tried to do the right things but now they’re realizing they don’t qualify for a lot of the benefits the low income people qualify for.    The rising tide of an improving economy won’t necessarily lift them up.   This country needs to get its house in order by reducing spending.

Dennis from Albuquerque made a big speech too.  He pointed out housing prices have gone up in a couple of generations such that people starting out today have a very hard time buying a house.

As the interview limped to a conclusion, Bob brought up the concept of guaranteed income.  The guest said some governments are looking at different ways to do this.  England actually did it hundreds of years ago.  There is no magic bullet.  Scandinavian countries with their 50% tax on marginal income – he implied that they might try this. 

Here is one of my “economist” jokes to wrap up: 

Two economists are walking along a forest path.  The older one says to the younger one:  “If I give you $5,000 will you let me punch you in the face?”

The younger one thinks for a moment and says, “OK.”   So the first economist writes out a personal check, hands it over and punches him.  The young one gets up and they walk on.  

Then the younger economist says, “If I give this check back, can I punch you?”  The older guy agrees, he is handed the check and gets socked.

They walk along in silence a while, then the younger one says, “You know, all that was stupid, we didn’t accomplish anything.”

The older one says, “Ah, that’s where you’re wrong.  We increased GDP by $10,000.”

Honey here: Thank you, FrankJ....It seems to me like the callers contributed more to this interview than the guest. Thanks to dRahme, starting at 3.4 into this clip, callers Jim from Lafayette and Bob from Atlanta and Dennis from Albuquerque.


JEFFCHRISTIE'S MONEYTALK FINAL EXAM QUESTION

Why is the DJIA relevant today? 

A. It makes sense.
B. Brokers make a commission on it.
C. History.
D. There isn't a better option.
         ANSWER

Honey here: Thanks Jeffchristie....Brinker stole some of your thunder today giving out Final Exam answers. :) 

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