April 29, 2018, Bob Brinker's Moneytalk: Stocks, Bonds, Investing and Economy

April 29, 2018....Bob Brinker was live on Moneytalk today....(comments welcome)

STOCKS....(Honey comments: The S&P 500 Index was virtually unchanged last week and is now down 0.96% year to date.)  Today Bob Brinker told caller Mark from Connecticut who was near retirement that a good equity allocation remains at 50%, with the other 50% in low-duration bond funds. (Brinker makes some stock market comments in dRahme's Audio Clip with the Canyons of Wall Street report - below.) 

ASSUMING THE OUTLOOK REMAINS FAVORABLE, KEEP DOLLAR-COST-AVERAGING..... BB  also recommended dollar-cost-averaging for new money - with one exception. Brinker said: "Assuming the market outlook is favorable - obviously we don't know years ahead - yes, I would prefer certainly when you ate in retirement and moving toward retirement to get to that 50-50 goal.....Let me give you a scenario that we don't know will happen. Let's make an assumption that over the next couple of years the market outlook remains favorable. Now we don't know that right now, we have to wait and see, but on that assumption, I would move toward 50 to 60% equity ratio to prepare for an asset allocation that makes sense to me in retirement."

MARKETIMER COMMENTS.....Caller Greg from Illinois said he was near retirement and invested in Marketimer model portfolio II (100% equities).  Brinker said: "That would take us to a different portfolio - balance portfolio III - in or near retirement.... I'm comfortable with investing in the 50% of that portfolio that is in the bond market, which is in short duration bonds with an average duration of less than one year...... "

Honey EC: Brinker neglected to tell Greg that 20% of that "50% in the bond market" in portfolio III is actually in the  Vanguard Prime Money Market Fund - but he did say it later on.  He also  didn't mention that OSTIX is a junk bond fund with a duration of 1.5 years.  The only other bond holding in portfolio III is DLSNX.

DOLLAR-COST-AVERAGE UNTIL BRINKER SEES THAT BUY-SIGNAL.....BB continued with Greg:  Now that leaves the stock market portion, and I would do a dollar-cost-average approach as of today. now this could change. For example Greg - you follow the investment letter - if we were to get to a point sometime this year where we upgraded the market to attractive for purchase - that's the equivalent of a buy signal - if that were to happen, then of course I would go forth and make the investment.....As of today, I prefer dollar-cost-average for new money going in as part of that strategy....

Honey EC: Brinker advises all of his followers to keep all equity allocations fully invested, but for those few who have new money, he likes to try to find the bottom of corrections. He never calls market tops. The last time he raised cash was in year-2000. 

ONLY INVESTMENT FOR ULTRA-CONSERVATIVE AND RISK-AVERSE....BB told caller Paul from Connecticut who said he remembered the 2008 "collapse" of the stock market and was worried now that a ladder of  FDIC insured Certificate of Deposit would be ultra-conservative for the risk averse. BB recommended laddering with 3, 6, 9, 12 month CD and rolling the 3 month over into 12 month when renewing them. 

BONDS, INTEREST RATES.....Brinker commented that  the current yield on Vanguard Prime Money Market Fund is now up to 1.8%. - and he said that Marketimer model portfolio III - which is a balanced portfolio - has a 20% holding in VMMXX (in the bond portion). 

TREASURIES.....BB pointed out that the 10-year Treasury closed above 3% this week, but now is just below 3%.....the next question is, will loan rates go up? 

GROSS DOMESTIC PRODUCT:  BB comments: The GDP for 2017 was 2.6, a moderate growth pace which is good because it avoids "overheating" - the "quickest way to get into trouble in the stock market.  It almost inevitably leads to trouble."

==> dRahme Audio Clip:  GDP numbers and comments about 2017 and Q1 2018; will taxpayers always be there to pay promised pensions. 

COMMERCE SECRETARY WILBER ROSS....BB commented that Wilber Ross announced that the Trump administration plans to extend relief from steel and aluminum tariffs to some countries, but not all, when their temporary exemptions expire on Tuesday. 

SPRINT - T-MOBILE MAJOR MERGER....BB talked about the possible merger between Sprint and T-Mobile

==> dRahme Audio Clip: Wilber Ross and  steel and aluminum trade deals; T-Mobile merger; Treasuries this week; Vanguard Prime Money Market in Marketimer;

WAS BRINKER IN THE MILITARY....Caller Keith from Boise, Idaho asked Brinker if he had been in the Military since he was familiar with their "alphabet." Brinker did not answer the question - he simply said that he had always been interested in the Military Alphabet. 

NEXT WEEK IN THE CANYONS OF WALL STREET:

==> dRahme Audio Clip: PCE vs CPI Inflation; tsunami of paper from Treasury; ADP employment report - tight labor market; stock market statistics  

FRANKJ'S MONEYTALK GUEST AUTHOR SUMMARY

Bob’s third hour guest on April 29, 2018 was ANOTHER person peering into the future and reporting on the role of artificial intelligence.   From Wikipedia:  “Joshua Gans holds the Jeffrey Skoll Chair in Technical Innovation and Entrepreneurship at the Rotman School of Management, University of Toronto. Until 2011, he was an economics professor at Melbourne Business School in Australia.”  The guest wrote a book titled, “Prediction Machines:  The Simple Economics of Artificial Intelligence.”  The coauthor is Ajay Agrawal. 

Editorial Comments in italics as usual.

The interview started out with a noisy phone line.  Bob had to drop the guest and filibuster while Ravi got things squared away.  

The interview touched on some of the usual jobs that have been discussed before in this context:

·         Truck drivers.  They do more than just drive.  Really that’s about all the guest added to this topic.

·         ATM machines did NOT replace bank tellers as feared.  They made it possible for tellers to introduce customers to more bank products.   Was anyone thinking about Wells Fargo here?  I’ll bet Bob was.

·         And, another job class was introduced today.  AI will change the role of school bus drivers.  While the computer is driving the bus, the “driver” can spend more time looking at the children.  Scary.

The usual college question followed:  “What would advise someone to study?”  The prof said choose a major that teaches you how to think, don’t choose one with a particular job in mind.   There followed a long professorial explanation on how data is the new oil.  Oil fueled (fuels) the economy, AI will be just as necessary in the future.   Then, the professor explained AI will benefit people as it is used by the medical profession and insurance companies. 

I’m not sure the professor saw the same irony I did in the juxtaposition of those two fields of endeavor. 

Before the half-hour break Bob said he’d be taking calls.  After the half-hour break, there were no calls.  Or at least Bob did not take any.  Normally, I figure no caller had a question worthy of putting on the air.  But after the week after week of futurists, I think maybe I am the only person left listening.  

We learned that Amazon has the potential to lower costs, but they still only account for 4% of retail sales in the U.S.  The prof predicted that when they know more about our buying habits they’ll figure out what to deliver without us ordering anything.   You’ll be able to accept or reject the delivery.  He likened it to the milkman in the old days who knew how much to deliver because he knew what you consumed.  

I am old enough to remember the milkman delivering milk.  Much as we might like to credit him with being a close watcher of our milk-consumption, he actually delivered the quantity my mother asked him to deliver.  I also remember my father telling me when he was a young man, the milk would freeze and expand in the winter.  The cream, which was on top, would push the paper tops up off the bottles and neighborhood cats would lick the frozen cream.  No one got too excited. 

Honey here: Thanks for that great summary of a subject that is quickly getting repetitious and boring.

I'm not sure I understand why the big push for driverless cars and trucks.  Likely,  if we follow the money, it will all become clear to us. The only AI  that I need is my Roomba -  can't live without my Roomba. Although they have been said to have swallowed cats, mine survived all Roomba attacks. :)

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April 22, 2018, Bob Brinker's Moneytalk: Stocks, Bonds, Economy and Investing

April 22, 2018.....Bob Brinker was live on Moneytalk today..... (comments welcome)

STOCK MARKET....Brinker commented that the S&P 500 Index closed Friday at 2670, which is 7% under the all-time-high.  The Dow is at 24,463,  that is 8% below all-time-high of 26,616.

April 2018, Marketimer, Bob Brinker wrote: ".....For now, we continue to recommend a  dollar-cost-average approach for new stock market investing, especially during periods of market weakness.......all Marketimer  equity allocations in our model portfolios remain fully invested. In our view, the primary market uptrend remains intact....." 

WHO SEZ THE FOMC DOESN'T CONTROL THE MARKETS 

IMPACT OF MASSIVE QUANTITATIVE EASING -WHAT HAPPENED....BB commented: "Ten-year Treasuries are now at 2.96 and one of the reasons is because of the left over impact of the three Quantitative Easing programs that the Federal Reserve implemented in years past.....involving the purchase of trillions of dollars of Treasury and Agency Securities which have been parked on the Federal Reserve balance sheet for years, and thereby, they have not been in the open market. That debt was taken out of the public market place and placed on to the Fed balance sheet as a result of their effort to lower interest rates to support consumer spending and to stimulate the housing market......And most of the Treasury and Agency paper purchased during the 3 QE programs is still parked on the Fed balance sheet......"

QUANTITATIVE TIGHTENING = FOMC DUMPING TREASURIES ON MARKET....BB continued:....."They have relegated a small part of it back into the open market because they started their Quantitative Tightening program a few months.....So they have started to redeem it and put back into the public marketplace.....However, they are in the beginning stages of QT....It will not reach its full level of disengagement from the Fed balance sheet until the 4th quarter of this year.  We still have to get through the next 5 months, to get to October - when at that point the disengagement rate will reach and annual rate of $600billion. That is $50billion per month = $12billion a week....thrown back into the open market......"

NEW PRESIDENT, BETTER ECONOMY, AND FED DOES A 180..... BB continued:"So even though times are good economically, and the economy has been growing in the 2's - which is a very welcome for investors because it avoids a lot of the problems that come from rapid growth. So we have a budget deficit that is through the roof. We had a combination of activities recently that just blew the lid off the deficit. One was a tax cut that added $150billion a year to the deficit, and the other one was the recent spending agreement that just blew off the deficit. Hundreds of $billions of spending authorized by Congress......As a result of all of this supply and debt, rates are going up.....U.S. 30-year Treasury is at 3.15% right now...."

YIELD CURVE NOT FLAT OR INVERTED (YET)...... BB continued:  "The yield curve continues to flatten....We are down to a yield curve that has only 50 basis points between the two year and the ten year. The two year is yielding 2.46 and the ten year is 2.96....But it has not yet flattened entirely or inverted....Bond market investors are very closely tuned in right now because the Treasury rate is getting close to 3%, and the area around 3.05% has been seen as an important technical level for the Treasury rate....

EQUITY INVESTORS FACE THE FED'S TSUNAMI..... BB continued:  "So all of this has been a headwind for equity investors as they try to grasp the tsunami of supply that is coming down from the U.S. Treasury. On Monday, we get $90billion in three and six month Treasury Bills. On Tuesday, we $26billion in one-year Bills, and $32billion in two-year Notes - the highest in a long time. On Wednesday, we get $17billion in two-year floaters, and $35billion in five years, Thursday we get $29billion in seven year notes......"

Honey EC: Brinker definitely downplays the growth in the economy, and hammers the deficit and national debt. Brinker has never pointed out the national debt doubled under both Bush and Obama. 

CHINA TOP THIEF OF U.S. INTELLECTUAL PROPERTY.... BB comments: There is no doubt that China is at the "top of the list" of country's  that steal America's intellectual property.... but now there is "cautious optimism" that an agreement can be reached if Mnuchin goes to China for discussions.  

POSSIBLE PROGRESS OVER WEEKEND ON TRADE WITH CHINA.....BB reported this news: 

US Treasury's Mnuchin may go to China - Fox Business

The United States has threatened to impose tariffs on $50 billion of Chinese imports in a bid to try and force Beijing to stop its companies from stealing American companies' intellectual property. "A trip is under consideration," Mnuchin said at a press conference during the International Monetary Fund and World Bank spring meetings in Washington on Saturday.

CALIFORNIA UNIVERSITY PAY SO MUCH IT'S HARD TO CHOOSE... Caller Tim from the SF Bay Area DEPERATELY NEEDED HELP. He is in his mid-50's, has a net worth of $3.1MILLION, is retiring from a California University and can't choose between an annual $120,000 (plus full health benefits for him and his wife), or a lump sum of $1.82MILLION. 

Brinker rode to Tim's rescue and pointed out that the full health care benefits added a lot if he took the annual pension, but if he took the lump sum, it added to his net worth. 

Honey EC: So what should Poor Tim do? Anybody got any ideas? I do, but they are not printable in decent company. 

SOHN INVESTMENT CONFERENCE.... BB talked about the Sohn  Investment Conference tomorrow (April 23) in New Jersey. Sorry, all sold out....

==> dRahme was not available today to make audio clips for us.

NEXT WEEK IN THE CANYONS OF WALL STREET:

1. Monday: Existing Home Sales (which are about 90% of total home sales): for March, expected to rise from 5.5 million to 8 million.

2. Tuesday: New Home Sales for March expected at 630,000 up from 618,000 for prior month. 

To sum home sales: The supply is tightening and the year-over-year price is up about 7.3%. 

FRANKJ'S MONEYTALK GUEST-AUTHOR SUMMARY:

Bob’s third hour guest on April 22, 2018  was yet another in the long Conga line of futurists that have been guests on MoneyTalk in the past few years.  This guest was Paul R. Daugherty, who along with co-author H. James Wilson wrote “Human Plus Machine, Reimagining Work in the Age of AI.”  The authors are donating profits from book sales to organizations that help re-train mid-career workers.  Pretty nice.  

Editorial comments in italics, as usual. 

Artificial Intelligence will prompt more changes in the way we do things in the next 5 years than have taken place in the last 30 years.  

No discussion of the future on MoneyTalk  would be complete without mentioning autonomous trucks.  In this case, the guest said they would not be fully autonomous, there would be someone, somewhere, with a joystick, guiding the truck through tricky places.  (My words, not his).

Do truck drivers have any idea how much concern there is for them on MoneyTalk?  

You don’t need to major in some tech area in college to get along in an AI work environment.  The guest mentioned “trainers” a couple of time.  I believe he meant people who would teach the AI systems some of the cultural nuances they’ll need to know.  

Humanities, poetry, literature, music, art majors can all take heart!

The financial sector will benefit from AI.  It should help cut down on fraud although he did say that the bad guys have access to the same AI tools as do the good guys.  A robot may be the “wingman” for your financial advisor.   You may call to buy or sell 100 shares of XYZ Corp.  That’s a task the AI bot can handle.   

But the AI is also looking at your age and overall portfolio and sending a flash message to the human advisor that this client is of the age where they may be susceptible to an annuity pitch and they’re on the phone NOW.  

I guess only one caller had an intelligent question and that was Alfred from Madison on a crackling line.  His question seemed to be which country was going to benefit the most from AI development.  The author thinks the U.S., China, France, UK and Germany are all in the race, with the lead is changing hands.  Companies are some familiar names, Google, Amazon, Microsoft, IBM, Baidu and Alibaba.  

Technology is neutral, as is artificial intelligence.  Biases come into play according to how it is applied.   

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April 15, 2018, Bob Brinker's Moneytalk: Stocks, Bonds, Economy and Investing

April 15, 2018....Bob Brinker was live on Moneytalk......(comments welcome)

STOCKS....Bob Brinker made no comments about the volatile stock market last week  except in reference to the tariff proposals discussed below. Even with all the volatility, stocks made gains for the week. From a report I posted in comments after the close on Friday:

The Dow Jones Industrial Average closed Friday at  24,360.24....The S&P 500  at 2,656.30.....The Nasdaq at 7,106.65.  The major indexes were up at least 1.8% for the week, driven by a rebound in technology stocks and a strong run for energy companies in reaction to higher oil prices. Investor optimism also got a boost from easing trade tensions between the U.S. and China.....

Wells Fargo dropped more than 3% after confirming in its first-quarter results that regulators have offered a $1 billion fine to resolve auto insurance and mortgage lending abuses. It did not disclose whether it would agree to settle with the Consumer Financial Protection Bureau 

LONG-TERM BOND FUNDS.....Caller Ann from Chicago, net worth almost $2 million asked BB if she should sell the $150K she had in a long term bond fund and put it in an intermediate-term bond fund. 

BRINKER'S BLACK COMEDY JOKE ......Brinker asked Ann about the maturity and yield of the bonds.  When Ann said she didn't know, he sarcastically said:  "You are an extremely well informed investor. Would that be right?"  Ann, not getting his insult,  answered: "Yes. but I should have had answers to those two questions."  BB began backpedalling fast saying, "Well, that was my point. It was just a black comedy joke. Strike it if you like."

BONDS COULD BE "KATY BAR THE DOOR".... BB continued talking to Ann: "Let's say the yield on the long-term Treasury Fund is 3%, let's say the duration is 12.....That would mean if rates went up 1%, and in the current world, 1% seems like a lot.....but they have already doubled. They were below 1.4 in the summer of 2016, now the 10 year Treasury is 2.8.....And there is risk with all the supply coming online - and if there is any inflation that shows up, it will be Katy Bar the Door on the bond market....There is risk there." 

"MONEYTALKERS"  DO YOU CARE ..... BB continued:  "It depends on whether you care.....If you have a duration of 10 and a yield of 3, that a 1% increase in rates over one year will result in a 7% decline in total value of the account, assuming you are re-investing interest - but some people do not care. You have to decide whether you care.  That's the same answer that would apply to all Moneytalkers that have long-term bonds. First of all, do you care whether the net-asset-value continues to decline since it has declined since the summer of 2016?" 

DON'T CARE? THEN FORGETABOUTIT....BB continued: "Do you care? Cause if you don't forgetaboutit. Just go about your day and forgetaboutit. You don't care." 

IF YOU RATES NORMALIZE..... BB continued:  "If you care, then you need to prepare yourself mentally for what would happen if rates normalize.....If rates normalize, a reasonable rate for a ten year Treasury would be about 4 1/2%. Where does that number come from? That would be taking the Fed's forecast  for the next couple of years, averaging it out to roughly 2 1/2% in real GDP growth....And add that 2% inflation that the Fed has promised us and we are getting close to it......that's 4 1/2....

UNITED STATES TEN-YEAR TREASURY HISTORY.... BB continued: "If  you go back through the history of the United States bond market, the ten-year Treasury has tended to have a yield in the neighborhood of the real GDP growth rate plus inflation - right now that's 4 1/2. That is why I would not buy a ten-year Treasury right now at 2.8 - not paying enough money......"

AND FINALLY, THE OTHER SIDE..... BB continued:  "On the other side of it you could say rates are never going to go up. I'm going to hold my long-term bonds....Maybe you'll be right." 

TAX DEADLINE AND EXTENSIONS.....BB comments: The deadline for filing taxes this year is April 17th. You can apply for a six month extension to file the paperwork, but be aware that you still have to pay what you owe by the deadline. The last day for IRA contributions is also April 17th.. 

IRA CONTRIBUTION COVERED BY EARNED INCOME.... BB comments:  The only money that can go into an IRA must be earned.  Money from any other source, such as interest, dividends, inheritance does not qualify as earned income. 

==>dRahme Audio Clip: Tax Time and Bob's State Tax Quiz 

TARIFFS - CHINA'S FIRE POWER, CRANBERRIES AND WHISKEY ....BB comments: "Something going on out there that has caused so much upset in the markets, especially the stock market...."  (Brinker give some detail and some opinions about  the ongoing tariff discussions in dRahme's audio clip.)

==> dRahme Audio Clip: Taxes and Tariffs 

FACEBOOK, MAXI-BILLIONAIRE MARK ZUCKERBERG AND CONTRIBUTIONS TO CONGRESS.....BB said: " Mark Zuckerberg is in the hot seat before the Senate and House members that were questioning him, right?  I'm looking at those softball questions. Some of them were ridiculous - 'oh wow, everybody in my house uses Facebook, it's great"...... What was this, a coronation?  I looked at the list of contributions that Facebook has made to the politicians and I saw Cory Booker, the Senator from New Jersey, has taken over $40,000 in campaign money from Facebook. And then I saw Kamela Harris, the Senator from California has taken over $30,000 from Facebook....And that is just the tip of the iceberg....." 

Honey sez: I also watched Zuckerberg and agree with what Brinker said. You can hear all of Brinker's comments about Facebook on dRahme's audio clip, but it might make your blood boil.

==>dRahme Audio Clip: Next Week and Facebook Rant

BRINKER'S MONEYTALK FINAL EXAM QUESTION:  "There are two states that do not tax earned income, but they tax unearned income, including interest and dividends. There are seven others that have none at all. Do you know what they are?  I would be a fool not to put that on the Moneytalk final exam." 

BRINKER DID NOT HAVE A GUEST-AUTHOR FOR THE THIRD HOUR TODAY. (Frankj got an unexpected vacation - without pay.) 

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