June 3, 2018, Bob Brinker's Moneytalk: Stocks, Interest Rates, Economy and Investing

June 3, 2018….Bob Brinker was live on Moneytalk today....(comments welcome)

STOCKS....Brinker comments: "Obviously lots of volatility in the stock market this week. We had two up days, and we had two down days, following the holiday on Monday...….For the week the S&P was up 0.5% and the Dow was down 0.5%. Obviously, the investors are trying to evaluate a number of things going out there that are very important. One of them is the enormous increase in yields that we have seen in the sovereign debt of Italy this week. Also investors evaluating the imposition of the steel and aluminum tariffs by the U.S.  against the EU, Canada and Mexico....."

Honey EC: Brinker has made no changes to his position of fully invested in equities, and recommends dollar-cost-averaging new money. 

FOMC RECONVENE ON JUNE 12th and 13th...… Brinker comments: "....a two-day pajama party…..that will finish with a media conference by Fed Chair Jerome Powell. And we are expecting another rate increase to be announced on the 13th...." 

INTEREST RATES GOING UP....Brinker believes that the Fed will raise rates again June 13th. 

BOND DURATION IN MARKETIMER....Brinker said that the duration of Marketimer bond fund holding is less then one year. He does not recommend holding bond funds with durations longer than that because of rising interest rates. 

Honey EC: Brinker only has two bond funds in Marketimer now because he sold Metrowest (MWCRX) back in February 2018,  and put that money into Vanguard Prime Money Market Fund. 

BRINKER ADMITS INVESTING GIANT VANGUARD DISAGREES WITH HIM.....Caller Karen from San Francisco said that Vanguard had recently put  a large percentage of her investments in Vanguard Total Bond Market Index and in Vanguard Total Bond Index Funds. She said: "After listening to you, all of these are way too long duration...…."

Brinker replied to Karen: "There is a fundamental difference of opinion between Vanguard and yours truly about the issue of interest rate risk. Vanguard has its own opinion of this, and they function with that opinion, which they are entitled to do. I have my own opinion and I function with that opinion as I am entitled to do.  And my opinion is that in a rising interest rate environment, I do not want to take an undue amount of interest rate risk in a fixed income portfolio. What that means is, in my investment letter, I have reduced the risk to an average duration of less than one year, and that is as far as I'm willing to go on an average duration basis because of the rising interest rate trends that we are seeing." 

Honey EC: Brinker NEVER tells the whole truth about his "opinion" of rising interest rates. He made the big  call to short duration back in 2013!   At that time, he made huge (and costly) changes in Marketimer for his subscribers and talked about it on the air.  That included selling all Vanguard Ginnie Mae Fund and all Nasdaq holdings. So now  FIVE YEARS later, he is claiming to be "right."  (What is that saying about a stopped-clock?) 

HEADS UP ON  THIS ONE.....Brinker comments: "The low employment figures that we now have. This 3.8 number, they do have a strong correlation with the later stages of an economic cycle. This 3.8 number is really way down there on a historical basis.....The last that U.S. unemployment was 3.8%, the 10-year Treasury yield was around 6 1/2%.....The 10-year Treasury right now is about 2 7/8%......It has not been up to that level of 6 1/2 anytime since year-2000. You may recall  the stock market peaked back in the first quarter of year-2000 and the Dow topped in January, and the rest of the market topped out in March 2000....." 

ECONOMY…..Brinker said: "We are now in an economy where we are seeing moderate growth. The second quarter looks better than the first quarter. The first quarter is currently at 2.2 in real GDP...I'm expecting a higher number when it is released in late July." 

JOBS AND ECONOMY REPORTS.....Brinker's opening monologue in hour one: dRahme AUDIO CLIP

Honey EC: Brinker used to often give the racial demographics of unemployment. It always showed that Black and Hispanic unemployment was much higher than Whites. Well, the great news now is that Black unemployment has been declining and is now below 6% -  AN HISTORICALLY LOW NUMBER. 

HOUSING MARKET...Continues to grow at a moderate pace. 

BRINKER'S NEGATIVE SYNOPSIS ABOUT TRUMP'S PUSH TOWARD FAIR TRADE FOR THE UNITED STATES....dRahme's AUDIO CLIP   (Honeybee sez: That is one side of the subject and is peppered heavily with Brinker's unchallenged biases.)

DON'T BE A SHARK-VICTIM OF ANNUITY SALESMEN.....Brinker recommended checking out these three things before buying an annuity: 1. Surrender charges. 2. Expenses.  3. Commissions for selling it to you.  After you know those things, then go to Vanguard and take a look at what they offer - much less cost to you!

THE WEEK AHEAD IN THE CANYONS OF WALL STREET: dRahme AUDIO CLIP

FRANKJ'S MONEYTALK GUEST-AUTHOR SUMMARY

Bob’s guest on this first weekend of June 2018 was Wall Street Journal reporter  John Carreyou, author of the book, "Bad Blood: Secrets and Lies in a Silicon Valley Startup" Mr. Carreyou is a two-time Pulitzer prize winning reporter. 

The topic of the book is the company Theranos and the founder, Elizabeth Holmes.  Holmes dropped out of Stanford University in 2003 to start a company that would specialize in new technology for blood testing.   Her idea was to use proprietary equipment that would only require tiny amounts of blood to analyze blood.    (Tiny as in 1/100^th to 1/1000^th the normal amount).  Blood testing by diagnostic labs is a $70 billion industry in the U.S. 

Theranos raised $700 million from private investors after they announced in 2013 that their equipment and technology would be available in Walgreens’ stores.   Among the financially well-off who invested were Carlos Slim (Mexican billionaire and owner of the New York Times);  one of the Murdochs, (owners of the Wall Street Journal); Betsy DeVos; the Walton family (WalMart). 

In the interview, Mr. Carreyou described how he got interested in this story after coming in contact with a group that was watching developments at the company and had their doubts.  He spoke with a lab director who had left the company and initially, was very leery of talking to a reporter. 

This scheme unraveled starting in 2015 when Mr. Carreyou’s investigative findings on the company were reported in the Wall Street Journal despite heavy pushback and intimidation from lawyers representing Theranos.    The lead lawyer for the company is David Boies, who is a high-profile guy and head of his own firm. 

The state of Arizona figured prominently in the story.  I’m guessing that Theranos installed their equipment in Walgreens’ and other places in the state.  The guest said that 80,000 patients in AZ had questionable results and 900,000 tests had to be voided or corrected in AZ. 

Elizabeth Holmes went from being the youngest woman billionaire in the US to being on the outs.  She settled with the Security and Exchange Commission for $500,000 and gave up stock in the privately held company as well as voting control.  The government is not finished however, there is a criminal investigation underway and the guest implied there would be something resulting from that pretty soon.  Today the company is virtually worthless and the people who put up big bucks have only cold comfort of very large capital losses to write off. 

Ken from IL called and asked “How did the FDA drop the ball?”  The author explained that Theranos, with its so-called proprietary equipment squeezed between the cracks, that is, they fit into what he called a “regulatory no-man’s land” between the Food and Drug Administration and the Center for Medicare Services.   What he called “lab developed tests” were exempt from oversight by both agencies.   

Over the past few years I recall seeing many articles on Theranos in the Wall Street Journal but I confess I didn’t pay much attention—probably because the company was not publicly traded.   This interview was interesting I think, and I will probably read the book if it shows up at our local library.   If anyone is interested in reading about Holmes, here is a link to Business Insider:

http://www.businessinsider.com/theranos-founder-ceo-elizabeth-holmes-life-story-bio-2018-4#by-august-2015-the-fda-began-investigating-theranos-and-regulators-from-the-government-body-that-oversees-laboratories-found-major-inaccuracies-in-the-testing-theranos-was-doing-on-patients-28

Honey here; Great summary, Frankj!   And a fascinating topic. Brinker mentioned that this kind of scam is fairly rare. He mentioned "Equity Funding" in 1970, and "Enron."  But this one seems more egregious to me because it could have cost many lives - or so it appears. 

THERANOS SCAM....For those interested in reading a bit more about this get-rich scam,  Bloomberg article from March 2018.

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