STOCK MARKET....Bob said: "I do not have a sell recommendation on the stock market at this time."
Honey EC: Last time Bob discussed the stock market was on April 1st when he reported that the first quarter this year was the best since 1998. At that time, he gave no inkling whether or not he expected a correction. He hasn't talked about the market since then, even though it dipped approximately 4%. That's to be expected because he typically doesn't talk about the market unless it's going up.
FULLY INVESTED DOES NOT INCLUDE CONTINGENCY MONEY....Bob said: "I think your contingency money, your emergency money, should be outside your investment portfolio. I don't view it as permanent investment capital....If I'm fully invested, I don't consider contingency reserves part of my investment."
HOW MUCH EMERGENCY MONEY ON HAND? Caller Janet, who said all of her money was in Bob's active-passive portfolio, asked if she should have any cash on hand. Bob said that certainly there is a category of money that he calls "contingency reserves" or "emergency money" which is not part of investment portfolios. It should be kept liquid in something like a money market fund. Three to six months worth is reasonable -- depending on your cash flow.
MARKETIMER ACTIVE-PASSIVE VS BALANCED PORTFOLIOS....In her follow up question, Janet wanted to know if it was okay to have all of her retirement money in Bob's active-passive portfolio. Bob told her that as she neared retirement she might want to think about moving some money into fixed income investments.
Bob continued: "I don't have any problem having the active-passive portfolio, which we publish on page 7 of the investment letter each month.....for the stock market portion for your portfolio. But aside from that, you could develop a fixed income portion....And initially, you might want to do that with certificates of deposit. Now we also have a balanced portfolio on page 8 for those who are approaching retirement."
Honey EC: Bob is always talking about his Marketimer portfolios. For listeners who aren't subscribers, it must sound very confusing. It's not -- it's very simple: On page 7, there are the two portfolios that Bob always talks about. One is the income portfolio which consists of 5 mutual funds (I've listed them in previous summaries), and the active passive portfolio.
Previously, the active-passive portfolio was 90% Vanguard Total Stock Market Fund (VTSMX) and 10% Vanguard International Growth Fund (VWIGX). As of April 2012 Marketimer, it is 80% Vanguard Total Stock market Index, 10% Vanguard International Growth and 10% Vanguard All-World ex-U.S. (VFWIX).
On page 8, are the three model portfolios, including the balanced portfolio that Bob talked about which consists of both stock and bond funds. Right now, it is about 66% stock. That is the complete rundown on Bob's Marketimer portfolios. The other two model portfolios I and II are all equity mutual funds.
DOUBLELINE VS VANGUARD GINNIE MAE FUND (VFIIX)....Caller John from Texas said his investments were 60% in stocks, 40% in bonds. He said that the 60% stock is in Bob's model portfolio II. John told Bob that the 40% in bonds was split half in DoubleLine Total Return Bond Fund and half in Ginnie Maes. He asked if that sounded reasonable to Bob. (Honey EC: What a coincidence! I just wrote about DoubleLine and Ginnie Maes yesterday. LOL!)
Bob replied: "That's in line with the model portfolio that's balanced....That sounds different than the portfolio I have recommended in terms of the income side of the portfolio because yes, in the balanced portfolio that I publish on page 8, we do have some Ginnie Mae exposure in there. And you're too far away from that. Sounds like you're about 20% in there in the Ginnie Maes and that's quite close to the percentage allocation we have in the balanced portfolio."
You're using model II in a hybrid sense developing a fixed income component. So we currently have no recommendation in the other fund you mentioned in model III. However we do have that fund in the income portfolio on page 7 on the investment letter. But keep in mind that portfolio is designed for those who want very little stock market exposure. That portfolio has less than 10%, and all of that exposure is in dividend paying stocks held in one of the funds. (Vanguard Wellesley Income Fund VFINX)....In terms of that one fund that you mentioned (DoubleLine Total Return Fund DLTNX), you have a different configuration than I have recommended."
Honey EC: Bob is quite a dancer, and wanted to be absolutely certain he didn't get hoisted on his own petard, so he made a point of confirming three times that John was 20% in Ginnie Maes, then he told John that he was "quite close" to the same amount he recommends in the balanced model portfolio III. LOL! John was precisely on the target!
So to make it more simple, Bob said he has DoubleLine in his off-the-books income portfolio on page 7, but he does not have it in any of his official model portfolios I, II or III (balanced) that Mark Hulbert uses to rank Brinker's performance record.
MULI-MILLIONAIRE SHOULD SELL SOME APPLE STOCK (AAPL)...Ken from Los Gatos (net worth $6.1 million) needed to raise $550,000 cash to buy a house. He listed several of his options. One of his options was to sell some of his $3 1/2 million dollar holdings in Apple Shares. He asked Bob what he thought he should do.
Bob replied: "This is a no-brainer, Ken, this is a no-brainer. Apple is your source of funds, in my opinion -- full stop....I would sell a thousand shares of Apple. You will still have 5,100 shares. You will still be incredibly over-weighted in one stock. You will have millions and millions still in the stock after you sell a thousand shares to pay for the house.....For me, this one is a no-brainer."
CORPORATE EARNINGS.....Bob said: "Corporate earnings have been good, especially relative to expectations. There's not much doubt that the analysts had the expectations ratcheted down. That made it easier for corporate reports to be excellent relative to expectations. I'm expecting a double-digit percentage gain in corporate earnings when all of the first quarter numbers are in for the S&P 500 reporting companies. So far over 80%...... are beating expectations."
LARGEST TAX INCREASE IN HISTORY COMING....Bob said: "Just 36 weeks to go until the United States faces the largest tax increase in history, coupled with a mandatory reduction in federal expenditures of 600 billion dollars. Now the tax cuts enacted under President Bush are scheduled to expire at the end of this year. The 2% employee payroll tax cut is also scheduled to expire at year end. And the emergency unemployment benefits now being paid are also scheduled to expire at the end of the year.....There are also those healthcare reform new taxes that are scheduled to go into place at the beginning of next year.....There is a solution to this mess and that is to extend the current tax rates for 2013.....To provide more time for the economy to get on a self-sustaining growth tax.....They may not be paying real attention to this until after the election.....They may pay lip-service to it."
ESTATE AND GIFT TAXES: Bob explained that those taxes are also up in the air for next year. Right now, the gift tax is the most generous it has ever been.
CALIFORNIA TAXES UP TO 60%....Bob said: "The tax policy for a Californian, starting in January, could be looking at a federal rate of 39.6%, a top state rate at about 10.5, so right now you right around 50%. On unearned income, you could hammer out another 3.8% on the healthcare tax....A self-employed Californian....could be looking at a 2.9 uncapped Medicare. Now you're up around 57%. Can you believe that? I tell you, there is no limit, other than 100%, to how high they can take taxes if they get the votes to do it. There's no limit....There are those out there who are trying to run the table on taxes."
Honey EC: Yep.... I live in California, so I can believe it. But you haven't told the whole story. In addition to all of the taxed you listed, we have extremely high sales taxes. Statewide it's over 7%, and good old quintuple-dipper, Jerry Brown, wants them raised again at the next election along with some other taxes. But it doesn't stop on the state level. Some local area sales tax can be as high as 9.25%. Shall we try for 70% taxation on items bought with earned money?
Also, Californians pay higher tax on gasoline. And we pay higher prices for the gasoline than the rest of the country because of radical refining rules in the state. But the pocket-picking doesn't stop there. It continues to property taxes where they are constantly adding new "fees and bonds" to pay for stuff that could be paid for locally if the state didn't help themselves to our local money.
VICKY CRISTINA BUENOS AIRES....Bob said: "You may have heard the story out of Argentina about Vicky Cristina Buenos Aires. Not to be confused with Vicky Christina Barcelona, of course. It seems as though Christina is at it again. This week she has announced that she is going to seize most of oil producer (YPF) holdings in Argentina.....There you go, 50% of the company confiscated by Vicky Cristina Buenos Aires.....Any company with an investment in Argentina right now must be wondering what in the world the second coming of Evita Perone is going to bring as time goes by. And that really is the way to view Vicky Cristina. She is a Peronist in every sense of the word.....She was a senator from the province of Buenos Aires, now she is el presidente, or whatever. She can wake up in the morning and decide she is going to take the company."
Honey EC: I don't know where Bob came up with the "Vicky" name, maybe someone else does. Please let me know. However, you can read more about this here: Argentinian president, Cristina Fernández de Kirchner, rejects criticism over YPF nationalisation Nationalisation of oil company YPF has been criticised as 'unjustifiable' but the takeover has support in Argentina
KSFO 560: 1-4pm (KSFO offers FREE Moneytalk on Demand for seven days after broadcast.)
Bob Brinker's guest today was John Quiggin: Zombie Economics: How Dead Ideas Still Walk among Us (New in Paper)
ON A LIGHTER NOTE:
Jeffchristie's Final Exam Question from today's show:
This week's Moneytalk final exam question.
Bob Brinker calls Secretary of State Hillary Clinton:
A) The Wicked Witch of the West Wing.
B) Evita
C) Madonna
D) The Queen of Mean
Hint: The answer to this question was mentioned at the beginning of the second hour of Moneytalk today.
