August 5, 2018, Bob Brinker's Moneytalk: Summary of Stocks, Economy, Bond Advice

August 5, 2018...Bob Brinker was live on Moneytalk for the first two hours....(comments welcome) 

STOCK MARKET....Brinker made no comments about current stock market activity.

Honey's EC: As I have written before, Brinker is still looking for the market to retest the February lows based on the fact that this is an off-presidential election year. But if that doesn't happen, he is all set to look for "a market top" in 2019. The big clock on the wall aboard the Spaceship Moneytalk will certainly be right again some day. :)

VANGUARD PRIME MONEY MARKET FUND....Brinker told first caller, Mitchell, that he prefers Vanguard Prime because it pays a higher yield than Schwab Money Market Funds. 

INTEREST RATES....BB comments: The Federal Reserve will continue to increase rates and dumping Treasuries on the open market, via Quantitative Tightening (as opposed to Quantitative Easing). 

EMPLOYMENT AND UNEMPLOYMENT.....BB comments....Current unemployment rate is now 3.9%....Average hourly wages - year-over-year - have increased 2.9% (not adjusted for inflation)

GROSS DOMESTIC PRODUCT....BB gives the year-over-year number as 2.8%. (BB did not mention that the GDP for Q2 came in at 4.1% and some say will be higher next quarter.)

==> dRahme's Audio Clip: employment and GDP reports; recommends Vanguard Prime Money Market Fund and why, to caller Mitchell in Naperville. 

JOB SKILLS ARE NEEDED....BB commented on "income inequality" and how no one ever points out that workers have the responsibility of getting the skills or education needed to do jobs and get higher wages. 

"STATE LEADING INDEX" REPORTS.....BB said that according to the State Leading Index Report, over the next six month, economic activity will increase in 46 out of 50 states.  ==> dRahme Audio Clip:  job skills needed....meaning of State Leading Index

APPLE STOCK

WHY APPLE MARKET CAP HIT $TRILLION.... BB said: "Think about the caller (Bernie from West Lake Village)  that we had last hour that made an attempt to link the fact that the company - Apple - now has a $trillion market cap.  Which simply means that the number of shares outstanding, plus the price of the stock equals a trillion dollars, plus. That's all it means. And that's entirely a function of the corporate profitability of that company and the job that Tim Cook has done running that company as the successor to Steve Jobs in the role of CEO...…"

WE ARE TETHERED TO IPHONES AND SMART PHONES....BB continued:  "It's about the fact that that company has created the iPhone that is literally tethered.....to millions and millions of people. I see a lot of younger people that are so tethered to their iPhone, they can't put it down. They won't put it down. One wonders what could have possibly happened in the last 38 seconds that would require another visit to the screen, but that's the way it is. It is what it is, and there is nothing anybody can do about it....." 

SO THIS IS HOW APPLE MADE THE $TRILLION..... BB continued:  "So if you create a product like that that literally takes over the life of a human being - millions of them. They are going to the APP Store and taking advantage of the services, maybe buying some of the other products the company produces. It's like magic, right? …..So in a situation like that, the company benefits. These are customers. They are paying money for the phones, services, for everything. This has accrued to the benefit of the company and shareholders. That's where they get the revenue and earnings, that's how they pay the dividends. And that's why the stock has done what it's done." 

MARKETS THIS WEEK (Honey's report): 

STOCKS FOR THE WEEK:  the DJIA ticked 0.1% higher (25,463); the S&P 500 Index gained 0.8% (2840); and the Nasdaq Composite 1.0% (7812).

OIL:  WTI crude oil dipped $0.47 to $68.49 per barrel.

GOLD:  Bloomberg gold spot price gained $5.90 to $1,213.73 per ounce, 

DOLLAR: Nearly unchanged at 95.17. 

10-YEAR TREASURIES: The yields on the 10-year note decreasing 3 bps to 2.95%. 

TRADE BALANCE... The deficit widened by a slightly smaller amount than expected to $46.3 billion in June, compared to forecasts of $46.5 billion. May's deficit was revised higher to $43.2 billion. Exports were down 0.7% m/m at $213.8 billion, while imports rose 0.6% to $260.1 billion.  

FOMC ANNOUNCEMENT: decided to maintain the target range for the federal funds rate at 1-3/4 to 2 percent. 

BRINKER BOOK CHALLENGE... Caller Roy from Corte Madera said: "What I encourage anyone who is doing investing to do is ask their broker - give them like 4 to 6 books from your book list like Bogle's Common Sense on Mutual Funds; Random Walk Down Wall Street; Against the Gods.  Then  ask the broker if those books will help with investing. If the broker says  'no, I'll take care of everything,' go find another investment advisor."    Brinker raved about the idea and several times during the show made reference to the call and the recommended books. 

(Honey sez:  FrankJ has done short reviews of the four books which were mentioned today,  and added some of his own recommendations.)   

FRANKJ'S BOOK RECOMMENDATIONS AND COMMENTARY:

Bob’s third hour guest this Sunday, August 05, 2018 was ………  oh, wait, there wasn’t a third hour guest.   This was strange because during the second hour he mentioned the third hour guest would be Elizabeth Rosenthal, author of the book “An American Sickness:  How Healthcare Became a Big Business and How You Can Take It Back.” 

What was odd was that Bob almost never reveals the name of the third hour guest beforehand.  And when I was looking at archived third hour summaries on my hard drive (the ones the Bulgarians had not hacked into) I noticed a summary of the very same author and the same book from August of 2017.  (Cue the Twilight Zone music.)     So how did that mention slip into the second hour?  Inquiring minds want to know. 

Early in the show Bob got a call from someone who said that people using financial advisors or contemplating using one should ask them their reaction to 4 books on Bob’s reading list (available on his website – and it is a long one.)   Not all of them have to do with investing, per se, some are topical and a great many are by third hour guests. 

So here are the four books the caller recommended:

1.      A Random Walk Down Wall Street by Burton Malkiel.   Malkiel is a finance prof (still, I think) and he’s a board member of Vanguard last time I checked.  That makes him an index fund guy.   I read this book a long time ago but it is now in its 12^th edition. 

2.      Against the Gods, by Peter L. Bernstein.  Bernstein has been a guest on the show.  He wrote this book and others which show up on Bob’s reading list.   I read this book too, largely on Bob’s recommendation but I have to confess I don’t remember a whole lot about it other than it focused a lot on risk.   I bought this book but don’t have it anymore so I must have given it away. 

3.      Common Sense on Mutual Funds, by the venerable John C. Bogle, founder of Vanguard and the innovator of index fund investing (although I read somewhere recently that some other outfit brought out an index mutual fund way earlier, it just wasn’t that widely available.)   I read this one too, but no longer have it.  I gave my kids each a copy of another book by St. John,  The Little Book of Common Sense Investing.  This is a short book which is part of a series of “Little Books” covering various aspects of investing. 

4.      Winning the Loser’s Game, by Charles Ellis.  Mr. Ellis has been a guest on the program several times and he has more than one book on Bob’s reading list.  I read this one too, having heard about it on Bob’s show.   I liked this book, had it for a while, probably gave it away. 

Which of these four would I recommend to someone starting out if I could only choose one? 

That would be John Bogle’s book.   And I would advise them to read Ellis’ book because it explains how financial advisors can take a chunk out of your earnings in various ways. 

At one point the blog here included its own reading list of good books.  I don’t see it there now, but I am sure it is archived. 

Here are some other books I read and recommend:

A book I liked on bonds was Larry Swedroe’s (co-author)  The Only Guide to a Winning Bond Strategy You’ll Ever Need.   This also seems to be part of a series with “The Only Guide” as part of the title of other books.  Personally, I learned some stuff about bonds and it got me to take a more critical look at junk bond funds, and I ended up getting rid of the one I had. 

Then there is Lowell Miller’s book, The Single Best Investment, which I have read at least twice and is now heavily highlighted.   The “single best investment” being dividend growth investing.  He describes the advantages, how his investment firm screens stocks and how you can do this yourself.  He gives specifics on what he looks for in choosing individual stocks. 

Jeremy Siegel’s The Future for Investors, Why the Tried and True Triumph Over the Bold and New.   This is another book emphasizing dividend paying stocks over growth stocks.  Published in 2005 though, so I’m not sure if investors in the FAANG stocks would be much interested in the ideas here.

Howard Marks’ book, The Most Important Thing, Illuminated.  2013.  He was chairman and founder of Oaktree Capital Mgt, at time of publication.  Marks is firmly in the camp of active fund management.  The Oakmark fund has a pretty good record, long term.  What is the “most important thing?”  Actually there are 21 of them, each chapter describes a “most important” concept. 

There is a book I snagged for $1 on our local library’s surplus shelf:  Steven  B. Achelis’ Technical Analysis from A to Z.  I’m not a chart guy but I found this book interesting in that it described dozens of technical trading approaches all in one place. 

Here is a quick mention of  Bad Blood, by John Carreyou as long as we’re on the topic of books.   Remember him as a third hour guest a little while back?  I recently read this book and found it very good.  Entertaining to the extent that scams like the one Theranos was running could be.  Well written.  Moves right along.   Remember, Theranos was the company that was going to revolutionize blood testing using tiny pinpricks to obtain blood droplets that would then be used in their proprietary equipment to do rapid analysis for  an amazing number of blood tests.   Well, their equipment never worked properly and they skated around the needed regulatory approvals as he briefly described in the interview. 

The founder, Elizabeth Holmes was featured all over the financial media because of her young age and the fact that she was on her way to becoming Silicon Valley’s first female billionaire.  In her pitches to investors she’d make reference to a relative that died who, she implied, could have lived if her technology was available at the time.  So, her company was out to save lives – but the author makes clear that in fact, their technology was so bad that if it rolled out on a larger scale, it could have cost lives and gives examples.   Mr. Carreyou’s book documents the run up and then the unraveling of the whole thing.   

Honey here: Thank you, Frankj! I think if anyone really wants to learn to be their own financial advisor, all the top-notch help they need is provided in your book reviews and comments above. 

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July 29, 2018, Bob Brinker's Moneytalk: Summary and Commentary

July 29, 2018....Bob Brinker mostly hosted Moneytalk live today.....

STOCK MARKET...Brinker commented that he is still for having 100% of your stock allocations fully invested, and for dollar-cost-averaging new money.   He said that in spite of the auto companies complaints, the stock market had a "reasonable week" with the S&P 500 making fractional gains.

FINANCIAL  MARKETS NOW

OIL: WTI crude oil lost $0.92 to $68.69 per barrel and wholesale gasoline shed $0.01 to $2.11 per gallon.

GOLD: The Bloomberg gold spot price inched $0.72 higher to $1,223.41 per ounce.

DOLLAR: The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.1% at 94.66.

STOCKS:  The DJIA rose 1.5% (@ 25,451.06);  the S&P 500 Index was 0.6% higher (@ 2818.82);  the Nasdaq Composite declined 1.1% (@ 7737.42).

FACEBOOK HIT THE SKIDS THIS WEEK - not mentioned on Moneytalk today. 

BRINKER SAID 4% GDP COULDN'T BE DONE, BUT THIS IS WHAT HE IS SAYING NOW....Brinker said:  "Well some good economic news.  Okay, it was expected. Okay, we said it would happen. We'll take it. Some good economic news in the second quarter of 2018. Total GDP had a very good second quarter. We talked about a nice bounce off that first quarter. We got that nice bounce.  The first quarter was slightly revised to 2.2% annual growth. But the second quarter was the headline number coming in at 4.1% annual growth.  And that brings the first half annual growth rate up to 3.1%. The advance  estimate for Q2 GDP to one decimal, came in at 4.1% (4.06% to two decimal places), an increase from 2.2% for the Q1 Third Estimate. Investing.com had a consensus of 4.1%."

Honey: LOL! as I typed that. :)

LISTEN TO THE REST OF BRINKER'S ECONOMIC REPORT....==> dRahme's Audio Clip

BONDS, INTEREST RATES...No changes in Brinker's advice to stick to duration of one year or less in bond funds.

ROTH VS REGULAR IRA.... Brinker told a caller today that the only reason he would recommend paying taxes to transfer money from a regular IRA to a Roth IRA is if he was convinced his tax rate would be higher in the future.

HOUSING MARKET....Home prices are at high levels, and likely to stay high because there is a scarcity of available homes. There has been "under building for years," so there is a low inventory.

==> > dRahme Audio Clip: home prices; mortgage rate changes; durable goods gains;

CRYPTO-CURRENCIES - BITCOINS.... Lots of advertising because they are not regulated....extremely volatile....."CAVEAT EMPTOR"

NEXT WEEK IN THE CANYONS OF WALL STREET....dRahme's Audio Clip: pending home sales; PCE Index (watched by FOMC); ADP new jobs estimates. 

FRANKJ'S ORIGINAL SUMMARY OF THIRD-HOUR REPEAT GUEST-AUTHOR AND BOOK FROM  APRIL 2017. No new information was added in today's interview:

Bob’s guest today, April 2, 2017 was William D. Cohan, author of the book “Why Wall Street Matters.”  Today was a repeat appearance for Mr. Cohan on the StarShip.   He is a financial journalist and former banker.   Mr. Cohan said the book is short, easy to read and it is his hope that people will gain a better understanding of Wall Street’s importance to their everyday life.   (Editorial comment in italics as usual.)

A blurb on Amazon books describes this offering as,  “A timely, counterintuitive defense of Wall Street and the big banks as the invisible—albeit flawed—engines that power our ideas, and should be made to work better for all of us.”

Mr. Cohan thinks Wall Street is bashed unfairly by politicians of all stripes and mentioned Bernie Sanders and President Trump in this regard.    He cited an example of Elizabeth Warren blocking the appointment of Antonio Weiss to a government position simply because he once worked on Wall Street.  Mr. Cohan said he knew Mr. Weiss was well-qualified for the job.

The guest believes Wall Street’s compensation model is to blame for financial disasters that result (naturally) in Main Street’s dislike and distrust.   For decades, Wall Street investment firms were partnerships, meaning it was the partners’ capital that was at risk if investments went south.  That changed in the 1970’s when Donaldson, Lufkin and Jenrette was the first firm to go public.  Many more followed suit and the result was that risk was no longer confined to the partners, now it was spread among the shareholders at large.  

He referred to the “bonus culture,” wherein employees of the firm take outsized risks with other people’s money, hoping for that big bonus at the end of the year.  

Bob asked if he blamed Wall Street for 2008?  The guest gave a long answer, beginning with the statement that there was a lot of blame to go around.   Government policy and the actions of Wall Street, mortgage brokers and real estate agents pushed home ownership up from 61% to 70%  (presumably these are percentages of households).   As MoneyTalk regulars well know, there were a lot of people who had no business buying a home during this bubble, but they were accommodated by a greedy lending sector.  

The bottom line was, no one on Wall Street was held responsible.  The Dept. of Justice under President Obama did little or nothing to go after those responsible.  Preet Bharara, former US Attorney in New York City has gone after hedge fund operators but not Wall Streeters involved in the housing debacle.  Mr. Cohan said Bharara told him “stupidity and greed” are not grounds for prosecution and there is a lack of evidence that Wall Street firms acted illegally.  

The guest pointed out that Dan Turillo, a former member of the Fed pushed regulations on Wall Street firms, “trying to turn it into a utility.”   Because they tend to be monopolistic over broad geographical areas, utilities are tightly regulated.  

The result of this regulation is that small and medium sized businesses on Main Street have found it difficult to borrow.   He cited Larry Summers as someone who thinks these regulations are the reason we are stuck at about 2% growth of GDP.   

Keith from Rochester called in.  He’s getting to be a regular on the StarShip.   Normally he is strident and argumentative and makes more of a statement than asks a question.  But today his call fed right into what the guest said about the difficulty of getting capital flowing to Main Street.   Keith cited the hit Rochester took when Kodak folded.   The guest gave a long answer which basically agreed with what Keith said.

Bob wrapped up about 3:55.  

Honey here: Thank you, FrankJ.  I have never before known Brinker to have an author on to discuss the same book he had him on to discuss over a year ago.  And as you pointed out to me, Brinker actually said the book was new. The book is available in paperback on Amazon for $1.30. 

Mr.  Cohan took a cheap shot at President Donald Trump today (something he didn't do a year ago, but that was just three months after inauguration).  Very near the beginning of the interview, Mr. Cohan said that the reason people aren't much interested in the problems on Wall street was because they have a short memory and are focused on what's happening in the White House, where there is "a very strange individual who happens to be our President."

I would like to tell Mr. Cohan  three things: 1. Of course President Trump seems strange to you. He's a genius and you're not. 2. If there was any chance of my buying any of your books, you did away with that with one word "strange." 3.  You slam  most investors with your "short memory" insult, but is your memory long enough to explain why on your prior Moneytalk appearances, you never once had a negative word for Obama. Why is that, hmmm?

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July 22, 2018, Bob Brinker's Moneytalk: Latest Advice and Commentary

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

EDIT: Due to severe weather issues in his area, dRahme was limited on making audio clips from Sunday Moneytalk.  dRahme's Audio Clip: Brinker's comments on Fed, Economy and Debt

CURRENT STOCK MARKET NUMBERS: July 20th, the Dow closed at 25,058; the S&P 500 Index at 2802; and the Nasdaq at 7820.

BRINKER'S STOCK MARKET COMMENTS....."S&P 500 sitting in about the 2800 level, and since reaching its all-time-historic-peak close in January this year which was at 2872, it's basically been bouncing around. We had a 10.1% pullback over a period of only nine days when there was an inflation scare back in the first quarter. And since that time, its just bounced back and forth a number of times  - and basically been in a trading range since January. And that trading range has been - there was a short time in the 2500 - but mainly, it's been in the 2600s, the 2700s, even a little bit around that 2800 level. It's bounced around a lot if you go back to January of 2018.

Honey's EC: Brinker has always defined a bear market as a decline of 20% or more, a major correction between 10% and 20%,  and a "noisy" correction as 10% or less.

Based on Brinker's "Special Bulletin" in February 2018, he considered 10.1% a correction and was waiting for retest to issue a new buy-signal. Here are some excerpts: 

In the February edition of Marketimer we continued to recommend a dollar-cost-average approach for investing new stock market money, especially during periods of market weakness. We also observed that we expected increased volatility this year, and noted that in every mid-term election year since 1962 the market has experienced a decline of at least 7.4%. We also noted that in seven of the last eight mid-term election years dating back to 1986, the decline has been within the category of a correction of less than 20%. 

The initial stage of the current correction carried the S&P 500 Index into the mid-2500s range during the February 9th trading session as the index searches for the area of an initial bottom. Following the completion of the initial correction phase, we expect the S&P 500 Index to stage a short-term rally which is likely to run out of steam and roll over into a retest of the developing initial bottom area. For subscribers looking to add to stock market positions, our view is that the potential for a Marketimer buy signal would be highest in the event we see a successful test of an initial bottom area.

 (SNIP)

Going forward, if all goes well, we hope to reach a point at which we can upgrade the market to "attractive for purchase" at a level close to the eventual closing correction low. However, this can only occur on a successful test of the initial bottom area, accompanied by confirmation based on our analysis of the technical market internals at that time. 

(SNIP)

There are no changes to our model portfolios at this time and we continue to recommend a dollar-cost-average approach for investing new money, especially during periods of market weakness. 

BOND FUND PERFORMANCE ACCORDING TO BRINKER.....Caller Jim asked about continuing to hold his Vanguard intermediate and long bond funds: Brinker replied......"We certainly have seen lousy performance from the intermediate and long term bond market since this whole thing (rate increases) has gotten under way in the summer of 2016.....Since then, the Federal Funds rate has gone from 3/8% average to 1 7/8%. So that's 150 basis points. And during that time, the ten-year has also gone up 150 basis points...…

Honey EC: The funds that Brinker sold beginning in 2013 with Vanguard Ginnie Mae Fund have done very well. 

Jim sums it up well with these comments today:

Since Bob Brinker enjoys explaining to people how duration works with bonds maybe he could be so kind to explain to us how the Vanguard Long-Term Treasury Index (VLGSX) which has a duration of 17.2 years is only (-0.36%) over the past 12 months, after all the Fed rate hikes and after the yield on the 10 year Treasury has risen 150 basis points. I guess Vanguard must be lying about performance since Bob has said recently that long term bond funds are "getting taken to the woodshed".

July 22, 2018 at 5:52 PM

FEDERAL RESERVE....Brinker comments: The Federal reserve has  a tremendous challenge ahead of it and we don't know yet how it's going to turn out.....The most difficult task that the Fed has had to deal with is how to move from accommodative policy to a normalized equilibrium policy.....One of the terms used in the Canyons of Wall Street to describe this is Managing a Soft Landing. …..

ECONOMY EXPANDING.... BB continued: Because we have an economy that has been expanding for many years...… (Honey Editorial Comment: Mostly the economy was clinging to about 2% for "many years." Now some are expecting Q2 to be up to 4%.)

INFLATION..... BB continued: "One of the triggers for raising rates is inflation. We already see inflation figures higher than we'd like to see them. Year-over-year headline Consumer Price Index number 2.9 - that's higher than we'd like to see.

EFFECTS OF TARIFFS SO FAR.... At least twice today, Brinker pointed out that so far, the effects of "tariffs have been very small - and no big deal." 

SILVER COINS FOR INVESTMENTS.... Brinker strongly advised a caller against buying numismatic coins because of the exorbitant mark ups on them.  

HOW MANY RATE HIKES ALREADY....BB continued: "They are watching all of this at the Federal Reserve, and at the same time, they are in this rate raising posture which started in December 2015. We've already seen seven rate hikes - with more to come.....They are also doing Quantitative Tightening. They are taking money off the balance sheet of the Federal Reserve - the money they piled up when they bought all those Quantitative Easing securities. On a maturity basis for now, they are taking these things and putting them back into the open market - where they to be absorbed...." There is no history for a combined program of raising rates and Quantitative Tightening - never happened. We are very early in QT - have to do $trillions. 

UNEMPLOYMENT BELOW 4%....BB continued...."We've gone three years now with basically record low. It's been amazing...."  

Honey EC: Brinker ignores his prior reports about the very high under-employment rate, and the huge numbers of workers that were cut to part time because of the ACA and gave up looking altogether, which increase welfare, food stamps and SSI (disability) claims.   And he never mentions the racial demographics that have drastically changed this past year.  Black and Hispanic unemployment are at HISTORIC LOWS.

ESCAPE VELOCITY.....BB continued: "Economic policy reaches a point that his described in the Canyons of Wall Street by the economic mucky-mucks as Escape Velocity......They are talking about the economy being able to grow on its own in a granular fashion without having the Federal Reserve driving it with low interest rates and highly accommodative monetary policy and financial liquidity....The prevailing wisdom is that we have already reached Escape Velocity.  (Honey EC: So it looks like the current President is not going to have the Fed's help maintaining "Escape Velocity.")

WORKFORCE TRAINING PROGRAM....Brinker continued: "Right now, we have more job listings than qualified applicants.....Now you know that the government has a dreadful historical record of training citizens to take jobs - training citizens to get them to the level that they can qualify to take jobs. The government is pretty dismal. So there's not a whole lot of hope that is suddenly going to  be solved overnight...."

Honey EC: Who's talking about Government doing it, Mr. Brinker?! You  must not have heard about President Trump's plan that gets corporations to commit to training STUDENTS AND WORKERS for the jobs that need to be filled.

The White House said the "Pledge to America's Workers" would provide at least 3.8 million new career opportunities for students and workers over the next five years, including apprenticeships, work-based learning and continuing education.

Some of the companies signing the pledge include Apple, Boeing, General Motors, FedEx, The Home Depot, IBM, Lockheed Martin, Microsoft, Northrop Grumman and Walmart. Several trade associations also committed to the job training initiative, and Trump welcomed several members of Congress and state and local officials, including Wisconsin Republican Gov. Scott Walker.

FRANKJ'S MONEYTALK-GUEST SUMMARY:

On Sunday July 22, 2018, Bob piloted the MoneyTalk Starship back in time to September 2008 (once again) to discuss the economic meltdown with Lawrence Ball, a prof at Johns Hopkins University and author of “The Fed and Lehman Brothers: Setting the Record Straight on a Financial Disaster.”

The guest thus joins a long conga line of authors who have made a cottage industry out of writing books on this general subject.   The book was issued in June 2018 and checking on Amazon (which is where I usually go for the subtitle) I see it has one review.  Someone gave it 5 stars. 

Bob pointed out that Moneytalk was on the air the weekend it became clear that Lehman would be allowed to go under.  The Fed did not toss a life ring to Lehman Brothers like they did with Bear Stearns and AIG.  (With Bear Stearns they helped broker a buyout).   The powers-that-be claimed they did not have legal clearance to help Lehman.  The guest said this “reasoning” came about after the fact;  Lehman did in fact have collateral of sufficient quality to pledge against a loan from the Fed.

We know what happened next.  Credit markets froze.   Did it have to happen?  No, was the guest’s answer.  Lehman could have been saved by a loan from the Fed.  The guest decried widespread use of the term, “bailout.”  It implies free money.  In fact, firms who received help from the Fed paid the loans back with interest.   Bernanke, Paulson and others realized their mistake in not helping Lehman after they failed.   The Fed help to major banks followed shortly thereafter in the interest of avoiding one bank failure after another which is what the guest speculated would have happened. 

(Some banks took Fed money because to not do so it would appear to Wall Street that they were beyond help – the source on this is a banker I know).

Bob brought up the Dodd-Frank act.  The guest said some parts of it are in need of revision but they probably won’t be, while parts that will be revised don’t need to be revised. 

The guest did not completely agree with Bob on the risk of inflation.  He does not see the labor market as being as tight as reported by Bob.  Therefore he said it would be premature for the Fed to take actions that would slow the economy.  He said the Fed should do less and/or do it more slowly.

Callers:  Martin from Fairbanks asked the guest if he saw the movie, Too Big To Fail?  The guest didn’t see it.  Martin also asked what the guest thought of Larry Kudlow’s appointment as an economic advisor.  Bob cut in after the guest answered the first question so we didn’t hear his opinion of Mr. Kudlow.   Bob segued into tariffs. 

Nathan from San Jose country seemed more interested in making a short speech about bailouts and telling us that he once wrote a paper on the Chrysler bailout.  Did the guest think that this started a trend? 

Paul in Louisiana asked if the reason Lehman didn’t get help was because Henry Paulson did not like Dick Fuld, head of Lehman.  The guest said there have been a lot of stories to that effect but they’re somewhat exaggerated.   Bob interjected that Paulson, etc. made the wrong call which was to let the firm go vs. making an emergency loan. 

Bob wrapped up at 3:51.     

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