March 29, 2015, Bob Brinker's Moneytalk: Stocks, Bonds, Economic and Investing Summary

March 29, 2015....Bob Brinker hosted Moneytalk live today....(comments welcome)

STOCK MARKET....In EDIT: Brinker made only one statement about the stock market today. He said that he did not know how the stock market would react to the upcoming "deal" with Iran -- or even if it would react.

BOND/INTEREST RATES....Brinker did not talk about interest rates or the bond market today.

Honey EC: Brinker said that the next issue of Marketimer will be available online on April 1st, and that it's no April Fools joke  -- of course, he was joking. :)

I think that he's hoping that he will get a good crop of new subscribers after today's show who really want to know where he stands on the stock market -- so he sure didn't want to give anything away for free so near the next issue. However, he did mention that moving money within the stock market was just a "sideways move." 

ECONOMY: REAL GROSS DOMESTIC PRODUCT (GDP) ....Brinker comments: This was the final reading on fourth-quarter real GDP -- Gross Domestic Product for new listeners,  is total goods and services.  Kind of like the whole ball of wax of what's going on in the economy.  In the fourth quarter, the final version came in unrevised -- that is revised, but unchanged.…  And that figure is an annual rate of real growth of 2.2% -- real growth is growth adjusted for inflation.  And right now year-over-year inflation is gone, goodbye for the month.  What I'm saying is it zeroed out – zero city is what we call it.

FIRST QUARTER SOFT BECAUSE OF EXOGENOUS FACTORS....Brinker continued: The first quarter is looking soft.  What we mean is, not a lot of growth in the first quarter on an annual basis.  There are various estimates out there.  One of the estimates from one of the Federal Reserve banks in Atlanta has the first quarter growing at a fraction of 1% on an annual rate in the first quarter.  There are others that are closer to the area of 2%. But whatever comes out, it's not expected to be a gonzo number… As things have gone in the first couple of months of this quarter, it's fair to say the weather – in certain areas like the North East – the weather has not been conducive to economic growth.…  I think it's fair to call it severe winter weather in some areas… And let's not forget we had that port shutdown in Long Beach which created a lot of disruption in the supply chain – and that was going on for much of the first quarter as well.  We're going to call these exogenous factors… Which the Federal Reserve likes to call transitory events.  The implication being,  here today and gone tomorrow.

EXOGENOUS EVENTS TRANSITORY AND  NEXT QUARTER WILL BE BETTER.... Brinker continued: Well we know the weather is gone because spring has sprung and we won't have another port shutdown.…  So it's reasonable to say that we will see better numbers coming out in the second quarter.…  That is my opinion and I'm sticking to it.

INFLATION ZERO CITY....Brinker continued: And right now year-over-year inflation is gone, goodbye for the month.  What I'm saying is it zeroed out – zero city is what we call it.

CONSUMERS HAVE A BETTER MINDSET....Brinker said:  We've have seen pretty good consumer sentiment figures indicating that consumers have a better mindset about what's going on out there.  And that's good to see.

UNEMPLOYMENT DOWN/JOBS UP....Brinker continued: And jobless claims are down.  Just flat out down.  Initial claims for unemployment insurance dropped another 9000 last week.  They are down to 282,000 and the four-week average is also down now to 297,000.  Getting that below 300,000 number is pretty healthy number for jobs.…

 DON'T WORRY, EVERYTHING'S COMING UP ROSES!  Brinker comments: I certainly don't see anything right now that would suggest that we have a whole lot to worry about with the economy.  I realize there are those out there -- many in this medium who have an agenda to try to convince people that the economy is in a recession – that the economy is getting worse, The dollar is going to collapse, goals going to 5000.  I've heard all of this nonsense.  It's all been wrong.  Now you could ask how can so many people be so wrong about so much for so long.  That's a fair question.  I certainly don't know the answer to that, but they been dead wrong.

Honey EC: One of the people who incorrectly said a recession was imminent is ECRI. DShort wrote a complete update about Lakshmann Achuthan's ECRI (Economic Cycle Research Institute) report  HERE 

SO MANY PUNDITS HAVE BEEN WRONG: DOLLAR UP, GOLD DOWN, ECONOMY AND JOBS GROWING... Brinker continued: The dollar has reached multi-year highs, gold is falling out of bed, the economy is continued to grow moderately, new job have been excellent.  The exact opposite of what some of the so-called pundits -- and I think much of that was based on political agenda forecasting – but the reality is, the economy has been growing at a gradual pace, new jobs have been coming in.  Is it a perfect jobs picture… No it's not, but we are getting a lot of new jobs.

SO MANY WRONG AGAIN: QE WAS NOT A DISASTER....Brinker continued:  And we certainly have seen inflation stay down.  That was another make it up as you go along forecasts – oh,  inflation is going through the roof, oh, QE that's going to be another disaster.  None of those things happened.  QE kept rates down to help the housing market, which needed help.  Inflation has stayed down despite QE.  You didn't hear it here, you didn't hear it from me, but it's been out there, been all over the place and it's all been wrong.

FREE MARKET GUY SAYS WHY REWARD WRONG-DOING....Caller Dave from Kansas City said: "I'm kind of a free-market guy.  Some things have to fail.  If you do something wrong, and you deserve to fail but you don't deserve to be bailed out by the US government."

FEDERAL RESERVE SAVED COUNTRY FROM DIRE STRAITS AND 1930 SOUP LINES....Brinker replied: I think that the Federal Reserve views its mandate as a lender of last resort. …  And I'm not pardoning any of the bad behavior that we saw in the financial sector in 2008, including the liar loans, and the negative amortization loans, and all of the rest of it.  It was hideous… But it is their job to come to the rescue when they are in dire straits.  And I'll tell you what, in 2008 this country was in dire straits.…  The record shows in 2008, we were losing over 600,000 jobs a month.  We were taken the pain.…  Hundreds of thousands out of work… Recollections of the 1930s with 25% unemployment and the soup lines were fresh enough.  Yes we could have gone there to 25% unemployment, soup lines, selling apples.  We could've gone there but the Federal Reserve stepped in and and we did not go there.…  Suppose we had just let the whole thing go – let it all go.  Let the companies go bankrupt, let the banks go bankrupt, let the unemployment rate go up to 25% or wherever wood of crested – it crested at 10.1 by the way.…  Now it's in the fives.…  We could've done all of that.  I just can't make a case for that.

Honey EC: Brinker said he wasn't pardoning any of the bad behavior, but he was obviously for rewarding it. Fortunes were made coming and going, and then those same people were handed government money.  In my opinion, the free market would have made the recovery much faster.

CRITICAL MASS....According to Brinker, Critical Mass is where everybody sits in the Cat-Bird Seat.

WHEN TO SWITCH TO A ROTH IRA....Brinker said: "Here is a guideline that I would use. If you think that your tax rate is higher now than it will be down the road, then you should not go to a Roth IRA -- because the value of the tax deduction now is going to be greater than the benefit you're going to get in retirement."

YOU CAN GIVE YOUR $MILLIONS AWAY TAX-FREE....Brinker said: You can give money away to anybody you like – relative, non-relative every year up to $14,000 per person with no taxes for you – no taxes for the recipient to pay.…  If you have a spouse, you and your spouse can give $14,000 each and that would be $28,000 – tax-free.

YEAH, GIVE AWAY $10,860,000 EVERY YEAR IF YOU WANT.....Brinker continued: In terms of a lifetime gifting benefit, there's an exemption there too..  That has risen this year by $90,000.  Now 90,000 may not sound like a whole lot, but how about  $5,430,000?  That's a lot of money, and that is the lifetime federal estate tax exemption which also applies to gifting – per person.  If you have a spouse, it's $10,860,000 that you and your spouse can give away under the 2015 estate and gift tax limits, and you don't have to pay any tax on that gift.Will keep in mind, the estate tax rate peaks out of 40%.  So that 40% would be a big dollar amount as a percentage of $5.43 million.…

ANOTHER TAX LOOPHOLE.... Brinker continued: There's another loophole and that is that you can play for your grandchild's education directly to the institution and it will not count against the gift.  So if you give your grandchild $14,000, you'd also be permitted under the law to write a tuition check directly to his or her institution to pay the tuition.…  And that amount would double if you had a spouse.

Honey EC: Did Brinker hear himself say that $90,000 doesn't sound like much money? Right, Bob -- selling newsletters  must be very lucrative.  

NEW TAX LAWS FOR TAX-SHELTERED ACCOUNTS...Brinker comments; We have expanded contribution limits for your 401(k), 403B and most of the 457 plans out there.…  They have increased the basic amount you're allowed to place into these plans for this year by $500 – it's now up to $18,000.  $18,000 is $1500 a month.  The money comes off the top,  you don't have to pay state and federal income taxes on the money – they place it into the plan and it's tax privileged all the way out to retirement.…  In addition to the $18,000, if you're 50 or more, you can add $6000 to the kitty and then you're up to $24,000.  A pretty amazing amount of money to be able to put aside..... And in addition to that, you have your IRA contribution limits which are up to $5500 this year, or 50 or over, $6500 this year..

TOTAL STOCK MARKET/S&P AND AAPL.....Rick from Albuquerque asked:  "I heard that Apple had become about 4% of the S&P 500, so if I own some S&P 500 funds, should I take that into consideration in the amount of the individuals Apple stock that I own?"

Brinker replied: One way to dilute that exposure is to go with the total Stock market Index.  Because if you go with the total Stock market Index, instead of owning – and the numbers are ballpark – instead of owning 500 stocks, you are going to own thousands of stocks by going to the total Stock market Index which is going to trade off something like the Wilshire 5000 or similar broad index.  In that kind of index you're going to include the mid-cap companies in the small-cap companies, so there is no reason to limit yourself that way when you can broadly invest in the total market.

REMEMBER 4% RULE FOR OWNING INDIVIDUAL ISSUES....Brinker continued: I think Rick is referring to the 4% guideline that we've talked about on Moneytalk for about 30 years,  and that has to do with limiting your direct investment in any one  company to about 4%.  Now the purpose of that is to avoid putting all of your eggs in one basket… The purpose is to avoid concentration of assets in a handful of stocks.  I think that is a risky way to invest.  Look, if you're down in the area of about 4% of an index in one stock, that would even be consistent with the guideline that I have spoken of – of having no more than about 4% in one company stock and that's all it aimed at risk management.  That's all aimed at controlling the specific company risk in your investment portfolio.

Several callers asked for specific tax and rental properties advice:

 =>  Brinker told an 86 year old to pay off his 4 3/8 mortgage since he had the extra money to do it with.
=> After spending a lot time drawing out details from him, Brinker told another caller who wanted to sell his property that he shouldn't sell because he was making about 7% a year on it.
=>  Brinker told a woman that she shouldn't pay off her mortgage that was connected to fed rates unless it started to go up.
=>  Brinker told Roger from Sebastopol who was coming into a "large amount" of money from a "tech patent" to contact a CPA for tax advice.
(In my opinion, other than some entertainment value these kinds of calls mean nothing to anyone except the caller.)

 FrankJ was not available today to summarize the third hour guest. The most important point that came out of the interview was that we should be very sure that we do not exceed the FDIC limits on money that is in banks. Some people who exceeded the limit at that time, lost money. The current insured limit is $250,000.

Brinker's guest-speaker was John Bovenzi:  Inside the FDIC: Thirty Years of Bank Failures, Bailouts, and Regulatory Battles


Jeffchristie's Moneytalk Final Exam Question:

The next edition of Marketimer will come out on:

A) Cinco De Mayo day.
B) Earth day.
C) Arbor day.
D) April fools day.

ANSWER

(Summary posted at 7:35 PDT)
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March 25, 2015, Bob Brinker's Cyclical Bull Ate His Secular Bear Market

March 25, 2015....Several readers have been talking about Bob Brinker's old-standby  market-timing selling-tool, the secular/cyclical trends, so let's bring it up-to-date.

Over the past 15 or so years, Bob Brinker has gotten a lot of mileage out of talking about secular vs cyclical market trends. In the past, he wrote extensively about them in Marketimer and discussed them on Moneytalk.

By his own words, the current secular bear market must have ended  -- without a whisper from Brinker, except to say that they never mattered anyway.  That seems almost comical, but it sure filled a lot of pages in his newsletter. This is how he defines the end of a secular bear market:

  Brinker told a Moneytalk caller in February, 2007:

“……..But what we do know is within secular trends there are no cases where a secular trend has gone beyond the previous peak by more than, by more than 10%. It's never happened, so I think it's fair to say that until that happens, the secular trend is intact.".Now the secular trend that began in year 2000 when the S&P was up in the 1500s, awww, that remains intact. The S&P 500 Index - and this is measured by the Index itself - has not gone above the prior high of 1527 close. In fact, in remains in the mid-1400s at this point. In order for it to move beyond an existing secular trend, such as the one we've had the past seven years, you would have to exceed it, I would think, by at least 10%.......”

(That definition was posted on my original Bob Brinker Blog.)

Brinker totally messed up his secular bear calls.  He declared that the one that began in 2000 had ended in 2006 -- he did that retroactively in 2007. Then he had to admit in 2009 that it had not ended after all.

June, 2007, Marketimer, Bob Brinker said:

"In our view, the valuation based secular bear market that was established following the March, 2000 closing high for the S&P 500 index (1527.46) and following the January, 2000 closing high for the DJIA (11723), reached its conclusion on June 13, 2006 at the bottom of the mid-term off-presidential election year correction."

In May, 2009, just months after the market had dropped 55%+, Brinker changed his mind and said that the secular bear megatrend hadn't ended after all.

May, 2009 Marketimer, Bob Brinker said:

"Although it appeared to us that the secular bear megatrend that began in year-2000 had reached its conclusion, there is no  question that the secular bear megatrend remains intact...."

The final time that Brinker wrote about the secular bear market was in the December 2012, Marketimer, Brinker wrote:  

"We would not be surprised to see the current secular bear megatrend reach its conclusion within the 2014 to 2020 time frame. This would suggest that we will experience at least one more cyclical bear market within the ongoing secular megatrend that began in Year 2000.....In our view, the absolute low for the current secular bear megatrend occurred during the U.S banking crisis on  March 9, 2009."

It was also in December 2012 that Brinker seemed to subtly give himself an out regarding secular bear calls: 

December 2012, Marketimer, Bob Brinker said: 

 "While we take note of the secular market trend within the context of analyzing market history, all Marketimer asset allocation and model portfolio decisions are based solely on the market signals generated by our stock market timing model. The Marketimer stock market discipline focuses entirely on cyclical price trends."

So much for secular bears -- who needs them anyway? :)  Now he only mentions the ongoing cyclical bull market:

April, 2013, Marketimer, Bob Brinker said: 

"Given the fact that this cyclical bull market is now in its fifth year, we remain vigilant with regard to our stock market indicators."

May, 2014, Marketimer, Bob Brinker said: 

"While it is true that the mid-term off-presidential year history of the market suggests that a correction is likely this year, it is also true that the Marketimer stock market market timing model continues to suggest that the underlying cyclical bull market fundamentals remain intact. "

So what is Brinker's definition of a cyclical BEAR market? I don't know....

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March 24, 2013, Bob Brinker's Moneytalk: Summary, Excerpts, Commentary and Discussion PART ONE

March 24, 2013....Bob Brinker's Moneytalk Summary: Part One  (comments welcome)

STOCK MARKET: Caller Dave from Illinois asked Brinker if the Federal Reserve pumping money into the economy was driving the stock market going up.

Honey EC: Brinker gave a long answer to Dave's question that includes a lot of other information about what the Fed is doing,  it's affect on money supply, inflation, interest rates, unemployment and the stock market: 

Brinker replied: "It's called Quantitative Easing....The Federal Reserve is buying under the current round, which is technically, the fourth rounds....is purchasing $85 billion a month in U.S. Treasury and Mortgage-Back Securities.....And that put the money into circulation....No question that has flooded the market with money...And that is one main reason that rates are so low is there's money everywhere....Why did they do it? They started to do it in 2008 to avoid a collapse of the banking system."

Brinker continued: "Why have they continued to do it?  They operate under a congressional order that says they have to maximize employment while maintaining the stability of the dollar. Now that's measured in inflation terms.....That's defined right now as Core Inflation of less than 2% as measured  by the Personal Consumption Expenditure Index. And that's where inflation is.  It's 1 and a fraction using that Core Index. Therefore they're trying to create conditions favorable for job creation to get down the unemployment rate which is way to high at 7.7%. They want to get it down to 6.5% or less.....That money is out there in the financial system. Does some of that money find its way into the stock market? Of course it does. That's one of the reasons you're looking at record or near record prices on major stock indexes. Because of the fact that there has been so much liquidity created under this monetary policy."

Model Portfolio I and Akre Focus Retail Fund (AKREX).....Caller Dan from Illinois told Brinker that he tried to buy AKREX to go in model portfolio I, and found that the fund was closed.  Brinker replied: "That is not true. For anybody listening to Dan and mislead by Dan's observations, that is not true."

Honey EC: I have not checked whether or not AKREX is closed, but I'm sure Brinker would know if it was......In January 2012, Brinker sold the 15% Baron Partner (BPTRX)  holdings and bought AKRE in portfolio I -- as he indicated to the caller. All three of the model portfolios contain small holdings in AKRE.

GOLD NOT IN MODEL PORTFOLIOS....Caller Dan okay and asked about buying gold. Brinker replied: "Whether or not you wish to have a hedge in something like gold bullion, which you can easily do through the Exchange-Traded Fund, GLD....depends on whether you personally choose to have it. Now I have not chosen to have it. Consequently, we don't even have it in our model portfolios. But we do have GLD on our list of Exchange Traded Funds. As a consequence anybody who  wishes to have a hedge in that fund, can do it. The reality is, it hasn't been doing very well. GLD has really been doing quite poorly.....It does not pay a dividend....So the only thing you have in the fund is price change and price in that fund is down from a year ago."

Honey EC: This is the first time that Brinker has given any reason whatsoever to explain why he added GLD to his off-the-books short list of (all most-well known) ETFs in 2009. The list also includes three individual stocks: Suncor, Microsoft and Vodafone.

VANGUARD GINNIE MAE FUND (VFIIX)  Caller Paul said his parents had all of their money in Ginnie Maes.  Brinker replied: "We've had a tremendous run with that fund. And that fund has done so well. It's had a lot of payouts of distributions in the last year and a quarter. If you go back to December 2011, they've paid out something in the area of 26 or 27 cents a share. So if you add that to the current share price, you'd be at $11.10 a share. The actual price is $10.83 because the distributions were paid out to the shareholders......Having said that, remember Paul,  in our portfolios, we diversify....Although that fund is represented in our portfolios in certain places, we don't recommend concentrating all of your money in one fund.....If you look in our model portfolio III where a lot of retired investments are concentrated for subscribers in retirement or approaching retirement, you will see that fund represented there. We also have it represented in our income portfolio on page 7, but in all cases, we have a widely diversified portfolio."

Honey EC: I strongly question how "well-diversified" the two portfolios are that Brinker talked about today. He used to include Vanguard Short-Term Investment Grade Fund (VFSTX) and Wellesley Income Fund (VWINX)  in both portfolios.  Wellesley is now gone altogether and in its place are higher-expense managed fund.  Matter of fact, the only Vanguard Bond Fund in the fixed-income portfolio is a 25% weighting in Vanguard Ginnie Mae Fund -- even the Vanguard High-Yield Fund is gone.  The other three replacement components of that portfolio seem quite a lot more risky to me, especially Double Line Total Return (DLNTX) and Metro West Total Return (MWTRX). Dodge and Cox Income Fund (DODIX) is an old fund and may be more reliable, but is it as diversified? I certainly doubt it.

MONEY SUPPLY....Brinker said: "The money supply has gone up hugely over the last few years at record historic rates -- because I track it in my investment letter.

FRIEDMAN AND KEYNES....Brinker said: "I think Milton Friedman, who I was lucky enough to catch in a number of speeches in the Big Apple....is a absolutely brilliant guy.....If there's one topic that people are ignorant about it's John Maynard Keynes. They don't understand what the man stood for.....Keynes was adamant about countries building up excess funds in the good times so that they would be in a position to stimulate the economy in bad times. He was not favor of what the United States has done for decades which is running deficits every year in good times and bad....That is not Keynesian economics."

BEN BENANKE'S EXIT DOOR MAY BE OPEN....Brinker said: "He gave us some hints that the door to his exit from the Federal Reserve Chairmanship may be open....He said that he has 'spoken to the president' a bit. He says he does not feel personal responsibility to stay as Fed Chair as the Fed winds down it stimulative monetary policies. In fact he went on to say, 'I don't think I'm the only person in the world who can manage the exit.'.....If you ask me, during my lifetime, the two Super-Star Fed Chairs, they're Paul Volcker and Ben Bernanke. No hesitation at all about saying that...Does it matter whether he stays on or not? That's a question that cannot be answered because it depends on who replaces him when he leaves. If you get somebody as good, then it doesn't matter. If you come up with a turkey, then it matters....I'd rather see Bernanke in the chair during the withdrawal process, but he's going to do what he's going to do."

 CYPRUS.....Brinker said:  "Cyprus is hanging in the balance as the European Bank deadline on the table as we speak to see whether or not Cyprus is going to remain in the Euro."

Honey EC: Brinker covered this subject thoroughly last week, so I am not going to report much about it today. And clearly, the story has changed since last week and has even changed  since Brinker spoke about it early in the program. Here is a LINK to a  very good BBC update on the latest news on Cyprus.

THE NATIONAL DEBT WILL NEVER BE PAID....Brinker said: "I don't think it will ever happen.....Anybody that thinks they are going to pay off the national debt is dreaming....I don't see a major pay down of the National Debt. It's moving up toward 17 Trillion dollars and will cross 17 trillion this year.....When it comes to the National Debt, Party affiliation has meant very little. We've been running huge deficits in good times and bad times."

Honey EC: Hey Bob, maybe you should check into what's happened to the National Debt in the past four years and compare that to all that went before. It might surprise you.

THE WEEK AHEAD, Brinker comments:  Housing prices starting to improve. Tuesday Case-Schiller Housing Price Index comes out - median forecast is a year-over-year gain of close to 8%. Last month it was almost 7%.....4th quarter revision expected to be 1/2 of 1% growth. The earlier revision was 0.1%. Total  real GDP growth for 2012 looks like about 2.2%. Year before it was 1.8%....That's slow growth.  Initial unemployment  claims estimated at 340,000....Last week they were 336,000....They are well under 400,000 and that is where we want to see them.

Jeffchristie's Moneytalk Final Exam Question:

Bob Brinker once again sang the praises of Ben Bernanke. He ask if it would be a problem if he didn't stay around to unwind the expansion of the FED's balance sheet. He said it would be a problem if his successor was a:

A) A Dodo bird.

B) A Chicken hawk.

C) A Turkey.

D) A Vulture.

Answer

 Bob Brinker's guest-speaker was Charlie Maxwell. Guest-writer, FrankJ has written a summary of the Maxwell interview. See Part Two article above this one.

San Francisco, Ca. KSFO 560: 1-4pm (KSFO archives Moneytalk Free on Demand for seven days after broadcast. You can download and listen on the go.) 

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