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Sunday, May 22, 2011

May 22, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

May 22, 2011....Bob Brinker hosted Moneytalk today. Two important topics that Brinker did not bring up today were the Arnold Schwarzenegger scandal, and the rape charges levied against Dominique Strauss-Kahn, the President of the International Monetary Fund -- who reportedly hoped to become the President of France.

STOCK MARKET....Another stock market "Ground Hog Day" with Brinker reciting the Friday closing numbers. Brinker told a caller: "I disagree with what your friend said about the market just goes up and up. That's not even vaguely true. The S&P is lower now than it was back at the end of the 1990's. The end of 1999, the S&P was higher than it is right now. So the idea that the market just continues to go up is a silly bit of misinformation that your friend gave you."
Honey EC: Brinker is correct. The S&P 500 Index closed December 31, 1999 at 1469, and closed last Friday at 1333.

* From there, it went into a bear market and bottomed in March 2003 at 801. Brinker partially sidestepped that bear by raising 65% cash in his model portfolios between 2000 and 2003 (a portion of that cash was used for his QQQ trade, but never officially accounted for).

* Then the S&P began another bull run to an October, 2007 top of 1565. Brinker remained fully invested.

* From there, the S&P dropped to another low of 677 in March of 2009. Brinker remained fully invested the whole megabear.

* Now once again, the S&P is back up to 1333, but still more than 200 points below it's all-time-high of 1565. And as Brinker said, over 139 points below December 1999.
TREASURY RATES.... Another Brinker Ground Hog Day repetition of Treasury Rates. (For latest rates, see the right column under "Items of Interest")

INFLATION....
The Treasury market implied inflation rate = 2.38% annual. Brinker said: "Those who are looking for rapid inflation are getting tired....."

ECONOMY..
.Growing slowly...Next week, revised GDP expected to be at 2.2%

HOUSING MARKET:
"...is on life support."

WHAT HAPPENS IF THE GOVERNMENT SHUTS DOWN? Brinker said:
"We had an actual government shutdown...in the mid-90's and the market kind of yawned. It wasn't very impressed. The market correctly made the assumption that the government would re-open after a short period - which it did. I think that investors today, in general, are making the assumption that the debt ceiling will eventually be raised and then we can get down to the serious business of trying to get toward a balanced budget, which is a very important subject, and the one that Washington should be focused on going forward."

WHAT IF THE TREASURY DEFAULTS ON DEBT? Brinker said:
"I will say this, if the United States defaults on its debt, I can't give you any reason why anybody in the world should lend a penny to the United States Treasury.....If they actually do that, I can't give you any reason why anybody should invest in a US Treasury......Personally, I don't see how they can go into default because they're constantly going into the market and borrowing more money. If they go into default, they will access to additional borrowing. How are they going to fund a trillion dollar a year, plus, deficit, if they can't go into the market and sell debt. How would they do that? How could they possibly face the risk that they would be unable to sell Treasury debt because they were in default.....I don't see that as a realistic outcome."

WILL THEY RAISE TAXES... Brinker said:
"I certainly expect to see a continuation of political pressure on raising the rate on the high earners, which are defined for a single person as those making over $200,000. For married couples, those making over $250,000 in taxable income. .....Will they go beyond that?...... That one is going to be fascinating to watch because they have a gargantuan gap between expenditures and revenues right now. And they are going to have to deal with that. A lot this is lodged in Medicare. I mentioned that we have a 110 trillion dollar unfunded liability in Medicare, Medicaid and Social Security. But most of that is Medicare. Medicare is a fantastic deal for those getting benefits. Medicare is a disastrous deal for the Federal Government because it is running the national deficit and the national debt to the moon."

CALIFORNIA BEING RIPPED OFF BY PUBLIC EMPLOYEES......In the opening segment of hour two, Brinker talked at length about California, and he itemized several outrageous public employees' salaries and pensions in various places in the state. Brinker pointed out that in regard to public employees (and their unions), "no one is minding the store" -- while in the private sector, usually someone is at least counting the money.

Honey EC:
As I said above, Brinker never mentioned Arnold Schwarzenegger today. Although in the past, Brinker has said that
Arnold Schwarzenegger was "good for California' and vigorously defended him. One time, Brinker went so far as to say that he gets “ill” when he hears people "bash Arnie."

Perhaps there's a reason for his reluctance to say anything about Arnie's lying, cheating and adultery. But what about the possibly irreparable damage that "Arnie" did to California? He was elected because voters believed what he said he would do for the state -- HE LIED! And shame on you, Bob Brinker, for not mentioning the disgusting behavior of this two-term governor of California, who got elected while he AND his wife lied to voters... You bash California every week, but give your buddy a pass? It's a shameful thing to do, just like what Arnold Schwarzenegger did was shameful.


Brinker's guest-speaker was Andrew Ross Sorkin, who wrote "Too Big to Fail." The HBO movie is scheduled to debut tomorrow at 9PM eastern time.

Brinker started the interview by asking Sorkin what he would like to add to his book since it was completed a year ago. Sorkin pointed out that the book was actually completed in 2009 - that Brinker was looking at the paperback date.

Sorkin said: "Very little has changed. We now live in a world that is too big to fail squared. The top ten banking institutions in this country now control 77% of all the banks assets. Think about that concentration and what that actually means. We have not solved the too big to fail conundrum, and that to me, is the most disheartening part about this crisis. But the other thing that I think it's really important that we focus on, given that we talked about debt and the risk and what that means, is that the conversation about this phrase too big to fail no longer just applies to banks. We are now talking about in the context of municipalities and states and countries in Europe and eventually maybe our own. I think that is a much larger and more important conversation because the next financial crisis that we have, I'm not sure is going to be generated on Wall Street. I think it's generated by us. I'm not going to say there's going to be a sequel. I actually hope I don't have to write one. But if there is one, that's what this is ultimately going to be about."
Brinker asked: "Is the United States Treasury too big to fail?"
Sorkin replied: "Arguably it is. And the question is who, who, who can rescue us? The only people who can rescue us is the Fed which is the lender of last resort at this point. But will they really have enough firepower? And that is what we don't know. If a really big institution, when I say big, I'm talking a JP Morgan or a Citigroup, whatever, got in trouble, are we in a position to save them and what would really happen?

Part of the legislation that was passed around financial reform was this idea that a resolution authority, the idea that you could finally have the authority to take over one of these institutions. And it will be our last line of defense. The question is, will it really work, and there's no way to practice. We won't know until we do it, and I think that has a lot of people very anxious."
Brinker thanked Sorkin and again announced that the HBO film would debut tomorrow (Monday, May 23rd). The book is also available for Kindle:



Moneytalk on demand and to go with Bob Brinker, is available for FREE audio/podcasting at KGO810 radio for seven days after broadcast. I download and save all three hours, including the third hour guest-speaker. (The program is archived in the 1-4pm time-slots.) If you don't download it from KGO within seven day, it's available at bobbrinker.com by paid subscription. KGO Radio Sunday Archives

SJ Al recently sent pictures from Florida, and sent this one this morning. Al has now returned home. Hope you had a wonderful vacation -- and thanks for this picture of one of the inhabitants of Cozumel:


Dixiegeezer took this picture for us yesterday in Florida. To me, plumeria IS Hawaii. Does it smell as sweet in Florida? :)



Sunday, May 15, 2011

May 15, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

May 15, 2011....Bob Brinker hosted Moneytalk today.

STOCK MARKET:
Brinker reported the latest stock market numbers. Year-to-date total return on the S&P 500 Index = 7%.

INTEREST RATES: Brinker said:
"Rates are way, way, way down." He recited all of the current Treasury rates.

Honey EC:
Another Bob Brinker stock and bond market Ground-Hog Day. :) Brinker is still fully invested and recommending dollar-cost-averaging new money into the market. He predicts that the S&P 500 Index will reach the low-to-mid 1400's range over the next 12 months. (See the right hand column of this blog for a link to all the latest Treasury yields.)

TREASURY IMPLIED INFLATION:
Brinker pointed out that the Treasury market is predicting an annual expected inflation rate of 2.45%.

HBO FILM BASED ON "TOO BIG TO FAIL" by Andrew Ross Sorkin:
Brinker reported that the film will premier on Monday, May 23rd -- the "all-star cast" includes William Hurt playing Hank Paulsen; Warren Buffet will be played by Edward Asner; and Ben Bernanke will be played by Paul Giamatti. Brinker calls this book the "definitive work on what went on in the great financial blow-up of 2008."

WHAT IS QE2? Brinker said:
"QE2 is not going out and spending money which then vanishes. QE2 is the purchase of securities which are then held on the balance sheet of the Federal Reserve and collecting interest, and then maturing so that they are fully re-paid....So that is an investment activity....not a spending activity."

HOW THE FED CREATES MONEY: Brinker said:
"The Central Bank, in Quantitative Easing, which is put in when they've run rates to zero and they can't do anymore rate reductions. What they have to do if they want to do further stimulus, and they did....they have to come up with other ways.....What they do to create that money, they create it electronically through the Federal Reserve's own bank account. And then with the money they create electronically, that's the money they deposit into brokerage accounts when they make the purchases of Treasuries. Then that money is used to buy government bonds and other financial assets....They buy these assets with the newly created money. That's how it works.....The Treasury sells new debt.....The Federal Reserve will go out and buy those outstanding issues in the open market.....They buy them from financial institutions, including commercial banks.....To pay for them, they deposit the money into the accounts of the financial institutions that they are making the purchases from. This is all electronically created new money."

WHAT IF THERE IS A GOVERNMENT SHUT-DOWN:
Brinker told a caller that he couldn't comment about how long the government might delay before making a decision about raising the debt ceiling. But he reminded the caller that there was actually very little reaction when the government did shut down in 1994. Brinker said: "If they are going to default on the government debt, at that point, it's all over.....Then the government of the United States is at that point, it's at the bottom of the heap in terms of credit quality. It's junk. Now do you think they'll do that?.......

BRINKER OWNS NO TREASURIES: Brinker said:
"I personally don't own any Treasuries. But if I did own Treasuries, I would not make any changes based on the raising of the debt ceiling issue. I think it's a circus.....How could you as a member of congress say that you are not going to vote in favor of raising the debt ceiling when your record is full of votes that you have cast to spend money that raise the deficit. If you do that, as a politician. If you do that, you are a hypocrite."

MEDICARE 800 pound budget elephant:
Brinker said: "I had hoped that we would see the political will in Washington to tackle the 800 pound parakeet sitting over in the corner watching all this. It's called Medicare. Seventy percent of the 110 trillion dollars of unfunded government liabilities are lodged in the Medicare program. Money going out versus money coming in is so overwhelming in favor of the beneficiaries that it is mind-boggling.....I was very disappointed this week. Some of the top politicians that had been driving very hard for cutting spending, have backed off their pledge to do something about Medicare...... If you are a Medicare beneficiary, you are getting way more in government benefit than you're paying into the system.....So the majority of people on Medicare don't want any changes.....And they all vote, so they have tremendous power....We are looking at gigantic government deficits as far as the eye can see."

BRINKER SAID EVERYONE GOT A TAX CUT, DID THEY?
Caller Marlene from Virginia Beach said she disagreed with Brinker. (Honey EC: That's a no-no, Marlene, which I think you may now know.) She said that the government must stop spending. When Brinker told her that the issue was to balance spending with the revenue. Marlene said that they can't just keep raising taxes. Brinker replied: "No, they've been cutting taxes, Marlene...." Marlene told Brinker that the taxes in her family have been going up.

Brinker replied:
"That's amazing, Marlene, because my taxes went down. The government just gave me a 2% reduction in my 2011 payroll tax.....You didn't get the 2% reduction in the payroll tax? You're the only person in the country, Marlene.....Here's what the government did, at the beginning of the year, they gave all workers a 2% reduction in their share of the payroll tax. Now if you did not get that reduction, you're are the only person in the country that didn't get it......It was given to all workers in the United States in 2011."

Honey EC:
On the next call, Brinker found an opportunity to bash Marlene two more times -- once at the beginning of the call, and once at the end of the call. However, at the the very end of hour one, as he was leaving the air, Brinker corrected himself. He admitted that not "everyone" had received the payroll tax reduction.

*Caller Nancy from New York
asked about the safety of Vanguard Selective Value Fund (VASVX) which she had been holding for many years. Brinker responded that it has been a good fund. He recommended that she monitor the fund, but said he had no problem with her continuing to hold it.

BRINKER'S NEW BOND FUND RECOMMENDATION

* Caller Bill from Wisconsin said:
"In your last issue of Marketimer, you made a change in the income portfolio, going to a brand new fund. Double Line Total Return and it looks to me like....."

Brinker interrupted:
"Bill did you read page 3 of that issue? ....I've explained in there why I selected that fund. It's right there."

Bill continued:
"Yes, I have it right it front of me. Let me ask a couple of questions that aren't there. One, it's a very short life fund. It's only been around a year or less, and it has a higher expense ratio. And I assume the rating isn't as good as the funds that it replaces. And I question what the duration would be on that fund."

Brinker replied:
"Now this is a change that was made in the income portfolio. Now if you check that data that I published in the letter, you will see that I published the duration. Did you see that?"

Bill:
"I looked for it."

Brinker:
"No, it's published....it's published in the eh, eh, eh..."

Bill: "On page three?"


Brinker:
"You don't see any information on the duration?"

Bill: "No sir."


(Honey EC: Apparently, someone quickly got this information to Brinker, as his prior questions clearly show that he believed the duration rate was in the newsletter Bill was reading from.)
Brinker said: "That's because it was effective on the 10th of May. Let me explain why you didn't find the duration, and you will find the duration. The duration is in the table on page 7, but that table does not include the fund because the change wasn't made on April 30th. Everything in the newsletter for May is as of April 30. So what I've done is, I've stated in that recommendation to make those changes in the income portfolio in page 7 ..... that those changes take place on the close May 10th. So they happened last Tuesday....We implemented those changes..... for performance purposes......So when we publish the June investment letter, on page 7, you will see the duration of that fund in there........

Now as to why I selected that fund. I selected that fund because I really like that manager. I think that manager has really outstanding talent. Actually, I stipulate that on page 3 of the newsletter, that I like the manager. And that was the reason that I selected that fund. Now although what you said is true that it's a relatively new fund. It started in the spring of 2010, its done very well its first year out there. Now here's the thing, that manager had a long-term track record at his prior fund. A record of over ten years of excellence in income management at his prior fund. I looked at that record, looked at what he's done the first year in his new fund since he's gone out on his own, and was very pleased at the data I was looking at. And that was the reason that I selected it.....Remember though, if you see a recommendation that doesn't work with you investment, don't buy it...... But I have to go with what I believe in the investment letter because of performance tracking.....and that was the analysis that I based that recommendation on. Good call, Bill. I appreciate it. This is Moneytalk."
Honey here: I have several editorial comments to make on this subject. The symbol for Double Line Total Return Fund, managed by Jeffrey Gundlach, is (DLTNX).

[In edit: This fund was not added to any of Brinker's Marketimer model portfolios. It was only added to what was formerly known as the "fixed-income portfolio."]

Firstly:

[In edit 5/17/11: It has been brought to my attention that the Yahoo Finance duration figure of 2.6 is WRONG. At the DoubleLine Funds website, it says that the duration is 3.79. That's a big difference!]
The funds that Bill mentioned which Brinker replaced with Double Line Total Return Fund were Vanguard Ginnie Mae Fund (VFIIX) and Vanguard Short-term Investment Grade Fund (VFSTX). Brinker sold 10% of each, bringing each weighting down to 15%. He took that 20% and put it into Double Line Total Return Fund.

Second: why didn't Brinker KNOW whether or not the duration was in the May newsletter? Doesn't he write, edit and publish Marketimer? Or, is someone else doing it for him?

Third:
Why would Brinker issue a buy date on a bond fund and NOT publish the duration rate until the next month -- weeks after subscribers have already bought it if they followed his advice?


Fourth:
Brinker says he chose Double-Line Total Return Fund because he "liked the manager." Beware, this has happened before and was very costly to those who bought TEFQX because Brinker "liked" a fund manager.

Marketimer, February 2000, Bob Brinker said: "We believe e-commerce fund manager Kevin landis brings a high level of stock selection talent to the fund."
Fifth: Be aware that in spite of what he said about "performance tracking" the Marketimer "income portfolio" is off-the-books, and he does not include that portfolio's performance in his official record. Additionally, Mark Hulbert's Hulbert Financial Digest uses only the three Marketimer model portfolios for ranking Brinker's performance against other newsletters -- not the "income portfolio."

Brinker's guest-speaker was Henry Nothhaft:




Moneytalk on demand and to go with Bob Brinker, is available for FREE audio/podcasting at KGO810 radio for seven days after broadcast. I download and save all three hours, including the third hour guest-speaker. (The program is archived in the 1-4pm time-slots.) If you don't download it from KGO within seven day, it's available at bobbrinker.com by paid subscription. KGO Radio Sunday Archives

Dixiegeezer took this awesome picture of a Pink Spoonbill this morning:


Notes



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