Moneytalk Discussions, Commentary and
Excerpts, April 6, 2008
Bob Brinker discussed the stock market three
times on Sunday's program.
Firstly, a caller asked Brinker if he should take money out of some of his stock funds. Brinker replied that he did not have a recommendation to sell stock market holdings at this time, and that he would not be taking money out of the stock market at this time.
Brinker, in answer to his guest speaker’s direct question, “Are you still bullish," said that he thinks we are going to have “new record highs in the stock market by next year” but that a lot of people think he’s lost his mind. Brinker added: “We’ll see who wins out. I’m pretty confident of my forecast…..”
Here are some Brinker excerpts: “……..it’s going to be a week where I think stocks will be trading on their own merit. I don’t think they will be trading as much on the news background this week based the economic calendar and the earnings calendar. And that’s okay, it’s good for stocks to trade on their own merit. In the final analysis, stock prices discount the future rally – the future value of accumulated dividends. Or separately, another way to analyze fundamentally on earnings – the present value of future earnings……in the final analysis, after all the news plays out…..that is what governs the price of stocks. That is the way it always has been. That’s the way it always will be.
But we talk there in terms of their true value. Now their market value can vary from their true value. Their market can at times, like in January of year-2000……can exceed their true value to such an extent that, really they have to be sold. And you just have to take a big chunk out of the market at times like that, which is what we did in January of 2000. There are times, it doesn’t happen that often, but there are times when over-valuation is ridiculous…….We were looking at a price-earnings ratio on S&P 500 operating earnings of close to 30 times earnings…….So the market was really screaming at that time for money to be taken out. And a lot of people did take money out of the market in January 2000, and we know what followed – S&P basically lost half its value over the next couple of years. So there are times like that and it’s certainly worthwhile to be aware of when those times occur.”
Here are some excerpts from David Korn's April 5-6, 2008
newsletter. Posted with the author's permission:
Brinker Comment: Because this coming week doesn't really
have much on the economic calendar, stocks shouldn't be
trading as much based on news, but rather on their own
merits. Stock prices discount the future value of
accumulated dividends, or the present value of future
earnings. After all the news plays out, that is what
governs the price of stocks. The market value of stocks
can vary very differently from their true value. Look
what happened back in 2000, where stocks traded much
higher than their true value. At such times you have
to sell stocks and Bob said that is exactly what he did.
At that time, the P/E of the S&P 500 was close to 30 times
operating earnings! The market was screaming at that
time for money to be taken out and a lot of people did
in January 2000. What followed was the S&P 500 lost
nearly 50% of its value.
(David Korn) EC: As a follow up to Bob's prior comment,
this is clearly not a time in which Bob is recommending
a change in asset allocation as he did in January 2000
where he moved from 100% stocks to 40% stocks and then
later reducing that weighting to 35% stocks in August
2000 which was the least amount of stock holdings Bob
ever had in his model portfolios. Of course, two months
later he recommended that his subscribers use 20-50%
of those cash reserves and invest it into the QQQQ shares.
David Korn's Stock Market Commentary, Interpretation of
Moneytalk (Bob Brinker Host), Financial Education, Helpful
Links, Guest Editorials, and Special Alert E-Mail Service.
Copyright David Korn, L.L.C. 2008
Brinker’s guest speaker on Sunday was Mark Skousen, author of “EconoPower: How a New Generation of Economists is Transforming the World.”.