Moneytalk Summary, Commentary and Excerpts, May 31, 2008
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STOCK MARKET.... Bob Brinker said: “The stock market had a good month in the month of May, finishing at 1400.38 in the S&P 500 Index……….a gain of about 1.48%.........and for the second consecutive month the market showed gains. The Dow finished the month at 12,638, that was up 1.3% for the week……..and the Nasdaq Composite had a big week – up 3.2% to close at 2522.”
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OIL PRICE PULLBACK.... Brinker said: “Investors looking at the pull-back in oil prices. Oil prices had reached $135 a barrel, they pulled back to about $127 a barrel.”
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GROSS DOMESTIC PRODUCT.... Brinker said: “Certainly investors also looking at that Gross Domestic Product Report that came out at the end of the week, and better than the bears were saying, came in with an annualized gain for the first quarter of 9/10 of 1%. So we had growth of close to 1% annualized in real terms in the 4th quarter. And of course the significance of that is, that is not a recessionary Gross Domestic Product Report.”
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RECESSION.... Brinker said: “In order to have a recessionary report, you would need a negative number followed by another negative number in the next quarter. So you would need two consecutive quarters, using the historic, the traditional, the academic definition of a recession that’s been used of decades……..Well, we don’t even have one at this point. Fourth quarter growth was 0.6 annualized – slow growth. And first quarter growth 0.9% annualized – slow growth. No recession in the 4th quarter. No recession in the 1st quarter. And this is the revised figure, so this figure will be very, very close to the final number………….”
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RECESSION CASSANDRAS.... Brinker said: “What we have right in here now is evidence that the Cassandras, who earlier this year, were telling us we were in recession – right now they’ve basically – well I’ll be kind, basically, they look like fools right now. Because all that they’ve accomplished with their talk about recession…………all that they have to show for their efforts is that they scared the people who listened to them out of the stock market this past winter……….”
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CORRECTION LOW AND TESTS.... Brinker said: “……..And probably a lot of those people got scared out near the correction lows. The initial correction low in January, which was successfully tested in mid-March, before the market reversed and resumed its uptrend. And basically, if you were to total up all of the accomplishments of the Cassandras, that would be it – that they scared people out of the market during a stock market correction in the first quarter………..Because they have been unable to present any evidence of a recession."
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LOST JOBS.... Brinker said: “And your questions to the Cassandras should be where are the millions of lost jobs that we would expect to see in a recession? In fact, in this economic slowdown, so far, we’ve only lost a few hundred thousand jobs total – dating back to the beginning of this year…………”
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STOCK MARKET BEARS.... Brinker said: “So what we have here basically, is an example of false prophets and it’s sad. And the reason it’s sad is the damage done. Think of the people that are looking today at the market, S&P at 1400 and they’ve been scared out of the market in the first quarter by these bears………It’s just amazing and yet these people are out there, and these people are not happy, I’m sure, to find themselves out of a rising market since March. To find themselves looking for ever lower prices when in fact we’ve had the opposite.
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We’ve had the market rising since mid-March. It’s rather significant when you stop to think about it. If you go back to mid-March and you take a look at the S&P 500 Index since mid-March, right now you have a total return, including cash dividends of about 10 1/2%.....................So it’s fair for you to say to the Cassandras, where is that recession, where are those millions of lost jobs, where are the two quarters of negative real GDP growth? Where’s the bear market? …………The answer is, they blew it! That is the answer, they blew it. They got caught up in their own negativity and they pronounced that it was all over, it was going to spiral downward and there was no end in sight – and they got it completely backwards. Truly amazing to see, and sad to see the people that are harmed by such unjustified negativity.”
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OIL MARKET MANIPULATION INVESTIGATION.... Brinker said: “Incidentally, an investigation has started of oil trading by the U.S. Commodity Futures Trading Commission. And they’re looking for evidence of purposeful manipulation of oil markets………The investigation was just announced within the last 48 hours. And they are going to try to prove that traders were trying to illegally move the oil markets with their activity. Now the acid test for this is that the sole intent was to try to move the price of oil, and that’s what they are going to have to prove. This is all about speculative trading – artificially pushing up oil prices.”
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OIL PRICES AROUND THE WORLD.... Brinker said: “Now keep in mind oil is an international commodity. And although you could try to manipulate prices in the United States……..that has not been proved yet. But hypothetically, if you were to try to do so, you might still have a big problem, and that big problem would be, well what about the financial capitols around the world outside the United States. How do you control those? You see, this is the problem with trying to control an international commodity. The fact is, even if you do have an impact in the United States, what about the rest of the world…………”
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OIL PRODUCTS CONSERVATION.... Brinker said: “………..This is the same point we’ve made with reference to conserving gasoline, or conserving oil products. Now you’ve probably seen that there’s been some conservation going on of gasoline. Gasoline purchases are down year-over-year – that’s practically unheard of. Why are they down year-over-year? The answer is because of price. The elasticity of demand has been put into play because of the higher prices of gasoline in the United States………”
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INTEREST RATES.... Brinker told a caller not to wait for rates on Treasury Bills to go down from this level because his expectation is that the economy will do better in 2009 than it did in 2008.
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UPTICKS FOR SHORT-SELLING.... A caller wanted to know why the up-tick rule was done away with. Brinker explained that it was to give the short-sellers a playing field that is level with the buyers. Brinker commented: “In a word, I think the decision they made was STUPID" and that it opens the door to bear-raids on individual companies.
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BRINKER’S OPINION ABOUT SELLING STOCK SHORT.... Brinker said: “Here on Moneytalk, we have never, at any time in 22 ½ years of broadcast, reflected in any way negatively on those who go short. We have always believed that investors should have the right to sell stock short. I think that you should have the right to sell indexes short. Some of you do it as a hedge against longs in times when you are bearish on the market. Some of you do it as a speculation. Some of you do it for tax reasons. But I think that going short is fine if it’s a well-founded position……….that’s going to work out for you……………So this comment that I make that elimination on the uptick rule on individual stocks was a stupid decision, this is based on the fact that it opened the door wide for bear raids on individual companies. It was not based on the fact people should not be allowed to put on short positions……….Prior to the elimination of the uptick rule you needed an uptick or a zero uptick in order to put on a short position in an individual stock. They’ve taken that away and I think that was not a good thing to do.”
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CRITICAL MASS.... Brinker paraphrase: If you don’t have to go to work to pay your bills then you are in the land of critical mass – whether you choose to work or not.
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FLORIDA SCREWS UP AGAIN.... While talking politics, Brinker mentioned the “butterfly ballot” fiasco in Palm Beach County and said: “Here they are again– year 2008, same results. Florida right back in the middle of it -- screwing up the election again. Ya know, if you didn’t see it, you wouldn’t believe it.”
CALLER LOSES $26,000; BRINKER CALLS IT NOISE.... Brinker's excerpts: “....9%. Alright. Your portfolio corrected 9% in six months. That is noise! If your tolerance for risk is so low that you cannot roll with a 9% correction in your portfolio, then you really have to ask yourself what in the world are you doing………. most people that invest in the stock market, myself included, would regard a movement of 9% in a portfolio as noise...... Anybody that’s looking at a 9% correction off the all-time-highs and saying, oh this is dreadful, what am I going to do, that tells me your tolerance for risk is close to zero.………We are nowhere near the bottom right now – the market has rallied about 10% off the bottom, but we are roughly still about 10% off the top.”
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Honeybee EC: This caller originally said she had some stocks that were not doing well and ask Brinker what he thought of her moving into Freddie Mac or GNMA’s. Brinker said he didn’t care for Freddie Mac, and that GNMA’s also have fluctuation of NAV. Then Brinker actually seemed to goad her because of her losses, and made a much bigger deal out of it than she ever did throughout the call.
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I think it's possible that Brinker may have actually scared her by telling her that her tolerance for risk was zero. And all of his other hyperbole -- he said that she only belonged in laddered CD’s, etc. -- may cause her to damage herself further by selling all of her stocks and bonds.
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EUROPEAN GASOLINE PRICES.... Brinker said: “………What about consumption around the world -- we have to deal with that as well. Now it’s true, we are getting a very, very low price of gasoline in the United States relative to, for example Europe. I mean the people in the United States complain about $4.00 gasoline, but they don’t mention the fact that in Europe the average price of a gallon of gasoline is $8.30.
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Honeybee EC: Bob Brinker either does not know or simply did not want to say that about 75% of the cost of a gallon of gasoline in Europe is TAX!!!!!! As reported in this CNN article:
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NEW YORK (CNN/Money) – Gasoline prices in the United States, which have recently hit record highs, are actually much lower than in many countries. Drivers in some European cities, like Amsterdam and Oslo, are paying nearly 3 times more than those in the U.S.
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The main factor in price disparities between countries is government policy, according to AirInc, a company that tracks the cost of living in various places around the world. Many European nations tax gasoline heavily, with taxes making up as much as 75 percent of the cost of a gallon of gasoline, said a spokesperson for AirInc.
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Bob Brinker’s Moneytalk guest on Sunday was Janet Novak, who wrote an article for Forbes Investment Guide titled: “Read My Lips, Taxes are Going Up Sooner or Later: Sooner if You’re Well Off and Democrats Take the Whitehouse.”
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You can read Janet Novak's article here for free.
View next week's calendar for economic data here.
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