(Please note: Bob Brinker's Sunday stock market comments added at bottom of this Summary.)
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Saturday, Moneytalk opening monologue excerpts:
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Bob Brinker said: “One of the topics we’ve been talking about on Moneytalk is what has been going on in the stock market and how that has been related to the price of a barrel of oil and the correlation that we’ve been discussing on Moneytalk continues as we speak, as the stock market is not reacting well to rising price of oil. Here we see oil having closed the week at an all-time-record-high, close to $145 for a barrel of oil………..And there is an inverse relationship that has developed between upward spikes in oil prices and the stock market, and that inverse relationship has really been showing up now for some time. Oil prices have just gone out of control. They have doubled over the past year. They are up in the area of 50% for this year so far, and of course they feed through in the energy complex. Gasoline prices up so far on a year-over-year basis, close to 40%.
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Now why is there this correlation – we see the S&P 500 sitting in in the 1240 area. We see the Dow sitting in at 11,100 area. We see the Nasdaq Composite trading in the 2200’s. Why is there this correlation between the price of a barrel of oil and what goes on in the stock market? I think the answer to that question is easy, and that is consumers, wind up with less money to spend when they get pounded with these higher costs of energy, costs of gasoline, all the products in the energy complex. And that weakens the status of the consumer and also delays the potential for economic recovery.
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After all, the stock market is forward looking mechanism………..Stock market investors are looking out to the future……And what they want to see in the economy like the one we have now, which is a very, very slow growth economy, they want to see economic recovery. They want to see the economy grow close to or preferably right in the area of the long-term trend growth rate of the U.S. economy, which is in the neighborhood of 3 to 3 ½%. The way we measure that is real, inflation adjusted, Gross Domestic Product…….
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........We take a look at GDP and we see how slowly it’s been growing. In the fourth quarter of 2007, it grew at 0.6%. In the first quarter of 2008, it grew at 1% even. Take that six-month period ended March, you get an annualized inflation-adjusted growth rate of only 0.8% in real GDP………The best guess on the real GDP numbers, which will come out later this month in the preliminary estimate for the second quarter, they are expected to be slightly in the positive column. The general consensus of economists today calls for real GDP to be slightly in the positive column.
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Well, that’s all well and good, but we still have to look forward because that is what the stock market does……..When we look to the potential for recovery, we have to recognize the fact that the wild card factor that you’ve heard me describe is oil prices, because oil prices drain consumer spending power. And as long as oil prices are rising, and right now they are at their highest price in history………And as long as oil prices are making record highs, then they are continuing to drain discretionary income from the pockets of consumers. That pushes out the recovery time table and it makes it very, very difficult for the stock market to make any progress……..
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Now I have an opinion, not on oil prices because I think oil prices are well beyond the ability to predict, and I think they have proved that by proving those who have tried to predict them that it’s very, very difficult to do. Oil prices are the wild card factor in the stock market, in my opinion, and I think that is what you are seeing play out. Now I think if oil prices were to decline, and certainly you could make a case for oil prices declining from $145 a barrel…….you might be wrong, but I think that would be a positive for the stock market. If they continue to make new highs, they are going to continue to make it very, very difficult for the stock market because of the reasons I just described…….The stock market wants to see an economic recovery scenario. It does not want to see an increased oil price scenario, which is was it’s seeing right now. Now I wish I could tell you what the price of oil is going to be in a week, a month, a year. I don’t know. I have no way of knowing and I think only a fool would try to forecast the price of a barrel of oil in the world we live in…….”
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Brinker talked at great length about energy during his second and third monologues. Here is Brinker 's four-step energy plan that he has talked about several times in the past, and I have posted in prior Summaries:
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- Step one: Manhattan Project for nuclear generation across America.
- Step two: Coal-liquifaction program – to tap into our plentiful coal resources without burning it in electricity generating plants to a level that’s completely unacceptable.
- Step Three: Raise fleet café-standards/mileage.
- Step Four: Immediately start drilling in Alaska National Wildlife Reserve.
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Brinker gave this breakdown of U.S oil imports: Canada = 21%; Africa = 25%; Middle East, including Saudi Arabia and Kuwait = 20%; Mexico = 12%.
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Saturday's calls were almost exclusively about oil and commodity trading, speculators, oil markets, ethanol, politicians and GNMA’S. There were no calls asking about the stock market. (Honeybee EC: I called repeatedly for the first two hours, and only got a busy signal. I had hoped to ask a question about the stock market.)
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There were a couple of informative calls:
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- A caller asked about a big bank ETF -- Brinker suggested these possibilities: XLF and KBE.
- A woman called who said she had $100,000 on deposit with IndyMac. Brinker said that she should get her money because of FDIC Insurance.
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Brinker’s guest speaker today was Graham Summers, who wrote an article for Seeking Alpha titled: “Greenspan, Please Retire”
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Honeybee EC: Graham and Brinker got into rather heated debate Saturday because Graham said he did not believe that the Fed should be bailing out investment banks. Of course, Brinker believes that they should, and totally approves of the Bear Stearns bailout. In a significantly raised voice, Brinker indignantly interrupted Graham and demanded to know what Graham would have done if "he had been in the room." All in all, Brinker seemed quite piqued. I guess he has changed his mind about not arguing with guests while they are voicing opinions that he doesn’t agree with. 8~)
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Important Bob Brinker quote: “If you have any money, in any bank anywhere in the United States, then you need to make certain that your deposits, CD’S, whatever it is, is fully covered by FDIC Insurance. And if it is fully covered by the FDIC, guess what, even if your bank goes under, you are in line to get your money back and be made whole up to the insured limit.”
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Bob Brinker's stock market-timing analysis paraphrased from opening monologue:
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1) The stock market is directly correlated to the price of oil.
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2) No one can predict the future price of oil.
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3) Anyone who tries to predict the future price of oil is a "fool."
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Sunday, Brinker made the following comments about the stock market. He said, "I'll tell you what. The reality of the situation is that in terms of the stock market right now in my opinion, that's all it is an opinion, that's all we have is opinions. I think the stock market really is marching to the drummer known as oil right now. I think oil prices are the ax right now in the stock market. And I think that's going to be the factor that will continue to be the wild card factor in the stock market.
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Stock market has not liked this run-up to record prices in oil. Oil now close to $1441/2 a barrel........... That's like double in the last year, and up close 50% so far this year. That's ridiculous. That's completely out of control. And so the stock market really is not in a mood to be looking at higher oil prices.
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Main topics on Sunday: Bear Stearns, politics, energy, Phil Gramm, Ben Bernanke, FDIC Insurance.
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Brinker talked at length about Fannie Mae, Freddie Mac and announced the breaking news that the government will come to their rescue.
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Brinker pointed out that GNMA'S are the only mortgage-backed security entity with full faith and credit U.S. Government guarantee for the full and timely payment of all principle and interest payments on the securities in their portfolio.
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Sunday, Brinker's guest speaker was Andrew Lo, who wrote: Hedge Funds: (Advances in Financial Engineering)
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