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Bob Brinker’s Moneytalk opening monologue covered a lot of subjects. Brinker announced that there was breaking news out of Washington: Congress has passed housing legislation package. Brinker expects President Bush to sign it soon. Here are the details of the Bill:
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• Give the Federal Housing Administration $300 billion in new lending authority and relax standards to provide affordable, fixed-rate mortgages to debt-ridden homeowners. Any losses would be covered by an affordable-housing fund financed by Fannie Mae and Freddie Mac, the government-sponsored companies that finance mortgages.
• Allow the Treasury Department temporary authority to lend money to Fannie and Freddie or buy their stock to avert a collapse of one or both of the mortgage giants. The authority expires on Dec. 31, 2009.
• Create a new regulator and tighten controls on Fannie and Freddie, including power for the regulator to approve pay packages for company executives. Create a new affordable-housing fund drawn from their profits. Permanently raise the limit on the loans they may buy -- set to revert to $417,000 by the end of the year -- to $625,000 in the highest-cost areas. Allow them to buy loans 15 percent higher than the median home price in certain cities.
• Provide $3.9 billion in grants to the hardest-hit communities for buying and fixing up foreclosed property.
• Modernize the FHA and allow it to back loans for riskier borrowers. Permanently increase the size of loans the agency may insure -- currently set to revert to $362,790 by the end of the year -- to $625,000 in the highest-cost areas. The agency could buy loans 15 percent higher than the median home price in certain cities.
• Bar the FHA from insuring mortgages in which the borrower's down payment is paid by the seller, beginning on Oct. 1, 2008. Place a one-year moratorium to bar the agency from charging premiums based on the riskiness of the homeowner, until Oct. 1, 2009.
• Provide $15 billion in housing tax breaks, including for low-income housing. Give a credit of up to $7,500 for first-time home buyers who purchase residences between April 9, 2008, and July 1, 2009. Allows people who don't itemize their taxes to claim a $500-$1,000 deduction on their 2008 property taxes.
• Give states an additional $11 billion in tax-free municipal bond authority for low-interest loans to first-time home buyers, construction of low-income rental housing and refinancing subprime mortgages.
• Offer protection from investor lawsuits for mortgage holders that modify loans to borrowers who are in default or about to default.
• Provide $180 million for pre-foreclosure counseling and legal services for distressed borrowers.
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Brinker Comments: This comes at the same time that the Standard and Poor’s is possibly going to downgrade the subordinated debt and the preferred shares of both Fannie Mae and Freddie Mac -- which would result in a decline in the value of the securities -- to the dismay of those who hold the paper. Common stock shares of Fannie Mae and Freddie Mac have already been decimated. Now the question is how much federal support will be there for the fixed income side. Unlike Fannie Mae and Freddie Mac, GNMAs are guaranteed by the full faith and credit of the Treasury.
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Brinker’s next topic was the soon-to-be vacationing congress. He commented that congress had done nothing about the energy crisis. Just the opposite, they have blocked every reasonable solution. They demonize the big oil companies, demonize nuclear power, and demonize drilling in ANWR, while ignoring the success that we've had drilling at Prudhoe Bay. The Sheiks in the Middle East must be “lovin’ it," but don’t hold your breath for congress to change anything.
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Caller: Asked about online banking. Brinker comment: Be sure you have FDIC coverage -- online banking is okay if you are comfortable dealing in “cyberspace," but he personally prefers “brick and mortar.” (More on this subject later.)
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Brinker Heads-up: GMAC is expected to have write-downs on the value of its vehicle loans. Ford Motor Credit (auto loans) has already taken substantial write-downs on their portfolios. This has to do with the declining resale value of pickups and SUVs.
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Caller: Asked about the safety of her credit union which was part of a “state agency” guarantee. Brinker said that he would not trust it – that he would only trust a credit union that was NCUA insured.
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Caller: Subscriber who wanted to know what Brinker thinks about GNMAs. Brinker commented that he had been recommending VFIIX for a long, long time. He said that there is no credit risk with government-guaranteed GNMAs, but the NAV will fluctuate in a narrow range. Over the past couple of decades VFIIX has usually fluctuated between 9.50-10.50, and is a reasonable expectation to stay the same. Yield right now is 5.1%.
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Gary: “I was just wondering what your opinion was on the market returning to its previous highs?” Brinker replied: “Well, I would say that uhhhhh….what kind of a time frame do you have in mind, that’s the key? It’s not going to happen this week, you know we’ve got to get up 300 points in the S&P – 300 points in the S&P to get to new highs. What kind of a time-frame were you thinking about?”
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Gary: “Well, I don’t know –1 to 3 three years. What kind of a time-frame would you………” Brinker replied: “Oh, I would say within your time-frame of 1 to 3 years, would the market get to new all-time-highs in the S&P 500. For me I think the answer would be without question – that would be my opinion. Would the market get to new all-time-highs within your time-frame of 1 to 3 years? Yeah. For me, my opinion on that would be -- without question."
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Caller who was a subscriber asked Brinker what to do with his 10% holding in Treasury Inflation Protected Securities. Brinker said he would leave it where it is.
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Caller: Had leased an SUV and he was very happy that he had leased rather than buy. Brinker said that he had “won with that deal.” Caller explained that leases are negotiable. Brinker pointed out that when buying a car for cash, you may not want to have them usher you into a little room and try to talk you into leasing.
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Brinker Heads up: What do you do if you have recently purchased a gas-guzzling vehicle -- perhaps borrowed money to buy it? Brinker explained that there is a school of thought that says you are better off just buying the gasoline now because of the loss in trade-in value. You might get “reverse sticker shock” if you ask a dealer how much they will give you on a trade-in of your SUV or pickup -- there is a glut of those vehicles on the market that people don’t want anymore.
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Caller Mary said she was due to retire and her 401K was 60% in the S&P 500 asked: “….you were talking about your horizon for the revival here within the 1 to 3 years. I…..”
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Brinker interrupted Mary and said: “Mary, you are stating things that I didn’t say. Someone is just going to have tuned in and they are going to think that I said something that you said I said which I didn’t say. What happened was the caller gave a time-frame. It was the caller’s time-frame of 1 to 3 years. And it was the caller’s time-frame that I was responding to.”
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Mary responded: “Well I appreciate that. Now my next question, now that you have cleared that up for me. I was going to leave it like it is because I won’t have a choice. I didn’t want to move it right away from the S&P 500 and lock in any losses. So you think I’ll be safe to leave it there for some future time – a year out perhaps so that I’ll recoup some of this past few months that we’ve been…..”
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Brinker then asked Mary how long she had been investing. She replied that she had been investing for about 10 years. Brinker said: “I think within the context of a balanced portfolio….I think that certainly it makes sense to be there. I don’t have any criticism of being in a balanced asset-allocation at the point in your situation. I would say that the answer is yes……….I would rather be patient in here, and certainly patience can be part of investing. Investing is not all happy hour……….Patience can be part of the equation and I think it is right in here. If I were in your position, yes, my opinion is, I would be inclined to be patient in reference to your time line.”
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Mary reminded Brinker of her age. Brinker in response, reminded her that she told him she had a balanced portfolio, therefore he recommended a “patient approach.”
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Caller said he had bought a CD at IndyMac for $200,000 just days before it folded. He was certain that it was all covered by FDIC insurance since his wife was also named on it. But....when he tried to get his money back, he called FDIC, he called IndyMac Bank, he sent them two faxes, two certified letters starting on July15th. The phone calls have never been answered, nothing from the faxes or letters have been answered. He explained that he had invested via the internet. He asked Brinker what he should expect from the FDIC insurance.
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Brinker told him that if he had the insurance he should be covered. When the caller pressed Brinker for the time-frame that the FDIC was obligated to act on their “quote, unquote, insurance,” Brinker said that he didn’t think they were going to give him a “number of hours answer” such as 72 hours, 96 hours or 24 hours. Brinker then reminded the caller that part of his problem was that he “couldn’t walk into the bank” and then Brinker said that was the reason why he prefers not to do that kind of banking on the internet.
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Which prompted the caller to ask Brinker if he thought FDIC was sitting in the lobby of IndyMac? Brinker replied: “I can’t answer that question because I haven’t been in the IndyMac lobby in Pasadena and I have no plans to go there.” (Honeybee EC: What a joker Brinker is sometimes….I’m sure the caller with $200,000 on the line, was highly amused.) Brinker said that he did not understand why the caller was dealing with IndyMac since the FDIC took over the operation of the bank last Monday. The caller ended his part of the conversation by saying that they were claiming that “each other was at fault,” and that he “questioned this FDIC insurance” and would let Brinker know when he gets his money.
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After the caller hung up, Brinker said he couldn’t do anything for the caller except maybe walk into IndyMac bank with him and ask to see a high-up manager. He went on to hammer his point about investing online rather than at a “bricks and mortar” bank. He said, “Suppose there isn’t anything on the other end when it really matters?” (Honeybee EC: for several weeks now, Brinker has been reassuring Moneytalk listeners that FDIC could be counted on to address their problems in a "timely manner." For Brinker to now put the blame on the fact that the caller bought the FDIC insured CD on the internet seems ever-so-slightly disingenuous to me. Please note tongue firmly planted in cheek.)
Hour Three Monologue
Brinker Stock Market and Oil Price Comments: Brinker arbitrarily chose a time-frame between July 15 and July 26 (10 days), to compare the price of oil, which went from $148 per barrel to the mid-$120’s, and the S&P 500 Index, which rose 42 points from its July 15th close of 1215, up to its present level of 1258. Brinker said that this was during a period when there was no good news from the housing or banking sectors, and posed the question: why would the market rise? He answered his own question by saying it's obvious -- that it is because of the linkage between the price of a barrel of oil and the price of the S&P 500. (Honeybee EC: One could pick out many dates and make comparisons between the price of oil and the S&P which would prove just the opposite.)
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Brinker Political Comments: Brinker opined that it would be a “stroke of genius” for McCain to choose Michael Bloomberg as his running mate because he could write a check for $billions if he wanted. The tracking polls are showing very close race between Obama and McCain.
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Brinker’s Saturday guest-speaker was Thomas Mackell who wrote: When Good Pensions Go Away: Why America Needs a New Deal for Pension and Healthcare Reform
We interrupt this program to bring you an important announcement! Bob Brinker answered a stock market question at 1:48PM PDT!
When asked if he thought the market would reach all time highs within a time frame of 1-3 years, he unflinchingly answered...YES!
And now back to regular programming.
-Dan G
July 26, 2008 2:02 PM