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Saturday, September 13, 2008

Summary: Bob Brinker's Moneytalk September 13, 2008

Summary, Commentary and Moneytalk Excerpts, September 13, 2008

Bob Brinker did not talk about the stock market Saturday.

Bob Brinker devoted most of both monologues to Hurricane Ike and which oil refineries were affected by it. Brinker talked at length about gasoline price-gouging, saying that it was "over the top." He encouraged everyone who sees it happening to report it. He said that there will be fines stiff enough to close down facilities, and he expects them to be enforced.

Brinker also recommended “conservation” at this time, saying that “Anywhere in the United States, a gallon of gasoline saved is helpful because we do have short term dislocations caused by the situation in the energy corridor along the coast of Texas and Louisiana.”

Brinker talked about the “nice pull-back in the price of oil,” but made no reference to any “inverse correlation” to the stock market.

Brinker said that the Chicago Mercantile Exchange has announced a change in their trading hours tomorrow due to the hurricane. Oil trading will start at 10 o’clock Eastern Time Sunday morning – much earlier than the usual 7pm normal start-up.

There were several calls about Fannie Mae and Freddie Mac. Brinker said he has always advised against owning either, and now both have declined “approximately 99%” over the past year.

A caller talked about how happy he was with his GNMA's that he had owned since 2000 on Brinker’s advice. Brinker said that GNMA's have been part of a couple of his portfolios and they are outstanding investments. (Honeybee EC: GNMA’s were part of Brinker’s Balanced Portfolio and his Fixed Income Portfolio in 2000 -- and still are, but he recommended money market funds for the (65%) cash reserves raised from equities in 2000.)

Caller Bill from San Rafael said: “Bob, you’ve been pretty adamant in your position that inflation’s been kept in check in large measure because of the price of oil…….I was wondering with the precipitous drop in oil that we’ve seen lately……..would that lead you to think we might be seeing an increase in inflation?”

Brinker replied: “I expect a decrease in inflation. I expect inflation to slide downward into 2009. I think inflation is largely a monetary phenomenon……….I am not seeing any indication at all……. that the Federal Reserve is performing irresponsibly in terms of its monetary policy. That is, I don’t see any indication that we’re seeing an inflationary monetary policy…... Therefore, combined with this sluggish economy that I think is going to continue for awhile, I think we going to see inflation coming down. Now obviously, core inflation is already down. It’s just a little bit above 2%.........But I think we are going to see headline inflation, which is certainly higher than we want to see it……I think we are going to see that coming down into 2009……

...........I think that the decline in oil prices is actually going to be a favorable development for lower inflation because I think that to the extent that oil prices leak over into the core rate, certainly they can be a little bit inflationary……….Lower oil prices equate to a tax cut for American consumers – a de facto tax cut……..It’s a very good thing as we look for the potential for economic recovery developing during calendar year 2009........if you are a Moneytalk listener, you know my belief is this an essential prerequisite for recovery in 2009."

(Honeybee EC: I almost fell off my chair when I heard Brinker say that lower oil prices would lead to lower inflation. He has been saying just the opposite for many months now. He has said that higher energy prices were not inflationary, so how can lower oil prices lead to a drop in inflation? He has ridiculed anyone who said differently, including the Chairman of the Federal Reserve and other members of the Federal Reserve.)

Bob Brinker’s guest-speaker Saturday was Dr. Alan Blinder. Dr. Blinder is on the faculty of Princeton University and has served as vice-Chairman of the Board of Governors of the Federal Reserve System.

Brinker and Dr. Blinder both agreed that the Fed will not change interest rates next Tuesday.

When Brinker asked Alan Blinder why he thinks the Fed is holding interest rates higher than Alan Greenspan held them during the last economic slowdown, Dr. Blinder said that he thinks the Fed has some residual concerns about inflation, but he thinks that concern may be fading fast because of falling oil prices and the general health of the economy. Dr. Blinder said he didn't think more rate cuts would accomplish much – The Fed really wants mortgage rates and business loan rates to come down.

Brinker asked Dr. Blinder if there are any “banks that are too big to fail.” Blinder said yes, there are -- there are some so big that if needed, the Fed would come in and make sure they didn't fail, “analogous to what was done with Bear Stearns.”

Brinker replied: “We heard a lot about this in March in connection with the Bear Stearns bail-out – de facto bail-out with that $29billion line of credit. I think we’d have to buy that as a bail-out….” (Honeybee EC: Brinker changed his mind about Bear Stearns being a government bail-out. He originally argued with callers who said it was a bail-out and ridiculed Hilary Clinton for saying it was a bail-out.)

A caller asked Dr. Blinder about what happens when a bank fails -- how does the FDIC insurance work? Dr. Blinder said that typically when the FDIC comes in to close a bank that is failing, they close the bank on Friday and re-open on Monday -- sometimes under a different name. So basically, people never actually lose access to their money.

Important Word to the Wise: Dr. Blinder said that unfortunately when IndyMac closed, there were $billions of uninsured funds on deposit. Those people have been told by the FDIC not to expect to get all of their uninsured money back – they may get roughly 50% of it. However, those who were FDIC insured (up to $100,000) never even lost the use of their money temporarily.

Brinker said: “One thing I thought Henry Paulsen did that was admirable last week was finally to draw a line in the sand… say that we have to do away with implicit Federal guarantees such as existed with Fannie Mae and Freddie Mac….What are your thoughts?”

Dr. Blinder said: “I think that’s right. We did a grand experiment in this country with the so-called GSE’s, Fannie and Freddie, that gave them kind of a hybrid status........By the way, they were founded as government agencies and then privatized – but not fully privatized, so they were in this no-man’s-land. They were private companies, they had shareholders, they had to make profits and so on, but yet there was still some government involvement so they were neither fish nor fowl entirely……That worked extremely well for decades, but in this big crisis, this has just overwhelmed everything and really exposed the weakness of this hybrid structure.”

Some humor from SeaBiscuit

Missed the last "buying opportunity",

Did you, dear brother?

Don't worry, there'll be more

As the market goes lower and lower!

Brinker Shave!

Some beauty in a bear market. This is a future President of the United States. 8)

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