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Friday, October 31, 2008

Was Bob Brinker Wrong About V-shaped Bottom?

Bob Brinker's market-timing batting-average is zero for 2008. September 27th, Brinker said "don't sell" stocks. That was probably correct advice, but another 17% loss in one month has to be painful to his followers who are 100% invested.


FOR THE MONTH OF OCTOBER:

Dow: down 14% -- worst month since 1998

S&P: down 17% -- worst month since 1987

Nasdaq: down 18%

OIL FOR MONTH OF OCTOBER: down 33% -- largest monthly drop ever.
(Brinker no longer even mentions his "oil is the wildcard" edict.)

Last weekend on Moneytalk, Brinker said that he was "working on" getting a "handle on the future." Brinker even told a caller who was 42% in equities to "stay where you are," rather than raise his allocation to 50% equities. Oops, the market just had its best week in 34 years.

Another caller last weekend, asked Brinker if he thinks there will be a V-shaped recovery from this bear market. Here is what Brinker said to him:

Brinker replied to Joseph: "V-shaped theories are wanting.......When you look at the true value of stock prices, and it is very difficult to do right now, but the way they are quantified is by discounting the present value of their future earnings or the present value of their future dividend stream to the present........ So I think that the V-shaped is a hard sell for that reason that we have to have a visible earnings stream growth track that we can point to. And if you're talking V-shaped then you are talking about all the earnings just soaring right back up again right away. That's what's required for a V-shape recovery. That's a hard sell right now.......

....... I think it's a lot easier sell to think in terms of a healing process, which is a process that takes time. I actually do believe that over time the market will come back. But I think first it has to go through a healing process and that in itself is going to take some time. And then the process of recovering the economy and the recovering the earnings streams, I think that will take some additional time."


STOCK MARKET FOR LAST WEEK IN OCTOBER

Dow: up 11.4%

S&P: up 10.7%

Nasdaq: up 10.9% -- first time this has ever happened.


You can read Louis Navellier's weekly marketmail in the comments section of this post. He wrote this about the market bottom:

"In a nutshell, the stock market retested the October 10 lows several times this month, it’s now rebounding in the face of bad news (a classic oversold characteristic), central banks have primed the pump for growth, commercial banks could start lending again after the election, investor confidence could improve after the election, there’s $4tn in cash looking for higher returns, we’re in the seasonally strong time of year, and history suggests the best time to invest is about four months before the end of a recession.

Things are looking up."


Kirk Lindstrom's Happy Halloween Humor

Thursday, October 30, 2008

Ginnie Maes and TIPS

Article by Kirk Lindstrom:  A place to discuss Bob Brinker's favorite ladies plus point out they are not cheap if inflation returns in the future.
For a more recent article, see Saturday, April 11, 2009
Bob Brinker on Ginnie Mae Funds: Vanguard vs. Fidelity
Contrary to what you might have heard on the radio, when interest rates were much higher, the net asset value (NAV) of Brinker's favorite GNMA fund was much lower as the chart shows. To expect to buy VFIIX and have the NAV stay between $9.50 and $10.50 would be naive.


If we get massive inflation from the trillions of fiscal stimulus to keep the economy from crashing, then we could see high interest rates down the road which will be bad for Ginnie Maes and Ginnie Mae Mutual funds like VFIIX.

Chart courtesy of www.Martincapital.com

One reason to listen to Brinker's show is to hear what callers are talking about. Brinker usually likes to let folks on who have had good results with his past recommendations. You should look at this like a contrarian and take profits in that to buy what he is not talking about, which would be equities here with the S&P500 in the 900s after Brinker was bragging about being fully invested in equities at the top (1565) just a year ago.

Personally, I like "triple diversification" for my fixed income side of my portfolio with perhaps something like 35:30:35 in TIPS, Cash and Bonds such as Vanguard's total bond fund and/or Vanguard's GNMA fund, VFIIX. Rebalance once a year to take advantage of potential inflationary and deflationary cycles I think lie ahead.

I believe digesting what the FED and US Treasury department are doing to prevent a depression will be like snake swallowing a large animal... loads of undulations in the rate of inflation and thus the NAV of bond funds.

Needless to say, I just bought some of this TIP fund since inflation expectations are low now and it is on sale.

More Fixed Income Charts for:
  • Vanguard GNMA VFIIX mutual fund
  • Vanguard TIPS VIPSX mutual fund
The graphs on this article should update automatically but if you want another graph added, please suggest it in the comments section.

Bob Brinker Raging Bull vs Steve Forbes' Prediction

Bob Brinker was bashing bears and a raging bull when Steve Forbes was predicting a 3000 point drop in the Dow last October at the market top. Brinker said that Forbes was "proven wrong," but look who is laughing last!

From my October, 2007 Moneytalk Summary: Steve Forbes' (prescient) Prediction: May see a 3000 point loss in the Dow, similar to 1987.......Fed needs to soak up excess money it created in 2004, 2005, otherwise there will be a flight from the dollar. Brinker said that Forbes' prediction has been proved wrong because the market just closed at an all-time-high.

Here are some more Brinker-comments that he made during the October, 2007 stock market high:

Stock Market is Recession Gauge: “You don’t a get record run on the stock market on the precipice of a recession – it doesn’t happen........ “Those predicting recession are full of soup.”


Negativity in a Bull Market, Bob Brinker said: “Completely unjustified because in a bull market, you want to be invested. You want to be making money while the sun shines. And when you’re out there with this doom and gloom, it’s counter-productive and extremely costly.” “They don’t know what they are talking about.” Negative “talking heads” make “fools" of themselves because they don’t study “stock market history.”

Bob Brinker also said that the bad news bears in the financial community are spreading “idiocy” and “nonsense” about a recession – it’s “fiction.” “There is no recession and there is no prospect at this time of a recession.”

Brinker was also recommending "total return" stock market investing as preferable to "dividend products." Total Return Investor: “….can invest in the total stock market, which has certainly outperformed any of these dividend products. You get less cash dividends, but you can liquidate shares to make up the difference.”

Honeybee opines that anyone who followed that advice, coupled with sinking all new cash into the stock market at Brinker's mid-1400's "attractive for purchase level," must be feeling some real pain after a 45%+ market decline.

Read the full summary.

This is almost beyond belief! On October 13, 2007 I posted this:
SUB-PRIME LOANS ADJUSTING NEXT YEAR: Will lenders perhaps freeze rates? Bob Brinker said: “I don’t think anything is going to happen to the general market place. Not anything that will affect the general level of rates, however, the Democrats want to bail people out of bad loans.”

Yesterday, Steve Forbes predicted a six-month recession. Here are some Forbes' excerpts from an interview with CNSNews. com:



Steve Forbes: “I think one of the things to keep in mind is that this was a totally unnecessary crisis. There were a lot of problems out there, but they shouldn’t have threatened the very financial system here and around the world. Big mistakes were made. The first one was the federal reserve printing too much money – debasing the dollar, weakening the dollar, that always leads to problems. That was big mistake number one. Sort of like the equivalent to flooding the engine of an automobile. You can have a fine vehicle, but if you abuse it with too much fuel, you’re going to have a problem.

Already, real damage has been done to our economy and around the world. We are in a recession. We will be in one for about six months or more. But if we continue with these recovery programs and don’t do anything foolish like raising taxes or going on another round of trashing the dollar, by spring we should start to see signs of recovery.”


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Monday, October 27, 2008

Bob Brinker's Bear Market Buy Signals

Bob Brinker's Model Portfolios have been fully invested since March, 2003...BUT:

Bob Brinker issued these all-new-money-in buy-levels in 2008. He called each one "attractive for purchase":

  1. Mid-1400's (first issued August, 2007)
  2. Low-1300's
  3. 1240 or less
  4. Low-to-mid 1200's

September 16th, Brinker rescinded all of those buy signals and now recommends dollar-cost-averaging for new stock market money.

SeaBiscuit's Humor:

Endless bear

One more whammy

Bobby's shouting

For his mommy!

Brinker Shave

Jeffchristie sent these pictures of his car. Gorgeous! I'm sure even more-so in real life. 8)



Saturday, October 25, 2008

Summary: Bob Brinker's Moneytalk, October 25, 2008

Bob Brinker's Moneytalk: Summary, Commentary and Excerpts, October 25, 2008. Dow: 8378.95 (down 473 for week); S&P 500 Index: 876.77 (down 74 for week); Nasdaq: 1552.03 (down 159 for week); Oil: 64.69 (down $8.00 for week).

Opening monologue, Bob Brinker’s said:
"Well the markets of course continued to remain extremely volatile all over the world and here in the United States as well. And of course we've talked about the two-pronged effort that could be made to deal with the underlying cause of the unrest in the financial markets which gets back to the bad mortgage loans that are out there and there are plenty of them. .............."

Brinker explained his "two-pronged effort" again. See the Summary from last week. Brinker really wants something done to help individual homeowners. He said that for the first time, he saw a glimmer of hope for that happening when FDIC Chairwoman Sheila Bair announced that the government may use its new emergency authority to help struggling homeowners overhaul their mortgages. Brinker pointed out that he had talked about this situation for the past several weeks and he's glad to know that "someone in Washington D.C. might be paying attention." Brinker also wants a government mortgage guarantee program.

Honeybee EC: I think it will be interesting to make note of the subjects that were allowed on the air today, so this Summary will include a synopsis of every call during the first two hours of the program.

First Hour Callers:


Caller one -- Mary told Brinker that she was a long-time listener and a Marketimer subscriber and has really appreciated his advice through the years. She asked Brinker if she should lump sum or dollar-cost-average some funds into a GNMA Fund. Brinker said that GNMA's continue to be the "stellar choice" in terms of taxable fixed income investment. He reminded the caller that there is NAV fluctuation, but that it would be "hard to build a case for rising interest rates at this time."

Caller two -- John asked Brinker if he had heard Greenspan's testimony last week and what he thought about it. Brinker said: "It was rather amazing........ I think Alan Greenspan is in a state of shock.....in some quarters he is being blamed for creating the underlying conditions that led to the collapse of the mortgage market......he's not accustomed to this.....after all this is a man that has been held up as a legend.....he's been known as the Maestro due to his excellence......He called this a once in a century tsunami........the fact that it is occurring almost immediately after he stepped down shows that he had his hands all over it....He is also the Fed Chair that held to the myth that you don't need regulation..........it was the lack of regulation and oversight that led to the Fannie Mae and Freddie Mac debacle.....here's a Maestro quote, he said the financial debacle 'has turned out to be much broader than anything I could have imagined.'"

Caller three -- Gordon said that he is 64 years old, 3 years from retirement and had lost about 20% of his nest egg. He told Brinker that he is about 42% invested in stock and 58% bonds. He wanted to know if Brinker thought he should consider re-allocating to 70% bonds/cash and 25% stocks.

Brinker congratulated Gordon for being in a balanced portfolio as he neared retirement. Brinker said "The reason you go to a balanced portfolio when you're within a few years of retirement, is because you want to insulate yourself -- it's a portfolio inoculation...........against extraordinary market swings. Something like this which has been essentially been unforeseen in the Wall Street community. You insulate yourself against the unforeseen, the Black Swan, if you want to use Taleb's approach, by having a balanced approach. And the reason you want a balanced approach in the years approaching, as well as in retirement, is you really don't want that kind of volatility. Twenty percent volatility, yes, you can accept that in an extraordinary situation like this which Alan Greenspan calls a once in a century event -- his words this week.......

.......And as long as there is uncertainty out there, as long as there is extreme difficulty in getting a handle on the future as there has been recently in these chaotic times all over the world, as long as that situation prevails, I would stay where you are. Now if you get down the road to a point where you say we've seen some stabilization develop -- and in the ideal world we've seen a successful test of a market bottom area develop on reduced volume, reduced emotion, if you get to a position like that, then I would consider returning yourself to 50-50. You're at 42-58. I'd stay there right now. But if you could identify a position like that -- and I'm certainly working to identify a position like that -- then I think you could think about the possibility to returning to a 50-50 situation.......


........ Believe it or not, 'This too shall pass,' this is not the end for the United States of America. There is no way that I can believe this is the end of the United States --'This too shall pass'. This economy will eventually right itself. It will return to a growth track, and it will do so without all these excesses we've been seeing. And when that happens, I think we'll be back in period where the stock market will make good returns. But I think we are in a period right now where I'd be patient and allow things to work themselves out and get to a point where you can say now it makes sense, maybe I'll return to 50-50."


Honeybee EC: Throughout this almost 50% bear market decline, Bob Brinker has consistently advised keeping all stock market money invested. He did this by either repeatedly issuing outright buy levels at much higher prices or consistent dollar-cost-averaging. Conclusion: Everyone who has followed his advice has had at least 50% of their total investment money in the stock market for the whole decline. And it is worth noting that Gordon did not actually follow Bob Brinker's recommendations.

Caller four -- Matt told Brinker that these times would be "much scarier" if "we didn't have you." Then he asked about TIPS and how to compute the implied inflation rate (Brinker has covered this before). Brinker reminded Matt that he didn't have a crystal ball.

Caller five -- Nicole made comments on the tax ramifications of a real estate "short sale." Brinker said that he is not a CPA and that it's best to check with one for answers to tax questions.

In the second-hour monologue,
Bob Brinker commented at length about the "Troubled Asset Relief Program." He said that part of this program may now include putting money into the insurance industry. Brinker thinks that the government might be concerned about "credit default swap contracts." Brinker said when the uptick rule was done away with it was "Katy bar the door on bear raids."

Second hour callers:

Caller one -- Norman asked about insurance company contracts in 403B program. Brinker told him that they were as good as the credit rating of the company that issued them -- there are no federal guarantees.

Caller two -- Rudy asked how to find information about "credit default swaps." Brinker said there is not much information available, but that some settlements had already gone through reasonable well. The thing to watch for is major bankruptcies. Brinker said that he thinks the Federal Government will step in and try to avert the big bankruptcies. He wonders what will happen to Detroit.

Caller three
-- Doug asked about SIPC insurance and also a question about a personal stock holding.

Caller four
-- Joseph remarked that unlike other "experts," Brinker never treated Greenspan like he was a "god in the field." He said he believed the insurance industry is a "black hole in the market we haven't even addressed," and then he asked if Brinker thinks we will have a V-shaped recovery from "this bear market."

Brinker replied to Joseph: "V-shaped theories are wanting.......When you look at the true value of stock prices, and it is very difficult to do right now, but the way they are quantified is by discounting the present value of their future earnings or the present value of their future dividend stream to the present.........Obviously there is a lot of uncertainty in the market and that has contributed to the volatility, along with the forced selling we've seen. Obviously, the hedge funds are going through a catharsis in here. So I think that the V-shaped is a hard sell for that reason that we have to have a visible earnings stream growth track that we can point to. And if you're talking V-shaped then you are talking about all the earnings just soaring right back up again right away. That's what's required for a V-shape recovery. That's a hard sell right now.......

....... I think it's a lot easier sell to think in terms of a healing process, which is a process that takes time. I actually do believe that over time the market will come back. But I think first it has to go through a healing process and that in itself is going to take some time. And then the process of recovering the economy and the recovering the earnings streams, I think that will take some additional time."


Caller five -- Bob asked about Obama's possible plan to take over existing 401K accounts. Brinker said it was impossible to comment on something that "has not been out there" for longer than one day. (Honeybee EC: It surprised me to hear Brinker say that. Recently on other programs, he has praised the fact that he could be on the air to bring us "breaking news." And this news isn't really THAT new because Rush Limbaugh and others were commenting about it Friday.)


Brinker's Saturday guest speaker was Timothy Sinclair: The New Masters of Capital: American Bond Rating Agencies and the Politics of Credit Worthiness

Honeybee Wonders: In the first two hours of the program (I didn't listen to the last hour), I heard Bob Brinker do five commercials. He did two for Quickbooks, two for Bose headphones and one for Retina Specialists(?). Doesn't this seem to be a big change for him?

Some comments about Saturday's Moneytalk program:

Blogger Quis said...

I gotta hand it to Blinker and his call screeners. How he can go on national radio week after week and continue his charade is unbelievable.

And Mark Hulbert continues to quote newsletter publishers like Blinker who completely missed this disaster and say the best are more bullish than the rest so that's a good sign for the market!

Dingbert has been saying that rubbish for a year!

It's disgusting that these charlatans have any credibility but apparently they still do.

The fact that Blinker still has a national radio show is just unbelievable. This is the plot of a comic book!

October 25, 2008 1:20 PM


Blogger Quis said...

HAH! Blinker says, "Alan Greenspan is in a state of shock."

Bob, what state do you think your newsletter subscribers and listeners are in?

October 25, 2008 1:36 PM


Anonymous draffted said...

Yes his actions are very unbelievable.

They must screen 100 calls just to find that 1 caller who Bob Brinker will let on the air....

I am so tired of hearing Bob Brinker mention the "black swan" or Greenspans comment about "once in 100 year event" as an excuse for his ignorance.

I do not know about were you are at, but I am hearing a lot of commercials during his show which Bob is reading the commercial and endorsing the product unlike in the past. I guess he needs the money from doing commercials since his newsletter is worthless to most people.

Nothing but old people again on the show today. I wonder why they do not let anyone who is following his Portfolio I or II

October 25, 2008 1:50 PM


Blogger Bluce said...

Oh boy, a groveling caller just said something to the effect of: "These times would be much tougher without you being on the air . . . "

I think that must be Mr. NOONE that called.

Or this is really 1984, or maybe Bizarro World.

October 25, 2008 1:52 PM


If you missed Moneytalk this weekend, I highly recommend that you go to KGO810 Archives. You can either listen or download it to your MP3 players or Ipods and listen at your leisure. They will have both programs available for seven day and best of all, IT IS FREE.


In response to DanG's classic Cadillac, Mustang Ed sent a picture of another classic Cadillac. 8)


Friday, October 24, 2008

Bob Brinker's Predictions

Bob Brinker's Marketimer Model Portfolios have remained fully invested for this almost 50% decline in the S&P 500 Index. His Timing Model did not warn him or his followers that a huge bear market was arriving.

What will Bob Brinker have to say about the stock market this weekend on Moneytalk? Let's look at what he is on record saying recently.

Last weekend, Bob Brinker said this about the stock market: “Another volatile week in the financial markets around the world….. Here in the United States, volatility is in at unprecedented levels recently and that continued this week.

The prior week Brinker made another excuse for his failure to predict or even recognize this bear market. His first excuse was that "it was more than I expected." His second excuse was the rise in the price of oil was "inverse" to the stock market. (Oil has also dropped over 50% since Brinker said that it was correlated to the stock market.)

October 12th, he said this: Bob Brinker said: “I want to make a comment about what we have seen recently which is unprecedented. Without question, this is the most difficult market environment I’ve seen, and my work did not forecast this bear market decline. I had no way of forecasting a global banking crisis. If I had, that would have been a huge forecast to make. And yes, it would have caused a lot of disbelief but I would have made that forecast if I had been convinced it was going to happen.

I’m not a person that believes in selling into a panic atmosphere and much prefer not to do so. My personal opinion is, it’s not the right thing to do. So recognizing that this is a situation that is going to require patience and time to resolve, that’s the way I feel about it. Obviously, we are seeing the reason that we always talk about a conservative balanced portfolio approach for those who are approaching or in retirement……..Now I believe that certainly we will come out of this over time, but there’s no question about it, it’s unprecedented.”

David Korn comments on what Brinker said:

"EC: A few choice comments here if I might. This was Bob's first acknowledgment on Moneytalk that we have even been in a bear market, and that he didn't forecast the decline. Bob was facing a lot of pressure lately with criticism being lodged against him on the Internet and elsewhere. Subscribers of mine reported that they had e-mailed Marketimer and gotten a very curt response with basically the same info -- that Bob had not forecast this bear market. Bob basically had his back against the wall today and was forced to say something and I was expecting something along these lines. However, I don't think he went near far enough -- especially given that he had previously been bashing the advisors throughout the spring who were bearish, some of whom had been guests on Moneytalk over the last year. There was no discussion of his secular bull market forecast, which in my opinion is also clearly wrong, and there was further discussion of the nature of this bear market. I will be covering both of those topics in upcoming newsletters."



DanG sent a picture of the 1949 Cadillac that he happily can afford now thanks to stock market profits. Impressive! 8)


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SeaBiscuit's latest Brinker-Shave:

Grizzly knocks Bully Bob

Down to the floor

And then lets out a loud

And deafening roar

Brinker Shave!



Thursday, October 23, 2008

Bear Market Statistics - Bob Brinker Still Fully Invested for 46.7% Decline

Yesterday we had new closing lows on the S&P500 (Charts) and NASDAQ (charts) for this bear market that Bob Brinker has been fully invested in for the whole thing. Last night I posted an article called "Another Bob Brinker Buy Signal Possible" which says that the technical factors Brinker has used in the past suggest he could call another bottom due to the lower close on lower volume. Note, the intraday low set on October 10th has held and we have a series of two higher lows on an intraday basis, another sign of a rally or even a new cyclical bull market. Here is the raw data:

2007-2008 Bear Market Statistics 10/23/08

S&P500 Chart
Last Market High 10/11/07 at 1,576.09
Last Market low 10/10/08 at 839.80
Current S&P500 Price 916.02
Decline in Points = 660.07
Decline in percent = 41.9%
Max Decline = 46.7%
=>This means the decline from intraday high to intraday low is 46.7% and we are currently 41.9% off the peak.

=>The decline in the S&P500 from the closing high to the closing low was 42.7%

DJIA Charts
Last Market High 10/11/07 at 14,279.96
Last Market Low 10/11/08 at 7,773.71
Current DJIA Price 8,727.49
Decline in Points = 5,552.47
Decline in percent = 38.9%
Max Decline = 45.6%
=>This means the decline from high to low has been 45.6% and we are currently 38.9% off the peak.

=>The decline in the DOW off the closing high to the closing low was 40.3%

NASDAQ Charts
Last Market High 10/31/07 at 2,861.51
Last Market Low 10/10/08 at 1,542.45
Current NASDAQ Price 1,634.76
Decline in Points = 1,226.75
Decline in percent = 42.9%
Max Decline = 46.1%
=>This means the decline from intraday high to intraday low is 46.1% and we are currently 0.428707221 42.9% off the peak.

=>The decline in the NASDAQ off the closing high to the closing low was 43.5%


Chart of Bob Brinker "All-In" Buy Levels
Click charts courtesy of stockcharts.com for full size images
More S&P500 Charts

If you want to know what I have been buying in this period of weakness with my profit taking dollars from selling when the market was higher, Subscribe to Kirk's Investment Newsletter TODAY and get the October 2008 issue FOR FREE!!


Mustang Ed posted the link to this picture in the comments section. This is Bidwell Mansion in Chico, California, and Ed's Mustang -- What a beauty!



Tuesday, October 21, 2008

Bob Brinker's Marketimer Saying Now


Marketimer, September 2008, Bob Brinker said that he was looking for the S&P 500 all-time record highs to be challenged in 2009 as the "economy recovers, inflation eases and corporate earnings improve."

Marketimer October 2008, according to Mark Hulbert, Bob Brinker fell back on a lot of "ifs," "uncertains" and "could be's" about the economy and the stock market recovery.

Mark Hulbert's October 7, 2008 article in Barron's says the following:
"• Bob Brinker's Marketimer: Bullish. In his most recent issue, which was published in early October, editor Bob Brinker wrote: "We believe the stock market will return to an uptrend within six months of the start of the next economic recovery. Although the timing of the recovery is uncertain, our view is that it could be underway by next spring. If that scenario unfolds, we could be looking at a stock market turnaround beginning in this year's fourth quarter. This bear market decline has been accompanied by an extraordinary flow of negative financial news, but we are focused on stock market recovery in 2009 as investors go through the process of discounting economic recovery prospects in advance of an improved economic outlook." Brinker is recommending that subscribers' stock portfolios be fully invested."
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Regardless of anything Bob Brinker has said about the stock market this year, his Model Portfolios are fully invested and he has NOT RECOMMENDED HOLDING ANY CASH RESERVES from equity allocations since March, 2003.



NOTICE: I recommend Bankrate.com for news, tips and advice to compare mortgage rates, home equity loans, CDs, car loans, credit cards and money market accounts. The site also tracks LIBOR, prime and other leading rates; Federal Reserve analysis and alerts; advice on buying I-bonds; bank safety advice; FDIC info; key economic statistics and much MORE!

IOW: it looks like most of the information that Brinker talks about on Moneytalk is available here:
BANKRATE.COM

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Saturday, October 18, 2008

Summary: Bob Brinker's Moneytalk October 18-19, 2008

(I was asked to add a link to the comments here since the link is difficult to find at the end because of the length of the Summary.) Here ya go: Summary Comments

Moneytalk Summary, Commentary and Bob Brinker Excerpts, October 18-19, 2008. Dow: 8852.22; S&P 500 Index: 950.55; Nasdaq: 1711.29; Oil: 72.05

Bob Brinker opened Moneytalk Saturday by saying: “Another volatile week in the financial markets around the world….. Here in the United States, volatility is in at unprecedented levels recently and that continued this week.”

Brinker went on to say that on his program last week he talked about a couple of things that he thought could be done that had the potential to make a difference in the financial situation going forward. He said: “We can now say that one of them has been done, although unfortunately, the other has not been done.”

Brinker comments paraphrased: The one that has been done was the massive $250billion injection of government capital into the banking system – part of the $700billion Emergency Economic Stabilization Act of 2008 which was passed by congress a couple of weeks ago. This program followed “exactly” along the lines that he had talked about last week on Moneytalk.

In Brinker's opinion, it is a good program. It involves the purchase of “straight preferred shares in the banks” – not convertible to common shares, not convertible preferred and non-voting, so "Uncle Sam isn’t running the bank." The preferred shares are callable on par within 3 years. The program was called a voluntary, mandatory program. Voluntary in that the banks had to accept it, but mandatory in that they were given no choice – as described by the Treasury Department. There are executive compensation restrictions and there is an equity kicker in the form of warrants which amount to about 15% ownership in the participating banks (and for the nine large banks, their participation is mandatory). The rate is 5% for the first 5 years and then kicks up to 9%, but the banks can pay them off if they choose.

About $125billion goes to the nine largest banks, including Bank of America, J.P. Morgan, Wells Fargo and Citigroup, also Morgan Stanley, State Street, Goldman Sachs and Bank of New York Mellon. The other $125Billion will be spread in banks across the United States. There is a 90-day foreclosure restriction, designed to get credit flowing again and reduce systemic risk. And it’s part of a correlated effort that includes providing short-term commercial paper relief to corporations aimed at improving liquidity.

TROUBLED ASSET RELIEF PROGRAM Brinker said: “This is all fine and I think this is a really good use of the money and I think it’s way better than the troubled asset relief idea that as we have said is troubled from the get-go because of the conflict of interest that is inherent in the Troubled Asset Relief Program. Remember we talked about this………I’m not talking about the $250billion that was injected into the bank’s capital structure. I’m talking about the remaining $450billion that supposedly is to be used to purchase troubled assets. And the problem with that program is from the taxpayer point of view, you want to put out the minimum bid on the reverse auction so the taxpayer doesn’t over pay. But from the bank point of view, you want to get the highest possible price so as to reduce the impairment to the capital of the bank. This is an inherent conflict of interest, and it may be a gaping difference. We know that Merrill Lynch is sold some troubled assets in July at 22 cents on the dollar. We know that some of these banks are carrying these troubled assets at 50, 60, 70 cents or more on the dollar…………..I think this is a problem that will not go away……….it will always be an issue at every auction…….


.......Now the other part of the program which we talked about last weekend has not been implemented and that’s a shame because we do have the brain power in Washington to do this. We do have the resources to do this, so it’s very unfortunate that nothings been done…….Now we have given already a mortgage guarantee program idea here on Moneytalk that has not been acted upon……..Most people make their mortgage payments in a timely manner so guaranteeing mortgage payments would not cost Uncle Sam a dime on most mortgages…….. The renegotiation part of the program would simply involve providing better terms on a delinquent loan to turn it into a performing loan. Renegotiate the loan. Keep the people in the house……..And the third category would involve foreclosures, which is the resolution trust corporation solution. Where the government making the mortgage guarantee payments to the bank on a monthly basis, the government would take possession of the property, and eventually would resell it over a period of years as things normalize in real estate……….that is what was done with resolution trust and it worked………no reason to put people out in the street…..”


Brinker told caller Loren, that most people would rather stay in their home rather than move in with parents, live in cars or under a bridge. He said there were other good ideas floating out there such as allowing residential mortgages to be refinanced into a low-cost Fannie Mae or Freddie Mac loan -- the government owns 80% anyway. He said it would be a lot cheaper in the long run than throwing people out in the street. Brinker said another good idea would be to work out an option to purchase later – stay in the home and pay rent, then later on they could reclaim it.

Brinker said: "But I ask you a question, where is the creativity in Washington on this score? I just talked about three separate solutions that get to the core of the housing issue, which is people in troubled loans…….Where is the creativity in Washington on this? What are they doing?...........They really eventually have to address this issue. They cannot ignore it………”

When Loren expressed her concern about people who have struggled to make their mortgage payments and have played by the rules being treated unfairly by having to pay for these bailouts, Brinker said: “I’m sorry, but they have no horse in this race……. This is not about them. It’s time for them to stop feeling sorry for themselves that played by the rules and did everything right. They don’t need help – they’re fine. They made their payments. We are talking about a situation here where you have an alternate choice of throwing people out of their house, having an empty property with no revenue and weeds growing against trying to renegotiate a deal and get a more positive outcome ……..”

STOCK MARKET

Saturday, only one caller mentioned the stock market. Caller Craig said: “You know when you had a cold last week, I noticed the whole stock market had pneumonia, so I really hope you are better."

Brinker chuckled then replied: “I don’t think the two go hand in hand. The stock market had a little better week this week which is good to see, but obviously the stock market has a lot of work to do over a long period of time given the damage done.”

INFLATION: Brinker said he expects very low inflation in 2009. He does not believe the bailout plan is inflationary.

WASHINGTON IGNORES BRINKER: Brinker complained at length that “Washington” has ignored his ideas and suggestions for resolving the mortgage/banking crisis. Brinker said that because Moneytalk is broadcast all over Washington D.C. on WMAL radio, it would be impossible for the powers in Washington to not have heard his suggestions, but so far, “nobody in the government has shown any interest in this.”

Honeybee EC: [chuckle] In light of the fact that Brinker has been completely wrong on everything he has prognosticated for more than a year now, one wonders why he thinks anyone should follow his advice now.

Brinker was wrong when he was calling for new stock market highs in January, 2008. And he has been wrong to advise investors to remain fully invested as the stock market declined over 35%. Brinker was wrong to say the stock market would respond “inversely” to the price of oil. Brinker was wrong to act like he had no way of seeing the banking mortgage crisis happening – he had talked about it for months. His excuse-doggies just don’t hunt. 8) And Brinker was especially wrong each time he called new market bottoms in 2008 and then rescinded them.


* Aug 16, 2007 - January 4, 2008 @ 1411: Mid-1400's
* January 20th -- rescinded mid-1400's (recommended dollar-cost-average only)
* Feb 10, 2008 @ 1331: Low-1300's
* Aug 5, 2008 @ 1285: 1240 or less
* Sept 2, 2008 @ 1282: Low-to-mid 1200's
* September 16th -- rescinded low-to-mid 1200's (recommends dollar cost-average only)


Sunday, Brinker’s opening monologue was devoted to his views about muni-bonds (there has been some improvement), different types of muni-bonds, California’s politicians who want to raise taxes, generous pensions for government workers -- politics in general. The second hour monologue was almost a verbatim repeat of what he said yesterday – see excerpts above.

Sunday, there were no questions about the stock market (again) but there were several callers who asked about the safety of California muni-bonds. Brinker recommended that investors keep those holding small enough that it would not be a “life-altering event” in case something goes wrong with them.

Honeybee EC: Brinker seems to think that Arnie is good for California. Brinker said he gets “ill” when he hears people "bash Arnie."

Well, Bob, some of us rare Californians of more conservative political persuasion do not agree. Arnie is better than the impeached Gray Davis, but not much better. And FYI, I get “ill” when I hear you using a “money talk” program to demagogue your own political opinions like you did when you said "Joe the plumber" was "fiction."

Or like when you spoke so disparagingly about Sarah Palin -- as you so typically do with all strong women. I'd be happy to tell you this to your "face" but all I get is busy signals even when I call every 15 minutes. Do you have your calls set up for the whole program ahead of time? Sure seems strange that there would never be a call from anyone who is the least bit unhappy about the huge losses they have incurred by following your "market-timing advice.")

BALANCED PORTFOLIOS: Brinker said: "Now we’ve just seen something happen in the stock market that was unprecedented. But if you had a balanced portfolio which was bolstered by quality bonds, yes, you’ve taken a hit – but it hasn’t been a hit that is something that you cannot absorb, and something that you can come back from.”

Honeybee EC: While that may be a true statement, what he failed to say is that two out of three of his Model Portfolios are not balanced and are fully invested, including a 15% holding in RYOCX. The numbers are not yet in for October, but we know that the market has dropped at least 20% in since September 30th.

We also know that at the stock market all-time-high last October, Brinker’s Model Portfolio I was valued at $302,561. On September 30th it was valued at $224,888.

OIL BLACKMAILERS: Today Brinker talked about the drop in oil prices from the perspective of gloating about the “oil blackmailers," getting a comeuppance, but he made no mention of the fact that he was completely wrong about the “inverse correlation" between the price of oil and the stock market. He stopped mentioning this theory when oil and the stock market began to drop in tandem.


July 13, 2008 (S&P 500 @ 1239.49 -- Oil at 144.95) Moneytalk 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. 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."


Oil was about $125 per barrel when Brinker wrote the following: August 5, 2008 Marketimer, Page 3; Paragraph 3; "In Summary, we continue to regard oil prices as the key variable for stock prices."


Brinker was bemoaning the removal of the short-selling uptick rule, and blamed it for the steep decline in financial stocks. Another school of thought shows that during the ban on short-selling, financials declined even more steeply. Here are some excerpts from an article just published at Wealth Bulletin:

"Industry insiders have called the Securities and Exchange Commission’s ban on short selling against financials a failure following the regulator’s decision to end the three week old action on Wednesday at midnight.


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Honeybee now posts her Bob Brinker Moneytalk Summaries at this new location: Honey's Bob Brinker Beehive Buzz.

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