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:
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.