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Saturday, November 22, 2008

Summary: Bob Brinker's Moneytalk, November 22-23, 2008

Bob Brinker's Moneytalk: Excerpts, Summary and Commentary, November 22-23, 2008. Dow: 8046 (down from 8497.31 last week); S&P 500 Index: 800.03 (down from 873.29 last week); Nasdaq: 1384.35 (down from 1416.85 last week) Oil: $50.35 (down about 10% from last week).

!!!NOTE TO BOB BRINKER...You need to correct the "free marketeer" misinformation you gave out about the Bush Administration Saturday on Moneytalk. There is video proof that the Republicans fought for oversight at Fannie Mae and Freddie Mac and they were shot down by several Democrats. Go to this link and scroll down to the videos: Bush Proposed Fannie Mae/Freddie Mac Supervision in 2003

"Fearing that mortgages would no longer be available to people who were unable to pay them back, Democrats eventually killed the proposal. The current meltdown in the mortgage industry is a direct result of giving mortgages to people who could not pay them back, a practice protected by Congressional Democrats."

Caller Darryl asked:
"Did your market timing model detect any of this chaos in the market?"

Bob Brinker said: "It did not. And this is why earlier in October when I commented on this on the program I was forthright in stating so because I thought it was important to do at the time."

Honeybee EC: Bob Brinker NEVER said anything on Moneytalk (in October or any time in Y-2008) about his "timing model" not predicting this bear market. But to give him the benefit of the doubt, perhaps he thought he did. Here is what he actually said on October 12th as I reported in my Moneytalk Summary:

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." (The S&P 500 Index closed @ 1000.03 on October 13th. It closed at 800.03 this Friday-- a 20% loss.)
MONDAY UPDATE: In his hot-off-the-press Newsletter, David Korn commented on what Brinker said about his Timing Model:


Caller: This caller slipped in the question of whether Bob¹s timing model detect any of this chaos in the market? Bob said it did not. Bob noted that earlier in October when he commented on it he was forthright in saying so on Moneytalk because he thought it was important to do at the time. After saying that, Bob immediately moved to the next caller.

EC: I thought that was kind of an odd response. Not the part about Bob saying that he commented on it in October, but that he thought it was important to be forthright about it at the time. Anyhow, if you are a new subscriber or missed it, on the October 11-12, 2008 weekend, Bob said this is the most difficult market environment he has seen and that "his work did not forecast this bear market decline, and he had no way of forecasting a global banking crises and if he had, that would have been a huge forecast and that would have caused a lot of disbelieve, but he would have made it if he had been convinced it would happen." Incidentally, during the show he also said that that he does not believe in selling into a panic atmosphere.

EC#2: With the S&P 500 at 800, Bob has basically done a round-trip. What I mean by that, is that his timing model last turned ³favorable² in March 2003, when the S&P 500 was at 810. He stayed fully invested from 2003 to the present, thus his timing model completely failed. One would have thought that he might have made some asset allocation change in the last 5 years to protect some of the gains, but he did not."

Brinker said, "It will not be anytime soon."

Brinker commented that inflation figures show the "deflation effect coming in," and that consumer prices dropped 1% in October (12% annual rate) -- the largest decrease in consumer prices since the 1940's. Taking the last three months of consumer price index price changes, you get an annual rate of deflation of 4.4%.

Darryl asked Brinker if he still recommends Vanguard Inflation Protected Securities (VIPSX) in his Portfolio III.

Brinker answered:
"We have a small holding there. It's a 10% rating in our fixed-income portfolio, and that's where we are leaving it."

Honeybee EC: Was Brinker confused about his own portfolios? His fixed-income portfolio and Portfolio III are not the same. Portfolio III is a balanced fund -- 50% stocks and 50% fixed income. Brinker's fixed-income portfolio is 100% fixed income, and it contains 10% VIPSX, as Brinker said -- but it also contains 15% Vanguard High-Yield Corporate Fund (VWEHX). To answer the callers question: Yes, Portfolio III contains 10% VIPSX.

HIGH YIELD CORPORATE BOND FUNDS Even though Brinker doesn't talk about it, this fund has taken a big dip in the past few months. Brinker has not issued a sell signal on it. Some believe, as Brinker evidently does, that the fund will eventually recover NAV losses. In the meantime, the dividend payout is over 10% right now, which offsets some of the losses. But one has to be prepared for price fluctuation -- the same applies to Vanguard GNMA Fund. The NAV fluctuates inversely with interest rates. At some point, when the economy recovers and interest rates rise, Ginnie Mae NAV will drop.

A caller asked Brinker if the three auto companies were "too big to fail." Brinker said that not all three, but that it is possible for any one of them to fail.

Brinker said that the democrats "sold out to the UAW" and are "beholden" to them. Consequently, the UAW may get more money out of Congress even though the auto company "business model is broken."

(Brinker comments paraphrased) Downey Financial Corp, one of the largest companies selling the "optional adjustment rate mortgages," has been acquired by U.S. Bancorp. (170 Downey Branches gone -- taken over by U.S. Bancorp) Insured accounts will remain insured accounts. The only accounts in jeopardy are those above the FDIC insured limits......

.....Optional adjustment rate mortgages allow the borrower to defer part of their monthly payment and add it on to principal. So in many cases the price of mortgage is going up and the price of the house is going down. Downey had over 15% of their assets in loans no longer collecting interest.....

.....IndyMac was also a large player in this dangerous mortgage game. Most of the big players in optional adjustment rate mortgages are all gone now. Washington Mutual (the biggest S&L) sold it assets to J.P. Morgan; Chase earlier this year; and Wachovia Corp (at one time the sixth largest bank) made a deal with Wells Fargo.

CITIGROUP Bob Brinker said that Citigroup will be "rescued" by the government "one way or the other," but it may not help the common stock. Remember what happened to Freddie Mac and Fannie Mae, they were bailed out and remained solvent, but are now penny stocks.

NOTE: Monday Citigroup update: U.S. Agrees to Rescue Struggling Citigroup

"The federal government agreed Sunday night to rescue Citigroup Inc. by helping to absorb potentially hundreds of billions of dollars in losses on toxic assets on its balance sheet and injecting fresh capital into the troubled financial giant.

The agreement marks a new phase in government efforts to stabilize U.S. banks and securities firms. After injecting nearly $300 billion of capital into financial institutions, federal officials now appear to be willing to help shoulder bad assets, on a targeted basis, from specific institutions............."

"ECONOMIC TRAIN WRECK" Brinker said: "The market has been shellacked in this economic train wreck that we are in, but I was looking at the financial stocks........pretty interesting stuff. Some of the big four, the bank stocks, the ones that we could say are too big to fail because these are the ones who got the most money in the TARP Program, so these are the banks that are viewed as the big-hitters......." Brinker recited this data: Citigroup down 89% off its high; Bank of America down 75% of its 52-week high; J.P. Morgan is down 55% from its 52-week high; Wells Fargo -- invested in by Warren Buffet -- down 51% below its high.

INSURANCE STOCKS Declines are much greater than bank stocks -- "Staggering." All these are off the 52-week high right now: Hartford Financial down 95%; Lincoln National down 90%; Prudential down 83%; Metropolitan Life down 72%. This is the reason that Henry Paulson recently opened the door to the possibility that some of the TARP money could wind up as capital injections into the insurance industry.

Brinker pointed out that the United States of America requires a viable banking industry and a viable insurance industry in order to do business. He said that there are several ways that only an insurance policy stands between each of us and financial disaster -- car, home, life and businesses all require insurance or everything comes to a halt.

BARACK OBAMA A caller asked Brinker if he "was encouraged by" Barack Obama's choice for Secretary of the Treasury. Brinker replied: "Yeah, I think it's a great choice......and you know, I find it so ironic -- we were told by so many that Barack Obama was a, what are the terms they are using, a Marxist, a Socialist. Well, so far, he's surrounding himself with Timothy Geithner, the Federal Reserve Chair, and the former Republican -- he's now independent. He's surrounding himself with Paul Volcker. He's surrounding himself with Larry Summers.......Surrounding himself with Warren Buffet -- apparently going to name Hillary Clinton Secretary of State. Strange behavior for a Marxist."

WASH SALE In order to not trigger the wash sale, Brinker explained that you need to have 31 days between selling an individual stock (such as IBM) at a loss and buying it back -- because it is identical. Brinker said: "But if you purchase similar securities then you can do it the same day. For example, you could sell Spiders on Monday, you could buy Total Stock Market on Monday, and that would be sufficiently different that you could do it the same day......."

"FREE MARKETEER" This is a term that Brinker seems to have coined to define the people "currently in the White House." Brinker hopes that the new administration will be "pro-active" in dealing with current problems. Brinker said: "You have people in power, and you've had people in power the past eight years in the White House who really do not believe in regulation. They really are not oriented to oversight and regulation. They are oriented to a completely different philosophy which is called FREE MARKETS........

.......Now you are talking about polar opposites here. You can have free markets to an extreme which is what we've had for the past eight years, where you don't have oversight and regulation, and you have the mortgage industry gone wild.........which is what gave us all this toxic mortgage waste.......Or over on the other side, you can have oversight and regulation, which we have not had.......And I think that they have pretty much admitted that we have not had it. And they've also said they don't really believe in it very much because they are FREE MARKETEERS."

Honeybee EC: Brinker seems to change his tune rather frequently when it comes to placing blame for these financial crises. Later in the program, he was hammering Bill Clinton for signing the repeal of the Glass Stegiel act. However, I have never heard him mention Barney Frank's role in this -- or the congressional requirements to make loans to underqualified people, focusing specifically on getting minorities into home ownership. Placing all the blame on the White House and mortgage brokers is disengenous, in my opinion.

NOTE: Monday Honeybee Update: After doing some research, I found that Brinker was incorrect when he said that President Bush has been against all regulation of the mortgage industry, as this 2003 New York Times article proves:

New Agency Proposed to Oversee Fannie Mae and Freddie Mac

Published: September 11, 2003

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry...........

..........At the time, the companies and their allies beat back efforts for tougher oversight by the Treasury Department, the Federal Deposit Insurance Corporation or the Federal Reserve. Supporters of the companies said efforts to regulate the lenders tightly under those agencies might diminish their ability to finance loans for lower-income families........

ALAN BLINDER Several times this weekend, Bob Brinker quoted what Alan Blinder said about some banks being "too big to fail." I wrote about Blinder's appearance on Moneytalk and posted some of his excerpts in the September 13th Summary. Occasionally, Brinker has a very interesting guest-speaker. I would suggest that if you don't have time to listen when the program airs, that you go to KGO and download it to your MP3 or Ipod and take it with you.

Brinker's Saturday guest-speaker was Micheline Maynard, End of Detroit: How they Lost Their Grip on the American Car Market

Brinker's Sunday guest-speaker was Jeremy Siegel, Professor of Finance at Wharton University.

If you missed Moneytalk this weekend, I highly recommend that you go to KGO810 Archives. You can either listen or download programs and take them with you and listen at your leisure. KGO810 has Moneytalk programs available for seven days after they are broadcast.
(Note: Saturday, Moneytalk was pre-empted for a ball game, but hour-two is archived at the 6pm time slot, and hour-three, which includes the guest speaker, is archived at the 7pm time slot. Sunday the program was broadcasted at the regular 1-4pm slots.) IT IS FREE!

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