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Saturday, December 20, 2008

Summary: Bob Brinker's Moneytalk December 20, 2008

Bob Brinker's Moneytalk: Excerpts, Summary and Commentary, December 20, 2008. Dow: 8579.11 (Down 0.6% for the week); S&P 500 Index: 887.60 (up 1.5% for the week); Nasdaq: 1564.32 (up 1.5% for the week) Oil: $33.17 (down another whopping 22.5% for the week).

Bob Brinker's Stock Market Guidance: Brinker did not discuss his market views today. He also did not discuss the 20% gains off the lows that the market has made since November 11th (more than once). Perhaps missing that big of a move is embarrassing, but it's not like it really matters, he's been fully invested since March 2003.

However, he still tries to offer guidance for those who have "new money" by looking for bottoms and issuing "buy signals" for them. Right now, Brinker is still looking for a bottom (he was mistaken about the two prior ones he called earlier this year). In the meantime, he recommends dollar-cost-averaging for new stock market money.

Kirk Lindstrom's "Market Since 11/21/08 Lows" Chart:

Bob Brinker opened Moneytalk today with a discussion about what is happening to money market funds. He said that you don't have to be a "rocket scientist" to run a MMF, and he doesn't know why some companies charge so much, but thinks one answer might be "greed." Brinker said he did not agree with Gordon Gekko (a fictional character), who said, "Greed is good." Brinker said he personally does not agree with Gordon Gekko on that, and thinks Gekko is "off-base on that one" -- that greed is not good.

Michael Douglas Video: Wall Street: Greed is Good

Brinker (comments paraphrased)
Brinker explained that the problems money market funds are having are because of the recession and what the recession is doing to short-term interest rates, which is basically taking them down to zero (as is the case with the Federal Funds Rate). The new Fed Funds rate is zero to 25 basis points, so when you have rates like that, it spills over into the short-term marketplace. (Treasury Bills have a yield close to zero.) What happens is, the money market funds who charge high rates, find themselves in a really difficult position because they cannot earn their expense ratios, so they either have to waive them or lower them or come up with something else. The low-to-zero return has caused people to pull out of money market funds. In the past week, $16billion has been yanked out of them. The reason there are no returns from some funds is because after taking elevated expense ratios, they don't have anything left for their customers. (Brinker explained that none of this applies to Vanguard because their money market fund expense ratio is so low.)

WALL STREET Bob Brinker said: "There's so much going on on Wall Street, it's hard to cover it all. The tsunami of financial news just continues as it has for a good part of the year. But I'm sure many of you have seen this Ponzi scheme, The Mad Dog Ponzi Scheme in the Big Apple, in Gotham City. It's mainly centered there although the tentacles of this go all over the world. This is really an international Ponzi scheme. Although the big money has been lost in places like Long Island, New York, and Palm Beach, Florida, and Gotham City, and elsewhere, I might add. But when you look at what The Mad Dog is charged with doing, a 30 or 40 or $50billion Ponzi Scheme, it really is mind boggling." One of the things, the The Mad Dog story reminded me of what happened back in 1974. You might remember 1974, one of the biggest scandals in Wall Street history and it also occurred concurrent with a very big drop in the stock market as we have seen this year. But right now, we'd have to nominate The Mad Dog as one of the great, and the great is meant in a pejorative sense, one of the great Ponzi schemes of all time.....This is Moneytalk." [Honeybee EC: Brinker did not use the man's name, but he was talking about Bernard Madoff, who was arrested and charged with fraud.]

CREDIT MARKETS: Brinker said there is a tremendous amount of volatility right now and all credit markets are "largely disfunctional" except the Treasury issues.

INFLATION/DEFLATION Brinker said: "We are in deflation right now. We've had 1.7 deflation in November. We had 1% deflation in October. So in the last two months, we've had 2.7% deflation. If you were to annualize that, that would be uh, oh 15-16% annual rate of deflation over the past two months. So we're in a period of deflation right now -- there's no question about that."

Caller Pamela asked about California State Muni Bonds (General Obligations):

Bob Brinker said:
"Well, I think the State of California is going to have to get its act together and until then, they are going to continue to do what they are doing right now, which is, they are threatening their bond holders with fiscal irresponsibility......Just look at the numbers, the State of California is facing a possible deficit in excess of $40billion in the next fiscal year.....They have to cut their spending.....dramatically."

Pamela asked: "So would you sell your bonds if you were me?"

Bob Brinker said:
"That's a personal decision, Pamela. I really can't tell you what to do with your bonds. I have some California bonds, but in almost all cases my bonds might be different than your bonds and I'll tell you why. The bonds that I own have Treasuries behind them. In other words, they've been pre-refunded by earlier transactions by the state and backed by Treasuries. So in almost all cases, the California bonds that I own are actually backed by Treasuries and are not backed by the State of California....." [Honeybee EC: As this October 4th Summary quote clearly indicates, Brinker said he owned California bonds, but said NOTHING about them being backed by the Federal Treasury. I wrote: Brinker is adamant that California General Obligation Bonds are safe. He said he owns some of them."]

Brinker continued:
"......If you own bonds that are backed by the State of California, then you need to make a decision on whether you're comfortable with the fiscal situation in California. I would not argue with anybody in here that would say that we have seen gross fiscal irresponsibility in the State of California. Their refusal to slash spending in California is part of the reason that they are in the pickle that they are in."

[Honeybee EC: This is a new and complete flip-flop for Bob Brinker. Never before, has he told a caller that selling California Bonds was their own decision and that he couldn't tell them what to do. He has never recommended selling them. The only cautionary word he has ever given was paraphrased in my October 18, 2008 Summary: "Brinker recommended that investors keep those holdings small enough that it would not be a “life-altering event" in case something goes wrong with them. Brinker has always said that "Arnie" was "good for California" -- even saying that he got "ill" when he heard people bashing "Arnie." ]

There were no general "what's going on or what should we expect" stock market questions today.

One caller asked about dividend paying preferred and common stocks (Brinker said that dividends paid on any stock are based entirely on board of director decisions).

Another person was moving money around and asked if he should dollar-cost-average into the stock market. (Brinker said it depended on whether it was new money or a "sideways" move.)

The remainder of the calls were mostly about TIPS (Brinker recommends them, and estimates the upcoming auction will be at 2%), annuities, IRA rollovers, GNMA's (Brinker recommend them), capital gain losses/wash sale (Brinker says you have until December 31st) and other esoteric and miscellaneous iteration.

*Brinker's Saturday guest-speaker was Barbara Weltman, J.K. Lasser contributing editor.

*Brinker's Sunday guest-speaker was Dennis Damp, co-author of The Book of U.S. Government Jobs: Where They are, What's Available and How to Get One (10th edition) Website: Federal
  • Download the show, listen at your convenience. A downloadable version of the entertaining Bob Brinker program is available FREE at KGO Archives for a full 7 days after broadcast! Now, you will be able to listen at your convenience on your portable media device whether it's in your car, on the trail, in your garden, or just relaxing at home. You won't have to stay online to listen any more! Moneytalk available when you want it FREE at KGO810.

SJ Al sent some baby owl pictures that he took in Montana:


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