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Saturday, January 10, 2009

Summary: Bob Brinker's Moneytalk, January 10-11, 2009

Bob Brinker's Moneytalk: Excerpts, Summary and Commentary, January 10, 2009. Dow: 8599.18 (last week: 9034.69); S&P 500 Index: 890.35 ( last week: 931.80); Nasdaq: 1571.59 ( last week: 1632.21) Oil: $40.36 (last week: $46.52).

Bob Brinker did not discuss the stock market on the program Saturday.

Brinker's Pertinent Points Paraphrased and Quoted:

* JOBS REPORT came out on Friday and was (as expected) at 524,000 jobs lost.

* UNEMPLOYMENT RATE stands at 7.2%.....2.6 million jobs lost over the past year.

* STIMULUS PACKAGE....Obama is talking about a new one package....the "free market" crowd is saying let it be, let the market take care of it. "Well, that hasn't worked out real well."

* KEYNESIAN the crowd in "power around the world right now." John Maynard Keynes taught that "there is only one source of stimulus when times get bad, and that's the government to intervene with stimulus." We've seen it before, we are going to see it again.

up to four million jobs with his two-year package. Brinker said: "That is a bold prediction in an economy like this. He says the jobs will be primarily created in construction, manufacturing and retail. And he says that his plan has the potential to increase Gross Domestic Product growth by 3.7% above what it would otherwise be over the next two years. It looks like the stimulus package will be something in the area of $800Billion."

wish the new president well.

....There are two primary areas being pushed by the new administration -- windmills and solar panels. Windmills now generate 1% of U.S. energy. Solar energy contributes less than 1% -- double those amounts would still be next to nothing. The "silence is deafening" on using natural gas in vehicles. Like Bill Wattenburg, Brinker is enthusiastically for more use of more nuclear power. Brinker said there are 104 nuclear facilities in the U.S. right now, providing about 20% of our power.

* DEFICIT "$10Trillion high and rising." (credit to Johnny Cashs' old song) We'll get about a $1.2Trillion deficit for this year -- 12 months through next September. Nothing can be done about it and it's not likely to change in near term.

* ECONOMY.... Brinker said:
"Nobody envies this president-elect coming in and taking on the worst economy since Herbert Hoover left the economy to FDR 76 years ago. Hopefully, the right decisions will be made and things will get going in the right direction."

Caller Ray
indignantly took exception to Brinker saying this is the worst economy since Herbert Hoover. He said the economy was in worse shape during the Jimmy Carter administration. He said that it has been proven that the free market can bring us out of a recession. He suggested doing away with capital gains taxes and lowering all taxes, and letting businesses keep their money because they reinvest in their business and that brings about job creation.

Ray said:
"The government does not create wealth. The government does not create jobs. And if the government does create jobs, any revenue that's generated from government job creation is immediately swallowed up by the government bureaucracy that goes hand in hand with it. It's private individuals and private businesses that create jobs and create wealth in this country. But instead, we have the Federal government wanting to take control of the mortgage industry, the auto industry, the financial institutions -- lending money to the financial institutions with all kind of strings attached, saying, okay, now you have to do what we say, you can't do this, you have to do that. We have the Federal government in such a huge power grab right now. And in addition to that, they're printing so much currency that the full faith and credit of the United States government, which is all there is to support our currency and its value, is quickly declining at a more rapid rate than it ever has. And the end result if they're not careful, is its going to bring about hyperinflation."

After Brinker sarcastically told Ray that he had been looking for a "period" and "finally" got one, Brinker asked Ray why, if we need free markets, do we need FDIC to protect bank deposits. Ray answered that he is not really in favor of the taxpayers guaranteeing people's deposits. Brinker said: "Let me tell you something, Ray, your credibility is dwindling even faster than I thought because without the FDIC today, this is what you have. You have lines around the bank all over the United States of America, with people trying to take their money out of the bank." Brinker concluded that the FDIC and SIPC argument puts the free market philosophy to the acid test "right out of the gate" and it will "crash and burn" every time.

[Honeybee EC: Whoa Nellie! That seems like a bit of leap to me. I sincerely doubt that very many would "directly correlate" FDIC insurance with giving the government carte blanche to take over most of our financial institutions, the mortgage industry and the auto industry.]

.....30-year rates are about 5.1 right now. Brinker thinks there is a "possibility" they "go into the 4's" Brinker does not expect interest rates "to go up right now."

...Brinker said that we have not seen the improvement that we want in the credit markets. Even though we have seen some homes change hands because of lower prices, we've not seen the ability for consumers to get mortgages, car loans, personal loans improved. The only improvement is the GMAC deal where they are going to make some auto loans available now that they have government help available. Brinker said: "There has been improvement, but it has not returned to normal."

CALIFORNIA BANKRUPTCY? Brinker does not believe those who are predicting California is going bankrupt. He says he'll believe it when somebody lends him a Lamborghini to drive down I-5 at 250MPH and he doesn't see the California Highway Patrol in his rear view mirror. He does not believe all state services will be shut down and go away.

Brinker said that the only recession since the 1930's that came close to the foreclosure rate we have now was 1973-1974 -- but there are foreclosures in all recessions.

CALIFORNIA BONDS.... Bob Brinker said:
"I own California municipal bonds of general obligation of the state and I'm very happy with them. They've been very good to me. And of course they have been acting very nicely in the last couple of months especially they've started to act very nicely. And I think that people are beginning to realize that, hey, there's no rational way for state general obligations to default. They didn't default in any case in the great depression and they certainly haven't defaulted in this recession......I think when it comes to the State of California, I'm comfortable owning State of California bonds. I can't tell other people to do so because that's a decision they have to make for themselves, but I've made that decision for myself. In fact, I recently purchased additional general obligations of the State of California because I thought the yields were too high to pass up."

"In almost all cases my State Cal GO's are escrowed to maturity by U.S. Treasuries. And that is simply because they are pre-refunded municipal bonds. They were not pre-refunded when I purchased them. They were general obligations when I purchased them. But what happened is rates have gone down....and the State of California pre-refunded many of their outstanding general obligations. What that means is they were able to issue new debt. This was especially true in 07. They were able to issue new debt at a lower rate than the old outstanding debt......

.....So when they issued the new debt, they re-financed and got a lower rate for the taxpayers of California. Then they took the proceeds and invested in Treasuries, and they pledged those Treasuries, as they are required to do, against the old issues of general obligations. So if you are a holder, as I am, of California general obligations and they are pre-refunded, then you wind up owning a Treasury backed California, which has no risk at all. So if you have a pre-refunded bond, these securities, by the way, these Treasuries that are purchased with the new offerings that the State makes, they are placed in an escrow account, and the proceeds are used to pay the principal and interest on the original bond."

Caller Paul
said that he had been a Marketimer subscriber for the last few years. Paul said: "I looked at the recent issue that's come out, where, you know, you talk about looking for a bottom in the market and then looking for a recovery......"

[Honeybee EC: Paul is correct about the “recent issue” of Marketimer.]
January 6, 2009 Marketimer, Brinker said: “In our view, there is a very good possibility that the market will solidify the area of the bear market bottom during the first quarter. We expect the S&P 500 Index bottom range of 750 to 850 to provide the support necessary to allow for the completion of the bottoming phase, including a successful test. Our model portfolios are fully invested.”

Honeybee EC: There were three callers on Saturday who praised Brinker's newsletter and not one person who had any complaints about his model portfolios losing (October 2007 high to November 2008 low) over 50%. And not one call about the prior bottom-calls that he made in 2008 that were quickly hauled out with the "piano player."

Here are Brinker's Model Portfolio numbers for the calendar year 2008.
(For the first time, Brinker's one-year return numbers are NOT posted on his website.)

Bob Brinker’s 2008 returns:

Model Portfolio I = Down 39.7%

Model Portfolio II = Down 37.4%

Model III (balanced) = Down 23.9%

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SJ Al sent this:



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