Bob Brinker's Moneytalk: Excerpts, Summary and Commentary, February 21, 2009. For the week: Dow closed at 7365.67 (down 6.2%); S&P 500 Index closed at 770.05 (down 6.9%); Nasdaq closed at 1441.23 (down 6.1%)
Bob Brinker didn't have anything to say about his views on the stock market today. It's interesting to note that in the past 3 weeks, the S&P has dropped almost 15% and is well below the price it was on January 15th when Brinker sent a special bulletin to subscribers.
February 4, 2008 Marketimer, Bob Brinker said: "We regard the stock market as attractive for purchase on any weakness in the low-to-mid 800's......and we continue to regard the S&P 500 Index 750 to 850 price range as the bottom of the entire bear market." [Honeybee EC: Please see the comments section for this post to read Kirk Lindstrom's response to this Marketimer quote. He said that he doesn't think the quote "should be allowed to stand on its own without also posting what Bob Brinker said/wrote a year earlier."]
Brinker spent most of the program Saturday talking about the $787Billion stimulus package and the banking community problems. The callers that were allowed on the air mostly stayed on the same subjects. There were no callers who asked Brinker about his views on how all of this might affect the stock market.
STIMULUS PACKAGE.....In general, Brinker likes the tax cuts in the bill, although he said about 9% of it goes for an AMT patch for 2009, which is not stimulative because "they do it every year" -- so Brinker thinks that the tax package needs to be "reduced" from $787Billion to $717Billion. [Honeybee EC: That makes no sense to me. Brinker is not counting the "spending side of the package which has nothing to do with tax cuts.]......
....Brinker said that the "real tax cuts" will put a bit of money in taxpayer's envelopes and these people should spend the money. However, Brinker thinks there is too much in there that is not directly related to stimulating the economy and that is unfortunate. He said "it could have been much better" and totally focused on stimulating the economy. [Honeybee EC: Again, this seems to contradict the numbers that he had just cited. What did I miss?]
$65 PER MONTH......Brinker made the point that there are "people out there" saying the stimulus tax cut will add only $13 a week to pay envelopes, but that there are 4 and 1/3 weeks in a month, so it's actually $65 a month -- or about $15 a week. He thinks this is "a good thing" and he would have proposed it and would have voted for it. Brinker said: "I don't understand it the people that are opposed to that. Because if you are opposed to the stimulus package, then you're opposed to the tax cuts.....it makes no sense to me at all. But some people have a one-track mind and don't think it through." [Honeybee EC: Nope, not so, Mr. Brinker. One can be for tax cuts and not be willing to sell out to the vast liberal-Democrat agendas that were put through in this 1100 page document that was passed into law without being read by any of those who voted for it, FOR $13 A WEEK.]
FDIC....A caller asked Brinker about FDIC liquidity. Brinker said that in his opinion, the FDIC "is as good as a government guarantee" and that he expects congress to provide whatever funding might be required for FDIC to "make good on its commitments." [Honeybee EC: I hope I'm wrong, but for the first time ever, I sensed a bit of hedging in Brinker's answer.] The caller told Brinker to think of the accounts that would need to be reimbursed if Citigroup or Bank of America go under. Brinker agreed that was a good point because they are both "really large companies." Brinker said that neither of them has "the credibility right now to support anything more than a penny stock." Citigroup near $2 a share and BAC near $3 a share.
FDIC INSURANCE.....Brinker reminded listeners to be certain that all deposits are covered.
CDARS..... Offers a way to obtain FDIC coverage for up to $50million.
NATIONALIZING BANKS....Brinker said this rumor was what caused the big decline on Wall Street on Friday. It came out of the Chris Dodd interview which was "leaked during the day" on Friday. Brinker said: "So then of course there was the pronouncement from Washington, no we favor a private banking system. So then the market which had been down pretty sharply on Friday in the early afternoon hours, recovered with a relatively modest loss in the broad market on Friday. That was because the rumor was essentially dispelled in the final couple hours of trading on Wall Street on Friday." [Honeybee EC: I almost could not believe my ears when Brinker said that the market loss on Friday was "relatively modest," but did not mention that for the week, the S&P lost almost 7% -- as it did the week before.]
INSOLVENT BANKS.....Brinker said that as far as he is concerned there are legitimate solvency questions at Citigroup and Bank of America and that is why the common stocks are getting battered. Shareholders are afraid that they will wind up like the shareholders at AIG, Fannie Mae or Freddie Mac -- which are trading close to 50 cents a share.
In the third hour monologue, Brinker talked about his own experience in the "canyons of Wall Street," how things have changed, and what caused it all. Here are some excerpts:
Brinker said: "The difference between the way a bank managed its money a couple of decades ago and the difference between how they manage it today, it’s like night and day. I can remember my days working in the bank portfolio department. Now that is the department that runs the banks money, manages the banks money. It’s like a sacred trust in there, well, at least it was when I was there. And I can remember that we felt in managing the banks money – we were a separate part of the bank. We were not in commercial lending. We were not in the other areas. We were managing the bank’s portfolio -- the banks money -- and we were really careful with that money – really careful. Most of that money, the vast majority of that money was in Treasuries……When it came to risky assets in that bank portfolio, they were few and far between. Oh, the bank might have a tiny position in another bank’s shares or something of that order. But really, it was a high quality portfolio, and it really was not at risk. Now you always have the risk, well your interest rates go up, the value of your Treasuries declines on an interim basis until they mature at par, that kind of thing, of course…..This was in the 1970’s that I was involved in this activity…….
.....And then when I think of these banks today -- I don’t care what bank it is -- and the risks they took. Now we’ll excuse from this discussion the banks that did not take these risks, but obviously too many did, and they’re household words at this point and some of them are penny stocks……..When I think of the risk that these banks and the management of these banks took, I’m astounded…... To think that a bank would invest in a package of securitized mortgages just because some rating company got paid to put a AAA rating on it. To think that a bank would get involved with leveraging their portfolio, now that did not used to be allowed.....
.....This is where we get back to Glass Steagall. Prior to November 1999, when Bill Clinton signed [the repeal of] Glass Steagall -- probably the worst act of his eight years in the White House, even worse than anything that went on in the Oval Office…….When he signed that, I’ll tell you what, it was katy bar the door for banks, because the line between commercial banks and investment banks essentially went away. And that is when it all changed…..That’s why they are in the situation they are in today….
…..The investment banking system as we knew, it’s gone, it’s completely gone, in terms of the majors. Bear Stearns part of J.P. Morgan. Do you think that has something to do with dragging down the share price of J.P. Morgan – I do.……..Lehman Brothers gone, good-bye. Merrill Lynch taken into Bank of America. Do you think that had something to do with the penny stock status of Bank of America? I do. And of course, the conversion to bank holding companies of the other two, Goldman Sachs and Morgan Stanley……Both of those companies have been recipients of TARP money…..
…..How did all this happen? This happened because it was allowed to happen when Glass Steagall was repealed. What were these people thinking? What was Phil Gramm thinking? Oh I’d like to ask him, what were you thinking when you sponsored the repeal of Glass Steagall…….I’d like to ask Bill Clinton the same question……Because these people, in my opinion, they sold the United States of America down the river. Of course they go on merrily through life. You think anybody blames Phil Gramm for repealing Glass Steagall? You hear anybody criticizing Bill Clinton over this? I don’t. I don’t hear the criticisms. And yet this was the seminal decision that was made to change the banking laws in the United States and open the door to this fiasco that we now have in our midst…….."
Brinker's Saturday guest-speaker was Charles Maxwell, senior energy analyst at Weeden and Co.
SUNDAY UPDATE:
Bob Brinker made the comment today that the S&P setting down at 770 shows how concerned investors are about the banking system problems and credit markets.
During a heated exchange with a caller about whether the United States of America is a Republic or a democracy, Brinker insisted that the U.S. is a democracy and instructed the caller to take a look at our elections if he didn't believe it. [Honeybee EC: Well, I would remind Mr. Brinker that indeed our national elections clearly show that we are a Republic -- and it is guaranteed by our Constitution.]
"The Constitution guarantees to every state a Republican form of government (Art. 4, Sec. 4). No state may join the United States unless it is a Republic. Our Republic is one dedicated to "liberty and justice for all." Minority individual rights are the priority. The people have natural rights instead of civil rights. The people are protected by the Bill of Rights from the majority. One vote in a jury can stop all of the majority from depriving any one of the people of his rights; this would not be so if the United States were a democracy." __Read more hereIn the second hour monologue, Brinker talked about tax changes. Brinker said that the current Federal brackets are going to be held where they are, at least until 1/1/2011. Brinker said that states cannot print money, so they have limited options available to them, such as raising taxes, cutting spending or going to Uncle Sam. Brinker itemized some of the upcoming tax increases in various states.
Changes for California include:
* Vehicle registrations will go up 77%.
* State sales tax increased from 7.25 to 8.25 (in Santa Cruz and Santa Clara Counties, we already pay 8.25%, so it looks like it will be 9.25% now.)
Change proposed in Massachusetts:
* Gasoline tax increase by 82 1/2%
Brinker said they are also talking about gas tax increases in Oregon, New Hampshire, Illinois and Ohio.
Change proposed in New York:
* State tax top bracket increase to 10.3% = about 50% increase.
Brinker said: "One of the interesting thing about the budget deficits that are being run in many of the states is that it's not all California. It's not all their doing. I think of California because I know how many illegally enter California every year, and therefore, they wind up as an expenditure for the State of California -- a net outflow of taxpayer dollars. It's not the fault of the State of California because they're not responsible solely for protecting the border -- that's a Federal function. And if the border is not adequately protected -- and we all know that has been the case -- it has not been adequately protected. Then the states, think of a state like Arizona as well; think of a state like Texas as well; the states can wind up with some of the economic toll on this deal. Now how many states in the United States have said that they need additional spending cuts or tax increases before the end of their current budget year. Well it's a big number -- it's 43 out of the 50 states according to the National Conference of State Legislatures. And 34 of the states face additional budget gaps as they look out to their next fiscal year." [Honeybee EC: Kudos to Mr. Brinker for clearly stating what most Californians have known for a long time, and have tried several times to change by proposition votes, just to have a single liberal judge throw the vote out every time.]
Brinker's Sunday guest-speaker was David Crook, author of: "The Wall Street Journal Complete Home Owner¹s Guidebook: Make theMost of Your Biggest Asset in Any Market"
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I took this picture on one of my morning hikes. A nearby neighbor's camellias:
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