Bob Brinker's Moneytalk: Excerpts, Summary and Commentary, February 28, March 1, 2009. For the month of February: Dow at an 11-year low, closed at 7063 (down 11.7%); S&P 500 Index at a 12-year low, closed at 735 (down 11%); Nasdaq closed at 1391 (down 6.7%); Oil closed at $44.17.
STOCK MARKET.....Bob Brinker opened the program today by saying that the S&P is at the 735 level and "The market continues to show a lot of concern over the banking system and the credit markets. And it's very evident when you look at the financial stocks, as we discussed last week. The Citigroups of the world, the Bank of Americas of the world, trading at less than $5 per share. In the case of Citigroup, trading at less than $2 per share, with the U.S. Government raising its ownership stake to as much as 36% in Citigroup, in return for the massive capital injections and guarantees that we have seen in that case. And obviously, Wall Street is concerned over the health of the banking system because you really do need a viable banking in order to recover the economy."
OBAMA'S $1.75TRILLION BUDGET (link)..... Next Brinker talked at length about the new budget. He called it, controversial, an omnibus approach, ambitious, rambunctious." Brinker said that there will be wrangling in congress in the weeks ahead over the proposal to lower the available deductibility of mortgage interest and charitable donations for high-income earners. He said that they are talking about raising the top bracket to 39.6% and the next bracket to 33% in 2011. High-income earners are defined by this administration as individuals making over $200,000 and couples making over $250,000 annually -- which is roughly 5% of taxpayers.
HIGH-INCOME MORTGAGE AND DONATION DEDUCTIBILITY.....Brinker said: "So you see what this means, if you have one of those jumbo mortgages, you have a high income, instead of getting 39.6 under the new tax rate that's proposed, you'd be capped at 28 -- charitable donations same thing....That's what they are talking about at this point......About 95% of the country gets more money in their pockets because that's where a lot of the money goes........ For the top 5% that will be providing the cash flow to do all these things in the budget, plus the borrowed money that's part of it as well......These people look like they're facing potentially two major changes.......the capping at 28%.......and the increase in the top bracket to 39.6....... "
CAPITAL GAINS TAX INCREASE.....Brinker said: "Additionally, this proposal calls for an increase in the capital gains and qualified dividends tax from the current 15 up to 20%."
ECONOMIC RECOVERY.....Brinker said that he was surprised by the administrations assumption for the economy and considers it "overly ambitious." They are projecting 3.2 real GDP growth for next year. Brinker said: "I certainly agree that the outlook for 2010 is going to be improvement and way better than the debacle known as calendar year 2009 -- the economic debacle that we are seeing right now. But no argument from me that we will see an improvement in economic growth next year." Brinker stated that the average economic forecast for next year is 2.1, even though the Federal Reserve is a little more ambitious than that.
GETTING THE BUDGET THROUGH CONGRESS..... Brinker said: "We are going to have a donnybrook in the United States Congress over this......"
GMAC AND MERRILL LYNCH BONDS.....Brinker told a caller that in his opinion, they are "speculative."
BERKSHIRE HATHAWAY......Brinker opened the second hour talking about "one of the great investors over the last half century or so has been Warren Buffett, the sage of Omaha Nebraska." Berkshire's earnings for the fourth quarter showed $117million, a 96% decline. Brinker also talked about Berkshire's possible $37billion derivative risk which may be due in ten years. [Honeybee EC: this is old news. Here's the (link) to the story and (link).]
RECESSION.....Brinker said: "We've had recessions before. This is not the first, it won't be the last. It's a deep recession. 1974 was a deep recession, and America came back from that one, as it has from a lot of challenges along the way. But there's no question about it, this has been a very, very difficult market environment."
EXCHANGE TRADED FUND.....A caller asked about "double or triple weighted impact" ETFs. Brinker said those have to be separated out because they are different from basic ETFs. He considers owning basic ETFs, like Spyders (SPY), just the same as owning the S&P 500 Index.
BANKS STRESS TEST.....A caller asked about this and Brinker said that they seem to be doing it to large banks first -- that they will be looking at bank fundamentals and determining bank viability. Brinker said he was surprised at the announcement of the "stress test concept" because he thought this was what went on every day. [Honeybee EC: I agree, why hasn't this been done all along. There was an article in the Wall Street Journal (link) about this on February 26th.]
GINNIE MAE/BOND MARKET OUTLOOK.....Brinker recommends Vanguard GNMA Fund (VFIIX) It is trading near recent highs. Brinker said: "I would say that the principle variable in the bond market for quality holdings is going to be the overall direction of interest rates.......Now in terms of the direction of interest rates.......that's where you look at the economy. In other words, if you saw an economy that started to show signs, now remember..... that prior to the first signs appearing -- and they have not appeared -- prior to the first signs appearing, we won't have any information in hand."
"OBAMA'S BONDS".....Brinker said: "You know, when I saw this budget.....I have to tell you the first thing that popped into my mind was, these are Obama bonds.....These trillions of dollars in bonds to pay for all this spending, these are Obama bonds. I think they should call these, United States of America Obama Bonds. The fact is, I have never seen such a spending proposal in my entire life. I mean, it's incredible. I mean, it's unbelievable."
AN INTERESTING CONVERSATION.....Caller Greg said that Obama's budget director (Peter Orszag) was caught in an outright lie on CNBC, which he repeated on various networks. Greg said that the budget director was saying that only the top 2% of American taxpayers would be hit with a tax increase. He said that when Neil Cavuto pinned Orszag on it, he admitted it would be only the top-5%......
...... Greg said that another disturbing thing about Obama's budget is the assumptions that are being made about reduced costs of the Iraq War when the troops are pulled out -- he said that is a phony assumption......
..... And Greg said that Larry Kudlow correctly said that many of the tax increases on small business and some of the heavy taxes applied to oil companies for drilling, etc., are going to take effect as early as October 2009.....
.....Greg said: "So my question to you is, they claim they are going to be honest and have transparency and his budget director and the president himself, Obama, is out there lying to the American public because they're trying to force a Socialist agenda on the American people, and they know that the American people, and the the news is getting out thanks to your program and others, are getting more and more irate."
Brinker said: "Well that's why we have a United States Congress. This is a proposal that has to get through the filter of the House and the Senate. Now as I've said, the House is very one-sided right now and frankly there's isn't a heck of a lot you can do right now....It's going to go through........But I'm telling you, in the Senate, this is going to be a big battle."
Greg replied: ".........At least you know you were getting the straight scoop from George Bush."
Brinker, changing the subject, told Greg that in year-2000 the country voted in a Republican White House, House and Senate, and that there had been 6-years of prolific government spending. Brinker asked: "What was that all about." Greg told Brinker that George Bush was not a fiscal conservative and that the party had paid the price and was voted out. Greg tried to explain to Brinker what CPAC was all about -- that the Republicans "lost their way," and were trying to rally back. Brinker didn't want to hear about it. [Honeybee EC: I think this conversation was very near the same time that someone Brinker seems to dislike intensely was Russshing to give his "first ever address to the nation." LOL!]
Brinker went on: ".....because the credibility of the Party and its principles are thrown overboard when something like that happens for six years. And that's what set the stage for this budget that was just proposed. This president was elected. He's just taken office and he's fulfilling his campaign promises. That would have never happened without that six-years of irresponsible governing."
I listened to the whole three hour program on Sunday, and I heard no new important information from Brinker in any of the monologues (please let us know if I missed something).
Brinker talked about the tax changes in the new budget package again -- adding that there will be some changes to inheritance taxes in 2009. He talked about the deficit and the stimulus package. He made a "breaking news" announcement about AIG. Here's the [link] to the Bloomberg article about it.
There was a caller who was mostly in Treasuries and Ginnie Maes who asked what Brinker thought he should do "different when the market goes up." Brinker must not have heard that part of the caller's question because he began touting Ginnie Maes again, but said nothing about the stock market.
Another caller who said he had retired with critical mass about 2 1/2 years ago, and had "taken a hit, like everyone else," said he had reversed the numbers from 70% stock/30% bonds to 30% stock/70% bonds last October. Brinker immediately got on his high horse about the caller's equity weighting. Brinker said, "For retirement, that's a very aggressive equity ratio......What you are saying is that it took you awhile after you had retired to realize it, but as you saw your portfolio, you did realize that you had an equity ratio that was beyond what it should be......regardless of what the market is doing, you don't go into retirement with a 70% equity ratio -- that is my opinion."
[Honeybee EC: It amazed me that Brinker had the nerve to so pompously give a lecture to this caller. Here's why: Brinker's Model Portfolio III, which is his balanced portfolio recommended for "those near or in retirement," has not been rebalanced even though it reached 66% equities at the all-time-high in October, 2007. The 66% stock portion of Brinker's balanced portfolio has taken a big hit in the MAJOR BEAR MARKET DECLINE. The difference between 66% and 70% is....ummmm.....let me think.] 8~)
Port3, as of October 31, 2007:
Stock Funds: 144,919 / Total: 219,263 x 100% = 66%
Fixed Income Funds: 74,344 / Total: 219,263 x 100% = 34%
Total: 219,263 = 100%
Another caller asked Brinker what he thought of buying muni bonds. Brinker asked him where is the guarantee? And then reminded him of the Vallejo bankruptcy. Brinker said city munis and California GOs are not the same thing. [Honeybee EC: This is very confusing and I wonder if Brinker isn't being deliberately obtuse on some of his answers on this subject. He almost never gives a straight answer and he often answers the questions with a question -- something he got angry at his guest for doing today.]
Brinker's Saturday guest-speaker was Dr. Bill Wattenburg. Here is Dr. Bill's website (link): Drbill.us
Brinker's Sunday guest-speaker was William Holstein: "Why GM Matters: Inside the Race to Transform an American Icon" [link]
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