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Saturday, April 25, 2009

Bob Brinker's Moneytalk: Excerpts, Summary and Commentary, April 25, 2009

Posted April 25, 2009. Bob Brinker hosted Moneytalk today.

Bob Brinker discussed the stock market action this past week.
He called it a "seesaw" week and said that it had ended close to where it started. He said the "wild ride" was caused by a "false story" that came out on Monday which caused a decline of almost 4% -- "carrying the S&P 500 Index down into the "low-800's on that day," but that buyers had come back in as the inaccurate story was straightened out.
Last week the Dow closed at 8131.33. This week the Dow closed at 8076.29, a loss of 0.7% for the week.

Last week the S&P 500 Index closed at 869.60. This week it closed at 866.23, losing 0.4% for the week.

Last week the Nasdaq closed at 1673.07. This week the Nasdaq closed at 1694.29, up 1.3% for the week.

Last week GLD closed at $85.33. This week GLD closed at $89.72, jumping for the week because of the news that China is building a stockpile of gold [LINK]

Bob Brinker never recommends buying gold, but according to Marketwatch, China's gold holdings have been surging: "China has boosted its gold reserves to 1,054 metric tons....The increase makes China the world's fifth-largest holder of gold, just ahead of Switzerland, and among the six nations plus the International Monetary Fund that have reserves of more than 1,000 metric tons......The comments are China's first public acknowledgement in more than five years that its gold reserves had increased."

Brinker said: "We had a stock market rout on Monday.....and it was based on an erroneous story that almost all of the 19 banks in the stress test were going to be declared insolvent. This story is false.......There is nothing to this story according to the United States Treasury. As a matter of fact, it's expected on May 4th, when the results of the stress test are announced......that we are going to see the need for some of these banks to raise additional capital.........Under the stress test guidelines, we're going to see a period of time set aside during which these banks are going to be able to find ways to raise capital. There are several ways to raise capital. You can sell non-core assets.....You can sell shares to investors......the TARP money....hundreds of billions of dollars have been put into these banks.....

......In my opinion a great disservice was done to stock market investors this past Monday who were in receipt of this false story -- confirmed by the Treasury as a false story that practically all of these top banks were going to be declared insolvent......This is the kind of a market that you are dealing with today.....False stories damage the credibility of the stock market....."

PANICKING OUT OF THE MARKET: Brinker said: "We are talking about a report coming out last Monday from an obscure source, but it was picked up by major sources and that certainly contributed to the problem. ......They ran with this story and caused the stock market panic on Monday. You hate to see that. And the reason that you hate to see that is, those people that were panicked out of the market on Monday with levels down into the low-800, they turn around and they see the market snap right back. It goes right back to where it was the prior Friday, and the losses are virtually completely recovered within a matter of four days trading -- Tuesday through Friday. What do you think they think about the credibility of Wall Street and the credibility of investing? This is the world we live in today. This is the reality of Wall Street today.....This is Moneytalk."

UPTICK RULE: Brinker said that the repeal of the uptick rule has damaged the credibility of the stock market. Brinker talked about this several times today and there were several callers who talked about the subject -- especially in the second hour. There is no change in Brinker's viewpoint. He thinks it should be reinstated, and he believes that it will be reinstated sometime this year.

POSSIBLE SWINE FLU PANDEMIC: There was a lot of discussion about this subject today. Basically, Brinker classified it as an "exogenous factor" that is outside the normal financial flow, but a factor that has to be closely monitored -- because it is "lethal."

Caller Jack from San Diego
made a good point when he said this: "......what troubles me, Bob, is the reports I'm hearing out of Mexico is, not only have they closed the schools in Mexico City, but they've canceled public events. And the CDC has come out and said they haven't seen this flu strain before. It's new to them, and it's too late to stop its spread. Now this flu strain contains elements of human flu, bird flu and three strains of swine flu -- North American, European and Asian. One has to wonder if this can even occur naturally. But the part that troubles me is that our government has yet to place any travel restrictions."

Bob Brinker replied:
"Frankly, if you look at the reports from the World Health Organization, you have to take it seriously.....You are correct, it is a new flu virus and potentially a major respiratory epidemic.......We have to watch it very, very closely and that includes travel plans."

The caller continued:
"......all the reports so far, appears that this is all human to human contact. In other words, the virus has mutated, which is worst case scenario as far as the pandemic...... The president of the United States was in Mexico City a week ago. And I think because of the odd nature of the strain, at this point, we should not the possibility that this could be a terrorist attack."

Brinker replied: "Well, I never rule that out....... but what I would do at this point is to monitor the pronouncements of the World Health Organization. They're usually on top of this sort of thing...... And one thing to watch is whether the WHO raises its pandemic flu alert to level four. Right now it's at level three, but if they raise it to level four, that would mean that sustained human to human transmission of a new virus has been detected.....If they go to level four, I will become more concerned than I am now." [Link to WHO]

* Sunday @ 11:30 PDT, Swine Flu Update: US declares public health emergency [LINK]

** Monday Swine Flu Update:
The WHO raised the alert level to Phase 4, meaning there is sustained human-to-human transmission of the virus causing outbreaks in at least one country [LINK].

*** Wednesday, April 29th, Swine Flu Update: The WHO raised pandemic flu alert level to phase 5 [LINK]

Caller John asked Brinker if he thought the Fed would be able to control inflation brought on by the excessive spending. Brinker said that was "a great unknown" question with an "unknown answer."

ECONOMY: Brinker said that they are going to get the economy turned around "eventually."

A caller said he was concerned about inflation's effects on fixed-income investments and Ginnie Maes. Brinker told him that if he wanted a portfolio that completely protected him for NAV deterioration, he should buy I-bond (personal money), TIPS (tax-sheltered money) or laddered FDIC-insured CD's.

[About 52 minutes into first hour] Caller Steve
told Brinker that he was 55 years old and about five years from retirement. Steve said: "I've been in all cash until now and I'm considering taking that cash and going about 60% into the stock market and 40% into fixed income. Would you buy the market outright at its current levels or would you dollar-cost-average in?"

Brinker replied:
"Well our recommendation to our subscribers has been to be a buyer on weakness. We have regarded the market as a buy on weakness. That is our view and that's certainly a view that has not changed in recent weeks. We are a buyer on weakness. You had tremendous weakness on Monday. I mean it knocked the thing all the way down to the low-800's on a false news story. So that's the kind of opportunity that is presented. And yeah, I'd be a buyer on weakness. I don't have any problem with your asset allocation. I think that as you move into retirement down the road, you might go to a balanced approach. But if you are going to start out with objectives in the 60 to 40% range, equities over fixed income, I'm okay with that. I think there opportunities to make money in the stock market. This is a good time, I think, to be in the stock market. And I think that people that are in the stock market right now are going to be happy they are as we move forward. There's no question about it, the credibility of the stock market has been severely damaged in the marketplace by the high jinks resulting from the repeal of the uptick rule, the high jinks we've seen in terms of false news stories. But in that case, it presents an opportunity."

Honeybee EC: Brinker recommended "buying on weakness" with no number attached for the first time in the most recent issue of Marketimer. So for him to infer this has been ongoing advice is deception. Today, he gave the audience the impression that he is "happy" to be in the market, but didn't make any reference to the fact that his subscribers have been fully invested in this bear market if they followed his advice. They have lost huge amounts of money, so I'm sure they are happy to be recouping some of their losses.

He didn't mention that he has issued repeated much higher all-new-money-in "buy levels" and has called multiple bottoms that were promptly taken out. Anyone who took his advice back at the October 2007 highs would have bought into the stock market at mid-1400's, low-1300's, low-to-mid 1200's, and low-to-mid-800's. The irony is that after all of that, he missed the real bottom.

The last new-money buy-level he issued was in January in the low-to-mid 800's. He did away with that one as the market tanked to its all-time-low of 677 in March. Whereupon he said that he was looking for a new "bottoming process." That was just about 5 days before the market began its 25% + climb.

Oops, in the March Marketimer, he did not even recommend dollar-cost-averaging....

Brinker neglected to tell the audience that "buying on weakness" ONLY applies to new money. Marketimer, April 3, 2009, Bob Brinker said: "....we would view any short-term weakness that occurs in the S&P 500 Index as a buying opportunity for those looking to add to equity positions......All of our model portfolios remain fully invested...."

Brinker's failed market timing calls, chart courtesy of Kirk Lindstrom [LINK] Please click to enlarge:

Bob Brinker’s guest-speaker Saturday was Dr. Alan Blinder. Dr. Blinder is on the faculty of Princeton University and has served as vice-Chairman of the Board of Governors of the Federal Reserve System.

Here is the [LINK] to the CDARS website that Dr Blinder talked about. It is a way to access full FDIC coverage on deposits up to $50million.

[Alan Blinder's interview is now available in the Saturday 3-4pm time slot.] You have a full seven days after broadcast to download your own FREE copies of Bob Brinker's Moneytalk programs. The programs are archived for at KGO810 radio [LINK]. Saturday's program is ready now and will be there until next Saturday at 1pm. To download the program to your MP3 player or flash drive, just right click the day and hours that you want and use "Save Link as." KGO Moneytalk Archives [Link]

Dixiegeezer recently visited Arlington Cemetery and took this beautiful picture:


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