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Saturday, April 4, 2009

Summary: Bob Brinker's Moneytalk, April 4, 2009

Posted April 4, 2009: Bob Brinker's Moneytalk: Excerpts, Summary and Commentary Friday, the Dow closed at 8017.59; the S&P closed at 842.50; the Nasdaq closed at 1621.87. It was the stock market's 4th straight week of advances -- its best four weeks since 1938. In the past four weeks, the Dow has risen 21%; and the S&P 500 Index is up 23.3%.

Here are Bob Brinker's Marketimer performance numbers for March. Notice that Brinker's portfolios I and II are down MORE than Brinker says the market is down from the highs:
jeffchristie said...


The March 2009 month end numbers are in over at Bob Brinker's website.

Portfolio 1 $157,235 -8.1% YTD
Portfolio 2 $129,878 -9.3% YTD
Portfolio 3 $154,875 -4.7% YTD

From the Oct 2007 high P1 is down 48% P2 is down 46% and P3 is down 29%.

STOCK MARKET: Bob Brinker said: "The S&P 500 is setting in at 842 1/2. And as I mentioned to a caller, if you go all the way back to the October 2007 high and you add back the cash dividends that you've received over that year and a half period, the S&P 500 has declined on a total return basis a little bit over, just slightly over 40% counting everything. If you go back to the March low, which was just less than a month ago, you've had a rebound of about 24.7 including the cash dividend. And about 25.5 in the total stock market."

[Honeybee EC:
I find it interesting that Brinker finally acknowledged the severity of this MAJOR-bear market AFTER it has rebounded 25%. Obviously, for a professed market-timer, who advertises himself as "America's most trusted financial advisor," but still rode this bear all the way down fully invested, it sounds a lot better to say that the decline is 40% than it does to say that the decline at its worst was 57.7%! Please see the chart below.]

SHORT SELLING: Brinker is not against short selling, but believes that the uptick rule should be re-instated in its original form.

NAKED SHORTING: Brinker called it "criminal conduct," and said that there has been very little enforcement against it.

UPTICK RULE: Brinker said that the "authorities" are talking about various possibilities for re-instating the uptick rule -- and there may be a couple of proposals in early April.

Brinker mentioned several companies that have been victims of bear raids and he said: "It is my opinion that the decline that occurred in mid-to-late February into early March was a direct result of bear raids on financial stocks that spilled over into other stocks during that time. That's when you saw that very brief period of time from late-February to early-March where you saw the S&P 500 dip down to close at the benchmark low of 676. Now there's no question in my mind that that drop below the 700's, where there was strong support for the market off the November 20th lows.....that brief dip that we had from the mid-700's to 676, and then it snapped right back, was due to the fact that there were bear-raiders at work. They had free-reign with no uptick rule, and I think that the hedge-fund were involved in this.......Now the reality is, I think what we had in the absence of this uptick rule was a major bear-raid on the financials. They took many of the financial stocks down to penny stock status. Not only names like Citigroup in penny stock land, but they took Bank of America to $2.53 a share. It's $7.60 now...... That's what gave you these benchmark lows in early March that resulted from that. So there's no doubt they need to bring back the uptick rule."

Brinker says don't ever "go there," -- limit holdings on individual stocks to 4% of net worth.

Brinker warned listeners to be sure that all deposits are covered by these insurances. He said that Credit Union NCUA insurance was as good as FDIC.

Brinker said that economic softness equates to low inflation -- and right now, the Treasury market is pricing in an inflation rate of 1.4% over the next ten years......

......Brinker said:
"In other words, if you have strong economic growth, then you definitely have inflation pressure. But even more so in the environment we're in right now where the Fed is printing money as though they had more than 24-hours in a day to do it. And where the Federal Government is spending money without regard to cost. They are spending money. They are throwing it around. It's unbelievable what they are doing. The programs that they have proposed in this latest budget out of the White House are mind-boggling. This is an omnibus budget, trying to solve all of the problems in the United States and perhaps some problems outside of the United States. I don't know WHAT they are thinking......I don't want to get on a bent here where I am criticizing the White House -- it's not in my nature to do so anyway. [Honeybee EC: Good one, Bob. I always enjoy that line. And since January 20, 2009, it has even been true. LOL!] But the reality is they should be focusing like a laser beam on getting this economy turned around instead of trying to solve all of the nation's ills at once...........It's just incredible.......That is running the risk of compromising the long-term growth rate of the United States. The long-term growth rate has been identified as 3 to 3 1/2% normalized.........."

In reply to a caller's question, Brinker said that TIPS and I-Bonds are inflation hedges.

Is the banking act passed in 1933 [LINK] and ended in 1999. Brinker said: "Make no mistake about it, there were two things that happened that set the stage for the debacle we went through which led to a very, very, substantial move down in the stock market. And those two things were firstly, the repeal of Glass Steagall in November 1999 that set the stage for commercial banks to take way more risk than they were ever intended or permitted to take by getting into investment banking. And that's how they got mixed up in the entire mortgage-backed security debacle.......It took a few years for the chickens to come home to roost, but they did all come home. And the second thing that contributed to this was the repeal of the uptick rule, for no good reason in the summer of 2007.......And I do expect them to take some action on re-instatement in some form of an uptick rule......It should never have been repealed and those who led the fight to repeal the uptick rule two years ago, should hang their collective heads in shame. Just as those who repealed Glass Steagall should hang their collective heads in shame."

Caller Ron in Sioux Falls
asked Brinker about the differences between Vanguard's S&P 500 Index Fund and the Total Stock Market Index Fund, and wanted to know about any advantages that one might have over the other.

Brinker explained
that the S&P 500 Index only includes the top-500 companies and the Total Stock Market is more broadly diversified.

[Honeybee EC: Brinker's Model Portfolios contain Vanguard's Total Stock Market Index (VTSMX), but not the S&P 500 Index Fund (VFINX). Vanguard website reports that the VTSMX contains 3386 stocks.]
Read about it here [LINK].

Brinker continued with his answer to Ron:
"Then you say okay how has the fund done.......over a period of time......Over the last ten years, and this is through last night, no it's through quarter end....So this is ten-year compound annual rate of return through March 31, 2009.......The S&P 500 Index at Vanguard has had a negative 3.08 for that ten year period...... ......Now let's take a look at that Total Stock Market Index which is more diversified, and that number is negative 2.13. So rounded out, the Total Stock Market Index has done about 1% better on a compound annual basis over the last ten years. I have to tell you, 1% when you start compounding it over long periods of time, that is a significant difference. So the Total Stock Market Index, which is the index we've always favored on Moneytalk, has actually done better than the S&P 500 by close to 1% a year over the past decade......."

.......Brinker explained to Ron that dividends on the funds were paid out on March 31st and needed to be added into the total returns, then he said: "So you have a total return off the March low of 24.7%, 24.7% for the S&P 500......Total Stock Market Index off the March low has rebounded 25.5%. So interestingly, that's done almost a point better just in that short period of time -- of the past month or so......I have tell you what, we recommend is, that if you are going to buy just one stock market index that you buy the Total Stock Market Index. If you can't buy it, then you can use the S&P 500 as a fall-back."

Caller Lenore said:
"First of all I want to thank you for some advice you had given us back in 2007. I was already retired and my husband was thinking about retirement, so we moved our retirement into money interest income and we didn't lose the 60% that everybody else we've talked to says that......"

Brinker interrupted the caller and said
: "Oh that's a big number, 60% is a big number in all fairness. [caller interjected, "oh, a lot of them, yeah."] Well, they shouldn't have because I'll tell you why. If they were invested in the S&P 500, from the absolute high, counting the cash dividends that they would have recieved, they would be down a little more than 40%. Now I'm not suggesting to you for a moment that 40% isn't a large number. But if you take the all-time-closing high for the S&P 500 and then you take the current level of the S&P 500 and you calculate the decline in the S&P 500 from the all-time-high, and then you adjust for the cash dividends that have been received during that period, you get a total loss -- and this is for the common stock portion only -- obviously the bonds, the quality bonds have done very well and have gone up in value as a partial offset. But in terms of the S&P 500, the overall loss from the highs right now on a total return basis is slightly over 40%. So the people that you know are down 60%, they must be doing something very, very different."

Honeybee EC:
Firstly, I'd like to point out that the caller never asked her question. Then I want to give kudos to Brinker for sheer cleverness. However, I think he should "hang his head in shame" for lying by omission and spinning his answer to suit his own purposes! He let Lenore totally mislead the audience about his 2007 stock market "advice." He let her give the audience the impression that he had advised moving money out of stocks and into fixed income. That is so far from the truth, it would be laughable if it wasn't so tragic that he would allow such a misleading statement to stand unchallenged....

.....The last time Brinker recommended selling equities was in August 2000. He returned all available cash reserves to the market in March 2003 and by the time 2007 rolled around, Brinker was a raging bull! He said a secular-bear megtrend had ended in 2006, and he was predicting new all-time-highs for 2008. For example:

Marketimer, October 2007, Bob Brinker said:
"In the August and September editions of Marketimer, we rated the stock market attractive for purchase on any weakness in the area of the S&P 500 Index mid-1400's range. During August and September there were 18 buying opportunities, consisting of 15 market days on which the S&P 500 Index closed within the 1430 to 1470 range....All Marketimer model portfolios remain fully invested."
ROTH IRA TRANSFERS: Brinker only recommends doing this to those who are in the 10-15% tax brackets. He said that you have to be sure to "follow the rules," and it's best to check with your CPA. There is no income limit in 2009 -- for the time being, but Brinker cautioned a caller to be watchful because he isn't sure what tax policy will be going forward.......

........ Brinker said:
"I think that these people who are spending this money in Washington like drunken sailors, throwing trillions of dollars around like it's confetti. I think these people are going to find that they are spending so much money and that they are being so fiscally irresponsible, that they are going to have to raise in future years.....Let me say that the level of fiscal irresponsibility that I am seeing in Washington right now is the greatest it has ever been. It's the highest level of fiscal irresponsibility in my lifetime..... So I think we will see a combination of higher taxes and reduced benefits going forward. I'm talking about a long-term trend that I expect to see."

Brinker's Saturday guest-speaker was Barbara Weltman, contributing editor to: J.K. Lasser's Your Income Tax Tax 2009: For Preparing Your 2008 Tax Return -[LINK]

Brinker and his guest talked about the advantages of HSA's [Health Savings Accounts]. There is a lot of information available about them at the U.S. Treasury website [LINK]

Brinker's Sunday guest-speaker was Joseph Hurley: "The Best Way to Save for College: A Complete Guide to 529 Plans" [LINK]
No need to pay in order to have your own downloaded copies of Bob Brinker's Moneytalk programs. They are archived for FREE downloading at KGO810 radio for a full 7 days after broadcast! Brinker was pre-empted on KGO Saturday because of the Leukemia Cure-a-thon, but the Sunday program is now available. Click on Sunday at the top of the page and download hours 1-2, 2-3, and 3-4pm. The Joseph Hurley interview is 3-4pm. [LINK]

Courtesy of Kirk Lindstrom [Link]

Dixiegeezer sent this beautiful picture


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