Posted May 2, 2009. Bob Brinker hosted Moneytalk today. Brinker said nothing about the stock market on Saturday or Sunday; and there were no caller questions or comments about it.
* The S&P 500 bottomed on March 9th and has now rebounded over 30%.
* For the month, the Dow rose 7.3%, closing at 8212.41 -- best April percentage gain since 2001.
* For the month, the S&P 500 rose 9.5%, closing at 877.52 -- best April percentage gain since 1938.
* For the month, the Nasdaq rose 12.4%, closing at 1719.20 -- best April percentage gain since 2001.
* Oil closed at about $53 per barrel; GLD closed at $86.95.
Brinker began the program by saying that the bank stress test will not be reported on May 4th as had been planned. He pointed out that we "must have a viable banking system." Honeybee EC: Today, Bloomberg reported that the tests will be released on May 7th [LINK]
The main topic for most of the day was the Chrysler bankruptcy. Brinker said: "Can you believe the billions upon billions, we are talking tens of billions being thrown at this company to try to keep them in business. Now this normally doesn't happen. This is not the way that capitalism works. Normally, a company has a failed business plan, they go out of business.......This is almost unprecedented." Brinker added that the Treasury will be coming up with another $280million to cover warranties for cars sold during the restructuring.
Caller Vick said: "What really bothered me was how cute they were when the government, with regard to Chrysler, had stated that the only people who wouldn't go along were some private hedge funds, when in fact, apparently there was some mutual funds, pension funds....just bond funds. And they tried to make them all out as speculative hedge funds."
Brinker replied: "That's basically trying to fool the public. That's disingenuous and I'm being very kind when I say disingenuous..... Let's be honest. It's an outright fabrication......The president's comments blaming the hedge fund industry and speculators for not making more in the way of concessions on these secured debts. I mean, this was an absurd thing for him to say. He knows better. He said it for political reason, in my opinion. And I think anybody that can add two and two and come up with four, knows that is not the case. In fact, these people have a responsibility to their own investors.......
....It's unbelievable, but if you consider the source, and you look at the agenda, it's not as unbelievable. I mean, you know that this is not a bankruptcy according to the bankruptcy code. When did you ever see a bankruptcy like this. They are talking about coming out of this as early as 30 days. When did you ever see an arrangement where Uncle Sam poured what is way over $10billion including the debtor and possession money....... Now come on....I mean this is for a company that needs new cars, it needs new technology, it needs a lot of things. It certainly needs new managers......
.....This company has been sold down the river because the management caved and gave in on union demands for decades. And that's why they are in the position they are in. They can't compete......Do you think the retirees care about the future profits of the company. I don't. I think the retirees care about their own benefits. And guess what, the retirees have board representation. Can you believe that?"
Caller Vick continued: "As far as I can tell, only the United Auto Workers and maybe congress has cradle to grave health benefits that everyone else after they turn 65, no Fortune 500 company provides full health care like that. They supplement Medicare."
Brinker replied: "This all broke down over the hubcap-theory that I have recounted numerous time......It was the hubcap-theory that did in the Detroit auto makers. And now they are in a situation facing globalization where there only defense is to say let's come up with tariffs on trade, let's stop automobile imports.....Let's protect the jobs in Detroit. It's not going to sell and it shouldn't sell. It's not good policy......
......Why is the government pouring tens of billions of taxpayer money into this operations. What is their objective.....Chrysler has an 11% share of the U.S. auto market -- GM is 19, Toyota 16, Ford is 15, Honda, Nissan and the others are 39%. Chrysler U.S. sales, year over year in the quarter, are down 45 1/2%......
........Why is Uncle Sam riding in with all this taxpayer money to keep this company functioning? What is the objective here? Because we know for a fact that there will be plenty of automobiles manufactured with or without Chrysler. It's not a vital company in any sense of the word. How could you possibly make a case that Chrysler is vital to the future of the U.S. economy? You can't make that case, and yet all of this money is being poured in. And there is a lot of controversy about this decision to do this......
.....It's great for the UAW. They hold on to a lot of jobs. They hold on to a lot of golden benefits that they have. They have fantastic benefits packages....... Things that they've won over the years as incompetent management caved to union demands....Which is one of reasons the company is in the position it's in right now."
Here is a great Larry Kudlow video about "GM Bondholders Not Caving."
NEW I-BOND RATES: Caller Susan said that Bankrate.com reported that I-bond holders will be left with zero percent for the upcoming six month period. Here is the article on Bankrate.com, "I bond lays a goose egg and falls to zero percent." [LINK]
Brinker replied: "I think you have to face the reality that right now we are in a period of deflation. And that deflation is being reflected in the Consumer Price Index. And it's being reflected in the May 1st resetting of the I-bond interest. If you buy new I-bonds right now over the next six months, you are zeroing out."
Here is an article in the Wall Street Journal titled: "I-Bond Rates Get Wiped Out." [LINK]
DEFLATION: Brinker said, "We'll see how long we have deflation. We're not expecting deflation forever. We're expecting an interim period of deflation, which is what we have right now. It's hard for me to imagine in a recovering economy, how you get deflation forever. I don't think that can happen, that's my opinion."
VANGUARD HIGH YIELD BOND FUND: Caller Mike said that he followed Brinker's fixed income portfolio investments closely. He has a CD ready to mature and he wants to put it in Brinker's recommended high yield bond fund. He asked specifically what events would precipitate a significant price or yield decrease in the fund.
Brinker replied: "I think it comes down primarily to credit quality with the high yields right now. That's the thing that has really been front and center with junk bonds......Credit quality has been in the process of gradually improving, and that is why you've seen the rise in price in the high yield bond fund in recent weeks. It's been a very substantial rebound in that fund......Although, I do think it did overshoot on the downside........"
Honeybee EC: In April 2003, Brinker lowered the Ginnie Mae holdings in his fixed income portfolio in order to add a holding in Vanguard's High Yield Bond Fund [VWEHX]. The Fund has remained in the portfolio since then.
MUNICIPAL BONDS: Caller Mike continued: "Some municipal bonds in this economic environment are really at risk right now, and some aren't. Are any of the funds in your fixed income portfolio at the same kind of risk?"
Brinker replied: "We don't have any municipal bond recommendations in the newsletter. We tell people that if you are going to go into municipal bonds, you use state obligations......It's going to be very difficult for the Federal Government to stand idly by while they are bailing out banks, while they are bailing out auto companies, and watch any state default on a general obligation."
TALKING TURKEY ABOUT "THE ADMINISTRATION": A caller Bob told Brinker that if he wanted to know why the government was spending so much to bail out Chrysler, he should "follow the paper trail."
Brinker replied: "I'll tell you why I think they are doing it. I think they are doing it because I think they are beholden to the unions. Let's talk turkey here. This is an administration that was elected with union support and I think they are beholden to the unions. And anybody that looks at the government money that is being poured into Chrysler will come to the same conclusion. ....This administration is beholden to the unions."
NATIONAL DEBT TO CASH RATIO: Caller Charlie said that someone told him the debt-to-cash ratio was very high and asked Brinker his opinion.
Brinker replied: "We have a bizarre budget that has been presented to congress by this president in recent weeks. It projects deficits and borrowing that would choke a horse. Unconscionable amounts. And unless they get their act together, they are going down the wrong road -- on a long-term basis......Because the congressional budget office, which has a pretty good record of sizing up future deficits, is projecting that the national debt will explode to $20trillion in the next ten years under this president's budget proposal. That's absurd." Brinker then talked about his disappointment in the party that he had expected to get spending under control -- and said it certainly didn't happen between 2000 to 2006 when that party was power.
WASHINGTON D.C. ENERGY POLICY: Brinker said: "Let me tell you where we are right now. We have an energy policy in Washington which is being driven by an environmental agenda, and which offers no solutions for the people of the United States."
BRINKER'S PROPOSED ENERGY SOLUTIONS: Brinker said there are solutions out there -- use natural gas in more vehicles, build more nuclear power plants. He said we have 104 plants operating right now and doing a great job.
ANGRY CALLER: Caller Larry said: "I am so ticked off at this whole situation. These unions bought themselves a president, they bought themselves a congress, they bought themselves a senate. And then pulled a government-backed hostile takeover of these companies."
Brinker said: "I would say that when you look at this deal and the way it was structured and the treatment for the secured lenders, and then the blame that was placed on the hedge funds and the other people, so called speculators, that put their money into the company, by the way, and have lost their shirt, you have to come down that this is all politics.....This is a predictable pay-off by the federal government now in power to the unions that helped elect them."
A caller pointed out that this Chrysler deal is being contested by bondholders and will appear before a federal judge. Brinker agreed that we may not have heard the last from the secured creditors who were just doing their fiduciary duties but are now being painted as "selfish meanies" by the White House.
In Edit, Sunday May 3rd: Thanks to SJ Al for the Google [LINK] to this Barron's article "Unions Prevail Over Wall Street in Chrysler Deal." Scroll down and click on the link which will take you to the full article.
Brinker's self-proclaimed headline concerning the government money going to Chrysler: "Politics trumps economics."
Brinker's Saturday guest-speaker was Paul Midler: "Poorly Made In China: An Insider's Account of the Tactics Behind China's Production Game"
Brinker's Sunday guest-speaker was Robert Lindner, who writes for Forbes.com. Brinker said Lindner's April 23rd column titled: "Lies, Threats, Deal: Paulson, Bernanke, Lewis" made a lot of waves. [LINK]
You can download your own FREE copies of Bob Brinker's Moneytalk programs. The programs are archived for seven days after broadcast at KGO810 radio [LINK]. To download the program to your MP3 player or flash drive, just right click the day, then the hours that you want and use "Save Link as." KGO Moneytalk Archives [Link]