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Saturday, June 27, 2009

Bob Brinker's Moneytalk: Summary, Commentary and Excerpts, June 27, 2009

June 27, 2009....Bob Brinker recited the closing numbers for the S&P 500, Nasdaq Composite, the Dow and Treasuries rates. Bob Brinker reminded listeners that this is the "new Dow" since GM and Citigroup were replaced with Traveler's and Cisco. Brinker said: "It [the Dow] can be erratic at times. It's only 30 stocks and it is not weighted to the market cap of the companies."
Market Numbers for the Week:
* The Dow closed Friday at 8438.39, a 1.2% decline.
* The Nasdaq Composite Index closed at 1838.22, up 0.6%.
* The S&P 500 Index closed at 918.90, a 0.3% decline.
* Oil closed at $69.44, unchanged from last week at $69.40.
* Gold closed at $941, up from $936 last week.
Treasury rates [see link-1 at bottom of summary]
* Federal Reserve, M1 - M2 money supplies for May 2009 reported June 25th. [see link-2 at bottom of summary]
IMPLIED INFLATION RATE....The 10-year Treasury Inflation Protected Security is at 1.8%, and compared to the 10-year note at 3.5%, the differential is 1.7% -- that is the "implied inflation rate over the next 10 years on an annual basis." Three percent higher than the current deflation rate of 1.3%.

U.S. DOLLAR.....Brinker said:
"We are continuing to see softness in the U.S. dollar because international investors are not fooled, they know that the fiscal policy in the United States is a joke......we all know that.....As a consequence the Euro has moved up to 1.4077, and that comes as a general loss of confidence in the U.S. dollar around the world due to a combination of factors. I think that there are two principal factors. One would be the lack of fiscal discipline we are seeing out of Washington......Five trillion dollars in government security sales scheduled for 2009-2010 combined......"

.Brinker announced that "Cap-and-trade passed the House by a narrow margin on Friday night, but now has to go to the Senate where it faces a great deal of opposition." [Honeybee EC: That bill also faced a great deal of opposition in the House. The phone lines were locked up with people objecting to it as the votes were being cast, and if not for eight Republicans that voted for it, it would not have passed.]

Brinker said that this bill is "watered down." [Honeybee EC: How do you know that, Mr. Brinker? According to the Washington Examiner, the 1100-page Bill may not even exist in readable form. See link-3 at bottom of summary]

NEW ENERGY SUPPLIES.....Brinker said:
"Obviously nuclear is by far the most powerful [policy].......The other is a government top-down to convert a substantial portion of our vehicle fleet to natural gas power which can be easily done with our own domestic resources. We don't have to import that natural start drilling on the outer continental shelf. this can be done in an environmentally protected increase our oil supplies."

PRESIDENT TALK ABOUT BRINKER'S IDEAS.....Caller Sam from San Jose said that he couldn't figure out why the president was only talking about solar and wind and not the policies that Brinker had talked about. Brinker replied: "Well for one thing, he certainly has an awful lot on his plate right now....this whole idea of coming into office and trying to do everything in your first year. They're working this cap-and-trade business.....And then they're working this health care proposal which is gargantuan.......How do you focus on getting any one major program through when you are spreading your emphasis across so many areas....." [Honeybee EC: How kind of Mr. Brinker, but as he has said before, most of the items that the president seems to want rushed through have nothing to do with stimulating our economy. There is lots of evidence that they will have the opposite effect.]

EXPECT HIGHER TAXES GOING FORWARD......(inaudible) from Pennsylvania
asked Brinker if this would be a good time to convert from a traditional IRA to a Roth IRA. Brinker explained that under the current law you can make these conversions as long as your adjusted gross income is less than $100,000, single or married. Brinker said: "With the government programs we are now talking about, and with the state deficits around the country that we are now looking at, I think it's a safe bet to plan for higher levels of taxation going forward."

POSITIVE YIELD SLOPE.....John from Milbrae
expressed concern about the president's June 18th plan to drastically alter the banking system by placing banks under government control through lowering rates on money market and CD's in order to boost capital -- at the expense of depositors. [Please see link-4 below for more info] John asked this question: "What are your thoughts on perhaps owning gold and what percentage of a person's portfolio should be in gold because people are certainly not going to invest in CD's or anything else under these circumstances."

Brinker did not answer John's question about gold.
He never mentioned gold to this caller. Instead, he said that he thinks the government is trying to maintain a positive yield slope. He said that the slope is very positive right now. And the reason they want to keep it that way is because they want the banks to be in a profitable position -- "after the sub-prime debacle." Brinker explained that the president does not set monetary policy -- that it is set by the Chairman of the Federal Reserve. He believes that Ben Bernanke has "designs" on keeping short-term rates low so the banks can borrow low on the short-term and lend out at higher rates on the long-term.

".....Brinker opined that the federal government "took a step" this week to get out from under the ownership of the banks by deciding to allow the banks to repurchase the warrants that were issued in connection with TARP..... Brinker added: "For those of you who were cheering that we were going into a socialized government in the United States, that they wanted to take over the banks, this is a bad day for you because this is the opposite of that......" [Honeybee EC: I'm sorry Mr Brinker, but you have it all wrong. The people you say are "cheering" about "going into a socialized government in the United States," are doing just the opposite. They were mourning, and saying be afraid, be very afraid."

"PRAGMATIC FEDERAL INTERVENTION".....Brinker declared that it was not a "socialism intervention" when the government took over banks, it was simply a "federal intervention" to "protect the country" -- and that they never intended to "take over the banking system." [Honeybee EC: Well, that's Mr. Brinker's opinion. One that is not shared by many American citizens.]

....Brinker said: "There's no change in my view on California as I have expressed it recently. And that is, I would not have more than 1% in any one California issuer, including the state."

....Brinker said: "....turbulent financial times are frequently accompanied by big-time Wall Street scandals, and I've talked to you about the big one that went in with the 1973-74 Wall Street debacle where the market lost about half of its value. And of course that was the Equity Funding Corporation of America......And you are reminded of those days, of course we've gone through a very tough market place in the past year, you're reminded of those days when you look at today's headlines. In fact, it's rather stunning when you put the headlines side by side, the one headline you know about, about this Monday that Bernard Madoff is on the hook for up to 150 years in the big-house. He will be sentenced on Monday in New York. And that sentence is in return for swindling over 1300 investors of over $13 billion in the mother of all Ponzi schemes -- certainly of our era......Can you blame investors for losing confidence in Wall Street? I don't think you can. [see link-5 below for more information about Equity Funding]

GINNIE MAES [VFIIX]....Brinker pointed out that the only risk with Ginnie Mae Funds is interest rate risk. There is no credit risk -- they are Treasury-backed. He expects the net asset value range to fluctuate about 3 1/2% either side of $10.35. Brinker said: "If you used $10.35 as a mid-point, the total fluctuation on that fund in the last year has been about 3 1/2%. So it's been in a very narrow range and right now it's toward the top end of that range because interest rates are still very low.".....

........Brinker told a caller that he would only buy the Vanguard Ginnie Mae Fund because of its low expense ratio. However, if the caller wanted to look at other Ginnie Mae Funds, then he would suggest checking out Fidelity or T. Rowe Price.

Brinker explained that if you go back to the 1980-81 time period, gold was over $800 an ounce, and it is now over $900 an ounce. So over 30 years, it's only about 15% higher. Brinker said, "So if you want to look at that long period of time, it's been a lousy hedge against inflation. Because if you took 30 years worth of inflation and you compare it to the price of gold over that same time line, you are going to see inflation went up a lot more than the price of gold. Oh the other hand, if you go to the early 1970's when President Nixon completely removed the United States from the gold standard in any way, shape or form, then in that situation, it was $35 an ounce. The price was fixed up until then....If you take it from $35 an ounce up to its current price in the $900, then in that case, you would see it had outpaced inflation during that time......

.....Although inflation is one factor that has to be considered when you're looking at gold prices, there are a number of other factors that you have to consider.......And they change from time to time. One of the factors you have to consider is the amount of gold that is being sold by central banks. The largest individual holders of gold bullion, gold bars, are central banks around the world. There are central banks around the world who have vaults loaded with gold bullion bars......Another factor you have to look at is production versus consumption and this is done on an annual basis.....varies from year to year.....

......When I was at the Bank of New York, I did a gold study for the bank....that was done in the late 70's.....And as part of that, I had to get into this pretty deeply because I had to go to London, Paris....Frankfort, also to Zurich and Geneva complete this study.....And I can actually tell you that I sat down in Zurich, Switzerland with the gnomes of Zurich. I was there. So I have a little experience on the subject of gold and I can tell you that at that time, gold was approaching the $800 area.......And since that time, I think that people that bought gold then and have held it since are probably pretty disappointed with it. But it had a tremendous run-up off the $35 in the early 70's........

....."I would say this, if you are looking at gold for any reason, my suggestion is that you try to keep your expenses really low. And outside of just buying the gold coins, which you can generally buy at a small premium over asset value. Aside from that.....the best vehicle I've seen out there is the Exchange Traded Fund, symbol GLD......very low expenses.....And basically you own gold bullion standing behind the shares......Let's not forget world events. World events would include things like what was going on when people were getting out of Vietnam and were sewing gold coins into their clothing to avoid detection. Things of that sort where people can be hoarding gold for one reason or another -- aside from the annual consumption for gold for jewelry."

....Brinker said: "We had a caller last weekend who indicated that it was not legal for California to go into bankruptcy, so we'll leave it to the counselors in California.....I don't think it does benefit the people of California to go into bankruptcy.......What are they going to do, sell of I-5? How many buyers are there for I-5?.....

Entertaining Bob Brinker quote:
"I restrain myself when I talk about the people who are running the State of California......To be honest with you, if I can just let the restraints off for one split second, they're BOZOS!"

Treasury rates [LINK]
2. Federal Reserve M1-M2 Money Supplies [LINK]
3. Washington Examiner: On The House Floor [LINK]
4. Obama's Regulatory Reform Plan from June 18th [LINK]
5. The Equity Funding Scandal [LINK]

[Honeybee EC: During one of Brinker's political diatribes, he expressed his contempt for those who "always want to blame Barney Frank" for the sub-prime debacle. Well, Mr. Brinker, perhaps the reason people want to blame Barney Frank for it is because he was to largely to blame -- along with a several other democrats, like Maxine Waters. The undeniable proof is in their own words on this video -- and learn where the money went: "Covering up the Fannie Mae and Freddie Mac Scam that Caused our Economic Crisis" [LINK]

Bob Brinker's guest-speaker on Saturday was Mark Zandi, "Financial Shock: Global Panic and Government Bailouts -- How We Got Here and What Must be Done to Fix It." [Honeybee EC: Here is a LINK to Amazon where you can purchase the book for $13.59.]

Brinker's Sunday guest-speaker was Nathan Stovall, senior banking sector reporter for SNL Financial.

Moneytalk programs are available free on "demand" at KGO810 radio for seven days after broadcast. You can download and save Bob Brinker's Moneytalk programs (owned by ABC) and listen whenever you choose at no cost whatsoever. To download the programs to your MP3 player or flash drive, just choose the day, then right click on the hour that you want and use "Save Link as." KGO Moneytalk Archives [Link]

My Idaho sister-in-law sent this to me this morning from her garden. Oh, and I guess my brother helped out in the garden a little bit. LOL!


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