Market Numbers for the Week:
* The Dow closed Friday at 8539.73, a 3% decline.
* The closed at 1827.47, a 1.7% decline.
* The S&P 500 Index closed 921.23, a 2.6% decline.
* Oil closed at $69.40.
* Gold closed at $936.
Bob Brinker comments paraphrased: Right now, there is no inflation, rather there is deflation.....the implied 10-year annualized inflation rate, as indicated by the Treasury market, is 1.93%......the CPI on a year over year basis has now declined to 1.3%.....the 30-year Treasury at 4.5%, has a real return of 5.8%, and the 10-year Treasury has a real return of 5.1 when you add back in the deflation rate of 1.3% over the past year. [Honeybee wonders: Does anyone believe it works that way in the real world?]
Caller Steve from New Mexico asked Brinker if he had read an article in the Wall Street Journal by Arthur Laffer about the huge increase in the M-1 money supply. [To read it, see LINK-1 at end of this summary.]
Brinker responded that "better than" reading the article, he is aware of what is going on with the money supply because he tracks it in "the investment letter." Brinker said that the money supply is one "ingredient" that can be used to try to figure out what is going on with the economy. [Honeybee EC: The numbers that Brinker publishes in Marketimer appear to come directly from the Federal Reserve Bank site. Please see LINK-2 at the end of this summary.]
Here's paragraph from Arthur Laffer's article:
"Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury's planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds."
Caller Jim in Livermore told Brinker about an article in Bloomberg on June 17th regarding two Japanese men that were caught carrying $134 billion worth of U.S. Treasury bonds from Italy into Switzerland.
Brinker said he did hear about it and it sounded like something straight out of James Bond, but that we don't know if they were real bonds or counterfeit. [Honeybee EC: I think this story is important. Certainly more important than the media reporting would indicate. You can Google it and see that it has been reported in several other countries, but not much in the United States until this Bloomberg article. Please see LINK-3 to Bloomberg article at end of this summary.]
Caller Steve from San Jose, California said: "Your thoughts about investing in a leveraged ETF such as SSO, which is double the S&P 500."
Brinker replied: "I would track the performance of the fund to see how it has done.....over a reasonable period of time. In other words, if it is supposed to do two-times the S&P, see if it's doing two-times the S&P."
Caller Steve continued, "Right, well, I'm trying to play catch up since I followed your advice to lump sum into the S&P at the 1400 level about two years and I'm down about thir....."
Brinker interrupting Steve: "I would not be doing that. No, no, no, I would not be doing that. I would not be trying to play catch up. What I'd be doing here would be to formulate your asset allocation. Get your asset allocation where you want it and make the investments in accordance with your asset allocation. I don't believe in trying to make catch-up because I think when you do things like that, you can make mistakes. I don't recommend to you, Steve, that you go out there trying to play catch-up ball. I'd rather see you go out there and establish yourself with your asset allocation. Now as far as leveraged ETFs, just be aware some of these have not performed in line with expectations........We don't have any recommendations in our investment letter of any leveraged ETFs. The Exchange Traded Funds in our investment letter are things like SPYDERS and Russell 3000 and things of that sort. We don't have any leveraged ETFs in the investment letter....This is Moneytalk."
[Honeybee EC: Bob Brinker obviously was not the least bit disturbed by the fact that this caller had lump-summed money into the market at S&P 1400 on Brinker's advice. Brinker never uttered a single word of sympathy or regret about the caller's losses. Matter of fact, he interrupted the caller before he could say how much he actually lost.
To me, this shows an appalling lack of character from Mr. Brinker, and a complete disregard for the suffering of those who took the advice that they paid him for and were then financially damaged (some seriously). Imagine how many of those kinds of calls never make it on the air.
Brinker's buy at "mid-1400's" advice was first issued in "the investment letter" in August 2007 and was repeated monthly up to and including January 2008 -- just days before the market started dropping precipitously. Brinker called mid-1400 a gift-horse buying-opportunity.
In October 2007, he bragged that there had been 18 mid-1400's buying-opportunities in August and September "consisting of 15 market days on which the S&p 500 Index closed within the 1430 to 1470 range......" Please note that he advised lump-sum buying up to 1470 the VERY MONTH THE BEAR MARKET STARTED!! However, Brinker never saw the bear coming. He never saw it until long after it arrived, but that's a story for another day.]
January 4, 2008 Marketimer, Bob Brinker said: ".....the risk of a cyclical bear market decline in excess of 20% is not likely to materialize anytime soon.........In summary, the Marketimer stock market timing model indicates that conditions are favorable for the market as we enter 2008. W expect the S&P 500 Index to achieve new record highs this year and to reach the 1600's range in the process. We continue to rate the market attractive for purchase on any weakness into the S&P 500 Index mid-1400's range. Above this range we prefer a dollar-cost-average approach for new purchases. All Marketimer model portfolios remain fully invested as we enter 2008."
Frank from San Rafael said he was concerned about California state bankruptcy and asked Brinker if he thought he should be worried about California muni-bond funds. He told Brinker they were "revenue bonds." Brinker said "same difference."
Brinker replied: "I think your concerns are well-founded. We've talked about them on Moneytalk. In fact, we talked about it in detail just last weekend. My view is that you limit your exposure to any one California issuer to no more than 1%. That includes the state of California. I'm seeing a level of fiscal irresponsibility and incompetence from Sacramento that is just stunning......That way even if the state goes belly up, and who knows with the clowns they have running the state these days in Sacramento, anything is possible."
Brinker again talked about California bonds in hour-three opening monologue, He said: "One of the things certainly worth noting is the talk out of the rating agencies that we may see additional reductions in the credit ratings of the State of California. Now of course on Moneytalk, we have recommended that exposure to any California issue be extremely limited. In fact, we've placed a maximum exposure for any one issuer of 1%.......perfectly happy with no exposure at all obviously. But the reality of the situation is that any one issuer, that would include the state of California. Now California is a fiscal disgrace. It's already the lowest rated state in the United States.....
..... California has the most incompetent government in American history for any state, in my opinion......They are $24 billion state deficit. Now states have to work out balanced budgets because they don't have the printing press.....They already have $72 billion in outstanding debt in California on which they have to pay the interest every day. Now Moody gives General Obligations of California an A2 rating but they warned this week about the possibility of a multiple downgrade. And if they do make such a decision, who could blame them? Standard and Poors already has California on credit watch for possible downgrade. And Fitch also has California on credit watch for possible downgrade. Now let me emphasis that the fiscal situation in California has degraded dramatically in recent months.......The state of California now may run out of money within the next few weeks. They could run out of money as soon as July. If they run out of money then the state Controller in Sacramento will have to delay most non-priority payments.....
Honeybee EC: Last week, Brinker laid the groundwork so that he could refer back to what he said then without ever mentioning that for months before that, he had said that California was "too big to fail," and California GO's were safe, he owned them and was happy about it. And last week was the very first time he ever put any percentage limitations on owning them.
Brinker has always claimed that the Federal government would not let California go bankrupt. Several times, he told callers not to worry until there were no Highway Patrol going after speeders and other critical services ceased to exist.
Here are some samples of what Brinker has said which I copied from my previous Moneytalk summaries. These are all from 2009:
* CALIFORNIA BANKRUPTCY? Brinker does not believe those who are predicting California is going bankrupt. He says he'll believe it when somebody lends him a Lamborghini to drive down I-5 at 250MPH and he doesn't see the California Highway Patrol in his rear view mirror. He does not believe all state services will be shut down and go away.
* CALIFORNIA BONDS.... Bob Brinker said: "I own California municipal bonds of general obligation of the state and I'm very happy with them. They've been very good to me. And of course they have been acting very nicely in the last couple of months especially they've started to act very nicely. And I think that people are beginning to realize that, hey, there's no rational way for state general obligations to default. They didn't default in any case in the great depression and they certainly haven't defaulted in this recession......I think when it comes to the State of California, I'm comfortable owning State of California bonds. I can't tell other people to do so because that's a decision they have to make for themselves, but I've made that decision for myself. In fact, I recently purchased additional general obligations of the State of California because I thought the yields were too high to pass up."
* Caller Ron asked Brinker about the safety of municipal bonds. The caller pointed out that the “other fellow” who did the program is “negative against them.” He no doubt meant Bill Flanagan. Flanagan is not as sure as Brinker that California is "too big to fail."
* Bob Brinker replied: “Since I own municipal bonds, I certainly am not negative on municipal bonds. If I were negative on municipal bonds, I wouldn’t own them….."
* Caller Randy explained that a major part of his portfolio is in municipal bonds and he too wondered about the safety of them. Randy said, “I’m concerned about the ability of our government agencies to even be able to repay the money if they continue like they are.”
* Bob Brinker replied: “I think that General Obligations are one way to go with this. [Honeybee EC: A Major OUCH if you are Randy and you believed Brinker back then!!]
Here are David Korn's comments on Brinker's obvious flip-flop from being totally safe to putting a 1% limit on California GO's:
"This is new advice from Bob. For years, he has been heaping praise on California bonds and they had done well. In the last year, he has flip-flopped on his advice relative to California General Obligations. I remember him trying to distance himself by saying the ones that HE OWNED had the Treasury backing. Well today he admitted to owning those, but also some regular California General Obligations, the kind that us regular folk own. But he said it is limited to 1%. I don't disagree with Bob's advice today. But I think it is fair to be critical of him for waiting until now to make this advice when the state finances have never looked worse. Better late than never though."
A poster who listens to Moneytalk wrote this:
Runner Twentysix said: "I wonder if anyone ran out and bought CA GO's after Brinker, over the past month said there was not chance of the Federal Gov. letting CA go bankrupt. Remember how he said that if CA went bankrupt, there would be no Highway Patrol! There is no chance of that he SHOUTED. If anyone followed his advice and bought, and then heard this weekends show, they have to feel that old Bob just blindsided them. And maybe they loaded up because Bob never mentioned the 1% bond rule before, only his no more than 5% in one stock. It is obvious that he just makes this stuff up as he goes."Brinker did not have a guest-speaker Saturday, perhaps because tomorrow is Father's Day.
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]
1-WSJ: "Get Ready for Inflation and Higher Interest Rates" : Arthur Laffer [Shows an alarming graph]
2-Federal Reserve: M1, M2, Money supply as of June 18, 2009
3-Bloomberg: "Suitcase With $134 Billion Puts Dollar on Edge": William Pesek
My daughter took these pictures in Kauia recently: