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Saturday, July 11, 2009

Bob Brinker's Moneytalk: Discussion, Commentary and Excerpts, July 11, 2009

July 12, 2009...Sunday Moneytalk update

Sunday, Brinker talked about the same subjects as on yesterday's program. He gave a rundown on the economic calendar for next week. That information is always available online. For convenience, I keep a link to it in the right hand column of this blog.

However, I was very surprised when Brinker recited the year-to-date "total stock market" gains (4.3%) then bragged about his model portfolios doing well YTD through June 30th without mentioning that those portfolios rode the market down over 50% (at the low) while fully invested.

I repeatedly tried to call the program to congratulate Brinker on re-gaining some of the massive model portfolio losses from last year (no luck).

In 2008:
Model Portfolio I = down 39.7%
(Model Portfolio I is down 7% over the past five years)
Model Portfolio II = down 37.4%

July 11, 2009....Today, Bob Brinker's only stock market comment
was that it was in "summer doldrums." Bob Brinker did not have any callers on the air who asked about his stock market predictions or advice -- even though the market has dropped steadily over the past 4 weeks, and the S&P 500 Index is down 7.1% since June 12th.

Market Numbers for the Week:
* The Dow closed at 8147 - down 1.6%
* The Nasdaq Composite Index closed at 1756 - down from 1838.
* The S&P 500 Index closed at 879 - down 1.9%.
* Oil closed at $59.66
* Gold closed at $913.

FIXED INCOME MARKET...Brinker commented that the word "comatose" would describe it, then he recited the yields on Treasuries and general obligation municipal bonds (he said he meant GO's, not revenues). All of this information is readily available on the internet:

* Treasury rates [LINK]
* Federal Reserve, M1 - M2 money supplies for May 2009 reported June 25th. [FRB LINK]
* Sentiment Overview for week of July 10th [LINK]

IMPLIED INFLATION RATE...Brinker comments paraphrased: The 10-year Treasury Inflation Protected Security is at 1.77%. When compared to the 10-year note at 3.3%, the differential is 1.5%. -- that is the "implied inflation rate over the next 10 years on an annual basis as implied by the market." Right now we have -1.3%, the implication is +1.5%, so it would take a 2.8% swing to get from negative 1.3 to positive 1.5.

"DYSFUNCTIONAL" CALIFORNIA GOVERNMENT...Brinker comments paraphrased:
California is now issuing California State IOU's to pay bills so they can conserve cash to pay state constitutionally-mandated expenses -- education and California Bonds. About 30,000 IOUs were sent out the first day, including tax refunds. These IOUs pay an annual rate of interest of 3.75% and come due on October 1st. The SEC says these IOUs should be traded as "securities." You have to feel sorry for the taxpayers in California. The budget shortfall in California now is $26.3 billion. [Honeybee EC: I couldn't agree more with Brinker on this one. It is pathetic and was entirely predictable to many Californians -- unfortunately not quite enough to stop the freight train we saw coming at us. And even when a majority voted for things that would have saved our state, it was thrown out by ONE JUDGE.]

...Brinker didn't talk about them today, but this is what he said on his last program: "I would not have more than 1% in any one California issuer, including the state."

Brinker repeated what he has been saying every week, that Ginnie Maes are triple-A rated, government backed. The only risk is NAV fluctuation. He still estimates that the price range will stay within $9.50 - to $10.50.

Chris in Pennsylvania asked Brinker if he thinks GM is a good investment now that the company has gone through bankruptcy. Brinker told Chris that there are "people out there that think $1.15 is rich" and "the history of companies that have filed bankruptcy very frequently is the common stockholders wind up with wallpaper." He considers it "purely a speculation."

Caller Bob in Cedar Rapids asked Brinker if he preferred managed funds or index funds for stock and bond portfolios.

Brinker replied:
"For the typical investor, I really like the idea of using index funds in the portfolio. In fact we do it. In the investment letter model portfolios, we use as core investments in those portfolios, we use index funds. The index fund that we use is the total stock market index. And we are able to invest in that with an expense ratio of less than 2/10 of 1% a year. So we're using the total stock market index as our primary vehicle. And that also has an exchange traded fund [ETF] which is available. And that's the principle vehicle that we use when we are investing in indexes -- and by the way, we use that in all of our investment letter model portfolios that have exposure to the stock market.....

....So obviously, I believe very strongly in that idea. What you do there is you hold down your expenses, you gain broad diversification and you also get a very high level of tax efficiency. By the way, the
exchange traded fund is just another word for a mutual fund. An exchange traded fund that invests in total market, the symbol on that on is VTI. You can also use SPY if you want, but I do prefer the total stock market index. Then if you can find some managed funds that are worth putting into the portfolio, that have the potential to do well, I'm okay with that too. But I think that the core comes back to the indexes." [Honeybee EC: As Brinker said, his two stock market portfolios are 50% total stock market fund (VTSMX). Anyone want to bet a fresh seafood lunch on the Santa Cruz Wharf that this was a planted call?]

"TAXES CAN ONLY GO UP"...Brinker said:
"It's my expectation that the tax bite in this country can only go up.....Because the federal government is spending itself into oblivion."

SOCIAL SECURITY AND 401K CONTRIBUTIONS...There were 2 callers today who tried to answer a question that a woman in the first hour brought up about contributions to 401Ks being deducted from Social Security payments. Brinker seemed to be (understandably) confused and said he had never heard of 401K contributions affecting Social Security. The only real conclusion that seemed to come out was that it is the federal and state income tax that you save on with contributions to your 401K -- not save on Social Security taxes. [Honeybee EC: I don't think that was what the original caller was talking about. I think she thought she would get less Social Security if she made 401K contributions. I think Brinker thought that too. Maybe our resident tax-expert will know what this was all about.]

Speaking of our resident tax-expert, DanG sent this about a tax question on today's program:

Blogger Dan G said...

Bob makes another wrong tax guess on withdrawal from a traditional IRA, a portion of which was non-deductible and a portion which was deductible.

Of course he did say to check with a tax advisor, but then said it seemed "logical" that you could first withdraw from the non-deductible so that no taxes would be owed on the basis. Unfortunately the tax code is not always (or ever!) logical! So the answer should have been NO, you must withdraw from the total IRA and pay tax on that in proportion to the non-deductible amount.

So if you have 40% of IRA money in a non-deductible IRA account and 60% in a deductible account, no matter which account you withdraw from, you must pay tax on 60% of the total withdrawal. So as far as the IRS is concerned, logic be damned!

You keep track of your "basis" in non-deductible IRA contributions by filing Form 8606 with your tax return.

July 11, 2009 3:10 PM [Posted here LINK]

Brinker's Saturday guest-speaker was James Barth, "The Rise and Fall of U.S. Mortgage and Credit Markets: A Comprehensive Analysis of the Market Meltdown." Amazon [LINK] to purchase the book.

Brinker's Sunday guest-speaker was Niall Ferguson. The "Ascent of Money" is currently running on PBS [LINK]

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]
Dixiegeezer took these picture at sunrise this morning at Tarpon Springs, Florida:


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