Bob Brinker's Moneytalk: Discussion, Commentary and Excerpts, July 25, 2009

Posted July 25, 2009....Bob Brinker began the program talking about how well the stock market is doing. He said that in January, he had forecast the stock market would make "significant" gains in 2009. Bob Brinker said: "A lot of people thought this would not be the case. They talked about Armageddon. Failure of the system and on and on and on....Without question, stock market investors have been the beneficiaries of the melt-up over the past two weeks. And the melt-up has been accompanied by way better than expected corporate earnings according to the Wall Street pundits....by better than a 2 to 1 margin during this reporting period....

.....And obviously, the worst place to be is to have any stock market money in cash in here, with returns close to zero, plus missing out on the gains this year. I guess the only place worse than cash has been to be short the market.....Some people are short the market because it's summer....And there's no question that when that positive stock market forecast was made in January.....it was a forecast that was a voice in the wilderness. There's no doubt about that, with all the negativity that was out there back in January. But I've often said, so frequently, the best place to be is to be a voice in the wilderness because that's the way the stock market works very frequently....it is a forward looking mechanism.....it does not have a rear-view mirror. And so the key to success in 2009 has been to be looking forward, to be discounting future developments. And the key has been to do so with a fully invested stock market portfolio."

[Honey EC: Brinker was also fully invested during the biggest bear market in 70 years -- 2007-2009. That "key" was not considered quite so successful by those who followed his advice. And all this "melt-up" is doing for their portfolios is recouping major losses.]

CALIFORNIA BUDGET AGREEMENT...Brinker said that education was slashed $9billion-plus, however, bond-holders were paid in a timely manner. [Honey EC: Brinker did not mention the fact that the state is picking the pockets of cities and counties, even the ones that are having big financial problems of their own. There will be lawsuits.]

CALIFORNIA PROPOSITION 13

Caller Tom from Wisconsin, asked about Prop 13 in California.

Brinker used this opportunity to voice his own viewpoint that Prop 13 is totally "unfair." [Honey EC: Brinker is VERY ill-informed about Prop 13. And it seems disingenuous for him to, on one hand, say how "out of control" and "dysfunctional" the California Legislature is, and on the other hand, want to open the door for them to tax people out of their homes and/or be driven from the state.]

Caller John in San Jose, California, tried to explain why there is "absolutely no inequity in Prop 13." After just a few seconds, Brinker interrupted John and said he wanted to talk because he wasn't interested in one-sided conversations. [Honey EC: I laughed for three minutes at that one.] John got in a few more words before Brinker interrupted him again, repeated his views even louder, then hung up.

Caller Bob in San Francisco, California, tried to explain some more details about Prop 13 to Brinker. He said that if it was changed, there would be a mass-exodus from California. Brinker replied that people would not leave the state if they didn't want to. [Honey EC: Brinker evidently isn't aware that taxpayers are already leaving the state. In my humble opinion, Brinker needs to come down off that high horse he's riding there in state-tax-free Nevada and take a look at the real world and real people.]

WHY PROP 13 HAPPENED...Caller Bill in Cupertino, California, said: "Basically local government treated everyone's home as a cash machine, so it was a form of taxpayer revolt. The problem in terms of non-functionality is people in government that can't live within their means. Everyone wants to live on a champagne budget when they can afford beer......The over-spending just goes up and down government all the way."

[Honey EC: I can personally attest that Bill is absolutely correct about homes being treated as "cash machines" until Prop 13 dampened it. And another thing Brinker is evidently not aware of is that since 1978, the vast majority of homes in California have changed hands and have been re-assessed at higher levels. That includes my own when I moved in 1999 and gave up my low tax basis in San Jose. So there are relatively few homes that are still assessed at the 1975 level. This was true 20 years ago as the following press release states, and is exponentially more true today]:

Press Release [link] "They also found that the fraction of 1975 base-year property has decreased substantially over time, mainly due to new construction and properties being sold and reassessed.....limiting the property tax rate to one percent, and restricting the growth of property tax increases to two percent annually."

CALIFORNIA STATE GOVERNMENT....Brinker said: "The IOU's sunk the battleship. In other words, when they ran out of money and had to start printing fake vouchers, whether they're good or not, they are not money. And once that happened....that was it. School was out, it was there for all to see, dysfuntionality on steroids. It's called Sacramento, the government not the city." [Honey EC: And these are the people that Brinker wants to again give carte blanche to tax us out of our homes. Yes, the state IS helping itself to local property taxes as I type this...]

IMPLIED INFLATION RATE: Brinker said the implied rate is now at 1.9% annual for the next ten years.

DEFLATION RATE: Brinker said the YOY deflation rate in the CPI is now at 1.4% "....so in order to get from the negative 1.4 to positive 1.9, the implied rate....you would need to see inflation increase by 3.3%."

FDIC INSURANCE....Frank in Pittsburgh, Pennsylvania, said his mom sold her home and was getting a settlement for over $250,000. He wanted to know about FDIC insurance. Brinker asked: "Is your mother married? ....In a case like this FDIC insurance is essential. I wouldn't ever consider any other possibility." Brinker mentioned the CDARS program.

VANGUARD GNMA FUND [VFIIX].....Phil in Cape Cod, Massachusetts, wanted to know why GNMA's are so good. Brinker said because they are Treasury backed. No credit risk -- only interest rate risk. Brinker said he puts the GNMA Fund interest rate risk at "about the mid-$9's to the mid-$10's." The yield on VFIIX is about 4% now.

TRADING VOLUME.... Bob in New Mexico, said that he had noticed that trading volume was very low and wondered how we could have a bull market without higher trading volume. Brinker said: "Well I guess they're scratching their heads because obviously we are in a cyclical bull market.....As to why the volume is down, I think part of it is that the volume in the summer tends to wane frequently because a lot of people are vacation and doing other things...And I think the other part of it is there are a lot of people out there who became disaffected last year by what they saw going on in Wall Street."

[Honey EC: After two years of silence on cyclical/secular trends, Brinker is now free to talk about "cyclical bull markets" again because in May he admitted that he made a mistake when he retroactively declared that a "secular bear megatrend" had ended. I know, I know....But I'm really not making this up. LOL!]

WASHINGTON HEALTH CARE "REFORM

Brinker thinks "something may happen" by the end of the year. Brinker said: "What will be the impact? Well the impact will be dramatic on a lot of people, but small business is certainly going to be right in the cross-hairs of this deal because if you are an employer who today does not provide health care coverage, then you are going to have to pay a payroll tax of up to 8% a year. That will be as a penalty for not providing health care coverage. Now it goes beyond that. If you are an employer today who does provide health care coverage, then if that coverage is considered by the muckity-mucks to be inadequate -- and THEY will define inadequate, not you -- then you are going to have to also pay that tax.....In addition to that, if your employees go out and choose another plan, then you are still going to have to pay.....

.....The reality is, the vast majority of jobs in the United States are created by small business. So the impact of this legislation, which remains a work in process, is really a big deal, since small businesses are so critical to the creation of new jobs.....So what do you do if you're running a small business, your profitability is probably already compromised.... by the economy and what's going on here and around the world......What do you do if Uncle Sam knocks on your door and says, Okay, pony up 8% of payroll as a tax because you're not providing sufficient coverage for your staff.....How do you raise that money? You might have to cut payroll....Reduce your payroll by 8% and you save the 8% tax that is being leveled by the hypothetical health care proposal that's out there....

....This legislation as it's developing is going to require 20-somethings to purchase health insurance policies that will not reflect their risk of illness. Now statistically, your risk of illness when you are 20-something is really low....But the way the House Bill and the Senate Bill is shaping so far, you are going to grossly overpay-- probably as a 30-something even...Because the prices of the policies for the young will be over-priced so that the prices of the policies for the seniors can be priced at lower levels....There are a lot of problems out there.

.....You've seen the surtax proposed. I notice Nancy Pelosi really likes this tax....She has fallen in love with this 5.4% surtax on high earners. She just seems to thinks this is the greatest thing ever. Well in California, the top bracket is close to 10.5%, if you got the surtax, you got the uncapped Medicare -- that's 2.9% for a business person, both sides, got the top federal bracket going to 39.6% in January of 2011. Add them all up, in places like California, places like Oregon, many other places as well, your top bracket is in the upper 50's. So the entrepreneuer at that point is taking home a little bit more than 40 cents on the dollar....

.....One of the things that they don't seem to understand in Washington is that they just keep raising the tax brackets, and compounding the tax brackets......They just don't seem to get it.....

.....If this health care reform is so valuable....if it's that good, why would you only ask the people making over a $million a year to pay for it. What would be the rational behind that. Now supposedly, you've already nailed these people with the uncapped Medicare.....Now you are piling on these people with the 5.4 surtax....

....They've had a lot of other proposals on how to pay for this. It's going to be really expensive -- one to $1.6 trillion for a decade. This will be the biggest social reform since the Medicare act of 1965. And they don't seem to be coming up with any other ways to pay for it other than let's nail the top brackets. Pretty soon they are going to be trying to get water out of a stone because there's a very limited number of people in that bracket. You get over a $million, you've got -- and nobody feels sorry for them, don't get me wrong -- but I think it's something like 6/10 of 1% of the tax returns are over a $million.....On a thousand tax returns, you might have 6 tax returns that would be in that category. Now how much can you get out of these people there are so few of them."

Regarding the surtax on the "rich," Brinker said that congress probably will not consider the law of "unintended consequences."

Honey's Market Reports:
* Dow closed at 9093.24, a 4% gain for the week.
* Nasdaq Composite Index closed at 1965.96 a gain of 4.2% for the week.
* S&P 500 Index closed at 979.26, a gain of 4.1% for the week. (8.4% gain year-to-date.)
* GLD closed at $93.41.

Brinker's Saturday guest-speaker was Lawrence McDonald, "A Collossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers"

Bob R. sent this regarding the Brinker-McDonald interview:

"Honey: This is an excerpt from an article in Rolling Stone magazine about the on-going clout of Goldman Sachs. I'm sending it to you, appropo of Bob Brinker's Sat. 3rd hour interview with the Lawrence McDonald the guy who wrote the book about the loss of Lehman Bros. You can find the whole article by Googling "Rolling Stone Goldman Sachs." Its a long article tracing the company's history and the surprising number of GS top execs who ended up with government posts. One caution, the article contains the usual foul language that I guess Rolling Stone readers demand, so be warned."

BUBBLE #5 Rigging the Bailout
After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman's last real competitors — collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investmentbanking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35yearold Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bankholding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret...."

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] If you want to call KGO and complain about or praise Bob Brinker's Moneytalk, here are the numbers: Comments line: 415-216-1052....Listener services: 415-216-1050

Dixiegeezer sent this picture of a "wood stork." I am very surprised at the variety of birds that Dixiegeezer photographs in Florida that I have never seen here on the west coast.

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