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Saturday, July 18, 2009

Bob Brinker's Moneytalk Summary, Commentary and Excerpts, July 18-19, 2009

July 18-19, 2009.....Bob Brinker recited the closing stock market numbers and said that the total return, including dividends, is 6.8% year-to-date. Bob Brinker also recited the current yield on Treasuries and pointed out that compared to the almost zero return on 3-month, 6-month, 1-year and 2-year Treasury notes, stock market returns (YTD) look pretty good. [For all of the latest fixed-income data, please see the list of links in the right column of this blog under "Items of Interest to Investors."]

Honey's Market Report: This was the best week for the market since last March. Earnings season will be in full swing next week...

* Dow closed at 8743.94, a 7.3% gain for the week.
* Nasdaq Composite Index closed at 1886.61 a gain 7.4% for the week.
* S&P 500 Index closed at 940.38, a gain of 7% for the week.
* GLD closed at $91.93.

STAGFLATION....Caller Doug from Illinois asked for a definition of "stagflation" and "what are the chances of it happening in the next two years." He also asked what will happen to the value of the dollar, the price of gold and interest rates, the first time that a Treasury auction "fails."

Brinker comments paraphrased:
Right now, we have deflation......The latest CPI numbers show that we have year-over-year price declines of 1.4%.....The definition of stagflation is: "...rising inflation without much growth in the economy." The chances of stagflation happening are "slim and none."

that the government has never come close to not being able to sell its bonds, then he added the following caveats...Brinker comments paraphrased: We have a federal government policy right now that will increase the deficit by $3 trillion in the 2-year period ending September 2010. The deficit for the fiscal year that started last October and ends in September 2009 will be about $1.6 trillion. And the deficit for next fiscal year is projected to be about $1.25 trillion -- close to $3 trillion for the 24-month period ending 2010.

Honey EC: Brinker never misses a chance to place equal blame for the current national debt on the Bush Administration. He always hearkens back to the Medicare Drug Plan -- I agree with him on that point. But to put equal blame for the $1.6 trillion debt on an administration that was in office only 3 months out of this fiscal year is disingenuous and mathematically FALSE, as well as morally bankrupt. The Obama administration has QUADRUPLED the debt since he took office and has run it up further than all other presidents combined.

Caller Jonathon in Las Vegas
(he said Las Vegas is 110 degrees) asked what is the real value of the dollar since it not backed up by a precious metal. He commented that these "fiscal-enema tax dollars" are "good for the Federal Reserve" and they get a "free ride, " then charge interest when they "loan it back to the government."

Brinker said: "I don't have any dollars right now that have the picture of the current occupant of the White House on them. I do have a Ben Franklin in my hand that I borrowed from my engineer. According to what this C-note says, 'this note is legal tender for all debts public and private,' okay? .....It is lawful money.....If I was a gambler, which I'm not, I could take this C-note into a casino and put it down on red or black and they would accept it and pay off if it came in.....So it is legal tender."

[Honey EC: Brinker almost always resorts to sarcasm when a caller says something he doesn't agree with. He often walks a fine line between civility and outright rudeness, but only with those who he feels are challenging his own prognostications or punditry. And occasionally, Brinker falls completely off the fence and makes no pretense of being polite.]

GETTING RID OF FEDERAL RESERVE....Brinker then laid it out for Jonathon
. He told him that talking about getting rid of the Federal Reserve was "dangerous waters." Brinker said: "If you get rid of the Federal Reserve, then you are going to politicize the money supply. You are going to turn over the regulation of the money supply to the politicians. And I will tell you, Jonathon, when you do that, that is the end of the United States of America."

MEASURING PRICE RISK IN BOND FUNDS...John in Yuba City asked how the value of bonds would be affected if interest rates go up.

Brinker explained that the best way to measure the price risk of a bond fund is to look at the "duration factor." For example, a bond fund with a 2.0 year duration -- 2 1/2 average maturity. Brinker said: "For bond yields with an average maturity of 2 1/2 years, the duration tells you that if rates went up 1%, that fund would drop 2%.....So if you look at 2-year Treasuries right now, they are yielding 1%. So if they go up from 1% to 2%, I'd expect that fund will drop a couple of points in net-asset-value.....We track these in the investment letter that I publish too."

Honey EC: All of the information about Treasuries that Brinker "tracks" in his "investment letter" is available for free online (check the links I have posted in the right hand column under the title, "Item of Interest to Investors.") Also, all the duration information about any bond fund that you are thinking of buying is available from fund companies. Vanguard's website offers outstanding information about their bond funds, including duration and average maturity.

"DISGRACEFUL" CALIFORNIA GOVERNMENT....Bob Brinker comments paraphrased.
...California government leaders have scheduled another meeting for Sunday night. There is talk of closing the $26 billion deficit by taking money out of the education funds so they can be assured of having money to pay bond-holders.....Once you lose access to the credit markets, you're finished, so they have to protect bond-holders.....

Brinker said:
"I'm talking about [California] government officials. They are disgracing the State. They are disgracing themselves by not using money. They are using IOU's.....I would have to label the government in California as completely dysfunctional because they did not plan for this day. You cannot run a state like California....the 8th largest economy in the world.....without having a reserve for bad times.....As a consequence, they have proved to the world, not just the state, that they are incompetent at running the state. And I've been very kind in calling them dysfunctional -- they are much worse than that. But this is a family broadcast."

"I was not critical of the Chinese government when they raised the issue a few months ago of a world reserve currency because I think it might be a good idea for the United States of America to be part of a world reserve currency. Because I think that if we as a country are going to be as fiscally irresponsible as we are through our elected leadership, then we are abrogating our responsibility to maintain a world reserve currency, which is what we are right now. We are the world reserve currency....but that carries with it a sacred be fiscally responsible....You know that statement by Mr. Elmendorf this week, the Director of the Congressional Budget Office -- he doesn't see cost savings in this thing, he sees it running up the deficit. It's a good thing the CBO has some independence to tell it like it is, because some of these politicians, either they are in denial, well there's another possibility, but I don't want to make accusations because it's not in my nature." [Honey EC: Good one. That "nature" line is always good for a chuckle. So it looks like Brinker is a brave-new-world advocate.]

suggested immediately creating a flat sales tax on anything purchased on the internet. Brinker said he didn't think raising sales taxes in a recession is a good idea -- rather, it would be the "policy of a madman." [Honey EC: There are some people who have never seen anything they didn't want to tax. While at the same time, they seem to think that spending increases can go on forever. Is it ignorance or what?]

Brinker said: "Why hasn't Ben Bernanke been re-appointed as the Fed Chair? What is the White House waiting for here? Ben Bernanke, in the most difficult times in 70 years, has done an outstanding job.....Why hasn't this astute Princetonian been re-appointed? What is the White House waiting for. Now we've heard rumors that Larry Summers wants the job. I don't care about Larry Summers. I care about the chairmanship of the Federal Reserve. That's the United States of America we are talking about. I've said for 23 1/2 it's the most important job in the country. The second most important is the president. But what in the world is the White House waiting for on simply making an announcement that the president has re-appointed Ben Bernanke as Fed Chair for another term. Now this is a no-brainer. It's a no-brainer, and yet we continue to wait for that announcement. It's amazing. Ah, maybe they had vacation plans that got in the way. First things first. This is Moneytalk."

[Honey EC: What "amazes" me is the lengths that Bob Brinker will go to in order to keep from calling the president by name. And I'm not real sure that the "White House" can appoint anybody to anything. I haven't check to be certain, but I do not think Brinker has called him by name since he took office. Bob, here is his name, Barack Hussein Obama.]

TAX RATES GOING UP....Brinker said:
"Tax rates can only go one way and it's not going to be south -- income tax rates."

that home prices in Las Vegas are down 50%. He should certainly know because he lives very near Las Vegas.

STOCK MARKET....Brinker said:
"Now when we are talking about the stock market, I'm on record as of January of this year, as predicting that calendar year 2009 would show a significant total return for the market. That was my comment in January and I'm sticking to it. Now as we speak, we are up close to 7%, the total stock market index so far this year. We're a little bit past the halfway mark and I think we are on track. Nobody is saying it is going to be a straight line move and it hasn't been and it won't be, but I think we are on track to have a significant total return in the stock market this year. Now there's no change in my view. That's been my view as I expressed it in January and there no change in my view.....

......"I don't think you should be looking at multi-year horizons in here. My horizon right now --look I publish all this in the investment letter, my horizon right now goes to 2010. That's the current horizon that I've written about and I've talked about in the investment letter..... I haven't said anything where the market will be in subsequent years. But I do have a favorable horizon that encompasses 2009 and it does spill over into 2010.....My focus right is trying to be on the right track into 2010. Now so far in 2009, we are very much on the right track."

[Honey EC: Firstly, let me point out that no matter what the stock market has done this year, the only affect it has had on Brinker's Marketimer model portfolios, and those who follow them, is to re-coup MAJOR LOSSES! Brinker misleads his audience by not disclosing this fact or the fact that he was forecasting "significant bullish moves just about every level from S&P 1565.

Brinker has remained FULLY INVESTED since March 2003. Brinker rode this mega-bear all the way down over 50% from market high to market low because, as he admitted on Moneytalk, his "timing model" failed to anticipate it. Just the opposite, he was a raging bull in January 2008 -- predicting an S&P in the mid-1600's range.

Marketimer, January 2009, (S&P @ 931.77) Bob Brinker wrote: "We regard the S&P 500 Index 750-850 range as the area of the final bottom for this bear market."

Marketimer, February 2009 (S&P @ 825.88) Bob Brinker wrote: "....we recommend using periods of weakness in the low-to-mid 800's S&P 500 Index price range to add to positions. Our model portfolios remain fully invested."

Marketimer, March 2009 (S&P @696.33) Bob Brinker wrote: “Due to the fact that the November 20, 2008 S&P 500 Index closing low failed to hold during the testing process, we believe a new bottoming process will be necessary in order to put an end to the bear market.”

So Brinker's SIXTH and FINAL bottom-call for the mega-bear market (which he made in February, 2009 @ low-to-mid 800's), missed the bottom by another 20%. The stock market bottomed at 677 on March 9th -- 5 days after Brinker said he was looking for a new bottom. By the time April rolled around with the market jumping, he began advising "buy on weakness" -- with no explanation of what he considers "weakness." Please click on chart, it reveals the truth that Brinker is covering up!

Chart courtesy of Kirk Lindstrom:

Brinker's Saturday guest-speaker was Alistair Miln: "The Fall of the House of Credit: What Went Wrong in Banking and What Can be Done to Repair it."

Brinker's Sunday guest-speaker was Jonathon Kirshner: "The Future of the Dollar."

Brinker talked about Niall Ferguson's guest appearance last Sunday. I have posted David Korn's excellent summary of that interview on the previous page of this blog.

Here is a [LINK] to the complete statement from CBO Director, Douglas Elmendorf, about the effects the Obama health care takeover will have on the Federal deficit. It is a PDF file and VERY comprehensive.

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]
SJ_Al sent the following bit of humor that has a lot of truth in it. (Al included one more cartoon that is hilarious, but since this is a "family" blog, I can't post it. If anyone wants to see it, send me an email and I'll send it to you.):

My Car, My Portfolio
If my car was my portfolio, this is the time I would be thinking about trading for a newer investment model.

The portfolio has got scratches and dents and bumps and holes in it. The gleam and the shine that used to be there is downright dull.

But that's not the worst of it.

The advisor seems out of focus and it's been hard watching especially hard watching my dollars slip by. It regularly sputters and backfires is the timing off?

It keeps slipping and sliding and skidding and bumping into things I was told it would avoid. Maybe the tires are bald and that's why there's no grip.

The blinkers seem to work backwards.

All of the accounts are leaking. Is that blood?

It's done so poorly it will take years to complete this trip and get home again. My heartburn rate is terrible and I don't sleep well at nights.

But here's the worst of it --

Every time when the market sneezes, coughs or sputters, the blinkers won't indicate and my advisor fails to show or start doing what I thought I paid him for. His advice just plain sucks. I'm worried that either his timing is off or his battery has gone dead. When I call to complain, I'm told just use jumper-cables.

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