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Saturday, October 17, 2009

Bob Brinker's Moneytalk: Summary, Discussion and Excerpts, October 17, 2009

[Please note: I have added a brief summary of Sunday's program below.]

[Item: Jeffchristie has posted the latest results on the stock-picking contest in the comments section of this article. This includes Brinker's two picks from May, 2009] [LINK]

Summary posted October 17, 2009.....Bob Brinker's advice since March 2003 has been to remain fully invested throughout the whole time. In Bob Brinker's Marketimer newsletter and on Moneytalk he has maintained a buy-and-hold position for the past 9 1/2 years.

Since April 2009, Bob Brinker's only market-timing advice (applies to new money only) has been to "buy on weakness." (So far, "weakness" has remained undefined in his newsletter and on Moneytalk.) No doubt, Brinker is quite happy that his model portfolios are recovering some of the horrific losses they suffered in 2008 and the first three months of 2009.

Saturday, at the beginning of the program, Brinker said: "What's going on in the marketplace? What's going on in your portfolio? How are you doing relative to the market. Let's get to the nitty-gritty." Brinker recited the closing numbers for the Nasdaq and Dow, and said the Wilshire 5000 year-to-date return is at 25%.....the S&P 500 is at 22.8%, and "we still have 2 1/2 months to go in 2009."

Brinker commented that on the Fixed Income side, rates remain very low and then he recited all of the current rates. (I have posted a link to all the Treasury yields in Honey's Market Report below.)

Brinker's monologue comments:

* The implied inflation rate is now at 2 1/4.

* The deficit won't go away -- According to the Daily Treasury Statement, the Treasury Gross Public Debt is now at $11.9 trillion.....In the past year Treasury Gross Public Debt has increased $1.6 trillion.... Brinker said: "The reason that sounds staggering is because it is. That's a 15 1/4% YOY increase......That is getting very close to the $12. 1 trillion statutory debt limit which they are going to work to increase out of absolute necessity. We had an annual budget deficit for the fiscal year just completed on the 30th of September of $1.4 trillion dollars. That is the largest annual budget deficit in the history of the U.S.A. And according to the Congressional Budget Office, we could be looking at annual interest payments on the national debt of $800 billion within a decade.....

.....Can you imagine paying $800 billion a year in interest......And draining that money out of the U. S. economy, because you don't get a whole lot for paying interest on your debt.....There's already a tremendous amount being paid. But it's been a little lower recently because rates have been so low. You know the government is getting close to zero on those short-term bills --$253 billion interest paid in '08....$191 billion because of the zero rates in '09.....

.....This is going to be a topic that hopefully will get some attention in Washington. So far, our celebrity politicians have essentially ignoring it and coming up with new ways to spend borrowed money. But hopefully that will change at one point."

Some interesting calls:

* Steve in "bankrupt" Vallejo, California asked about the "green job phenomena." Brinker commented it was all about "politics," that "it's basically a farce" because the push for "green" solar and wind will only double the energy production from 1% to 2%, and is intended to take attention away from the "real issue in America, which is unlimited and unfettered deficit spending."

* Marty in Kansas City pointed out that gold is at an all-time-high and asked what Brinker thought about it. Brinker said, "There are those out there that are using gold as a substitute for fiat paper currency. I think it's pretty obvious -- you hear the callers on the program and you hear comments from people all over the world in the investment community that talk about the amount of paper currency that is printed by various central banks around the world. In fact that's been part and parcel of the approach to the credit market collapse after the Lehman Brothers bankruptcy last year. One of the main cogs in the government response has been to print money......

.....And there are those who react to that and believe that by printing all that money, inevitably that will lead to inflation. As a result, rather than sit around with paper currency, which they don't trust, they would prefer to have some money in gold. And that creates demand for gold bullion and I think that has been part of what you've seen. It certainly is not based on current inflation because right now the annual rate of inflation is minus 1.3%.....At this time, we are having deflation.....

....And let's face it, we have an official policy, unspoken and officially denied policy in the United States of debasing the dollar. We're doing it because it helps our exports. We are doing it because it increases our imports..... So gold is also used as a hedge against that."

Caller Mark in Nevada said: "I was hoping you could help me understand the big gap in what different articles and what people say the S&P 500 P/E ratio is. Some say it's around 16, others say it's around 140 based on earnings." Brinker said: "I know exactly what you are talking about, and the people who say it's 140, those people include the people who have missed this terrific cyclical bull market run that we've been enjoying for the past half year or so.....

.....These are the people who are probably sitting around in mostly, or partly, or whatever, in cash and missing out on this terrific run up we've been experiencing. And the reason is, they are looking in the rear-view mirror. When you look in the rear-view mirror in the stock market, all you get is yesterday's newspaper. You know what that's worth..... So the bottom line is, they are looking at reported earnings. And when you look at reported earnings and you can get the write-offs in there and all the rest of it, you can get those earnings down pretty low after a severe recession such as we've seen. So that's how they get that kind of a P/E multiple....

.....Now you mentioned the other example was a P/E in the teens. When you look at operating earnings of companies, especially when you are looking at projections that are current or forward, it's very easy to get that price/earnings ratio into the teens. And of course, that's a whole different ball game then.....And I think that those people who are looking at operating earnings are on the right track.....And I can assure you that if you're walking saying the multiple is a 140, you are missing out on this bull run......"

Paul in Portland said: "Thanks to you, I've enjoyed the last six months in the market." [Honey EC: Brinker let this jaw-dropping statement stand with no comment whatsoever. I wonder how many innocent listeners were misled by it.] Paul was concerned about banks making money from investments instead of from loans. Brinker replied that Paul was probably talking about bank holding companies like Goldman Sachs, and that he didn't see anything wrong with them making money from investments, but they should also have profitable lending portfolios.

Brinker said: "You know most of the companies that have been reporting earnings, have been beating expectations. That's one of the reasons we've seen such a positive stock market tone for the past half year or so.....and that has a way of going down quite well with investors. Because after all, we've been through a pretty tough recession....

......In my opinion, the recession ended in the second calendar quarter of 2009. I believe that the recession ended during the April, May, June quarter. And my expectation is that we are going to see a positive number, could see a decent positive number here in the third quarter when they report it later this month. And I'm also expecting we are going to see a decent positive number in the fourth quarter when they report that number in January. I think we are going to see, and this is what I've been saying for quite a while in the investment letter, I think we a going to see a positive result from Gross Domestic Product in both the third quarter and the fourth quarter.....

.....And I also expect we are going to see a decent rate of real Gross Domestic Product growth in calendar 2010. I think this is one of the reasons that you've been seeing such a positive tone in the stock market. Because I think that investors are discounting the future. That's what they always do. They don't look in the rearview mirror......And that's the reason that they've been bidding stock prices higher, and they've bid them a lot higher with the S&P now trading in the 1080's because they've been anticipating that you know, yes, it was a rough recession but we're not going to go back and do that again, we are going to look and ahead, and I think that is what has served them so well. The total stock market year-to-date, as we speak, showing a total return of 25%. I'm Bob Brinker, this is Moneytalk."

Additional Brinker points:

* The stock market reacts to earnings reports based on Wall Street expectations and estimates rather than company-reported comparisons to prior year.

* Credit union NCUA is the same as bank FDIC.

* The net-asset-value of Treasury Inflation Protected ETF's will fluctuate with interest rates.

* Alan Greenspan ("The Maestro") made headlines this week when he said large banks should be broken up. Read October 15th Bloomberg article [LINK]

* Brinker said: "Alan Greenspan is not the Fed Chair who went away. He's the Fed Chair who's always there."

* Paul Volcker is a "legendary Fed Chair" who moved on and went his own way. When he stepped down, he wasn't out there sniping like Greenspan.

* Brinker said: "Now I'm going to make a prediction that when when Ben Bernanke leaves the Fed Chair that he'll be more like Paul Volcker than he will be like the Maestro. I don't expect Ben Bernanke is the sort that is going to be out on the sidelines throwing cherry bombs into the policy."

Brinker's Saturday guest-speaker was Micheline Maynard, "The selling of the American Dream: How Foreign Companies Are Remaking the American Dream."

Brinker's Sunday guest-speaker was Robert A. Hefner,
"The Energy Transition: The Rise of Energy Gases, Sustainable Life and Growth, and the Next Economic Expansion."


There were a few interesting events Sunday. Brinker talked about the "tsunami" of earnings reports that will be coming out next week. There are another 75 S&P 500 companies due to report earnings, including 11 Dow components. From Marketwatch [LINK]:

Among the highlights next week will be results from Apple Inc. due after the close of trading on Monday.

Tuesday will bring, among others, Coca-Cola Co. , Dupont, Pfizer Inc. and United Technologies Corp.

Wednesday brings results from Boeing Co., Freeport McMoRan, Morgan Stanley, and Wells Fargo.

On Thursday, results are expected from 3M Co., AT&T Inc., Credit Suisse Group, Dow Chemical Co., McDonald's, Merck, and Travelers Cos.

On Friday, results from Microsoft Corp. are due.


* Sunday, October 18, 2009, Bob brinker said: "I have not issued a sell signal on the market. My portfolios are fully invested."

* A caller from Nevada
asked Brinker if he thought the pension that he will be receiving from the state will be safe. Brinker told him that he was not worried about the State of Nevada because it is a "trophy location" -- especially "Las Vegas and Reno" -- because of "legalized gambling." [Honey EC: That was a very interesting comment from Brinker when you consider that Lake Las Vegas in Henderson, Nevada, where he bought a condo in 2006, is now in bankruptcy and the golf courses are closed.]

* Brinker did a rather long and emotional soap-box diatribe about smoking and mentioned some kind of "deal" between the Attorney General and the tobacco companies. Brinker didn't give the specifics -- he just said it was a horrible thing and he couldn't talk about it. (Google didn't come up with anything that looked like what he might have been talking about.)

* Strange item: Twice today, when Brinker was talking about something on his website, he said, "CLICK, CLICK, CLICK on it." I've never heard him do that before.

* Bob from Durango, Colorado said that his retirement is in Brinker’s Model Portfolio III.
Bob said: “Part of that portfolio, 20% is in the Vanguard GNMA Fund [VFIIX] and 20% is in the Short-term Investment Grade Fund [VFSTX]. And since the GNMA has that wonderful aspect about it of being guaranteed by the United States Government, I’m wondering what the reasoning is in having those two funds versus the whole 40% in GNMA’s."

Bob Brinker
replied: “That is certainly something that you can do. The reason that we have diversified that money is related to the fact that we think the Short-term Investment Grade Fund which obviously is a fund that allows you to have a variety of bonds in it, is a very good fund. It’s had a terrific record, it has extremely low expenses. And we just think it adds to the diversification of the portfolio.....

..... Now that doesn’t mean that people can’t go their own way -- a lot of people do that. A lot of the people who invest in the investment letter portfolios have variations in their portfolios…..The reality is, that the
investment grade portfolio has a low duration and it has quality investments. This is extremely important to me……..Now you have obviously, higher quality in the GNMA than you have in the investment grade. But I think the investment grade gives you exposure to the corporate bond market and I’ve been thinking very favorable about the corporate bond market. It’s had a very good year."

Honey EC: Brinker accepts calls on this portfolio and talks about its holding almost every weekend. It looks like he may be trying to appeal to those who are nearing retirement or in retirement in order to get new subscribers. Whatever the case, Brinker has now revealed 40% of the portfolios fixed income holdings. The other 10% of the fixed income portion is in
Vanguard Inflation Protected Securities [VIPSX]. And the vast majority of the equity holdings in this portfolio is in Vanguard Total Stock Market Fund [VTSMX]. What Brinker has NOT revealed is that Model Portfolio III (balanced fixed income-equity) lost 23.9% in 2008!

Honey's Market Report:
* Dow closed at 9995.91, a 1.3% gain for the week. (The Dow broke through 10,000 this week, but couldn't quite hold on to it.)
* Nasdaq Composite Index closed at 2156.80, up 0.8% for the week.
* S&P 500 Index closed at 1087.68, a 4.5%, up 1.5% for the week.
* GLD closed at $103.18...Last week it closed at $102.84.
* Treasury rates, TIPS, munis [LINK],
* Fed Funds, Mortgage, CD rates [LINK]
* Daily Treasury Statement [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] 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. Here is the KGO email address -- cut-and-paste it into your email compose window:


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