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Saturday, October 24, 2009

Bob Brinker's Moneytalk: Summary, Discussion and Excerpts October 24, 2009

* ITEM: October 29, 2009 at 2:36 PDT: National Debt:

*ITEM: The worst recession since the 1930's has unofficially ended. Economy grows at 3.5% in 3Q. [LINK]

* ITEM: Case-Schiller reports home prices rose in August -- 17 out of 20 cities. May signal home prices bottomed. See the percentages at Marketwatch [LINK]

* ITEM: If you haven't yet viewed the PBS Frontline program titled "The Warning," please take the time to watch it. Every investor, indeed every American should be made aware of the incredible callousness and thugishness of the people who were warned by Brooksley Born (of the CFTC), and how they shut her up and shut her down. TWO of those people are now in the Obama administration! Alan Greenspan acted like a tyrant. And after many Americans lost large amounts of money, lost their jobs and lost their homes, all he did was say, "I was wrong."


[There was nothing new on the Sunday program. Brinker did repeat his opinion that the recession ended in the second quarter.
Brinker's guest speakers are listed at end of this summary.]

Summary, Saturday, October 24, 2009

STOCK MARKET.....Bob Brinker recounted the closing stock market numbers and said that the S&P 500 Index year-to-date total return is 22%; and the Total Stock Market Index is 24%. He explained that the two components of total return consist of price change and cash dividends. The annualized dividend rate on those two indexes is about 2%.

.....Brinker then moved on to fixed income, saying that rates have been very low and stayed low this week. He recited the yield on all of the Treasuries. [See the links below for Treasury data.]

.Brinker said: "We like to make a comparison between 10-year Notes and 10-year Inflation Protected Securities to see what the base rate is on those TIPS and compare those to the Notes. And right now you get a differential of 2%. And what we mean by that is, you take that 10-year Note rate of about 3 1/2, subtract out the 10-year base rate on the 10-year TIPS of about 1 1/2, you get a spread there of 2%. And that spread represents the implied annual inflation rate for the next ten years as dictated by money flowing in the market. If you take the long-term TIPS and you compare that rate of 2.1 base rate with the long-term bond of 4.3, that differential is 2.2....That's implying a rate of inflation of 2.2% a year for the long term."

Brinker said,
"Paul Volcker is a voice of reason in Washington. But unfortunately....he is not getting the respect he deserves in terms of implementing his recommendations and I happen to agree very strongly with the core recommendation he's been making as part of the White House executive branch."

Brinker went on to say that in his opinion, they like to have Volcker in their photo-shoots because they think it adds credibility to their efforts. But all that goes out the door when they ignore his solid advice which would be a game changer -- and they don't have any better advice.

Brinker said:
"Paul Volcker is a shining beacon of light in this situation in Washington with reference with what to do to the financial sector in Wall Street. And instead of focusing on his recommendations and carrying them forward, I think they are more interested in the photo shoot opportunity and that is unfortunate."

Jack in San Diego made the statement that the FDIC was just about depleted but that Sheila Bahr did not want to use the line of credit offered by the Treasury for the FDIC because of personal feelings. Brinker said he didn't know about her relationship with the Treasury Secretary, but he thought that when the line of credit is needed, it should be used..... and her job is to co-ordinate her office with other government offices in the finance sector. So if there is a problem, she should "get over it."

John in Chicago
wondered how long China would keep helping us out with our deficit. Brinker said it isn't likely that China will be "helping us out"'s strictly business....they have chosen to buy $800 billion of our Treasuries.

Carl in Las Vegas
(Brinker calls it the "city that never sleeps.") talked about politics for quite a long time. Carl said he voted for Obama so he wasn't there to bash him, but he wanted to know how he could justify appointing the same people to correct the problems that they had created.

Brinker replied:
"This gets to the point that I raised earlier in this hour that I was going to talk about on today's broadcast and this is the time to do it. And this is this whole business where even today, despite of the promises of change, we have a lot of the same cast of characters in there from before. And on top of that, where we do have somebody that does offer a great idea for change, and that is to reverse mistaken policies of the repeal of Glass Steagall in 1999 by President Clinton......

.....Let's come up with a modern day Glass Steagall Act, and once and for all, let's separate the banking industry from the investment banking industry....They are two separate industry......Paul Volcker has made this case to the president. Unfortunately, he's not acting on it which is very disappointing.....Banking should be about taking in deposits and making sound investments.....Banking should not be investment banking.... Where we have these combinations like J.P. Morgan-Bear Stearns, like Bank of America-Merrill Lynch, to cite two. And even like Goldman Sachs-Morgan Stanley which even today retain their status as bank holding companies......Taxpayers should be there to back the FDIC and back up the traditional banking system. But the taxpayers should not be bailing out Goldman Sachs, Morgan Stanley, Bear Stearns, Merrill Lynch or any of them....

.....The reason Paul Volcker is right about this is today the the taxpayer is stuck with the so-called too big to fail responsibility of bailing out companies that have a win-win business plan. If an investment bank makes a lot of risky investments which they do all the time, if they make a lot of money, they keep the money. But if they go out and screw Lehman did, Bear Stearns did and Merrill Lynch did.....the taxpayer gets stuck with the bill......

.....Let me sum it up this way.....The political office holders in Washington and their appointees -- the relationship between those people and the Wall Street Bankers is way, way too cozy and that's the problem. Not with Paul Volcker....he speaks his mind, he tells it like it is and he has it totally right.....Keep the investment banks separate....

.....Let me ask you a question. Is it a conflict of interest for a president of the United States, or a member of congress, to take campaign contributions from investment bankers or bankers? Why should bankers or investment bankers, or their companies, be making campaign contributions to Barack Obama when he was running, or John McCain when he was running, or any of these members of congress.....Don't you see that as an overt conflict of interest for them to be taking money from these people when we are trying to get this thing right?......

.....Why do you make campaign contributions? Do you make it because you like the way the candidate combs his hair? Or do you make it because there are some policy issues that you want to advance.....The answer is obvious.....We all know this, so why do we allow it.....Why are these people going to Wall Street hands out asking for contributions. If anybody questions it, let me make sure I say it one more time, The United States of America, as we just proved, have the very best government that money can buy."

John in Parsippany asked Brinker about market timing bond funds. He wanted to sell his Vanguard Bond Funds, including GNMA Fund and put the money in a money market account. He thought interest rates may be going up and bond funds coming down in price.

Brinker replied:
"Well here's the way that would work. What's the yield now on the Ginnie Mae, about 3 1/3 or so?.....And the yield on the money funds are close to zero.....So let's say that hypothetically somebody sold a Ginnie Mae share at $10.74 and they would then forgo the 3.3% yield, they would not be making that anymore. They'd be in a money fund at close at to zero. So let's say they waited one year......One year from now, they would have lost 3.3% because they didn't collect the interest. So they would have to get the NAV down 3.3% in order to break even. So you'd need the Ginnie Mae shares at about $10.40 to break even.....This assumes you are in a tax-privileged account."

DEFICIT....Brinker said:
"Our deficit has soared to new highs. It's right around $12 trillion now and the Congressional Budget Office is talking about $20 trillion based on current administration spending plans and congressional spending expectations over the next ten years."

"I think that is here now. I think that we have to seriously question whether the long-term growth rate of the real Gross Domestic Product of the United States is going to be anywhere close to 3 1/2%. If you go back over the last x-number of years, it's been in the area of the high-two's. And it's been coming down. It used to be we would think we could grow the economy 3.5 inflation adjusted. I don't right now that's a realistic assumption based on the amount of interest that we are obligated to pay every year on the ever growing national debt....."

..Brinker commented that "we have to change" because we are "selling the country down the river," then he said: "One of the major rating-industry leaders, this month of October, has already stated on the record that it is possible that the Treasury could lose it's triple-A rating. They said it and they make the rating."

Brinker said: "China today owns about 6 1/2% of all the debt that is out there....They are doing it for diversification....they have a basket of currency that they own....They own yen, euros, dollars, and they are not really thrilled with this fiscal irresponsibility that we've been seeing out of congress......this free-spending, drunken-sailor spending mentality that they have in this congress. And they don't seem to even take it seriously anymore. They just go out with these projections and borrow and spend......

.....There are a lot of people unhappy with it...... They call the program all the time. Me, I'm unhappy about it. You should be unhappy about it. Because frankly, it's an outrage. This is one of the reasons that you've seen such weakness in the dollar. Because the official policy here is to debase the U.S. dollar by letting it fall in order to increase our exports.....And this is what we are getting out of Washington.....It doesn't matter which party is in power anymore.....We in the United States have the best government can buy."

PRESIDENT HAT IN HAND....Brinker said:
"We had a call today talking about the subject and I've been talking about the great advice that Paul Volcker has given to the president. And so far, he's being ignored on this and that's a sad shame. One wonders when you see the president going hat in hand for campaign contributions this week for the DNC in the canyons of Wall Street.....

.... One wonders why is this relationship so close, why is it so cozy--well we know the answer to that. But it doesn't apply to Paul Volcker. He's above it all....He's basically gone to his boss, the president, and told him straight out what the problem is. And unfortunately, he's being ignored.....Paul Volcker has it right. He knows that there is only one viable way to go about it and that is to break up these monstrosities that have been created in the post Glass Steagall period, since 1999....

....Here we have somebody, he's kinda like a gift to the administration. Paul Volcker, yes, he will serve as an advisor to the administration. Yes he does have ideas -- first idea, let's get back to Glass Steagall. And they ignore him which is an insult in and of itself, which is why I think that Paul Volcker spends almost no time in the office they gave him in Washington. Did you know that? He's almost never in his office in Washington. He has offices in Gotham City......He knows they're not listening to him....

.....Instead it's the same old, same old. The reason it bothers me is the nation was promised change, we were going to have change. It was going to be different this time. Well, it's not different this time. It's the same old Saturday night. President goes to Wall Street, hand in hand this week for campaign donations for his party....It doesn't matter which party is in power because the relationship between these politicians and the Wall Street bankers is way too cozy."

.....Brinker commented that the administration's controls on compensations are not going to work because really high quality people have the option to walk out the door and go to companies that are not covered by executive branch compensation controls -- that includes way over 90% of companies around the world -- Brinker guarantees this will happen -- and it will weaken these taxpayer-owned companies.

Brinker said:
"Joe Sixpack loves this issue. Joe Sixpack thinks this is the greatest thing he ever heard. Oh yeah, let's cut their pay, sound good. Let's drink to that. Well let me tell you something, it's not going to make any difference. What would make a difference would be if they would listen to Paul Volcker and bring back Glass Steagall, and break up these behemoths that they've created and put back that wall.....

......One of the great lines of Ronald Reagan's term, in my opinion was "Mr. Gorbachev, tear down this wall." I love that quote......There should be a new quote from this president and unfortunately we're not hearing it. And the new quote should be, "members of congress, put this wall back." And this wall is between the banks and the investment risk takers in the investment banking industry. Members of congress, please, have you no decency? Put back this wall....This is Moneytalk."

Brinker's Saturday guest-speaker was Duff Mcdonald, "Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase"
[Here is a link to where the book is priced at $18.48.]

Brinker's Sunday guest-speaker was Dale Robyn Siegel, "The New Rules for Mortgages." [Here is a link to where the book is priced at $10.76.]

Honey's Market Report:

* Dow closed at 9972.18, a 0.2% loss for the week -- unable to hold the 10,000 level.
* Nasdaq Composite Index closed at 2154.47, down 0.1% for the week -- can't get much closer to flat.
* S&P 500 Index closed at 1079.60, a 0.7% loss for the week.
* GLD closed at $103.49 last week it closed at $103.18 -- that's flat as it gets, but it had been up early in the week. It dropped a bit on Thursday and Friday
* Treasury rates, TIPS, munis [LINK],
* Fed Funds, Mortgage, CD rates [LINK]
* Daily Treasury Statement [LINK]

[Note: Moneytalk was pre-empted on KGO810 San Francisco today (Saturday) for a Cal-Bears game. ]
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:

Recently, a flock of robins came in and helped themselves to my pyracantha bush that grows just outside my patio. It's really quite tall because it's several feet to the ground. There are still enough berries left to be beautiful against the backdrop of the Santa Cruz Mountains. The robins will return and finish their feast, so I took this picture this morning. Click on it for a full screen view:

Monday, Dixiegeezer sent this beautiful eagle. Is it the American Eagle. Why so serious?


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