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Saturday, November 21, 2009

Bob Brinker's Moneytalk: Summary, Discussion and Excerpts November 21, 2009

November 21, 2009....Bob Brinker began by encouraging listeners to acquire the knowledge, strategies and tools to become their own personal financial managers so they can reach the "Land of Critical Mass." Bob Brinker said, "I mean there is always somebody out there trying to take a bite out of your wallet. The sharks are everywhere. Once you gain the knowledge to manage your money, you're on top of it. Instead of being a victim, you become a manager."


Brinker went over the closing stock market numbers. The S&P 500 Index total return year-to-date is 23.5%, including dividends. The Wilshire 5000 (total stock market index) total return is 24.8%, including dividends.

Brinker said: "Back in January of 2009, I had stated that in my opinion, 2009 would be a significant positive year for the stock market in the United States. It was considered a loony-tunes projection at the time....."

Honey editorial comment:
What a clever new marketing plan Brinker has come up with. He looked back over all of his disastrous calls in 2007, 2008 and 2009 and found one little sentence that fits well with what has happened in the market since March and makes him look good, and then he quotes it almost every week. I guarantee that within minutes, I could list at least 50 QUOTES that were ridiculously wrong, financially dangerous if followed, and have cost people who followed his advice a great deal of money.


Brinker called these are numbers "historic."

* Three-month Treasury Bill is paying just 1 basis point annually (there are 100 basis point in 1% point). If you invest $1000 for a year at 1/100 of 1%, you make 10 cents. It would take 7000 years to double your money.
* The six-month Treasury Bill is paying 1/8th of 1% annually.
* The one-year Treasury is yielding 1/4 of 1%.
* The two-year Treasury Note is yielding 0.72%.
* The Five-year Note is yielding 2.2%.
* The 10-year Note is yielding 3.37%.
* The 30-year Bond is yielding 4.3%

...annual for the next ten years is 2.2%, long-term = 2.5%.

AAA General Obligations Municipal
s... Ten-year are averaging 3.23, which is the taxable equivalent of 5% for those in the 35% federal bracket. Brinker said: "Obviously, we all know that the federal tax bracket is going higher, and we don't know how many are going to get tax increases. We only know that taxes are going up because the outgo has reached bizarre proportions in Washington."

....Year-over-year deflation through the end of October = 2/10 of 1%. Brinker said: "If you're a Moneytalk listener, you know that we have frequently said this number is going to go positive as we move into 2010. It could easily go positive for the year-over-year figure which would take through November or December.....But it still has to go up a little bit to get to the implied inflation rate."

Honey EC:
Even though it is lengthy, I transcribed the following conversation between Bob Brinker and caller Barbara verbatim. I believe that those who have followed Brinker over the past 13 years or longer (like myself), may find it utterly astonishing. For those who have not followed Brinker, I will write a commentary and post some documented facts about this tomorrow. It's quite late even on the left coast.
In the meantime, please do not take what Brinker said here at face value.

Caller Barbara in Walnut Creek, California said:
"We have listened to you for many years and we have had 3 different financial advisors over the last 13 years. And every one of them said to us, oh, we said well, maybe we should do the Bob Brinker, oh you don't want to do that. He's a market timer. ....That was their opinion.

In 1995, we started with $640,000. By 2000 we had $1.4 million. Then we lost about $300,000 in the 2000 debacle. It took us seven years to get that money back. Meanwhile, we changed advisors because nobody ever tells you to sell anything. They all want you to buy and hold. So we are now, since 1995 at $1.2 million, so we are still down, we almost doubled our original investment of $640,000 but we are now thinking, we have this advisor now who is saying, oh you've done so well this year, you're up 13%, 15%. But not really when you look at the total package. We had a lot more value that slipped through our hands.

Now we're retired and we need to start in January drawing from these funds. And we need about 5% a year which is more than we were hoping we'd have to take. So now we are wondering what are we paying this guy for -- $7,000 a year is what we are paying and why don't we just leave him -- and all of our money is in T.D. Ameritrade -- and follow your portfolio. I just don't know which one. Should we follow, I think it's Portfolio III which is more of a fixed income?"

Brinker said:
"We have a balanced Portfolio III which is essentially divided between the stock market and the bond market. Without question, in my mind that would be the appropriate portfolio for somebody like yourself.....Look, it's a personal preference. I certainly don't have respect for people who are out there in the business who disparage others. I especially would not have any respect for somebody disparaging someone for trying to sidestep a bear market.

You know, we're not always going to be successful in that, but we are always trying. And we were successful in a big way in the 2000 to 2002 bear market. We exited most of the model portfolio money out of the market in January of 2000, which was close to the highs, and we got back in on the successful retest around S&P 800 on March 11, 2003. That was a very successful market-timing experience for us. So you're not always going to be right. But when you are right, it can be a really big deal, and that was a really big deal for the investment letter and for the subscribers at that time to the investment letter. So to disparage somebody for from time to time doing something good in the market-timing arena, I personally think that is sour grapes.

You see, the problem that the buy-and-hold fraternity has is, they never have the chance of doing that. They never have the chance of side-stepping a major bear. And by the way, that was close to a 50% bear from the top to the bottom there in early 2000 decade. That was was a really major bear. The buy-and-hold fraternity, they never have the opportunity, or even the possibility of sidestepping a major bear because they are all in all the time. So every major bear that happens, they're going to ride it all the way. Now if somebody is trying to time a way from a major bear market, then from time to time, if they can call a major bear market, that's going to be a big deal.

They're not going to do it every time the time and that's where the dissatisfaction comes in. People say, well if you can't do it every single time, then why bother. Well I say, if you can do it some of the time, that's huge. Because when you compare it to the buy-and-hold mentality, you never have a chance. You're guaranteed in all the way for every bear all the way. I'm not willing to go down that rode. I'm going to try to sidestep as many major bear market as possible. And I'm not going to be able to do it all the time. But I'll tell you what, we had a great experience from January 2000 to March of 2003. We had most of our model portfolio money in cash reserves."

Barbara continued:
"And that's what most of these guys, like I said, we've had 3 over the last 13 years and they don't do that."

Brinker continued:
"Let me ask you a question about disparagement. What choice do you have? Put yourself in the shoes of that advisor. You went to that advisor, you mentioned, well what about following the investment letter that Bob Brinker writes? And the advisor says, oh no, that's no good. That's going to use market-timing. And suppose you came back and you said, now wait a minute, that investment letter put a sell signal out close to the highs in January of 2000 and then put a buy signal out almost at the precise low -- within 3% of the precise low, if you can believe it, on March 11, 2003 with the S&P at 800. Now what are they going to say back to you? They have to disparage that because they are all in."

Barbara agreed:
"That's correct, they're all in and they're not working for their money"

Brinker continued:
"The reason that people disparage that kind of an effort is because they can't do it themselves. And because they can't do it themselves, they have to disparage somebody that does it. This is nothing new to me. I can remember as far back as I can remember, anytime that you call a bear market, the buy-and-holders go nuts because they can't do it. So what they disparage trying to do it. They disparage anybody that tries to sidestep a bear market. And if you successfully sidestep a bear market and we were very successful from 2000 to March of 2003. So then, there is only one thing left to do, send out the attack dogs and they're good at that."

Barbara continued:
"So we are meeting with our guy on Monday to go over our portfolio and our thought is to hear what he has to say based on what we brought him 3 years ago, $989,000. Today we have $1.2, but out of that, we've paid him, out of that money has come $25,000 to pay him. So he hasn't done so well over three years."

Brinker replied:
"Well, I think you would have to do a comparison with the indexes and with the appropriate asset allocations. That's a time-consuming job which certainly is homework for you to try to give him a fair grade on his effort. I just react when anybody ever says, oh well, you should never try market-timing. (Barbara interjected: "They all say that.") Well, I'll tell you what, that's sour grapes because they are not ever able to do it. They are never able to do it. So they take that position of never being able to it, and then they say, well somebody that does it some of the time, but not every time, oh well there's no point. And that's not true because every time you sidestep a bear market, you put money in your account. Because you are cutting your losses every time you sidestep a bear. So even if you ride out a bear along the way, you're still way ahead, way ahead."

Barbara continued:
"Yes, and I agree and I appreciate you taking our call. We just sent for your newsletter so we're going to subscribe to it. And then I think we can do, through you, we can manage our own portfolio and just follow your guidelines and not take some risky bets here. We really can't afford to lose this money. This has got to last us a long, long time."

Brinker replied:
"One more thing. I would suggest to you Barbara that you think in terms of a 4% annual withdrawal rate on the portfolio. If you use the holdings in the balanced portfolio, you will find that most of that 4% will be generated from interest and dividends. For example, you take the dividends on the stock market portion and the interest on the fixed income portion, you should get a good chunk of that generated from the investment income. And if you want to take 4%, you can make it up by selling a small amount of equity shares to make up the difference. I do believe in the 4% withdrawal rate. And I certainly have never believed in this mentality, look you're not the first to say it, in this mentality out there from the sour grapes fraternity, that maintain oh no, it's buy and hold forever. Because I'll tell you what, I think that that kind of a mentality guarantees you that every bear market that ever happen, you're all in.

Barbara said:
"We're in it, we don't want to be in it again. We are pretty tired of it. We've done this for 13 years. We don't want to do this anymore."

Brinker said:
"You're in it. And I want you to remember Barbara, that anybody who is trying to sidestep a bear market, they're not going to do it every time....Good to hear from you, enjoyed the discussion very much. KGO country....."

Brinker's Saturday guest-speaker was Peter Clark "Keynes: The Rise, Fall and Return of the 20th Century's Most Influential Economist."

Chart is courtesy of Kirk Lindstrom:

Honey's Market Report:
* Dow closed at 10,318.6, gaining 0.5% for the week.
* Nasdaq Composite Index closed at 2146.04, a 1% loss for the week.
* S&P 500 Index closed at 1091.38, a loss of 0.3% for the week.
* GLD reached an another all-time-high this week and closed at $112.94. Last week it closed at $109.74. (Two weeks ago, when Lynn Jimenez (Brinker's fill-in host) advised a caller to sell gold ASAP, it was at $103.95.)
* Treasury Bond 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, 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:

Dixiegeezer took this great picture of a wild parakeet and framed it for us:


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