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Saturday, February 27, 2010

February 27, 2010, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

February 27, 2010....Bob Brinker hosted Moneytalk this weekend......First, some subjects that Bob Brinker did NOT talk about on Saturday:

* He never mentioned the subject that was so hot last week, e.g., the discussion about the possible government takeover of private IRA/401Ks. [Sunday update: A caller specifically asked Brinker about this subject.]
Brinker replied: "We talked about it last weekend is the fact that comments are currently being accepted in connection with the Employee Retirement Income Security Act and the rules under the IRS code that determine how that act can be implemented going forward. Now what they're saying is that people suffered losses as a result of the bear market in 2008 in their retirement accounts. So they're raising the question, can we provide a government annuity -- a monthly check in return for the money that's in the IRA or 401K accounts that would protect people against that kind of volatility in the portfolio.....

.....We have no information at this time on whether such a program will ever happen. And if it did happen, we have no indication yet as to whether it would be a voluntary program or a mandatory program. What we know is that they are collecting feedback from the citizenry now to see with reference to these employer-sponsored plans -- and this includes the IRAs too -- whether there is anything that will be done at the federal level in connection with these plans. Nothing has been proposed in Congress. Nothing has been voted on or signed into law. It's in the talking stages.....

.....Now there are people out there that are upset that people in the government are talking about this subject because they feel that this is private money. The money that you have in your IRA and 401K is private money, and they feel that nobody in Washington should be talking about voluntary or mandatory take-over of your IRA or 401K money. These people are upset. What we are doing right now is keeping our Moneytalk listeners informed that this is a subject that is in play.....

......I am making no changes in my IRA accounts based on this story at this time....It is too early; we don't know anything yet.....All we know is they are accepting opinions on this topic.....This all got started when President Christina Kirchner of Argentina confiscated pension money -- that's how it got started. "

* He didn't mention the so-called "health-care summit" where the possibility of another $Trillion dollars+ being added to our national debt was discussed.

* He never mentioned the stock market, and there were no calls about it.

The Dow rose 4.23 points on Friday to close at 10,325.26. For the week, down 0.7%.
The Nasdaq rose 4.04 points Friday to close at 2,238.26. Down 0.3% for the week.
The S&P 500 Index climbed 1.6 points on Friday to close at 1,104.49. For the week, down 0.4%.
Honey EC: As I wrote last week, Brinker considers this recent market pullback a "cyclical bull market correction" and a "health-restoring" buying-opportunity. Brinker's model portfolios have been fully invested since March 2003. At their worst, the model portfolios lost over 50% of value in the 2008-2009 megabear market. According to the February issue of Marketimer, Brinker's current S&P 500 Index target range remains at 1200 to 1260.

Subjects Brinker covered on Saturday:

* The earthquake in Chile.
* The tsunami in Hawaii.
* Copper producers in Chile (largest in world) report no major damage and will be running again today.
* Interest rates remain very low.
* Bernanke made it very clear to congress that the economy is sluggish.
* Fannie Mae came back for a lot more money after reporting a loss of $16.3Billion for the last three months of last year. They are asking for $15.3Billion.
* Fannie Mae lost $137Billion over the previous 10 quarters.
* Fannie/Freddie guarantee/own 28% of the 11.8Trillion U.S. home market -- that is why they are bailed out.
* Banks depleted their capital in the big rush to repay TARP money and that is one reason why it is now more difficult for people to borrow money.
* The U.S. cannot continue to run double-digit deficits. If it continues, the rating agencies will downgrade the rating of U.S Treasury debt -- that will result in higher interest rates being paid. We have time to get our house in order, but Washington doesn't seem to have the will.

Several time during the program Saturday, Brinker hammered Henry Paulson because he turned down Brinker's invitation to be a guest on Moneytalk. Brinker said he was very "annoyed with the Treasury" because Paulson had refused his invitation and considered it "stupid" since Paulson was trying to promote his book.

Brinker speculated that Paulson probably refused because he did not want to face the "hard questions" that he might get from Brinker and the callers -- that Paulson had instead chosen to face "softball questions" from Charlie Rose. Brinker said that he had not read Paulson's book because of Paulson's refusal to make an appearance on Moneytalk.

As Brinker was talking about Paulson, a caller claimed that a University of Chicago alumni had put the blame for the "economic disaster" on the "Bush administrations reluctance to regulate." Brinker said that was surprising coming from that source. Brinker said: "It's quite obvious that it was a lassez faire government policy that was partly responsible for what happened."

Brinker said:
"If you recall, Hank Paulson raised the TARP money under false pretenses....He said he was going to pay down toxic assets.....Instead of doing that, he turned it into a capital infusion item. I think it was probably a good idea to use it as a capital infusion item. After all, he already had the money. He had $700Billion to play with.... It provided a lot of liquidity into the economy."

[Sunday update: Brinker hammered Hank Paulson in each hour of the Sunday show, including in the guest-speaker hour. One might conclude that Brinker wants revenge against Paulson for declining his invitation to be on the show. Could the great and "fair" Bob Brinker be THAT petty, immature and hateful?]

Here's Henry Paulson's book:

Brinker's Saturday guest speaker was Andrew Ross Sorkin:

Brinker's Sunday guest-speaker was Lawrence McDonald who wrote a book about the collapse of Lehman Brothers.

Moneytalk is Available
To Go on Demand Totally Free at KGO810 radio for seven days after broadcast. The three hours of the programs are archived Saturday and Sunday 1-4pm. To download the programs and listen later, just choose the day, right click on each 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:

[For those who may not know: Bill Flanagan, Brinker's long-time guest host, passed away a couple of weeks ago. My sincere condolences to his family.]

Sunday, February 21, 2010

Bob Brinker: Possible IRA/401K Government Confiscation

February 21, 2010....Yesterday, much of Bob Brinker's Moneytalk was devoted to the talk in Washington about the government helping themselves to our IRAs/401ks. I transcribed some of Brinker's dialogue on the subject. Please see yesterday's summary.

Based on the current information that's out there, it looks like progress is quietly moving forward. This subject was first covered on Moneytalk back in November, 2008. I transcribed and paraphrased some of the conversation and Jeffchristie found the transcript for us:

Blogger jeffchristie said...

Kevin in Kalamazoo called in and asked Bob about the government taking over IRAs and 401k's. This subject was first discussed back in November of 2008 and Honey documented it here at the Bee hive. Here is what took place back then:

(Honey said:) I am going to cover the call from Ken in depth because the subject is very important and I know that some of you are concerned. I have included excerpts from Brinker's very interesting comments:

Caller Ken said he had met Brinker a few years back in San Jose at the Leukemia "Curathon" and had been a Moneytalk listener since 1986. He thanked Brinker for making his road to CRITICAL MASS very smooth. (Honeybee EC: That's about the time that I began listening to Moneytalk -- late 1986 or early 1987). Ken asked Brinker about the House of Representative plan involving George Miller and Jim McDermott to eliminate the 401K system and replace it with a mandatory federal program.....

Brinker said: "This basically started with hearings that were held by committees involving the politicians you mentioned....... And what they did, they had a witness come into the hearing from the New School in Manhattan, and her name was Theresa Ghillarducci. (Honeybee EC: Some are calling her the most dangerous woman in America.) Theresa's idea is to develop a program that would allow 401K convert those accounts to government retirement programs. Now what that would involve, if you elected to convert your account, you would give all the money in your 401K to the United States government.......and in return for that, you would receive a guaranteed retirement payout for the rest of your life once you became eligible.......

......On the program........we suggested that one of reasons that you would invite Ms. Ghilarducci into your hearings to present this scheme would be that you think it's a pretty good idea. I think it's a reasonable leap of faith to think that some of the people, either chairing or on the committee, think this might be a pretty good idea, and that's the reason they invited Theresa Ghilarducci in to present her scheme -- and that's what it's all about."

Ken pointed out that even though they are saying it's not going to be mandatory, if it doesn't get much participation, they will turn around and make it mandatory -- that's scary.

Brinker responded: "I think that if it's not voluntary that you are absolutely right.......Not only would I oppose it vehemently, but I would expect that large numbers of 401K holders people across America would rise up in protest of a mandatory confiscation -- that's what it would be........If they made it mandatory that would mean that the United States Government.......would confiscate all assets in 401K and replace those assets with a guaranteed retirement payout. Now I think if they proposed that to be mandatory that would be a dramatic step toward basically a Socialist system in Washington."

Ken said that would be just like they did in Argentina.

Brinker replied: "Yeah, I wonder, and I don't know where Ms. Ghilarducci got her idea, but I noticed that her testimony occurred not that far away from El Presidente Christina in Argentina announcing that the government of Argentina -- and this just happened within the last several weeks -- has announced that they are confiscating all pension fund assets in the country of Argentina -- it is a government confiscation of funds."

Ken said that with all the programs that are currently being proposed, suddenly there is a $3Billion pot of money out there that they could go get, and that they have been saying we are all going to have our own little account in the Social Security Trust Fund, and we all know that is just a bunch of IOUs.


Brinker agreed that Ken was exactly right -- the Social Security "Trust Fund" is a pile of IOUs. He said this whole 401K thing does bear monitoring, but that he had not heard the president-elect give any opinion on it yet. Brinker said that he had done some research and the only connection he made was with the two House of Representative members and Ms. Ghilarducci -- but he found nothing coming out of the White House or White House-elect. Brinker repeated that he has no problem with it if it is voluntary, but mandatory is a different story.

Ken said that if they stop the tax breaks that you get with a 401Ks, and stop the tax-breaks to companies that do a match to 401Ks -- you are "out of luck."

Brinker told Ken that he thought there were two reasons that would make this an especially appealing option to members of congress. Firstly, if they make it mandatory, they could confiscate $trillions of dollars of 401K assets and put that money into the coffers of the United States Government. And Brinker said that you know "the government spends every penny it gets its hands on -- then they go out and borrow and spend more."

Brinker said: "I think there are members of congress who look at these $trillions of dollars of assets and they salivate at the thought of spending that money, which they would........The second thing that I think appeals to certain members of congress is if they establish a mandatory program, that would de facto eliminate your ability to deduct a portion of your income from your taxable income in the form of a 401K contribution. That means that would be an immediate increase in annual revenue for the federal government because you would no longer have that deduction. I think there are CERTAIN members of congress who salivate at the thought of spending that additional revenue."

(Honeybee EC: In my opinion, they will of course start out with a voluntary program to get their noses under the tent, but it won't stay that way. It's astonishing to read about the original Social Security Act and compare it to what it is now. Does anyone know what the original payroll tax withholding was?)

* Obviously, based on what Brinker said yesterday, he is now convinced that this will not remain a voluntary system, but will become confiscatory.

Saturday, February 20, 2010

February 20, 2010, Bob Brinker's Moneytalk: Summary, Commentary and Excerpts

Honeybee update: As many of you know, I have been gone from the blog, battling pneumonia since early in January. Twice, I thought I was on the mend and suffered a relapse -- consequently, I had to undergo some extensive tests and three rounds of very strong antibiotics. Altogether, this left me very weak, so I am working hard to regain strength. My sincere thanks to all of you who wrote emails and blog comments with your good wishes and blessings. I appreciate you more than you can know.

February 20, 2010....Bob Brinker is hosting Moneytalk today. Bob Brinker's opening monologue was devoted to "our dysfunctional government which is incapable of governing." There was nothing said about the current stock, bond or gold markets on the program today.

Brinker's model portfolios are still fully invested. In the January 2010 Marketimer, Page one, Brinker said: "cyclical bull market corrections can occur at any time and we would regard any such pullback as a health restoring event if it were to occur in the weeks ahead." So Brinker must consider this pullback a buying opportunity. His current target range remains at S&P 500 Index 1200 to 1260.

Since all of Brinker's former cyclical/secular market guidelines went swirling down the sewer drain in the years between 2003 and 2009, Brinker has created some new ones. He now says that a "cyclical bull market correction typically fall within a range of 5% to 10%, but can reach the teens in percentages." (The S&P 500 Index dropped about 7% this year.)

For the most part, Brinker's program has become just another political talk show. The only difference with Brinker is that he calls his program "Moneytalk" and bills himself as a "trusted financial advisor." He seems to use that as license to promote his own opinions with very little opposition to anything he says (except here). Most political talk show hosts are upfront and honest about where they stand politically.

Brinker discussed the estate tax at length. Of course, there isn't any in 2010.

Brinker seemed very upset about the discussion that is going on in Washington DC about "confiscating" IRAs and 401Ks by converting them into annuities paid with Treasuries. Some readers don't agree that this would ever be mandatory and have sent comments already. Please read the comments section....

Brinker said:
"So far, the only thing that's been done with reference to confiscation, and that's what I call it, confiscation of IRA money, is that there has been some talk in Washington about the possibility of mandatory United States Treasury annuity conversion of IRA money......I've looked at it, and the way it's been described so far, is there has been talk from a very small group about the possibility of a proposal. And that proposal would essentially be this, that the money that is currently in IRAs, some or all of it to be determined, would come under a mandatory United States Government conversion provision to a Treasury annuity where your money would be converted into a payment stream from the U.S. government......

......So far, it's in the very, very preliminary stage of discussion. Now I think when something that radical, I regard this as one of the most radical ideas that I've ever heard. It almost sounds like President Christina, down in Argentina and some of the stuff that she's done. Some of the stuff that she's done is mind-boggling. I find it difficult to believe that the United States would go down that road, but I would not be making transaction action at this point based on such a possibility.....

.....I don't think you would get a choice for Treasury Notes. Again, I cannot emphasize how preliminary this discussion is but I do not believe, based on what I've heard you would get a choice of taking Treasury Notes. The way it's been described to me, if it were to happen, the United States Government would take over part or all of the proceeds of IRA accounts and convert that into an annuity payment stream, paid out of the Treasury. In other words, they would take the money from your IRA account -- you know how badly they need money in Washington. They are running a black hole of deficit spending and they are addicted and count get out of it......

.....The way it's been described to me, I don't think you would have an option to say, here's my IRA money, give me Treasury Notes....They are interested in getting the cash into the U.S. Treasury and then just giving you an annuity payment stream in return for the cash. Let me go on record right now on this, I am 100% against government confiscation, and that is what it is.....I can assure you, if this idea gains traction and if we're broadcasting here on Moneytalk, I will oppose this with every fiber.

Brinker's Saturday guest-speaker was Arthur Laffer:

Brinker's Sunday guest-speaker was David L. Scott:

Moneytalk is Available on Demand totally free at KGO810 radio for seven days after broadcast.
The three hours of the programs are archived Saturday and Sunday 1-4pm. To download the programs and listen later, just choose the day, right click on each 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:

Thursday, February 4, 2010

Bob Brinker's Moneytalk: Summary, Commentary and Excerpts for Jan 31 and Feb 1, 2010

Below are excerpts from David Korns "interpretation" of the January 31 and February 1, 2010 Moneytalk (Bob Brinker Host) shows.

David Korn writes "The Retirement Advisor" and "David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service" newsletters. Just ask us for details on how to get a discount on subscriptions to both newsletters. You can read more about David Korn here.

David Korn's Moneytalk Interpretation


“The trend is your friend until it ends.”

- Traders adage.
************** **********************************


Dow: 10,185.53
Nasdaq: 2,171.20
S&P 500: 1,089.18
10-Yr. Bond: 3.65%

Brinker Comment: The S&P 500 had a total return of negative –3.5% for the month of January closing the week at 1,073.87. Bob referenced the January Barometer and said he it has been given a lot of ink, but he doesn’t think the numbers bear it out in terms of forecasting the remainder of the year.

Bob then went on to mention that we are in the second year of the presidential election cycle. Bob said the only year in the presidential election cycle over the last 70 years that jumps off the page is not year number 2, but rather year number 3. The annual rate of return using the Dow over the last 7 decades has been into the teens in the third year (16.5%) which is a very very high number. When you look at years 1,2 & 4 of the presidential cycle, they are nowhere near number 3. All of those are in the range of 3.7% to 5.6%.

EC: Bob has paid a lot of respect to the presidential election cycle and has referenced it quite frequently in his newsletter. And I think it has influenced his timing calls on several occasions. I am going to include a primer on the presidential election cycle in next weekend’s newsletter.


Brinker Comment: Not much happened at the Federal Open Market Committee meeting this week. The fed funds rate stayed in the range it has been in, from 0-0.25%. The Fed also stated that they intend to keep rates at exceptionally low levels for an “extended period.” That particular comment drew the ire from one of the Federal Reserve members who was the dissenting vote. Bob noted that many people seemed to get bent out of shape over whether rates will remain between 0-0.25%. The reality is that is not all that important. If we were to get some normalization of rates and it was accompanied by sustainable and reasonable growth rate with reasonable expressions of inflation, than it would be fine. Whether the fed funds rate is 0.25% or 2% would not me material if we had that reasonable growth and reasonable inflation.

EC: Voting against the FOMC’s policy action this week was Thomas M. Hoenig who believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.

Brinker Comment: Bob noted that the FOMC said that economic activity was continuing to strengthen and that the deterioration in the labor market was abating. Bob said there is no question we have had a rebound in the economy, not only in the 2.2% annual growth in the third quarter as measured by real GDP, but also the 5.7% real GDP in the fourth quarter. There has been a lot of inventory restocking contributing to that figure following the end of the recessionary period last summer. The FOMC statement says household spending is expanding at a moderate rate but remains constrained by a weak labor market. It is also true we have a weak labor market, with the unemployment rate above 17% when you include all the discouraged workers. Household spending is also constrained by modest income growth, lower housing wealth, and tight credit. All of this is contributing to the lack of enthusiasm toward the economy. The 5.7% growth for the fourth quarter was a good number, but it was only one quarter and we have not seen the kind of activity we want on the jobs front.

EC: The GDP report for the fourth quarter was the advance estimate so it is subject to further revision. The revised estimate will be released on February 26th. The increase in real GDP in the fourth quarter was based primarily on contributions from private inventory investment, exports, and personal consumption expenditures. Read more about the report at this url:

Brinker Comment: The FOMC’s statement also pointed out that we have had a pick-up in business spending in equipment and software, but investment in structure is is still contracting and employers are reluctant to add to payrolls. All of this is happening when people are tired from a very difficult economic economy. The year 2008 was a very tough economic year, a rough year for the stock market investors and a volatile year for bond market investors who weren’t in mortgage-backed securities. Then we had 2009 which was an outstanding year for stock market and bond market investors, but investors want some stability.

EC: Read the FOMC statement at this url:


Brinker Comment: On the fixed income side, rates remain very low:
• Three-month Treasury Bill is paying just 7 basis points annually.
• The six-month Treasury Bill is paying 14 basis points annually.
• The one-year Treasury is yielding 27 basis points.
• The two-year Treasury Note is yielding 0.81%.
• The Five-year Note is yielding 2.3%.
• The 10-year Note is yielding 3.6%.
• The 30-year Bond is yielding 4.5%.

Brinker Comment: In order to get a handle on inflation, Bob said he compares the Treasury Inflation Protected Securities versus regular Treasuries. Currently, the 10-year Treasury Note is yielding about 3.6% and the 10-year Treasury Inflation Protected Security is yielding 1.27% which gets us an annual implied inflation rate of 2.3% over the next ten years. Looking at a longer time frame, the 20-year TIPS (longest maturity out there) is yielding 1.9% versus the 30-year Treasury Bond which is yielding 4.5% which prices in annual implied inflation rate of 2.6% over the next couple of decades. Bob pointed out that both of these implied inflation rates are currently BELOW the current annual rate of inflation of 2.7% as measured by the Consumer Price Index.

Brinker Comment: The Ten-year AAA Municipal Bond General Obligations are currently yielding 3.25%. if you were in the 35% top federal tax bracket, that would equate to a little over 5.00% taxable equivalent; and starting next January, if you are going to be in the 39.6% highest bracket, your taxable equivalent yield would be 5.4%.

EC: Municipal bond issuance set a new record last month, with $31.7 billion in proceeds from 654 issues. Three of the 10 largest municipal bond issues involved Build America Bonds. More at this url:


Caller: This caller noted that there is a theory that demographics hold the key to the economy and is based on the view that people 35-55 years old spend more money than other age groups and this theory predicted you would have a big economic boom between 1980-2005, but now that the baby boomers are moving out of that spending range it is going to have a negative impact on the economy. What’s your take on this? Bob said he would feel better about it if we didn’t have the fiscal situation with out of control spending in Washington. Since the election in Massachusetts, the President has started to talk about fiscal responsibility, but we haven’t seen anything of that sorts. The idea of freezing non-discretionary spending for three years to save $20 billion a year is a drop in the bucket when we are looking at over a trillion each year deficits. The thing to be the most concerned about is fiscal irresponsibility, not demographics. Bob acknowledged that when you demographics can play a role, which makes it more important now than ever before to get our books in order.

EC: Harry Dent, author of “Changing Global Demographics” is one of the big proponents of the view that the caller mentioned. He tracks demographics worldwide to determine consumer spending and has pointed out that the age range of 46-50 year olds will decline in the US for the next 25 years until members of Generation Y enter this age category. A good article that you can read for free online courtesy of the Harvard Business Review entitled, “What Demographics Tell us About the Economy” can be found here:


Caller: This caller said he has been trying to find higher yields for his cash and was considering investing in a utility stock, some of which have higher yields. He knows there is more risk, but thinks those stocks are generally less volatile than others. He is particularly interested in investments in nuclear power although he is not sure what impact a cap and trade law might do. Bob said he wouldn’t be holding his breath on a cap and trade bill being passed at this juncture. Bob said if you want to go into the utility arena, he would prefer going into the exchange traded fund to avoid the risk factor of picking an individual stock. Bob suggested the Vanguard Utilities ETF (Ticker: VPU). Bob said for utility investors this should be given serious consideration and has a current cash yield of almost 4%. It has an annual expense ratio of just 0.25%. Bob said he likes all of that. Bob said you could use a discount broker and this particular ETF has decent volume.

EC: There are plenty of funds to chose from in this area. Morning star lists 23 utilities mutual funds and 19 utilities ETFs. The ETF from Vanguard is the third largest utility ETF. The top two are the Utilities Select Sector SPDR (ticker: XLU) and the iShares Dow Jones U.S. Utilities (IDU). I view any of these three as good options in this area. If you are looking for a mutual fund, the three biggest ones as measured by total assets include Franklin Utilities (FKUTX), MFS Utilities (MMUFX) and Jennison Utility (PRUAX). If you are brave enough to try an individual company, take a look at one of the following:

1. Southern Company (Ticker: SO);
2. Consolidated Edison (Ticker: ED); and,
3. Progress Energy (Ticker: PGN).

Learn more about those companies at this url:


Caller: This caller owns a home with a mortgage of $500,000 which has a rate of 5-7/8%. He has a few hundred thousand in cash from the sale of a house and wanted to know if he should pay down the mortgage or invest in GNMAs? Bob said there is a big spread between the mortgage rate and the GNMA yield right now because the yield on the GNMA has come down. Bob said the money is earning close to nothing in cash right now, so paying off the mortgage would earn you a decent rate of return. Bob suggested making sure he had enough cash for emergency needs and to consider the tax deduction he might be getting from the mortgage as well.

EC: Check out the article that addresses when to pay off a mortgage early. It comes from a web site with a name I like — Direct link to the article is here:


Brinker Comment: We got some news this past week on the housing market. Home prices in 20 top cities in our country were up for the month of November. This marks the 6th consecutive month of increases, though modest. The S&P/Case-Shiller Home Price Index was up 0.2% from October to November on a seasonally adjusted basis. If you go year-over-year, however, the index is down 5.3%. The big winner in the latest reading was Phoenix, which had seen its prices get creamed in the downturn. There are some signs of stability coming into the housing market. At the same time, housing prices are nowhere near their peak level. This 20-city index peaked 3-1/2 years ago in July 2006. Since then, it is down close to 30% from their highs. That is a lot of money. On a $3000,000 property, that would mark it down to about $210,000.

EC: Read more about the latest data from the S&P/Case-Shiller Home Price Index at this url:


Caller: Do you think we will ever have a resurgence of manufacturing and should the government do something about it? Bob said he didn’t think so and when he heard the President talk about bringing back manufacturing jobs into our country, he just scratches his head. The chief culprit is the cost of labor in our country, including benefits, and that is we have had a secular decline in manufacturing. There are other factors, such as environmental that impact this as well. It is much cheaper, for example, to open up a facility in Mexico where you have far less regulation and the labor is much cheaper. Bob said we have become about a 70% service-based economy. About 20% of the US economy is manufacturing-based which is still important. We have manufacturing in technology in Silicon Valley and New England. And that is important to the cyclical side of the economy. But we are destined to become a service-based economy.

EC: One of the other factors that I see employers going out of the country is because of the cost of litigation in our country in dealing with employees. Not ascribing a moral judgment here, just pointing out that this is another big cost of employing workers in our country where lawsuits are far more frequent than in other parts of the world.


Caller: This caller is interesting in setting up for her grandchildren’s education and is considering a 529 or Coverdell. Bob said the 529 plan is designed for college and post-college. You can put a lot of money in there quick as well. The Coverdell Savings Account allow you to use that money for any level of education, including private high school or grade school. On the other hand, you can only contribute $2,000 per child per year. There are income limitations to eligibility and you want to make sure your child is under age 18 when you are contributing. One of the nice things about this account is you can use the money before college, such as for private elementary or secondary school. Bob noted that the web site, has lots of useful information on this score.

EC: Lots of ways to sock away money for your children, grandchildren’s education. 529 plans allow you to invest tax free for college, graduate school and vocational school. There is no annual contribution limit, but each plan has its own maximum contribution limits, some as high as $300,000 for each beneficiary. You can invest it all at once, but the issue you will face is the gift tax because your contributions are treated as gifts.

EC#2: For federal purposes, you do not get a deduction for the money you invest in a 529 Plan but the money is withdrawn tax free when you use it for educational purposes. On the state level, many states offer a deduction against your state income tax for at least some of your contributions if you use your own state 529 plan. There are a couple of states, however, which if you live there and do not use their in state 529 plan and use an out of state plan, even if it comes out tax free for federal purposes, you will have to pay state taxes.

EC#3: If you start a 529 plan, but the child you are saving for decides they do not want to go to college, what you normally would do is change the beneficiary to another family member, whether it be a sibling, a cousin, or even a grandchild. If there is nobody to use the funds, the other option is to take the money out subject to income tax and a 10% penalty. Unlike a gift to a uniform transfer to minors act account, or a contribution to a Coverdell Education Savings account, you can get your money back in the 529 plan if there is an emergency and you need the money. The contribution you made can come out without tax or penalty. The money that was earned in the account, however, would be subject to tax/penalty.

EC#4: The Coverdell Education Savings account allows you to save money tax free for not only college and graduate school, but also for elementary and secondary school. The problem is that the Coverdell expires at the end of 2010 and was not protected like the 529 Plan in recent legislation. More on Coverdell Savings Accounts at this link:

EC#5: As far as the Uniform Gifts to Minors Act (UGMA) is concerned, the money you invest can be used for any purpose for the benefit of the child, but when the child reaches the age of majority, the money belongs to the child outright. There is no contribution limit to the UGMA, but the gift tax exclusion applies as it does to all these types of accounts. More on UGMAs at this link:


Caller: Over the last few months, the yield on the GNMA fund has dropped. When we turn the corner and rates start to increase, would you expect the net asset value to still stay within the $9.50-$10.50, even when the yield starts to go up? Bob said he thought that was a reasonable expectation. Bob added that the GNMA fund is trading near an all-time high, but many investors don’t realize that because they failed to adjust the net asset value in the wake of the 7 cent year-end distribution. The current price is within 1% of the all-time high when you take into account this distribution. If rates rise, you can expect diminution in the net asset value.

EC: The yield on the GNMA fund continues to fall. As of January 22, 2010, the yield is 2.49%.


The Moneytalk guests weren’t worth summarizing. On Saturday, Bob had on Peter Navarro, author of the book, “The Coming China Wars: Where They Will Be Fought and How They Can Be Won.” Learn more about the book at this url:

On Sunday, Bob interviewed Daniel Pink, author of “Drive: The Surprising Truth About What Motivates Us.”


This link brings you to the full economic calendar:

FINAL THOUGHTS FROM DAVID KORN: Go Saints! Have a great week! - David

Background: David Korn and I ( have been writing about Bob Brinker since the 1990s. I also write about other financial pundits such as Jim Cramer, Bill Flanagan, Gil Gross, Sy Harding, Lynn Jimenez, Suze Orman and more.

It became clear to us that many of the popular TV, internet and radio pundits were too aggressive for those in or about to enter retirement. For example, Bob Brinker had is conservative "balanced model portfolio #3" at nearly two thirds equities when the market peaked and he told a caller on the radio it was not his advice to rebalance the portfolio back to 50% equities and 50% fixed income. David and I formed a partnership and at the start of 2007 we began offering The Retirement Advisor newsletter with our model portfolios that we felt subscribers could "sleep well at night with."

Contrary to Brinker's advice, we rebalanced our portfolios by selling equities and adding to fixed income after a good year for equities in 2007. Thus our losses at the end of 2008 were much less than Brinker's losses from the top so our subscribers could sleep better at night. Then at the start of 2009 we rebalanced again buying equities considerably lower then were we sold at the end of 2007.
As it turns out, our timing could not have been any better as all three Retirement Advisor portfolios are up over the past three years. Performance Data.

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