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Saturday, May 22, 2010

May 22, 2010, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

Bob Brinker hosted Moneytalk May 22, 2010:

Bob Brinker said: "The Dow at 10,193, S&P 500 at 1087, the Nasdaq at 2229 and the Nasdaq 100 at 1822. Now the the total rate of return year-to-date on the S&P 500 is negative 1 3/4%, that includes cash dividends and price change. The Wilshire 5000.....minus 0.95%.....So what's going on out there?.....Let's look at this market and see if we can put some semblance of order into what is going out there. I know there is a lot of emotion in the market and a lot of politics, too, especially with what's coming out of euro-land.......

......What are the root causes of a bear market. We don't have a bear market here -- we have a correction.....The S&P 500 is down about 10 1/2% from its closing high, been down as much as 12%, as of this past Thursday at the close.....So this is a correction. Anything below a 20% decline is considered a correction in Wall Street. So we have a correction -- that we know. What about this talk we hear out there about a bear market.....Are we going to have a bear market right now, here.....I'll give you my perpective on the way I look at that because I use several filters when I analyze the causes of a bear market. Now it's true you can have exogenous factors like you did in 2008, where you had the subprime meltdown and it definitely was an unusual situation because it led to a banking crisis.......

.....First one of the root causes of a bear market is tight money. What is tight money. That is when the Federal Reserve pulls in their horns, takes away the punch bowl, restricts the growth of the money supply. And money is harder to get, and as a result money price of money goes up....Do we have that now? No. Do we have the prospect of having that now? No. We have easy money now and the Federal Reserve is clearly on an easy money track.....especially with what is going on in Europe.....

......What's another root cause of a bear market? No question, rising interest rates. I'm not talking about the federal funds rate going from 1 to 2. I'm talking about a meaningful rise in interest rates.....When we look at the rates today, they are low, low, low. How low are they? Well, 3-month Treasury Bills are 15 basis points. That's about 1/7 of 1% a year. Six-month Bills are 21% basis points....One-year Treasuries are about 1/3 of 1% annual. Two-year Treasuries about 3/4 of 1% annual. Five-year Treasuries at 2%. Ten-year Treasury Bonds at 3 1/4. Thirty-year Bonds at 4.1........Rising rates are not a problem as we look at the market place right now.......

.......What's another root cause of a bear market, a decline in excess of 20% in the S&P 500......No question about it, Hyperinflation, rising inflation. Do we have that? No. I know there are a lot of people out predicting it, but they've been wrong. Right now we have a year-over-year Consumer Price Index increase of 2.2. And better than that, the year-over-year core Consumer Price Index is one of the lowest of all times. It's 0.9.....excluding food and energy......So if you've been betting on inflation, well, that horse fell somewhere down a back stretch. I hope it's okay. ......We don't have an inflation problem right now......

.....What's another cause of a bear market. At the root, it's rapid economic growth and a boom in the economy. The economy is roaring ahead. Do we have that? Not on your life. Not even close......Some people are worried about a double dip.....

....And another root cause of a bear market is over-valuation. When stock prices are so high relative to valuations they're on the moon like they were in January of 2000. Well, not true. We don't have over-valuation right now. We have good valuation right now.....

....So all five of those are no's. We don't have tight money. We don't have rising rates problems. We don't have rising inflation problems. We don't have rapid growth in the economy and we certainly don't have over-valuation in the stock market......Out of five possible root causes of a bear market, we have zero. That is why I am of the opinion that we are not in a bear market. I know there are people out there that are saying, ohhh, Katy bar the door. They have every right in a free country to express that view, but I am not in that camp. I do not believe this is a bear market. I think it's a correction. And obviously, corrections are always the same...they cause a lot of angst and we are seeing that right now.....and that is what they are supposed to do.....

......You know, in my investment letter this year, I wrote that quote: "Cyclical bull market corrections typically fall within a range of 5-10% and sometimes reach the teens in percentage terms." All of those are less than 20. And we've already been down as much as 12% Thursday night. There's nothing unusual about such corrections. They've occupied the headlines in the financial sections many times in the past during cyclical bull markets. And after we all saw the S&P 500 rise 80% in almost a straight line in a period a little over one year. Well the market certainly is entitled to have a correction of some consequence along the way, doncha think?......

......You know, just a couple of weeks ago in my investment letter, this is what I wrote, quote: "Any short-term weakness is viewed as a health-restoring event." I also went on to write earlier this month that I would take a more positive view with regard to investing new money into the market during a correction for those who find themselves under-invested. And I do believe that those who are looking for opportunities to make additions to their stock market portfolios and are using this correction and periods of weakness within this correction -- there have been plenty of those. I think that's a reasonable course of action....

....So from my point of view, I think it's a correction. I don't think we are going into a bear market, defined as a decline of more than 20% of the S&P 500 Index. And I also believe that when the correction is over, we are going to see new recovery highs in the S&P 500 Index. That's what I think. I'm Bob Brinker. This is America's money program."

Misc. Bob Brinker points:

* There was a lot of discussion about possible reasons for the stock market's May 6th "flash crash." Brinker made the point that even though there has been lots of speculation, it still remains a mystery -- and it definitely needs more investigation.

* Regarding stop losses: A lot of people with them got hurt on May 6th. Brinker said: "Sooner or later they are going to take you out." And: "It's a matter of live by the sword, die by the sword." [Honey EC: That seems to me like a rather strong expression.]

* Regarding Greece: Brinker doesn't think that Greece will "sink the world economy."

* Brinker talked quite a lot about the almost $13 Trillion National Debt and called it a "disgrace." He believes that changes need to be made to entitlement programs, including Social Security. After much discussion about the US national fiscal irresponsibility, Brinker said: "We are talking about the future of our Republic."

* Brinker said that the new health care plan is a "gigantic new entitlement." He said the claims that were made about insurance companies having to take patients with "pre-existing conditions" is not true. He said that all they have to do to "get off the hook" is pay a daily fine of $100 for each case, which is a lot cheaper than accepting patients with pre-existing conditions.

* In response to a caller who mentioned Black Monday in October 1987, Brinker said that was a day that "will live in infamy," but that it did not come close to "bear market parameters" at its "absolute low."

* Brinker revealed a tidbit about his past to caller-Debbie. He said that many years past, he was almost killed by a big rig on a Texarkana Bridge.

Bob Brinker's Saturday guest-speaker was Laurence Kotlikoff

Moneytalk To Go 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:

Saturday, at the end of hour-three, Bob Brinker made the announcement that he will be hosting Moneytalk on Sundays only, beginning June 6th. Blog readers have known that for a couple of weeks now. 8)

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