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Sunday, July 18, 2010

July 18, 2010, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

July 18, 2010, Bob Brinker hosted Moneytalk today.

STOCK MARKET....Bob Brinker recited closing market numbers, pointing out that it seemed to him like the Dow has been around the 10,000 mark for a "lifetime." He said that the Dow, S&P and Nasdaq all dropped about 1% last week after the big rally of about 5%+ the week before.....The S&P is about 12% below its April 23, 2010 closing high....and down 4 1/2% since New Years Eve -- not counting the dividend.

INTEREST RATES....Brinker said that nothing much has changed and recited Treasury rates.

Brinker said the Treasury market implied inflation rate is 1.7% annual over the next ten years.

.Bob Brinker said even though we hear much talk about a double-dip recession, he does not agree - "....not by a long shot."

Brinker gave the following reasons why he believes the double-dip bears are wrong:

1. There is a positive Treasury yield curve by a margin of 380 basis points -- Brinker said: "That's not what you see when you are going into recession.....If you go back to the mid-1960's, every time we've had a recession, it has been preceded by an inverted yield curve. An inverted yield curve simply means that short rates are higher than long rates. We have the opposite of that right now."

2. A few months ago, people were really worried about what's going on in Europe. Greece was a train wreck but it only represents about 2% European Union GDP. Since the Greece-bailout, "....the problem has been contained......The whole situation involving Europe has cooled down big time." They have successfully defended the Euro and it has rallied...this reduces the inflationary force in the United States which happens when the dollar is too strong.

3. Corporate profits are increasing at a nice pace.....75% of companies that have reported for the second quarter are exceeding expectations...corporations are sitting on close to a $Trillion in cash....and balance sheets have strengthened.

"There's no question about it, we have seen a correction in this stock market. And frankly, it's been a correction that has been totally within the parameters that we laid out on this broadcast this year for a correction.....Now one the things we said is for this to be the kind of correction that would make sense in 2010, that we would want to see a correction which would be less than 20%. Well we've had that.....

........Now we've been down as much as 16% on a closing basis in the S&P 500, when we down in the 1022 - 1030 range earlier in the month. And that was when I upgraded on July 1st to attractive-for-purchase. Prior to that we had been on a dollar-cost-average recommendation in my investment letter.....On the first of (July) we upgraded that to attractive-for-purchase down there in that range where the market closed June 30th at 1030.....I do believe when the market is down in that range, that it makes sense to be a buyer in this market. That's my view as I published it in the investment letter at the beginning of the month......

.......When that market is down in the low-ten thousands and certainly that's within the 1022-1030 area - in that vicinity as well - and when the market is down there, yes, I do rate the market as attractive-for-purchase. We've already had a terrific opportunity to do that earlier in the month. But if the market were to go back into that area, certainly that is the way I would view it. I would it view it as attractive-for-purchase. I would view it as attractive-for-buying if it went back into that area. Now right now, it's not in that area, so we dollar-cost-average at 1065. But if that market were to go back into that area, yeah absolutely, I would consider that to be an opportunity, just as we already had an opportunity earlier in this month to be a buyer. I'm Bob Brinker, this is America's money program...

[Honey EC: Anyone remember in 2008 and half of 2009, as the market lost 57% of its value, there were months and months that I typed words like these in my summaries:
"Bob Brinker did not talk about the stock market today, and no callers had any questions about it."]

"Actually on page 7 of my investment letter, I publish a fixed income portfolio for those that are looking for a diversified fixed income approach. This is generally for those people who are not interested in stock market investing."

Honey EC: The fixed income portfolio on "page 7" of Marketimer that Brinker is talking about
lost 2.1% in 2008. And even though it was never revealed on any Brinker website, Mark Hulbert reported:

fixed income advisor model portfolio #1 lost 21.7% in 2008
Brinker's fixed income advisor model portfolio #2 lost 11.5% in 2008
Brinker's fixed income advisor model portfolio #3 lost 5.2% in 2008

Brinker continued: "And we have included a portion of that portfolio in the high yield area, the so-called junk bond area. I like the yields in that area. I want to be very selective. We recommend a specific fund in the letter.....I think the yields in that area are pretty darn generous when you contrast those with the other yields that are out there. And I don't mind having a reasonable holding - certainly not a gigantic holding - by any means in that particular area. I think it's a way to enhance the overall yield of a diversified fixed income portfolio. Now remember these are taxable.....If you're in the top bracket in California, then you're paying a lot of taxes......You're probably paying 50% as we go into next year with the Federal tax increases that we are expecting in January......So you'd always have to compare that with the after-tax yield of a municipal fund....."

[Honey EC: As Brinker pointed out, the Vanguard GNMA Fund is now selling for $11.04 + a 7 cent distribution. Let's hope that Brinker is closer to being correct on the down-side than he was on the up-side. He's been saying for years that he expected the price range to be between $9.50 and $10.50....

....Several times today Brinker commented that some people had sold their GNMA Fund too early. Hey Bob! Is it possible that they did that because you repeatedly have said that $10.50 was the top of the price range? At least until the price went embarrassingly higher than $10.50, then you stopped saying it - and you sure didn't say it today. LOL!]

SHAKY MUNICIPAL BONDS...Brinker said: "Do keep in mind that a lot of the municipalities out there are really dealing with shaky finances. You've already seen yourself the bankruptcy filing in Vallejo, California......And it wouldn't surprise me to see additional bankruptcy filings. Particularly, in places like California where some of these places of these municipalities have promised excessive benefits. And as a result, in order to try to pay them, they are going to find that they don't have the money. And then they try to raise their taxes and then they'll find people fleeing the area rather than paying for these excessive benefits. And it could be a negative self-fulfilling prophecy for some of these municipalities that have over-extended themselves with the guarantees they've given the unions......"

VALUE ADDED TAX (VAT): Brinker said:
"I think they have another idea in Congress. I think that idea is to raise taxes through what most people would regard as a stealth tax. And that would be the value-added tax program. I think there are people in Washington that are very impressed with the revenues that are being raised below the radar in Europe through the very vigorous value-added tax program in Europe. And I think there are people in Washington that are looking for the value-added tax as the next windfall for Federal revenues. And I would not be at all surprised if going down the road, their intention is to raise taxes through the value-added tax effort."

Bob Brinker's Miscellaneous Tidbits and Viewpoints:

* Amazingly, Goldman Sach got away with a $550Million slap on the wrist when they settled their dispute with the government -- about 5% of company annual earnings. A cynic might think that some nice donations to candidates might come out of it....

* The housing market is in a "malaise" at this point because the foreclosures and short-sales are putting price pressure on existing homes as well as new homes. Close to 90% of home sales are existing homes.

* Unemployment is "stubbornly high."

* The leading economic indicators come out on Thursday and are expected to confirm that the economy is slowing down in the third quarter.

* Two ways to protect yourself from GNMA Fund NAV risk: 1: Switch to an insured, laddered CD. 2: Set a mental stop at a level at which you would automatically sell out.

* Small businesses and entrepreneurs are not hiring because of concerns about the health-care bill and possible new taxes.

Today, he claimed he would. In answer to a caller's question about investing his kids college funds over the long-term, Brinker recommended the Vanguard Total Stock Market Index or VTI. Then Brinker added: "I cannot guarantee you that I would recommend staying in for five to eight years because if things change down the road, it may be necessary to take a defensive posture. And if that's the case, and if I identify that opportunity, I will act on it, obviously in my investment letter."

Bob Brinker's guest-speaker was Sebastian Mallaby:

To Go is Available on Demand Totally Free at KGO810 radio for seven days after broadcast. Moneytalk has been canceled on all Saturdays. The Sunday program is archived in the 1-4pm time-slots. To download and listen later, 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:

This morning, my daughter and son-in-law took this picture in Saratoga while bike riding (click to enlarge pictures):

My Idaho sister-in-law and brother are baby-sitting a family of robins on their porch. This close-up was taken with the aid of a mirror. Three days old here:


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