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Sunday, August 22, 2010

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

No vacation for Bob Brinker today. Bob Brinker hosted Moneytalk...

Bob Brinker's comments summarized, paraphrased or excerpted

STOCK MARKET....Dow at 10,213; S&P 500 Index in a 2010 trading range that could be boiled down to "2-digits".....Brinker said: "It started at a shade over 11, it got up to a shade over 12, it dropped to a shade over 10 and right now it's a shade under 11. That would give you a real quick snapshot of what the S&P has been doing in 2010. Right now at 1071.69. The total return year-to-date, including cash dividends earned is minus 2.8% and the index is about 12% below its high for the year. It's also above its low for the year which was in early July back at 1022......The Nasdaq at 2179....That index this year has a total return of minus 1.8%. So you can see that the changes in these indexes for the year-to-date, 2010 -- and we're almost 8 months in now -- have been infinitesimal."

Honey EC: On Moneytalk, Bob Brinker has repeatedly stated that NONE of his "5-root causes of a bear market" are flashing warning-signals. His portfolios are fully invested and he announced (on Moneytalk) that he had issued an outright buy-signal at S&P 1030 on July 1, 2010.

However, in Marketimer, Brinker has been forecasting sizable gains in the S&P for 2010 and the winter of 2011. Back in the March, 2010 issue, Brinker said: "Our 2010 target range for the S&P 500 Index remains in the 1200 to 1260 zone." In May, Brinker raised that to "upper-1200's to low-1300's." He nailed the numbers down a bit more in June and July, forecasting the S&P would reach "the 1275 to 1325 range by next winter." So far, those market-timing predictions have not even begun to materialize, and it's not looking too promising for them anytime soon -- certainly not in Brinker's time-frame.

INTEREST RATES/BOND.....3-month T-Bills annual return is 15 basis points; 6-month Bills @ 18 basis points; 1-year Treasuries @ 23 basis points; 2-year Treasuries @ 1/2 of 1%; 5-year Notes @ 1.45%; 10-year Notes @ 2.6%; 30-year Bonds at 3.66%.

TREASURY IMPLIED INFLATION RATE....Brinker said: "The Treasury market is saying that it believes the inflation rate for the next 3 decades, all the way out to 2040, will be 1.9% per annum."

MARGINAL TAX RATES....are low in 2010. They are as low as 10% and as high as 35%, but that will change January 1st unless Congress takes action. Brinker said: "The new brackets for next year will be 15 up to 39.6%......less than 1% taxpayers are currently paying the top bracket......and less than 4% of taxpayers are in the 33% bracket, which will go to 36%.....Most Americans are in the 15-25% marginal bracket. Many will go to the 28% bracket......Long-term capital gains are set to go from 15 to 20% on New Years Day. Qualified dividends.....will go all the way up to 39.6%....."

...Brinker does not expect any kind of valid explanation for that 700 point stock market round-trip in May 2010. Brinker thinks the explanation that "all traders took a hike at the same time" is simply not credible. Brinker said: "I think that the deletion of the uptick rule in June, 2007, is one of the worst things that I've ever seen done on Wall Street......"

"COMRADE PETE" FROM LAS VEGAS: WEALTHY HOARDERS....Pete said: "It seems to me that there's a lot of wealthy, being 2 to 10 million dollars in wealth, that are sitting on their money. They are hoarding their money, both in this country and overseas banks and Switzerland.

They're not doing anything. They're not opening businesses. They're not growing businesses. And especially the elderly. The elderly in this country are sitting on God knows how much money and they're not doing anything with it.

In the debate over raising or lowering taxes, isn't it true that if you have a punishing tax structure, that force people to get up on their feet and do something with their money which would stimulate the economy.

Merely giving the wealthy huge tax breaks allows them to just sit on their butt and do nothing. And I'll take your answer over the air." [Honey EC: Karl Marx would be so proud! More comments here: LINK]

Brinker replied to Pete: "I think that your comments are off base and I'll tell you why. As a general rule, people who have a lot of money are very, very good at decoding tax law.....If you are a wealthy individual, you usually have Certified Public your beck and call......There are so many ways out there to manage your tax liabilities that there is no assurance whatsoever that you would force people to pay more taxes if you made changes in the tax code that were deleterious to high net-worth individuals. Let me be more specific. The easiest thing in the world to do is buy tax-exempt Municipal Bonds. And if you're worried about quality, one way to deal with that is to buy high-quality State General Obligations......(which) have had no failures in over a century including during the Great Depression years in the USA."

[Honey EC: Too bad that Brinker didn't ask Karl, errrr, I mean Pete, why he thought he had any right whatsoever to "force" anybody to do anything with their money -- or their "butts."]

GNMA (VFIIX) & BOND BUBBLE CONCERNS......Brinker advises using mental stops and selling if the net-asset-value drops to that price.

.....Initial claims for unemployment due on Thursday.....projections have not done well lately....... Brinker said: "One thing we know for sure, when we see initial claims at this level.....we know for sure that there is no surge in new jobs imminent."

GROSS DOMESTIC PRODUCT.....For the second quarter, expect a downward revision....something in the vicinity of 1 1/2% plus or minus.

TOBACCO BONDS.....Brinker strongly recommends "staying away from them." Brinker thinks there will be defaults, especially in California, New York City, New Jersey, Ohio and Virginia.

HOUSING MARKET.....Existing home transactions report for July comes out next Tuesday and they are expected to "fall out of bed." Brinker said: "That tax credit for up to $8000, which was one of the finest stimulus ideas to ever come out of Washington because it really did help the housing market, up until spring of this year when it expired.....If the contract wasn't signed by the end of April, then that was that. So look what's happening to the housing market. It's going back to free-market forces. And free-market forces for the housing market right now have been very tough." Several times today, Brinker opined that it was really "bizarre" for those in power in Washington to have let the housing tax credit expire before the upcoming election. He thinks it should have been apparent that free-market forces would take over and not be helpful to getting re-elected.

ESTATE TAX/STEP UP PROVISION....There is no Federal estate tax in 2010. Brinker said: "The step-up provision is out the door this year".....which has resulted in a large tax increase for some people. [Honey EC: I have no idea what Brinker was referring to when he made that statement since he did not explain it. If the real estate step-up provision has been eliminated, that is truly a drastic change and a huge government rip-off. If one of our CPA/tax accountant-readers know about this, please help us out.] Jeffchristie sent the following information this morning:

Blogger jeffchristie said...


I found this posted at a Washington post Blog. I think it explains what Brinker was referring to. I am not a tax expert so I don't know for sure if this is factually correct but it is how I thought it works in 2010.

Posted by: manzoa | July 24, 2010 9:38 AM |

NO STEPPED UP BASIS: What is grossly missing from this blog and comments is that in 2010 middle class America is paying an "estate tax" that it never paid before because stepped up basis has been eliminated on inherited assets.

Explanation: Up to 2010 the cost basis for any inherited assets was moved up to current market price of the asset (using the date of death). That meant a family inheriting their parents' home bought in the 1950's and sold the house to pay for college, loans, etc paid virtually no capital gains tax. The cost basis was nearly identical to the price they sold the home at.

Not today. That same family will pay 15% taxes on the the difference between today's price of the house and what it cost their parents in the 1950s. A huge tax that up to 2010 they would have never paid.

These comments and this article talk about 'double taxation', being unfair to the super rich, etc. and NEVER mention that today middle class America is paying taxes on inherited assets they never had to pay before.

And don't think that the very wealthy are paying cap gains taxes on their assets. If a very wealthy family inherits an office building in NYC, there is no need to sell but just enjoy the income. The super wealthy do not NEED to sell as to middle class.

So in 2010 Steinbrenner's heirs pay no taxes but the middle class family that inherited their parents' home is slapped with a huge tax. Where is the outrage?

Honey here: INDEED! Where is the outrage? I think it's buried deep in the media's do not report file. This is absolute proof that Obama has not kept his promise to NOT raise taxes on the middle class!!

Bob Brinker's guest-speaker was Robert Kolb:

Listen and Download on Demand is now available at KGO810 radio. The once-weekly program is archived in the 1-4pm time-slots. KGO Moneytalk Archives [Link]

This morning, Dixiegeezer sent these beautiful pictures that he took. Notice the reflections in both of them. In the bottom picture, you can see the dark bird better in its reflection:

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