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Sunday, August 29, 2010

August 29, 2010, Bob Brinker's Moneytalk: Summary, Commentary and Excerpts

Bob Brinker's best quote of the day: Moneytalk, Bob Brinker's Land of Critical Mass, "It's America's money show, where it's all about the money."

STOCK MARKET: Bob Brinker said: "I think you saw capitulation early in 2009 when people became convinced that the banks were going down. That's what gave you the S&P 500 low in March of 2009 at 676.....No, I don't think this is capitulation. I think we are having a mid-term election year correction as I have described in great detail on an ongoing basis in my investment letter."

Honey EC:
Brinker has indeed been saying in both Marketimer and on Moneytalk that the stock market began a correction on April 23, 2010, when the S&P 500 Index was at 1217.28. In the June issue of Marketimer, Brinker recommended "dollar-cost-average on weakness," and projected a target range of 1275 to 1325 "by next winter."

In July after the market had corrected a full 16% (just 4% shy of his definition of a bear market), Brinker stated on Moneytalk that he had issued a new "attractive for purchase" outright-buy level on July 1st when he published the July issue of Marketimer. The S&P was at 1030.

In the August issue of Marketimer, Brinker fine-tuned that buy level to a more general "low-1000's" and wrote that he expected the
"cyclical bull market trend that began during the spring of season of 2009 to resume during the second-half of this year."

"High yield bonds have been doing very well. We've included those in our Fixed Income only portfolio on Page 7 of the investment letter each month. We've included for some time a high yield bond fund in there. And I'll tell you what, even today, the yield on that fund is about 7% taxable.....But we have taken a conservative position where we use that for fixed income only investors. We have not included a high yield fund in the balanced portfolio, and the reason is the balanced portfolio is about half in the stock market, we're taking plenty of risk there, so on the fixed income side, we've gone with very high quality. And that certainly has paid off because as you know the Ginnie Maes (VFIIX), which are part of that, have been a home-run with the bases loaded. A grand salami."

Honey EC: Just listening to Brinker's words, I believe that there are a few ways that listeners might have been mislead by what Brinker said about his portfolios. For starters, It was back in April 2003 when he SOLD Ginnie Maes in his fixed income portfolio in order to raise the cash to buy the Vanguard High-yield Fund:
April, 2003 Marketimer, Bob Brinker said: "Effective at the close on April 11, we are reducing our page seven all fixed-income portfolio weighting in Vanguard Ginnie Mae Fund from 50% to 35%, and we are introducing a 15% weighting in the Vanguard High Yield Corporate Fund."
Now one could argue whether or not that was a good decision, but for some who owned the high-yield fund during the 2008-2009 drop, it was very scary for them. I got letters from people asking for advice about selling out -- even at the bottom. But on Moneytalk, Brinker did not mention owning the fund during that time -- NOT ONCE!

(Incidentally, I'm no financial advisor and I don't even play one, but my advice to those who wrote to me was always, don't sell unless you have to, which paid off because the fund regained most of what it lost. Personally, I began buying the fund shortly after it bottomed and made good money in addition to the dividends.)

Brinker's comments summarized:
GROSS DOMESTIC PRODUCT....Revised from 2.4 to 1.6 annual - distorted and controversial revision.

NEW JOBS GROWTH.... Unemployment is high, and new job growth is "insufficient."

HOUSING SECTOR.....It remains in the "doldrums." It's a tough time to be a new home builder.

ECONOMIC GROWTH...."We are in a slow growth economy, and will remain in a slow-growth economy this year."

INTEREST RATES/FEDERAL RESERVE MEETING: Brinker said: "With the Federal Funds rate sitting between zero and .25%......... That means that really the Federal Reserve has let the horses out of the barn - all of them on interest rates. There's not a heck of a lot they can do directly since interest rates are already in the short sector down near zero. What they can do of course, is what they've already done - quantitative easing, where they are out there buying Treasuries, buy mortgage securities. And what that does, that demand holds down the rates.

Caller Dean in Tinley Park, Illinois said that he had retired in December, 2007 and turned an annuity over to "a company" to manage for him. He said since that time, he had lost 13% of his value. Dean said he'd like to begin using Vanguard to establish one of Brinker's model portfolios.

Brinker answered:
"We have a balanced portfolio in my investment letter and of course my investment letter for September will be coming out in a few days. And yes, in that portfolio, we do have a number of Vanguard Funds. All of our fixed income funds are Vanguard Funds at this time. And we also have other Vanguard Funds in that portfolio. And you should be able to talk to them about the possibility of setting up a self-directed IRA rollover account. And if you do that, you should be in a position to manage it yourself."

Caller Dean continued:
"The only reason that I've been hesitant about it is because I'm not real savvy about what to pick and how to go about it. That's why I wanted to use your model portfolios."

Brinker replied:
"Well you know, it's been a challenging year, it's not been a big deal one way or the other because the changes are small, but it's been a challenging year here in 2010. I was just looking at the performance of the balanced model portfolio III year-to-date, and believe it or not, we're showing a slightly positive total return, by a small percentage......Which is remarkable when you consider the kind of environment we are living in. But I do feel comfortable using a balanced portfolio out of the investment letter for the type of an objective that you have Dean. Not only do I think it is doable, but I think a lot of people are doing it right now."

Honey EC:
I'm sure that Brinker is right. A lot of people are doing it right now. How difficult is it to put half your money in Vanguard Bond Funds and the other half in Vanguard stock market index funds if you want a no-brainer balanced portfolio?

Regarding Brinker's "investment letter" balanced portfolio that he talked about three times today: In the December 2007 issue of Marketimer
(when Dean said he gave his money over to be managed and it lost 13%), Brinker's model portfolio III showed a balance of $214,141. At the low of the 2008-2009 Megabear, that 50% bond portfolio lost 23.9% -- this was during years that bonds did well. As of July 31, 2010, the portfolio was valued at $204,320.

In my opinion, Dean would do well to go to Vanguard Fund Group, but he may want to be a bit careful about investing 50% of his money in the bond funds that Brinker has in model portfolio III right now. One of the reasons the portfolio is up a small amount this year is because it holds 20% Ginnie Mae Fund and a couple other Vanguard bond funds. Who knows what will happen to them if interest rates go up?

As for the stock portion of that portfolio, most of it is in Vanguard Total Stock Market Index Fund and the remaining funds hold such small amounts (a couple as small as 02.5%) that it would hardly be worth the trouble to mess with them if your account is with Vanguard.

(By the way, why does Brinker so carefully avoid using the name of his "investment letter" on the air? Anybody know the answer? TFB?)

Several times today, Brinker talked about the "red herring" talk about the proposed Mosque-building at Ground Zero. He seemed to pooh-pooh it as simply a way for politicians to avoid facing the reality of the national debt.

Brinker said:
"I've never seen a time when it was more important for a new administration to come indoor and focus like a laser beam on the economy. And I think if they had done that, I think that the economy would probably be doing better than it is right now. Yes, there's a recovery and we've had four consecutive quarters of rising real Gross Domestic Product and we certainly cannot blame this administration for the state of the housing sector.....But certainly you can hold the administration's feet to the fire in terms of the economy since that time and the steps that were taken to help the economy since that time. And there really was no focus on the economy. Yeah, there were things that were done. A very arguable stimulus package that contained way too much government spending and not enough tax incentive......They didn't focus like a laser beam. Instead, they took the laser beam over to other areas, health-care and other areas as well.......

.....The surveys show that the people do not believe that the president and members of Congress are working hard 24/7 on this economy. And I think the people are right in their analysis. It's in the polls. Less than 45% now trust Congress to do a good job on the economy. And only 41% approve of the president's performance with reference to the economy.....And right now, what are they doing? They're on a six-week summer vacation....When is the last time you had a six-week summer vacation (unless you are a teacher)?
.........We are only about nine weeks away from a major election. Every member of the House and about 1/3 of the Senate and I expect that you will see at least some of the incumbents joining the ranks of the unemployed. And I'm sure some people would consider that to be appropriate."

REPORTS COMING OUT NEXT WEEK....Brinker comments summarized:

* On Monday: (a) Personal income for month of July expected to show a gain of 0.3% - better than June which flat-lined at zero. (b) Personal spending data for July - expected to grow 0.3%, it too flat-lined in June.

* On Tuesday: (a) Case Schiller Monthly Index for June - expect to see a gain of 3.6%. (b) Chicago Purchasing Managers Index for August- expect drop to 57 from slightly over 62. (c) Consumer Confidence Index for August - expect a slight uptick to 50.9, it was 50.4 in July.

* On Wednesday: (a)Automatic Data Payroll Assessment for August - projecting 17,000 new jobs, July had 42,000 new jobs. (b) ISM Manufacturing Report - expected to down-tick 52.8 versus 55.5 - no surprise because the economy is slowing. (c) Construction spending for July expected to drop 1/2 of 1%.

* On Thursday: (a) Initial claims for unemployment insurance - expected to be around 475,000, it was 473,000 last week, which was a big drop from the 500,000 prior week. (b) Factory orders for July expected to rise 4/10 of 1%.

* On Friday: (a) Non-farm payrolls, expected decline 100,000 - declined 131,00 in July. These figures include the censor workers lost jobs. (b) Private payrolls (exclude government agencies) rose 71,000 in July and the median-estimate for August is 47,000+ (private payrolls jobs growth) - if so, that will uptick unemployment to 9.6% from 9.5%. (c) Manufacturing payrolls grew 36,000 in July, estimated to grow about 10,000 in August.

Brinker's guest-speaker was Randall lane:

Moneytalk 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: Download Moneytalk Here

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