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Sunday, August 8, 2010

August 8, 2010, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

August 8, 2010....Bob Brinker hosted Moneytalk today. (Moneytalk is broadcast only on Sundays now. The Saturday program was canceled.)

Bob Brinker's miscellaneous points:

* Stock Market: Brinker reiterated that he believes the stock market underwent a correction this spring and summer, and he does not believe it is the start of a bear market.

* No Double-Dip Recession: Brinker said emphatically that he is not in the camp with those predicting a double-dip recession.

* Vanguard GNMA Fund (VFIIX):
Bob recommends that those who are concerned about the extremely high net-asset-value of the fund set a "mental stop at $10.90" and sell if it drops to that price. [Honey EC: That would likely get you out of the fund between $10.88 and $10.92, well above the $10.50 that Brinker has always considered the top of the fund's NAV range. The fund is trading at $11.08 right now.]

* The National Debt
was $8Trillion five years ago and is over $13 1/4 Trillion now.

* Gross Domestic Product, the economy has been in recovery since Q3 of 2009, but unemployment numbers have gone up to 9.5% from 9.4% one year ago. [headline year-over-year inflation = 1.1%; core inflation = 0.9%

* Non-existent Social Security Trust Fund: Expect changes in Social Security age requirements, but the changes will probably not apply to current recipients. Paul Volcker suggested slowly extending out retirement age requirements -- Bob thinks it's a great idea because of the substantial increases in life expectancies.

Bob Brinker said:
"Instead of creating a real Social Security Trust Fund, what the government did was they spent the money. They went to a unified budget many years ago. That was a dramatic change in policy. It gave them the right in Washington to spend the Social Security payroll tax on general expenses. And as a consequence, all we have now in this so-called Social Security Trust Fund is a giant pile of IOUs. In other words, long term, the way Social Security benefits will be paid will be by the Treasury selling Treasury securities to raise money to pay the benefits. That's the long-term business model right now for paying out on Social Security. It's pretty dramatic......So I think the way to get around that is to very slowly ease back the retirement age for future generations -- not for today's beneficiaries."

* The private payroll
rose to 71,000 in July, up from 31,000 in June -- averaging out to 51,000 new jobs per month-- this cannot even cover the monthly 100,000 new entrants into job market and consequently, it can do nothing to lower unemployment numbers.

* The Federal Reserve is not going to raise rates at the upcoming meeting on Tuesday, August 10th - next week. Bob Brinker said: "On the contrary, they are going to continue to hold rates near zero percent and they are going to continue to do everything in their power to be stimulative and accommodative in their monetary policy. And the reason I think they are going to continue to do this is because they really have absolutely no choice on this one."

* Education is a top priority for employment:

National average unemployment is 9.5%:
No high school diploma: 13.8%

High school diploma: 10.1 %

Some college: 8.3%

College degree: 4.5%

*Other unemployment demographics:

Adult men: 9.7 (year ago, 9.8%)

Adult women: 7.9% (year ago, 7.6%)

Teens, 16, 17, 18, 19: 26.1 (year ago, 24.5%)

Black teens: 40.5% (year ago, 36%)

White: 8.6% (year ago, 8.7%)

Black "community": 15.6% (year ago, 14.7%

Latino "community": 12.1% (year ago, 12.4%)

* "Free" college in Europe.....Bob Brinker said:
"I would say that everybody that has the ability to go to college, should go to college....We don't have that in the United States. We have a financial hurdle you have to get over to afford to go to college or you don't go. But in Europe, you mentioned Europe, specifically in the UK, if college is in your future, you can go to college. That opportunity is afforded you in those countries. In the United States, you've got to get over the financial hurdle or you don't go."

* Broken health-care model.....Bob Brinker said: "I've said this for two decades on this broadcast. There should be no linkage whatsoever between your job and the payment of your health-care costs. They should have never gone down this road and now they're stuck with it......And it's a broken model and it will never work in terms of solving the health-care problems across the USA. There's not a chance."

Caller Rick in California
said he had just received this month's issue of Marketimer and noticed that Brinker had a nice "discussion of causes of bear markets." Rick asked Brinker if he could expand on the reasons why rapid growth is not good for the stock market.

Bob Brinker replied:
"The reason that we focused in this month's investment letter on the causes of bear markets is because there has been do much bearishness out there recently, talking about a new bear market. Now as we have discussed on this broadcast, as well as written about in the investment letter, that is not my belief. I do not believe we are entering a new bear market at this time. I think we have had a correction for this spring and summer of 2010. And at its deepest level, it took the S&P 500 on a closing basis, down in the 15-16% range. It's currently down from its closing high about 7.9% on a principal-only basis right now on the S&P, off its closing high back on the 23rd of April.....

[Honey EC: As Brinker said, in the August issue of Marketimer, he wrote that none of the primary causes of a bear market are flashing a warning -- his S&P 500 target-range is currently 1275 to 1325. Brinker recommends dollar-cost-average and outright buy in the "low-1000's" S&P 500 price range.]

......Brinker continued: But you are right, we did write in the investment letter this month about several causes and one of those causes of a bear market is rapid growth. And the reason rapid growth is very important to monitor -- and we don't have that now, and we don't have the prospect of having it now -- is because when you get rapid economic growth, you get fall-out. And all of the fall-out that you get from rapid economic growth is dangerous to the stock market. Let me give you some examples.....One of the fall-out measures would be inflation pressure. When you get a booming economy, rapidly growing, you tend to get pressures on inflation. They show up in the Consumer Price Index, for example.......

......Now in addition to also get interest rate problems and that causes problems for the market from a competitive standpoint. If people can get high interest rates without taking a lot risk, for example in a Treasury instrument......then very frequently they are going to switch some money to that side out of the stock market.....

.....And when the economy starts to run at full capacity because the factories are working overtime, then you run out of labor slack. Right now, we have excessive labor slack.......All of those things can flow from that one thing that we mentioned in the August investment letter, just out this week.....That's the reason that we include rapid growth as one of the factors that we monitor when we're looking at these types causes......Now the good news is, we don't have it now. And from my point of view, I don't see any prospect at this time that we're going have to worry about rapid economic growth. On the other hand, we are worrying about a gradual or slow-growing economy which has not been creating enough jobs even to take care of the new entrants into the labor force."

[Honey EC: If you want to read Brinker's complete list of the 5-root causes of a bear market, please see my article titled,
"Bob Brinker's 5-Root Causes of a Bear Market Not Present Now " Brinker covered them all very thoroughly on the May 22nd Moneytalk program.]

: A caller from Cupertino, California asked Brinker about putting 30-40% of his portfolio into California muni-bonds. Bob said that if he is going to do that, he should limit his risk to 1% in any one issuer and have a highly diversified portfolio in order "to avoid the pain that comes when a municipality declares bankruptcy. We've already seen the declaration of bankruptcy in Vallejo, California. I think there will be other municipalities in California that likely will go bankrupt." Bob pointed out that a bond fund offers wide diversification but is subject to interest rate risk.

Brinker's guest-speaker was Alan Blinder. Mr. Blinder appeared on Moneytalk September 13, 2008. [LINK]

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 looks like prom or graduation time to me?

This is more recent, but not real recent:


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