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Sunday, September 26, 2010

September 26, 2010, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

September 26, 2010...Bob Brinker hosted the Moneytalk Starship on the way to the "Land of Critical Mass."


Bob Brinker reported that the Senate voted this past week to take no action on tax policy prior to the November election. That leaves the 2011 tax policy unknowable until then. Brinker said: "It could only happen in a country with a dysfunctional government, otherwise it could never happen. The name of the country, the United States of America......Where investors and everybody else have no visibility at all on what tax policy will in just 3 months when the ball comes down in Gotham City's Times Square.....

.....And some Senate members up for re-election are worried if they vote to increase taxes on those making over $250,000 that they will lose their re-election campaign, so they are not going to vote at all. And we all know that there will a large of congressional members who will be joining the unemployment line in January when the new congress is sworn in. Now the president and Democratic leaders support raising taxes on those making over $200,000 a year effective the first of the year. Republicans favor extending the current tax rate structure for at least another one year or two years or permanently....

....Now the (spanner?) in the works here is that all of this is going on in an economy that is growing at a very slow rate, with under-employment and unemployment holding way up. Under-employment up in the 16th percentile, making the entire issue of increasing income taxes a very sticky wicket....

.....Republican House leader John Boehner of Ohio says that he favors continuation of the current income tax brackets, with no increase. He also says he will accept the increase on those making over $200,000..... if that's the only choice he has when the time comes to cast his vote - whenever that is - nobody knows....

....Also nobody knows what congress will do at all about taxes....Remember when they said they would deal with the estate tax and then they never did?.....That's the reason that all those super wealthy meeting their Maker this year, including George Steinbrenner, pay zero Federal estate tax......

.....Now since the Senate has voted to do nothing prior to the election, the 2011 tax rates will have to be established in the lame-duck session of Congress after the election, which is really incredible.....

.....If the election were held today, it appears that the Republicans could take control of the House. And if they did, then the MAN WITH THE TAN, Ohio Congressman, John Boehner, would be the new Speaker of the House....

Honey EC: I did not know what Brinker meant when he called Boehner, "the man with the tan," so I did a quick Google search. What a low-class thing for Brinker to use a label that has been used to demean Boehner for his skin color - low-class and unnecessary and opportunistic.

Brinker continued: "If the election were held today, it appears that the Senate would be something in the area of 52-48, with the same majority party it has today, but a much slimmer majority.....As Jackie Gleason's Ralph Kramden character would say, "What a Revolting Development."

Honey EC: Later in the program, a caller pointed out to Mr. Brinker that that saying was actually used by William Bendix in "The Life of Reilly." I think Brinker also misquoted "Ralph Kramden" a second time when he claimed he said: "Smack in the Kisser." Brinker said he was referring to what "Ralph" would say to Congress today -- comically speaking, of course. I think Kramden actually said something like, "One of these days, Alice, over the moon."


A caller said that he had not gotten any Social Security cost of living increase, and asked Brinker if he thought there might be one for next year. Brinker told the caller that it is "unlikely" because right now inflation is a "dead duck," -- but the good news is that there are no cost increases on "the other side" because inflation is only about 1% now.


Brinker said: "Ted Turner, who's probably as bright as you get when it comes to new ideas.....Here's a guy who ran his net worth up to 10 billion dollars after he merged with Time-Warner and after Time-Warner merged with AOL. And for a very short time, there was a run-up in price.....The problem was concentration. He had almost all of his money in the stock of the winter of 2000......He will sometimes say that he lost his fortune in the dot-com bust....His net worth went down to 1.8 billion dollars.....That's like having a hundred million dollars 18 times over.......

.....That could have been avoided. All Ted had to do there was diversify. And he could have diversified by simply purchasing Put Options on his over-bloated Time-Warner position to protect him on the downside - as insurance. He could have purchased Put Options against his position, or against a sizable part of his position and those Put Options would have given him downside protection. Obviously, that did not happen, but it's a lesson that we've taught for 25 years on this broadcast. Diversification is key - concentration in one stock is insanity....This is Moneytalk....

Later, Brinker said to another caller: "Ted took the Time-Warner stock for his Turner Broadcasting stock in the mid-90's and he did okay with that, but then he to the AOL-Time-Warner stock for his Time-Warner stock in the AOL-Time-Warner merger. And when that stock imploded, he had most of his money in that stock and that's where he got clobbered. He did not take the cash. Now the way for him to have taken cash would have been awkward because he remained a senior executive of the company. When you are a senior executive with the company and you take the cash then people start looking at you like what's the matter with you? Don't you believe in the company? Don't you want to invest in the company? Ted was in an awkward position in the sense that he stayed with the company."

Honey EC: Firstly, I have a question about Brinker's "buy Put Options" advice for Turner. I hate to sound naive, but would that be legal under the circumstances that Brinker described about Turner's connection to the company? Brinker explained why Turner couldn't/shouldn't sell the stock, but can these greedy billionaires buy Put Options on their companies?


Kirk wrote the answer to my Put Options question in comments. Kirk said:

"As for how they could purchase puts to protect their shares: That sounds absurd for someone like Ted Turner, Larry Ellison or Oracle or Bill Gates of Microsoft. Who would sell that many puts and have the cash to buy the shares should the economy crater? Also, they would have to disclose that position to the SEC which would be far worse for the stock than having a regular plan to sell 10% a year."
"Secondly, I never cease to be amazed at the people that Brinker chooses to praise and glorify. For instance, Bloomberg (who is gung-ho to build a mosque near Ground Zero, Warren Buffet (who never saw a tax he didn't love for others while he avoids taxes by giving his money to Bill Gates to spend on causes that promote liberal/leftist views.), and now Ted Turner is Brinker's latest hero....

.....Brinker evidently isn't aware that this "great and brilliant" guy has been systematically buying up millions of acres of prime American heartland. Here's an excerpt from a story reported at the Fox News website. If you want to know more, just do a Google search - there's plenty more written about it:

"Turner has amassed 2 million acres over the past two decades to become the largest private landowner in the country. He owns land in at least nine states, with most of his holdings in New Mexico, Nebraska, Montana and South Dakota...His front men say their boss doesn't have a secret agenda — he just wants to be a rancher. But each big buy only heightens the anxiety and gives rise to conspiracy theories....." [LINK]

Acres of land holdings of Ted Turner as of September 2008:
New Mexico: 1,105,905
Nebraska: 425,221
Montana: 153,963
South Dakota: 141,357
Kansas: 42,479
Oklahoma: 41,689
Colorado: 34,868
Florida: 29,530
South Carolina: 10,757
Arkansas: 1,323
Georgia: 537

Brinker said: "We have in the United States, the mentality right now is Bubblemania.......As far as I'm concerned, we've had two clear cut bubbles, dot-com and real estate. I think that it's a stretch when they talk about the other bubbles.....Some people talk about the bond bubble. Well if you go back over the past 100 years, you will see that there's a long history of rates going up and down.......

.....We certainly had the two.....Obviously, the first one was caused by the irrational exuberance of paying hundreds of times earning for companies that were earning very little....sometimes there were no earnings. That was going on commonly in the first quarter 2000 at the dotcom bubble peak. And there is no question that we had a real estate bubble, and we know what happened now. We know about all these liar loans that were made, and ninja loans, no down payment loans.... It's one ugly picture....."


Brinker said: "We have been very clear on this broadcast this year that there will not be, in my opinion, a double-dip recession. I've said it ad nauseam.....Despite that, the financial media out there has been declaring a double dip in many quarters since summertime.....A double dip would mean a brand new recession, which means two consecutive quarters of negative real Gross Domestic Product growth......The durable goods report Friday morning was better than expected and the market celebrated that. ...."


Brinker said: "I certainly underscored my bullishness on the market by upgrading the market to an outright-buy on the first of July.....I'm expecting to see a good stock market in the next year. And I think people who are in the market fully invested are going to do very, very well. The buy-range that we identified was actually quite specific......We upgraded the market to attractive for purchase based on that June 30th close of 1030......That provided those who follow my recommendations with what amounted to a golden opportunity to acquire bargain price shares down there......Now if I were going into the market at this time, it's at a whole different level now. It's at 1148. So right now, I'd be taking a dollar-cost-average approach because of the terrific rally that we have seen since early July.....

......That's what market-timing is all about. Trying to identify areas of the market that are especially attractive. Are you going to get them all right? No......But if you can get some right, you can finish way ahead of the pack because the pack is buying and holding forever. So they can never do any better than the market because they in the market all the time. And that's the difference between market-timing and buy and hold. Now I don't believe in short-term or day-trader activity - I think it's a waste of time. But I think you can practice long-term market-timing by identifying key points. And I would suggest that that was a key point in 2010, early July, when I believe we recorded the closing lows for calendar year 2010."

Honey EC: One has to wonder about the desperation and/or honesty of a man who could make the statements in those two paragraphs above to a worldwide audience. Brinker is either in total denial of the fact that he has been in a buy-and-hold position since March, 2003, or he thinks he can "come out ahead of the pack" by simply having pipe dreams while his model portfolios remain FULLY INVESTED!

For instance,
Bob Brinker's Marketimer is nowhere to be found in the Top-5 "Pack" that Hulbert Financial Digest ranked for "Overall Performance" for the last 25, 15 and 5 years. Riding the market down (with fully invested model portfolios) 57% in about 15 months, like you did in 2008-2009, will tend to do that to "market-timers," Mr. Brinker....


David Korn covered this subject outstandingly well in his hot-off-the-press weekly newsletter. Posted with David's permission. David wrote:

"Caller: This caller wanted Bob's opinion about whether she should invest 30% in gold to protect against the dollar devaluation. Bob said if you want to put a small percentage of your portfolio in gold as a hedge, he suggests using the exchange traded fund GLD that tracks the price of gold bullion. Do not purchase gold coins because the mark up on gold coins can be astronomical. Bob said he recently heard someone pay a 75% premium mark up on gold content to purchase gold coins. Don't go there unless you want to see your money go away. Bob also said he has never suggested someone should put 30% of their portfolio in gold. If you want a hedge, perhaps 5% of your portfolio maximum.

[Korn] EC: Bob has not recommended gold in any of his model portfolios. Meanwhile, gold has reached new record highs and the GLD shares are also trading at a high closing Friday at $126.69. Seems like a lot more callers are bringing up gold on Moneytalk. In the past, this has been an indication of over-valued investments."
You can get a complimentary issue of David Korn's newsletter. Be sure to look in the right-hand column for link to David's weekly newsletter on the page at this: [LINK]

Honey here: As David said, Brinker has never put gold in any of his portfolios. But "off-the-books," Brinker added GLD to his "Individual Issues" list -- no buy level, no sell level, no reason given for owning it.

However, Brinker always uses the word "hedge' when he speaks to callers about buying gold. Hedge against WHAT? He tells us there is no inflation, and he doesn't expect any. So why would he recommend gold as a HEDGE?!


Brinker recommends that those who want to include utilities in their portfolios in order to generate income use quality no-load fund or ETF. Vanguard has a low-cost utility fund.


Brinker said that he has ZERO recommendations on long-term bonds right now.

Brinker said this movie was number one in the United States and Canada this weekend. Brinker talked about the Wall Street greed that was portrayed in the original movie 20 years ago. Many times over the years, Brinker has referred to "Gordon Gecko" and quoted his "greed is good" line repeatedly -- usually to disparage someone else.

Honey EC: Truly, greed is not a good thing. It can destroys the lives of its victims and the chickens always come home to roost on the greedy. There are many forms of greed. One of the most detestable is to spin the truth so that what the listener interprets is a lie.

Bob Brinker's guest-speaker was George Akerlog:

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

My daughter took these while bike-riding in the Livermore area this weekend. Click to enlarge:


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