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Sunday, October 31, 2010

October 31, 2010, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

October 31, 2010....Bob Brinker hosted Moneytalk today. Bob Brinker's radio talk show is broadcast on Sundays only now.


: S&P 500 Index total year-to-date return, including dividends: 7.7%; Wilshire 5000: 9%.

Remain historically low. Three month Treasury Bill annual: 0.11.

DEFICIT...Bob Brinker said:
"Well, I was just looking at the deficit as we move into the mid-term election and it will be interesting to see what the new group of politicians that get sworn in in January do that might be different than what the current crop has been doing to the country. Well when you look at the deficit, you see the problem. Runaway freight train government spending gone wild. Very few seem to stand up for a balanced budget......

......Here's the arithmetic: Over the past 12 months, the national debt has risen from $11.9 Trillion to $13.66 Trilion. Now that's a increase in one year -- that's increased debt of $1 3/4 Trillion. And that's the reason that if you are born into the United States today, you are born with a pro-rata debt of over $40,000......So we are draining capital from our country just for the purpose of paying interest."

.....In the third quarter, the economy grew at 2% based on the preliminary GDP report last Friday. Brinker said: "If you look back through history, the economy tends to come quite strong out of a deep recession which is what we had in 2008."

NEW JOBS....Brinker continued:
"Instead, the economy is coming back slowly......It has not even been able to create the 100,000 new jobs a month to absorb new entrants to the labor force.....And we have had private sector job growth every month in 2010, and that's a terrific accomplishment for the country, coming out of what we came out of, but it still has not been enough to get up to the threshold that would absorb all the new entrants into the labor force. And that is why I think that time is the most likely resolution."

"All kinds of things on the ballot.....The House is very much on the line. The Senate will assuredly tighten up big time, and there will be number of governor's races as well. And we don't want to forget the infamous California Proposition 19 to legalize the growing of marijuana on your own 25 square foot marijuana factory. A POTHEAD'S DREAM, it's being called by many......"

This survey was focused on those with more than $250,000 in investable assets. Brinker said: "They say that 41% in the survey say that they feel better off financially than they did a year ago. That's not surprising when you consider what the stock market has done. Additionally, 78% are confident their personal financial picture will improve in the year ahead."

Honey EC: Brinker cherry-picked what he reported from this survey. I found the whole article. Here is an excerpt and the link:

Merrill Lynch Affluent Insights Quarterly Survey Finds One in Five Have Tapped into Long-Term Savings and Investments to Meet Immediate Needs, and the Majority Now Expect to Retire Later [Daily Finance]

LOWER PAYROLL TAX * Ian from Toronto proffered the idea of globally raising personal income tax exemptions to stimulate the economy, and suggested that the government print more money to finance it. Brinker replied: "There's even a better way to stimulate the economy from a fiscal side, and remember for the moment at least, fiscal measures to help the economy are dead on arrival.....The way I'm talking about is to lower the payroll tax. Since everybody pays the payroll tax, and since the vast majority of consumers are at or close to 100% propensity to consume, the idea of lowering the payroll tax actually puts more money into the pockets of consumers right away.....

.... And this is the criticism that has been leveled at the $787 Billion stimulus package from last year. Only about 1/3 of that money went into the tax cuts. The rest of it was spread about equally between the state and local government and infrastructure spread out over a period of time. And there's no question that that kind of program is less effective than simply putting money into the pockets of consumers.......As I said, 1/3 of the stimulus package from last year very definitely went into the pockets of consumers because it was in the form of changes in taxes that put more money into the pockets of consumers. The tax structure was changed and over a couple hundred billion of that stimulus package went back to the pockets of the consumers......

* Caller Richard from the Garden State said that he thought the GOP would take over the House and possibly the Senate and that this would be a very positive thing for the stock market. He asked Brinker if he thought Wednesday would be a good time to sell stock. Brinker asked Richard if he thought with all of the poll unanimity which shows the GOP taking over the House and an even split in the Senate, that there could be anybody who invests in the stock market that doesn't already know all about it.

Brinker continued with his reply to Richard:
"I do believe that the market has discounted the results of this election, which will be a GOP House, a very tight Senate, which is almost academic since the 60-vote stealth rule has come into place in the Senate anyway. And I can't imagine anybody out there that is a serious investor that would be shocked to see that happen......It would only be a selling opportunity if you believed that was the final high of the cyclical bull market.....Let me rephrase your question: Do I think that any spike that may occur, if at all on Wednesday morning as a result of the elections results, do I think that any such hypothetical spike would mark the final high for this cyclical bull market. Let me be very clear, the answer is no."

* Jeannette from Reno
told Brinker that money is the root of all evil. Brinker either didn't hear it or ignored it. Honey EC: Jeannette misquoted scripture. It's the "love of money" that is the root of all evil.

* Bob from Chicago
told Brinker that Austrian economist Robert Murphy has challenged Paul Krugman, the NY Times "resident Keynesian to a debate on economic cycles," and that Murphy has put up a bounty of $100,000 to Paul Krugman and debate Murphy. Brinker had no comment and just thanked Bob and hung up. Honey EC: In 2008, Brinker spent a lot of air time singing the praises of Keynesian economics.

"Nobody knows what they are going to do. They should never have left this to the last few weeks of the lame duck year for their session. It's hard to believe what they've done. Then you'll get the new congress coming in January -- I'm convinced it will be a GOP House and a very divided Senate....There are three possibilities. they get locked up in infighting and they do nothing and everybody's taxes go up. Now that would be a bizarre development happening at the same time the Federal Reserve is pulling every trick it has out of its hat in order to stimulate the economy. I mean, you see the irony. If everybody's taxes go up, that will completely void the efforts of the Federal Reserve at stimulus......

.....Another possible outcome is, they get together and agree that everybody but the top 2 brackets gets a tax cut extension, and there would be no tax increase under $200,000 for individuals....

.....The third possibility is an interim compromise so that nobody gets a tax increase.....The cost for the first year for not increasing the rates on the top 2 brackets is about $40 Billion (in additional national debt)....And they are certainly not going to find any way to pay for this at this point with the red-ink tsunami in Washington....There is nobody out there, including members of congress, that knows what the tax brackets will be in 2011. Now to make a comment like that on the eve of November 1st is astounding......We have a dysfunctional government in Washington. That's what it is. They cannot govern and they are not governing."

* Walt in Wisconsin asked how much quantitative easing it will take to get the unemployment rate down. Brinker told Walt that the FOMC does not know how much it will take to get the unemployment rate down -- that they wanted it at 5%, but it is now at 9.6% and the underemployment rate is at 17.1% -- an embarrassment to the country. There is basically no inflation at 1.1% year-over-year.....

Brinker said:
"They are really guessing here....Quantitative easing is the only major tool that they have left -- they already took rates down near zero, so that's that. So now they they have to look for other ways. They found one which is quantitative easing and they went out and bought over $1 1/2 Trillion security already in the first round. Now they are coming back for a new round....This an admission that they have not found any other tool in their arsenal that they think will do a better job than quantitative easing.......

.....Alan Blinder has made it clear that there is no comparison between effectiveness of the Fed lowering rates -- well we already did that.....and the effectiveness of quantitative easing. So what he is saying is quantitative easing is a much less effective way to stimulate the economy. Well we can't lower interest rates anymore because zero is zero.....

asked Brinker if he thought the Republicans would reign in spending if they take the House. Brinker said: "I don't think anybody knows what they will do. We know what they have said. John Boehner has indicated a $100billion spending reduction program.....Details are hard to find......They include a reduction of $5 billion in Pell Grants.....I've seen talks about reductions in health benefits.....I can assure you this, that when you go on a government austerity program, you will see pain because that is part and parcel of government cutbacks.....

.....The notion that the government can cut back spending without anybody feeling anything is ridiculous.....They probably won't like it, but that seems to be what the electorate seems to be up to on Tuesday. Which by the way, is completely out of control.....We have to do a lot of things to get to a balanced budget.....Now I'm not suggesting we are going to get to a balanced budget soon. We are running annual deficits of over $1 Trillion......

.....There was a package put together with various ideas on Social Security....They wanted to gradually increase the retirement age to 70 and put in some disability eligibility for earlier periods for laborers. They wanted to reduce the annual cost of living increase formula for Social Security......They want to get medical courts established for malpractice suits for health care....They want to cut military significantly, reflecting what they call a post-cold war restructure. And they want to reduce the presence in Iraq and Afghanistan. .....They want a 5% reduction in the federal work force, so that would be tens of thousands of jobs gone.....They want to lower farm subsidies -- get rid of earmarks......They want to increase gasoline tax by $1 per gallon starting in 2013.......It's gonna be a donnybrook, I guarantee you......

.....So here we have John Boehner on eve of what should be a GOP takeover of the House, his statement is that they could propose a $100 Billion reduction in spending.....What difference would that make? But if you want to cause real pain, I can tell you how to do it. Put in a massive government spending reductions in an economy that's limping along with 17.1% underemployment.....That's a guaranteed formula for causing pain."

.....Brinker talked at length about a Bloomberg national poll taken through the 24th to the 26th, showing that by a two to one margin, likely voters think taxes have gone up and that the economy has shrunk in the past two years and that TARP money will not be recovered. Brinker blamed the Democrats because they "have not sold their program to the voters." Brinker said that taxes have gone down $240 Billion in the last two years. Honey EC: Anybody know what taxes Brinker is talking about that went down? If you want to read about this poll here's the link: Bloomberg national survey.

* Caller Louisa from Illinois
tried to point out to Brinker that people are worried about FUTURE tax increases and that is what they are thinking about as they go to the polls. Brinker said that isn't what they told the pollsters. Honey EC: Brinker again selected parts of the piece he was quoting and slanted it. Actually, the poll only included 1000 likely voters and they were not asked if they were worried about future taxes. However, they did say this about the Obama administration: “He’s all about big government and big spending.” So they must not be totally ignorant like Brinker said several times today, since what they were quoted saying certainly agrees with what Brinker has been espousing for months now.

"Some of the issues that are not being discussed or admitted to is the dire situation that exists with under-employed and unemployed. Percentages that I keep on hearing don't match what the realities are. And I'm sure that is one of the big contributing factors to the big reduction in taxes because people aren't there to make the payments on such taxes." Jim also brought up that the subject of cutting entitlements is not being addressed by any of the candidates in Tuesday's election.

Honey EC: Brinker didn't comment on what Jim said about unemployment but thanks to Jeffchristie, here are the unemployment rates January 2008-January 2009

2008 Jan 4.9
Feb 4.8
Mar 5.1
Apr 5.0
May 5.5
Jun 5.6
Jul 5.8
Aug 6.2
Sep 6.2
Oct 6.6
Nov 6.8
Dec 7.2
2009 Jan 7.6

Brinker replied to Jim: "I hear from people who collect Social Security who say it is not an entitlement. Well, it was not an entitlement when it was started, but it certainly is an entitlement if the government has to borrow to cut the checks. And to cut the 58 monthly benefit checks for Social Security, the government has to borrow as soon as the payroll tax becomes less than the payout......We are very close to getting there.....

.....And at that point, the only way the government can make the checks to pay off the monthly checks is to go out and take all the payroll tax money and then sell Treasuries to make up the difference. In my opinion, Social Security has become an entitlement because the federal government squandered the money on the general budget."

Brinker's guest-speaker today was John Zogby.

To Go is Available on Demand Totally Free at KGO810 radio for seven days after broadcast. Moneytalk is broadcast only on Sunday. The 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 Don't forget to download the John Zogby interview in the 3-4 hour of the program.

Dixiegeezer took this beautiful picture - click to enlarge:


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