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Sunday, November 21, 2010

November 21, 2010, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

November 21, 2010....Bob Brinker hosted Moneytalk today -- on the way to the "Land of Critical Mass." :)

STOCK MARKET....Besides quoting the Friday closing numbers, Bob Brinker only had this to say about the stock market today: "S&P 500 Index at 1199.73. Just a tick or two away from the 1200 level. That gives the S&P 500 a total return, including dividends, this year to date of 9.4 % which is pretty cool when you're in a near zero interest rate environment."

INTEREST RATES.....Brinker said: "I'll tell you what, interest rates are rock bottom."

TAX BRACKETS NEXT YEAR....Brinker said: "We don't know what the brackets will be next year because of its amazing ability to become more and more dysfunctional as time goes by, congress has failed to legislate tax rates. Starting on New Years Day, we don't know what they will be.....If they don't do something then the marginal income tax rates, across the board will go up.....There are tax credits on the books, they will be slashed. Tax rates on capital gains and dividends will change. If nothing is done, capital gains will go up to 20 and dividends to 39.6% New Years Day. And estate tax on estates worth more than $1 million will be brought back after 2010 had no estate tax at all because congress failed to take it up."

CONGRESS WORST IN UNITED STATES HISTORY.....Brinker said: ".....just about 6 weeks before the end of the year and none of know what the tax brackets will be starting in January. And for that, it is fair for you to say that in terms of dysfunctionality, this congress in Washington is the most dysfunctional in the history of the United States. And there is no doubt about it." Honey EC: Brinker has never pointed out that Nancy Pelosi and Harry Reid have been the leaders in "this congress" for over four years.

WARREN BUFFETT....Brinker reported that Warren Buffett thinks the Bush tax cuts should be allowed to expire at the end of December which would amount to one the largest tax increase ever. Buffett thinks rich people should pay more in taxes. Brinker gave a couple of Buffett quotes. Honey EC: I sure won't be quoting Buffett on this blog unless Death Valley freezes over tomorrow. Who is this leftist, Warren Buffett, that he should have any input in our Federal tax policies? Why does Brinker seem so ga-ga over the "Sage of Omaha?" Oh, Brinker has already answered that question: "It's all about the money." As Jeffchristie recently pointed out, these tax increases will hit ALL taxpayers and the lowest bracket the hardest with a 50% increase.

FOUR PERCENT RULE....Caller Tim from Madison asked Brinker if the 4% rule applied to index funds. Brinker explained that it did not apply to index funds. It only applies to individual-company stock purchases.

"My advice has been to stay away from long-term bonds right now. I don't think long-term bonds are a good place to invest right now. Short-term is another story....."

said he had permanently moved from the U.S. to Canada. He asked Brinker if he should move his retirement accounts out of the US and into Canada. Brinker replied: "Well I'm a strong believer in having the main currency in your the country that you reside.....I like to match currencies in the currency that you are trading in....You may wish to continue to invest in mutual funds that in the United States, and in that case, you will be accepting the US dollar as your currency for that transaction. But with the exception the investment category, in terms of your every day expenses and your major future liabilities, I'd be thinking in terms of the loonie....."

ZERO CAPITAL GAINS TAX IN 2010.....Caller Stella from San Francisco
asked Brinker about taking capital gains this year. Brinker advised Stella to check with a tax advisor to find out her tax bracket and then make a decision. Brinker said: "If you're in the zero tax bracket, for example, if you took a profit, you could re-establish a position (and if it's a profit, the wash sale rule doesn't apply) and hold it to the future and you'd have the higher cost basis going forward." Honey EC: I'm sure not a tax expert, but I think the income threshold for zero capital gains is about $30,000, including the capital gains.

asked: "What do you think QE2 will do to the inflation numbers"? Brinker replied: "Well, I think it's an unknown. I don't think Ben Bernanke himself knows what the value of QE2 is -- buying Treasury securities and printing additional dollars to do so. I don't think Ben himself knows. I think he's functioning under the dual mandate."

Honey EC: Brinker's tune was quite different last week. This week he's trying to make it appear that Bernanke is only "doing what he has to." That is NOT what he was saying when he spouted off about this last week. Here is what he said on November 14th: "Let me be very clear on this because I do not want to be misinterpreted on this. Any politician, and I don't care who they are and I don't care what party they're in, that tells you that the Federal Reserve is wrong to attempt additional quantitative easing is a fiscal moron....."

Brinker explained that over three decades ago, congress adopted a dual mandate for the Federal Reserve. Brinker said: "The dual mandate is price stability and maximum employment, taken together. And of course, they are polar opposites. .....Now they have price stability but they don't have anything close to maximization of employment potential. In Europe, they have a single mandate -- to keep inflation down. Prior to the change in the mandate back in the 70's the Fed here had a single mandate. The single mandate was to keep prices stable (inflation down) and to keep the US dollar sound.......All Ben Bernanke is doing is adhering to the mandate congress gave him. And now to hear members of congress attacking him, and other politicians -- some of whom I regard as idiots --attacking him on the basis of the fact that he is doing what he has to do under the mandate, that is sinful behavior......If I were Ben Bernanke, I would be furious. In fact, if I were Ben Bernanke, I would consider resignation......"

: "They have to cut benefits. That includes extending the age on Social Security beneficiary recipient. That includes the possibility of means testing. Oh wait until you see the reaction to means testing on Social Security.....Certainly you have to have changes in the Medicare program...." Honey EC: Is Brinker afraid to talk about making cuts in any programs that are strictly hand-outs? The programs that he always focuses on are those that every working person has been forced to pay into his/her whole life. Perhaps it would not be politically correct to address any other kind of "benefits."

ENERGY PRICE INCREASES DON'T CAUSE INFLATION......Caller Gene from Sacramento asked about the accuracy of the official inflation numbers in light of the fact that food and energy are not included in the CPI. Brinker said: "Energy is way up in the past year. Energy, commodities up about 10%. Gasoline is up a big number. Fuel oil is up double-digit in the last year. But of course, rising energy prices alone don't produce inflation because they are weighted into the overall index. And when you mete it all out, that is just not the number that comes out. Even though, energy is up big in the last year, it has not resulted in big inflation, even in the headline number which includes everything. The headline number is1.2% year-over-year. But I must tell you that the food component is not up a lot. In the last year, it is up less than 1.5%.......If you throw out food and energy, we have one of the lowest ever -- goes back to the 1950s-- core rate which is 0.6% annual."

Caller Brian from Chicago
became the victim of Brinker's wrath today. Brian said that he was a loan officer and had done loans for 20 years. He explained that there are some 30 pages of forms that need to be signed and that no one ever really reads all of them. Brinker interrupted Brian to say that it does not matter whether you read a legal document or not. Brian tried to explain further, but Brinker immediately lashed out at Brian, demanding that he let him speak, then continued to explain that if you sign a document, you are legally responsible even if you don't read it.

Brian then told Brinker that every year, the government comes out with extra forms ,and sometimes these extra bureaucratic red-tape forms get left out from the original signing, so they need to be signed. Brinker became irate, raised his voice and shouted: "Brian that should not happen. That's incompetence. You've already started down the road of incompetence -- 'Oh, I forgot to put this in, it's not a legal document, it's an incomplete document, I have to come back for another signature.' You're already in the land of incompetence right now. It shouldn't be that way. Have the documents in order before you make the signing official. I don't want to hear about this. I gave the wrong documents. The documents are incomplete. I really don't want to hear that. Take the proper documents. Take the time. Do your homework......

.......If you're doing a mortgage deal, before you go out and get the signings, do your homework. Get the deal right. I have to tell you, I don't want to hear from anybody on the mortgage granting side, 'Oh I gave you the wrong documents, they're incomplete.' That is just ridiculous. That is just absurd. Time to fire your mortgage broker right there. More to come on America's money program......"

asked: "California is issuing a lot of these general obligation bonds and we're concerned if they are going to be able to pay them off and I wanted your take on that." Brinker replied: "I don't think there is any financial stability at all in the State of California. I think that the state of California is as dysfunctional as you can possibly get.....And when I look at the results of this last election in California, I don't see any reason to change my view that California is fiscally unstable......They cannot continue to do what they have been doing without becoming insolvent."

.Brinker reported that over $3 1/4 billion of additional debt placed on the backs of California taxpayers by Sacramento politicians as they went out and did another massive sale of federally subsidized Build America Bonds. These bonds pay a huge premium above the Treasury rate because of the questionable reliability of the State of California to repay debt......Brinker said: "You're not buying Treasuries, you're buying the full faith and credit of the State of California when you buy one of these Build-America Bonds........Yes, they get a 35% of the interest cost rebate from the Federal Government, but the principle is on the backs of the taxpayers of the State of California."

CALIFORNIA'S PROMISES TO PAY SO MANY PEOPLE SO MUCH.....Brinker said: "There is so much uncertainty about how in the world the state is going to meet all of the promises it has made to so many people over the years. Including those who have worked for the state and are eligible for benefit packages for many years to come. Who's going to pay for all that? Investors are worried about that, as they should be......The way people are looking at California right now is, it's basically a debt machine. As a matter of fact, this coming week, they are scheduled to sell another $billion of tax-exempt General Obligation Bonds. And another $100 million of taxable-lease revenue bonds......The investor has legitimate questions now about the long-term solvency of issuers like the State of California."

told Brinker he was concerned that the Federal Government might have to bail-out California. Brinker agreed with Tom and said that if the state should become insolvent, there were two possibilities -- either the Fed would offer aid or it would not. It all boils down to this: Is California too big to fail?

Brinker's guest-speaker was Robert Slater:

Moneytalk is FREE and available on demand at KGO810 radio for seven days after broadcast. (Saturday Moneytalk broadcasts have been canceled.) The Sunday program is archived in the 1-4pm time-slots. To download and listen at your convenience, right click on the hour and use "Save Link as." KGO: Moneytalk Download Don't forget to download the Robert Slater interview in the 3-4 hour of the program.

My Idaho sister-in-law sent this today. It's the first snowfall lightly dusting the wheat grass, making it look like it's blooming snow flakes. Click to enlarge:

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