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Sunday, May 22, 2011

May 22, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

May 22, 2011....Bob Brinker hosted Moneytalk today. Two important topics that Brinker did not bring up today were the Arnold Schwarzenegger scandal, and the rape charges levied against Dominique Strauss-Kahn, the President of the International Monetary Fund -- who reportedly hoped to become the President of France.

STOCK MARKET....Another stock market "Ground Hog Day" with Brinker reciting the Friday closing numbers. Brinker told a caller: "I disagree with what your friend said about the market just goes up and up. That's not even vaguely true. The S&P is lower now than it was back at the end of the 1990's. The end of 1999, the S&P was higher than it is right now. So the idea that the market just continues to go up is a silly bit of misinformation that your friend gave you."

Honey EC: Brinker is correct. The S&P 500 Index closed December 31, 1999 at 1469, and closed last Friday at 1333.

* From there, it went into a bear market and bottomed in March 2003 at 801. Brinker partially sidestepped that bear by raising 65% cash in his model portfolios between 2000 and 2003 (a portion of that cash was used for his QQQ trade, but never officially accounted for).

* Then the S&P began another bull run to an October, 2007 top of 1565. Brinker remained fully invested.

* From there, the S&P dropped to another low of 677 in March of 2009. Brinker remained fully invested the whole megabear.

* Now once again, the S&P is back up to 1333, but still more than 200 points below it's all-time-high of 1565. And as Brinker said, over 139 points below December 1999.
TREASURY RATES.... Another Brinker Ground Hog Day repetition of Treasury Rates. (For latest rates, see the right column under "Items of Interest")

INFLATION....
The Treasury market implied inflation rate = 2.38% annual. Brinker said: "Those who are looking for rapid inflation are getting tired....."

ECONOMY..
.Growing slowly...Next week, revised GDP expected to be at 2.2%

HOUSING MARKET:
"...is on life support."

WHAT HAPPENS IF THE GOVERNMENT SHUTS DOWN? Brinker said:
"We had an actual government shutdown...in the mid-90's and the market kind of yawned. It wasn't very impressed. The market correctly made the assumption that the government would re-open after a short period - which it did. I think that investors today, in general, are making the assumption that the debt ceiling will eventually be raised and then we can get down to the serious business of trying to get toward a balanced budget, which is a very important subject, and the one that Washington should be focused on going forward."

WHAT IF THE TREASURY DEFAULTS ON DEBT? Brinker said:
"I will say this, if the United States defaults on its debt, I can't give you any reason why anybody in the world should lend a penny to the United States Treasury.....If they actually do that, I can't give you any reason why anybody should invest in a US Treasury......Personally, I don't see how they can go into default because they're constantly going into the market and borrowing more money. If they go into default, they will access to additional borrowing. How are they going to fund a trillion dollar a year, plus, deficit, if they can't go into the market and sell debt. How would they do that? How could they possibly face the risk that they would be unable to sell Treasury debt because they were in default.....I don't see that as a realistic outcome."

WILL THEY RAISE TAXES... Brinker said:
"I certainly expect to see a continuation of political pressure on raising the rate on the high earners, which are defined for a single person as those making over $200,000. For married couples, those making over $250,000 in taxable income. .....Will they go beyond that?...... That one is going to be fascinating to watch because they have a gargantuan gap between expenditures and revenues right now. And they are going to have to deal with that. A lot this is lodged in Medicare. I mentioned that we have a 110 trillion dollar unfunded liability in Medicare, Medicaid and Social Security. But most of that is Medicare. Medicare is a fantastic deal for those getting benefits. Medicare is a disastrous deal for the Federal Government because it is running the national deficit and the national debt to the moon."

CALIFORNIA BEING RIPPED OFF BY PUBLIC EMPLOYEES......In the opening segment of hour two, Brinker talked at length about California, and he itemized several outrageous public employees' salaries and pensions in various places in the state. Brinker pointed out that in regard to public employees (and their unions), "no one is minding the store" -- while in the private sector, usually someone is at least counting the money.

Honey EC:
As I said above, Brinker never mentioned Arnold Schwarzenegger today. Although in the past, Brinker has said that
Arnold Schwarzenegger was "good for California' and vigorously defended him. One time, Brinker went so far as to say that he gets “ill” when he hears people "bash Arnie."

Perhaps there's a reason for his reluctance to say anything about Arnie's lying, cheating and adultery. But what about the possibly irreparable damage that "Arnie" did to California? He was elected because voters believed what he said he would do for the state -- HE LIED! And shame on you, Bob Brinker, for not mentioning the disgusting behavior of this two-term governor of California, who got elected while he AND his wife lied to voters... You bash California every week, but give your buddy a pass? It's a shameful thing to do, just like what Arnold Schwarzenegger did was shameful.


Brinker's guest-speaker was Andrew Ross Sorkin, who wrote "Too Big to Fail." The HBO movie is scheduled to debut tomorrow at 9PM eastern time.

Brinker started the interview by asking Sorkin what he would like to add to his book since it was completed a year ago. Sorkin pointed out that the book was actually completed in 2009 - that Brinker was looking at the paperback date.

Sorkin said: "Very little has changed. We now live in a world that is too big to fail squared. The top ten banking institutions in this country now control 77% of all the banks assets. Think about that concentration and what that actually means. We have not solved the too big to fail conundrum, and that to me, is the most disheartening part about this crisis. But the other thing that I think it's really important that we focus on, given that we talked about debt and the risk and what that means, is that the conversation about this phrase too big to fail no longer just applies to banks. We are now talking about in the context of municipalities and states and countries in Europe and eventually maybe our own. I think that is a much larger and more important conversation because the next financial crisis that we have, I'm not sure is going to be generated on Wall Street. I think it's generated by us. I'm not going to say there's going to be a sequel. I actually hope I don't have to write one. But if there is one, that's what this is ultimately going to be about."
Brinker asked: "Is the United States Treasury too big to fail?"

Sorkin replied: "Arguably it is. And the question is who, who, who can rescue us? The only people who can rescue us is the Fed which is the lender of last resort at this point. But will they really have enough firepower? And that is what we don't know. If a really big institution, when I say big, I'm talking a JP Morgan or a Citigroup, whatever, got in trouble, are we in a position to save them and what would really happen?

Part of the legislation that was passed around financial reform was this idea that a resolution authority, the idea that you could finally have the authority to take over one of these institutions. And it will be our last line of defense. The question is, will it really work, and there's no way to practice. We won't know until we do it, and I think that has a lot of people very anxious."
Brinker thanked Sorkin and again announced that the HBO film would debut tomorrow (Monday, May 23rd). The book is also available for Kindle:



Moneytalk on demand and to go with Bob Brinker, is available for FREE audio/podcasting at KGO810 radio for seven days after broadcast. I download and save all three hours, including the third hour guest-speaker. (The program is archived in the 1-4pm time-slots.) If you don't download it from KGO within seven day, it's available at bobbrinker.com by paid subscription. KGO Radio Sunday Archives

SJ Al recently sent pictures from Florida, and sent this one this morning. Al has now returned home. Hope you had a wonderful vacation -- and thanks for this picture of one of the inhabitants of Cozumel:


Dixiegeezer took this picture for us yesterday in Florida. To me, plumeria IS Hawaii. Does it smell as sweet in Florida? :)



Sunday, May 15, 2011

May 15, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

May 15, 2011....Bob Brinker hosted Moneytalk today.

STOCK MARKET:
Brinker reported the latest stock market numbers. Year-to-date total return on the S&P 500 Index = 7%.

INTEREST RATES: Brinker said:
"Rates are way, way, way down." He recited all of the current Treasury rates.

Honey EC:
Another Bob Brinker stock and bond market Ground-Hog Day. :) Brinker is still fully invested and recommending dollar-cost-averaging new money into the market. He predicts that the S&P 500 Index will reach the low-to-mid 1400's range over the next 12 months. (See the right hand column of this blog for a link to all the latest Treasury yields.)

TREASURY IMPLIED INFLATION:
Brinker pointed out that the Treasury market is predicting an annual expected inflation rate of 2.45%.

HBO FILM BASED ON "TOO BIG TO FAIL" by Andrew Ross Sorkin:
Brinker reported that the film will premier on Monday, May 23rd -- the "all-star cast" includes William Hurt playing Hank Paulsen; Warren Buffet will be played by Edward Asner; and Ben Bernanke will be played by Paul Giamatti. Brinker calls this book the "definitive work on what went on in the great financial blow-up of 2008."

WHAT IS QE2? Brinker said:
"QE2 is not going out and spending money which then vanishes. QE2 is the purchase of securities which are then held on the balance sheet of the Federal Reserve and collecting interest, and then maturing so that they are fully re-paid....So that is an investment activity....not a spending activity."

HOW THE FED CREATES MONEY: Brinker said:
"The Central Bank, in Quantitative Easing, which is put in when they've run rates to zero and they can't do anymore rate reductions. What they have to do if they want to do further stimulus, and they did....they have to come up with other ways.....What they do to create that money, they create it electronically through the Federal Reserve's own bank account. And then with the money they create electronically, that's the money they deposit into brokerage accounts when they make the purchases of Treasuries. Then that money is used to buy government bonds and other financial assets....They buy these assets with the newly created money. That's how it works.....The Treasury sells new debt.....The Federal Reserve will go out and buy those outstanding issues in the open market.....They buy them from financial institutions, including commercial banks.....To pay for them, they deposit the money into the accounts of the financial institutions that they are making the purchases from. This is all electronically created new money."

WHAT IF THERE IS A GOVERNMENT SHUT-DOWN:
Brinker told a caller that he couldn't comment about how long the government might delay before making a decision about raising the debt ceiling. But he reminded the caller that there was actually very little reaction when the government did shut down in 1994. Brinker said: "If they are going to default on the government debt, at that point, it's all over.....Then the government of the United States is at that point, it's at the bottom of the heap in terms of credit quality. It's junk. Now do you think they'll do that?.......

BRINKER OWNS NO TREASURIES: Brinker said:
"I personally don't own any Treasuries. But if I did own Treasuries, I would not make any changes based on the raising of the debt ceiling issue. I think it's a circus.....How could you as a member of congress say that you are not going to vote in favor of raising the debt ceiling when your record is full of votes that you have cast to spend money that raise the deficit. If you do that, as a politician. If you do that, you are a hypocrite."

MEDICARE 800 pound budget elephant:
Brinker said: "I had hoped that we would see the political will in Washington to tackle the 800 pound parakeet sitting over in the corner watching all this. It's called Medicare. Seventy percent of the 110 trillion dollars of unfunded government liabilities are lodged in the Medicare program. Money going out versus money coming in is so overwhelming in favor of the beneficiaries that it is mind-boggling.....I was very disappointed this week. Some of the top politicians that had been driving very hard for cutting spending, have backed off their pledge to do something about Medicare...... If you are a Medicare beneficiary, you are getting way more in government benefit than you're paying into the system.....So the majority of people on Medicare don't want any changes.....And they all vote, so they have tremendous power....We are looking at gigantic government deficits as far as the eye can see."

BRINKER SAID EVERYONE GOT A TAX CUT, DID THEY?
Caller Marlene from Virginia Beach said she disagreed with Brinker. (Honey EC: That's a no-no, Marlene, which I think you may now know.) She said that the government must stop spending. When Brinker told her that the issue was to balance spending with the revenue. Marlene said that they can't just keep raising taxes. Brinker replied: "No, they've been cutting taxes, Marlene...." Marlene told Brinker that the taxes in her family have been going up.

Brinker replied:
"That's amazing, Marlene, because my taxes went down. The government just gave me a 2% reduction in my 2011 payroll tax.....You didn't get the 2% reduction in the payroll tax? You're the only person in the country, Marlene.....Here's what the government did, at the beginning of the year, they gave all workers a 2% reduction in their share of the payroll tax. Now if you did not get that reduction, you're are the only person in the country that didn't get it......It was given to all workers in the United States in 2011."

Honey EC:
On the next call, Brinker found an opportunity to bash Marlene two more times -- once at the beginning of the call, and once at the end of the call. However, at the the very end of hour one, as he was leaving the air, Brinker corrected himself. He admitted that not "everyone" had received the payroll tax reduction.

*Caller Nancy from New York
asked about the safety of Vanguard Selective Value Fund (VASVX) which she had been holding for many years. Brinker responded that it has been a good fund. He recommended that she monitor the fund, but said he had no problem with her continuing to hold it.

BRINKER'S NEW BOND FUND RECOMMENDATION

* Caller Bill from Wisconsin said:
"In your last issue of Marketimer, you made a change in the income portfolio, going to a brand new fund. Double Line Total Return and it looks to me like....."

Brinker interrupted:
"Bill did you read page 3 of that issue? ....I've explained in there why I selected that fund. It's right there."

Bill continued:
"Yes, I have it right it front of me. Let me ask a couple of questions that aren't there. One, it's a very short life fund. It's only been around a year or less, and it has a higher expense ratio. And I assume the rating isn't as good as the funds that it replaces. And I question what the duration would be on that fund."

Brinker replied:
"Now this is a change that was made in the income portfolio. Now if you check that data that I published in the letter, you will see that I published the duration. Did you see that?"

Bill:
"I looked for it."

Brinker:
"No, it's published....it's published in the eh, eh, eh..."

Bill: "On page three?"


Brinker:
"You don't see any information on the duration?"

Bill: "No sir."


(Honey EC: Apparently, someone quickly got this information to Brinker, as his prior questions clearly show that he believed the duration rate was in the newsletter Bill was reading from.)
Brinker said: "That's because it was effective on the 10th of May. Let me explain why you didn't find the duration, and you will find the duration. The duration is in the table on page 7, but that table does not include the fund because the change wasn't made on April 30th. Everything in the newsletter for May is as of April 30. So what I've done is, I've stated in that recommendation to make those changes in the income portfolio in page 7 ..... that those changes take place on the close May 10th. So they happened last Tuesday....We implemented those changes..... for performance purposes......So when we publish the June investment letter, on page 7, you will see the duration of that fund in there........

Now as to why I selected that fund. I selected that fund because I really like that manager. I think that manager has really outstanding talent. Actually, I stipulate that on page 3 of the newsletter, that I like the manager. And that was the reason that I selected that fund. Now although what you said is true that it's a relatively new fund. It started in the spring of 2010, its done very well its first year out there. Now here's the thing, that manager had a long-term track record at his prior fund. A record of over ten years of excellence in income management at his prior fund. I looked at that record, looked at what he's done the first year in his new fund since he's gone out on his own, and was very pleased at the data I was looking at. And that was the reason that I selected it.....Remember though, if you see a recommendation that doesn't work with you investment, don't buy it...... But I have to go with what I believe in the investment letter because of performance tracking.....and that was the analysis that I based that recommendation on. Good call, Bill. I appreciate it. This is Moneytalk."
Honey here: I have several editorial comments to make on this subject. The symbol for Double Line Total Return Fund, managed by Jeffrey Gundlach, is (DLTNX).

[In edit: This fund was not added to any of Brinker's Marketimer model portfolios. It was only added to what was formerly known as the "fixed-income portfolio."]

Firstly:

[In edit 5/17/11: It has been brought to my attention that the Yahoo Finance duration figure of 2.6 is WRONG. At the DoubleLine Funds website, it says that the duration is 3.79. That's a big difference!]
The funds that Bill mentioned which Brinker replaced with Double Line Total Return Fund were Vanguard Ginnie Mae Fund (VFIIX) and Vanguard Short-term Investment Grade Fund (VFSTX). Brinker sold 10% of each, bringing each weighting down to 15%. He took that 20% and put it into Double Line Total Return Fund.

Second: why didn't Brinker KNOW whether or not the duration was in the May newsletter? Doesn't he write, edit and publish Marketimer? Or, is someone else doing it for him?

Third:
Why would Brinker issue a buy date on a bond fund and NOT publish the duration rate until the next month -- weeks after subscribers have already bought it if they followed his advice?


Fourth:
Brinker says he chose Double-Line Total Return Fund because he "liked the manager." Beware, this has happened before and was very costly to those who bought TEFQX because Brinker "liked" a fund manager.

Marketimer, February 2000, Bob Brinker said: "We believe e-commerce fund manager Kevin landis brings a high level of stock selection talent to the fund."
Fifth: Be aware that in spite of what he said about "performance tracking" the Marketimer "income portfolio" is off-the-books, and he does not include that portfolio's performance in his official record. Additionally, Mark Hulbert's Hulbert Financial Digest uses only the three Marketimer model portfolios for ranking Brinker's performance against other newsletters -- not the "income portfolio."

Brinker's guest-speaker was Henry Nothhaft:




Moneytalk on demand and to go with Bob Brinker, is available for FREE audio/podcasting at KGO810 radio for seven days after broadcast. I download and save all three hours, including the third hour guest-speaker. (The program is archived in the 1-4pm time-slots.) If you don't download it from KGO within seven day, it's available at bobbrinker.com by paid subscription. KGO Radio Sunday Archives

Dixiegeezer took this awesome picture of a Pink Spoonbill this morning:


Wednesday, May 11, 2011

May 11, 2011, Bob Brinker, Oil, Commodities and Dan Dicker Interview



May 11, 2011, Sunday, Bob Brinker's guest-speaker was Dan Dicker. This is part two of the Dan Dicker interview. Please see the post below this one for part one.

Caller Jack from Lancaster
asked Dan what is the chemical difference between propane and natural gas.

Dan explained that natural gas liquids are a part of propane and is a subset of what comes out of the ground when drilling. Dan said: “It’s true that the marketplace for the liquids has in fact not been related to the dry natural gas -- the methane that most people talk about when they talk about natural gas….there really isn’t a connection between the two. Both markets are independently traded. And in fact, the natural gas liquids have been pretty strong even though the dry natural gas has…..been under $5, and for the most part, closer to four."

Caller Mitch
wanted to know if gasoline had reached its pinnacle yet or if there was still time to get in.

Brinker said:
“Some trading advice for the speculator, Dan.”

Dan said:
“That’s one thing that I’m hard-pressed to do. I’ll tell you this, I think the market is under a lot of pressure now. Markets never generally go up when they come down as violently as they have in the last week, they tend to stay down. I think there are a lot of reasons for there to be pressure on the market over the next couple of weeks. Part of which is the death of Osama Bin Laden. I thought that took some of the security premium out of the market and will keep it out.

There’s a big IPO in Glencore coming up….And I think there’s going to be pressure, like Bob alludes to, for the president to put a lot of pressure on the exchanges to raise margins on oil, like the exchange did on silver. Because that brought so much froth out of the market, they’re going to want, for the sake of the consumer, to try and keep as much of the froth out of the gasoline market as they can. So right now, I think there’s a couple of reasons to stay out, or at least not be long this market. Although, anything going on in the mid-east, Saudi Arabia, could spike it again. It’s a tough game right now."

Honey EC: The final Glenchore IPO price is set to be released May 19th.

Brinker said: “Let’s just leave the current cast of characters out of it. Let’s just talk generic. I just think it disingenuous, Dan, for any politician, be it the president or anybody else in Washington in a position of power, to go out and say it’s those traders and speculators that are responsible for the $115 oil price and then be silent two weeks later when the thing goes back under a hundred. It’s just political pandering as far as I’m concerned.”

Dan agreed
with Brinker, but obviously for different reasons. Dan stammered then replied:
“Well, I think it is, I, I, I, I, uh, agree with you 100% that bringing the Attorney General into this game as opposed to just going to the real agencies that over-run these things, the CFDC, the FCC. But going to the Attorney General was a politic move. I agree with that. Whether he is going to keep silent over the next two weeks or actually apply some pressure to try put a little more of Dodd-Frank forward a little more quickly or get some of these margins a little more quickly applied to oil and gasoline, I don’t know.”

Honey EC: For those who are not familiar with Dodd’s last bill, it looks like his final legislative act was designed to drastically change things for the worse in the world of finance in the US. Here are some excerpts from a May 10th, Wall Street Journal article.
“Whatever your views on financial reform—whether you want the government to crack down on bankers or to disentangle itself from financial markets—you should fear Sen. Chris Dodd's financial reform bill. In 1,300-some pages, all it really does is legislate power to the government for fixes to be named later. It does this by using terms that are either totally undefined or defined in breathtaking generality.

This is a politically understandable solution. But it sweeps aside more than two centuries of accumulated wisdom: that checks and balances are essential to markets, and that rules must be known in advance."
Here’s the link. I recommend reading all of the article: The Treasury Financial Complex

Joe from Carmel
asked what might help smooth out oil prices. Dan replied: “The way that I would approach it is to try and remove some of these financial instruments that have sort of moved the price so violently over the past couple of years. And that would include some of these commodity indexes that are run by a lot of the big funds out there. All of the institutional investors use them. Big pension plans use them. If you are a private wealth customer, you use them. They are run by Pimco, they’re OpCo; they’re run by Goldman Sachs, everyone has a few of them. They are an enormous amount of what’s going into the oil and other commodities markets right now.

And I’d also like to see a ban on some of these futures based commodity ETFs, which allow anybody basically set or help to set the price of something so critical as oil by buying some of these shares that look like a stock, but in fact, they translate into futures buying. And that’s what manipulates. It sends the price upwards and downwards. And we saw the effect of that over the course of the last week in silver and to a certain degree in oil. So you can see how violently some of these financial instruments can affect the price – both on the upside and the downside.

Brinker said:
“I don’t think I’ve ever seen a trade that got more crowded than the silver trade at the end of April. And it was inevitable. You knew what was going to happen, and it didn’t take long.”

Dan replied:
“You may have known what was going to happen, but also, they took 7 ½ billion dollars of retail customers and flushed it down a toilet in 3 days. Who’s going to answer for that? Somebody has to turn around and say maybe these things aren’t so great for us. Maybe we shouldn’t sell these things to people. They’re bad……”

Brinker interrupted:
“As you well know as a trader, Dan, a lot of those people in the silver market were trading in the futures market where you were required to put up less than 10-cents on the dollar and they were immediately liquidated and wiped out."

Dan said:
“When will we ever learn? This goes on time and time again. It’s simply those kinds of things that I want to see happen to the oil market where people don’t get involved in the frenzy of a commodity that starts to run away from them – put a life savings, or half a life-savings – you know I heard a guy literally on the train platform praying, please get silver back over 40 and I’ll sell and never do anything this stupid again.”

Brinker said:
“There’s nothing new under the sun. You live by the sword of speculation; you die by the sword of speculation.”

Dan said:
“With something so critical, something in an economy like ours where we’re trying to create jobs, move ourselves out of a recession, we’re trying to grow, to allow something so critical – you know 55 of all the stocks on the New York Stock Exchange have oil either as their primary or characteristic input. To have something that critical under that same kind of control or non-control, to me, requires a little bit more care than something like silver. In the end, people may lose money, but who really cares? Whether or not you are engaged in the silver trade, you’re engaged in the oil trade.”

Brinker asked:
“What you’re saying is Dan, if it was up to you, would you outlaw all Exchange-Traded-Funds that deal in derivative products related to oil?”

Dan replied:
“I would…..I”m actually surprised, if we’re talking from a political standpoint, that someone who’s not looking to make some hay with his constituents, would in fact put a bill up saying that these futures-based that use derivatives to try to get at or try make stock-like products out of commodities should not be accessible by normal people.”

Brinker said:
“They’re listening right now on WMAL in Washington. Don’t be surprised if you see that legislation pretty soon.”

Mark in Michigan said:
“As far as the gas prices that we’re see right now compared to the oil prices. The last time oil was at $99 a barrel, our gas prices here in Michigan were at $3.32 a gallon. And that was just in March, 2011. Oil is back down to $99, or 97, 98 a gallon and our gas prices in town are still up at $4.19 a gallon.”

Brinker said:
“We get this complaint all the time, Dan, that the prices go up really fast at the pump when oil is going up, but when oil comes down, it seems like there’s a lag.”

Dan replied:
“Two points to be made. First, the callers from the mid-continent region, which always gets it a little bit worse because of the supply characteristics of that….area. That’s around Chicago and Detroit and Cleveland. But one thing is the crack-spread which talks about the relationship between gas and crude oil, has been especially wide this year for a lot of reasons I don’t really want to go into. So therefore, the same price you might have seen for crude a couple of years ago, does not translate into the same price for gas. It actually translates into a much higher price for gas…..Gas prices going up and not going down is a bit of a sham to a certain degree.

What happens is the retail guys will bet into….the forwards contracts on to the gasoline supply and have a certain lag that they have to have on prices coming down that they don’t have to have on it going up. And if they have a certain rational, for example, if the price jumps 6 or 7 cents during the day, they have no qualms about going right back out and plugging that into the retail price. But when it comes down, they have some contracts they have to run through. They have to wait until they expire before they feel comfortable dropping the price back down…..I will say this, you have lost 25-cents on the futures market in the past four days. If the price stays around here, you’ll get that by summer. It’s coming off…..sometime in June.

Dan and Brinker discussed using
natural gas in cars, especially government cars. Both agreed that they are speechless that the government hadn't done anything in that direction.

The last caller asked if the Bakken oil field
was the real deal. Dan said yes it was definitely not hype or nonsense. That there is an estimated 20 billion barrels of crude oil in the Bakken. For those interested in investing in it, he suggested two stocks: Whiting Petroleum and Connell Resources.

Dan Dicker's book is also available in Kindle for $16.99:




You can still download and listen to the Dan Dicker interview at KGO 810 Radio: Bob Brinker's Moneytalk on Demand/Audio Podcasting for free until next Sunday at 1pm. It is in the
3-4pm time slot. KGO Radio Sunday Archives

SJ Al, who is vacationing in Florida, sent this picture of the Pirate Ship that Dixiegeezer has also photographed. Al said it was 93 degrees and humid under the shade tree:



Tuesday, May 10, 2011

May 10, 2011, Bob Brinker, Oil, Commodities and Dan Dicker Interview

May 10, 2011....Bob Brinker's third-hour guest was Dan Dicker. Dicker was an oil trader for many years at the New York Mercantile Exchange. He traded in natural gas, crude oil and heating oil futures. His latest book is "Oils Endless Bid."

Brinker was like a dog with a bone and wouldn't give up his "president blaming the speculators and traders" rants. He seemed to want Dan to see his point and raise him one, but it didn't happen. While Dan never outright disagreed with Brinker, he made it abundantly clear that he indeed thought (at least) traders did affect the markets.

Bob Brinker started the interview saying he wanted to begin with the 800 pound parakeet over in the corner. Brinker raised his voice to an ever-higher pitch as he said: ".....the pathetic attempt by the president of the United States, just two weeks, to blame oil prices on those speculators, those traders, it's their fault. When I hear this kind of political poppy, it drives me crazy. You're the trader, tell me your reaction?"

Dan said: "There's two pieces to that puzzle. Number one, there was an effort by the president to get the Attorney General, Eric Holder, involved in looking at the markets....to look at fraud inside the energy trading and what he's going to find is that there is no fraud to be found. But what there is to be found is an enormous amount of financial influence in the oil markets through hedge funds, pension plans, indexes, people who are trading their own accounts online, that has in a lot of ways swamped out the amount of money that's being traded by those who actually have connection to oil -- the oil companies, the oil users, the drug companies, the aluminum companies, the food processing companies, obviously the refining companies and so forth. And all of these real users of energy that should be permitted to set the prices of oil have been over-run by you and me in a lot of cases. By anybody who is a public servant. Anybody that has a little bit of money and is trying to invest. Not only in stocks and bond, but also in hard assets....."

Brinker replied that anybody who is trying to gouge the public should be locked up but "....the real culprits here are the politicians in Washington who have failed miserably for decades to establish a viable energy policy in the United States that would make us less or non-dependent on global oil prices."

Dan commented
that we lack an energy policy that makes sense. Witness the amount of natural gas in this country that could power this country for a couple of centuries and stop an outflow of $250 billion to countries that don't like us and would like to kill us. But there still is quite a lot of Wall Street influence on the price people pay for gasoline at the pumps. There is an enormous surplus of supply....the demand structure in oil that is lower than it's been in seven years. A supply structure that's higher than it's been in sixteen years. And yet we have prices that have raise upward.

Brinker sarcastically said:
"So Dan, should we be looking for the president perhaps to call a news conference tomorrow and to blame those speculators and traders for this big drop in crude oil.......That would seem to be logical."

Dan said: "I have a problem with the term itself because it implies a manipulation of the market. That somebody is going in there and in a nefarious way is trying to hike prices in order to make money or...."

Brinker said:
"That's the presidents term, that's his term."

Dan said: "It just has this horrible connotation........ I'm a speculator, but I don't consider what I do nefarious. What I do is I try to find places I can make some money in markets, in dis....."

Brinker said:
"There's nothing wrong with what you do....."

Dan said: "And there's nothing wrong with somebody decided to take 4 or 5% of their portfolio and invest it a hard commodity index.....trying to capture what they think is going to be a rising price of oil, of cotton, of corn, of wheat, of precious metals. The problem with that is that as these people want to capture this kind of alternative asset class of all of these commodities, they keep on buying these commodities, and they buy paper pieces of this commodities as opposed to real pieces.

So instead of buying real oil barrels, they go into the futures market, they buy paper barrels and it does hype prices. And every time you get something that geo-politically happens to drive more money into hyping prices, they get hyped even more. So you get this up and down swing in prices which we saw in '08 and '09, that we're seeing again now in '10 and '11. That go up and then come way down.....And it may not be even important whether the price is high or the price is low, it would help everybody, we could have more jobs....if we knew that what we had in an oil price was a lot more stable than what it's been in the four years."


Brinker said
: "I think it's important to be honest....And I think the president is going to go out 10 to 12 days ago and blast, BLAST the speculators and traders for oil prices when they go up to $115, I think he has to come right back tomorrow and he has to say, 'it's the TRADERS fault, it's the SPECULATORS fault that oil came down so quickly to $97.....They are the culprits, that's why it's down...at least that would be consistent. Otherwise, it's just political gamesmanship to only criticize people like you when prices go up....You're the bad guy when they go up, but when they come back down, silence. It's just not right."

Brinker asked: "Eighty-five plus barrels a day consumed around the world of crude oil....This is a really widely used, highly liquid, highly tradeable commodity. I just don't believe it's manipulated. I think it's supply-demand that dictates the price. You know value outs in the end....I find it inconceivable that a bunch of speculators sitting in a corner could dictate the price of 85 million barrels a day. It makes no sense."

Dan responded:
"Now I don't believe you're wrong on any of these things, but what there is, and this measurable, there's been a growth in the amount of paper barrels of oil being bought that's gone from zero to 350 billion dollars of paper barrels of oil that's been bought in the last 5 years. Now that has to go somewhere and it has to affect the price somewhere. And what it's done is over-run what been a very, very tiny, very delicate futures market, which was never created for people to come in and invest in it as if it were a stock, as if it were a bond, but that is how they are investing in it now.

The thing that happens in the commodities market, and you have to remember it's not like a stock. That if you go and buy a stock, you don't have to have the other end of a trade. But if you go in for an oil barrel, you have to find someone to sell it. The thing that commodity traders always do, if they go in for a buy, they are always looking for an exit. And everything they sell, they are looking to buy back. And the people that have been coming in in the last five years are buyers that never want to sell. They want to own it as if it was a stock, as if it was Johnson & Johnson or Chevron.......And when you do that, you get these higher and much more volatile moves in a commodity that we all must depend on for getting back and forth to work, heating our homes......."


Brinker said:
"That's the problem, we haven't done anything in Washington to get that dependence down for 30 plus years....."

Dan said:
"On that, I can agree with you 100%. And it's been a national disgrace since the days of Nixon......."

Brinker asked Dan if he was still an active trader. Dan replied: "No, the floor is not really a viable place. Part of the book shows how it became electronicized, in fact became almost universal. Everybody sort of has the same equivalent access to the oil markets, so I had to go electronic with the rest of the world and I don't go down to the floor anymore."

To be continued tomorrow....


Sunday, May 8, 2011

May 8, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

May 8, 2011....Bob Brinker is hosting Moneytalk today. Brinker wished "all of those who qualify" a Happy Mother's Day. Brinker said he was doing the program today from Colorado.


Brinker comments summarized, paraphrased or excerpted:

OSAMA BIN LADEN IS AS DEAD AS A DOORKNOB....Brinker said:
"This is the week that we can finally say that we will not be dealing anymore with Osama Bin Laden. He was taken out by United States Special Forces, the brilliant work of the Navy Seals in an operation last Sunday, which was reported after the broadcast.....We congratulate everyone involved in that operation, from President Obama, all the way down to every single Navy Seal involved in that operation. They deserve the kudos that they receive."

STOCK MARKET... Brinker's Ground Hog Day
report again -- closing numbers and year-to-date returns again.

Honey EC:
There has been no change in Brinker's bullish outlook on the stock market, and his model portfolios are still fully invested. In the May 2011 issue of Marketimer, he is still forecasting the S&P 500 Index will reach the "low-to-mid 1400's range over the next 12 months."

TREASURY RATES....Another Brinker Ground Hog's Day
report....rates are very low -- about as close to zero as possible, especially after taxes.

TREASURY IMPLIED INFLATION RATE
....Annual: 2.5%. Brinker explained that this is not his inflation rate forecast because he doesn't have one. It is the Treasury market's implied inflation rate.

LEADING ECONOMIC INDEX
.... Coming out on Thursday this week....Looking for a little uptick, following a good trend.

CONSUMER PRICE INDEX....Last week = 2.7 headline number; 1.2 core number (year-over-year); one month core number= 1/10th of 1%. Fed wants to see core inflation at no more than 2%.

KEY TO INFLATION.... Brinker said:
"Obviously, labor costs are the key to inflation. Some people get it wrong on this and they think commodities are the key to inflation. Commodities are not the key to inflation, believe me. The key to inflation is the cost of labor and that's why inflation is so very, very low."

CALIFORNIA CAPITAL GAINS TAX
....Top rate almost 10%, which is added on to the Federal 15% rate -- totaling a whopping 25%!!!!!

NEXT FOMC MEETING.
...Will be reconvened June 21st and 22nd -- ".....presided over by Obi Wan Big Ben Bernanke."

WHAT WOULD CAUSE INTEREST RATES TO GO HIGHER?
Brinker said: "My guess is, that in order to get materially higher rates, you need a faster rate of economic growth.

HOUSING MARKET.... The market is looking to stabilize, but kind of going nowhere. Housing starts are expected to have a little rebound for the month, but according to Brinker, that is no big deal. Existing homes figures coming out Wednesday -- expected to sell at an annual rate of about 5 million....About 90% of housing transactions are existing properties...

Honey EC:
While talking about the housing market, Brinker took another swipe at caller-Sue, who was on the April 17th program. She told Brinker that she was for a "Fair Tax." On today's program, Brinker said she called it a "Flat Tax." She did not. She denied that it was a "flat tax," and Brinker contradicted her vehemently. Here are my comments about their conversation:
Caller Sue from Cape Coral tried to explain to Brinker that the Fair Tax is not a “flat tax.” He clearly did not want to listen to Sue's explanation and repeatedly interrupted her. Later he talked to another caller about what Sue had said.
NEW JOBS....Brinker said: "Here in the first four months of 2011, we have added an average monthly 192,000 new jobs. But it's better than that because the last three months, we've averaged over 200,000 new jobs in each of those months. It's nice to see people get those opportunities, but it's still rough out there because the unemployment rate is 9%. Way too high."

WAGES AND WORK WEEK.....Brinker said:
"As far as wages are concerned, they are really quiet. We saw 3-cent increase in the average hourly wage....That numbers in the area of $23 an hour. And the average work week was unchanged, sitting in at 34.3 hours per week.....So people are not being asked to work longer work weeks at this juncture."

UNEMPLOYMENT REPORT.....Brinker said:
"It was a good one. We like employment reports that are spritely, and this one was definitely in that category, 244,000 new jobs added in April.....In the month of April private sector jobs growth 268,000, then subtract another 24,000 government jobs -- gone, goodbye.....slashing budgets, money's not there....We had to wait awhile for this jobs growth, but we have it, at least for now in the data."

WHAT TWO STATES THAT HAVE NO TAX ON EARNED INCOME, BUT LEVY A TAX ON UNEARNED INCOME?
Brinker suggested that this may be a question on the Moneytalk final exam. Answer: Tennessee and New Hampshire.

WHAT SEVEN STATES HAVE NO STATE INCOME TAX AT ALL?
Answer: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

BRINKER'S EUROS DOING WELL....Brinker said:
"Well, I have some Euros that I purchased from my last trip over there. I had a little chat with the spouse what to do with these things. There's no way you can trade these things back in because after you pay the vigorish to go from one currency to the other, and then you go back again -- whoa, I mean forgeddaboutit. So I put them on the shelf and the darn things are up 20%."

Honey EC: Brinker's guest-speaker today was Dan Dicker. The subject, oil and commodities, seemed much more current than the usual Brinker guest-speakers who re-hash the financial crises of 2008. Later this week, I will write a summary of the third hour Dan Dicker interview. You may want to download it from KGO (see the link below).

(The Kindle edition of this book is available at $16.99.)



.
Moneytalk on demand and to go with Bob Brinker, is available for audio/podcasting FREE at KGO810 radio for seven days after broadcast. The program is archived in the 1-4pm time-slots. I download and save all three hours, including the third hour guest-speaker. KGO Radio Sunday Archives

Dixiegeezer's beautiful Dragonfly on a water lily (click to enlarge).


Saturday, May 7, 2011

May 7, 2011, Mark Hulbert's Most Current Ranking: Bob Brinker's Marketimer

May 7, 2011....At Bob Brinker's Land of Critical Mass website, they use carefully selected portions from Mark Hulbert's Financial Digest to advertise the Marketimer investment letter. So how does Bob Brinker's investment letter really stack up against other newsletters in HFD? And how objective is Hulbert when he ranks newsletter performances. A few facts that may surprise you.

In the March 2011 issue of Hulbert's Financial Digest, Mark did a full page summary of Brinker's Marketimer.
Mark said: "Bob Brinker's newsletter is primarily intended to help mutual fund investors time the domestic and international stock and bond market as well as select individual funds. His approach involves a combination of both technical and fundamental analysis."
* Say what? Mark claims Brinker uses Technical Analysis? Wow, that will no doubt come as a big surprise to our friend, DanG. It surprised me. Brinker usually claims that it's all about his "timing model."

* For Mark to give Brinker credit for timing the bond market is a bit of a stretch. Although, Brinker recently lowered the Vanguard Ginnie Mae Fund holdings in balanced portfolio III and the off-the-books fixed income portfolio. (AKA: "income portfolio" since Wellesley Income Fund was added.) And as he mentioned last week on Moneytalk, he sold all Vanguard TIPS holdings.

* Brinker owns no international bonds in any portfolios. He does have a minuscule (total 7.5%) international stock fund weighting in portfolio III -- Vanguard Funds. More importantly, Mark does not include Brinker's fixed-income portfolio in his performance rankings.

* Another thing about Mark's analysis, Brinker has made no "timing" changes in his portfolios since March 2003. Since then, Brinker seems to have joined his infamous, "church of buy and hold." Wonder why that fact doesn't appear in Mark's Brinker analysis? As you saw, he simply mentioned that Brinker "focuses on longer-term trends." Wow I guess so, eight years is a rather long time to remain fully invested for a newsletter named "Marketimer," especially when the worst bear market in our lives happened during those years....

In my opinion, the facts never get between Mark Hulbert and his typewriter when it comes to Bob Brinker or Bob Brinker. He seems to go to great lengths to promote both of them.

Mark ends his Bob Brinker analysis with a footnote. He's done that for over a decade now because he was bombarded by outraged Marketimer subscribers when they noticed that Mark was giving Brinker a mulligan on the QQQ trade.

Here is Mark's footnote from the bottom of the Brinker-analysis page:
"Brinker's bear market bet on QQQQ

Please Note: In late 2000, Brinker forecasted a several-month bear market rally and recommended an investment in the NASDAQ 100-Index--a trade that turned out quite unprofitably. However, because Brinker at the time of making this forecast chose not to make this trade part of his model portfolios, his HFD record did not suffer as a result."
The footnote contains a known falsehood. Brinker decided well after he sent the "Act Immediately" Bulletin not to include it in his official record. I personally know that Mark is aware of that - I wrote and told him. He denied the documented facts. And even if Brinker did "choose" to not hold his record accountable for the trade, does that make it right? Do two wrongs ever equal a right? Hardly, but that is exactly what's going on to this day.

It's apparent that due to the fact that HFD does not allow Brinker's "record to suffer as a result" of the double-dip usage of a large percentage of Brinker's model portfolio cash reserves, all HFD performance numbers for Marketimer are suspect (I would call them highly exaggerated). There is no way that those gigantic losses can be ignored without drastically affecting Brinker's performance since October 2000. That is when he recommended using up to 50% of the 65% model portfolio cash reserves to buy QQQQ with -- then the Q's lost over 70%....

Even with all that, in the April 2011 HFD, Brinker's Marketimer did not make it into the top-7 Mutual Fund letters over the past 5-year time frame. And it did not make it into the "Overall Performance Scoreboard" top-7 over the past five or ten year time frames. Marketimer squeaked into 7th place over the 20-year time frame in Hulbert's "unadjusted" column.

Sunday, May 1, 2011

May 1, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

May 1, 2011....Bob Brinker hosted Moneytalk today. Bob Brinker comments summarized, paraphrased or excerpted:

STOCK MARKET: Bob Brinker
reported that the Dow Jones Industrial Average traded at the 2011 high of 12,810 on Friday's close.....S&P 500 at 2011 high of 1363.63 -- total return of 9% year-to-date, including dividends.

Brinker said:
"If you go back over the past couple of decades, the annual total return on the S&P 500 is very close to 10%, which by the way, is a pretty outstanding return when you look at the world we are in today and the interest rates.....As you know, we've had a couple of great years here, 2009 was an extraordinary year and 2010 was a very good year. And now 2011, with 4 months in the books, has a 9% rate of return. So it's off to a very good start. Nasdaq Index doing alright itself, 2873. The Nasdaq 100, which is the basis for the triple-Q ETF stock price, 2404.....Of course, the bear stories have been out there. The people with their bearish forecasts have been out there this year. So far, what they're left with, at least as we complete the month of April, they're left with the 2011 stock market highs on the close on Friday."

Honey EC:
It's obvious why Brinker chose a "couple of decades" instead of one decade. The S&P 500 closed at 1249.46 on April 30, 2001. So as of Friday, the S&P was a whoppin' 114 points higher than it was ten years ago. And it has been as low as 677 in March, 2009.

INTEREST RATES AND MONETARY POLICY...Brinker said:
"Interest rates still playing the old Chubby Checker limbo rock game, 'how low can you go.' Three-month Treasuries Bills now 4 basis points annual. So that means that if you had a Treasury Bill for 4 consecutive periods at this rate, you would earn 1/25 of 1%. That's about as close to zero as you are going to get on Treasury Bills. They don't get down here very often. They are being held down by Federal Reserve monetary policy which remains accommodative.....Doing everything it can to encourage jobs growth."

Thirteen week Treasury Bill Chart


UNEMPLOYMENT RATE:
Brinker reported that unemployment has been gradually improving and that he hopes that will continue. The highest rate was a little over 10% during the recession, but right now, it is 8.8%. There will be a new jobs report on Friday, May 6th.

INFLATION AND ECONOMIC GROWTH....Brinker said:
"Rates have come back down again with concern about austerity in Washington, concern the loss of government jobs which continues on a monthly basis. All of these factors are causing concern about economic growth rate which was only 1.8 annualized in the first quarter. And only 2.5% annualized over the past two quarters. If you put together quarter four of last year and quarter one of this year..... and annualized them, you will get an annual growth rate of 2.5% on Gross Domestic Product over the past six months.....Well I'll tell you what, that's not the kind of a growth rate that puts a whole lot of pressure on the economy, on interest rates or on inflation. Which is why you're looking at such incredible low core inflation numbers. Core inflation numbers right now are exceedingly low. In fact, the Personal Consumption Expenditure core is 9/10 of 1% year-over-year, and that is a very low number."

GENERAL OBLIGATION BONDS....Brinker said:
"Triple-A Municipal General Obligations with ten year average maturities are yielding 3.17. That's 4.9 if you mark that up for the 35% top Federal bracket this year and next....taxable equivalent yield.....We mentioned on the broadcast, there are still 11 states that have triple-A ratings. We mentioned Georgia, Virginia and others, so not all the states have gone the way of California or Illinois or some of the others. Some of the states have been fiscally responsible and then of course, we have the others."

BRINKER'S PROPOSED SPENDING CUTS: Brinker said:
"We have to get this thing going in the right direction. We have to reform Medicare. We have to reform Social Security. I think we have to reform Medicaid. We have to take a really serious look at the Military budget. I hate to see us say that the Military budget is untouchable, but we are going to cut Pell Grants. We are going to cut education. Huh, let me tell you, the other countries that we are competing with are not cutting education. And if we cut education, the long-term effects will be negative on this country.....But they should be looking at all this other other stuff, Medicare, Medicare, Social Security, certainly the Military....To make sure that every taxpayer dollar that is spent is money that is spent for a purpose, not just because we used to do it that way, or we always did it that way, or because the lobbyists have their tentacles on the appropriations people, which they undoubtedly have for many years......... So congratulations to Ben Bernanke for observing that fiscal policy is the most important problem facing the United States."

* IF THE FED CONTRACTS THE MONEY SUPPLY THERE WILL BE A RECESSION: Caller Larry from Pennsylvania
said he is worried about the effect of increasing cost of materials and rising gasoline prices on his small manufacturing business. Brinker said: "In my opinion, if the Fed stops expanding the money supply then I can guarantee you a recession....I think they know if they contract the money supply then the economy is going to contract and unemployment is going to go up.....I think we can say with reasonable certainty, if the Federal Reserve changes policy and begins to contract the money supply the economy will go into a woeful recession and you'll see very, very high unemployment. This is what they did in the early 1930's."

* TOBACCO BONDS: Caller Morris from El Paso
commented that 30% of the homes that are purchased were paid for with cash. He said it was because of foreclosure auctions where cash has to be paid up front. Then Morris asked Brinker about the safety of state sponsored tobacco bonds. Brinker told Morris that he had no interest or recommendation on tobacco bonds. And not only that, but he blamed smoking for the "gargantuan" health care costs that are a burden to "all 300 million taxpayers" who have to fund the deficit and national debt. Brinker thinks the good news is that smoking is down because only one out of four still smoke. But the bad news is that 25% "still use these diabolical products." Brinker said: "I would be happiest to see all of the tobacco companies go bankrupt. That would be wonderful as far as I'm concerned."

* WHO IS RESPONSIBLE FOR THE HIGH PRICE OF OIL: Caller Hugh from Albuquerque
wanted to know why speculators wouldn't affect the price of oil. Brinker explained that it's not black or white. There can be speculation that affects price, but it's mostly supply and demand because oil is a global commodity. The US is consuming over 80 million barrels a day and still, the government has no energy policy. West Texas Crude oil is $113 per barrel, and Brent Crude is $129 a barrel. Brinker said: "To blame it on the speculators is political poppycock."

* FEDERAL RESERVE DROPS ECONOMIC FORECAST RATE BECAUSE OF OIL PRICES: Caller Ken from Skokie
said he gets a knot in his belly when he sees gasoline prices at $4.50 a gallon. He also said he is in Brinker's portfolio III and wondered if Brinker would recommend that he move some of the stock portion of the portfolio into bonds.

Honey EC: Brinker completely ignored Ken's question about lowering his stock allocation and zeroed in on the price of oil and the Federal Reserve.


Brinker replied to Ken:
"This is something that we monitor very closely.......You are correct that the oil price reached around $147 a barrel in the summer of 2008. However, I would have to say the economy did not weather the storm well. But you have to understand that perhaps, for whatever reason, this occurred at the same time that we were in the midst of what turned into a mortgage meltdown. And once the underlying collateral on the mortgages melted down, then we had a banking crisis. And that was really not directly linked to the price of oil......We certainly had a recession, although most people blame the recession on what happened in the financial crisis.....Oil prices are very high but they are not $147 yet in West Texas Intermediate."

Honey EC:
Brinker has a guest-speaker on the program almost every Sunday to discuss "what went wrong in 2008." Will this ever end? Why is he so seemingly obsessed with this subject? Does he actually think that listeners are learning anything useful from this constant harping on the subject? What is he trying to prove?


* OIL PRICES AND THE ECONOMIC TIPPING POINT: Brinker continued:
"In terms of US economy..... Why do we value WTI crude oil prices when we talk about the US economy? The answer is that is the crude that we consume in the United States......close to $114 a barrel.....There is a price level at which it would be the tipping point for the economy. I don't think it's $114, but it has to be monitored. Right now, I want you to observe what the Federal Reserve did....They took down their estimate for growth for 2011. Right here, right now, they took it down.....They took it down to a new range which is 3.1 to 3.3%. That is quite a change.

Prior to this revision that just came out of the FOMC meeting, these guys were at 3.4 to 3.9%.....And I think the main reason they took it down is they now see that consumers have less discretionary income because they are dumping it at the filling station....(demand destruction) is already happening. Consumption of gasoline has been really strained by the rise in prices....People come up with alternatives, car pool, whatever......Here's the problem with demand destruction. Demand destruction is fine in the US, we can import less, consume less, send less money overseas to buy oil. But we have so much growth in the rapidly growing companies like India and China....More and more people are having access to vehicles....It will continue to grow....Oil is a global commodity."


Honey EC:
I was slightly shocked at Brinker's cavalier attitude that the US facing "demand destruction is fine." Is he so far removed from ordinary life in the US that he doesn't realize that this kind of "destruction" HURTS REAL PEOPLE?

* BRINKER'S GROWTH RATE PROJECTION: Brinker said:
"My central tendency has not changed, because I was below the Fed. I never believed the Fed had the right handle on this....I'm not trying to criticize Big Ben. My central tendency is around 3% within a 2 1/2 to 3 1/2 range, as we have discussed....... It was the Federal Reserves forecast that was too high in the first place that has had to come down."

* BRINKER SOLD ALL TIPS FROM MODEL PORTFOLIOS: Caller Keith from Peoria
asked Brinker if the high price of groceries would increase the rates on Inflation Protected Bonds (TIPS). Brinker said that right now, the Fed is a buyer of Treasury securities -- creating demand by putting in about 75 billion dollars a month (from QE2). This helps to keep yields down. Plus they have become very widely owned which creates demand for them. Brinker said: "Right now, I think that the base rates are too low. And that is why we have eliminated them from our model portfolios in the investment letter. We did that at the beginning of the year."

Bob Brinker's most surprising quote of the day
: "The reality is, if the Federal Reserve starts contracting the money supply, you can pretty much write the country off."

Brinker's guest-speaker was Rody Boyd "Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide"

Dixiegeezer took this picture in Clearwater Beach, Florida. Please click to enlarge - it's beautiful:


Dixiegeezer just sent this picture. He confirmed with me that it is a "real deal" photo that he took. I think it's awesome!


Moneytalk on demand and to go with Bob Brinker, is available for audio/podcasting FREE at KGO810 radio for seven days after broadcast.
The program is archived in the 1-4pm time-slots.
I download and save all three hours, including the third hour guest-speaker. KGO Radio MP3 Sunday Archives

Saturday, April 30, 2011

Bob Brinker's Five Root Causes of a Bear Market

April 30, 2011....According to Bob Brinker, there are 5 root causes of a bear market:
1. Tight Money
2. Rising Rates
3. High Inflation
4. Rapid Growth
5. Over Valuation

A year ago on Moneytalk, Brinker reviewed these items and decided that they were all negative. Does he feel the same way now? Let's compare what he said then with what he is saying now on Moneytalk.

1. Tight Money

May 2010, Brinker said: "First one of the root causes of a bear market is tight money. What is tight money. That is when the Federal Reserve pulls in their horns, takes away the punch bowl, restricts the growth of the money supply. And money is harder to get, and as a result money price of money goes up....Do we have that now? No. Do we have the prospect of having that now? No. We have easy money now and the Federal Reserve is clearly on an easy money track.....especially with what is going on in Europe."

April 17, 2011, Brinker said:
"Well what's going to happen at the end of June when QE2 expires is that the Federal Reserve will no longer be buying 75 billion dollars a month in Treasury securities...That means there is less demand by that 75 billion amount for Treasury securities once QE2 expires. That means that as long as the Treasury continues to offer these securities at a very high rate, because of our trillion dollar plus deficits - way over a trillion this year - closer to a trillion and a half, 1.6 trillion - mind boggling numbers.....That Treasury paper will be available on the market so it will be available to the lowest bidder....The Treasury takes the lowest it can get......I would say that the risk is that you could see 50 to 100 basis points in the Treasury market when the Treasury has to make these offerings without the help of the Federal Reserve in there buying on the Quantitative Easing program.....And I'm comfortable that that is the risk....once we get into July.....Right now, I don't expect a QE3...."

Honey EC: So he thinks that less money availability after the end of QE2 will only raise rates 50 to 100 basis points. If correct, no apparent "tight money" there.

1. Rising Rates

May 2010, Brinker said
: "What's another root cause of a bear market? No question, rising interest rates. I'm not talking about the federal funds rate going from 1 to 2. I'm talking about a meaningful rise in interest rates.....When we look at the rates today, they are low, low, low. How low are they? Well, 3-month Treasury Bills are 15 basis points. That's about 1/7 of 1% a year. Six-month Bills are 21% basis points....One-year Treasuries are about 1/3 of 1% annual. Two-year Treasuries about 3/4 of 1% annual. Five-year Treasuries at 2%. Ten-year Treasury Bonds at 3 1/4. Thirty-year Bonds at 4.1........Rising rates are not a problem as we look at the market place right now."

April 2011, Brinker said:
"Bond market is starting to act a little better and that's of course because people are wondering whether there will be some austerity measures in the US. Any austerity measures coming out of Washington would slow down economic growth. Less money in circulation in terms of fiscal stimulus.....No question that would have a restraining impact on the US economy. Investors are starting to look at that and they know that if the Federal Government starts to pull back, and there's a lot of pressure on them now with this S&P downgrade....and that's a good thing.

Well if we have any kind of austerity steps in the budget that reduces the growth rate of the economy, it also reduces inflationary pressures. So bond investors are liking what they see when it comes to the subject of the possibility of reducing fiscal stimulus and the possibility of moving away from the risk of inflating the economy. So all of this is going to be something that investors will focus on."


Honey EC: So based on what Brinker said, it looks like we can conclude that
there is no indication of major rising interest rates.

3. High Inflation

May 2010, Brinker said: "What's another root cause of a bear market, a decline in excess of 20% in the S&P 500......No question about it, Hyperinflation, rising inflation. Do we have that? No. I know there are a lot of people out predicting it, but they've been wrong. Right now we have a year-over-year Consumer Price Index increase of 2.2. And better than that, the year-over-year core Consumer Price Index is one of the lowest of all times. It's 0.9.....excluding food and energy......So if you've been betting on inflation, well, that horse fell somewhere down a back stretch. I hope it's okay. ......We don't have an inflation problem right now."

April 17, 2011, Brinker said:
"Inflation is really low, the core rate 1/10 of 1%, up for the month of March. And year-over-year the core rate up 1.2, and that is what the Federal Reserve watches. They want to keep the core rate below 2%. So far they are getting their wish at 1.2 on the CPI."

Honey EC: Brinker refuses to consider rising oil prices inflationary, and when callers tell him that food prices are rising, he poo-poos it. Nope, no inflation there according to Brinker.


4. Rapid Growth


May 2010, Brinker said:
"What's another cause of a bear market. At the root, it's rapid economic growth and a boom in the economy. The economy is roaring ahead. Do we have that? Not on your life. Not even close......Some people are worried about a double dip....."

April 2011, Brinker comments paraphrased:
ECONOMIC RECOVERY....Is happening without the help of the real estate market...The rate of recovery is modest....The 4th quarter annualized rate of real Gross Domestic Product was up at a rate of 3.1%....

Honey EC: With the jobless rate still so high, I think Brinker may have been exaggerating a bit when he said the recovery is "modest." Slow might be a better description of it.

5. Over-valuation

May 2010, Brinker said: "And another root cause of a bear market is over-valuation. When stock prices are so high relative to valuations they're on the moon like they were in January of 2000. Well, not true. We don't have over-valuation right now. We have good valuation right now."

April 24, 2011, (When a caller asked if now was the time to sell stocks) Brinker said:
"No.....Based on the work that I do, using 2011 operating earning estimates that I have a high level of confidence in at this point, after all it's already the month of April......I would say the S&P 500 is trading below its historic average multiple.....I use estimates for 2011....and I'm comfortable using those estimates."

Honey EC: So it doesn't look like Brinker has made any changes in his outlook on a possible bear market based on his 5 root causes. And:

April 2011, Marketimer, Bob Brinker said: "We expect the S&P 500 Index to make additional progress into the low-to-mid 1400's range within the next 12 months based on our earnings and P/E multiple expectations. The potential for gains beyond that range will be a function of the sustainability of the economic recovery and the ability of the Federal Reserve to manage monetary policy."
Nope, no bears lurking there. Just a word to the wise.... be aware that he didn't recognize the last bear in 2008 until it had consumed a large portion of his fully invested portfolios.

Our friend, FrankJ, who often posts here, sent these wonderful pictures of an historically significant part of Americana and wrote this narrative:


"A couple pictures from a recent trip out to Colorado and a short narrative:


These were taken at Promontory Point, Utah, where the transcontinental railroad line was completed in May of 1869. The first one looks east along track laid by the Union Pacific railroad. The second picture is a view to the west, along track laid by the Central Pacific. Today, the actual mainline runs a few miles to the south.

The Pacific Railroad Bill passed by Congress in 1862 created the Union Pacific, which would build westward from the Missouri River, and the Central Pacific, which would build eastward from Sacramento. Construction was financed by treasury bonds and land grants, the idea being that the railroad companies would sell both, to raise capital. Payments ran $16,000 per mile for construction across flatland, $32,000 through “foothills” and $48,000 for “mountainous” terrain. These incentives set up a race by the competing railroads to try and complete the most mileage.

An excellent book on this subject is Stephen Ambrose’s, Nothing Like It In the World. This was a government stimulus/infrastructure that really worked, although it was accompanied by corruption on a huge scale.

Considering the difficulties encountered: deserts, mountain ranges, river crossings, it seems fitting that the joining of these two lines took place at a location that seems to have changed very little since 1869. The Golden Spike National Historic Site is administered by the US Park Service."



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