January 28, 2011....Brinker's latest bond market oratories and adjustments.....
On Moneytalk, Bob Brinker has recommended Vanguard Ginnie Mae Bond Fund (VFIIX) for several years now. Until the net-asset-value recently began dropping, Brinker usually took several calls about Ginnie Maes on each program. There haven't been any GNMA calls lately.
Brinker said: "Ginnie Maes are guaranteed by the full faith and credit of the Treasury." However, he has cautioned that even though there is no credit risk, there is interest rate risk. Brinker said: "I would say that the principle variable in the bond market for quality holdings is going to be the overall direction of interest rates.......Now in terms of the direction of interest rates.......that's where you look at the economy.
Brinker used to repeatedly say that the Vanguard Ginnie Mae Fund fluctuated between $9.50-$10.50 in the past, and that he expected those prices to hold in the future. He stopped saying that when the net-asset-value climbed higher than his upper parameter in 2009 and made a recent top of $11.16 on November 4, 2010.
Now the 64-dollar question is, will the bottom number on his prediction hold or will the fund drop below $9.50. No one knows because it depends on what interest rates do in the future.
Brinker's advice for those who are concerned about loss of principal in Ginnie Mae Funds is to set a "mental stop." Moneytalk, December 20, 2010, Brinker said: "Now in terms of radio listeners who happen to have bond funds, my recommendation has been very clear that if you have any concerns about net-asset-value volatility, net-asset-value deterioration.....then you need to protect yourself. And the way that I recommend you protect yourself is with what is called a mental stop. And a mental stop is very simple.....You come up with a price on each of your bond fund holdings below which you are not willing to maintain the position, and if that price is published on any given night..... If you see your price then at that point, the next day, you liquidate your position......"
(Of course, the next question is, what do you invest that money in if you sell? Some just don't care about price fluctuations because they are only interested in the dividends.)
In the January, 2011 issue of Marketimer, Bob Brinker sold 15% of the Ginnie Mae holdings in his Fixed Income Portfolio, thus dropping the newsletter total holdings to 25%.
On Moneytalk, Brinker has often talked quite favorably about TIPS and he has told callers who are worried about inflation, that they could get total inflation protection by owning TIPS and I-Bonds.
So based on that, one would have to conclude that Brinker is not worried about inflation because in the January issue of Marketimer, he sold all holdings of Vanguard Inflation-Protected Securities in the Fixed Income and Balanced Model Portfolios. But the actual reason that he gave was that he believes they are "over-valued based on its extremely low base interest rate of 0.38%." He now has no recommendations for TIPS or I-Bonds in Marketimer.
Brinker has taken a few calls about Vanguard High-Yield Bond Fund lately so that he can talk about how well they have done in recent months. In April, 2003 Brinker traded 15% of VFIIX for a 15% purchase of Vanguard High Yield Fund (VWEHX).
Moneytalk, August 29, 2010, Brinker said: "High yield bonds have been doing very well. We've included those in our Fixed Income only portfolio on Page 7 of the investment letter each month. We've included for some time a high yield bond fund in there. And I'll tell you what, even today, the yield on that fund is about 7% taxable.....But we have taken a conservative position where we use that for fixed income only investors..."
However, if you check back through my summaries in 2008-2009, you will find that Brinker took no calls about the drastic net-asset-value drop in the High-Yield Fund. I got letters from people asking for advice as to whether to sell or hold, so I'm sure people were trying to get to talk to Brinker about it.
Marketimer, January 6, 2011, Brinker added a 10% wieghting in Vanguard High-Yield Corporate Bond Fund (VWEHX) to his Fixed-Income Portfolio, thus increasing the weighting from 15% to 25%.
Last Sunday on Moneytalk, Brinker said: "I have no recommendation in my investment letter, and I have not had for a long, long time any recommendation in my investment letter to tell subscribers put their money into municipal bond funds.....The kind of investments we have in the investment letter, for the most part, are very high quality with the exception of an allocation we've had to high-yield bonds that have done very, very well, by the way....."
While that is true, what Brinker did not say is that he is consultant for a newsletter that callers often mistakenly think is his own, which has a whole portfolio of Tax-exempt bonds. It seems disingenuous for him to claim he does not recommend muni-bonds under those circumstances. Please see the previous post and its comments section for more details.
Here is another picture I took in Mexico. I think it was Cabo San Lucas. Click to enlarge: