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Sunday, January 9, 2011

January 9, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

January 9, 2011....After a two-week holiday vacation, Bob Brinker hosted Moneytalk today.

Bob Brinker's comments paraphrased, excerpted or summarized

STOCK MARKET....Brinker made no mention of the stock market today.

Net jobs addition for the month of December was 103,000 -- a very unhealthy unemployment rate. It's 9.4 right now, and the underemployment rate is very high at 16.7."

As he has done on several programs in the past, Brinker recited the breakdown of unemployment numbers based on the demographics of education and race.

Education: Bachelor's degree or higher have an unemployment rate of 4.8%; some college have a rate of 8.1%; high school diploma 9.8%; less than high school diploma 15.3%

Race: White unemployment is 8.5%; black unemployment is 15.8%; Hispanic unemployment is 13%; Asian unemployment is 7.2%. The biggest unemployed group is usually teenagers and that is no exception this month, coming in 25.4%. Remember the national average right now is 9.4%....

Now over 14 Trillion dollars. A year ago, it was $12.3 Trillion -- up $1.8 Trillion (14%) in a year. Brinker said: "The national debt ceiling has to be raised or they will simply shut down the US government."

BALANCED BUDGET... Brinker said:
"We need to have a political consensus in Washington that will formulate policies that will move in the direction of a balanced budget, and that will replace the current mentality that is run-away freight train spending mentality. And how that's going to happen, I don't have an answer for you. In my lifetime, I have seldom seen the level of vitriol between the two parties that we've seen over the past year....The two parties have become enemies of one another, and as a consequence, they've been unable to agree on very much at all.....Now they put in this last, second tax package in December to get through the next two years in the so-called compromise. But that's not what this is about. This is about long-term fiscal responsibility, which is a notion that seems to be lost on the current members of congress and they are responsible for budgeting."

Honey EC: Brinker seems a bit confused about who has been in control of the US Congress for the past three years. Bob may want to take a look at who has had enough power to do ANYTHING their little hearts desired since 2007....

..Brinker told a caller that there were still some issues because of foreclosures and short sales, but doesn't see any reason to be concerned about the bottom dropping out.

Caller Randy from Indiana
said he was in favor of extending the Bush' tax cuts, but wanted Brinker's opinion whether or not tax cuts always pay for themselves in increased revenue. Brinker said: "Basically, it's a lot of hokum."

Honey EC: I think that the caller was referring to the Laffer Curve which originated with Arthur Laffer. The Laffer Curve asserts that a decrease in taxes results in an increase in revenue to the government. Brinker obviously does not believe that theory.

Caller Ed from Madiera
wanted to know what would happen to the stock market if Congress does not raise the debt ceiling. Brinker replied: "We have history to look at. Back in the mid-90's, we had a government shutdown and it did not have much impact at all on the stock market."

Caller Sal in Huston said:
"Thanks for all your advice on the Marketimer for many, many years and I just started my subscription to the fixed income thing and I need a little education on bond funds. [Bob Brinker replied: [Thank you."] When interest rates rise and the yield on the bond decreases, it's price goes up. Does that happen to the bond fund too. Does the investor in a bond fund lose value on his total investment."

Brinker said:
"That's a great question....If interest rates rise, you should expect the net-asset-value of a bond fund to decline. Conversely if interest rates decline, you should expect the net-asset value of a bond fund to appreciate."

Honey EC: Let's think about that caller a bit... Sal has been a subscriber to Marketimer for years and did not know the most basic rules of bond fund net-asset-value fluctuations -- incredible!

Not only that, but Sal said he had just subscribed to the "fixed-income thing." He is speaking of the Fixed-Income Advisor that Brinker's son and daughter-in-law edit and publish. Notice that Bob Brinker did not correct the caller who obviously was under the impression that it was Brinker's own newsletter.
FrankJ commented: "Sal praises BB for the advice, mentions that he is a subscriber to Markettimer and the fixed income newsletter. BB humbly murmurs his thanks. This was an opportunity to mention that his son publishes the fixed income newsletter and thank Sal on behalf of his son. But he did not."

ILLINOIS AND CALIFORNIA GENERAL OBLIGATION BONDS....John from Illinois was concerned about his Illinois municipal bond holdings. Bob Brinker said: "I agree with you with reference to the fiscal train wreck that is known as the State of Illinois. There are others. The State of California with $28 Billion current fiscal year deficit is another example of a fiscal train wreck. This is why I have recommended limiting exposure to these municipal bond situations that are questionable to no more than 1%. That way if it goes the way of the buggy whip, you can't lose more than 1% of your capital. Meanwhile, you're collecting some good interest on the money.....

.....But hey, I'm limiting exposure in my recommendations on the broadcast here to 1% on these questionable issues, that includes the State of California. You cannot continue to borrow your way forever when you're running up these kinds of deficits. And unfortunately, you have some of the same problems they've had in California which is gross incompetence in terms of your governance and that's most unfortunate, and that's my opinion."


Caller Andy from Wichita said:
"I just got started here with the Bob Brinker program here." Then Andy asked which portfolio Brinker would recommend using for his kid's college savings money.

Brinker replied:
"This is a great question, Andy and I'll tell you where I lean on a college savings account. I lean toward the balanced portfolio. Especially now because our balanced portfolio is basically about, when you incorporate the changes that are going in at the close tomorrow on January 10th, when you incorporate those changes into the balanced portfolio, the balanced portfolio will be about 60% on the equity side and about 40% on the bond side.....So my answer to your question Andy, is that I would lean to the balanced portfolio. That's the model portfolio III on page 8, incorporating the changes.....which were published in the January investment letter. And I certainly do appreciate the call."

David in Lafayette said:
"I just rolled over my 401K plan from my old plan to Fidelity..... How would I re-allocate that money. In other words, would I go with portfolio III or stay with portfolio II model?"

After finding out that David is nearing retirement, Brinker replied:
"This has balanced portfolio written all over it. Remember David, without going into detail, we have a number of changes that we're putting into the portfolios tomorrow, Monday effective at the close and that includes some important changes that we're putting into the balanced model III portfolio."

Honey EC: Brinker must have laid in a good supply of carrots for the program today. He sure dangled a lot of them out there. Several times in the first hour alone, Brinker repeated himself ad nauseum about these so-called "important changes" in his balanced portfolio and his fixed income portfolio. Rest assured that these couple of changes are not nearly as important as Brinker would like for you to think they are. And if you have been reading the comments sections of my blog, you already know what one of the changes is because I quoted it from another website.

I believe that Brinker gave a huge hint here, so listen carefully to what he said about TIPS Funds and know that what he says here, he truly means:

Caller Harry from Fredericktown said:
"Would you give me an explanation of TIPS, and would they be a good investment if inflation comes back." Brinker replied: "Harry, I think that the best explanation of Treasury Inflation Protected Securities, known by the acronym TIPS, is that they provide you with protection against inflation....The other thing they provide you with is a base rate, which in the shorter maturities right now is pretty close to zero, near the lowest of all time.....

....So let's say you get your base rate of hypothetically of 1%.....So you'll get 1% for the life of the bond. Then in addition to that, you will get a consumer price pay-through, so if the CPI is about 1%....that would be what you would make.....

....But if you are in a bond fund, that's a different story, because if the base rate which right now is near historic lows, if the base rate goes up, the net-asset-value of the bond fund is likely to go down. So with the base rate having collapsed to close to zero in a number of the maturities, especially on the shorter end. That means if rates go up then you can expect the net-asset-value of that security to go down......For that reason, especially given the fact that the rates are near zero, I am not, I am not recommending TIPS.

..Caller Bob from Larkspur said he had a 4 step plan to solve unemployment and the housing problem. Brinker said for him to have at it because "we've been waiting for this for four years." So Bob itemized his ideas. First he wanted to stop all foreclosures; second, reduce all interest rates by two percentage points, but no lower than 4%; third, relax loan requirements for new home loans; fourth, well....then he "lost his train of thought."

Brinker reponded to Bob:
"We can all be thankful that this is not going to happen.....No disrespect Bob, but I think these are absurd notions that you are promoting on that call. I'm glad you called.... but I think that is the height of absurdity and any of these things would be very bad....I think that these are some of the worst ideas that I've ever heard on the broadcast."

Honey EC: I certainly agree with Brinker on this one. I just wonder what Bob's fourth idea was -- it must have been a doozie! LOL!

Brinker's guest speaker was Christopher Whalen

."I hate to hear myself talk."

Moneytalk is FREE and available on demand at KGO810 radio for seven days after broadcast.
The now Sunday-only broadcast is archived in the 1-4pm time-slots.... KGO: Moneytalk, it's Downloadable

This is my Dolly, perhaps the sweetest cat I've ever known. She now suffers with kitty-asthma and has to be on rather strong medicine so she can breathe. This was taken in 1998 when she was 5 months old:


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