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Sunday, March 20, 2011

March 20, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

March 20, 2011, Bob Brinker hosted Moneytalk today.

Bob Brinker’s comments summarized, paraphrased or excerpted:

…Some volatility has come into the stock market in the month of March – not a lot – just a little. The S&P 500 is 1279, a year-to-date total return of 2% including cash dividends. Brinker said: “When we look at the correction, if you want to call it that. Some people call it noise and it certainly is noise at this point, the market is setting just 4 3/4% below the high year-to-date in 2011......

......When you look at what's going on around the's pretty amazing when you look at the resilience in this market.....We have war in Libya. We very high tension in the Mid-East. We have Saudi Arabian military forces moving into Bahrain to protect against protesters. We have protests going on at a number of other countries in the mid-east......We have the virtual elimination of oil supplies from Libya. We have the earthquake and tsunami in north eastern Japan, and the Fukushima nuclear situation......When you take a look at all of them, including the continuing sovereign wealth problems in Europe, you say how is it possible that the S&P 500 is only 4 3/4% below it's 2011 high mark. There is only one word and that is resilience."

Later in the first hour, Brinker told Jack from Peoria: "You need about 120 on the Dow to get up to 1%. You need 240 points on the Dow to get to 2%. 360 points on the Dow still only 3%. J. P. Morgan told us long ago that stocks tend to fluctuate.....So a move 100, 150 or 200 points doesn't really amount to a hill of we speak the Dow is 11,858. By the way, I don't think the Dow is the best average to use when a gauging market activity. I think the best index to use when gauging day to day activity in the market is the S&P's currently at 1279. Now the index has been as high as 1343 on a closing basis back in February."

..Subject to regulatory approval, but if the deal goes through, it will make ATT the largest wireless operator, ahead of Verizon.

Honey EC: Looks like there is a another telephone monopoly developing. I prefer Verizon and sure like to have a choice -- unlike what is available with my land line.

US MILLIONAIRE NUMBERS GROWING....Brinker reported on this resent study: "According to a recent Spectrum Group study, there are 7.8 million millionaire households in America as of 2009, up from a paltry 6.7 million millionaire households in 2008. That's a 16 percent increase. The number of households worth $500,000 and $5 million is also up significantly." Brinker explained that home equity is not included in the survey, but second homes can be included.

Brinker also said that millionaires "aren't too smart" because they only became really optimistic recently. Here is the link to the Fidelity article where Brinker got this information: "Fidelity Survey Finds Millionaires at Highest Level Since 2006."

.....The S&P Case Schiller Index of home values in 20 large cities is 31% lower now than it was at the July, 2006 peak.

ECONOMY/DEFICIT....Brinker said
that there is no way in the world that the U.S. can keep running annual deficits of 9-10% of GDP over the long-term. The national debt will eventually choke the economy. The percentage of GDP should be 3% or less.

caller Karen that everyone knows the U.S. dollar is the world's currency, and gave her what he called "a tip." He said that whenever anyone tells you about secret meetings, tune out. (Brinker was referring to the other callers who talked about Russia, Japan and Germany meeting to discuss forming a new world currency.)


VANGUARD GINNIE MAE FUND (VFIIX).....Caller Dean from Long Beach said: "I have the Ginnie Mae Fund, which is about 1/3 of my entire portfolio....I just subscribed to your newsletter in December and was looking at your fixed income portfolio.....I'm wondering if I should lower my risk by dividing it into the four funds that you suggest. Would that lower my risk in the Ginnie Mae even though I'm going to take a hit tax-wise?"

Honey EC: I was going to break up the following LONG Brinker speech to make it easier to read, but I want readers to get the full impact of how long he went on non-stop about the subject of his "income" portfolio.

This subject has been front-and-center on this blog for awhile now because some of us believe that it is not honest to call a portfolio "fixed-income" when it contains equity weightings. (In January 2011, Brinker added Wellesley Income Fund (VWINX) to his "fixed-income portfolio and sold a percentage of the Ginnie Mae Fund.)

With this speech, Brinker shows how cleverly he uses words to (can I say this?) cover his arse! Today, for the first time, he changed what he has always called his fixed-income portfolio to simply "income portfolio" that contains fixed-income. And amusingly, he used the term "income portfolio" over and over and over again. I lost count but I got his point on the first go-round. :)

Bob Brinker replied:
"You are talking about the income portfolio ('right') which is on page seven of the investment letter, the income portfolio. And as you know, we made some adjustments in that in January, and the configuration of our income portfolio has changed as of early January versus the one you were referring back to in December of 2010. ('right') And your weighting in your Ginnie Maes is a little bit higher than the weighting we have. In the fixed-income, I'm sorry, yeah, in the fixed-income portion of the income portfolio, and, let's see, in the fixed income portion of the income portfolio which comprises about 90% of the income portfolio, as you know. About 90% of our income portfolio is in fixed income securities. So you're a little bit above our weighting, our 25% Ginnie Mae weighting in the income portfolio. We have a slightly lower weighting in our balanced portfolio. So you're a little bit above the 25% income portfolio weighting in the Ginnie Maes, but not by a lot --33 versus 25. What you need to decide is your comfort level with that income portfolio. Because in that income portfolio, we have roughly 90 to 90 1/2% is actually fixed income investment, and the rest is dividend-paying common stock -- and that comprises our income portfolio. So in the income portfolio, we've really gone for two things. We've gone for a very high level of diversification -- which we have......And we've also gone for a portfolio that we think has a chance to do reasonably well in 2011. 2011 has the potential to be a challenging year for interest rates. And even though the Fed is keeping rates down.....If that turns out to be true, it could be a challenging year for income portfolios. And as a consequence, we have put in a very small percentage, about 9 1/2%, of that portfolio into dividend paying shares held by one of the funds recommended in that portfolio and the rest is in fixed-income area. So I like the diversification in that portfolio and obviously since it was my idea, I like the portfolio. And so far, so good in 2011. We know that income portfolio returns in 2011 are certainly fighting a lot of headwinds with the economy recovering and with the interest rates as low as they were, there's no question your fighting headwinds in an income portfolio. But I am comfortable for those looking for an income with that portfolio. But whether you reduce your risk or not is a whole separate issue.....If what you seeking to do is eliminate any risk from your investment, you could consider introducing fully-insured certificates of deposit into the portfolio as a way to insure yourself that you are going to get our principle back...... So we don't want to confuse anybody. We really have two separate areas of the investment letter that include income recommendations. We have a balanced portfolio, which is known as model portfolio III and that has an income component to it and also has an equity component to it. Then separately, we have an income portfolio which I explained......"

Honey EC: There's still one little problem with your performance, Mr. Brinker: This is on Page 7 of the March 2011 issue of Marketimer (click to enlarge):


Caller Fred from Oregon asked if he should take a $500 million lump sum payment from the state or take annuity of about $36K per year. Brinker estimated that taking the annuity would give him about a 7% return on the half-million dollars. Based on numbers Fred supplied, Brinker explained that the amount of money that would be in Fred's estate in the event of his untimely demise would increase from $800,000 to $1.4 million if he took the lump sum. Brinker called that a "big deal," especially since there would be no federal estate tax on that money -- at least in 2011 and 2012.

Brinker continued replying to Fred:
"Here's the problem. If the state of Oregon has a substantial unfunded liability for these programs that you are involved in that would result in either of these payments, then I will tell you one thing that they can do to ease their fiscal pain....It's already happened elsewhere. They can change the rules and eliminate the lump sum option....."

Caller Chad said he was a Marketimer subscriber and wanted to confirm that it was okay with Brinker to use an exchange-traded fund as a substitute for the Vanguard Total Stock Market Fund in Brinker's model portfolio I. Brinker told Chad that in his view VTI was "interchangeable" with VTSMX, which has a 35% weighting in portfolio I; a 40% weighting in portfolio II; and a 27.5% weighting in portfolio III.

Caller Jack from Peoria said he heard on the NBC news with Brian Williams that the Fed was buying stock. Brinker said he didn't want to pin this story on anyone in particular, but it is misinformation and he considers anyone saying it an "idiot." The Fed is buying Treasurys, which is keeping rates lower than they otherwise would be, but that has nothing to do with buying stock.

Caller Ed in San Rafael
, said he was in the "millionaires' club" and thanked Bob for it. He asked about the possibility of leaders from Russia, Japan and Germany secretly meeting to discuss the formation of a new world currency -- and excluding the United States from the meetings. Brinker told him that it was interesting that he (Ed) would know about such a secret, and that there is no reality in that theory.

Caller Edward from Missouri who had a strong Russian accent, said: "I started listening to Moneytalk around June, 1986. I immigrated from Soviet Union about 1979 and did not have any knowledge about investing. You provided information that helped reach critical mass and I could retire easily ten years ago."

Honey EC: I was surprised that Brinker let this caller's claims go unchallenged. Surely, Brinker can't be that eager to accept caller kudos. Didn't Brinker wonder how a man could immigrate from the Soviet Union in 1979? How easy was it to get out of the Soviet Union in 1979? Was it possible for people to leave that Communist country with any kind of wealth back then? And if he did arrive here with no money and started listening to Brinker's Moneytalk in 1986, that means it took only 15 years to reach critical mass -- if what he claimed is true that he retired ten years ago (1986 to 2001 is 15 years). I submit that couldn't be done in an honest fashion unless his critical mass is might low.

Brinker, never one to let a good opportunity go to waste, immediately asked Edward what he thought about the callers who talked about the so-called secret meetings between Russia, Japan and Germany. Edward said it was nonsense because nothing is secret.

Best Bob Brinker quote of the day: "Lots of people have won a Nobel Prize, Luke. That doesn't necessarily mean what it used to mean."

Caller Michael from Chicago called and did a sales pitch for something called a "narrow car" which he said cost about $80K. Brinker said he was "skeptical" and told him it didn't sound safe to him. [EC: Perhaps Michael was talking about the Naro car.]

Bob Brinker's third-hour guest-speaker was Michael Hudson:

Moneytalk on demand audio/podcasting available for FREE at KGO810 radio for up to 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, so that I can refer back to them in the future if Bob Brinker mentions something about them on the air. KGO: Moneytalk free on Demand

Dixiegeezer just sent this picture of a coffee plantation with banana trees from Costa Rica (click to enlarge):

Here is our friend and photographer, Dixiegeezer, with some local friends in Costa Rica. He said to tell you he is the one without the hat. LOL!


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