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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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Sunday, April 24, 2011

April 24, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

April 24, 2011....Bob Brinker hosted Moneytalk this beautiful Easter Sunday. Bob Brinker usually takes holidays off except Easter and Mother's Day.

STOCK MARKET:

Brinker
reported that the financial markets are doing very well -- that the S&P 500 Index is currently just a hair away from its 2011 high, and the Dow is now at a new high for 2011.

Brinker said
: "You've seen a tremendous come-back in the market over the past 25 months. .....It's rather remarkable. If you take the all-time closing high in the S&P 500 of 1565 which of course was back in 2007.....and then you take the current level of 1337....you will find in terms of the index right now, the S&P 500 Index is 14 1/2% below its all-time-high. However, you have earned 3 1/2 years of dividends which is 7%, so that cuts that in half. On a total return basis......the S&P is only 7% under its all-time-high."

Honey EC:
When the S&P hit its all-time-high in October, 2007, Brinker was projecting it would reach mid-1600's. He was also repeatedly calling mid-1400's a "gift-horse buying opportunity." So for those who actually follow his advice, it must feel good to finally be just 7% under what you were almost four years ago.


[Jim's comments added in edit.]

Jim said...

My take on this statement is that it is just another example of how Bob Brinker trys to save face when being wrong.When Brinker first realized he got himself and his subscribers caught in a bear market he tried to say it was a bear market nobody could have predicted. Now he seems to be suggesting that the bear market was no big deal because eveyone is within 7% of where they were before. What's a bit of a contradiction is that while Brinker claims to be a marketimer, anytime someone starts saying bear markets cannot be predicted and points out how the market always recovers from heavy losses is someone who fits the perfect description of a " buy and holder".
[Originally posted here: link]

S&P DOWNGRADES US DEBT: Brinker reported that just a few hours after last week's broadcast, the S&P Rating Agency downgraded the credit rating of the United States of America. They said that there is a "....1 in 3 likelihood that we could lower our long-term rating on the US within two years." They have reduced their outlook on US debt from stable to negative. Brinker pointed out that this was no surprise to anyone who listens to Moneytalk because he has been talking about the disgraceful mismanagement of the deficit in Washington.

DEFICIT GROWING..
.It will grow $1.6 Trillion through the 30th of September. Brinker said: "Obviously they are going to have to restructure Medicare and reduce benefits. The are going to have to make changes to Social Security. They may also have to make changes to Medicaid. It is a colossal situation." And S&P is reacting to that as they should after the mess they made of the sub-prime. They and Moodys and others, the bogus triple-A ratings that they gave out on the sub-prime junk...."

BOND MARKET, ECONOMIC SLOWING AND INFLATION....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."


WHERE TO FIND SAFETY IF THE GOVERNMENT DEFAULTS.....Caller Shawn
asked if the United States government should default on its debt, would there be any safe place to invest. Brinker told her that was a tough question but the good news is that we don't have to answer that question right now because we aren't in that situation, and not even close to it at this point. Although, on a longer term basis, it is something that people will be thinking about because up until now the US has been the ultimate safe haven -- the global reserve currency.

Brinker told Shawn:
"One can hope that they'll get their act together in Washington in such a way that we won't have to go down that road. But I think that it's important for people to recognize that the irresponsibility of the Washington politicians is at a level which flashes a lot of caution signs."

CHANGING MEDICARE.....Caller Tom
in Santa Rosa asked Brinker what he would do to reform Medicare and Social Security. Brinker explained that he would gradually push out the retirement age, but make no changes for those in, or near to, retirement. Brinker talked at length about an New York Times article by David Leonhardt that made the claim that someone in their late 50's would collect triple what they paid in.

Honey EC:
Throughout the program Brinker talked about "56 year olds" getting Medicare. I did some research and found that the minimum age for collecting Medicare is 65 unless a person is on Social Security Disability for two years. So it looks to me like Brinker and the NY Times author are both blowing smoke. Here's the link to the article:
"A Medicare Plan That Exempts Too Many")

IS IT TIME TO SELL STOCKS? Caller George
said he had read an article in Business Week that suggested that the S&P price-earnings ratio was getting higher than historic levels, and that the stock market was entering bubble territory. He asked Brinker if he should move out of the stock market.

Brinker told George:
"No. As a matter of fact, I draw a completely different conclusion than the article you read. 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."

WOULD IT HELP TO NATIONALIZE OIL?
Bert asked Brinker about nationalizing the oil industry. Brinker explained that would make no difference because we are "beggar" buyers and would still use over 10 million barrels a day.

OIL NONSENSE COMING OUT OF THE OVAL OFFICE....Brinker said:
"By the way, I saw some nonsense coming out of Washington this week, seemed to come out of the White House in this case, seemed to come out of the Oval Office actually. It seemed to be blaming the price of oil on oil traders. I ask you not to fall for this nonsense. It's political pap. And let's face it, the price of oil is a function of supply, demand and exogenous factors.

What are exogenous factors that can effect the price of oil? Certainly unrest in the oil-rich Middle-East..... How about the fact we have pretty much lost a million and half of supply out of Libya which remains at war between Quddafi and the Libyan resistance.....We have what amounts to a wholesale slaughter in Syria that's gone on in the past 48 hours.....I hate to see this kind of nonsense coming out of the White House because it shows desperation and you always hate to see that. Traders in the oil pits do not control the events in any of these countries.....So to blame the price of oil on oil traders is propaganda in this case coming from the good old USA..... Don't fall for it.....It's pre-election year smoke and mirrors....It's political trickery to cover up the fact that these same politicians have been unable to present you with what you deserve which is a viable energy policy......

Do you think that huge government subsidies for wind and solar are a viable energy policy? Not if you look at statistics. Let's bring it up to right now. You know how much wind and solar power is as a percent of United States power - 1.4%. What about the other 98.6%? And wind and solar are subsidized.....Solar is highly questionable as to whether it's even, global footprint-wise, a good policy. And I won't even go into the absurd support for the ethanol policies.....So don't fall for this trickery and this nonsense coming out of Washington. The reality is, the guys and gals in the oil-trading pits are not the reason oil is $112 a barrel. Nor are they the reason that the NY Times pictures $5 a gallon regular gasoline this week. I ask you not to fall for it."


Honey EC:
I paid $4.23 for gasoline today near Santa Cruz. OUCH! I got no "CHANGE."

Caller Terry said he would be retiring in a couple of years and was in the Marketimer portfolio one, and that he also subscribed to the Fixed Income Advisor. Brinker recommended the Marketimer balanced portfolio.

Terry asked:
"What about the funds in the Fixed Income Advisor? Would I be interested in any of those?

Brinker replied:
"Well I think that uhhhhh....there are various approaches you can take. That is an income investment letter, and so that is a letter that focus completely, almost completely I should say, there's a little bit of convertible stuff in there, but for the most part, that's an income newsletter. I would say that, from my point of view, I'll go with what I said earlier, I think the balanced portfolio, model III on page 8 of the investment letter. I think that that is a portfolio that is certainly worth taking a good look at in terms developing a balance between the equity side and the fixed income side. That would be my thought on that. 1-800-934-2221......"

Honey EC:
Deception is never funny, but I laughed out loud at Brinker's response to Terry's question about the Fixed Income Advisor. I don't blame Brinker for stammering. He had a choice, he could have told Terry to check with his son, the other Bob Brinker (a computer technician) and his daughter-in-law Lisa (a linguist), who edit and publish that newsletter -- or he could have done what he did....

Brinker's guest speaker was William D. Cohan.


You can take it with you! Moneytalk on demand, 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, so that I can refer back to them in the future. KGO Radio MP3 Sunday Archives



The National Debt:


Steve T took this great action shot:



Saturday, April 23, 2011

April 23, 2010: Bob Brinker on Gold, Silver and Oil

April 23, 2011....Let's briefly review what Bob Brinker has said about buying gold, silver or oil.

OIL

Brinker hasn't talked about the recent rise in oil prices very much on the program. I suspect that he would certainly do that if the stock market started declining significantly, like it did in 2008 and early 2009.

In 2008, Brinker said that the stock market was directly (inversely) correlated to the rise in oil prices -- calling it a "wild card." He meant that the rise in oil prices was directly linked to stock market declines. Just the opposite actually happened after he made that declaration, as you can see by reading some of the archived blog summaries from June through the fall of 2008. Instead of acting inversely, the two acted in tandem.

June 28, 2008, Bob Brinker said:
“Here on Moneytalk, if you have been with us, you know we have been talking about the importance of oil prices and energy here on our Moneytalk broadcast. And we see the importance of oil prices in today’s economy --we see it with a direct correlation......"

July 19, 2008,
Brinker spun the oil and stock markets like tops. I set the record straight with hard numbers: Bob Brinker said: “Another interesting week in Wall Street. And of course, one thing came as no surprise. The price of oil went down and the stock market went up. Oil prices taking their biggest tumble since 2004 – lost about $16 a barrel, but still trading at the ridiculously high price of $128.88 per barrel. (Honeybee EC: Oil closed at $128.02 per barrel for the FIRST TIME on May 20, 2008. The S&P closed at 1413.40 the SAME DAY. Last Friday, the S&P closed at 1260.68....oops!)

Brinker continued:
"Stock market scoring some nice gains for the week -- S&P 500 chalking up a 1.7% gain. For the month of July amidst a great deal of volatility related to what’s been going on with oil prices, for the month of July the S&P has lost 1½% not counting cash dividend income that accrues each month.…………The Nasdaq had a very good week – gaining close to 2% for the week just past.........(Honeybee EC: Brinker has never talked about the fact that June was the worst month for the S&P in 50+ years. It dropped 9% in that one month alone, taking it firmly into the bear market territory that Brinker's timing model is supposed to predict, and almost 100 points below Brinker's most recent all-money-in buy-signal of "low-1300's"...oops!)

July, 2008, Brinker said:
"Now I wish I could tell you what the price of oil is going to be in a week, a month, a year. I don’t know. I have no way of knowing and I think only a fool would try to forecast the price of a barrel of oil in the world we live in…….”

David Korn comments on Brinker's oil views:
"A few comments here. First, Bob is now basically dismissing the predictions of energy expert Charlie Maxwell, who had been a frequent gueston the program. During the Moneytalk broadcasts in 2006-2007, Charlie was predicting that the price of a barrel of oil would trade in the $50-$77 range. For a while, that prediction was spot on, so much so that Bob would tell callers who asked him that he agreed with Charlie's prediction. With the price of oil now double that, the prediction clearly was way too low and Bob has now acknowledged the inability to predict oil prices.

This is not something new for Bob. He has previously changed his opinion on whether interest rates can be predicted (now opting for the view that they can't), and he seems to have given up on picking any new individual stocks.

The last refuge is the stock market in general. With his position that you can't predict where oil prices are going, given Bob's view that it the stock market is going to react to oil prices, the logical conclusion is that you can't predict where the stock market is going. But there was no indication this weekend that Bob has given up on market timing, or his model for that matter."

July 13, 2008 (S&P 500 @ 1239.49 -- Oil at 144.95) Moneytalk Bob Brinker said: “One of the topics we’ve been talking about on Moneytalk is what has been going on in the stock market and how that has been related to the price of a barrel of oil and the correlation that we’ve been discussing on Moneytalk. I think the stock market really is marching to the drummer known as oil right now. I think oil prices are the ax right now in the stock market."

Oil was about $125 per barrel when Brinker wrote the following: August 5, 2008 Marketimer, Page 3; Paragraph 3; "In Summary, we continue to regard oil prices as the key variable for stock prices." (Honey EC: Some may wonder how Brinker could think oil was the "key variable" back then and have spent the last two years having guest-speakers on Moneytalk spouting off about all the things that caused the financial collapse in 2008. How clueless is "America's most trusted financial advisor"?)


GOLD


In the May, 2009 issue of Marketimer, Brinker
added GLD to his list off-the-books stock and ETF picks.

David Korn offers some words of caution about that. He wrote: "I need to give my subscribers a little warning here about this recommendation by Bob. Since he listed the GLD shares in the "individual issues" section of his newsletter, they are not included in the performance of his model portfolios. To that extent, they get relegated to the QQQQ status If they go up, Bob can brag about it, but if they go down, it doesn't affect his published performance figure and you probably won't hear him talk about it further. If you listen carefully, Bob is saying he is recommending it to people who WANT to hedge their portfolio against inflation, not because HE thinks there is going to be inflation."

To put those comments in perspective, in 2007, David Korn wrote:
"Bob has been steadfastly BEARISH on gold for as long as I have been doing my newsletter."

April 17, 2011, Moneytalk, Bob Brinker said:
"So to try to make a specific forecast on what's going to be the next speculative appetite in gold and silver is very difficult. And I say this even though on this program on a number of occasions, I've recommended both gold and silver as a hedge for those who want to have a hedge in their portfolio. Specifically, I've recommended the exchange-traded-fund, GLD for gold, backed by gold bullion and the exchange-traded-fund SLV backed by silver bullion.

So even though I've made that recommendation for those who want to have a hedge and those investments have done extremely well, I still have to come back to square one....gold and silver are speculative assets.....I'd hold exposure in the 4% area. If I were investing in gold, I would not have more than 4% in gold. If I were investing in silver, I would not have more than 4% in silver.....of your total portfolio.....If you had them both, you would be doubling up because they have a very high correlation over time. Recently, silver has done better than gold, but there have been plenty of times when gold has done better than silver."


Brinker has changed his tune so much over the past few months that the truth is unrecognizable in what he tells callers about his gold and silver "recommendations."

In January 2010, Moneytalk, Brinker said:
"There's been no change in my views that I've expressed frequently in recent years on Moneytalk, that if you're going to do anything in that area, my preferred vehicle for that is the Exchange Traded Fund which happens to be the second largest in the world, ticker symbol GLD. Because I think the GLD shares are an excellent way to provide a vehicle for those who want to have a hedge in the gold market.

Now my views have not changed. I view gold as a speculation. When I hear people saying buy gold, it's going to two or three thousand, I'm always amazed when I hear this kind of discussion because I don't know how they know that. By definition, the
price of gold is a speculation. And if you want to speculate on gold and use it as a small hedge in your portfolio, then it is your right to do so. But no matter how you look at it, it's a speculation.

When you buy shares in a common stock, if you are an investor, you buy because you think there's an increasing earnings and dividend streams..... But when you buy gold, you don't have that increased earnings and dividend stream because gold does not pay dividends.
Gold bullion bars just sit and you pay for storage. So the bottom line is, it's speculation on what others will pay for a bar of gold. " (Honey EC: Please notice that in January of last year, he was still using the term, "if you are going to" which he had used for all the previous decades on the program. And note that his attitude was much more negative.)

November 7, 2010, Brinker said:
"Hedging the portfolio against decline in foreign exchange, and there is a way to do that. It is a speculation, but there is a way to do it. And that is to put some GLD, the Exchange Traded Fund for gold in your portfolio, a few percentage point perhaps, if you elect to do this. And that will give you a precious metal in the name of gold bullion-hedge in your portfolio against the dollar."


SILVER

Brinker first told Moneytalk listeners that SLV could be used as a hedge in place of GLD in November 2010:

Brinker said:
"As far as silver is concerned, I think it could be considered as an alternative form of hedging in a portfolio......The preferred way for those who wish to have a silver hedge in their portfolio would be the Exchange Traded Fund that holds the silver bullion -- that trades under the symbol SLV.....the Ishares Silver Trust."

So to sum it up: After the gold and silver trains left the station, Bob Brinker got on board just enough to give himself bragging rights if the prices went up. And he did it in such a way that if prices went down, he could either bury what he said completely -- or claim that he didn't actually say that he recommended gold or silver but only recommended GLD and SLV as the "preferred way" to buy them. He of course, is totally against buying numismatic precious metal coins, as he has said several times.

.

Sunday, April 17, 2011

April 17, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

April 17, 2011....Bob Brinker hosted Moneytalk today.

Bob Brinker's comments summarized, paraphrased or excepted
:

STOCK MARKET..
..Brinker reported the latest closing numbers for the stock market. He said the Dow is less than 1% under its 2011 high. The S&P year-to-date return, including dividends, is 5.5%.

Honey EC:
Brinker is still quite bullish in spite of the level of the market, and in spite of world events and government spending.
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."
TREASURIES RATES...."Low, low, low.... Brinker said: " Treasury bills will not yield 1/16 of 1% annual forever.....they will normalize at some point....When they normalize, the cost of paying the interest on the national debt could rise to trillion dollars a year. Yeah, I just said it! If we keep running up this debt as we are, adding another $1.6 trillion this year. We are already shooting for $15 trillion and the CBO says in ten years, we could be up another $10 trillion on the national debt. How about $24 trillion in ten years if we don't get a handle on this - which we must."

HOUSING MARKET...
.is making an effort at stabilization, but it has been "reeling." It was helped by QE2, but when that expires, Brinker is not sure how long there will be interest rates below 5%.

GOVERNMENT SPENDING CUTS....Brinker said
: "It was much adieu about nothing....The 38 billion dollars represents a 1% reduction in government spending for this year.....That's the percentage they agreed upon while threatening to shut down the government.....This is what we get from the best government money can buy.....And as they say, 'elevator, elevator, we got the shaft'....."

INFLATION....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."

MEDICARE IS UNSUSTAINABLE....Brinker said:
"We have a current Medicare set up that is completely unsustainable. Tens of trillions of dollars in unfunded liabilities in Medicare that have to be addressed. Taxes in the United States usually come in at about 18% of Gross Domestic Product when you add it all in. That is not going to pay for the current promises."

IT'S A FOOL'S GAME, MR PRESIDENT..... Brinker said:
"And the idea from the president to raise rates on the high earners is not going to work.....It's a fool's game, Mr. President. And the reason? Because there are not enough high earners to raise the money needed. It's that simple."

CONSEQUENCES TO FREE-SPENDING GOVERNMENT....Brinker said:
"With what's going on in Greece and Ireland and Portugal - Greece, technically insolvent. Ireland, technically insolvent. Portugal on it's way. We've already seen enough evidence that you cannot carry on free-spending government policies without consequences. And in this case the consequences will be major. But there's time to address it and I hope they will address it....Ignoring it is the worst thing, which is what we've been doing for the past decade."

UNCLE SAM and the PRECIOUS METALS TAX....Brinker said:
"People do worry that the government is going to come in and put this rule in or that rule in. They've already done it with the precious metals.....If you make a profit on a precious metals trade, you get hit over the head. They nail you. And if you live in a high tax state, you have to add that on. But in addition to that, the Feds nail you. If you make money in any kind of a precious metal trade, your tax is totally different - way higher for you. They play these kinds of games and consequently, people get cynical. And I think cynicism is a healthy thing when it comes to Uncle Sam. But then again, I'm not a paid lobbyist. If I were a paid lobbyist, I'm sure I wouldn't say something like that to you."

FAIR (FLAT?) TAX….
There were a couple of calls on this subject today and Brinker was adamant that what he called the “flat tax” was a very bad idea and would likely be nearer to 35% than the 22% that the advocates are projecting. Brinker also said it would devastate the real estate market, which is already 23% under water. But he said the good news is that the “flat tax” has gone nowhere and is in the “batter’s box taking call strikes until they strike out.”

Caller Sue from Cape Carl 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.

QE2 and BRINKER’S INVESTMENT LETTER INCOME PORTFOLIO….Caller Jim
in New York asked Brinker what he thought would happen to people like him who are following Brinker’s investment letter fixed income portfolio when QE2 ends. He specifically wanted to know the effect on the Vanguard Ginnie Mae Fund, the Vanguard High-Yield Fund and the Vanguard Short-Term Investment Grade Bonds.

Honey EC: Brinker began his answer to Jim by hawking his "off-the-books" fixed income portfolio that he now calls his "income portfolio" because he added stock holdings to it (a fact that was exposed right here on this blog). Note that Brinker is still struggling with getting used to the new name for the portfolio. Don't worry Bob, this is only the second week that you have been using the new name. It'll come more naturally as time goes on. LOL!


Brinker replied:
"Well, Jim, as you surely know, we have made changes to the investment portfolio, that's the investment portfolio on page seven that's the income portfolio. We made significant changes earlier this year in that portfolio. The reasons we made those changes were to position that portfolio, in the event that the interest rate picture changes sometime in 2011....The effective date for those changes was January 10th as we published back in the investment letter.....I'm comfortable that it's better position to deal with interest rate market we have to deal with....."

Honey EC: Brinker is correct that he made changes to what he, at the time called his fixed income portfolio in January, 2011. He reduced Vanguard Ginnie Mae Fund from 40% to 25%; reduced Vanguard Short-Term Investment Grade from 35% to 25%; sold all Vanguard Inflation-Protected Securities; added 25% Vanguard Wellesley Income Fund; added 10% Vanguard High-Yield Fund (total 25%).......Brinker finally got around to answering the QE2 question:


Brinker continued with his reply to Jim:
"Well what's going to happen at the end of June when QE2 expires is that the Federal Reserve will no longer be buy 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...."

Caller Jim from Cedar Rapids
asked Brinker if he thought that the government might help itself to his ROTH IRA. Brinker told him that he knows some people worry about that because President Christina down in Argentina has confiscated some pension money. He said the difference is that she is not president of the United States and that it would be very difficult to get the votes to take away the privileges of ROTH. He is aware that there are cases where the government has changed the rules after the game has started, but he thinks ROTHS are safe.

Caller Norma from Missouri
said we need to "get rid of foreign aid." Brinker told her that foreign aid was a lightening rod issue, but when you look at the 4 trillion dollar a year the Federal government is spending, it's a tiny sliver.

Caller David in "KGO country"
wanted to know how to go about combining his two 401K programs from former employers. Brinker recommended that he roll it into a self-directed IRA with a low-cost no-load families. Brinker mentioned Vanguard Group and Fidelity.

Honey EC: Brinker never mentions Charles Schwab even though Schwab offers competitive prices. I have often wondered why not, and may have found the answer in an old document (no longer available on the internet) that reported on the sale of Brinker's BJGroup. The BJGroup had been using Schwab to manage their vast clientele, but when they sold to Centurion (GFAM), they pulled out all 2,247 accounts with an average of $273,000 each. Excerpts from the article:
"BJ Group's 2,247 accounts through December 1999 held an average of $273,000. The advisory requires at least $100,000 to open an account and allocates customer funds into no-load mutual funds available through Charles Schwab Corp.'s fund supermarket....

.....In addition, Centurion plans to largely end BJ Group's longstanding custody and trading relationship with Schwab. It will transfer the bulk of the accounts to Centurion's Phoenix trust company unit, which has custody of $1.7 billion and operates its own fund supermarket.
"

SILVER AND GOLD MARKET....Caller Chuck from Iowa
said that his dad had 90% of his portfolio in silver. He wanted to know what might make the bottom fall out of the silver market. Brinker told him that silver and gold are both "speculative metals" so you are at the mercy of "whatever price the speculators are willing to pay based on whatever reasons they conjure up."

Brinker continued:
"So to try to make a specific forecast on what's going to be the next speculative appetite in gold and silver is very difficult. And I say this even though on this program on a number of occasions, I've recommended both gold and silver as a hedge for those who want to have a hedge in their portfolio. Specifically, I've recommended the exchange-traded-fund, GLD for gold, backed by gold bullion and the exchange-traded-fund SLV backed by silver bullion....

So even though I've made that recommendation for those who want to have a hedge and those investments have done extremely well, I still have to come back to square one....gold and silver are speculative assets.....I'd hold exposure in the 4% area. If I were investing in gold, I would not have more than 4% in gold. If I were investing in silver, I would not have more than 4% in silver.....of your total portfolio.....If you had them both, you would be doubling up because they have a very high correlation over time. Recently, silver has done better than gold, but there have been plenty of times when gold has done better than silver."


Honey EC:
First, Brinker has never at any time told the Moneytalk audience OR his newsletter subscribers to limit their GLD holdings to 4%!!!


And second, regular blog readers know that I have covered the deceptiveness of Brinker's so-called gold "recommendations" quite thoroughly - a search of the blog will bring them up. Here is a link to an in-depth article that I wrote addressing the question of whether or not Brinker has ever recommended gold.

And just last week someone who is familiar with Brinker's habit of taking credit for himself even when it isn't due, sent the following comments. I think my friend Birdbrain might have even "misunderestimated" Mr B's willingness to say he recommended silver when all he said about it was that it could be used as a substitute for gold:
Delete
birdbrain said...

Hi Ho Silver.

SLV up 120% last twelve months, with the 2X AGQ up almost 300%.
You can bet the next time silver is brought up on the show, Mr B will remark "the last time we talked about the silver ETF" as though it was one of his recommendations.

Driving along I-880 over the weekend between Fremont and San Jose I came across the following electronic message board:

TEXT W/DRIVING
$159+ FINE
IT'S NOT WORTH IT

A better public service would be if Caltrans would substitute the first line with MARKETIMER and add twenty six dollars to the second line.

That would be change I can believe in.

April 11, 2011 8:32 AM [Link to original post]


Brinker cheap-shot quotes of the day:

1. Speaking of government spending, Brinker said: "The numbers have become so ridiculous that they make Donald Trump's hair look normal."

Honey sez: People who live in glass houses shouldn't throw stones.

2. Speaking of the repeal of the Glas Steagall Act, Brinker said: "It was far worse than anything Clinton did in the Oval Office."

Honey asks: Sez who? You? Your moral compass is, in my opinion, questionable.

Brinker's guest-speaker today was Stijn Van Nieuremburgh.

Moneytalk on demand, 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. You can take it with you! 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 Radio MP3 Sunday Archives


Dixiegeezer's family of ducks, taken this morning (Thursday) Click to enlarge:



These are the trees that bloom every April nearby where I live. The trees get quite large and are stunningly beautiful.


Sunday, April 10, 2011

April 10, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

April 10, 2011....Bob Brinker was absent from Moneytalk today. Lynn Jimenez was fill-in host.

Ms. Jimenez has written a bi-lingual beginner's investment book for families. She is the business reporter for KGO810 radio.

In the opening monologue, Lynn did her usual good job of reporting all the latest market statistics. She commented that silver is at a 31 year high. (Honey EC: Silver has been a topic that I have been reporting on in the comments sections for some time now. I have been investing in AGQ, a leveraged silver ETF. I could sell it any time, but have enjoyed a great ride with it.)

THREE HURDLES THE STOCK MARKET FACES

Lynn said: "Swallow hard because stocks have three big hurdles to face. The first is on April 27th. Head-Fed, Ben Bernanke is going to hold the first ever news conference to announce the banks decision on monetary policy. That's whether the Federal Open Market Committee is cutting, increasing or holding interest rates. That's a big change. The Central Bank never spoke publicly, directly to the press following these meetings.

The second hurdle comes in June. The Fed will announce whether it will end QE2, that's Quantitative Easing. That's the Treasury buy-back program that kept money available, because banks weren't lending. And it also created enough pain for people who invested in money markets and Treasurys to force them to move out of the safety of debt to stocks. And maybe to use some of that low-yielding savings to buy consumer products. It seems to have worked. Since last August, the markets up 27%. The jobless rate's down to 8.8%. Consumer spending's climbed eight months in a row. We're seeing longer-term interest rates rise now. That happens when economies improve. Now the program did add to our debt, but it also helped us out of our hole.


Now the big question is, when the Fed ends this program, when it takes off the training wheels, can the economy stand on its own? Will you leave your stocks on the table to go through what could be a 10 to 15% correction? Will anyone else step in to buy the 75 billion bucks a month in Treasurys the Fed's been buying? Will Congress race to cut debt, cut so deeply that it'll end the recovery?

And the third hurdle -- will the Fed signaled intent to boost interest rates later this year, early next, be too late to head off inflation? Or too soon and strangle the recovery. Stay tuned to 'As the Financial World Turns.'"

(Honey EC: Bob Brinker is very bullish on the stock market and believes it is in an ongoing cyclical bull. He is fully invested and recommends dollar-cost-averaging for new money.)

ECONOMY AND REVENUE

Jimenez said:
“Also this year Uncle Sam’s take is going to be the lowest since 1950’s. Families and businesses are paying about 13% lower taxes than they did in 2008. Tax revenue is going to make up 14.8% of Gross Domestic Product. The lower revenue, coupled of course with higher spending and our wars, our jobless benefits, bail-outs, uhhhhh, mean that we are going to have to borrow 40-cents for every dollar we spend. So that is why people are worried about debt. We can dig out of this. This is going to continue really until jobs and tax revenue returns and some spending cuts are made.”

GINNIE MAE FUNDS

Caller Annie
specifically mentioned that she owned Vanguard Ginnie Mae Bond Funds and asked Lynn about safety.

Lynn replied: "Remember with Ginnie Mae Funds, they're not like Fannie and Freddie. Fannie Mae and Freddie Mac mutual funds were not fully backed by the government. That is, until they lost a ton of money and we had to put what $150 (?) million into them.... Ginnie Mae is still a relatively safe investment option as far as hanging on to your principal. The problem is inflation, Annie. If inflation goes on a tear, you know, 7,8,9%, then the value of the money that you hold in bonds that yield less than that diminishes.

In other words, if inflation really takes off and you're getting paid 4% on a bond and inflation is 8%, you're losing some value. And then you have to figure out what to do with those bonds. Is anyone going to buy them if they're not paying enough? Well, not really. But the other thing is, is that it's not likely you're gonna lose your principle. All I can say is that the best thing to do, Annie, is to diversify. And by diversify, I don't mean buy other bonds. You can go into stocks. You could go into corporate bonds.

It's interesting that you mentioned the Vanguard Group, because if the government makes it easier to refinance, right, there's a little bit higher risk on prepayment. And it doesn't look as though interest rates are going to happen right now, but they may happen at the end of the year and the beginning of next year. And we are going see some inflation. But the Vanguard Ginnie Mae is keeping the average duration of what it holds short.....And the fund also has very low expenses. So you are probably dealing with a better situation using those than you would be if you were just going out and buying some other fund."

(Honey EC: As I listened to Lynn's long answer about Ginnie Maes, I wondered how uninformed she was about the subject. One would have to stretch what she said to even apply it to an individual Ginnie Mae Bond. Then it seemed like all of a sudden, she realized her mistake. Perhaps someone whispered in her ear, because she immediately began talking about the Vanguard Fund.

In the January issue of Marketimer, Bob Brinker made sizable cuts to his Vanguard Ginnie Mae Fund holdings in his balanced portfolio and added Wellesley Income Fund in its place. At the same time, in his income portfolio, he dropped the Ginnie Mae Fund holdings to 25%, increased the Vanguard High-Yield Fund holding to 25%, and added 25% Wellesley Fund. )


Moneytalk third hour guest speaker was Jessie Weller an IRS spokesman. Here is a sample call:

Caller Edie in Fairbanks, Alaska asked: “I support my nephew who is handicapped and he is not here now, he is in South America and we do have Social Security for him. And I’m wondering if I can still claim him as a dependent on my tax return. (Weller asked, “Is he a US citizen?”) No, he’s not.”

Weller replied: “Okay, he is a citizen of a South American country? (Edie: “Yes.”) Generally, you’re not going to be able to claim that person as a dependent because they have to be a US citizen or resident of the United States, Canada or Mexico…..But if they are a resident of Canada or Mexico, they would need to get an ITIN, it’s called. It’s individual taxpayer identification number. And that can be used for tax purposes because usually people in a foreign country do not qualify to get a Social Security number. But for tax purposes, you can get a number.”

Earlier in the program, caller John said that he had not filed income tax in the past 6 years. He said he is not a citizen but is here "legally" on a Green Card. He said that he had done "some work under the table."

Lynn assured him not to worry, that he wouldn't go "into the clink," that he just needed to call and talk to the IRS guy. (Honey EC: What a great country! NG = no grin)


Moneytalk on demand, 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. You can take it with you! 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 Radio MP3 Sunday Archives

When President Obama took office two years ago, the national debt stood at $10.626 trillion.




The National Debt:



Saturday, April 9, 2011

April 9, 2011, Bob Brinker's Bear Market Forecasting

April 9, 2011.....The last time that Larry Swedroe made a guest-appearance on Bob Brinker's Moneytalk, he indicated that the stock market was in a bear. That was March 1, 2008, when the S&P was at 1385, DOUBLE what it was one year later. Bob Brinker disputed Swedroe's claim of a bear market on the program that day.

Swedroe doesn't put much store in gurus and forecasting. Maybe that is why he has not been on Moneytalk again.


FrankJ sent these comments earlier today:

"The seeking alpha website has an interview with Larry Swedroe on his new book. seekingalpha.com

I wonder if we'll hear him as a guest sometime? The book favors indexing vs. active investing."

The Seeking Alpha interview was by Jonathon Liss and was based on Larry Swedroe's ninth book titled: "The Quest for Alpha"..... Excerpts of the Liss interview:

Larry Swedroe said: "There basically are no experts when it comes to forecasting and this isn't specific to finance.

I'll give you an example from my own experience. I worked at Citicorp where we had some of the top economists in the country. And I ran trading rooms. When I was right, I of course took credit for my 'brilliant' analysis. And when I was wrong, it was always because of some unexpected event that no one could have predicted. What I learned ultimately is that there is no way to consistently be a successful forecaster. I was either lucky or unlucky.

People say, "Well what about Warren Buffett?' Buffett rarely trades. He's extremely passive in his approach. He doesn't believe in forecasting market direction and he regularly says so.

One last story about why you should ignore all forecasts. A year ago the chief economist at Goldman Sachs said the single biggest risk to the economy was deflation. At the same time the chief economist at Morgan Stanley had the exact opposite prediction, believing significant inflationary risk was imminent. Now I think you and I can agree that both of these guys are really smart. You don't get to be the chief economist at Goldman or Morgan otherwise. So how are you supposed to decide between them?

One more story. In July 2009, the WSJ polled 50 top economists in their annual interest rate contest. Guess how many correctly guessed the direction of the 10-Year Treasury? Seven. Guess how many got the big number right, the number before the decimal point? Two.

So to get back to your initial question, and I apologize in advance for saying this, but I think the sort of analysis that is predictive in nature is fairly dangerous, because it gets people to act when inaction is far more likely to be the right strategy."


Excerpts from my summary of the Larry Swedroe Moneytalk interview March 1, 2008:

Bob Brinker began the interview with Swedroe by asking him what he thought about the effect of negative campaigning by the presidential candidates on the stock market.

Larry Swedroe said:
“It’s very difficult for people to deal with the emotions that are caused by bear markets and all the bad news – they tend to panic and sell –and that’s why they end up with lousy returns. You know, one of my favorite sayings, Bob, is that bear markets are the mechanism by which money is transferred from those with weak stomachs and no plans to those with strong stomachs and a well thought out plan, so that strong stomach gives them the discipline to stay with that plan.

I’ll add one last thing which is really incredible, I think will shock most people. If you could perfectly time recession so your crystal ball allowed you to get out of the market before a recession and get back in the day after it ended, there have been 11 recessions in the post-war era. The stock market has actually gone up an average of 7% during those recessions and that would have out-performed riskless Treasury Bills, say a short-term parking place while you waited for the recession to end -- so very, very difficult to try to out-fox the market.”


Bob Brinker replied to Larry: “Of course at this point Larry, as you well know, we have not had a bear market. As we speak the S&P is 15% under its closing high, (Honey in edit: Now we know in hindsight the S&P dropped 57% under its closing high) and it’s been as much as 16% on January 10th, so right, we are solidly in correction territory. My question to you would be, how could it be that with all of the bad news that we have had –and I’ll tell you what we have had an avalanche of bad news out there, including the credit markets in just complete disarray in some areas – with all of the bad news that’s been out there, and all of the recession verbiage that’s out there, how could the market just be down in a correction of 15% -- that’s not a big deal?" (Honey in edit: Be careful about believing Brinker when he says "it's only a correction.")

Larry Swedroe said: Yeah, well ahh, you know, I think that’s the great mystery. If any of us knew the answer to that question, we’d all be a lot richer than we are. Nobody has shown, really, any great ability to forecast the stock market."

Honey EC: One exception to Larry's rule might be people who get rich claiming they can forecast the stock market.

Jonathon Liss (Seeking Alpha) made these comments Larry Swedroe's latest book:
"I want to first say that I really enjoyed this book on a personal level. In a relatively small amount of space you lay out the case for passive over active investing in an articulate and highly accessible way. It seems to me from the many hours of financial reading I do daily on Seeking Alpha and across the web that the average investor - and that includes professionals - doesn't have any clue about the wealth of data you present favoring passive over active investing approaches, has no concept of the significant obstacles they would need to overcome to actively outperform passive strategies. How do you explain this phenomenon?"



Dixiegeezer's Swan Couple:


Wednesday, April 6, 2011

Bob Brinker's Path to the Land of Critical Mass



April 6, 2011...Some of you have posted in the comments section, speculating about how many newsletter subscribers Bob Brinker might have had over the years -- and now. Having a radio talk show where one can give out only carefully selected information is certainly an great advantage when it comes to selling "investment letters."

A national radio show (even one day a week) gives one access to millions of new shark baits. Common sense says that turnover is critical with someone like Brinker because he's made some major market-timing blunders -- and market-timing is his "claim to fame."

How many bought the QQQ's on his advice in 2000 and lost 70% of their money, then continued to subscribe? How many rode the 2008 megabear market down 57% fully invested on his advice, then continued to subscribe? Nope, it's clear to me that new blood is critical, even just based what people say on this blog and personal emails that I get.

So I am going to report some facts, you make up your own mind what it all means. Here goes:

Bob Brinker is no longer affiliated with Genworth Financial (BJ Group). Apparently, he broke off with them just before the big class action suit against the company that had bought out his own BJ Group. (See link below for full story of lawsuit.)

Brinker and Jacobs' BJ Group charged clients a hefty fees for money management, and in 2000 sold it for a purported $25 million. After the sale, Brinker continued with Genworth. Here is an excerpt from a news article about the sale:
While Mr. Brinker and Mr. Jacobs no longer will run the company, they have signed multiyear contracts to continue providing asset allocation advice to BJ clients, says Mr. Duran.
Here are more details about the sale from the same newspaper article:
"BJ Group's 2,247 accounts through December 1999 held an average of $273,000. The advisory requires at least $100,000 to open an account and allocates customer funds into no-load mutual funds available through Charles Schwab Corp.'s fund supermarket.

Annual fees range from 1.5% of assets for accounts less than $500,000 to 0.6% for accounts under $4 million, generating an estimated $6 million annually.
"
Brinker continued to publish Marketimer. In October 2000, Bob Brinker made one of the most costly market-timing blunders of his career. He predicted a stock market "countertrend rally" that would be led by the Nasdaq. He sent a special bulletin to Marketimer subscribers instructing them to invest up to 50% of the 65% cash reserves raised in January, 2000.

Brinker never took responsibility for that trade in his model portfolios even though he instructed his followers to use cash raised from them. I personally know of innumerable people who were damaged by trusting Brinker on the trade.

Unbelievably, after almost 3 years of Marketimer instructions to "hold for recovery," the trade was made to disappear from the radar -- never to be heard of again.

But shockingly, Brinker also advised BJ Group/Genworth to put their clients into the trade. The same clients who were paying up to 2% fees for professional advice.

The BJ Group A Division of Centurion Capital Management's Private Client Group Robert J Brinker Sheldon Jacobs

October 19, 2000

Dear Client: I am pleased to inform you that the BJ Group has executed a significant trade for you under the guidance and supervision of Bob Brinker.

Bob Brinker advised us of a short-term trading opportunity (countertrend rally) in the Nasdaq 100 Index. In response, we have purchased for your BJ account(s) a position in the Rydex OTC fund--a proxy for the Nasdaq 100 Index.

Aggressive accounts will receive a more significant position; conservative acounts will have exposure to a lesser degree given the risk profile of the technology-laden Nasdaq 100.

It is important to note: we have not sold any existing funds. This purchase reduces your money market reserves or cash position for the duration of the trade. As of this writing, it does not imply a change in Bob's longer term outlook for the market.

We are committed to the Brinker investment strategy and look forward to the exciting prospects of this recent development. (LINK to photocopy of original)


The following writer summed it all up beautifully, and I suspect he spoke for many, he certainly spoke for me:

Will L. wrote:

“Kinds of puts the kabosh to that silliness of "Brinker is not being dishonest because the QQQs weren't in the model portfolios thus it shouldn't count in his record." That was said though Brinker didn't distinquish the money raised from the model portfolios from being designated "cash reserves" to purchase QQQs and anyone reading that ACT IMMEDIATELY bulletin had to come away thinking it was money that included model portfolios he was wanting them to use.

We know that Brinker, like a crafty fox, has lied by misdirection on his radio program about the QQQ trade. When a caller asked about the QQQs he had been holding since 2000, Brinker claimed that "we closed that position in our model portfolios for conservative investors....yada yada. He claimed he had bought them for 25.00 in 03 and sold them for a profit so that every goober and geezer listening to the guy's Question were misled.

Now we have proof that Brinker's expensive wrap fund (though he ridicules people paying other wrap fund fees) does the exact same hoodwinking deception. We have the record of them slamming everyone into the QQQs and now using the same cr*p "model portfolio" deceptive advertising to hide the abysmal failure on a large investment in the QQQs.

I don't know how you feel ok with yourself arguing to support ole Brinker when nearly every time you make great efforts to alibi for clearly less than honest practices, the truth shows that you were a dupe enabling his marketing dishonesty....ie your high horse claim about Brinker removing library subscriptions.

Now this advertising from the BJ group shows that he/they are hiding the QQQ call which was included in every portfolio during the time they are pimping their performance by the clairvoyant Bobby Brinker with the same hooey many of you use to dismiss the newsletter performance numbers lack of proper accounting for the QQQ event.”__Will L


Link to original Marketimer QQQ Special Bulletin

* Kirk Lindstrom's Summary of the BJ Group lawsuit.

An ad from Bobbrinker.com:


BJ Group 1998 Fee Schedule:

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