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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.)


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.)


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.”


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

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