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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

..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."

.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%.

: "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."

"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."

"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."

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.

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 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:
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:

$159+ FINE

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.

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