May 1, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

May 1, 2011....Bob Brinker hosted Moneytalk today. Bob Brinker comments summarized, paraphrased or excerpted:

STOCK MARKET: Bob Brinker reported that the Dow Jones Industrial Average traded at the 2011 high of 12,810 on Friday's close.....S&P 500 at 2011 high of 1363.63 -- total return of 9% year-to-date, including dividends.

Brinker said: "If you go back over the past couple of decades, the annual total return on the S&P 500 is very close to 10%, which by the way, is a pretty outstanding return when you look at the world we are in today and the interest rates.....As you know, we've had a couple of great years here, 2009 was an extraordinary year and 2010 was a very good year. And now 2011, with 4 months in the books, has a 9% rate of return. So it's off to a very good start. Nasdaq Index doing alright itself, 2873. The Nasdaq 100, which is the basis for the triple-Q ETF stock price, 2404.....Of course, the bear stories have been out there. The people with their bearish forecasts have been out there this year. So far, what they're left with, at least as we complete the month of April, they're left with the 2011 stock market highs on the close on Friday."

Honey EC: It's obvious why Brinker chose a "couple of decades" instead of one decade. The S&P 500 closed at 1249.46 on April 30, 2001. So as of Friday, the S&P was a whoppin' 114 points higher than it was ten years ago. And it has been as low as 677 in March, 2009.

INTEREST RATES AND MONETARY POLICY...Brinker said: "Interest rates still playing the old Chubby Checker limbo rock game, 'how low can you go.' Three-month Treasuries Bills now 4 basis points annual. So that means that if you had a Treasury Bill for 4 consecutive periods at this rate, you would earn 1/25 of 1%. That's about as close to zero as you are going to get on Treasury Bills. They don't get down here very often. They are being held down by Federal Reserve monetary policy which remains accommodative.....Doing everything it can to encourage jobs growth."

Thirteen week Treasury Bill Chart

UNEMPLOYMENT RATE: Brinker reported that unemployment has been gradually improving and that he hopes that will continue. The highest rate was a little over 10% during the recession, but right now, it is 8.8%. There will be a new jobs report on Friday, May 6th.

INFLATION AND ECONOMIC GROWTH....Brinker said: "Rates have come back down again with concern about austerity in Washington, concern the loss of government jobs which continues on a monthly basis. All of these factors are causing concern about economic growth rate which was only 1.8 annualized in the first quarter. And only 2.5% annualized over the past two quarters. If you put together quarter four of last year and quarter one of this year..... and annualized them, you will get an annual growth rate of 2.5% on Gross Domestic Product over the past six months.....Well I'll tell you what, that's not the kind of a growth rate that puts a whole lot of pressure on the economy, on interest rates or on inflation. Which is why you're looking at such incredible low core inflation numbers. Core inflation numbers right now are exceedingly low. In fact, the Personal Consumption Expenditure core is 9/10 of 1% year-over-year, and that is a very low number."

GENERAL OBLIGATION BONDS....Brinker said: "Triple-A Municipal General Obligations with ten year average maturities are yielding 3.17. That's 4.9 if you mark that up for the 35% top Federal bracket this year and next....taxable equivalent yield.....We mentioned on the broadcast, there are still 11 states that have triple-A ratings. We mentioned Georgia, Virginia and others, so not all the states have gone the way of California or Illinois or some of the others. Some of the states have been fiscally responsible and then of course, we have the others."

BRINKER'S PROPOSED SPENDING CUTS: Brinker said: "We have to get this thing going in the right direction. We have to reform Medicare. We have to reform Social Security. I think we have to reform Medicaid. We have to take a really serious look at the Military budget. I hate to see us say that the Military budget is untouchable, but we are going to cut Pell Grants. We are going to cut education. Huh, let me tell you, the other countries that we are competing with are not cutting education. And if we cut education, the long-term effects will be negative on this country.....But they should be looking at all this other other stuff, Medicare, Medicare, Social Security, certainly the Military....To make sure that every taxpayer dollar that is spent is money that is spent for a purpose, not just because we used to do it that way, or we always did it that way, or because the lobbyists have their tentacles on the appropriations people, which they undoubtedly have for many years......... So congratulations to Ben Bernanke for observing that fiscal policy is the most important problem facing the United States."

* IF THE FED CONTRACTS THE MONEY SUPPLY THERE WILL BE A RECESSION: Caller Larry from Pennsylvania said he is worried about the effect of increasing cost of materials and rising gasoline prices on his small manufacturing business. Brinker said: "In my opinion, if the Fed stops expanding the money supply then I can guarantee you a recession....I think they know if they contract the money supply then the economy is going to contract and unemployment is going to go up.....I think we can say with reasonable certainty, if the Federal Reserve changes policy and begins to contract the money supply the economy will go into a woeful recession and you'll see very, very high unemployment. This is what they did in the early 1930's."

* TOBACCO BONDS: Caller Morris from El Paso commented that 30% of the homes that are purchased were paid for with cash. He said it was because of foreclosure auctions where cash has to be paid up front. Then Morris asked Brinker about the safety of state sponsored tobacco bonds. Brinker told Morris that he had no interest or recommendation on tobacco bonds. And not only that, but he blamed smoking for the "gargantuan" health care costs that are a burden to "all 300 million taxpayers" who have to fund the deficit and national debt. Brinker thinks the good news is that smoking is down because only one out of four still smoke. But the bad news is that 25% "still use these diabolical products." Brinker said: "I would be happiest to see all of the tobacco companies go bankrupt. That would be wonderful as far as I'm concerned."

* WHO IS RESPONSIBLE FOR THE HIGH PRICE OF OIL: Caller Hugh from Albuquerque wanted to know why speculators wouldn't affect the price of oil. Brinker explained that it's not black or white. There can be speculation that affects price, but it's mostly supply and demand because oil is a global commodity. The US is consuming over 80 million barrels a day and still, the government has no energy policy. West Texas Crude oil is $113 per barrel, and Brent Crude is $129 a barrel. Brinker said: "To blame it on the speculators is political poppycock."

* FEDERAL RESERVE DROPS ECONOMIC FORECAST RATE BECAUSE OF OIL PRICES: Caller Ken from Skokie said he gets a knot in his belly when he sees gasoline prices at $4.50 a gallon. He also said he is in Brinker's portfolio III and wondered if Brinker would recommend that he move some of the stock portion of the portfolio into bonds.

Honey EC: Brinker completely ignored Ken's question about lowering his stock allocation and zeroed in on the price of oil and the Federal Reserve.

Brinker replied to Ken: "This is something that we monitor very closely.......You are correct that the oil price reached around $147 a barrel in the summer of 2008. However, I would have to say the economy did not weather the storm well. But you have to understand that perhaps, for whatever reason, this occurred at the same time that we were in the midst of what turned into a mortgage meltdown. And once the underlying collateral on the mortgages melted down, then we had a banking crisis. And that was really not directly linked to the price of oil......We certainly had a recession, although most people blame the recession on what happened in the financial crisis.....Oil prices are very high but they are not $147 yet in West Texas Intermediate."

Honey EC: Brinker has a guest-speaker on the program almost every Sunday to discuss "what went wrong in 2008." Will this ever end? Why is he so seemingly obsessed with this subject? Does he actually think that listeners are learning anything useful from this constant harping on the subject? What is he trying to prove?

* OIL PRICES AND THE ECONOMIC TIPPING POINT: Brinker continued: "In terms of US economy..... Why do we value WTI crude oil prices when we talk about the US economy? The answer is that is the crude that we consume in the United States......close to $114 a barrel.....There is a price level at which it would be the tipping point for the economy. I don't think it's $114, but it has to be monitored. Right now, I want you to observe what the Federal Reserve did....They took down their estimate for growth for 2011. Right here, right now, they took it down.....They took it down to a new range which is 3.1 to 3.3%. That is quite a change.

Prior to this revision that just came out of the FOMC meeting, these guys were at 3.4 to 3.9%.....And I think the main reason they took it down is they now see that consumers have less discretionary income because they are dumping it at the filling station....(demand destruction) is already happening. Consumption of gasoline has been really strained by the rise in prices....People come up with alternatives, car pool, whatever......Here's the problem with demand destruction. Demand destruction is fine in the US, we can import less, consume less, send less money overseas to buy oil. But we have so much growth in the rapidly growing companies like India and China....More and more people are having access to vehicles....It will continue to grow....Oil is a global commodity."

Honey EC: I was slightly shocked at Brinker's cavalier attitude that the US facing "demand destruction is fine." Is he so far removed from ordinary life in the US that he doesn't realize that this kind of "destruction" HURTS REAL PEOPLE?

* BRINKER'S GROWTH RATE PROJECTION: Brinker said: "My central tendency has not changed, because I was below the Fed. I never believed the Fed had the right handle on this....I'm not trying to criticize Big Ben. My central tendency is around 3% within a 2 1/2 to 3 1/2 range, as we have discussed....... It was the Federal Reserves forecast that was too high in the first place that has had to come down."

* BRINKER SOLD ALL TIPS FROM MODEL PORTFOLIOS: Caller Keith from Peoria asked Brinker if the high price of groceries would increase the rates on Inflation Protected Bonds (TIPS). Brinker said that right now, the Fed is a buyer of Treasury securities -- creating demand by putting in about 75 billion dollars a month (from QE2). This helps to keep yields down. Plus they have become very widely owned which creates demand for them. Brinker said: "Right now, I think that the base rates are too low. And that is why we have eliminated them from our model portfolios in the investment letter. We did that at the beginning of the year."

Bob Brinker's most surprising quote of the day: "The reality is, if the Federal Reserve starts contracting the money supply, you can pretty much write the country off."

Brinker's guest-speaker was Rody Boyd "Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide"

Dixiegeezer took this picture in Clearwater Beach, Florida. Please click to enlarge - it's beautiful:


Dixiegeezer just sent this picture. He confirmed with me that it is a "real deal" photo that he took. I think it's awesome!


Moneytalk on demand and to go 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. KGO Radio MP3 Sunday Archives

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