May 22, 2011, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

May 22, 2011....Bob Brinker hosted Moneytalk today. Two important topics that Brinker did not bring up today were the Arnold Schwarzenegger scandal, and the rape charges levied against Dominique Strauss-Kahn, the President of the International Monetary Fund -- who reportedly hoped to become the President of France.

STOCK MARKET....Another stock market "Ground Hog Day" with Brinker reciting the Friday closing numbers. Brinker told a caller: "I disagree with what your friend said about the market just goes up and up. That's not even vaguely true. The S&P is lower now than it was back at the end of the 1990's. The end of 1999, the S&P was higher than it is right now. So the idea that the market just continues to go up is a silly bit of misinformation that your friend gave you."

Honey EC: Brinker is correct. The S&P 500 Index closed December 31, 1999 at 1469, and closed last Friday at 1333.

* From there, it went into a bear market and bottomed in March 2003 at 801. Brinker partially sidestepped that bear by raising 65% cash in his model portfolios between 2000 and 2003 (a portion of that cash was used for his QQQ trade, but never officially accounted for).

* Then the S&P began another bull run to an October, 2007 top of 1565. Brinker remained fully invested.

* From there, the S&P dropped to another low of 677 in March of 2009. Brinker remained fully invested the whole megabear.

* Now once again, the S&P is back up to 1333, but still more than 200 points below it's all-time-high of 1565. And as Brinker said, over 139 points below December 1999.

TREASURY RATES.... Another Brinker Ground Hog Day repetition of Treasury Rates. (For latest rates, see the right column under "Items of Interest")

INFLATION....The Treasury market implied inflation rate = 2.38% annual. Brinker said: "Those who are looking for rapid inflation are getting tired....."

ECONOMY...Growing slowly...Next week, revised GDP expected to be at 2.2%

HOUSING MARKET: "...is on life support."

WHAT HAPPENS IF THE GOVERNMENT SHUTS DOWN? Brinker said: "We had an actual government shutdown...in the mid-90's and the market kind of yawned. It wasn't very impressed. The market correctly made the assumption that the government would re-open after a short period - which it did. I think that investors today, in general, are making the assumption that the debt ceiling will eventually be raised and then we can get down to the serious business of trying to get toward a balanced budget, which is a very important subject, and the one that Washington should be focused on going forward."

WHAT IF THE TREASURY DEFAULTS ON DEBT? Brinker said: "I will say this, if the United States defaults on its debt, I can't give you any reason why anybody in the world should lend a penny to the United States Treasury.....If they actually do that, I can't give you any reason why anybody should invest in a US Treasury......Personally, I don't see how they can go into default because they're constantly going into the market and borrowing more money. If they go into default, they will access to additional borrowing. How are they going to fund a trillion dollar a year, plus, deficit, if they can't go into the market and sell debt. How would they do that? How could they possibly face the risk that they would be unable to sell Treasury debt because they were in default.....I don't see that as a realistic outcome."

WILL THEY RAISE TAXES... Brinker said: "I certainly expect to see a continuation of political pressure on raising the rate on the high earners, which are defined for a single person as those making over $200,000. For married couples, those making over $250,000 in taxable income. .....Will they go beyond that?...... That one is going to be fascinating to watch because they have a gargantuan gap between expenditures and revenues right now. And they are going to have to deal with that. A lot this is lodged in Medicare. I mentioned that we have a 110 trillion dollar unfunded liability in Medicare, Medicaid and Social Security. But most of that is Medicare. Medicare is a fantastic deal for those getting benefits. Medicare is a disastrous deal for the Federal Government because it is running the national deficit and the national debt to the moon."

CALIFORNIA BEING RIPPED OFF BY PUBLIC EMPLOYEES......In the opening segment of hour two, Brinker talked at length about California, and he itemized several outrageous public employees' salaries and pensions in various places in the state. Brinker pointed out that in regard to public employees (and their unions), "no one is minding the store" -- while in the private sector, usually someone is at least counting the money.

Honey EC: As I said above, Brinker never mentioned Arnold Schwarzenegger today. Although in the past, Brinker has said that Arnold Schwarzenegger was "good for California' and vigorously defended him. One time, Brinker went so far as to say that he gets “ill” when he hears people "bash Arnie."

Perhaps there's a reason for his reluctance to say anything about Arnie's lying, cheating and adultery. But what about the possibly irreparable damage that "Arnie" did to California? He was elected because voters believed what he said he would do for the state -- HE LIED! And shame on you, Bob Brinker, for not mentioning the disgusting behavior of this two-term governor of California, who got elected while he AND his wife lied to voters... You bash California every week, but give your buddy a pass? It's a shameful thing to do, just like what Arnold Schwarzenegger did was shameful.

Brinker's guest-speaker was Andrew Ross Sorkin, who wrote "Too Big to Fail." The HBO movie is scheduled to debut tomorrow at 9PM eastern time.

Brinker started the interview by asking Sorkin what he would like to add to his book since it was completed a year ago. Sorkin pointed out that the book was actually completed in 2009 - that Brinker was looking at the paperback date.

Sorkin said: "Very little has changed. We now live in a world that is too big to fail squared. The top ten banking institutions in this country now control 77% of all the banks assets. Think about that concentration and what that actually means. We have not solved the too big to fail conundrum, and that to me, is the most disheartening part about this crisis. But the other thing that I think it's really important that we focus on, given that we talked about debt and the risk and what that means, is that the conversation about this phrase too big to fail no longer just applies to banks. We are now talking about in the context of municipalities and states and countries in Europe and eventually maybe our own. I think that is a much larger and more important conversation because the next financial crisis that we have, I'm not sure is going to be generated on Wall Street. I think it's generated by us. I'm not going to say there's going to be a sequel. I actually hope I don't have to write one. But if there is one, that's what this is ultimately going to be about."

Brinker asked: "Is the United States Treasury too big to fail?"

Sorkin replied: "Arguably it is. And the question is who, who, who can rescue us? The only people who can rescue us is the Fed which is the lender of last resort at this point. But will they really have enough firepower? And that is what we don't know. If a really big institution, when I say big, I'm talking a JP Morgan or a Citigroup, whatever, got in trouble, are we in a position to save them and what would really happen?

Part of the legislation that was passed around financial reform was this idea that a resolution authority, the idea that you could finally have the authority to take over one of these institutions. And it will be our last line of defense. The question is, will it really work, and there's no way to practice. We won't know until we do it, and I think that has a lot of people very anxious."

Brinker thanked Sorkin and again announced that the HBO film would debut tomorrow (Monday, May 23rd). The book is also available for Kindle:



Moneytalk on demand and to go with Bob Brinker, is available for FREE audio/podcasting at KGO810 radio for seven days after broadcast. I download and save all three hours, including the third hour guest-speaker. (The program is archived in the 1-4pm time-slots.) If you don't download it from KGO within seven day, it's available at bobbrinker.com by paid subscription. KGO Radio Sunday Archives

SJ Al recently sent pictures from Florida, and sent this one this morning. Al has now returned home. Hope you had a wonderful vacation -- and thanks for this picture of one of the inhabitants of Cozumel:


Dixiegeezer took this picture for us yesterday in Florida. To me, plumeria IS Hawaii. Does it smell as sweet in Florida? :)

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