Brief Summary, Commentary and Moneytalk Excerpts, March 8-9, 2008
.
STOCK MARKET Bob Brinker’s ONLY Stock Market comments from this weekend are
in the first paragraph of these Saturday opening monologue excerpts:
.
Brinker said:
“Here on Moneytalk of course we talk about all subjects related to money and that includes the stock market. S&P 500 closing at 1293 for the week. That’s a 17.4% decline from the all time high which is 1565, S&P close. Dow Jones Industrial Average closing just a little below the 11,900 level and that is a 15.6% decline from its all time closing high close to the 14,100 level.".
(Honeybee EC: Brinker did not give Nasdaq statistics. The Nasdaq closed Friday at 2212. That is very close to a 23% decline.) Here are Kirk's statistics as of March 6th:
.
NASDAQ Closing.Date of last high 10/31/07Last Market High 2,859.12Date of last low 03/06/08Correction Low 2,220.50Decline in Pts 638.62Decline in % 22.3%.
Brinker continued: "And certainly there’s been plenty going on in terms of financial news that has been driving all of the financial markets. As a matter of fact, speaking of financial markets, the Federal Open Market Committee is going to be back in session on March 18th at the Federal Reserve Building in Washington D.C. And at that meeting, they are expected to lower short-term interest rates. Now of course, they have already done some of that. They’ve taken the rate from 5 1/4, down to 3%.
.However, according to the futures markets in Chicago-land, at the Chicago Mercantile Exchange, the contracts that trade on Federal Funds are predicting a 100% probability that the Federal Open Market Committee will lower the Federal Funds target rate by at least 75 basis points on March 18th. Now that would take it, if that happened, from 3% down to 2 ¼%. Now there is a very, very small contingent in the futures market – only 6%, saying that it could be a 1% decline………Federal Funds target rate – that’s the rate that banks excess reserves to one another on a daily basis………….
.
……Another interesting thing that is coming out of the Federal Reserve is talk that they may do away with earlier comments saying they would take rates right back up. They are not talking about that anymore. They are really now talking about keeping rates down for awhile. And that’s because of what we are seeing with the economy. Now as I have said, there is an even-steven chance that the first 6 months of 2008 will see negative GDP growth in real terms. If that were to happen, and I’m only putting the odds of that at 50-50, but if that were to happen, that would mean we would get a first quarter negative GDP report which does look likely, right now. And then in the second quarter of the year, that remains to be seen because that is when that rebate check, stimulus package kicks in with the checks arriving for the most part in May. A lot of that will be spent in May and June, and some of it could be spent in anticipation in April. So the second quarter get some sort of a lift out of the stimulus package and so we don’t know yet. And if it does not, those who are guaranteeing a recession won’t have their recession because the traditional and historic definition of a recession is two straight quarters of negative real Gross Domestic Product. Right now we think there’s a pretty good chance we will get a negative first quarter, but the second quarter is very hard to call and that’s why I’m leaving the odds of a recession……at 50-50…………..”
.
POLITICS Brinker used a sizeable portion of the program again this weekend reporting the latest presidential campaign activity and expounding his political views. Brinker said that he is a registered Independent.
.
ENERGY INDEPENDENCE Brinker talked at length about our dependence on imported oil (mostly repetition from earlier programs).
.
FRIDAY EMPLOYMENT REPORT In the month of February—63,000 jobs lost, on top of the 22,000 jobs lost in January -- a total of 85,000 jobs lost in the first two months of 2008 -- this helps show what is going on in the economy.
.
ECONOMY “…flat on its back, and may be headed toward recession…” The soft economy is a problem for incumbent presidential candidate, but the out-of-office Party can use it as an opportunity by focusing on it.
.
INFLATION Brinker said that the weak economy and/or recession is “counter-inflationary.”
.
RECESSION Brinker said that recessions are always “confirmed in the rearview mirror,” but if one develops, he is inclined to think it will be “brief and mild.”
.
HOUSING MARKET "….is a debacle,” and is the engine driving economic weakness because it is spilling over into the labor market -- leading to the declining new jobs figures -- and has led to a credit market situation.
.
TIME TO BUY? A caller asked Brinker if now is a reasonable time to buy a home or should he wait six months or so. Brinker said: “I think you are okay either way, but I think you are okay right now if you are low-balling and that’s been my recommendation on the program. We had a caller yesterday purchased a house in Nevada that was on the market for a $million-two, made the purchase of $950,000. That’s the kind of discount I like. That’s almost a 25% discount from asking price. But you don’t even make bid until you’ve done your comparables, and make sure you have done all your due-diligence on your comparables in the neighborhood, giving maximum weighting to recent sales, looking at the past year – I don’t think I’d even go back past the past year to get current market…….and then after you do all that, you low-ball bid. You go in with a low bid – way below, to try to catch motivated seller.”
.
HOUSING FORECLOSURES California is the number one state in foreclosures. “In general foreclosures went up to a record level in the 4th quarter according to the Mortgage Bankers Association.” Some people are just walking away from their homes. In some cases people owe more on their homes than it is worth, so in some cases they just send in the keys and say “see you later Mr. mortgage-lender.”
.
Regarding Brinker’s “spinning” what he previously said about the housing recession, David Korn wrote the following:
.
.
FORECASTING RECESSION?
.
Caller: This caller said he called Moneytalk a 4-5 months ago to bring up how the weakness in the housing market could bring about a serious recession and it seems his forecast is coming true. Bob said he has spoken many many times on Moneytalk talking about how housing prices declined for five consecutive years and how it is absurd to make assumptions that housing prices would go up every year. Housing prices are cyclical and they always will be. The caller said one of the problems are the exotic loans made by the lenders. Bob said we are seeing write-downs at Wall Street banks and mortgage companies like Countrywide. Bob said Trekkies should not be surprised by the developments. Bob referred to a caller a few years ago who wanted to take out a second mortgage on her home to speculate in the real estate market. That call came at the top of the housing cycle. Bob said he was stunned by that call. And at that time, there were real estate markets which had gone up 50% in one year. Bob said his advice was to go the opposite way. At the top of the bubble, Bob said he recommended to "minimize your leverage." Now, a few years later, we see the reality of the housing market.
.
EC: I am going to have to take Bob to task on this call. (what a shock coming from me eh?) Bob sort of took the caller's initial point and spun it into a way such that the casual listener would think Bob was the forecasting genius. The reality is that Bob was pshawing (is that a word?) Robert Shiller's forecast that the real estate market was in a bubble. I remember this call from 4-5 months ago and the caller talking about recession. Bob pretty much scoffed at the notion. Now, 4-5 months later with the housing market in the dumps, the economy slowing to a halt, Bob seems to be laying the groundwork that somehow he was prescient in all of this by telling a caller a few yeas ago not to speculate in real estate by leveraging. That's my take on it anyhow. I am curious to know if any of you agree or disagree on this analysis. Incidentally, Robert Schiller, the author of "Irrational Exuberance" discussed his view that the housing bubble in 2005. You can read a summary of his comments he gave at the time on NPR at the following url:
.
http://calculatedrisk.blogspot.com/2005/04/talk-of-nation-schiller-on-real-estate.html .
For free issues of David Korn's newletters: http://david-korn.blogspot.com/
.
Honeybee EC: Brinker seems to have also changed his tune about the reason for bad loans. December 8, 2007 Brinker said: “A liar loan is a loan where the borrower provides little or no documentation of their income stream. Therefore, they can lie as much as they want since there’s no verification of the information. One thing we don’t know is how many of the loans are liar loans. But there’s no question that over 50% of the borrowers who have sub-prime adjustable rate mortgages for 2006, the ones that got them last year, and they’re in this group that is eligible for help – over 50% of them provided basically liar loan backgrounds. So if you’re saying that this is a moral hazard – we are rewarding the liars –you’re absolutely right.”
.
March 9, 2008, a caller said: “The blame is not all on the person because there are a lot of people out there that are a little bit ignorant when it comes to……” Bob Brinker answered: “No….Oh Helen, let me tell you, you are understating the case. There are a lot of people out there that are clueless when they go in and sit down with a mortgage lender. And that’s one of the things we’ve seen here…..people have been taken advantage of…..but you’re right, there are a lot things going on where the mortgage officer has the lead over the borrower because he knows so much more.”
.
CREDIT MARKET “…is in shambles.” This does not apply to AAA securities. There has never been a better time to have a top credit rating -- direct Treasury guarantees like you get with GNMA Funds, Treasury Bills, Notes, and Bonds, I-Bonds, EE-Bonds and FDIC. These vehicles have held their value.
.
MORTGAGES: WHAT SHOULD THE GOVERNMENT DO & HENRY PAULSEN Bob Brinker said: “Well, the Treasury Secretary of the United States of America, Henry Paulson, he has an opinion on this. He says that the administration is getting close to an agreement with congress on legislation that would increase the amount of money in Federal Housing Administration loans to borrowers who are looking at the possibility of foreclosure. Now this is a bill that is in process in the House of Representatives. You may recall in December, there was a bill passed in the Senate that was similar to the one passed by the House back in the autumn – the one about lowering the down payment requirement for low and middle-income home-buyers on Federally insured loans and also allowing them to borrow more money. Also, home-owners with adjustable rate mortgages setting into the re-set period would have an easier time qualifying for loans backed by the FHA. ….the negotiations are continuing to go on. According to Henry Paulsen this is a modernization bill for the FHA which would help 300,000 home owners.”
.
U.S. DOLLAR AND HENRY PAULSEN Brinker said: “Something else that Henry Paulsen said in a speech last night at Stanford University in Palo Alto, California – up there in KGO country – he said something else that I thought was amusing, and that was, he expressed confidence that the U.S. dollar reflect the fundamentals of the economy. Well, one would say that the U.S. dollar is already reflecting the fundamentals of an economy that has a large trade deficit. An economy that has an irresponsible congress that spends more than they take in – and spends on pork and earmarks. ……..Here is a quote that I find so amusing that it’s comical. Someday, I think that Jay Leno or David Letterman will be able to get a laugh with this line. Henry Paulsen saying for the umpteenth time. Quote: ‘ I know how important a strong dollar is’ unquote. Do you believe this? Henry Paulsen, Treasury Secretary, last night talking to some relatively well-educated people, wouldn’t you say -- at Stanford University? …….I would think they would laugh him out of the room at Stanford University for saying something as bizarre as that while the government has been standing by the government has been standing by watching the dollar fade and fade, year after year against a policy of fiscal irresponsibility in Washington. How does he come off saying something like that without getting laughed out of the building? Defies belief…….Do they think we are all stupid?”
.
FDIC INSURANCE FOR YOUR MONEY A caller told Brinker that he had money with Washington Mutual Bond beyond what the FDIC insurance would cover. Brinker thinks the FDIC amount is okay, but he would not be comfortable beyond that amount. Caller asked where he should put “7 figures at this point in time” and said that he would rather be in fixed income and not in the market. Brinker recommended Treasury Bills, but would not have a penny of money in WAMU that was not covered by FDIC.
.
NLY This stock, which is supported by Freddie Mac and Fannie Mae, dropped 5% Friday. Brinker said: “Freddie Mac and Fannie Mae do not have a direct Treasury guarantee, as we have said on this program ad nauseam. GNMA’s do…….people are now wondering about Freddie Mac and Fannie Mae……last time I checked they had a few $billion lines of credit. That’s not the same as a direct Treasury guarantee.”
.
ANNUAL TAXLESS GIFT You can give up to $12,000 per year to anyone you choose.
.
STIMULUS PKG, WHO DOESN’T GET IT? Those who get their income from dividends, or from pension and dividends will not get a rebate unless they receive at least $3,000 income from Social Security or earned income. (Honeybee EC: Whoever said our government was fair? And who says that dividends and pensions are not earned income?) 8^)
.
BRINKER, SWEDROE AND THE STIMULUS PACKAGE (Honeybee EC: Last weekend, Larry Swedroe stated that he thought the stimulus package was the wrong thing to do. Brinker did NOT CRITICIZE Larry Swedroe at that time. But today, without naming names, Brinker, IMO, ranted about people who do not agree with his point of view.) Please see my summary:
.
http://honeysbobbrinkerbeehivebuzz2.blogspot.com/2008/03/brinkers-stock-market-comments.html
.
Firstly, here are some excerpts of what Larry Swedroe said on Moneytalk last weekend:
.
Larry said: “Well, I think it’s a very bad package. There’s nothing long term. People are not going to react to this in the way people expect. That’s what the historical evidence on similar packages. If you want to stimulate the economy, the best way to do that is to give an immediate write-off to corporations on investments that they would make……" (Brinker interrupted and said that is included in the package.)
.
Larry continued: “It’s a tiny amount, they could do more. And a better way to do it would we to cut the corporate tax rate significantly here, which would create more jobs in the U.S. rather pushing them overseas. I’m not a big fan of this package. They probably would have been better off doing nothing in my opinion. I think the stock market might have taken it better."
.
Brinker said: “So even though they are trying to do something to be helpful to the economy, you don’t like it?”
.
Larry said: “I don’t like this particular one……….it’s spending oriented instead of incentive oriented. And being a free market economist, I think they ought to rely on the market to do the job, not spending by the government. They’ll spend it in the wrong ways here…..I think you want to create incentives for growth. That will stimulate the economy and actually end probably increasing revenues, rather than creating a bigger deficit which is all they’ve done here, I think. Most people will get the $300 and it will be put in their pockets. It’s not going to get spent, cause people spend, all the evidence shows, on long-term expected income, not based on another $300 check. I think this is a mistake.”
.
Here are some excerpts of what Brinker said this weekend: “……I have such criticism for those who, including some of the guests on this broadcast that I’ve criticized many times when I’ve spoken about this subject….whether it’s a guest on this program or whether it’s a caller – either way, I don’t care. The reality is the people who express disdain for the Federal government trying to use a page out of John Maynard Keynes textbook, Keynesian economics, stimulative (sic) economics – the people who attack the government – I don’t care who they are…..I think they are wrong. I think they are completely misguided in their opinion – I don’t care who they are. ……..it’s all good, so when I hear people attack the Federal Government for putting a stimulus package together, I think it is just completely off-base, completely off-base, and for that reason, I think we have to mention that. We have to mention, when you have an economy that’s flat on its back, it’s probably growing backwards this quarter, it may grow backwards next quarter, depending on how the stimulus packaged affects it next quarter…..you have to respond. That’s all they doing, they are responding."
.
INTERESTING CALL A caller said: “I just wanted to say something about you -- 2000, your call, March 11th, I believe, of 2003. And then the little short-term call, you said ride the course, in I think it was May of 06 -- going go down 8 to 9%, you said. It went down 7.7 to 1223 on the S&P, and just ride it out. I’ve been stunned, if a person has patience, I’ve been stunned, and I have quite a bit of knowledge in this area, at the hard work you do and just requiring patience. On every one of those calls -- great timing, but you had to be patient even during those great calls.”
.
BRINKER INTERRUPTED AND REPLIED: “Yeah, well, I appreciate those comments Phil, but let me say that the type of work I do, I regard as the most – most people don’t even try it -- it’s the most challenging work I know. We’ve discussed it on the program in detail, which is anticipatory stock market timing decisions on trying to make major moves. And let me tell you, we know going that sometimes we are going to be right, sometimes we are going to be very right, and sometimes we are going to be wrong. And that’s the nature of the business and that’s the way it is.”
.
Honeybee EC: The caller left out a lot of information about Brinker’s market-timing history since “2000,” I won’t go into it now, but I did check to see what Brinker was saying in May, 2006 -- which the caller referred to… Here are the facts: The S&P 500 Index was higher than it is now. The day the May Marketimer was issued, the S&P was at 1305. Brinker was fully invested, as he had been since March 2003. Nowhere in the May Marketimer (or any other issue that I can find) did Brinker say the market was “going to go down 8 to 9%.” Instead, this is an excerpt of what Brinker said in that issue of Marketimer: “The Marketimer stock market timing model remains in favorable territory……” The market kept dropping, and In July, 2006, Brinker told subscribers that S&P 1250 was “attractive for purchase” for new money.
.
MONEYTALK CALLS Most of the calls this weekend did not add any new information worth reporting. Some of the subjects were: Mortgage pay-off; Roth IRA or 401K; Cost Basis on Zero Coupon Bond; Retiring on a $1million – half in fixed income; Energy; Company retirement plan offers specific to one person.
.
BOULDER CITY, NEVADA Brinker said, “I know it well, I was there yesterday. It’s right by Lake Mead, you know…. one of the great wonders of the world….for people who like hiking…..for people who like outdoor life.”
.
http://maps.google.com/maps?hl=en&ie=UTF8&ll=36.116696,-114.909053&spn=0.007714,0.014462&t=k&z=16
.
