Brief Summary, Commentary and Moneytalk Excerpts, May 3-4, 2008
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Bob Brinker did not give the usual stock market closing numbers in his opening monologues. Saturday, he began by talking politics -- he reported the “breaking news out of the Territory of Guam” that Barack Obama was leading Hillary Clinton 53 to 47, and may be on his “way to victory.”
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(Sunday, Brinker devoted the opening monologue to Microsoft's bid to takeover Yahoo! Ballmer walked away after offering $33 a share -- Yahoo! wanted more, so it's no deal. Brinker expects Yahoo stock to fall out of bed Monday morning.)
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Brinker comments paraphrased: "We" wonder what tax policy will be going forward since the temporary tax cuts now on the books are scheduled to expire in 2010. If there is a change in the White House (along with a “friendly” congress) in January 2009, we could see an acceleration in efforts to raise taxes. Two of the candidates have talked a lot about raising taxes – but there is no need to worry about 2008.
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Polls show that “Cactus John McCain” is ahead of Barack Obama by 48 to 43 and 48 to 42; however, McCain and Hilary Clinton are in heated-tie.
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Without naming names, Brinker referred to Rush Limbaugh’s effort to swing the nomination to Hillary Clinton, and thinks that it might turn out to be “one of the dumbest strategies of all time.”
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TAX INCREASES…..Brinker said: “One thing we do know, because the candidates have told us and that is, a lot of people are going to see a tax increase, possibly as soon as 2009 – next year, if you get Barack Obama or Hilary Clinton in the White House. So far as I can see, the only major difference in tax policy is that Barack Obama, in addition to raising the top bracket from 35 to 39.6, and possibly also raising other brackets, would also, based on his pronouncements, likely do away with the cap on Social Security for incomes above $200,000. Now that would be a de facto 6.2% tax increase on those working for others and a 12.4% tax increase on those with their own companies – entrepreneur –which would have a dramatic effect. We’ve talked about it. It could take the marginal rate in states like California, top bracket, up to about 65%. Which would mean you would be left in that bracket earning about 35 cents on the dollar. We’ll see where that goes. That could be quite controversial when people catch on. I don’t think people yet realize the plans that are out there.”
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JOBS DATA (Brinker paraphrased) The data for the month of April came out on Friday and confirmed that there is an economic slowdown. There was a “small loss of jobs in April,” much less than was estimated (the estimates were wrong). April jobs loss = 20,000; March jobs loss = 81,000. Down about 50,000 average for the last two months……In a recession we could easily lose 200,000 to 300,000 monthly.
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Manufacturing jobs: Dropped 46,000 in April…….companies are moving jobs overseas.
Construction: Not surprisingly, declined by 61,000 in April.
Service: Big job growth there – 90,000 gain in April.
Retail: Down 27,000.
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Bob Brinker said: “American labor just cannot compete in a globalized world in the manufacturing sector………we’ve seen it with the computer engineering software profession. Look what’s happened there. How many computer engineers are looking at a complete changed-landscape here…….Hey, at the end of the 1990’s they were getting $60, $70, $80 an hour for their work. Now comes along software engineers in India do the same work for $12 an hour. (Honeybee EC: It's possible that is why Brinker's son made career changes.) CEOs are in a position where they cannot ignore these realities. They have to respond to these realities because their shareholders demand it. Pure economics demands it.
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So when you hear these candidates out there, I hear it every day, telling you they are going to bring these jobs back that have gone overseas. Don’t you believe it. These jobs are not coming back to the United States. The best that can be done is to keep to the jobs we have here now here by developing a tax incentive package to encourage corporate management to keep their jobs here…………..So when you hear these politicians making these promises, you might do well to consider it with a grain of salt.”
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INFLATION…….Brinker said: “No signs of inflation in the (jobs) report data as average hourly earnings rose 1/10 of 1%, and that’s annual rate of about 1%........One of the most important ingredients to inflation is earnings of the work force. And when earnings of the work force gained gain 0.1% in the month of April, that’s telling you there’s no inflationary input at all, of any consequence going into the numbers. And on that point, we have some very good inflation numbers out this week with the quarterly Gross Domestic Product report with core inflation holding very low at 2.1 and headline inflation has come down to 3.2%.”
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ECONOMY (Brinker paraphrased): We’ve seen a slowdown in the economy……it grew in the 4th quarter at a slow rate of 0.6% annual and now the preliminary real GDP announcement shows 0.6% also. So the data (in hand) for the past 6 months qualifies as an economic slowdown. Hopefully, the economy will get back to its real trend growth rate of about 3%.
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Brinker said: “We’ve talked about the reality of the economic slowdown here on Moneytalk. What you have to wonder though is, what have the people been smoking who’ve been running around for the last few months proclaiming that we are in some kind of a recession – some kind of a great recession that’s going to drag the U.S. economy down, that’s going to result in a bear market in the stock market and all this nonsense that we’ve been hearing from these so-called pundits. I mean these people have been so wrong, it’s laughable.
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Yeah, we had a stock market correction, no question about it. And certainly it’s not unprecedented, we’ve seen it before. But these people out there talking about a recession – oh, we are in a recession – oh, it can only get worse – oh, the stock market is going into a big bear market and all this nonsense we’ve had to listen to. I’ll tell you what it’s accomplished. It’s only accomplished one thing, other than embarrassing those that propagate this nonsense……..the only thing it’s accomplished is to scare people……..scare people out of the stock market, scare people out of good investments, scare people out of their investment program. And it’s really, really sad. Now of course, we’ve not done any of that on Moneytalk because I don’t believe it. I have not forecasted that we are going to have a recession.
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(Honeybee EC: April 19th Moneytalk, I paraphrased Brinker comments in my Summary: ECONOMY ….. We are certainly having an economic downturn, but only after we get all of the data from the first two quarters will we know whether or not we had a recession -- technically speaking (defined as two consecutive quarters of negative real GDP). There’s a real good possibility we will get negative numbers for the first quarter, and if the second quarter is also negative, that will mean that we had a “brief and mild” recession.
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Brinker continued: "And the reason I have not made that forecast is I don’t see it in the statistical data that I track that forecasts the economy. Economic slowdown, of course, absolutely, it’s a given. Some recession that’s going to drag the economy down and result in a bear market in the stock market is just the kind of nonsense that we get exposed to.”
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STOCK MARKET (Brinker paraphrased) The stock market is not dependent on foreign countries buying U.S. stocks -- that is a negligible factor. If you are looking for the future course of the stock market, look at corporate earnings and the U.S. economy.
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Brinker said: “And remember, the stock market, as we are seeing right now – just as we said it would happen, the stock market is way ahead of those who are looking in the rearview mirror………Those that are looking in the rearview mirror are clueless right now. First of all, they don’t understand why the market is going up. They look at the market around 1414 in the S&P and a little over 13,000 in the Dow and they don’t understand it because they are looking in the rearview mirror at what’s already gone down. The stock market is looking ahead. The stock market is looking at the second half of this year and it’s looking into 2009. And it’s looking to an economic recovery. And it’s looking to rising corporate earnings in 2009.”"
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(Honeybee EC: Just as he said? It wasn't what he said in January Marketimer: "We continue to rate the market attractive for purchase on any weakness into the S&P 500 Index mid-1400’s range......."
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However, Brinker said this in March: "We rate the stock market attractive for purchase on any weakness that occurs in the area of the S&P 500 Index low 1300's......".
During two opening monologues on Saturday, Brinker talked at length about the “Sage of Omaha,” Warren Buffet, and his annual meeting.
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Brinker said: “He (Buffet) has said today that the Federal Reserve was correct when it made the decision to step in on the Bear Stearn’s Company in Wall Street in the month of March. Of course, Bear Stearns the Wall Street Investment Bank – fifth largest at the time – that was looking at bankruptcy before agreeing to be acquired by J.P. Morgan Chase and Company in March, with the help of the Federal Reserve, led by the Chairman, Ben Bernanke. The Fed stepped in and provided a $29billion guarantee against Bear’s Assets. And J.P. Morgan, the third largest bank in the United States, agreed to pay $10 per share for Bear Stearns in the final deal……..
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So there you have it, Warren Buffet’s opinion, quote, ‘I think the Fed did the right think in stepping in on Bear Stearns.’ Quote, ‘Just imagine the thousands of counter-parties around the world having to undo contracts.’ Mr. Buffet went on to say, quote, ‘The big investment banks………they’re almost too big to manage effectively from risk standpoint in the way they have elected to conduct their business. You need someone at the top whose DNA is very, very much programmed against risk,’ unquote.
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And that’s an interesting comment from the Sage because we’ve commented on Moneytalk so many times about the fact that these Wall Street mucka-mucks, with the big paychecks and the fancy packages, the reality is they can’t manage risk in many cases and the firms end up writing off……literally tens of billions of dollars. And the only way your company writes of then of billions of dollars on failed investments is management incompetence, in my opinion. And I think that is exactly how Warren Buffet feels when he makes those comments. I could not agree with him more……..”
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Honeybee EC: Hearing Brinker tout Warren Buffet and quote what Buffet said about the Fed bailout of Bear Stearns came as a surprise to me. This March, not only did Brinker deny that it WAS a government bail-out, but he became very testy with callers who called it a government bailout. Several times, Brinker was quite critical of Hillary Clinton because she had referred to Bear Stearns as a government bailout -- he said that she was mistaken. Comments I wrote in my April 2, 2008 Moneytalk Summary:
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Bob Brinker discussed the Bear Stearn's bailout several times this past weekend on Moneytalk, and became indignant with a couple of callers who said that it was a "government" bailout.
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Brinker insisted that it was NOT a government bailout. He claimed that it was just a matter of Bear Stearns' shareholders being compensated with J.P. Morgan stock at $10 per share. Brinker repeatedly criticized Hillary Clinton for calling it a "government bailout.'
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However, he did admit that the Fed had absorbed $29BILLION of Bear Stearns' debt. Is this Orwellian double-speak? I think so, but that's just my opinion. 8^)
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David Korn wrote this:
.“Caller: Another caller objected to the government bail out of Bear Stearns. This set off Bob and he said it is wrong to call it a bail out, and even Hillary Clinton is making a mistake!”
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VARIOUS BRINKER POINTS, of the weekend:
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- John McCain and Hilary Clinton’s proposals to have a “holiday on taxes” from Memorial Day to Labor day is a “lame-brain idea” that will encourage consumption and is “pandering on steroids.”
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- Proposes a United States “Manhattan Project” on energy independence….including nuclear and drilling in Anwar.
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“Let’s get an energy policy that will get us off Mid-East oil. Let’s get as close to energy independence as we can over the long term with a package of initiatives, and let’s get off this addiction of importing oil from countries that hate us.” - .
“Let’s move to a balanced budget so that we don’t have to borrow any money from foreign countries, no longer are we beholden to them to come in and help pay our bills.”
Brinker's guest-speaker on Saturday was Fred Sheehan, co-author of “Greenspan’s Bubbles, the Age of Ignorance at the Federal Reserve.”
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Honeybee EC: It was a very short interview, but they both did an outstanding job of bashing Alan Greenspan. 8^)
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Brinker said that he had read through Sheehan’s book and didn't think that the “Maestro” would be pleased with what had been written about him -- that it seemed like Sheehan pinned everything, including Y-2K , on Alan Greenspan.
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Sheehan thought that was very funny and commented that he hadn't gotten a birthday card from Greenspan. Brinker added to the levity by saying that he doubted Sheehan would be on Greenspan’s holiday list either.
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Brinker, seemingly eager to agree with Sheehan, pointed out a few things about Greenspan:
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Greenspan raised interest rates in January 2000 at the “worst possible time."
Greenspan failed to raise margin requirements --which Brinker thought he should have done to reign in the stock market.
Greenspan “has not been bashful about looking over the shoulder of Ben Bernanke,” and if he was Bernanke, he would “buy this guy a one-way ticket to Shanghai.”
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Sheehan called Greenspan an “opportunist” and a “politician,” interested in promoting himself. Brinker agreed that he had done a good job promoting himself – he is a “Knight of the British Empire,” and known at the “Maestro.”
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Sheehan piled on with something about the “French Foreign Legion,” which was a bit unintelligible. Brinker, getting in the last little bash said, “Aw, a Renaissance man in every sense of the word.”
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Most of the calls allowed on the air this weekend were about politics, oil, energy-use, dependence on foreign oil, problems with corn-based ethanol, stimulus package, national debt and more politics.
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Bob Brinker quote of the day: “Anybody that listens to Moneytalk knows it’s not in my nature to pat myself on the back.” (Honeybee EC: ROFLOL! I love your sense of humor, Bob. Kudos!)
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