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Saturday, Bob Brinker made no comments about stock market activity this past week. Brinker’s opening monologue began with a lengthy discussion about oil prices, supplies, etc.
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Brinker commented that OPEC is responsible for over 40% of the world’s oil production which gives them ultimate power in terms of marginal barrels of oil. He said that there is a new Saudi oil field that is set to start pumping in less than 30 days and then “ramp it up” to an additional 500,000 barrels a day. (The United States consumes 20 million barrels a day.)
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Regarding the upcoming meeting that the Saudis have called to “tackle oil prices.” Brinker said: “I can almost picture that meeting – just a bunch of ministers giving out high-fives to one another. What do you think, $134, $135, whatever it is, give or take a few pennies….. say hey, it’s happy hour – they want our product – they’ll pay anything for it. Well, there’s a lot of truth in that.”
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From Reuter’s: U.S. expects to attend Saudi oil meeting -W.House
June 10, 2008
WASHINGTON—The United States, which has wanted OPEC to increase oil production to dampen record-high prices, expects to participate in a June 22 meeting on oil supply in Saudi Arabia, the White House said Tuesday.
"It's a positive sign that Saudi Arabia wants to take a leadership role on this issue. As one of the world's largest producers and consumers, we expect to participate," White House spokesman Tony Fratto said.
"We'll be interested to see what is on the agenda. It would be useful to address the need to open markets to investment that would result in greater efficiency and higher production," he said.
Saudi Arabia will host a meeting of oil producers and consumers on June 22 to discuss record-high prices, OPEC Secretary General Abdullah al-Badri said.
Oil hit a record $139.12 a barrel Friday and traded to a high just below $138 on Tuesday.
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Brinker probably got most of the information about this here: MSNBC Saudis seek meeting
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MSFT/YAHOO/GOOGLE...Brinker said: “Something else (Honeybee EC: Brinker must have actually meant to say something "different" instead of "else" because he used it as a segue out of his energy discussion) has been going on in the stock market involves Microsoft and Yahoo……….The share in Yahoo had risen all the way up to $34 a share in anticipation of a possible takeover by Microsoft. Microsoft had come in with a $31 a share offer about 3 months ago for Yahoo, and then they raised the bid up to $33 a share last month and, you know, that’s like $47 ½billion for the company………Then the speculators went into the Yahoo shares and started bidding them up and got them all the way up to $34 a share…….Yahoo shares have tumbled all the way down to $23 a share…….Microsoft shares have been trading for the most part in the upper-$20’s recently………”
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Brinker said it was reported that Microsoft had been willing to pay $35 a share -- up to $8billion worth of Yahoo shares -- before the deal fell through. Now Yahoo has made a deal with Google, so it is less likely that Microsoft will ever be involved with Yahoo for any major deals.
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An interesting article titled: Google grows stronger in Microsoft-Yahoo fallout
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Brinker said: “Carl Icahn, who is a billionaire, is upset with the Chief Executive Officer at Yahoo, Jerry Yang………and is accusing Jerry Yang………of sabotaging the acquisition plan that Microsoft had out there for Yahoo…….There are a lot of people who are shareholders in Yahoo who are not happy.”
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Here is the link to the New York Times column about Jerry Yang that Brinker discussed "Oh, Jerry, It's No Longer Your Baby" Re: Shafting Yahoo Shareholders," by Joe Nocerra.
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Honeybee EC: Microsoft is one of the two individual stocks that has been on Brinker’s Marketimer recommended list for many years. Here is a chart that shows how MSFT has done compared to the S&P 500 Index:
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CALLER: “First of all, I want to compliment you on your two calls, one in January 2000 and one in March 2003…..We’re not sure whether Babe Ruth pointed to the fence or not, but you definitely called them right on, so I don’t think you get enough credit……..” Brinker said: “Thank you very much, Jerry. And Babe Ruth certainly did point to the fence. There’s no doubt about what Babe Ruth did. What’s on your mind?”
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GNMA...... A caller asked what causes fluctuations in the Vanguard GNMA Fund. Brinker explained that it works inversely to interest rates, and that he expects the NAV to stay within the $9.50 - $10.50 range. Rates have been “firming up” in the last couple of weeks -- VFIIX net asset value is down to $10.11 per share. For those who are bothered by NAV fluctuation, Brinker suggests laddered, FDIC-insured Certificates of Deposit. For those who are not bothered by price fluctuations, Brinker has no problem with holding VFIIX for income.
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CALLER....Asked if Brinker thought Bernanke would “survive another year.” After telling the caller that he definitely thought he would, Brinker said: “You have to understand that a lot of the things going on out there are not Bernanke’s doing……..Ben Bernanke did not create the housing bubble………If there is any blame to be placed, it would have to be blamed on his predecessor, so that wasn’t his problem in terms of the cause………When you take a look at what’s happened to the dollar……..that’s not been really his doing. What’s happened, there has been an international erosion is confidence in the United States plus a recognition by the rest of the word how energy dependent the United States has become……..I think he’ll survive and I think the reason he will survive is, first of all, he is a very, very smart individual. And second of all, I think he’s done a decent job so far.”
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Now the Fed’s favorite inflation index is behaving better. The Personal Consumption Expenditure Core Index is at 2.1 YOY, and the headline at 3.2% YOY. Now there are elements of the energy complex that can spill right over into the headline number. The most notable is transportation. The cost of transporting everything has gone up. YOY, transportation costs have gone up 8.1%........All this is part of what we are seeing coming out of energy…..With this inflation being concentrated in food and energy, this is definitely putting the pinch on consumer spending."
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Honeybee EC: Please go here for detailed explanation of this Inflation Graph:
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RETAIL SALES: “Pretty good -- they were up pretty decent in the latest reported period.” Brinker commented that the May number, which was way above expectations, indicates that people are spending their stimulus package money in spite of the higher energy costs – and even if they use it to pay off credit card debt, they will “just run them back up again, because that’s what Americans do.”
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ECONOMY: (Brinker comments paraphrased) Federal Funds rate down to 2%, which combined with the stimulus package that consumers are receiving this summer, should contribute to recovery down the road.
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CALLER: A recent widow with $2million, who didn’t want to become bait for a shark-attack. Brinker said, “Well you are shark bait, but at least you are smart enough to know it.” and then he advised her to learn to become her own financial manager.
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Brinker recommended these books to the previous caller:
John Bogle's "Common Sense on Mutual Funds, New Imperatives for the Intelligent Investor" (paperback)
David L. Scott's Wall Street Words: an A to Z Guide to Investment Terms for Today's Investors
CALLER: Wanted to know what Brinker had to say about the economy and interest rate cycle and the “best thing to do right now.” Brinker said: “I think the best thing to do is look forward and not look backward. And I think that when we look at investors today, the smart investors are looking forward. What I mean by that is they’re looking at an economy that has been bouncing along at a very, very slow rate. The real Gross Domestic Product in the fourth quarter 0.6 annual rate – that’s really slow. In the first quarter 0.9 annual rate – that’s really slow. And now here in the second quarter, even with the rebate checks on their way for lots of people, we are looking at real Gross Domestic Product in the second quarter – I think it will be close to zero….. But then I think you have to look forward.
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What I mean by that is okay, we have the stimulus package, we have the lower interest rates we’ve been seeing from the Fed, so we look forward into the second half, and more importantly into 2009. And then we start to ask ourselves can we look for the economy going into 2009 to start to show some signs of recovery – actual recovery by 2009 – perhaps some signs in the second half…….. I think that the big mistake right now that investors make is looking in the rear-view mirror……I don’t think it’s helpful and I don’t think it’s going to be helpful to investors to do that.”
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Brinker's Saturday guest speaker:
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Roger Lowenstein's "When Genius Failed, The Rise and Fall of Long-Term Capital Management" (paperback)
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Bob Brinker said to Roger Lowenstein: “We had a guest on, David Cay Johnston, recently – he was critical of Warren Buffet. I wanted to ask you about this because he claimed that Warren Buffet had taken advantage – legally, legally, taken advantage of opportunities. He described a loan of about 6 or 7 hundred million dollars that Warren Buffet had benefited from through his corporate empire – interest-free loan – long-term, various things where he said he’d taken advantage of things. [Lowenstein: “Who was the loan to? It wouldn’t have been the Buffet personally.] No, not to him personally. We’re not talking about that. We’re talking about stuff that was done through his corporate entities. But I wondered in your work on Warren Buffet whether you had seen anything like that."
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Roger Lowenstein said: “No, I didn’t come across that, but I have a general response, which is that often people try to come up with some reason, if not for this, if not for that, he benefited from this, he benefited from that. You know, he started with nothing. He’s been doing this for 50 years and to say it was this loan, that tax break. He’s basically just bought stocks and companies and held on to them.” [Brinker: “Yeah, that’s a fair comment.”] If you had started with him and given him $10,000 in 1956, you’d now have $550million. So it’s not a question, did he find some legal thing here or there, he’s off the charts. It’s like saying well Michael Jordan got a few calls."
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Brinker said: “Yeah, that goes without saying………That was David Cay Johnston, and that was his book “Free Lunch” where he made those comments for those who want to look it up.”
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Brinker made no comment to David Cay Johnston about what he said about Warren Buffet. Here are the David Cay Johnston excerpts from last week's Summary:
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Bob Brinker's guest speaker on saturday was David Cay Johnston, reporter for the New York Times, and Pulitzer prize-winning author of "Free Lunch, How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill).
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David Cay Johnston said: "Well, Warren Buffet is in my book, less for his generosity than for the way he deals with the tax system in other areas. I tell about how Mr. Buffet got a hundred million dollar gift from the taxpayers in New York State for a business that cost him $40million dollars. How he got a interest-free loan for 28 years for for 2/3rds of a $billion dollars. You think about that for a second. Imagine where you are in San Francisco, where if you bought a house in 1980, you'd never made a payment on it -- didn't have to pay interest on it all these years, and this year, you finally had to pay half the price you agreed to in 1980. I mean, that deal alone would make you very, very well off.
And then I show how Mr. Buffet has a utility, an electric utility that's trying to do two things. It wants to keep the taxes that are built into the rates you pay. Because utilities are legal monopolies, they have to collect every cost from you, including their income taxes. And he's been fighting to be able to pocket those taxes permanently.
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And then another of his electric companies, he's charging much higher prices than local businesses believe are appropriate. And he used his political muscle to shut off public debate about this by threatening an ally of the local business people with onerous legislation unless they passed a resolution promising to never help try and get out of the clutches of his business again.
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So Mr. Buffet is a very smart investor, but he's enhanced those returns by using the government to give him money, to extend him extraordinary loans, to charge rates that are higher than the market or normal regulation, and to pocket taxes that you are forced to pay if you are one of his companies......."
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Immediately, Brinker said: "Steve is on the line in Virginia, Steve......"
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Miscellaneous
Bob Brinker’s Critical Core Concepts When it Comes to Investing:
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- Diversification
- Asset Allocation
- Indexation
- Keeping expenses to minimum
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A Bob Brinker “Cardinal Rule”: “When you are approaching retirement, you go into a balanced portfolio strategy.”
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