Summary, Commentary and Excepts: Bob Brinker's Moneytalk, June 28-29, 2008
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Bob Brinker hour-one monologue excerpts:
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“Here on Moneytalk, if you have been with us, you know we have been talking about the importance of oil prices and energy here on our Moneytalk broadcast. And we see the importance of oil prices in today’s economy --we see it with a direct correlation. We saw just this week between rising oil prices and the stock market, with the S&P 500 trading at 1278 at this juncture. And we look at what’s happened to oil prices and they spiked to a new all-time-historic-record on Thursday and Friday, closing on Friday a little above $140 per barrel."
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(Honeybee EC: I don't recall ever hearing Brinker say that there was a "direct correlation" between oil prices and the stock market. Is this the unexpected "exogenous event" that Brinker talks about that could cause a bear market to happen while he is bullish and predicting new highs? Last week, he mentioned that the stock market "did not like" what was going on in the Middle East. Two weeks ago, he never talked about the stock market in general during the program, and on June 7th, he said that the run-up in oil prices which was caused by something that happened in Israel had "spilled over" into the stock market and he said that he viewed oil as a "wild card" where the economy was concerned.)
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Brinker continued: "Now why is the price of oil important? Why are energy prices important? Well, the reason they are important is very simple. They have a direct impact on consumer spending. And consumer spending, is for the most part, is what the economy in the United States is all about………….Consumer spending is the engine that drives the U.S. economy and that makes anything that impacts the consumer an important factor – including oil prices………"
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Brinker spent the remainder of his opening monologue talking politics and explaining why he does not believe that speculators are to blame for rising oil prices. He ended his monologue by saying: “But I thought it was fascinating to watch congress go through this – it’s almost like play-acting when you look at it – almost every day this week demonizing these so-called speculators, when in fact, they know full well, they’ll never be able to show any proof of this. And even if they could come up with something in the United States, they’d still have an enormous problem which is oil’s a global commodity, it’s traded all over the world. The United States does not have jurisdiction on speculators in London or anywhere else for that matter outside of the United States of America.........."
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There were no callers on the program today who asked any questions about the stock market:
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Caller one: Nuclear power/politics/Chernobyl….
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Caller two: Oil/Iraq war/national debt
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Caller three: Nuclear power plants
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Caller four: Preferred stock (not-named) paying 10%. Brinker: remember that dividends can be lowered.
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Caller five: Car company in India making cars that run on air and runs for three hours.
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Caller six: Reinvesting a $10,000 CD. Brinker reminded her to be sure she had FDIC coverage.
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Caller seven: Drilling in ANWR. Brinker is for it.
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Caller eight: Nuclear power plant near an airport in Japan – planes have never crashed into it.
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The FOMC meeting took place last week. Rates were held at the current 2%. One year ago it was at 5 ¼% -- most of the change occurring since January.
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Brinker said: “Now there were some comments made by the Federal Open Market Committee……..One of the comments they made was that overall economic activity continues to expand. Now I thought that was an interesting comment only in the sense that they didn’t make really remark specifically about the pace of expansion. Well, yeah, overall economic activity continues to expand -- well okay, first quarter real Gross Domestic Product grew at an annual rate of 1.0, fourth quarter grew at 0.6. So if we blend this last six months, we get an annual rate of real growth in the economy of 0.8.
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Okay, so it’s true, overall economic activity continues to expand, but when you look at that rate of expansion in the last six months……..you can see what the numbers are. Now another thing they commented on is some firming in household spending. Well it is true that the consumer has a remarkable resilience, so far, to higher energy prices…………but I don’t much I’d be calling attention to the firming in household spending aside from the fact that the rebate checks are in the mail……..In general I’d think that house spending is definitely having a time dealing with the higher energy prices that are straining consumers.
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They went on to say that labor markets have softened further, and financial markets remain under considerable stress. The labor markets have held up reasonably well. The loss of jobs so far, when you look at historical contractions in the economy, even if that represents a growth contraction which is a lower growth rate which is what we have so far……..The bottom line is they remain soft and are going to remain soft for a while.
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The comment about financial markets remaining under considerable stress – well, I think that’s an understatement. I think the financial markets have been under a lot of stress as the banking community has been coming to grips with this subprime incompetence that we saw from top management in these companies. I mean where else can you go? You have to go to these mucka-mucks that run these financial companies and banks……… And you have to look at these things and you say wait a minute, the reason these people were drawing down the big salaries and bonus checks and packages was because they are supposed to be able to know how to run the company. When you realize that they did not take a look at what they were doing with reference to the risk they were taking in subprime………I realize lot of them have lost their jobs. But some of them went out with golden parachutes and that doesn’t make everybody real happy either.
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They went on to mention tight credit conditions. That is related to what’s going on in banking. Banking institutions have certainly ratcheted up their credit standards now that the horse is out of the barn and across the dale and over the hill and out of sight………..Ongoing housing contraction goes without saying. Rising energy prices is right out there every day for everybody to see -- all those signs going down the highway for the $4.00 gasoline. Obviously all of that is a factor on the economy at this point.
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There was a dissenting vote…….Richard Fisher, he wanted to increase the Federal Funds target rate. Where does this mentality come from? I think comes from those who misinterpret energy prices as an inflationary threat. Has that been the case? No. No, it has not. The key inflation gauge that is used by the Federal Reserve itself is the Personal Consumption Expenditure Inflation Index. Well, that index is updated whenever a GDP report comes out – it was updated Friday, and here are the numbers: Year over year overall inflation counting everything, 3.1%. That includes the fact that gasoline has gone up in price by more than 1/3 in the last year……….Core index, excluding food and energy, 2.1. What was it the prior month? ……Headline was 3.2….and the core stayed the same at 2.1……..
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........Here on Moneytalk, we told you that rising energy prices were contractionary to the economy, they hold down the rate of growth in the economy and they are not inflationary……..They are a pure, unadulterated tax on consumption…………So many told us that this is going to cause high inflation. Well, it didn’t happen, did it? Oil prices in the last year are up 100%.........So these people that told us that rising energy prices would spill over and push core inflation high, they were wrong........."
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Caller one: Hedge funds qualify for capital gains rather than ordinary income on taxes. Brinker said the government could raise a lot of money if this was simply changed to ordinary income tax, and he expects Obama to make the change if elected.
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Caller two: Nuclear power plants in France are safe – so are the ones in the U.S.
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Caller three: Energy
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Caller four: California Air Resources Board, the “Green Gestapo” is putting forth their proposals. Brinker said that is a “scary group.”
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Caller five: National debt.
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Caller six: Detroit motor company preferred shares. Brinker: "speculation."
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Brinker said: “Well the S&P/Case Schiller Home Prices Index came out this week. It’s revised on an ongoing basis. And the home price index is based on 20 cities across America. And it is a year-over-year price change index – and it shows an average decline of 15.3%. Now this index is relatively new. It was put together back in year 2000, so it has a very short history…………But just in that limited time horizon, that’s the biggest drop it’s taken…….We’ve heard the stories about some of the most hard hit marketplaces including places like Miami, Florida and Las Vegas, Nevada……Also including Phoenix, Arizona….down over 3% on a month to month basis......"
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Bob Brinker 2.28.08 quotes:
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- “If you live within, let’s say, 40 or 50 miles of a nuclear plant, you get less radiation in a year than if you eat a banana. These are the things that they don’t want you to know.”
- “People who work in the U.S. Capitol Building get more radioactivity than people who mine uranium.”
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Sunday Moneytalk: Commentary and Excerpts
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Brinker's monologues on Sunday mostly covered old subjects again -- politics, Obama's tax plan, FOMC, Mid-East, energy, oil, estate taxes, etc.
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Honeybee EC: Most of the calls were either too esoteric or too basic to be of interest. For instance, one caller wanted to know how to ladder CD's. I didn't hear anything new that was important enough to write about.
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But there was one call about oil prices and the stock market that was interesting. Bob Brinker did not actually answer the question as asked, but what he said may be of interest to readers. Perhaps we can read between the lines. 8~)
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Caller Daryl: “If gas prices stay high or go higher, do you think that the stock market will stay down or even go down further.”
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Brinker replied: “As I’ve stated, I think that consumers have to deal with the reality of gas prices. And I think that the most helpful thing is for oil prices and also gasoline prices, which go pretty much hand in hand, to stabilize or decline. I don’t see anything helpful in a trend of continuing rising oil and gasoline prices. And I think the reason is because I think it affects the consumer, and I think that that affects future economic recovery prospects. I think it’s all tied together here. I’ve described oil as the wild card in the outlook and I think that is exactly what it is."
Bob Brinker’s Saturday guest speaker was Richard Bitner, who wrote: Confessions of a Subprime Lender: An Insider’s Tale of Greed, Fraud and Ignorance
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Brinker's Sunday guest speaker was Fran Hawthorne, author of: Pension Dumping: The Reasons, The Wreckage, the Stakes for Wall Street
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