Summary, Commentary and Moneytalk Excerpts, July 19, 2008
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Bob Brinker said: “Another interesting week in Wall Street. And of course, one thing came as no surprise. The price of oil went down and the stock market went up. Oil prices taking their biggest tumble since 2004 – lost about $16 a barrel, but still trading at the ridiculously high price of $128.88 per barrel. (Honeybee EC: Oil closed at $128.02 per barrel for the FIRST TIME on May 20, 2008. The S&P closed at 1413.40 the SAME DAY. Last Friday, the S&P closed at 1260.68....oops!) Stock market scoring some nice gains for the week -- S&P 500 chalking up a 1.7% gain. For the month of July amidst a great deal of volatility related to what’s been going on with oil prices, for the month of July the S&P has lost 1½% not counting cash dividend income that accrues each month.…………The Nasdaq had a very good week – gaining close to 2% for the week just past.........(Honeybee EC: Brinker has never talked about the fact that June was the worst month for the S&P in 50+ years. It dropped 9% in that one month alone, taking it firmly into the bear market territory that Brinker's timing model is supposed to predict, and almost 100 points below Brinker's most recent all-money-in buy-signal of "low-1300's"...oops!)
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…….And of course one of the big stories this week came out of Pasadena, California……..and that was the story of Indy Mac. We said last weekend that the FDIC would open Indy Mac on Monday under FDIC Deposit Insurance rules, and guess what, they did.”
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Brinker went on to say that he was “amused,” or rather, “surprised,” when he saw the picture on the front page of the NYT of all the people lining up at IndyMac to get their money.
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Brinker explained: “The reason I say that is because FDIC insurance is solid. We don’t worry about FDIC insurance. We know insured accounts will be dollar-good………..Now it’s true that not all of the money on deposit at IndyMac was insured. In fact, it turns out that of the $19billion on deposit, about $1billion was not insured. Now why would anybody put money in a bank today without full FDIC insurance? I think you would have to direct that question to a fortune teller. I have no idea why somebody would do something like that. But evidently about 10,000 depositors at that bank had money that was not insured. Now how sad is that? You know what happens to that money that’s not insured – that $billion or so? It goes to the receiver and gets jumbled in with all the other obligations that the receiver will have to make a decision about…….Your money should be fully, completely, 100% FDIC insured."
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Brinker pointed out that if you deposit a full $100,000, your interest is not going to be insured. It's a good idea to keep deposits a bit less than that so interest can be added and still remain under the $100,000 umbrella.
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Brinker announced that there is another program out that that may be of interest to those who would like to qualify for FDIC Insurance up to $50million – the CDARS (Certificate of Deposit Account Registry Service) program. This is a deposit placement agreement that you can sign with a member bank. To learn more about it go to CDARS.com
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Brinker said: “Now look, you never know about your bank. You’ve seen the write-offs…….a huge embarrassment to these companies writing off 10’s of $billions. In fact, the level of management incompetence that’s been brought into play and has been exposed through these write-offs is probably greater than anybody in the country imagined was possible – let alone the analytical community that covers these companies ………This IndyMac situation never even made the watch list…………You never know about your bank, so don’t have any money that is not covered fully, principle and interest by FDIC. And if you have more than $100,000, check out the CDRS program."
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Caller One asked about the government's policy of tracking movement of money over $10,000. Brinker said this did not bother him because it helped them to track the flow of terrorist money. (Honeybee EC: Brinker said this tracking policy started after 9/11/01. I believe that it was in place before then. Anyone know?) Thanks to Jumpnjoey, I have an answer to my question. Brinker was mistaken when he said the government policy of tracking transactions over $10,000 was instituted after the 9/11/01 terrorist attacks:
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Congress passed the Bank Secrecy Act in 1970 as the first laws to fight money laundering in the United States.........The general rule is that you must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if your business receives more than $10,000 in cash from one buyer as a result of a single transaction or two or more related transactions.Caller two said that he had heard that it could take up to 99 years for FDIC to pay off. Brinker said: “Whether it’s true or not, my personal opinion is it’s irrelevant. And the reason I say that is because the FDIC has a history of doing a very good job of coming in and making whole depositors. There might be a slight delay, but I don’t think it would be more than slight. And I think the people that are walking around saying it’s going to take you close to a hundred years -- at which point, most depositors would have long since met their Maker – I think that's the kind of scare rhetoric out there that I would disregard. My opinion is that the FDIC is solid as a rock…….."
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Caller three wanted to talk about the GSE bailout. Brinker commented that we don’t yet know how this will eventually play out. Several ideas are being bandied about, and it may end up not even being tax-payer money. They are talking about Fannie Mae and Freddie Mac selling preferred shares to the public to raise money. Another idea that Paulsen put forth was for the U.S. government to have the ability to buy preferred shares in order to provide capital. Brinker explained that some government bailouts have been resounding successes in the past, such as Chrysler and Lockheed. Brinker said: “Here’s the reason they are doing it, seven out of every ten mortgages in the country today involve Fannie Mae and Freddie Mac. And they believe that they have to have a viable Fannie Mae and Freddie Mac structure in order to provide the necessary liquidity to the housing market.”
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Caller four said: “This is the “real Carl” from California. I wanted to ask your thoughts about GNMAS. We uh…." Brinker said: “I think here you have GNMAS, here you have the Government National Mortgage Association, and this is an organization and its securities carry a direct guarantee of the U. S. Treasury. That makes it an exceptional organization because that means that the principle and interest on the mortgages in the portfolio are fully guaranteed by the United States Treasury. This is the security that we have recommended on our Moneytalk program many times and the performance of the GNMA Fund at Vanguard has been excellent – it’s been outstanding. It has a very, very low expense ratio of 21 basis points. Has a great performance record. I was just looking at the 10-year annual compound rate of return on that fund of 5.56%. When you consider that’s a triple-A investment, it’s pretty great. Over the last year through today, the total return on the fund is just a little under 8% which makes it an exceptional return."
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Caller five asked about liquidating a portfolio of oil company common stocks. He wanted to know if he should try to time the price of oil as he sold the shares. Brinker said: “If it turns out that the rise in oil prices was an aberration up to $147 – we don’t know this yet, unless you have a crystal ball and then you can tell me. But if it turns out that was a parabolic rise and an aberration, then obviously, sitting on that portfolio heavy in energy stocks having to sell within the next few months, well you are going to be on pins and needles on that deal……You have no idea what’s going to happen between now and the end of the year to the price of oil………And by the way, trying to predict oil prices – if you say you know what’s going to happen to the price of oil in the next few months, you are a stand-up comic at that point………"
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Caller six: More FDIC talk.
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Caller seven asked if Vanguard Prime Money Market Fund is insured. Brinker told him that money market funds are not insured. However, they are very, very short term. Therefore, money fund managers have had plenty of time to be sure they are invested in quality instruments that are dollar good. Brinker suggested that the caller go to Vanguard.com, locate the Vanguard Prime Money Market and read the holdings in the fund in terms of its quality ratings.
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Brinker said: “There is a bizarre falsehood that is being promoted around the country by a number of politicians. They seem to be at the same party…….Something they are trying to get past you – don’t let it happen. They are telling you that oil company have leases -- that is hold on public lands in the United States that they are not exploring, that they are not developing. This is completely a fabrication…………..Now let me ask you. We have politicians running around the country telling people that oil companies are sitting on all these leases and they are not exploring. Well let me ask you a question, does that make any sense to you that an oil company would report to its shareholders that well we out and paid all this money for a lease but we’re not going to bother with it – we just bought it for wallpaper, we have it up in the CEO’s office as wallpaper…….
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.......When I see politicians trying to spread this falsehood, it really is troubling. Of course, this is all part of the demonization of the oil industry. We’ve seen it from Barack Obama. I’ve seen it in his stump speeches on a number of occasions where he’s demonized the Exxon Mobil Corp, which as we’ve said before is simply the demonization of the shareholders and the workers at the company at the company………By the way, almost no shares are held by the managers of Exxon Mobil – they are almost all held by individuals and institutions, like pension companies, charitable organization and other institution. Here’s the question, why would an oil company executive refuse to drill on a valuable drilling lease – what would the motive be for not exploring such a valuable asset? Especially with oil prices at $128.88………and the moment that would be uncovered by the auditors, the CEO would be fired. This is absurd nonsense that these people are spreading out there. Why are they spreading it? I’ll tell you why, because they oppose additional drilling for oil and natural gas………..”
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Brinker opined that the fact that we import 12 million barrels of oil a day – much of it from countries that hate us, is undermining the United States. He repeated his recommended energy policy plans that he believes would help the United States to become energy independent. (Honeybee EC: I have posted Brinker's energy plan in previous Summaries.)
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The calls in the second hour were almost exclusively about GNMA’s, banking and FDIC insurance. Most of Brinker’s replies were just repeats of what he had said in the first hour. One caller was worried that there might be more bank closings than the FDIC could cover. Brinker simply said that in his opinion, “….the FDIC will live up to its agreements."
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Sunday, Brinker commented that he thinks that the FDIC may have difficulty paying off all of the claims based on the insurance premiums that they are collecting from the FDIC membership. He said that there is a possibility that the FDIC will have to get money from the Federal coffers -- the taxpayers. (FDIC website list of failed banks.)
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Sunday caller Helen in Peoria said: "Bob, thank you for the program. Would you also tell me your phone number for your two newsletters. You have only two, right?"
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Brinker replied: "Uhhhh...for the Marketimer letter the number is 1.800.700.xxxx, in answer to your question. You can also get information online at Bob Brinker dot com.".
Helen asked: "And the income, the bonds, you have another letter?".
Brinker replied: "You will see a logo at Bob Brinker dot com which would connect to that as well.".
Honeybee EC: Why does Bob Brinker refuse to tell the Moneytalk audience that his son, Robert M. Brinker, is the publisher and editor of the so-called "bond" newsletter that several callers have asked him about -- and is often advertised on Moneytalk with only the name "Brinker" -- which gives the impression that it is the talk show host's newsletter? Why be so deceptive?
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The newsletter that Brinker's son and daughter-in-law edit, publish and allow their famous father to promote on his radio program is, in my opinion, very inferior to the Retirement Advisor -- and the Retirement Advisor is advertised in an honest manner. Get a free sample issue.
Brinker's Saturday guest speaker was Andrew Yarrow, author of: Forgive Us Our Debts: The Intergeneration Dangers of Fiscal Irresponsibility
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Brinker's Sunday guest speaker was Christopher Helman, who wrote an article for Forbes.com: Inside T. Boone Pickens' Brain ("T. Boone Pickens gets a brain scan, and we tag along to find out how a billionaire really thinks").
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