Bob Brinker's Live Appearance in San Jose, CA

DanG "commented" that he had attended Bob Brinker's live appearance at the KGO leukemia Cure-a-thon in San Francisco. Bob Brinker made another appearance the next day in San Jose at the Fairmont Hotel.

David Korn asked his subscriber, Peter, to write a "summary, interpretation and commentary" of Brinker's San Jose appearance.

When I told Dan that I had a copy of David Korn's summary of the San Jose event, Dan said that he would like to read it, so I will share it with everyone here. It's fascinating to read what Brinker was saying in 2005 with the perspective of hindsight -- which of course, is perfect. 8^)

The following are excerpts from David's March 12-13, 2005 newsletter. David wrote all of the Editorial Comments:

Excerpt from David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.

March 12-13, 2005 Weekend Newsletter

BOB BRINKER

Bob spent a busy weekend in California. In addition to his radio gig, he was the featured speaker for the KGO Radio Cure-a-Thon for Leukemia and Lymphoma Society. On Saturday, he spoke at the Geary Theater in San Francisco and on Sunday, he was at the Fairmont in San Jose.

I am pleased to be able to provide my subscribers with a summary, interpretation and commentary of Bob's charity appearance in San Jose, courtesy of my long-term subscriber, Peter. From my experience, Bob has always been more candid about his market thoughts at these charity appearances, and they make for good outings. This one is no exception!

Bob Brinker's Charity Event Appearance in San Jose, California

Guest Editor: Peter

Editorial Comments ("EC") by David Korn

Peter: I attended Bob Brinker's live appearance at the Fairmont Hotel in San Jose, California on Sunday, March 13, 2005. The Fairmont donated their serves and space for the event which benefits the KGO Radio Cure-A-Thon. I estimate that there were about 1,000 people in the audience. If I had to guess, I would say the average age was 45-55 years old, with about half men and half women. The event lasted from 9:30 a.m. until 10:45 a.m. Bob was introduced by Michael Finney who is a consumer reporter for KGO Radio and TV.

EC: At the San Francisco event, KGO Morning News Anchor Ed Baxter introduced Bob. Both the San Francisco and San Jose events were sold out -- a testament to Bob's popularity in the California area.

Peter: Michael asked Bob some "canned" questions. Those questions and Bob's answers, as best as I can recall are below.

Question #1: What are the root causes of a Bear Market?

Answer to #1: Bob said he discussed this in his February, 2005 Marketimer newsletter. The root causes of a bear market include: (1) Tight Money; (2) Rising Inflation; (3) Rapid Economic Growth; (4) Overvaluation; and, (5) Rising Rates. Overall, Bob doesn't see a bear market on the horizon yet. Bob said he believes short term interest rates should rise to 3% in May or June. Bob said "overvaluation" is a pre-conditioner for a bear market. He said when he last talked in March 2000 in San Francisco, he was very uncomfortable because had forecast the bear market. BOB SAID HE BELIEVES THE S&P 500 WILL GO INTO THE HIGH 1200s THROUGH THIS YEAR. He said Alan Greenspan doesn't like long-term rates staying low. Although we are seeing higher gas prices, these are anti-inflationary because it takes money out of the pockets of consumers.

EC: This is the first time I have heard Bob make a specific prediction that the S&P 500 will go into the high 1200s this year. Its not surprising in and of itself given his belief on corporate earnings. Currently, the S&P 500 stands at 1200. If you go by Bob's estimates for corporate earnings, and juxtapose it against the valuations that the market has historically afforded stocks in periods of low inflation, the high 1200s is doable. This prediction supports Bob's current belief that the cyclical bull market has some legs, even though the "easy" money has been made -- a prediction that he has recently reiterated on air.

EC#2: With respect to Valuation, Bob has maintained his estimate that S&P 500 operating earnings for 2005 will be $69. Using $69 as an estimate, that would translate into a forward P/E ratio of 17.39. In periods of low inflation and steady economic growth, the market can sustain a valuation metric of 18-19. Bottom line One of the primary root causes of bear markets is not yet in place, and one of Bob's timing model indicators (Valuation) remains in favorable territory.

Peter: Bob then discussed what he looks at in his stock market timing model. He looks at (1) Economic Cycles; (2) Monetary Policy; (3) Valuation; and, (4) Sentiment. Bob said with respect to Monetary Policy, the Fed doesn't want to "rock the boat" by raising rates too much for fear of homeowners being unable to make their monthly mortgage payments. Bob said there is currently no problem with the Valuation Indicator (EC: see above) and that Sentiment is exciting to watch, especially the 60-day moving average of the put-call ratio. Currently, that stands at 0.82 which is a bullish indicator.

EC: I updated all of the sentiment data that I believe Bob follows in his model. The 60-day put/call moving average is actually up to 0.84 which is better as far as Bob's timing model is concerned as it indicates even more fear then when Bob last checked it. I suspect he got the number of 0.82 based on last Monday's close which is when Bob conducts the weekly update of his timing model.

EC#2: Another of Bob's favorite sentiment data points is the Investor's Intelligence Survey. According to that survey, the number of bullish advisors rose from 54.7% last week, to 55.7% in the latest reading. The number of bearish advisors declined from 22.1% last week to 21.6% this week. Using the formula [(bulls)/(bulls + bears)], the sentiment ratio is 72.05%. Bob uses the four-week moving average which is 71.91%.

Peter: Bob told the audience that even though he thinks the market will go higher this year, he still believes that we may have corrections of 10% or more.

EC: For the benefit of my new subscribers, my study of the other cyclical bull markets during the 1966-1982 secular bear market shows that the largest corrections came in the range of 10%-16%. It bears noting that we haven't had a 10% correction in a long time.

Question #2: What are some threats to the stock market?

Answer to #2: Bob said oil, fiscal policy, and an overheating economy pose threats to the market. Bob said he doesn't know where oil prices are going. Fiscal policy is out of control. With respect to the economy, Bob said to watch the employment report released in April closely. If that number "explodes" it will not be a good thing because of the impact it will have on inflation.

EC: The employment report for March will be released on April 1, 2005. As Bob noted, the employment report is crucial to get a gauge on the economy. Its not just the number of jobs, but also wage trends and wage inflation. If wage inflation threatens, you can bet interest rates will rise, and bonds (and often stocks) will decline.

EC#2: Another obvious threat is a terrorist attack on U.S. soil. That would likely have a tremendous negative impact on the stock market, depending upon the scope of the attack.

Question #3: Bob was asked to discuss his views on market volatility.

Answer to #2: Bob started off by mentioning the QQQ trade. The audience exploded into laughter and he admitted it was a BIG mistake and it would never happen again. He said he looked for a counter trend rally in a bear market and it didn't work. He said he wishes he had put a stop-loss on that recommendation and he takes the blame for the mistake. He also said he took a lot of heat for his January 2000 call to go to cash. One tech stock holder was very upset when the market continued to rise, but he didn't hear anything from him again after March 2000. Bob said on March 10, 2003, he and his son were up all night when everything fell into place for his call to reenter the market.

EC: Its refreshing to hear Bob discuss his mistake in a public forum. I have long criticized Bob for not addressing his mistake on the radio, and discussing what went wrong and why he made the decisions he did and how he learned from those mistakes. I have also criticized Bob for only publicizing his good recommendations, while ignoring his bad recommendations like the QQQ.

EC#2: I have elaborated in detail in my newsletter the things that I believe fell into place on March 10, 2003, which led to Bob deciding to reenter the market. Most importantly, it was a 90% down day in the market -- a timing tool that I am 100 percent convinced Bob relies on. Second, it occurred on a Monday, when Bob updated his timing model. Finally, the market was back into the area of the lows as measured by the S&P 500. Bob obviously felt that it was a good level from a risk/reward standpoint to go back into the market.

Question #3: Bob was asked to discuss his views on the real estate market.

Answer to #2: Bob said 23% of today's home purchases are by investors or people buying 2nd or 3rd houses and he is fielding many more radio calls regarding real estate than ever before. He mentioned a couple who bought two condos on speculation in Florida and flipped them before moving in. Bob advised his audience to avoid speculation. In addition, Bob said adjustable rate mortgages are a fool's bet. Lenders want you to take an adjustable rate mortgage. Fuggetabout it. Go with a fixed rate, which aren't that much higher.

EC: Bob discussed the housing market again on the radio this weekend. Clearly, the speculation in the real estate market is starting to disturb Bob. It already has the attention of Alan Greenspan, who knows that if rates start moving up fast, the housing market -- and particularly individuals who are leveraged on adjustable rate mortgages -- could be in serious trouble.

Question #4: Bob was asked what he thought about Alan Greenspan.

Answer to #2: Bob said Alan Greenspan is a "huge" role model.

EC: Does that mean Bob updates his timing model in the bathtub like Alan Greenspan reviews the economic data?

Peter: After the pre-prepared questions, Bob went on to take questions from the audience. Those that had questions were required to fill them out on a 5" by 8" card with their name, city and question and submitted them before the show began.

Audience Question #1: Where do you see the S&P 500 in 2005 and in 2006?

Brinker's Response: Bob said he will follow his indicators. Bob said he believes we are in a secular bear market megatrend, which can last as long as 20 years. As of now, there are no caution lights and things look ok and will grind to the upside.

EC: Bob's comment that there are "no caution lights" comports with my view of his timing model, although inflation can change the outlook very rapidly. That is why the employment report is so important. I also concur with Bob's phrasing that the market will "grind" to the upside. I interpret that is the same view I hold; namely, that gains will be hard fought.

Audience Question #2: What will impact interest rates over the next five years?

Brinker's Response: Bob said he only predicts rates out to 12 months and that economic growth sets the rates. Rates look okay right now, and the GNMA Fund, for example, has been trading in a narrow range.

EC: Bob has recently said that he expects the yield on the 10-year treasury to trade between 4% and 5% for the time being.

Audience Question #3: Why is the Nasdaq under performing and will it improve?

Brinker's Response: Bob said its because the Nasdaq has a higher beta and more volatility than the S&P 500. The underlying trend is very important and the Nasdaq is only 43 points higher than it was about 14 months ago. BOB SAID HE MAY DIVERSIFY HIS MODEL PORTFOLIOS IN THE NEAR FUTURE.

EC: VERY Interesting. Bob's aggressive Model Portfolio is weighted pretty heavily in technology. Perhaps Bob will sell off some of the technology for cash, or put it in something like the total stock market index. Not a bad idea given the run the Nasdaq has had.

Audience Question #4: Who will be your successor?

Brinker's Response: Bob said he only makes 12 month contracts with ABC Radio and does not know the answer and that is why he only takes 12 month subscriptions to his newsletter, but he has been doing both for 20 years.

EC: I can think of a GREAT successor. :)

Peter: Bob then picked up the next card and said, "CRAIG IS ON THE LINE". He blew it (it wasn't an intended joke), and the audience initially cracked up and then applauded when Bob said it shows that he doesn't have a life!

Audience Question #5: How do you get a family member interested in investing in the stock market with limited funds?

Brinker's Response: Bob said he would start by opening a Vanguard Prime Money Market Fund and build from there.

EC: I don't know that Bob really answered the question, which is how to get someone "interested" in investing. Opening a money market account is not a bad idea as it will keep your money safe until you learn what to do and Vanguard is as good a place as any to have a retirement portfolio. If you wanted someone to get interested in stocks, who had very little money, you might have them start with a service that allows you to buy stocks for a very small amount per transaction. One such company is Sharebuilder which allows you to start buying stocks at just $4 per investment.

EC#2: Another way to invest in stocks without paying commissions is through what are called "Drips." Drips is actually a nickname for the acronym DRP which stands for Dividend Reinvestment Plan. A related concept are the Direct Stock Purchase Plans (DSPs). These plans are offered typically by blue-chip companies where you can invest small amounts of money by purchasing stock directly from the companies.

Audience Question #6: Why won't Schwab sell the Meredian Fund that you recommend in your Marketimer newsletter?

Brinker's Response: Bob blamed it on the state of Nebraska which has a conflict with the fund manager, so if Schwab can't sell it in all 50 states, they won't offer you the ability to trade it. Bob added that you can purchase it directly from the fund family.

EC: I think this question was referring to the Meridian Growth Fund (ticker: MERDX) which is a no load fund that Bob has recommended. The fund has an impressive record, having outperformed the S&P 500 for 1, 5 and 10-year periods. The primary objective of the fund is to seek long-term growth of capital by investing primarily in growth stocks, including those with small and medium sized market value. Richard F. Aster, Jr. has done a find job of managing the fund since its inception in August, 1984.

Audience Question #7: What could cause bonds to go down?

Brinker's Response: Bob said to watch the employment report that comes out in April. If we get 500,000 new jobs, interest rates will go up, and bond prices will go down.

Audience Question #8: What can you do if you lost tons of money in your brokerage account?

Brinker's Response: Bob said there is probably an arbitration clause in the contract and that he should take advantage of it.

EC: The question from the audience actually named Merrill Lynch specifically, but Bob's advice applies to any account. Of course, if the mistakes were your own, don't expect too much. On the other hand, if your broker made an unauthorized trade without your permission, you might have something. The Securities and Exchange Commission has created a web site entitled, "Fast Answers" which addresses many of the questions and concerns encountered by individual investors. Check it out at this link:

http://www.sec.gov/answers.shtml

Audience Question #9: How do you apply one of the model portfolios to a 401(k) plan at work?

Brinker's Response: Bob said to use the Active/Passive portfolio (90% total stock market and 10% international).

EC: I actually think Bob's Active/Passive model portfolio makes the most sense if you strictly want to follow Bob's market timing efforts, and avoid the hit-or-miss performance Bob has had with his selection of managed mutual fund.

Audience Question #10: How many people are on your staff?

Brinker's Response: Bob said he has written every newsletter himself from day one. He does have an office manager and staff in Colorado and many "suits" in New York.

EC: I think Bob also frequently consults with Sheldon Jacobs (editor of the No-Load Fund Investor Newsletter), who he partnered with in the former "B.J. Group" of which Bob Brinker and Sheldon Jacobs were principles. Since July 2000, Bob has partnered with GE Private Asset Management.

Audience Question #11: Do you see the Northern California real estate market continuing to increase? Bob said he relies on a person from the University of California Berkeley who says there is higher vulnerability at higher prices and that there is a 15-25% risk level in Northern California. Bob added that in Silicon Valley, many of the principal producers in the world reside and that is not going to change -- it is an intellectual trophy location of the world.

EC: I suspect Bob relies on Ken Rosen, an expert in real estate and chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley. Rosen was interviewed, along with two other "experts" in a San Francisco Chronicle article entitled, "On the Record: Bay Area real estate".......

Peter: That was about all she wrote.

EC: Thanks very much Peter! I hope you enjoyed this exercise as much as I did. I think it provided a lot of insight about daBrink and his views that you would not ordinarily get on your typical Moneytalk radio broadcast. ___David Korn

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