Honeybee's Editorial Comment: Bob Brinker didn't host Moneytalk last week, but the week before, he said the stock market had been "undergoing a correction in recent sessions." Brinker has repeatedly predicted that 2009 will be a "significantly positive" year for the stock market. That has not changed.FIXED INCOME RATES....Brinker said: ".....exceedingly low as the Federal Reserve continues its policy of holding down rates."
IMPLIED INFLATION RATE... Brinker said: "If you take the 10-year Treasury Note yield of 3.42 and compare it to the 10-year Treasury Inflation Protected base rate of 1.25, you get a difference between those two of 2.17. And that difference is the implied inflation rate over the next ten years. The annual implied inflation rate according to the Treasury market itself......In the long-term....the difference is 2.4%."
TREASURY DEBT SOAKED UP....Brinker said: "Held to maturity date, you are taking no risk to principal and you will collect interest.....There's enough money out there today..... including foreign sovereign investors like China, Japan, India...in order to soak this up."
ECONOMY....Brinker continued: "One of the reasons this demand is out there is because the economy has been soft. Even with the rebound we saw, the preliminary announcement of a 3 1/2 % real GDP number for the third quarter -- that will be revised -- but it's expected to remain in positive territory."
FEDERAL RESERVE UNPRECEDENTED LIQUIDITY.....Brinker continued: "But even with that, the economy has been lackluster, and as a consequence, there is money floating around out there. Tremendous liquidity has been created as a result of Federal Reserve policy over the past five quarters -- unprecedented liquidity that's been created. And so all of that contributes to that [Treasury purchases] demand."
CPI....Brinker said: "If you look at the year-over-year CPI right now, it's slightly negative.... And it will go positive, I can guarantee you it will go positive as we move into 2010. But right now, on a year-over-year basis, it's still reflecting the fallout from the Lehman Brothers bankruptcy and the credit market freeze up of late 2008....."
INFLATION....Brinker said: "I think an annual rate of inflation of 3.06 would not even be the end of the world....You're talking about the headline CPI number, and the Fed doesn't even talk much about that. They talk about the core number, and the core tolerance level is 1 to 2. Right now it's right in the middle -- it's around 1 1/2. But the core inflation rate, excluding food and energy which are so volatile, that's the one they focus on and that one is right in the middle right now......But when you move away from that and just base your calculation on the last six months, that gives you annual rate of inflation of 3.06.....
.....My opinion is inflation is going to stay low....I'm not one that is predicting right now that we have to look for hyper-inflation, runaway freight train inflation. I don't see that on the horizon right now. My inclination is that we are going to see inflation rates remain reasonably low going forward. We will see how all that plays out with Fed policy, with the economy and all the rest of it.....
......Are there inflation risks out there down the road? Absolutely. We've talked about that. There are definitely down the road inflation risks out there if things turn out a certain way.....Those who have been predicting a big jump in inflation right here have been disappointed because it has not materialized. And right now, I don't see anything on the horizon that's going to give us a hyper-inflation scenario......But we certainly can see year-over-year inflation move back into positive territory as we move into 2010."
GLASS STEAGALL ACT.... Brinker said: "The lobbyist in Wall Street are working overtime to prevent the resurrection of the Glass Steagall Act in the investment business....ten years ago this month, then President Clinton made the biggest mistake of his eight years in the White house when he signed the repeal of the Glass Steagall Act into law......it only took several years and Wall Street dismantled, imploded -- and Glass Steagall was the heart of that implosion. It was created in the 1930's......"
CITIGROUP CEO AND PAUL VOLCKER....Brinker said: "I was interested in the past couple of weeks when I saw the comments, albeit way too late to do any good, from the former CEO of Citigroup, who now agrees with me, as I agree with Paul Volcker. And I was delighted to see Paul Volcker come aboard this recently..... And that is, that John S. Reed, the former Citigroup CEO has apologized for his role in creating Citigroup in the 1990's. And he says that lawmakers were wrong when they repealed Glass Steagall Act.....even though it is way too late for Citigroup. He's right to say this and I liked his analogy. He compared the repeal of the Act to the separation created on a ship with a compartments so that a single leak does not sink the entire vessel -- and the analogy is a good one." Later in the program, Brinker commented that Paul Volcker was the "best Fed Chair in 50 years."
Honeybee EC: Mr. Brinker, ever hear of the Titanic? It also had compartments and was unsinkable. There are those out there who disagree with you that the repeal of Glass Steagall caused the meltdown.GNMA (VFIIX).... Brinker commented that this fund has had an outstanding return in price action but the yield is down to about 3.25% now. Brinker said: "There is no question in my mind that you will continue to see volatility and movement in the price in a Ginnie Mae Fund over periods of time. Now if you've been a Moneytalk listener, you are aware that in my opinion, that fund makes it highs in the 10's, first two digits being 10 and the fraction. And I think that the risk can be contained in the 9's, which would be $9 and a fraction per share. Right now it's trading at $10.84, which is a record high, so its been very strong."
GNMA [VFIIX] CALL * Caller Bill from Virginia Beach asked: "I've read recently that at the end of March 2010 the Federal Government is going to stop the program of direct buying of mortgage backed securities. If this is true what kind of impact does that mean for Ginnie Mae Bond Funds."
Brinker replied: "Well we shall see....I think you have to expect, for a variety of reasons including potential economic activity, potential changes in rates going forward, potential changes in Fed policy over a period of time. I think you have to accept what I have said all along. When the Ginnie Maes are strong, they'll be trading in the 10's.....when they are weak, they'll be trading in the 9's....In a balanced portfolio, 50% in the stock market, 50% in quality bonds, that would be 100%. Out of that 100%, I would be easily comfortable with having a 20% weighting in something like the Vanguard Ginnie Mae Fund."
* Caller Betsy from Chicago said that her father had left her a $450,000 Charitable Remainder Trust and her son $50,000. The son's terminates in 20 years. She said they were both to receive the total income from their trusts or 6% annually, whichever was smaller. At her death the trust passes to an (unnamed) Foundation. She wanted advice on how to invest in the trusts.
Brinker immediately started asking her very personal questions and found out that her father had left $5 Million to (the unnamed) Foundation. Brinker said that unless his math was fuzzy, 90% of her father's money went directly to the Foundation, and he wanted to know how she felt about that.
Betsy said that she felt "hurt, betrayed, and angry." She said "He was not a good father, he was not a good grandfather and these are just little remnants that he left us reluctantly."
Brinker asked about her relationship with her father. Betsy told him that she could count on one hand the number of times her father had seen her 28 year old son. (Betsy's phone went dead here.)
Brinker immediately assumed that with only this much information, he could make a judgment call on this family and said that he understood "perfectly" why she feels "hurt, betrayed and angry."
He pointed out that she would be getting $27,000 annual income at most and should try to get as much income from the investments in the trust as possible. He advised her to put the money into a diversified portfolio of corporate bonds because that will get her close to the 6% yield that is the maximum she's allowed.
Brinker said that he thinks it is important for Moneytalk listeners to "hear what goes on out there" and that it will benefit from. He cautioned that 'You have to think long and hard when you put your will together" and advised that if you don't have a will, the state has already written one for you.
Honeybee EC: Two things come to my mind. Firstly, parents are not obligated to give anything to their children if they don't want to. Why would Brinker assume that he has the right to criticize a dead man (like the daughter did)? And second, why would Brinker assume that the father didn't do exactly what he wanted with his own money and that he might have had what he considered valid reasons for doing it. Brinker knows nothing about Betsy and how she handles money, and he certainly knows nothing about her son.* Caller Chuck in Illinois said: "It's a great honor to talk to you. I'm a very happy subscriber to your Fixed Income Advisor....." Brinker replied: "Let me say the honor is all ours to have you on the broadcast. What's on your mind?"
Oh, and thirdly, $27,000 a year isn't $5 million, but it sure "ain't" chopped liver either when it's just given to you because you happened to be born to someone with money..... Brinker wasn't satisfied with this criticism of Betsy's deceased father, he brought it up again with his guest-speaker.....Mr. Brinker, are you aware that your heroes, Bill Gates and Warren Buffett, are not leaving the lion's share of their wealth to their children?
Honeybee EC: That would have been a perfect opportunity for Brinker to have been forthright about the Fixed Income Advisor. He could have explained that his son and his son's wife publish that newsletter and are the editors of it -- not him. At least he used the word "ours" -- or maybe he just had a mouse in his pocket.Today, Brinker talked about his recommended reading list and said: "If you don't want to buy the books, that's okay because they should be in any library worth its name. You should be able to go in, check the books out and read them on your schedule."
Honeybee EC: Bob Brinker's Marketimer used to be available in libraries, but no longer. Right after the disastrous QQQQ trade of October 2000, he had them pulled from the shelves of most libraries and will no longer allows libraries to subscribe to Marketimer.Brinker's Saturday guest-speaker was Jim Lebanthal. "Lebanthal on Munis"Straight Talk About Tax-Free Municipal Bonds for the Troubled Investor Deciding "Yes or No!"
Brinker's Sunday guest-speaker was Leander Kahney. "Inside Steve's Brain: Expanded Edition."
UPDATE
In the second hour on Saturday, Brinker did a political monologue. Here are his comments paraphrased:
In the second hour on Saturday, Brinker did a political monologue. Here are his comments paraphrased:
..... I (Brinker) don't know if anybody in Washington listens when "we" talk about the budget deficit and returning to fiscal responsibility......After all, Moneytalk is carried on WMAL in Washington DC..... There was an Associated Press story this weekend saying the Obama administration is considering a domestic spending freeze and possibly 5% budget cuts...... One of the ways this can happen is for them to get a handle on spending......
......It's no coincidence that this is being done in an election year....This is something that would be done in the 2011 budget -- made available in February of an election year..... It's not surprising.....the focus groups are probably getting back to Washington that voters are fed up with the runaway, reckless spending that has been authorized by this congress and its predecessors -- going back to earlier part of this decade.....
......China, the largest foreign holder of Treasury Securities (over $800 billion), has been vocal about expressing concern over the size of U.S. debt.....The president is visiting China as part of his Asian swing....We'll see where it all leads -- there are a few months before this will be shown to the public....I (Brinker) would be the first to applaud Congress and the White House if they would take steps toward getting fiscal responsibility......
Honeybee EC: I listened to the program on Sunday, but didn't hear anything that I thought was worth reporting in detail. Brinker did a run-down on economic calendar for next week. There is a link to that information in the right column of this blog under "Items of Interest to Investors."
There was more political talk. Brinker talked at length about big-spending again and made certain that he included the Bush administration in his dialogue by focusing on the Medicare Drug Plan -- like he has done so many times before. Brinker would do well to get informed on the drastic increase in spending in this past year under the Obama administration -- it is THREE TIMES MORE and climbing [LINK]
Honey's Market Report:
* Dow closed at 10,270.47, gaining 2.5% for the week. Last week it gained 2.3%.
* Nasdaq Composite Index closed at 2167.88, gaining 2.6% for the week. Last week it gained 3.3%.
* S&P 500 Index closed at 1093.48, gaining 2.3% for the week. Last week it gained 3.2%.
* GLD reached an all-time-high this week and closed at $109.74. Last week it closed at $107.43 and the week before that at $102.53
* Treasury Bond rates, TIPS, munis [LINK],
* Fed Funds, Mortgage, CD rates [LINK]
* Daily Treasury Statement [LINK]
From Marketwatch: "U.S. stocks recorded another weekly gain as investors warmed to M&A activity, better-than-expected corporate earnings, a big run up in the price of gold and some lukewarm economic data."Moneytalk programs are available free "on demand" at KGO810 radio for seven days after broadcast. You can download and save Bob Brinker's Moneytalk programs (owned by ABC) and listen whenever you choose at no cost whatsoever. To download the programs, just choose the day, then right click on the hour that you want and use "Save Link as." KGO Moneytalk Archives [Link] If you want to call KGO and complain about or praise Bob Brinker's Moneytalk, here are the numbers: Comments line: 415-216-1052....Listener services: 415-216-1050. Here is the KGO email address -- cut-and-paste it into your email compose window: kgofeedback@yahoo.com
This photo is from SJ_Al. This one is Alcatraz Island (foreground), Treasure Island, the new east section of the Bay Bridge and downtown Oakland in the background. Please click on photo to enlarge:
