Bob Brinker's comments are paraphrased, excerpted or summarized
US DOLLAR.....Brinker reassured caller Olan from NY, that the US dollar was just fine and would remain the world currency because it is superior to all other world currencies.
INFLATION....Headline number for 2010 - 1.5% counting all items "despite the fact that energy prices are up." Brinker said: "You cannot get runaway inflation by simply having higher energy prices. You need the whole basket to rise enough to make higher inflation numbers an issue and you don't have that here."
INTEREST RATES..."Extremely low."
STOCK MARKET....Bob Brinker said: "The S&P Index now sitting in at another new recovery high here in 2011. And it's higher than it ever traded in 2010. And it's higher than it ever traded in 2009. The S&P at 1293, actually with a 3% total return year-to-date in 2011.....This on the heels of a 15% total return in 2010, and a total return in 2009 in excess of 25%.....This market has been doing some serious bidding on the upside since the recession in 2008......"
Honey EC: First, let me say that no doubt all stock market investors are happy campers. But I'm sure that the Brinker's are especially happy because their subscribers are recouping money that they lost following Brinker's newsletter advice over the past three years.
Even with the huge gains in 2009-2010, Brinker's two equity model portfolios are still below where they were at the all-time-high in 2007 -- because Brinker's "timing model" did not see the 2008 (to March 2009) recession or stock market crash coming.
POSSIBLE SINGLE-DIGIT STOCK MARKET CORRECTION....Brinker said: "Are there going to be short-term corrections in here? Of course there are. It's my guess that there are going to be single-digit corrections. That's my best guess right here. That if we get corrections in this market, and we're talking about a market that's been horrendously strong as it's reached its new recovery high in the S&P at 1293. But we're certainly in a position where we could easily see short-term corrections in this market because it's always been that way. There's nothing new about this. But my personal view would be that they would be single-digit corrections based on what I'm seeing."
MUNICIPAL BONDS....Brinker recommends limiting holdings to 1% of net worth. Brinker said: "My salute goes out to the governor to the State of New Jersey, Chris Christie who had the good sense to simply come out and say it.....What he said is 'healthcare spending will bankrupt the State of New Jersey unless workers pay more for medical coverage.' What do you think the chances are that state employees are going to volunteer to pay more for their medical coverage?......California, Illinois, New York, New Jersey and so many others have this problem......
.....We need somebody in California to stand up to a microphone and say that if the government in Sacramento continues to do what it's doing the State of California will be insolvent. We need someone to tell that to the people of California because there is no money in Washington to bail these people out. Because the Senate leader has spoken, that's Mitch McConnell, the Republican Senator from Kentucky said it. He said there's not going to be any government bailout for the states, and the cities, and the counties and the municipalities......If the taxpayers start re-locating into states and municipalities that don't have this problem, then what happens?"
MUNICIPAL BOND SELLING ALREADY BEGUN....Brinker said: "I think we are already seeing selling in municipal bonds because we can see it in the price level of the bonds, and yield levels. We're already seeing selling and I think that is coming from credibility problems and concerns about insolvency......"
HIGH-YIELD BOND FUNDS.....Brinker continued: "The irony here is that people are looking at corporate high-yield bonds today.... That have lousy ratings, by definition. They're looking at them in the form of a high-yield bond fund....And they've been doing very, very nicely. Very nicely indeed. And they have these generous yields, yes they're taxable....They have this firm net-asset-value trends.....And this is an irony: they have higher value in the market today in the minds of many investors when compared to higher rated municipals like states where the underlying securities are under selling pressure....People are losing confidence in state governments."
Honey EC: Brinker exclusively recommends Vanguard High-Yield Bond Fund (VWEHX). I also own the SPDR High-Yield ETF (JNK). The advantage an ETF has over a mutual fund is that it can be bought and sold throughout the day like a stock. Whereas, a mutual fund always transacts at the closing price on the day of the purchase or sale. On the other hand, there may be an advantage to having a fund manager rather than an index of these bonds.
NO MUNI-FUNDS IN MARKETIMER....Brinker said: "I have no recommendation in my investment letter, and I have not had for a long, long time any recommendation in my investment letter to tell subscribers put their money into municipal bond funds.....The kind of investments we have in the investment letter, for the most part, are very high quality with the exception of an allocation we've had to high-yield bonds that have done very, very well, by the way....."
Honey EC: Brinker's Marketimer (off-the-books) fixed-income portfolio contains about 25% Vanguard High-Yield Fund (VWEHX). As per what he said last Sunday, he has now sold all TIPS and remains very short-term in the other Vanguard bond funds. However, be aware that even though he calls this a fixed-income portfolio, the newly added Vanguard Wellesley Fund (VWINX) contains about 1/3 equities.
CALIFORNIA'S BUDGET GAP.....Brinker explained to caller Robert from Fresno that California has the worst budget gap in the United States: One year at $25-28 billion = 21.3%, the difference between money coming in and money going out. The second largest is Arizona at 17.8%.
Brinker said: "Quite alarming..... The states, the municipalities have made these deals with the worker unions. And they basically have given away benefits that they can't afford. These benefits might be in the form of pensions. They might be in the form of health care benefits. They might be in the form of other perks......Now they are in an embarrassing position where they have to go back to the taxpayers in their domicile, and they have to ask the taxpayers to pony up. And I think a lot of the taxpayers are going to look at this obligation and say, you know something, I think I'll go over here where I don't have this problem. Because I think a lot of the taxpayers will say I did not negotiate these give-away programs. I think a lot of the taxpayers will say I had nothing to do with this. It was your incompetence that created this problem.....I'm outta here."
NEW ILLINOIS STATE INCOME TAX INCREASE....new tax rate is now 5%, which is a 2% increase that completely wipes out the 2% payroll tax cut that the government put in for 2011.
Caller John from Walnut Creek said he thought that raising the debt ceiling would not install confidence in ANY of the markets. Brinker told him that considering the alternative, he thought it would be applauded because if they do not raise the debt ceiling, the US government "will shut down, turn out the lights and lock the doors."
Caller Don from San Mateo told Brinker that he was a long-time Marketimer subscriber and had listened to Brinker "religiously" but was getting very nervous about holding $2 million in California tax-free bonds -- 40% of his net worth. Brinker told Don that he was "making a really, really big bet - a tremendous wager."
Honey EC: One has to chuckle at someone so devoted to Brinker that he would spend $185 per year and listen "religiously" to Moneytalk but then do exactly the opposite of what Brinker has been recommending for some time now: Be wary of California bonds!
Brinker told Don: "Now I have small investment on a percentage basis in general obligations of the State of California. But I'm protected because the state pre-refunded my bonds. That means my bonds are backed by United States Treasury Securities that were purchased with the proceeds of a later sale by the state to back up my bonds.....But if you own general obligations of California that have not been pre-refunded, then you really are making a loan to Sacramento. How do you feel about that?"
Caller Paul from Alabama said that the fact is the government has been bailing out states (like Alabama) for years and that McConnell might end up eating his words.
Brinker told Paul that he had personally heard what McConnell said and saw no reason to doubt his word. Then Brinker said: "Let me just say something. I don't like to quote the right-reverend Wright, but in this case, it may be appropriate, 'The chickens may be coming home to roost.'"
Honey EC: Brinker cavalierly quoted a man who not only preached G-d damn America, but preaches hatred for Israel, racism against white people, and has accused the United States of multiple atrocities and heinous crimes. Brinker could have used that very old metaphor about "chickens coming home to roost" without assigning Jeremiah Wright an oh-so clever title and inserting him into the conversation. Here is what Wright actually said: ".....the stuff we have done overseas is now brought right back to our own front yards. America's chickens are coming home to roost..."
Mr. Brinker, you said you don't like to quote him, so why did you? You used that same metaphor twice more during the program without attributing it to Wright. You know he did not invent it. My mother was always saying that, but she sure didn't say it to damn America. She used it to teach honesty, decency and truthfulness. Be anything less than that, and in her book, your "chickens would eventually come home to roost."
MODEL PORTFOLIO III....Brinker said: "Now the model III porfolio that you heard Mary refer to, that is a portfolio that has two types of assets in it at this time. It has stock market assets in the form of no-load mutual funds, and it also has a fixed-income component and so the two work together in a balanced portfolio. So that really matches up with Mary's profile where she says she's nearing retirement. We've talked about it many times."
1/3 - 2/3 EQUALS BALANCED PORTFOLIO....Brinker said, "My opinion is that in a balanced portfolio that you can range from 1/3 to 2/3rds in the equity market. That would also depend on age.....I could see a situation where I could look at a balanced portfolio and I could say in this situation I might want to have 1/3 in equities and 2/3 in fixed income. I could also see a situation where I would say the opposite....That could have to do with market outlooks, with market levels, with bond market levels as well. All of those factors could come into play. And certainly on top of that, you could bring in the age of the investor, the risk tolerance and circumstances of the investor."
Most amusing call of the day
Caller Bob from Chicago, a brave soul, was definitely annoyed at Brinker's repeated comments that there is no inflation, so he challenged him on it. He asked Brinker when was the last he was ever in a store and bought hamburger meat.
Brinker emphatically told Bob from Chicago that he didn't eat hamburger meat, but he was in a grocery store to make purchases just "two days ago." Brinker said: "When it comes to inflation, I certainly don't go on what I'm going to put in the market basket myself. What I want to do when I'm looking at inflation is look at as many numbers that I can find that are based on a broad basket of consumer purchases. Now there are two figures that I rely on heavily that happen to be the same figures the Federal Reserve watches when they monitor inflation. And those are the Personal Consumption Expenditures Index and the Consumer Price Index. Now when those two indexes are close together, for me, they have a high degree of credibility."
Bob from Chicago said he did not believe the numbers because he thinks prices have tripled. Then Bob from Chicago really stuck his neck out (LOL). He asked Brinker when was the last time he went to a gas pump and put gas in his car himself.
Brinker said: "Bob, you talk to me like I lead the life of some kind of a prince or king.....I go to the market, I pump my own gas every single time. So I think it's demeaning for you to talk to me like I'm some kind of king or prince. It's total fabrication on your part. If you knew the truth about me, which you don't, you would laugh. If you knew the truth about the fact that I drive a car that's 14 years old, you would laugh and say no that's not true. If you knew the truth of the fact that I really enjoy dressing down, as opposed to dressing up, you'd say, oh no, you dress like royalty. But it would be complete fabrication on your part....but we can agree to disagree....You think food prices have tripled in the past year, I think they're hardly changed at all. But I'm not going to call you any names for that. I'll leave that to you."
Honey EC: Based on Brinker's attire at his Class of 1959 fifty-year reunion, I'd certainly agree he likes to dress down. There's a picture of Brinker at the reunion here [LINK]
As for Brinker's other "truths":
... KGO: Moneytalk, it's Downloadable
Brinker's guest speaker was Bethany McClean:
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I am confused Mr. Brinker. You say you drive a car that is 14 years old. I though you said that you drive a Prius on several occasions right here on Moneytalk. The prius first went on sale in the United States in the year 2000. I do agree with you that you "dress down' based on the recent picture that was posted here from your high school reunion. I don't think you are a king or a prince but I do think you are a wealthy and successful business man. I suspect your adjusted gross income on last years form 1040 is a 7 or 8 figure number.
January 17, 2011 7:38 AM