May 19, 2013, Bob Brinker's Moneytalk: Summary, Excerpts, Commentary and Discussion

May 19, 2013....Bob Brinker hosted Moneytalk today...... (comments welcome)

STOCK MARKET: Brinker reported that the stock market closed at another record all-time-high. He goes back 50 months to report that Friday's close represents a capital gain of 146% -- not counting the dividends.

Honey EC: Brinker misleads every time he arbitrarily goes back to the start of this bull market without mentioning the prior two years where he rode the market down over 57%.  And every time he brags about being fully invested like he did today, but fails to mention that he has been fully invested since 2003, he is misleading the audience by omission.

NAY-SAYERS AND ARMAGEDDON CROWD....Brinker said: "Isn't it ironic that these numbers have occurred with all the naysayers out there. You hear them every day pounding away at the USA, pounding away at the government. If the stock market has a total return of 155% over the past four years and two months, that tells you something about  the earning power of corporate America which is what ultimately dictates the level of the stock market.....When you consider the relentless naysaying that goes on every day and then you look at the stock market and you say....is this country as bad as those people are saying or are they wrong?  I think the answer is obvious myself."

Honey EC: Surprisingly, Brinker's guest speaker/author today would easily fit into Brinker's  "nay-sayers and Armageddon crowd. David Stockman did not credit Corporate earnings for the recent growth in the stock market. He credited Bernanke and said it would end disastrously. See FrankJ's summary of the third-hour interview HERE.

CPI (INFLATION) FOR PAST YEAR: "slid down to 1.1%...Inflation has fallen out of bed."

WHAT ABOUT BERNANKE'S $85 BILLION EACH MONTH?  There were  some callers who disagreed with Brinker's inflation numbers.  Jim in Omaha mentioned the $85 billion that Bernanke "prints" each month. Brinker seemed to take offense with Jim and argued him down by saying that Bernanke may "simply let securities mature" and that wouldn't create inflation. Brinker said he thought that Jim volunteered to be put in the "Armageddon crowd."

PPI (WHOLESALE PRICES): "....biggest decline in three years announced this past week....declined at an annual rate of 7.8%."

DOLLAR: "Had a really firm year. Doing quite well."

UNEMPLOYMENT: "Too high." 

GOLD BUGS IN ARMAGEDDON CROWD: Brinker said:  "I understand why the people who bet on gold are upset....Because the stock market is at an all-time-historic record high and they aren't in it. They are betting on Armageddon. Unfortunately, for the Armageddon Crowd, that includes gold. We know what happened to that."

Honey EC: We know how he quietly removed GLD from his off-the-books list of stocks and ETFs last month.  He recently bragged about having Microsoft on that list for over a decade, but nary a word about removing GLD after it's been dropping. Not nice, Mr. Most Trusted Financial Advisor. 

MORE GOLD SCHADENFREUDE...After the break, Brinker continued: "I understand there are listeners that are up to their ears in gold....They are getting creamed. They are miserable, they are unhappy. They open the financial pages and oh no, the Dow and S&P are at all-time-highs and here I am getting creamed in precious metals.....When you bet on Armegeddon and on runaway inflation and the collapse of the dollar, that a bet against the United States....It make sense that anybody who made that losing bet would be miserable."

Honey EC: Brinker is riding high now because the stock market is going up and gold is going down. When the market was going down and gold was going up, he wouldn't even mention the stock market and he tried to give the impression that he had recommended gold over the years. Which was simply not true. 

HIGH-YIELD BONDS FUNDS OR JUNK BONDS...Mark from Mountain View said he had done well over the past few years in Fidelity High-Yield Bond Fund, and asked if Brinker thought it was still attractive.

Brinker said: "I don't have a two year forecast on interest rates that I can share, but I can tell you that as far junk bonds are concerned. The yields on junk bonds for my taste are too low. So the reason that I am not interested at this time in investing in junk bonds is because the yields have come down so much that I don't the investor is being compensated for the credit risk in junk bonds....That is sufficient for me to say I don't want to be in junk bonds at this time."

Honey EC: I counted five times that Brinker used the words "junk bonds" in that paragraph.  Not one word about funds or "high-yield. It was a  subtle, but very clear way of disparaging high-yield funds by calling them "junk bonds." When he first added Vanguard High-Yield Fund to his fixed income portfolio in May 2009, when the topic came up, he carefully referred to them as high-yield funds. Now that he sold all Marketimer holdings in VWEHX, he is back to spitting out the words "junk bonds." 

Brinker sold VWEHX from Marketimer on October 9, 2012. At that time, the fund was selling for $6.05. Friday it closed at $6.21 -- and it is still paying a hefty monthly dividend (almost 6%). I still have mine and have done well with them. If the market rolls over and dies, that will be the time to sell high-yield bond funds. 

VANGUARD GINNIE MAE FUND (VFIIX)....Call Claude from Fortworth said he had about 55% of his portfolio in Ginnie Mae Funds. Brinker replied: "I think is way too much. We have allocations in Ginnie Maes ranging from 20 to 25% in a couple of our portfolios that include fixed income securities."

Honey EC: That would be exactly two (out of four) portfolios that Brinker has in Marketimer that include fixed income securities -- model portfolio III and his fixed income portfolio that is off-the-books and never contributes to his performance timing record on his website or with Mark Hulbert (Hulbert Financial Digest). 

IS SIDEWAYS MOVE CONSIDERED NEW MONEY?  Caller Scott from Chicago wanted to know if he should dollar-cost-average some money that is being moved from one tax-sheltered account to another one.

Brinker replied: "In the case of a sideways move, we don't consider that new money. New money is defined as cash that you come into in the form of cash. If you're already in the market in one portfolio  and then you decide to switch over to another portfolio....and it's all presumably at the same level  of risk in terms of the stock market, I regard that as a sideways move. And you do that as close to simultaneously as possible."

CALLERS ARE FOOLED TWICE....Caller Andrew from Sunnyvale said: "I heard you last month recommending TIPS. I think it was your Easter Sunday broadcast. Is that your current recommendation or was it...."

BRINKER'S BLUNDER OF THE DAY....Brinker emphatically replied: "IT WASN'T ME. IT WASN'T ME, ANDREW. I don't know what you were listening to. I have not recommended Treasury Inflation-Protected Securities in quite a while. In fact, we took profits on those securities in the model portfolios and eliminated them. And I'll tell you why, because they now have negative base rates in many of their maturities. So you lock in a negative return and you have to make it up on inflation. It's pretty hard to make it up on inflation when year-over-year consumer price inflation is 1.1%. For newly purchased TIPS, I think TIPS right now they are a lousy investment. I don't own 'em. I don't recommend them. And I have not for a long time and I do not now have them in any Marketimer portfolios.

Honey EC: Andrew was exactly right. Brinker did say that he recommended TIPS on Easter Sunday. What Andrew (and other callers) didn't know was that it was spliced re-runs of old calls and monologues that went back over two years. He sold all Marketimer TIPS in January 2011.

Jim spells it out for Brinker this afternoon after he heard Andrew's call:

Jim said...
Honey, could you tell me if I heard this call correctly? I think I just heard a caller named Andrew ask Bob about a recent recommendation to own TIPS.

Brinker's response: "That was not me!" explaining that he sold his TIPS long ago. I think Andrew actually heard a recent re-broadcast of an old Moneytalk program from years ago where he said he owns TIPS. I wondered if that old program would ever come back and "bite" Bob Brinker.If I am right then the only thing more I can say "Bob, it WAS you!"

May 19, 2013 at 3:15 PM

Honey here: You are absolutely right Jim.  And shame on Bob Brinker for not announcing when his programs are re-runs of or "the best of" like all other talk show hosts do so as not to mislead  audiences. 

 Jeffchristie's Moneytalk Final Exam Question of the Week:

Every week Bob says: "From the beaches of Waikiki to the shores of Block island sound...." Block island sound is off the coast of;

A) The land of critical mass.

B) Rhode Island.

C) La La land.

D) New York.

Answer:

Read FrankJ's fascinating summary of David Stockman's appearance on Moneytalk today: LINK

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May 19, 2013, Bob Brinker's Moneytalk: Summary of David Stockman Guest Interview

May 19, 2013....Bob Brinker hosted Moneytalk today. The third-hour guest-speaker was fascinating and surprising, but diametrically opposed to Brinker most of the time.  

Guest-writer, FrankJ has written a summary of the David Stockman interview:

David Stockman Interview, May 19 2013

Bob’s third hour guest today was David Stockman, author of the recently published book, The Great Deformation.  Stockman served in the Reagan administration, in Congress, and has worked on Wall Street.  

Bob’s commented on the length of the book, (700+ pages).  The guest warned him not to drop it.  Bob asked how long it took to write?   Stockman said the writing took 2 – 3 years, but it is also a product of his 40 years of experience and observations.    He went on with what ended up being a short speech that might have pre-empted a few of Bob’s questions.

The main points in his first answer were:

·       that we were heading for a calamity,

·       the Fed is out of control and printing money like never before, 

·       fiscal policy is on autopilot,

·       Washington has its head in the sand,

·       the economy is struggling and not performing for the middle class,

·       there is too much debt and too much government intervention.

Bob asked him what he would do as Fed Chairman?  Stockman said he would tell the public the truth about the near zero interest rates we have now, along with the massive bond buying by the Fed:  that they have NOT helped the mainstream economy, and they have NOT created growth and higher living standard.  Instead, the beneficiaries of these policies have been the richest 1%.   

“We need to get the Federal Reserve out of the financial system.” 
 

“Let Wall Street live or die on its own … no more bailouts…Wall Street is not going to control and drive central bank policy… the party is over … money printing is going to stop.”   This is the message he would bring if he was Fed chairman. 

Bob asked Mr. Stockman if he would have let Citigroup and Bank of America “go tap city?”

Stockman was emphatic in his answer, YES.  He was clear that by doing so the people who egged these firms on in taking outsized risks are the ones who would have been punished, meaning the shareholders and bondholders.   Depositors would have been protected by deposit insurance.   

He added we are in the process of doing it again – working our way to another meltdown which will be worse than 2008.

In answer to one of Bob’s questions, Stockman said we can’t solve these economic problems because the parties hold polar opposite positions.   The Republicans say we don’t need more revenue but their past performance is one of growing government and he cited some numbers in real terms for a period of 8 years when the Republicans were in power.  (He did not say which years.) 

The Democrats, he said, are “fibbing”  when they say we don’t have to reform Social Security and Medicare.  He mentioned “millions of affluent retirees getting $30,000 per month” from SS.   This was a mis-statement, I am sure he meant $30,000 per year.  

(Ed. Comment:  I wonder how closely Bob was listening because the “per month” phrase came through loud and clear.) 

He said these people need to be weaned off SS and Medicare or sharply cut back. 

Later, in response to a caller who said that someone with $1 million in fixed income isn’t making that much in annual income, Stockman said assets and income from all sources need to be used in his means test of Social Security.  He spent some time talking about the reactions of both parties to the recent proposal from the Executive branch to use a chained CPI in the SS system. 

Bob has referred often to what will happen when interest rates normalize – and he asked Stockman to comment.   The guest’s comment was that the current weighted average interest rate of 2% on federal debt is “freakishly low,” and if rates return to a more normal, historical level such as 5%, the amount of money needed just to service the debt will be on the order of $600 billion.  For a comparison, he said this is 8 times the Dept. of Education’s annual budget and 25 times the amount spent on health research of all sorts by the National Institute of Health. 

He went back to hammering on Bernanke and the Fed, saying the chairman allowed Congress to assume that debt is free and this allowed them to drift along with irresponsible spending.  He said this debt will explode sometime after Ben Bernanke has gone back to academia, or wherever he ends up. 

David Stockman criticized the Congress for the tax “deal” at the end of 2012.  He said the tax cuts should have expired across the board – both parties could have sat on their hands and done nothing because they were set to expire automatically.  Doing so would have made for a $4 trillion improvement in our deficit outlook over the next 10 years.  

Caller Franklin from Buffalo questioned the Constitutional legitimacy of the Federal Reserve.  Mr. Stockman’s answer was that the Fed is a “rogue central bank,” that has expanded its mandate far beyond its original authority.  It is micromanaging all interest rates: Treasury, corporate, mortgage.  It is propping up the stock market by holding interest rates down.  

Bob asked Mr. Stockman to comment on Ron Paul’s call to shut down the Fed and asked Stockman how one would manage monetary policy if you abolished the Open Market Committee? 

Stockman said the Fed should go back to a more passive role and just run the discount window, charging penalty interest rates to banks who come and present adequate commercial paper as collateral.   He seemed in favor of shutting down the Open Market Committee but not going all the way and abolishing the Fed.

Bob cited the two mandates of the Fed, price stability and low unemployment and bored in with another question:  if the Fed is abolished, how would price stability be maintained?  

Stockman disagreed with these mandates, pointing out that they are part of the Humphrey – Hawkins Act which he thinks should be repealed.  It does not set quantitative targets, yet Bernanke is striving for certain levels of inflation and unemployment.  This would end the Feds manipulation of the economy. 

The last question was what should people take away from the book? 

Stockman said the message is in the title, “Deformation.”  We have drifted into bad policy, there is too much crony capitalism, we don’t have free market prosperity, we don’t have an honest democracy, we have a money-driven system where the central bank is captive to Wall Street and Congress is auctioned off to the highest bidder.  

Honey here: WOW, WOW, WOW...Stockman refuted everything Brinker's been saying about the Federal Reserve, Bernanke and what is fueling this stock market. 

If you missed this great guest appearance, and want to hear it, it should be archived in the 3-4pm time slot at KSFO: 

 
San Francisco, Ca. KSFO 560: 1-4pm (KSFO archives Moneytalk Free on Demand for seven days after broadcast. You can download and listen on the go.)  

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