July 15, 2012, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

July 15, 2012...Bob Brinker hosted Moneytalk today.................(comments welcome)

STOCK MARKET.....Brinker said: "The S&P 500 is at 1357, and that's a total return so far this year of 9.7%, and that's well and good. We're glad to see it....In fact, it's totally excellent in a zero interest rate world.....There certainly has been value in this stock market. Investors have recognized that value and that is one of the reason you've seen a 9% in the total rate of return this year."

Brinker told caller Dave from New York that he is still recommending dollar-cost-averaging new money, preferably during periods of weakness -- but he doesn't  think that prices are "at bargain basement prices" right now.

Honey EC: Brinker's latest S&P 500 target range is "upper-1400s to lower 1500s" by May of 2013.

ECONOMY.....Brinker said: "We've been talking ad nauseam on the program about the slow growth in the economy. The first quarter Real Growth Domestic Product annual number, 1.9%.....When you take a look at the long-term trend growth of GDP....adjusted for inflation, you see that the long-term trend is 2.7%.....Right now, I'd say you're looking at a slow growth economy as far as the eye can see.....My target range for real GDP this year is 1.5 to 2.5....all below long-term trend growth."

NO RAPID GROWTH.....Brinker said: "I think that people out there talking about rapid growth, accelerating growth, high growth are smoking something. I have no idea what it is, but it's not good for your mental health."

NO RECESSION....Brinker said: "There are many people out there who are pessimistic about the economy.....They fall into two camps. They fall into the camp of economists who are pessimistic because the work they do tells them they should be pessimistic.....Another category which I think should be completely disregarded....which is the political."

JOBLESS CLAIMS.....Brinker said: "This past week, the Department Labor report showed that initial jobless claims dropped 24,000 from the prior week, and they a now at a four year low. That's the best reading in four years -- 350,000 -- the lower, the better on that number.....But the reality is, the jobs growth is below what it needs to be to get unemployment down......We have now been suffering below trend jobs growth for eleven years in the USA.....Right now the unemployment rate is at 8.2%."

AIRBUS BUILDING NEW FACTORY "IN THE SOUTH".....Brinker said: "We are delighted to see that Airbus has decided to build a new factory in the south. It's wonderful to see a foreign company build a major manufacturing facility here in the USA."

WORRY ABOUT INTEREST ON NATIONAL DEBT? Larry from Indiana asked Brinker when we should worry about  the United States being able to pay its national debt. Brinker replied: "An easy answer. You look at the interest rate that we have to pay on our sovereign debt....Because that tells you what investors around the world think of the quality of your sovereign debt....You know you have a problem when the interest rate on your sovereign debts starts to soar."

Honey EC: The National Debt is now very close to $16 trillion.

BRINKER ON CNBC COUNTLESS TIMES: When caller Ray from Illinois asked Brinker why he wasn't invited to make appearances on CNBC, Brinker replied: "Firstly, I've been on there countless times going all the way back to the 1980s. I don't know if you are aware of it or not, back sometime ago, I had my own broadcast on the Financial News Network. A thirty minute broadcast on Friday afternoon  and evening on the subject of investing and mutual funds. So in addition to guest appearances, I've had many opportunities to do that. You have to understand that the people who are on there, don't have an opportunity to talk to an audience on a regular basis as I do here on the Moneytalk broadcast.  So the places me in a unique position relative to that because I the opportunity to share my views on a regular basis on our broadcast.....As far as whether they confuse people or not, I think probably what you mean is they seem to feel that they have an obligation to put on a bull and a bear....I can see how people can get confused because they are on opposite ends of the spectrum."

BEWARE OF CALIFORNIA MUNIS -- GROWING CITY BANKRUPTCIES....Brinker said: "Let me remind you again, when you buy a general obligation of a place like San Bernardino or Vallejo, or any of these places, when they go bankrupt, your money is at risk. When you buy a general obligation of a city, county or municipality, make absolutely certain that you understand the finances, you understand the pension plan in that community because in a lot of these cases, these places are being dragged down by the overly generous public sector plans that they have promised to employees....There's nobody representing the taxpayer when a public sector union comes to the table, they pretty much get their way.  And that's what we are seeing now with bankruptcy filings in California from these domicile that have mismanaged their finances grossly....It's a sad story."

CALIFORNIA PUBLIC UNION EMPLOYEE PENSION SPENDING....."Brinker said: "In California, the pension spending has been growing 11.4% annual from 1999 to 2010. That's the kind of thing that will bankrupt any place.  Sooner or later, the time runs out.  The Stanford Institute issued that pension spending average....Pension costs in Stockton, California in 2002 were 12 million dollars. Now they're 30 million dollars and they are projected to double to 60 million over the next five years. Of course, Stockton has already filed for bankruptcy. So if you live in one of these communities that has come forth with generous pension plans and benefits for public sector workers, don't assume you are ever going to collect that money. The only way you do collect that money is if the taxpayers of that municipality are willing to pony up. I can pretty much tell you that the typical person who lives in a community, when they find out what these are, that they are going to move out. Now of course, that affects real estate values.....They are not going to pay public sector workers better benefits than they themselves receive in their own private sector jobs."

Honey EC: Brinker may not realize that this has been going on in California for a very long time -- those who work for private sector almost never get the cushy pensions and benefits of public union employees, including teachers and school janitors.

BAD TIME FOR NEW TAXES: When caller Allison from Carolina asked Brinker to talk about the expected tax increases ahead, Brinker replied: "Firstly let me say that it's a poor time to increase taxes, period. I would not be increase taxes in a slow growth  economic environment where jobs growth has also remained below trend."

TAX INCREASES COMING FOR MIDDLE-CLASS TAXPAYERS.....Brinker said: "We had a caller earlier in the hour talking about the healthcare reform tax additions that are going to be hitting. There are a number of areas where middle-class taxpayers, who were promised they would not see a tax increase. Flexible spending accounts are going to be capped at $2500. Prior to this law there was no limit....That's the amount set aside to pay medical expenses. That is a de facto tax increase on the middle class. Also starting next year, the medical deduction itemization bar is being raised to 10% of adjusted gross income, up from 7 1/2%.  That is a de facto tax increase on the middle class. Also the penalty on non-medical withdrawals from Health Savings Accounts is doubling from 10% to 20%.  That is a de facto tax increase on the middle class. How many politicians have promised no tax increase, only to do a 180 and hit the tax increase button? It's a long list going back many decades."

Honey EC: Yeah Bob. There have been some presidents who have gone back on their word not to raise taxes -- including the first George Bush and  Bill Clinton, but neither of them were "re-distribute the wealth" zealots like this one.

PRESIDENT'S RIDICULOUS PROPOSAL TO  INCREASE TAX ON DIVIDENDS.... Brinker said: "Democrats in the Senate this weekend are looking to set the top tax rate on dividends at 23.8%. That would be almost 20 percentage points lower than the ridiculous proposal of the president, which is to take the top tax rate on dividends to 43.4% federal. Then if you're in a place like California in the top bracket, you're at 54%. A lot of states, you'd be over 50%....I have no idea what the White House is thinking....After all, when you get a dividend from a corporation, that money has already been subject to the corporate income tax. Then the money is passed through in the form of dividends after it's passed through income tax filter. Then it's paid out to the shareholders. Then it's subject to tax again. Right now, it's subject to a maximum of 15%.....It's absolutely incredible to me that the president of the United States is willing to tax corporate dividends at 43.4% plus state taxes in the highest income taxes. I've never seen anything like that.....It's unbelievable."

CONGRESS HAS TO ACT OR EVERYBODY'S TAXES WILL GO UP IN JANUARY....Brinker said: "Congress has to do something, because if they don't do something, tax rates across the board -- everybody's tax rates -- will go up in January. In addition to that, tax rates will go up on capital gains, dividends, estate taxes. Of course we have the expiration of the 2% cut in the payroll tax at the end of the year. All the new health care taxes that are coming on, including the 90 basis point increase in the employee portion of the uncapped Medicare payroll tax on high earners. And including the 3.8% health care tax, so called Medicare tax on unearned income.  In addition to this, the Democrats are proposing a 3 1/2 million dollar per person exemption on the estate tax. It's $5.12 million right now....And they are also proposing a 45% tax rate compared to the current 35% tax rate. All have to be decided before year end.....Dividends have already been taxed."

FUNNY CALL OF THE DAY:  Chuck from Chicago had a  question about public officials working for two weeks and getting full pensions. Brinker replied:  "Chuck, here's the way I look at it. You're a Chicagoan. I am not a Chicagoan. I've been to Chicago, but I'm not a Chicagoan....I would never dare to try to teach a Chicagoan like you  anything about political corruption. You know much more that I do."

This week's Jeffchristie Moneytalk Final Exam Question:

Bob Brinker has mentioned that he thinks many local municipalities are headed for bankruptcy. The reason he gives for this is:

A) Costs incurred by illegal aliens.

B) Embezzlement by government officials.

C) Excessive union labor costs with high pension benefits.

D) Tax evasion by local residents.

Brinker's guest-speaker today was Brendon Moynihan:  Financial Origami: How the Wall Street Model Broke (Bloomberg)

READ AND POST COMMENTS