August 5, 2012, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

August 5, 2012.... Bob Brinker hosted Moneytalk today...........(comments welcome)


STOCK MARKET....Brinker did not mention the stock market today.

EMPLOYMENT NUMBERS.....Brinker comments: Came in at 8.3% -- just too high. Underemployment, including part-timers that want full-time and those who have given up altogether, is 15%. Nobody has won  re-election to White House when unemployment was above 7.2%.

AIG....Brinker comments:  AIG is selling stock this weekend  that is priced at $30.50 a share. The seller, through the Treasury, is the American taxpayer. The sale on money will include a $3 billion buy-back from AIG, leaving $2 billion for the marketplace. After this deal is complete on Monday, taxpayers will still own 55% of AIG.

FACEBOOK FIASCO CONTINUES.....Brinker comments: The stock dropped again this week...down about 44.5%. What a fiasco that $38 IPO price was.

INCREASED MONETARY SUPPLY AND LIQUIDITY....Brinker said: "They (the Federal Reserve) increased the monetary base by an enormous amount during all the monetary stimulus programs they were doing. And as a result, with the usual lag time, it has now started to feed back into the monetary aggregate.  So we are seeing a very high rate of growth in the monetary aggregate. From a liquidity standpoint, I'd say they've done everything they possibly could to stimulate the money supply and make sure there's plenty of money sloshing around out there." 

THE US DOLLAR....Brinker said: "The dollar has been on a bit of a roll. I think it has surprised a lot who thought it could only  go down. It's held together reasonably well.... People have been running out of the Euro to buy the Danish Krone at a negative interest rate....But remember we have very low inflation. That helps protect the value of the currency."

BEN BERNANKE AMERICAN HERO....Brinker said: "I would call congress a ship of fools on the subject of monetary policy. But I think... is doing a very good job as Central Bank Chairman....As long as Ben Bernanke is there.....the Federal Reserve will be fine. Given the hand they were dealt, they have done an outstanding job."

WHAT IS THE FEDERAL FUNDS RATE...Brinker said: "The federal funds rate is the overnight rate that federal banks charge one another to borrow excess reserve so they can meet their reserve requirements."

KEYNESIAN ECONOMICS....Brinker said: "We don't practice Keynesian economics. We are about as far away from Keynesian economics as you  could possibly be." 

Honey EC: When all the bailouts first started in 2008, he was singing a different song. He said that was indeed Keynesian economics and he insisted that it was a good thing for the country.

NO INFLATION: Caller Otto from Illinois said he'd like to take Brinker grocery shopping with him and show him that food prices are going up. Brinker replied that he would rather not accompany him on a shopping trip because he would be doing his own shopping after the program.

HEADLINE AND CORE INFLATION RATES BOTH REPORTED...Brinker said: "You have the headline inflation number, which is very well contained. And then, you take out the food and energy because of the volatility in those sectors, and then you have core rate. So you have both rates." 

NATIONAL DISGRACE USING 40% OF CORN IN THE GAS TANK WITH ETHANOL.....Brinker said: "I have said many times on this program that you don't do that because you are messing with the food chain and eventually it will come and it will grab you.  And our dedication to using such a large percentage of our corn crop in ethanol is going to be one of the reasons that this drought is going to be really costly on the price of food."

HOW DO JUNK BONDS CORRELATE TO THE STOCK MARKET?  In answer to a question by Reggie from Terra Haute, Brinker said:  "The reason that there is some correlation between the performance of junk bonds -- high-yield bonds.... and the stock market.....For example, when earnings are increasing, a rising tide tends to lift all boats.....As a consequence when you have growing corporate earnings, as we do, then you have less pressure on corporate bankruptcies and less defaults in the junk bond market.....The lesser factor is rising rates.....For junk bond investors, it's been the perfect storm. You have improving corporate profits, improving liquidity and record low interest rates. It's been all systems go and that's the reason you've seen that fund go up 9% year-to-date." 

ANYONE KNOW WHICH "BOB" IS ON THE "MOTHER SHIP" AND WHERE IT IS DOCKED? BRINKER DID NOT SAY.

BOB ON THE MOTHER SHIP....Brinker said: "Alright, let's go out to the Mother Ship!  Bob you're on the line! What's up?"

Mother Ship Bob asked Brinker about the "design" of his income portfolio. 

Brinker explained that it was designed for those who are investing for income and very little interest in the stock market. Brinker said:  "Over 90% of  holding of that page 7 income portfolio are in fixed income securities.....We have about 10.6%  of that entire portfolio made up of  dividend paying stocks in one of the funds in the portfolio."

Mother Ship Bob asked Brinker if he would have any objection to using the Vanguard High-Yield Fund money in the income portfolio for the Doubleline Total Return Fund (DLTNX). 

Brinker replied:  "The reason I can't do that in the newsletter is because I already have an allocation to that fund in the newsletter, so it would be redundant for me to do it that way. However, keep in mind that that high-yield fund (VWEHX) remains open to anybody that has an existing position in the fund....That fund has done great. It has a total return this year of  9%, which is most excellent."

Honey EC: Brinker's "page 7" market timer income portfolio holdings include 25%  Vanguard High-Yield (VWEHX), Vanguard Wellesley Income Fund (VWINX) and 20% Doubleline (DLTNX).  

I've been very happy owning VWEHX since I bought in after the big drop in 2008 and clearly, it has beat the S&P 500 Index this year.  Brinker originally added the high-yield fund to his income portfolio in 2003 and like all of his portfolios, it remained fully invested during the 2008 mega bear market.  

VANGUARD HIGH-YIELD FUND....Brinker said: "In the interest of full disclosure, that is a fund that I am invested in because on an after tax basis, it's generating a very attractive yield for its duration. When you take a look at the duration, make up of the fund and the net yield on the fund after taxes. Then you make a decision on whether that is an investment you want to make."


Honey sez: "full disclosure"? Bull-puckey!


Brinker continued: "I've made a decision  a long time ago. Let's see I started putting money into that a couple of years ago, yeah, it was a couple of years ago, because it was in the low $5s, it's almost $6 now. It was in the low-$5 when I started to invest in it and I invested up to the mid-$5s. So aside from the outstanding net cash flow that the investment has produced, it is now producing capital gains, which I have not realized but it is there if at some point that is a decision to be made.....I would say that when it comes to high-yield junk bonds, that is something that I monitor very closely. So I'm making an ongoing decision, obviously in the context of the investment letter because that fund has been recommended in the investment for some time and it's done great....We've had that fund in our income portfolio invested in that fund and we've heard from a lot of happy campers that have included that in their income portfolio." 

Honey EC: Brinker says he bought this fund a couple of years ago int the low-$5s? Well his subscribers that bought it when he first recommended it in Marketimer paid $6 ($5.99) for it.   So once again we have an example of Brinker giving Marketimer subscribers recommendations that he doesn't take himself. 


He first added the Vanguard High-Yield Fund to Marketimer income portfolio in March 2003 at $5.99!!!!  It lost over 50% of its net asset value during the 2008-09 megabear market.  He never mentioned the fund on Moneytalk during that time, and I'm sure took no calls or emails about it either, because I received emails from terrified people here on the blog asking if they should sell or hold. 

So for Brinker, those capital gains look pretty good, for subscribers who took the roller-coaster ride and had to recover to even, not so many happy campers as he'd like you to believe. Perhaps he meant those new subscribers who have no way of knowing the true history unless they read this blog. 

This is the third time just recently that Brinker has given away the fact that he does not follow the advice that so many pay for in Marketimer.  

Item one: He owns no gold even though it's on his Marketimer recommended individual issues list. (See this summary)

Brinker said....Regarding how to buy gold, and I DON'T OWN GOLD, but for my money, there's only one way and that's the Exchange traded Fund.....the symbol is GLD. It is backed by gold bullion. And from my point of view, IF I WERE INTERESTED IN OWNING GOLD, that would be the only way that I would consider owning gold....I would never go to numismatic gold coins."

Item two: He owns Apple stock, but has never recommended it in Marketimer or on Moneytalk. (See this summary)

Brinker said: Right now, there's a  lot of excitement in the shares because the new IPad has been introduced.....and there's a lot of excitement .....around the new IPad.....You won't hear any complaints about Apple from me because Apple has been extremely good to me over the last decade or so....It's been a magnificent performer. It's a company that I'm invested in, and for the last ten years it's probably been the number one performer over that ten year period that I've owned.  As to when you make a decision to sell Apple? Well, I think that's a decision at some point will have to be made. But I think those who have stayed with it are very, very glad that they have stayed with it....." 

Item three: Now this week, we find out that, Brinker did not own Vanguard High-yield fund during the 2008 crash even though it was his income fund (on page 7) has a recommended 25% weighting. Anyone willing to take any bets that he was also out of the stock market during the 2008-2009 bear market -- the worst since the big depression. The one that he let his subscribers ride down fully invested while he called for all new money to be constantly invested at various levels or dollar-cost-average?

(This is a summary of the first hour of the program. I will post a summary of the second hour tomorrow.)


Brinker's guest-speaker today was David Wessel: Red Ink: Inside the High-Stakes Politics of the Federal Budget


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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