June 5, 2011, Bob Brinker's Moneytalk: Summary, Commentary and Excerpts

 Posted June 5, 2011........................................................[Post or read comments]

Bob Brinker hosted Moneytalk today.  Two weeks ago, when Brinker was last on  the air, he was hyping  Andrew Ross Sorkin's book, "Too Big to Fail" and the HBO movie, "Too Big to Fail,"  which aired on May 23rd.  Surprisingly, Brinker did not mention the movie on the program today.

Honey EC: I for one, was very disappointed that Brinker did not say what he thought about the movie after having hyped it for several weeks. I saw the movie and so have several others. Most of us think that it was very well done and educational -- with a great cast. Wonder if there was something in it that Brinker did not approve of -- like the fact that it clearly showed that every effort was made to save Lehman Brothers, but that  it was simply not possible.

Brinker's comments summarized, paraphrased or excerpted: 

STOCK MARKET....No "Ground Hog Day" today.....Brinker made no mention of the stock market and did not recite the closing numbers.   Stocks have  been down every week  for the last five weeks.  The Dow  was down 2.3% for the week;  S&P 500 Index was down 2.3%;  Nasdaq down 2.2%.   The Dow has had its longest weekly decline since 2004 and the S&P has had the biggest 5 week decline since 2002.

Honey EC: ==> As of the  June 4, 2011, Marketimer,  Brinker's model portfolios continue to be  fully invested and he still  recommends dollar-cost-averaging new money into the market.  Brinker forecasts  "...new recovery highs in the S&P 500 Index 1400s range as part of the ongoing cyclical bull market trend." 

MAY UNEMPLOYMENT REPORT.... Brinker said  that private payroll rose by 83,000,  and government jobs continued to shrink, losing 29,000.  Net non-farm payroll was 52,000.  The national unemployment rate is 9.1%.

Brinker recited unemployment by racial  demographics: White = 8.0%;  Black = 16.2%;  Hispanic = 11.9%;  Asian = 7.0%;  Teens 16-19 years = 24.2%.  

Brinker recited unemployment educational demographics: College graduate = 4.5%; some college = 8.0%; high school = 9.5%; less than high school = 14.7%.

 BLAME COMMODITY FUTURES MODERNIZATION ACT OF 2000 FOR LOSS OF 8 MILLION JOBS... Brinker said:  "I think if you had to put something at the top of the list of the culprits that brought about the loss of 8 millions jobs, back there in 2008-2009 when the economy went into free fall, you would have to put it at the top of your list.  Because this diabolical legislation, and we all know we have the best government money can buy, and that's why Washington policians vote on these ridiculous policies that they come up with. Policies like doing away with Glass Steagall legislation at the end of 1999, a bi-partisan effort, of course. And so was the Commodity Futures Modernization Act of 2000. ......Bill Clinton....the Maestro.....the former Fed Chair. This was the act that deregulating derivatives....and credit default swaps.....I contend both parties are messing up the country...In effect the Federal government created legalized gambling on Wall Street in the form of derivatives and credit default swaps....

There was no meaningful reserve established for the paying for the credit default swap  insurance contracts.....When the credit markets collapsed, which happened instantly when Lehman went under in mid-September of '08......The inevitable happened, the government had to step into the black hole which was called AIG, and provide the money.  Otherwise the counter-party risk spreading across the financial system would have taken it down......It cost the taxpayers over 100,000 billion dollars to bail out AIG.....AIG was deemed to big to fail because it had its insurance tentacles all over the globe....

So even though in March of -08, the Federal Reserve had stepped in with its 29 billion dollar de facto backstop of the J.P. Morgan takeover.....agreed to take over Bear Stearns which was under extreme duress.....on the terms that were agreed upon, which were that Bear Stearns first billion dollars in losses would be eaten by J.P. Morgan....a lead pipe cinch....call it the cost of the takeover. But the next 29 billion was backstopped by the Federal Reserve.....Then we got to September and Lehman Brothers was unable to put together anything and they were gone in mid-September of 2008....

And almost immediately the AIG, within hours, problem became front and center.....Then people realized, whoa.....look at these Lehman books, there are almost no reserves... All this money has to be paid out as all these companies go belly up. And AIG did not have the money. And taxpayers had to step up.....And in the process, they made firms like Goldman Sachs whole at a 100 cents on the dollar, believe it or not.....So what we had here is casino capitalism. I'm all for capitalism, not for casino capitalism on Wall Street, no way....Of course, Wall Street lobbied for this legislation, they paid for it.....And as  happened with the Glass Steagall situation, it was a bi-partisan effort to change the law.

But they really had to push on this deal. They had to go the extra mile to push the states from regulating the derivatives and the credit default swaps.They had to grant immunity from the state gambling laws. With an almost unbelievable foundation for what was to follow within not that many years later, and I think it's a big piece of the puzzle."  

Honey EC: Here is a June 3, 2011 Bloomberg article that says,  "Lehman May Never Face Court Reckoning as SEC Enforcers Lean Toward Rebuke."  

Also from Bloomberg, what are they preparing for?   Volcker Named to Panel That Will Advise on Too-Big-to-Fail   "Former Federal Reserve Chairman Paul Volcker and former Citigroup Inc. (C) co-chairman John Reed have been named to a Federal Deposit Insurance Corp. panel that will help the agency map strategy for unwinding too-big-to-fail financial firms when they collapse."

WILL THE GOVERNMENT MAKE BUDGET  CUTS OR KEEP PRINTING MONEY....  Brinker commented that he is waiting to see some  evidence of  Washington  getting serious about balancing expenditures with revenues -- at least within 3% of Gross Domestic Product  instead of the  9 and 10% that there is  right now.  It's  a real national disgrace.  There's been lots of demagoguery, but  no serious efforts.  

Brinker said:  "If they don't get serious about moving toward a balanced budget, in the long term, then we do run the risk that they could print their way out.....They would inflate their way out. And the way you print your way out of a major debt problem is you let inflation run high and that reduces the real cost of what you have to repay because you are paying it back in inflated dollars. And obviously, that also reduces the value of everybody's money in terms of what you can buy.....It's a 100% chance they are going to print more money because they have to accommodate Gross Domestic Product expansion. If they don't, the economy will go into a nose-dive.....The question is, will they do it responsibly and I think the jury is out."

HOW TO BUY GOLD....Caller John from St. Louis said he is  worried  about the dollar possibly losing much  of its value,  and that he had contacted a gold dealer because he is  thinking of  moving half of his model portfolio III holdings into gold coins.  Now the gold coin dealer is pressuring him to buy.    Brinker  responded by quoting from "Mack the Knife,"   Bobby Darin's old  song:   "When the shark bites with his teeth dear, scarlet billows start to spread."    Brinker told John that  he had warned against buying numismatic coins many times on the program.   Because of the mark ups, coins  may be worth half what is paid for them.  Brinker recommends GLD for those who want to own gold for a hedge.

GOVERNMENT COULD INTERFERE WITH GOLD AND SILVER MARKET....Caller Jack from San Diego said buyers should beware when it comes to buying gold and silver because the government could interfere  as they have done in the past  and that could dramatically change values.   For example, the margin requirements were changed on silver future contracts  recently and silver collapsed about 30% in a week.  Jack also  pointed out that since the  Federal Reserve alone decides when to print money,  they will make  the decision whether or not to print our way out of this debt problem.    He also said pointed out  that the Federal Reserve makes profits.  Brinker commented that the Fed has  to turn all  profits over to the US Treasury every year and  then  he ended the call.

SHOULD INVESTORS WORRY ABOUT MONEY MARKET FUNDS....Caller Ron asked Brinker if one should worry about money funds. Brinker replied that he thinks one should "worry about everything" and that only a fool doesn't worry.  He then explained that  money market funds are short-term portfolios of Treasuries, commercial paper and bank deposits.  It's   always  best to deal with quality companies -- such as Schwab or Fidelity. 

WHOLE LIFE INSURANCE POLICY.....Caller Ted from San Jose said that his in-laws invested in whole life insurance policies to save for his two kids college educations. He  asked Brinker what he thought of that method of investing. Brinker responded that it was not a method he would recommend "even for his worst enemy,"  however,  it would make a life insurance salesman really happy.  He recommended paying an hourly fee to a Certified Public Accountant to find out how to shut it down.

BI-PARTISAN EFFORT TO SELL U.S. DOWN THE RIVER...Caller Andy from Redwood City said he agreed with Brinker's monologue about the Commodity Futures Modernization Act.  Brinker said:  "I know I'm correct.....This is what drives me nuts, so many people out there are missing the point I made earlier. This is a bi-partisan effort to sell the United States down the river. It's not one party or the other. It's both of them." 

Andy continued: "They are both against us. Phil Graham,  Robert Rubin, Bill Clinton  and Alan Greenspan did us in."  Brinker replied: "There you go, you have two Democrats and two Republicans right there." 

OIL AND GASOLINE PRICES....Brinker said:  "I'm completely opposed to any manipulation whatsoever in the commodities market..... I get upset when oil goes to $115 a barrel, as it did a few weeks ago and people yell manipulation. But then it goes back down to $100 a barrel, where it is now and nobody says they manipulated the price down. It has to be a two-way street....Let me say this.....it has been amazing to see oil come off its speculative $115 very recent high and come back down to $100 and see pump prices go down so little." 

WHO (OR WHAT)  COULD GET HIT WITH NEW TAXES?   Caller Mark in Carson City wanted to know if the internet was getting a free ride on taxes and  then asked about taxes on stock transactions.   After pointing out that the internet had been around since Al Gore invented it,  Brinker said:  "I don't think that the financial markets would celebrate any new tax on transactions.....But everything is at risk. We are running annual deficits of 1 1/2 trillion. I can't believe I just said that.....Mind boggling numbers. That's how the national debt get over 14 trillion so quickly.....There's such a massive gap between expenditures and revenues that nothing would surprise me. It would not surprise me to see tax on high-earners, if you see on transactions on Wall Street, if somebody decides to tax internet activity because the level of dysfunctionality in Washington has never been this high."  

BIGGEST POLITICAL NEWS FOR THE MONTH OF JUNE....Brinker said: "The big news for  the month of June, this is laughable, is that President Obama and Speaker Boehner are going to play golf on June 18th. I mean they must be laughing at us all over the world right now. Who cares whether they play golf? How about getting the green eye shade down and getting to work? It's comical." 

Brinker's third-hour guest-speaker was Michael Hirsh,  "Capital Offense: How Washington's Wise Men Turned America's Future Over to Wall Street"

Moneytalk on demand  with Bob Brinker, is available for FREE audio/podcasting at KGO810 radio for seven days after broadcast. I download and save all three hours, including the third hour guest-speaker. (The program is archived in the 1-4pm time-slots.)    Bob Brinker also offers it by paid subscription at  bobbrinker.com  -   free for seven day archives at   KGO Radio Sunday Archives  

SteveT did a photographic study of "the Bench." Here is one  of his great shots:

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