July 17, 2011, Bob Brinker's Moneytalk: Summary, Excerpts, Commentary and Discussion

July 17, 2011.....Bob Brinker hosted Moneytalk today.

(Brinker's comments summarized, paraphrased or excerpted)

STOCK MARKET:  The S&P 500 year-to-date is up around 6%.  Brinker said: "When you consider what interest rates are, short-term rates, not too shabby. We had a couple of minor pullbacks this year. Back in March.....we had a  6 1/2% pullback there. In the May, June period we had a 7% pullback.....So far,  the market has shown a tremendous amount of resilience."

IS BRINKER RECOMMENDING SELLING EQUITIES?   Caller Lon from Oregon said he was fully invested following Brinker's  Marketimer newsletter. Lon asked: "Given this debt ceiling crisis and what I see as a potential stock market drop for who knows how long, should we move that money into money market accounts for a little while?"  

Brinker replied:  "We had this same question two weeks ago when the S&P was around 1270. And now the debt ceiling debate has heated up dramatically in the last two weeks and the S&P is up to 1316. Showing a total return year-to-date of close to  6%.  So I will repeat what I said to that caller at 1270, asked virtually identical question....I said to that caller, you need to be prepared, if you do that,  to re-enter the market at a higher level. Now if that caller re-entered today, he would be re-entering about 46 S&P  500 points higher than he exited the market two weeks ago....I have not exited the market until I see a resolution of the debt ceiling issue because I already know....what's going to happen.....I'll clue you in. They are going to raise the debt ceiling......With or without a short-term government shut down. On that issue, take your pick. They just did it in Minnesota......"

Honey EC:  The call that Brinker referred to was actually on June 26th. Here is the link to my Summary of that program and  Brinker's answer to caller-David

GNMA, VANGUARD GINNIE MAE FUND (VFIIX):  Caller Mike from Colorado praised Brinker for recommending  GNMA's and raved about how he loves to see the money show up in his account.   Brinker said:  "As much as I'd love to take credit for this, I'm much too modest, but I did recommend them.....Actually to give you a little background on that, we've had Ginnie Mae holdings in our model portfolios in my investment letter for many, many years."

Honey EC:  After all the friendly banter, what Brinker did not tell Mike was that he has lowered his model portfolio Ginnie Mae weightings a couple of times. The last time was in January 2011. The model portfolios that he mentioned are model portfolio III,  which is now down to only a 20% weighting in Vanguard Ginnie Mae Fund.  And his off-the-books "income portfolio" only has a 15% weighting. He increased the risk greatly in both those portfolios when he sold the Ginnie Maes and bought Vanguard High Yield Fund and Wellesley Income fund.

 RAISE TAX ON HIGH EARNERS OKAY WITH BRINKER:  Brinker said: "I think if they raise tax on the middle class, it would be bad news for the economy....I think if they take the top rate from 35 to 39.6, I would not expect that to have a dramatic impact on the economy because in order to get into the 35% bracket, you have to be a high earner. And if you're a high earner, you should be a  net saver. And if you're a net saver, you shouldn't have to cut back on your expenditures in order to deal with the higher bracket.  So my opinion is, raising the rates on the middle-class would be a very bad idea. I would vote against it.  Raising the top bracket, I don't really care."

DEBT CEILING "BRUHAHA"....Brinker said:   "....going on in Washington, the debt ceiling bruhaha.... The debt ceiling must be raised with or without a short-term, stage-produced government shut-down and that's because the country cannot afford to go into default. If you wonder why,  $14.4 trillion in national debt, annual Treasury sales of way over a trillion dollars.   The country cannot afford to go into default on its Treasuries obligations."

GOVERNMENT COFFERS RUN DRY IN AUGUST....Brinker said: "We also know that in the month of August, the Treasury Secretary is saying that August 2nd is the date the coffers will run dry......It looks the Treasury is about 134 billion dollars short of what they need in order to pay the bills and the interest on the national debt,  just in the month of August. I'm calculating about 173 billion dollars for several items that are considered essential. Interest on the national debt about 29 billion, checks for recipients of Social Security in the month of August, about 49 billion dollars, Medicare and Medicaid expenses in August, about 50 billion dollars. In addition to that, Defense Department about 32 billion dollars, and Unemployment Insurance benefits about 13 billion. All of that adds up to about 173 billion dollars. And the problem is, it's about 134 billion dollars short of what is needed. Even if all of that is paid, it would still leave unpaid bills. For example, all of those on active military duty......they would not be paid in the month of August. Veterans....would not be paid. The FBI would not be paid. All other federal programs and the court system would not be paid....." 

IF INTEREST ON NATIONAL DEBT IS NOT PAID.... Brinker has said for several weeks now that if the interest on the national debt is not paid, the country will officially go into default and will no longer be able to justify having a triple-A rating. 

GOVERNMENT BORROWING... Brinker  pointed out  that we are now borrowing about 40 cents on every dollar we spend - a "horrible" situation. 

SOCIAL SECURITY TRUST FUND DOESN'T EXIST....Brinker said: "Here's the way that Social Security is paid out. First, money pours in every single week from the payroll tax.....When the benefits exceed that cash flow, the Treasury has to raise the money. You know they don't have any money. They're in the red......They sell Treasuries (IOUs) to raise the money to pay for the checks..... That's the way that Social Security  works, and it's unfortunate that so many people are under the illusion that there's a trust fund out there with piles of money in it waiting to get paid out. That's not the case.....The money has been spent."

GDP AS PERCENTAGE OF NATIONAL DEBT: Brinker said that the total sovereign debt as a percentage of Gross Domestic Product is now about 70%....the danger level come in  at about  90%.

BULLY-PULPIT POLITICS...Brinker said: "I see that there are some so-called presidential candidates out there stomping in Iowa, and they are calling for the US government not to raise the debt ceiling. And of course, this is the height of folly, the height of irresponsibility.....So if you hear a so-called presidential candidate telling you  we don't need to raise the debt ceiling,  you can cross that one right off your list. That's a person who's not qualified to run the country. That we know.....No serious person would ever endorse a policy that would lead to a US Treasury default." 

DIVIDING CALIFORNIA IN HALF:  Brinker said he thought splitting California into two states would make it more "manageable."   But instead of dividing it into North and South California, he suggested  dividing it  lengthwise, turning it into Eastern and Western California. He said he would choose the coastal half.

Honey EC: LOL!  Yes, Bob...the coastal half is very nice. You're welcome to join us. All you have to do is be willing to pay all the additional state taxes, sales taxes, etc. that you don't pay in Nevada -- just  for the privilege of living in California.

DEFICIT ACCUMULATION:  Caller Rick from Hartford tried to blame the  current huge deficits on Dick Cheney, Ronald Reagan and George Bush. He claimed that 90% of the deficits are the fault of George Bush --  between 2000 - 2008.  Brinker said, "Now Rick, that talking point you just shared with us is false. Look at the figures for  2009, 10 and 11 and you will be shocked......It's  not because of the interest. Interest rates are reasonable now because of the low rates. It's because of the tremendous amount of money that the Federal Government has expended over the last three years....."

Honey EC:  LOL! Brinker told the caller to check his talking points several times....The caller was factually wrong as Brinker pointed out.   (The caller was also ignorant if he thinks George Bush was president in 2000.)  According to Bill O'Reilly, the National Debt was $5.7 trillion when George Bush took office and $10.6 trillion when he left office. It is now almost $14.5 trillion. 

2012 ELECTION ISSUE: Caller David from Chicago asked Brinker why more people aren't concerned about "what's going on out there."  Brinker blamed it on inertia and lack of interest.  Brinker said:  "I really like the  idea of keeping this on the front page and getting this into the general election next year because I think this is the perfect topic for a general election in 2012. Which direction is the United States going to go in terms of how it balances its revenues with its expenses.....And we have to get the deficit down. I'm very conservative on fiscal affairs. I always have been.....I think it will be a great subject to bring to the voters in 2012. Let's elect a whole House of Representatives on this issue, and the president on this issue, and 1/3 of the Senate on this issue. I wish we could elect the whole Senate on this issue."

Bob Brinker quote of the day: "Anybody that listens to this broadcast knows that I don't ever want to be vain. It's not in my nature to be vain."

Brinker's guest-speaker was Diana B. Henriques: "The Wizard of Lies: Bernie Madoff and the Death of Trust"

Honey EC: Interesting comment by Diana Henriques. She said that Madoff investors may get back as much as 50-cents on the dollar of their investments.

Moneytalk on demand and to go 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.) If you don't download it from KGO within seven day, it's available at bobbrinker.com by paid subscription. KGO Radio Sunday Archives

Jenny's Bird of Paradise. First time in bloom. Click to enlarge:

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