September 18, 2011, Bob Brinker's Moneytalk: Summary, Excerpts, Commentary and Discussion

September 18, 2011......................................(post and read comments)

Bob Brinker, sitting in the Catbird Seat with a Watermelon Smile, hosted the Starship Moneytalk today.

STOCK MARKET....Bob never talked about what's been happening in the stock market. And believe it or not, there was not one caller who asked what he thought about it.

RISKS OF VANGUARD WELLESLEY INCOME FUND....Caller Gary from Lousiana said that he had his emergency stash invested in Vanguard Wellesley and Franklin Income Funds and wanted to know what risks were involved with these funds.


Bob said: "Well you are certainly subject to some volatility, some fluctuation. In this case rising interest rates would be a factor and would not show up well in some of those funds. Obviously, the stock market would be helpful to those funds, as long as the stock market is doing alright. One thing I would ask you to do is check the expense ratio on that Franklin Income Fund. Expense ratio is a very important part of income investing. And we try to keep the expense ratio on our income portfolio recommendations as low as possible." 

Honey EC: Vanguard Wellesley Income Fund, which is part of Bob's Marketimer (officially off-the-books) Income Portfolio, has an expense ratio of  0.28%.  The Franklin Income Fund expense ration is 0.65%, plus a 12b-1 fee of 0.15% and a maximum initial sales charge of 4.25% -- ouch!  (Bob recently recommended the Double Line Total Return Fund which has an expense ratio of 0.74% and a 12b-1 fee of 0.25%.)

BRINKER'S CONSERVATIVE BALANCED-PORTFOLIO RECOMMENDATION....Caller Karen from Seattle said she is 78 years old and recently "got scared" into selling all of her Vanguard Ginnie Mae Fund.  Now, she is being advised by  a "no-load fund company"  to buy Vanguard Total Bond Fund and Vanguard Total International Stock Index.  She said they "even want me to sell Microsoft and put it in the Total International Stock Index." 

Bob told her that it was all about her asset allocation and tolerance for risk. He pointed out that there has been "tremendous volatility in the last several years in the stock market." Bob said: "I'd want to have a conservative balanced portfolio. My definition of conservative balanced would be 30% in the equity market, because you are getting a decent dividend income of close to 2%. And  the Total Stock Market Index because you have enough multinational in there where you're deriving a good chunk of the income from overseas. And the other 70% could be in income portfolio securities. But I think with rates  down where they are,  I think, in your case, a  fully insured (FDIC) Certificate of Deposit component in the portfolio, so  that you can see what's going to happen going forward. Cause rates are so low right now, on something like a Total Bond Market Index Fund, that to put all your money in there at this point, that would be questionable."

Honey EC: Bob gave Karen some  very good advice, but he completely blew off her question about Microsoft. Maybe because he recommended it over a  decade ago, and it did well for awhile, but for years now, it's been almost dead money.  He still has it, along with Vodafone, on his  (off-the-book) "individual issues" list -- but he never mentions either of them.

ECONOMY....Growing very slowly at  0.7%. Bob reminded listeners that his projection for 2011 is 1 to 2%.  Honey EC: So far, Bob has not sounded any recession alarm bells. Perhaps that is because he still has a fairly optimistic outlook for earnings going forward.

September 2011, Marketimer, Bob Brinker said: "We expect the S&P 500 Index to reach the low-to-mid 1400s range in  2012 in response to increasing corporate profits."

IRAQI DINAR....Caller Dennis from Indiana asked about the Iraqi Dinar. Bob said: "I have no interest in putting any money in the Iraqi Dinar. However, I will say this, there is word out that there are some scams related to getting people to put money into the Iraqi Dinar.....Beware."

UNEMPLOYMENT....There are 25 million people in the U.S. that are part of the 16.5% under-employment numbers -- a really big number.

HOW MANY DO NOT PAY INCOME TAX?  Rita from Los Gatos asked Bob who is it that actually pays most of the  federal income taxes and how many pay none at all. Bob said: "The majority of income tax are paid by high earners. And about 47% of Americans pay no income tax at all. They do pay the payroll tax....So it's fair to say close to half of Americans don't pay personal income tax, and it's very fair to say that the majority of personal income taxes are paid by those in the middle-to-high income brackets....."

SHOULD YOU TAKE SOCIAL SECURITY EARLY OR WAIT FOR FULL BENEFITS?  Caller John from New York asked Bob if he should take Social Security at 63 or wait until he is 66 when he would get 100%.  Bob told him that he should first look at his longevity-prospects,  even though it's difficult to project. And secondly, at his income needs.  Bob said, "If you think you will live into your 80's and if you don't need the money, it's okay to wait." 

"AMERICAN JOBS ACT"....Caller Jack from San Diego was for doing away with the 16th Amendment and starting over. He said that all Obama's "pass the bill if you love me" pleas didn't reach his own Party. There have been no Democrats who have sponsored the bill, and it doesn't  even have a number. Bob said that the only hope this bill offered for  creating jobs  was the $240 billion payroll tax cut. The other  $10 billion goes into infrastructure -- and even that is controversial since it takes so long to get started.


RIOTS IN NEW YORK? Caller George (location?) asked Bob if he heard Mayor Bloomberg's comments about possible riots.  Bob said that he did not approve of  the mayor using that kind of inflammatory language.

Honey EC: It hasn't been very long since Bob thought Bloomberg was wonderful. Maybe someone can remember the exact details of when Bob was singing Bloomberg's praises. 

UBS (United Bank of Switzerland) Over the past three months, UBS  lost $2.3 billion from unauthorized trading in the S&P 500, the German stock market index,  and the Euro stocks index futures.  The "rogue trader" has been charged with "false accounting."  Bob said it "does not look good for these European Banks."

WARREN BUFFETT, THE "SHADOW PRESIDENT"  TAX PROPOSAL

Excerpts from Bob's opening monologue. Bob said: "We're supposedly going  to hear this week about the new Buffett tax. No, no, no, not the Margaritaville Tax. Not the Jimmy Buffett tax. This is the Warren Buffett tax because he is all bent out of shape about the fact that the top bracket is 35%.....Of course he's missing the point completely because he's comparing it to his own tax return which bears no commonality with the typical tax return.  Because Warren Buffett gets most of his income from things like qualified dividends, things like long-term capital gains......So of course, he's paying the top federal bracket of 15%. And that's why he can say that he paid only 17.4% -- that's his word --only, 17.4% of his taxable income last year for a total tax of little less than 7 million dollars. And he complains that that's a  lower percentage that was paid by the  people in his office who paid an average of 36%.

Well guess what, Warren, high earners on ordinary income and short-term capital gains, which is what the top bracket is supposed to tax.....at the federal level,  pay more than an average of the  people in your office,  excluding you -- because the rate if you are self-employed is 38% with the uncapped payroll tax......Now there is a complete disconnect. I am amazed that this is going to be proposed because it's based on totally faulty reasoning, which hopefully, at some point will be pointed out to "these people."  So how is Warren Buffett making his money. He pays himself a relatively small salary. His salary has nothing to do with his contribution to Berkshire Hathaway....So he's not in a high bracket on ordinary income, but he's in a very heavy position on the low tax bracket income, the 15% maximum federal, the long-term capital gains, the qualified dividends......

There is a solution to this - I don't go along with it -- you simply raise the long-term capital gains and qualified dividend rate to 35% so that all the money that Warren earns is taxed at the top rate. Of course the other thing that Warren could do, instead of what he is doing, is simply write a check for 7 million dollars as a contribution on his annual taxes. That would bring him up to 35% and the whole problem would go away for Warren. But instead, he seems to be favoring his recommendation to the president to raise the top bracket above 35%. ....

If you are a resident of California and you own your own business, you're already in the 48% top bracket....right today, now.....And Warren Buffett wants to raise your income tax just because he gets the vast majority of his income from long-term capital gains and qualified dividends -- which is not the case for most high earners....But in his relentless pursuit for higher tax rates on high earners, we are told the president is actually going to propose this nonsense this week......"

Caller John from Oakland  said he agreed with Bob about  this "abomination" tax proposal.  Bob said: "There is totally faulty logic and reasoning underneath the Warren Buffett tax proposal, that supposedly the president is going to parrot to us this week. It's like Warren Buffett has become the shadow president on taxation this week -- that's the feeling that I'm starting to get. I'm sure you know the connection here. Mr. Buffett has served as a quote-unquote "informal advisor" to the president. He was in conference with the president prior to the September 8th address to the joint session of congress. And in addition....Warren Buffett is planning to hold a fund-raiser on September 30th in New York City for the president's re-election bid.  So the ties are extremely close here. Like I say, it's like he's a shadow president on tax policy....."

John continued talking about how Warren Buffett and Bill Gates could give checks to the government instead of their favorite charities, but to ask for more from the job-creators in this country was ridiculous, and he hoped it was a "killer when it comes to the 2012 elections."

Bob continued: "This business of essentially making municipal bond tax-exempt interest taxable for those in the top brackets. This idea is simply going to raise the cost of money for states and municipalities.....And those taxes will be paid, and this is important because they hide behind this curtain of defending the little guy -- it's the little  guy that will have to pony up the additional taxes to pay the additional revenue to these states and municipalities that they will require to pay the higher rates that they're going to have to pay on munis. These people are dumber than a box of rocks.....The additional suggestion that we are hearing about to cap the destructibility of charitable donations. That is another brain-dead idea. Where do they come up with this nonsense?" 

John interjected that he almost wished that Hilary had won.


Bob replied: "It's funny you mention that because former vice-president Cheney this week, has suggested that Hilary Clinton challenge for the nomination. Now Mr. Hilary Clinton, also known as former President Bill Clinton has said  that he admires Dick Cheney's political acumen. He's just trying to stir it up.....As of today, there is no question in my mind that she would have been a better president."

Honey EC: Well, Bob, I remember during the campaign, while always giving Obama a COMPLETE PASS, you would slam Hilary and call her names -- long drawn out names, designed to demean a woman. SHAME ON YOU! SHAME, SHAME on YOU! 

John interjected again: "Look at the economy it couldn't have been worse."

Bob continued: "What's frustrating for me about that, on this broadcast,  week after week, I said this is what the presidency is about -- getting the economy turned around. And instead, the year or two of the presidency was on a totally separate topic of healthcare and that was a disastrous decision. That's called taking your eye off the ball. It's like standing in the batter's box when you have a fat pitch on the way and looking the other way and taking it for a strike. And that is why we are in the position that we are in."

WHEN RICH CEO'S BUY ELECTIONS....Tom in Nevada: "You hit it right on the nose about Warren Buffett....I think the shares of Berkshire Hathaway will actually go up when he leaves the company.....I'm selling my shares on Monday." 

Bob said: "I think it's fairly uncommon for a CEO of a major company to be this deeply involved in a political movement. I mean this guy has jumped into the White House re-election campaign now with this big fund-raiser in New York City at the end of the month. He's jumped in hook, line and sinker. And I have to believe that that's the reason that he had a conference with the president before the joint session of congress earlier this month. To me, it's the money that buys the influence -- the money!"


Brinker added: "It's very, very risky for a CEO to become totally  engaged with any one political candidate....And yet is there hypocrisy here?....Remember they wanted to extend the timeline on depreciation of corporate jets, so it would be a little bit more expensive to write them off? And yet didn't we hear some complaints out of Omaha on that particular item?  Is that the definition of hypocrisy."

Andy from Redwood City said that he totally disagreed with Bob on Warren Buffett.  He said that when this country went  to war in the past (he mentioned Lincoln, Civil War;  Roosevelt, Spanish-American War;  Wilson,  WWI), the rich came up with the money to pay the debt -- but that this didn't happen with Iraq and Afghanistan. He said the bottom line is that during the Eisenhower Administration in the 1950's, the top tax bracket was 91%  after the first $100,000. And it  was 70% before Reagan got in, and the 35% is way too low.

Bob managed to talk him down and asked him what he thought was a fair amount of tax for high-earners. Andy said 50%. Bob reminded him that in California it's already there. Bob ended by saying, "Andy, you are so misinformed on this subject, it is sad."


NEXT WEEK...Bob reminded listeners that there is  housing data coming out on  Monday, Tuesday and Wednesday. Housing starts are expected to be down. There is an  FOMC announcement on Wednesday and Leading Indicators on Thursday.

Bob's guest-speaker was Menzie Chin: Lost Decades: The Making of America's Debt Crisis and the Long Recovery"  Honey EC: Some have already told me that they found this interview interesting, so I will write a review of it "subsequently" :)

POST AND READ COMMENTS