November 6, 2011, Bob Brinker's Moneytalk: Summary, Excerpts, Commentary and Discussion

November 6, 2011....Bob Brinker hosted Moneytalk today.....................(comments)


STOCK MARKET PRICE/EARNING RATIO: Bob said: "We have a low price/earnings ratio in the stock market right now. Investors are taking a conservative approach to how they are valuing earnings. We're seeing a good earnings picture in here." 

Honey EC: Bob didn't make any comments about stock market activity last week, but as you will see as you read on, he did a  lot of talking about all of his fully invested Marketimer portfolios.

JOBS REPORT....Bob commented that government jobs are "dwindling" because at the state and local level,  the money is no longer available.  And at the federal level, the political-will of the country is to shrink the United States Federal Government.

Numbers for October:

* Private sector created 104,000 new job.
* Government jobs shrank by 24,000.
* Net payroll gain =80,000.
* Unemployment = 9% (14 million), Under-employed = 16.2% (25 million)

ECONOMY - REAL GROSS DOMESTIC PRODUCT: Bob commented that the economy "has been recovering." There was 1.3 annual growth rate in the second quarter, and according to the preliminary reading, there was 2 1/2% real GDP in the third quarter (total goods and services).  Bob said: "The annual rate of growth for the real GDP for the first three quarters is about 1 1/2. And you'll remember my forecast has been between 1% and 2% for 2011....I think we will see a positive real GDP number reported when all the data is collected in the fourth quarter."

Honey EC: Bob has never admitted it on the air but he lowered his economic growth projection half-way into the year.   July 2011 Marketimer, Bob Brinker wrote:  "We expect real gross domestic product (GDP) to grow 2% to 3% this year...."

RECESSION DRUMS: Bob said: "My estimate is that we will see growth again in the fourth quarter, which means, where's the recession? You know, we have these private forecasters out there going around beating the drums of recession. Warning everybody that the US is going back into recession. Batten down the hatches and get in the bomb shelter because we are in a lot of economic trouble. That is what they say, but that's not what we see. So far, we see an economy that continues to grow slowly."

BOB WANTS PRIVATE FIRMS TO APOLOGIZE TO HIM: Bob said: "One of things that amazes me about the private firms that are forecasting a  recession in here is their conviction. I mean they talk about it like it's a fait accompli. They talk about it like it's for sure -- take it to the bank. Well I'm not taking it to the bank. What do you think about that? I think these forecasters are wrong, but I'll look forward to their apology....this is Moneytalk." 

IN EDIT, Monday the 7th: Business Cycle, Lakshmann Achuthan speaks out on CNBC -- we are in a recession.  See video here: CNBC

CORPORATE PROFITS... Bob commented that they have been "excellent," and  that corporations "have a couple of trillion dollars sitting on their balance sheets" which they won't invest until they have better demand visibility.

BUYING GOLD AND SILVER: Bob said: "This week we heard the stories of those who have purchased gold and silver coins at huge mark-ups to their market value.....How many times have we talked about this on the broadcast....And I hope you have not been victimized by this situation.....Gold bullion is gold bullion, you know the price....You have no idea what the underlying value of a  numismatic gold or silver is....I saw a story this week.....  A gentlemen had put $5000 into these coins that he purchased, so he decided to find out what they are actually worth and the answer was $2900 -- so the mark-up was 72%.....The way you find out the value is ask the seller what would you buy them back for -- make sure you are sitting down when you prepare for that response....This is a precious metal hedge....That's a profit center for the seller.... If you want to put on a hedge in gold, there is a way.....it's an Exchange Traded Fund... GLD."

Honey EC:  Bob talked about this subject a couple of times today. He is referring to charges against Goldline for allegedly misleading customers. I read about it here and the charges sound pretty flimsy to me.

HOUSING MARKET: Bob said: "I'm not seeing anything in the future housing statistics that's would suggest anything's going to be taking off soon. I think the level of short sale and foreclosure activity is sufficient to keep prices from skyrocketing in here -- along with demand, along with the economy, along with the high rate of unemployment." 

 ANNUITIES....Caller Tony from Illinois asked Bob for  his opinion of annuities. Bob replied: "I'm not a big fan of annuities in general.....If you are going to get involved with an annuity, you want to do it with a low-cost producer, somebody that gives you many types of no-load funds to invest in.....The Vanguard annuity program has been quite attractive for both of those reasons....You don't get stuck with these surrender charges to get back your own money."

COMMODITY PRICES: Bob said: "I think if they keep messing around with the food chain by using a  lot of our corn to make ethanol, then I think you are going to be seeing the same thing that you've seen with corn prices.....We pour government subsidies into doing the wrong thing...As long as we're doing that, we're messing with the food chain. We are using a sizable percentage of our corn crop in the production of ethanol. Believe it or not. I know it doesn't sound possible, but that's the way it is.....As long as we're doing this, it's Katy bar the door....I think that is why you've seen so much price gain in corn."

CALIFORNIA INTERMEDIATE-TERM TAX-FREE BOND FUNDS....Caller Matthew from Palm Springs said he was considering the Vanguard Intermediate Tax-exempt fund and asked Bob's "feelings"  about it. Bob said: "I think the reason I would not be buying that fund is because the level of interest rates is near historical lows.  I understand as a California resident, you want that double exemption....at the same time, with rates down here.....I'd be disinclined,  unless you set a real tight mental stop where you would clear out of the position in the event it went against you.....The Fed is committed to keeping them  (rates) down as long as the economy is slow, but the reality is, rates are really low." 

Honey EC: Bob used to spend time on each program (deservedly) hammering "Sacramento" for its fiscal irresponsibility, but never does that any more......California is in even worse condition now, but there is one major difference, namely, a left-leaning Democrat governor.

MANAGEMENT FEES....Ron from Las Vegas said he pays an annual management fee of 1.3% on his 457 account and asked Bob what he thought about it. Bob didn't really answer Ron's question.  He simply told him that it was his job  to decide if the performance was worth it.

Honey EC: I wondered if Bob was reluctant to answer Ron's question about management fees because for many years, Bob was co-owner of the BJ Group which charged management fees up to 2% for accounts under $100,000.

DEFICITS, DEBT AND THE SUPER COMMITTEE: Bob announced that the super committee  had until November 23rd to come up with their recommendations for cutting 1.2 trillion dollars off the budget -- over the next ten years. Bob said: "It's not a lot because we are running deficits in excess of a trillion every single year. So if you cut 1.2 trillion off spending over ten years, you're cutting an average of 120 billion a year....You're still going into the sink hole, major. And that is what we are doing in the US -- going into the sink hole in a big way. The deficit (Bob meant debt)  is  close to $15 trillion now, heading to $16 trillion down the road, probably a year from now.....If the Super Committee fails to come up with a way to cut this money through agreement in Washington, the automatic cuts take effect on December 23rd. On December 23rd, they will come up with 1.2 trillion cuts over ten years and those cuts would begin in 2013....An average of 120 billion a year. Is that enough to  even come close to balancing the budget? Of course not. They're not even in the same universe with what would have to be  done to balance the budget or even get within 3%."

BOB BRINKER'S MARKETIMER INCOME PORTFOLIO... Caller Rudy from Oakland said he had inherited 1 1/4 million dollars and asked Bob how to minimize risk since he wanted to preserve capital for purchasing a house. He said he was a subscriber and mentioned Marketimer portfolios.

Bob said: "I stand by my income portfolio in my investment letter. You brought up my investment letter. My page seven income portfolio is having a terrific year, frankly. A really good year in the income portfolio. We have five different investments in that portfolio. We spread the investments over five different securities, no-load funds. And we're having a terrific year in the income portfolio and I stand by it.....To compare the  risk level with a Treasury Bill or a fully insured short-term CD would not be fair because the people invested in that income portfolio on page 7 of the investment letter, they are willing to accept the fact that in order to get a current interest rate which is close to 5% on the portfolio. The current yield is close 5%. In order to get that yield they are willing to take the diversified risk that they are taking in that portfolio." 

Honey EC: I laughed out loud as Bob repeated himself so many times. Do you suppose people got it the fourth time around?   However, he's right that there are five different funds in the income portfolio "on page seven." :)  Four Vanguard Funds: Ginnie Mae (VFIIX)  = 15%; Short-Term Investment Grade (VFSTX) = 15%;  High-Yield Corporate (VWEHX) = 25%;  Wellesley (VWINX) = 25%; Double LIne Total Return Bond (DLTNX) = 20%. 

But  here is what Bob isn't telling you is:  Bob's "income portfolio" is the off-the-books portfolio that he formerly called "Fixed-Income Portfolio" before he added the Vanguard Wellesley Income Fund -- which is 37% stock.  This portfolio is  not part of Bob's official performance record, and Hulbert Financial Digest does not include it in Bob's performance ranking. In 2008, a good year for bonds, this portfolio lost money, but Bob never posted any 2008 performance numbers and certainly not for this portfolio -- and he never talked about it either.

BOB BRINKER'S MARKETIMER BALANCED PORTFOLIO.....Caller Dahlia from Concord told Bob that because the stock market had gone down "so bad" she took all of her money out three years ago and put it  in money market funds. She said "I subscribe to your newsletter, the 'Marketeer'"  and didn't know where to put her money to get a better return.

Bob replied: "Past results are not a guarantee of future results.....In terms of what is going on with various types of portfolios that you can use within the investment letter, there actually are several portfolios. If you're looking for a balanced portfolio which has an income  oriented component and a stock market component, then certainly model portfolio 3 on page eight of the investment letter would be a balanced portfolio.... Designed to provide both growth and income with a relatively conservative approach compared to an all equity approach. That might be something for you to consider -- the balanced model portfolio 3  approach. The whole idea is here is, you are going to be invested in a portfolio of securities that has, in the aggregate for the whole portfolio has a reasonable expense ratio. We are  dealing in no-load funds in the investment letter. And  all of that material of course, is available within the context of  letter." 

 Honey EC: Aha, now Bob has moved on the page eight -- the last  page of the newsletter.  LOL! Marketimer only has three portfolios that Brinker uses as an official performance record. Portfolio one and two are 100% stock mutual funds and portfolio 3 is the balanced fund which, as he told Dahlia, is about 50-50 stock and bond mutual funds. His active-passive is almost equivalent to simply buying the total stock market funds and throwing in some international for good measure. The other portfolio is the income portfolio that he spoke about with Rudy just above.

Bob Brinker's guest-speaker was Rachael Emma Silverman: "The Wall Street Journal Complete Estate Planning Guidebook" You can download all of Moneytalk, including this third hour at KGO810 radio archives for free. This program is available for the next seven days.

 I have posted a complete summary of Bob Brinker's guest-speaker from last week --  John Hofmeister, author of a book called “Why We Hate the Oil Companies.”   John is the former president of Shell Oil Co. -- right here on this blog. It was written by FrankJ  and you can read it for free at this LINK

Bob mentioned the Charlie Maxwell interview from September 25th. I have posted a complete summary of that interview written by David Korn. You can read it for free right here on this blog  at this LINK.

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