February 26, 2012, Bob Brinker's Moneytalk Show Summary, Excerpts and Commentary

February 26, 2012, Bob Brinker hosted Moneytalk today..........(comments welcome)

STOCK MARKET....Friday, the Dow closed just a few points under the famous 13,000 mark.  The S&P closed at 1365.74 and the Nasdaq closed at 2963.75.  Bob said nothing about the stock market today.  One caller mentioned that he is a Marketimer subscriber and is aware that Bob recommends dollar-cost-averaging new money right now.

February 2012 Marketimer, Bob Brinker wrote:  "Given the substantial increase in stock prices that has occurred in recent months, we prefer a dollar-cost-average approach for new stock market investing at this time. All Marketimer model portfolios remain fully invested." 

Honey EC: Yes, Bob's model portfolios have been fully invested for nine years now -- since March 11, 2003 when he returned what was left of the 65% cash reserves back to the market. At that same time, Bob added Vanguard Total Stock Market Fund (VTSMX), and changed the majority of the weightings in his model portfolios from managed funds to index funds.

INTEREST RATES, BOND FUNDS AND CERTIFICATES OF DEPOSIT...Caller Paul asked Bob if he should dollar-cost-average money that he wanted to put into the bond market. Bob said: "I think there is the risk down the road of normalization of interest rates...The question is when......If you see normalization of interest rates, then you are going to see a decline in bond funds....It can be completely avoided by putting together a ladder of fully insured FDIC certificates of deposit." 

GOLD AND SILVER, PRECIOUS METALS MARKET...Caller Marty form Rochester asked Bob about silver. Bob said:  "I view silver as a speculation....It's going to simply depend on how popular silver is in the marketplace. We first mentioned silver on the program last year. It was trading around $27 at the time -- through the Exchange Traded Fund, which as far as I'm concerned is the only way that you would have any silver....The symbol on that fund is SLV.....Now trading in the low $30s, it's done pretty well....From my point of view, if you're going to speculate in precious metals, I would prefer to use GLD. That would be my first choice.  The GLD shares, which are backed by gold bullion, a very inexpensive way to own a gold investment.....That's what I'd be inclined to do, if I was inclined to put on a hedge of gold in the first place." 

Honey EC: Bob made it sound like he might have recommended SLV last year when it was lower -- that never happened. He simply answered a couple of caller's questions about it being used as a hedge like gold.  But more important than that, he changed his tune completely about "preferring GLD." Here are two examples of Bob saying that SLV was an exact hedging-equivalent to GLD. 

 * November 7, 2011,  Bob said: "As far as silver is concerned, I think it could be considered as an alternative form of hedging in a portfolio......The preferred way for those who wish to have a silver hedge in their portfolio would be the Exchange Traded Fund that holds the silver bullion -- that trades under the symbol SLV.....the Ishares Silver Trust.

* March 2011, Brinker said:   "I've made it very clear that I regard silver bullion as an alternate to using gold bullion for those that want to have a precious metals hedge.

 PRICE OF OIL AND THE ENERGY SECTOR.....Bob said: "It's all about oil production....Gasoline is derived from oil. So if you are talking about a company that has barrels of oils in the ground....Then you're talking about an increase in the net-asset-value when oil goes up....Obviously if oil prices were to double overnight, you could get to a point of diminishing returns....using would decline dramatically....One of the things going on right now with oil, and oil has moved modestly higher. West Texas Intermediate is a little over $109 a barrel. Brent crude, which is used in Europe and Asia, is around $125 a barrel. This is about Iran....As long as this is out there, wondering about what's going to happen with Iran,  then you're going have people coming into the oil market to get supply." 

 Honey EC:   In May 2009, Bob added Suncor, a Canadian oil company to his Marketimer off-the-books list of recommended individual issues.  This is his only oil or energy stock recommendation. It's now listed as "attractive for purchase" below $33.00.  This company is planning a large-scale increase in production over the next several years.  

EUROLAND AND THE GREECE SOVEREIGN DEBT....Bob said: "Well they came to an agreement on the second annual Greek bailout. If you are a bond-holder of Greece sovereign debt, you are taking a major bath......You're getting creamed....First thing that happens is your face value is being reduced 53%....Somebody sitting with a $10,000 bond of Greece just has $4700 left.....And worse....The new coupon has been slashed and the coupon on the bonds that are going to be exchanged for the existing bonds is going to be three and a fraction....So you get a real present value loss of 75%.....Remember, there's a lot of risk out there if you buy the sovereign bond of a country that doesn't pay up.....Has Europe thrown another  175 billion dollars into the black hole known as fiscal irresponsibility in Greece. We shall know this in the fullness in time....

The immediate disaster of a Greek default has apparently been diverted......The fiscal police are going to be sent to Greece to monitor everything that goes on in the fiscal situation in Athens....Remember annual Greek bailout number one? .......Now they need a new deal....The new interest is going to be 2% before it is scheduled to rise down the road." There are other countries in Euroland that may need assistance....Portugal, for sure...Everybody is hoping it doesn't get to the level of Italy and Spain, the third and fourth largest economies in Europe, because that would be a much bigger deal.....It's a colossal mess..... They must be very sorry that they took Greece into the Euro back at the beginning of the last decade."

**  You can keep track of bond  yields by country here:  Government Bond Yields, List by Country

WILL THE U.S.  FOLLOW GREECE OVER THE CLIFF?  Caller Bob in San Francisco asked Brinker if the United States will follow the route that Greece followed. Bob replied: "We are a long way from it....If congress can get its act together and move in the direction of balancing the budget, or at least get it within 3% of GDP in annual deficits, then I think we'll be okay. The problem right now is that we are not making progress.....I certainly have very serious concerns with what's coming out of the executive branch right now in terms of the lack of appreciation for fiscal responsibility....

Here's the problem, the people who are making policy in Washington right now really do not have a background in investing...And the notion that a president would propose a minimum capital gains tax rate of 30%, after what we've just been through, just proves that he has no idea whatsoever on the subject of investing. That's the reality. That's my opinion."

GIVING $MILLIONS AWAY...Bob said: "This is the last year under current law for the deal that was struck in December, 2010 between President Obama and congressional leaders on tax-free giving. They struck a deal that was unique. And that deal was -- and I realize this will only apply to a hand-full -- that deal was to allow you through the end of 2012.....to give away up to $10 million dollars. So somebody sitting out there with a ten million dollar gift account, would be able to give two million dollars each to five children. Now they don't have to be children, but most people don't give that kind of money to the next person walking down the street....It's very doubtful that this exclusion will be extended....There are already proposals to reduce this provision starting next year....Separate from this, you also have the annual giving limit --  no tax of any kind -- of $13,000 to anybody you wish. A married couple can give $26,000." 

IF INFLATION PICKS UP WHAT WILL HAPPEN TO  INFLATION-PROTECTED BONDS?....Caller Bob from Pennsylvania asked Brinker about Vanguard Inflation Protected Fund (VIPSX) and TIP (an ETF), and wanted to know if their net-asset-value would go up if inflation picked up and "everyone piled into them."

Bob replied: "My expectation would be if you saw the base rate, which is now near record lows, start to rise, then you would see an inverse relationship in the net-asset-value...You would see the net-asset-value decline....This is what we've seen in reverse. We've seen the base rate go down into negative territory on many of the short or intermediate term TIPS bonds and that's what pushed the net-asset-value up."  

Honey EC: Later in the program, Bob said what he has been saying for some time, that he does not recommend Inflation-Protected Bonds at this time. He sold all of the holdings in model portfolio III and income portfolio in January 2011.

**  Bob is likely right about dumping TIPS, based on this article: "Why TIPS Make a Terrible Inflation Hedge"

SAFELY GET 10%  INTEREST IN INDIA? Caller Joel said he had some friends getting 9 - 10% on money in India. Bob said, "I have not checked rates in India lately, but I'll tell you this much. When you are investing in any local currency, you are accepting currency risk. So what you make up in yield on the one side, you can potentially give back on the other side....If you are a U.S. investor, and you go abroad and put your money in a debt instrument abroad, you are then going to be investing in the local currency. When you bring that money back into the dollars....You spend dollars....You don't spend Indian currency, that means when you bring that money into dollars, what exchange rate will apply....If you live and work in India.....that's a different deal." 

** There may be another way to avoid the currency risk. Read about it here: A New Tool in the Hedge Shed

RIDICULOUS CALL OF THE DAY:  Caller Ken from  Connecticut (who said he was 45 years old and married and hoping to retire at 62) said:  "I've been listening to you since day one and I am a very happy camper. I started out with $5,000 and now I'm worth $800,000. So thank you very much for a job well done!" 

 Ken explained that he was about a year away from paying off his $260,000 home and  had a  $35,000 college fund going for his eleven year old daughter -- and was still putting $700 a month into this college fund. He asked Bob if he thought it would be okay to take a five-year hiatus from contributing to his 401K (which was at $700.000) so he could upgrade to a custom-built home worth $400,000 to improve their quality of life.

Bob replied, "Ken I would have to go along with a five-year hiatus so that you could afford this upgrade in terms of your housing. I vote yes."

Honey EC: Bob replied after he sang Ken's praises like a loud Halleluiah Chorus. LOL! But Bob never once asked Ken how he made all that money in the first place. So let's do some math:  In order to believe that caller, you have to believe that he started listening to Bob when he was about 18 years old and had $5000 to invest, which he turned into about a million dollars in assets all thanks to listening to Bob Brinker.  

And Ken did all that while either getting a college education or going to work with just a high school education. He also married, had a child, saved a tidy $35,000 for her college in eleven years -- and all the while,  paid the lion's share of a quarter million dollar home while growing an IRA into  $700,000 (who knows where the other $100K that he said he had). 

It's no wonder Bob didn't ask Ken about his profession or how much money he makes.  Bob surely didn't want to make Ken look like a liar, a fool or a politician after all the smooching he had done on Bob. Or worse yet, Ken might even have said he inherited some of the money he gave Bob credit for.... LOL!! I hope someone will do the math on this caller's fairy tale. :) 

COMEDY SKIT OF THE DAY:   Caller Kevin from Albuquerque said: "About a year or two ago, I got involved with the Moneytimer......I'm just trying to make it grow a little bit faster. How do I get out of what my investments are -- there's only about $53,000 -- How do I benefit from using the Moneytimer?   I mean by using the programs. Just sell a few things and buy what you are suggesting or what?" 

Bob replied: "The only way, unless they match, unless they're identical to what's in the Marketimer investment letter....If it matches what's in the investment letter, you're already there, right? But with reference to holdings you want to make a change on, then the only way I know would be to liquidate those holding and take the proceeds and re-invest those proceeds in the securities that are recommended in the investment letter that you wish to add to your portfolio. I mean, that's the only way that I could think of that that would work out." 

Honey EC: Bob never misses a beat when it comes to touting his newsletter, no matter what the "subscriber" calls it. :)

Bob's guest speaker today was Harvard Law Professor,  Lawrence Lessig: Republic, Lost: How Money Corrupts Congress--and a Plan to Stop It

Bob Brinker's Moneytalk on Demand is FREE on KSFO560.  Shows are archived for seven days after broadcast.

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