March 4, 2012, Bob Brinker's Moneytalk Show Summary with Excerpts and Commentary

March 4, 2012...Bob Brinker hosted Moneytalk today......(comments welcome)

STOCK MARKET:  With the S&P 500 at 1369.63, Bob remains fully invested (since 2003) and bullish, advising dollar-cost-averaging for new money. The only change is that he has slightly raised his S&P target range from "low-to-mid 1400s" to "mid-to-upper 1400s."

Honey EC: It's important to remember his projections were even more bullish back when the market was at its all-time-high in the fall of 2007 -- he was projecting mid-1600s then.

S&P 500 INDEX BEST BAROMETER OF STOCK MARKET....Bob said: "I'm comfortable using the S&P 500 as a barometer of the market....as a measure of what the market is doing. You are talking about essentially the 500 largest companies in the USA. This is a market weighted index. The Dow is not a market weighted index.....There are only 30 companies in the Dow....I know that people quote the Dow....I don't think it can be compared comparably with the S&P Index." 

 GO FOR STOCK MARKET DIVERSITY: Caller Carol said that due to the death of her husband she would be receiving a  million dollars which a broker had recommended she put into 25 different stocks. Bob replied: "I would go for way more diversification and also minimize your expense by using something like a total stock market index fund. You can do this through Vanguard....Fidelity Spartan....You can do it through an exchange-traded-fund, symbol VTI."

Honey EC: She can also go to Charles Schwab.  Strangely, even though Bob used Charles Schwab's for the accounts he managed on a fee-basis through the B J Group (until he sold it), he never mention Charles Schwab. I think it's unfair. Are Vanguard and Fidelity paying him or giving him breaks somehow for mentioning them? I don't know.  But I do know that Schwab's expense rates on index funds are equal to or less than Vanguard's.

CAR INDUSTRY....Bob said:  "It's good news for the economy to see the automobile industry doing better.....We saw auto sales this week jumping to a 16% increase....and a four-year high."

COMPARING AUTO MAKERS: "Bob said: "For the month of February, General Motors was in first place -- 209,000 sales, an 18.2 market share. In second place, Ford Motor with 178,000 sales -- 15.5 market share....Toyota with 159,000 sales -- 14% market share. And then Chrysler in fourth place with 133,000 sales -- 11.5% market share. Then we had Honda, Nissan, Hyundai and a few others down the line. 

 In terms of the most popular vehicles out there, I'm sure many of our listeners are driving around in one of these vehicles right now....the Ford F-Series is in first place in the U.S.A -- 47,000 sales in the month of February. That's a 26% year-over-year gain....The second best seller, the Toyota Camry, 34,000 in February, up 27% year-over-year. And look at this vehicle, the Nissan Altima, 33,000 sales, up 58% year-over-year.  Next we have the Chevrolet Silverado,  32,000 sales, up about 2% year-over-year. And the Honda Civic with 27,000, up 27% Y-O-Y.....It's an important part of the economy."

 JOBS.....Bob said: "Now obviously, we've been seeing new jobs coming into the marketplace, and we should see some more new jobs when that's announced next Friday for the month of February......At the same we've seen higher gasoline prices in many sections across the country." 

UNEMPLOYMENT....Expected to stay close to 8.3%. Figures will be coming out this week. 

TREASURY  BONDS....Bob said: "The ten-year Treasury has a yield right now 2% which tells us a number of things.....Rates relatively holding steady.....People not really worried about the credit of the U.S.A., despite the credit change that occurred last year courtesy of the S&P."

INVESTING IN MARKETIMER INCOME PORTFOLIO....Caller Tim (age 50) said he was invested in equities and asked how to establish a position in Bob's Marketimer income portfolio on page 7.

Bob replied: "If you want to establish a separate income portfolio, certainly you could use the recommendations in the income portfolio that you cite there on page 7 of the investment letter. And then I would treat that as a separate portfolio and that would get you started with fixed income investing." (Tim asked if he should put his money in all at once)  

Bob continued: "If you put the money in all at once and the economy over-heats and rates go up, then you're going to see net-asset-value depreciation. That's the reality of the risk that you would be taking......Being in that portfolio would probably be to your benefit if rates stay on a relatively even keel. That's the real question you have to determine in terms of your tolerance for risk. Now you can dollar-cost-average into that portfolio over time, and that is a conservative way to go about it."

APPROACH FOR INVESTING IN INCOME PORTFOLIO (INCLUDING VANGUARD GINNIE MAE FUND VFIIX)...Kevin wanted to know about investing his fixed income allocation in all Ginnie Maes. Bob said: "If you're taking income investing as a subject matter, that you're just going to go with one item, like a Ginnie Mae for example. What we've done, and we have an income portfolio that we publish on page 7 in the investment letter and one of the callers referred to it earlier in the hour. What we do is take an aggregate approach to income investing. 

Matter of fact right now, we have five separate entries, five separate no-load funds that are in the income portfolio. And have various percentages that we assign to each....One of the funds happens to be a Ginnie Mae Fund. I'd rather take a top-down view at income investing, rather than just say we are going to look at Ginnie Maes....."

Honey EC: Bob is right, there are five no-load funds in the once-obscure, recently-famous, off-the-books income portfolio on page 7 of Marketimer. As he mentioned, Vanguard Ginnie Mae Fund is in it, but he  has reduced the weighting to 15% -- not much compared to the former 50%. He has  also told us that the income portfolio contains Double Line Total Return Fund, Vanguard High-Yield Fund and Wellesley Income Fund in the portfolio -- those are in almost equal shares. And the fifth fund is Vanguard Short-Term Investment Grade (VFSTX).  

MORE INCOME PORTFOLIO AND INTEREST RATES: Bob continued: "Rates are at historic low, and as long as they stay down, fine. People will collect their income and everything will be copacetic.  But the reality is someday, the likelihood is we will see normalization of interest rates....When we do, we are going to see changes in the bond market....The changes are going to be the obvious changes....And it's possible that you could avoid this whole subject by simply putting together a fully FDIC insured ladder of CD's. (Certificates of Deposit) Yes, interest rates are low, but you're not risking any principal." 

 Honey EC: It's important to remember that the income portfolio is not part of Bob's Marketimer official portfolios record. Mark Hulbert does not include it in his Hulbert Financial Digest Marketimer ratings.  Perhaps Bob doesn't want to talk about his equity model portfolios because they both lost money last year and under-performed the Active-Passive portfolio, which is 80% total market index/20% international index. More importantly, they underperformed the total market index (VTSMX). 

FIXED INDEX ANNUITY...Caller Cheryl asked Bob to give his views. Bob said: "No, I do not recommend these securities....I think they are too expensive....I think that they take too much off the top."

GOLD AND SILVER BULLION VS COINS....Caller Tony from New York asked Bob if there was any difference between buying gold and silver coins and bullion. Bob said: "In my opinion, one is a lot better than the other because one does not have a mark-up and the other one does......If you are going to invest in gold as a hedge in your portfolio, there is only one way that makes any sense.And that is to buy an exchange-traded-funds that's backed by gold bullion....symbol GLD....essentially tracks the price of gold....The problem with numismatic coins is the mark-up...Forget about coins....You can buy the gold bullion-content coins. The Krugerrand, the Maple Leaf, the Mexican Peso, the Austrian Crown, the U.S. Eagle, you can buy any of those. And typically the premium guideline that you could use on that is 4%." 

 HONEY EC: Personally, I like to use American Silver Eagles and other silver dollars for Christmas gifts. They are perfect for family members that "have everything." Just be sure that the recipient understands that you are giving them an ounce of silver, not $1.00.  :)

FEDERAL RESERVE INTEREST RATES POLICY COULD CHANGE....Bob said: "Ben Bernanke makes these comments  that the Federal Reserve has a policy of holding down rates into 2014.....I think the bottom line is this, yes, that is his intention based on everything he knows today. But it's a moveable feast. In other words, if the data changes, the policy changes.....Always remember that when the Federal Reserve makes a policy statement, the policy statement is within the context of all of the data that they have right now.....In the event that a year down the economy is gathering steam....I don't think there's any way in the world....that the Federal Reserve would be able to stick to their policy.....It's good for today, we'll see what follows."

CALCULATING CRITICAL MASS.....Bob said: "You are at critical mass when your level of income from your investment portfolio, coupled with whatever guaranteed  income you might have is enough to meet your outflow. It's really that simple."

GENERAL OBLIGATION MUNI-BONDS: Caller Mary from Colorado asked Bob about buying new issue muni-bonds. Bob said: "Almost every business day there are municipal issues that come to market in the form of offereings. And certainly you can buy those initial offerings for the most part through broker....The advantage of buying new issues is the seller pays the commission.....I'm comfortable with general obligations of the State of Colorado." 

ACTIVELY MANAGED FUNDS VS INDEX FUNDS.....Bob said: "Given the general record of active managers in mutual funds....the reality is they have a heck of a hard time beating the market over a long period of time. Let's face it, if you go back and look at the multi-decade record on managed mutual funds, it has been very difficult for fund managers to consistently outperform the indexes over the long term."

Best Bob Brinker quotes of the day:

* "Some of these listeners are so sharp that the sharks can't get the stuff by them." 

* "You believe everything that Obi Wan Ben says?"

* "It's just an opinion. Bob doesn't know everything, as we all know well."

Bob's third-hour guest-speaker was Adam Lashinsky: Inside Apple

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