April 29, 2012, Bob Brinker's Moneytalk: Show Summary, Excerpts and Commentary

April 29, 2012.....Bob Brinker hosted Moneytalk.......(comments welcome)

 BOB BRINKER'S MARKETIMER LAND OF CRITICAL MASS....It's where you reside when you are able to live off of your investment income. Brinker said: "I'm a strong believer, if you're a Moneytalk listener and you gathering knowledge over time, this can help you become your own personal financial manager. It can help you someday reach, if you're not already hanging out there, reach that Land of Critical Mass where you can live off your investment income." 

STOCK MARKET....Bob Brinker didn't make any comments about the stock market today except the one that I quote in the paragraph below. He is still bullish and his S&P 500 target range for 2012 is high-1400s.

SHOULD YOU BAIL OUT OF THE STOCK MARKET IF OBAMA GET RE-ELECTED asked Andy from Texas. Brinker replied: "I have not at this time, in April of 2012, I have not predicted a crash in the market." 

ASSET ALLOCATION....Brinker said: "Asset allocation is important because it has to do with having your money in different types of investments. You might have asset allocation the stock market. You might have fixed income securities. You might include real estate....So you're allocating your assets across a spectrum of investments... so you don't have all your eggs in one basket. So you don't have all your money in one stock." 

I-BONDS KEEP 'EM IF YOU HAVE 'EM.... Brinker said: "In recent times, the base rate has been near zero level...We have been very clear that if you have  I-Bonds with very generous base rates to stay with them. You can't even buy them anymore. They won't sell them anymore because they've taken the base rate down close or at the zero level." 

VANGUARD HIGH YIELD FUND (VWEHX) AND BRINKER'S MARKETIMER INCOME PORTFOLIO...Caller John from Texas, who said he had listened to Brinker for twenty years and was living in the Land of Critical Mass, said: "Mutual funds are losing their attraction because of high expenses and what little they add, but a junk bond funds is one of the few areas where you can really reduce risk by pulling a bunch of bond funds and with the huge spread right now with low interest rates -- yields are attractive 6-7%. But what's going to happen in the future....Should you worry about duration.....Should you worry about inflation." 

Brinker replied: "You should worry about everything, I worry about everything,  because things are always changing. But your point is right on.... This is the reason we have used junk bond fund investing to a certain percentage....For example, in our income portfolio that I publish on page 7 of the investment letter, we do use a high-yield fund in there....I don't have a five or ten year opinion on that, but I can tell you right now, we are maintaining our position, here in the month of April, we are maintaining our position in the high yield fund in the income portfolio. And my anticipation is we will maintain that position in May."

Honey EC: Obviously, Brinker was being sarcastic when he said he "anticipated" maintaining his position in the Vanguard High Yield Fund in his "off-the-books" income portfolio on page 7 of Marketimer. He has "maintained" that position since April 2003.  He has even increased the holding to a pretty hefty 25%, while dropping his GNMA weighting to only 15% in that portfolio.

Along with the stock market, the high yield funds took a precipitous ride down in the 2008 megabear market. Personally, I had sold most of my high-yield holdings, so it wasn't as scary  for me as it was for some of the retired people that wrote to me and asked for my  advice. My advice was to stay the course if they had already ridden them down. I hope they did.... Bob Brinker never mentioned high yield funds on the air during those hard times, and he gave no guidance in Marketimer.

VANGUARD GINNIE MAE FUND (VFIIX) AND BRINKER'S  MARKETIMER MODEL PORTFOLIO III.....Caller John from Texas also said: "I think you know the Vanguard Ginnie Mae Fund has been worth keeping for twenty years.  Brinker replied: "It's been a great fund. And we have also invested in that fund in the investment letter in model III for balanced investors and also in our income portfolio and people are very happy with it." 

Honey EC: Brinker's Marketimer model portfolio III (which is part of his "official performance record) has a 20% weighting in Ginnie Maes and no Vanguard's High Yield Fund. The only other fixed income mutual fund that is in this portfolio is a 10% weighting in Vanguard's Short Term Investment Grade (VFSTX). Consequently, the portfolio is now closer to 70% in equities.  The last time it became this heavily weighted in equities, the 2008 megabear market arrived. That quickly returned the balance because the portfolio lost over 23% that year. 

WILL THE UNITED STATES FALL OFF THE FISCAL CLIFF...Brinker said: "We've talked on the program about the importance of getting fiscal matters together in the USA, and it's going to be a challenge because of what is now commonly being referred to in the financial media as the "fiscal cliff....It comes to fruition when the ball comes down on New Years Eve in Time Square at the end of 2012. Because a lot taxes go up, a lot of tax breaks come to an end and a lot of spending reductions go into effect. Remember the failure of the super committee earlier this year to agree upon a new budget plan and the automatic triggers that came into play?  Those will be triggered at the beginning of next year.....Probably it will be dealt with in a lame duck manner at the end of the year."

Honey EC: Bernanke warned:   Fiscal Cliff Threatens Economy on December 31.

SLOW GROWING ECONOMY....Brinker said: "The economy is an issue. We have a slow growing economy, we saw that again this week. Gross Domestic Product (total goods and services adjusted for inflation) was announced for the first quarter of this year at 2.2%."

8.2% UNEMPLOYMENT TOO HIGH FOR FEDERAL RESERVE....Brinker said: "Unemployment at 8.2%, way too high for the Federal Reserve." 

FEDERAL RESERVE SEZ INTEREST RATES TO STAY LOW:  Brinker said: "They met again this week and said what everybody expected them to say, which is that they are going to remain easy in our monetary policy.  And we're not going to raise rates at this time, and we're going to continue to do everything that we can to stimulate job growth."

Honey EC: Brinker is still maintaining his April 2012 Marketimer GDP prediction for this year at 1.5% to 2.5%. This confirms his belief that the economy will not sink into recession as Lakshmann Achuthan, CEO of  ECRI has predicted.

UNDEREMPLOYED AT LEAST 14.9%....Brinker said: "You will always have people....that have been out of work more than 26 weeks. Those people are consistently excluded from the unemployment rates...You deal with that....and those who are part-time because they can't find full-time.....in what the Labor Department defines the U-6 sector....I refer to it as the  underemployment rate...it is 14.9%."

UNEMPLOYMENT IN SPAIN AND OTHER EUROPEAN COUNTRIES.... Brinker said that he considers Spain at 24%, the weakest link among the major European markets. Brinker addressed the comparability of the U.S. unemployment stats with those of foreign countries and said that he does not see how such stats could be comparable as there are no international rules requiring a uniformity in the computation methodology.

INDIA AND CHINA NOT LIKELY TO START USING GOLD INSTEAD OF THE DOLLAR.....Brinker said: "There is so much volatility in the price of gold, you could legitimately ask who would want to be paid in gold. If you received in payment for something a few months ago at $1900 an ounce, you've already lost 15% of your money....it's down to $1600 an ounce." 

Honey EC: Brinker added GLD, the gold bullion ETF, to his individual issue list back in May 2009. He also added Suncor at the same time. This is a list that he repeats every month, but seldom gives any advice with it.  He has never given any instructions on price or amount on GLD.  The only stock on the list that he gives advice on regularly is Suncor -- he rates it a buy under $33. 

BRINKER'S BALANCED PORTFOLIO AND TOO MUCH EXXON-MOBIL....Caller Dave said 90 % of his 80 year-old mother's million dollar net worth was in Exxon-Mobil.  Brinker told Dave that he thinks she should diversify and spread her risk over many companies. Then Brinker addressed the age issue: "There's another problem with this investor and that is concentration in the stock market relative to her age. For somebody in that age class, I would have about 30% in the stock market which is the low end  of what I use for a balanced portfolio. For a balanced portfolio, I use from 30% to 70% in the stock market, with a mid-point of 50%."

FUNNY QUESTION OF THE DAY....Caller Dan from Illinois, who said he was self-employed contractor,  wanted to know if he was included in unemployment rate if he couldn't find work.  Bob had a good laugh and said he would Dan credit for a funny question. Dan concluded  that he was not included included in the unemployment stats and couldn't get unemployment because he never paid into it. Bob said, "Well you're definitely not  included as a self-employed person because you're working."  

Honey EC: Confused? So am I. LOL!  I suspect that Bob really had a good laugh off the air.

BOB'S RANT OF THE DAY: "ROTTEN MISCONCEPTION" ABOUT WORKING WOMEN....Dan said that in the "old days" when women didn't work, unemployment would have been about 30%.  Brinker replied: "That's a rotten misconception, a rotten misconception, this is the poisonous...I hate this Dan. This is poisonous misconception that was recently spread by Hilary Rosen about Ann Romney, who raise five boys, never worked a day in her life. I hate that stuff. Some of the hardest working people in the country are mothers raising children. So that stuff is poison." 

Honey EC: It sure seemed like Bob was just aching for an excuse to unload about that subject. I totally agree with him. It's not in my nature to be mean, but if it was, I'd ask Hilary Rosen how she would like to deal with five sons, MS and breast cancer.

Brinker's comical quote interspersed between Marketimer ads and his son's ads: "One advice we don't give on the program that you often hear is, aww, just call the office and send in your money."

Bob Brinker's guest author today was Ken Segall: Insanely Simple: The Obsession That Drives Apple's Success

ON A LIGHTER NOTE

Jeffchristie's Moneytalk Final Exam Question for this week: 

Today's Moneytalk final exam question was discussed twice in the first hour. 

Bob Brinker's goal is to help his listeners reach: 

A) Terminal Velocity
B) Critical Mass
C) Perfect Pitch  
D) Regularity

 San Francisco, Ca. KSFO 560: 1-4pm  (KSFO offers FREE  Moneytalk on Demand  for seven days after broadcast.)

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April 25, 2012: Bob Brinker's "Sell Apple" Advice

April 25, 2012.....Sunday, Bob Brinker told a caller to sell a large portion of his Apple stock holdings. Brinker said the caller was "over-weighted" in the stock and it was a "no-brainer." Well, maybe not, Bob! This is from my show summary: 

 Ken from Los Gatos  (net worth $6.1 million) needed to raise $550,000 cash to buy a house. He listed several of his options. One of his options was to sell some of his $3 1/2 million dollar holdings in Apple Shares. He asked Bob what he thought he should do.

Bob replied: "This is a no-brainer, Ken, this is a no-brainer. Apple is your source of funds, in my opinion -- full stop....I would sell a thousand shares of Apple. You will still have 5,100 shares. You will still be incredibly over-weighted in one stock. You will have millions and millions still in the stock after you sell a thousand shares to pay for the house.....For me, this one is a no-brainer." 

 If the caller hurried to take Brinker's advice, he could have sold yesterday at $560.28. Let's hope he at least waited until today. Apple is trading 10% higher -- it's selling right now for $640.73.  The moral of Brinker's 4% rule is that sometimes one makes a lot of money by ignoring it. 

One has to wonder how much Apple stock Brinker is holding.  It came as a big surprise to Moneytalk listeners and Marketimer subscribers when he announced on the air a few weeks ago that he had owned Apple stock for over a decade.  

In Edit: Jeffchristie sent these surprising numbers:

"I went to Yahoo finance to get the numbers for Apple. Going back 15 years from the beginning of this year Apple stock was selling at $5.22 a share split adjusted. Apple closed at $406 the end of 2011. The 15 year gain was 7,711%. An investment of $31,800 at that point in time would be what was needed to reach $3.5 million. Apple stock is up about 50% YTD. If you take the price of Apple stock today $610 and divide it by $5.22 you would have a return of 11,685% for 15 years and 4 months."

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April 22, 2012, Bob Brinker's Moneytalk: Show Summary, Excerpts and Commentary

April 22, 2012....Bob Brinker hosted Moneytalk today..........(comments welcome)

STOCK MARKET....Bob said:  "I do not have a sell recommendation on the stock market at this time."

Honey EC: Last time Bob  discussed the stock market was on April 1st when he reported that the first quarter this year was the best since 1998. At that time, he gave no inkling whether or not he expected a correction.  He hasn't  talked about the market since then, even though it dipped  approximately 4%.   That's to be expected because he typically doesn't  talk about the market unless it's going up.

FULLY INVESTED DOES NOT INCLUDE CONTINGENCY MONEY....Bob said:  "I think your contingency money, your emergency money, should be outside your investment portfolio. I don't view it as permanent investment capital....If I'm fully invested, I don't consider contingency reserves part of my investment."

HOW MUCH EMERGENCY MONEY ON HAND?   Caller Janet, who said all of her money was in  Bob's active-passive portfolio, asked if she should have any cash on hand. Bob said that certainly there is a category of money that he calls "contingency reserves" or "emergency money" which is not part of  investment portfolios. It should be kept liquid in something like a money market fund. Three to six months worth is reasonable -- depending on your cash flow.

MARKETIMER ACTIVE-PASSIVE VS BALANCED PORTFOLIOS....In her follow up question, Janet wanted to know if it was okay to have all of  her retirement money in Bob's active-passive portfolio. Bob told her that as she neared retirement she might want to think about moving some money into fixed income investments.

Bob continued: "I don't have any problem having the active-passive portfolio, which we publish on page 7 of the investment letter each month.....for the stock market portion for your portfolio. But aside from that, you could develop a fixed income portion....And initially, you might want to do that with certificates of deposit. Now we also have a balanced portfolio on page 8 for those who are approaching retirement."

Honey EC: Bob is always talking about his Marketimer portfolios. For listeners who aren't subscribers,  it must sound very confusing.  It's not -- it's very simple:  On page 7, there are the two portfolios that Bob always talks about. One is the income portfolio which consists of 5 mutual funds (I've listed them in previous summaries), and the active passive portfolio.

 Previously, the active-passive portfolio was 90% Vanguard Total Stock Market Fund (VTSMX) and 10% Vanguard International Growth Fund (VWIGX).  As of April 2012 Marketimer, it is 80% Vanguard Total Stock market Index, 10% Vanguard International Growth  and 10% Vanguard All-World ex-U.S. (VFWIX).

On page 8, are the three model portfolios, including the balanced  portfolio that Bob talked about which consists of  both stock and bond funds. Right now, it is about 66% stock.  That is the complete rundown on Bob's Marketimer portfolios. The other two model portfolios I and II are all equity mutual funds.

DOUBLELINE VS VANGUARD GINNIE MAE FUND (VFIIX)....Caller John from Texas said his investments were 60% in stocks, 40% in bonds.  He said that the 60% stock is in Bob's model portfolio II.   John told Bob that the 40% in bonds was split half in DoubleLine Total Return Bond Fund and half in Ginnie Maes. He asked if that sounded reasonable to Bob.  (Honey EC: What a coincidence! I just wrote about DoubleLine and Ginnie Maes yesterday. LOL!)

Bob replied: "That's in line with the model portfolio that's balanced....That sounds different than the portfolio I have recommended in terms of the income side of the portfolio because yes, in the balanced portfolio that I publish on page 8, we do have some Ginnie Mae exposure in there. And you're too far away from that. Sounds like you're about 20% in there in the Ginnie Maes and that's quite close to the percentage allocation we have in the balanced portfolio."

You're using model II in a hybrid sense developing a fixed income component.  So we currently have no recommendation in the other fund you mentioned in model III. However we do have that fund in the income portfolio on page 7 on the investment letter. But keep in mind that portfolio is designed for those who want very little stock market exposure. That portfolio has less than 10%, and all of that exposure is in dividend paying stocks held in one of the funds. (Vanguard Wellesley Income Fund VFINX)....In terms of that one fund that you mentioned (DoubleLine Total Return Fund DLTNX), you have a different configuration than I have recommended."

Honey EC:  Bob is quite a dancer, and wanted to be absolutely certain he didn't get hoisted on his own petard, so he made a point of  confirming three times that John was 20% in Ginnie Maes, then he told John that he was "quite close" to the same amount he recommends in the balanced model portfolio III.   LOL!  John was precisely on the target! 

So to make it more simple, Bob said he has DoubleLine in his off-the-books income portfolio on page 7, but he does not have it in any of his official model portfolios I, II or III (balanced) that Mark Hulbert uses to rank Brinker's performance record.

MULI-MILLIONAIRE SHOULD SELL SOME APPLE STOCK (AAPL)...Ken from Los Gatos  (net worth $6.1 million) needed to raise $550,000 cash to buy a house. He listed several of his options. One of his options was to sell some of his $3 1/2 million dollar holdings in Apple Shares. He asked Bob what he thought he should do.

Bob replied: "This is a no-brainer, Ken, this is a no-brainer. Apple is your source of funds, in my opinion -- full stop....I would sell a thousand shares of Apple. You will still have 5,100 shares. You will still be incredibly over-weighted in one stock. You will have millions and millions still in the stock after you sell a thousand shares to pay for the house.....For me, this one is a no-brainer."

CORPORATE EARNINGS.....Bob said: "Corporate earnings have been good, especially relative to expectations. There's not much doubt that the analysts had the expectations ratcheted down. That made it easier for corporate reports to be excellent relative to expectations. I'm expecting a double-digit percentage gain in corporate earnings when all of the first quarter numbers are in for the S&P 500 reporting companies. So far over 80%...... are beating expectations."

LARGEST TAX INCREASE IN HISTORY COMING....Bob said: "Just 36 weeks to go until the United States faces the largest tax increase in history, coupled with a mandatory reduction in federal expenditures of 600 billion dollars. Now the tax cuts enacted under President Bush are scheduled to expire at the end of this year. The 2% employee payroll tax cut is also scheduled to expire at year end. And the emergency unemployment benefits now being paid are also scheduled to expire at the end of the year.....There are also those healthcare reform new taxes that are scheduled to go into place at the beginning of next year.....There is a solution to this mess and that is to extend the current tax rates for 2013.....To provide more time for the economy to get on a self-sustaining growth tax.....They may not be paying real attention to this until after the election.....They may pay lip-service to it."


ESTATE AND GIFT TAXES:  Bob explained that those taxes are also up in the air for next year.  Right now, the gift tax is the most generous it has ever been. 


CALIFORNIA TAXES UP TO 60%....Bob said: "The tax policy for a Californian, starting in January, could be looking at a federal rate of 39.6%, a top state rate at about 10.5, so right now you right around 50%. On unearned income, you could hammer out another 3.8% on the healthcare tax....A  self-employed Californian....could be looking at a 2.9 uncapped Medicare. Now you're up around 57%. Can you believe that?  I tell you, there is no limit, other than 100%, to how high they can take taxes if they get the votes to do it. There's no limit....There are those out there who are trying to run the table on taxes."

Honey EC: Yep.... I live in California, so I can believe it.  But you haven't  told the whole story. In addition to all of the taxed you listed, we have extremely high sales taxes. Statewide it's over 7%, and good old quintuple-dipper, Jerry Brown, wants them raised again at the next election along with some other taxes. But it doesn't stop on the state level. Some local area sales tax can be as high as 9.25%. Shall we try for 70% taxation on items bought with earned money?

Also, Californians pay higher tax on gasoline. And we pay higher prices for the gasoline than the rest of the country because of  radical refining rules in the state.  But the pocket-picking doesn't stop there. It continues to property taxes where they are constantly adding new "fees and bonds" to pay for stuff that could be paid for locally if the state didn't help themselves to our local money.

VICKY CRISTINA BUENOS AIRES....Bob said: "You may have heard the story out of Argentina about Vicky Cristina Buenos Aires.  Not to be confused with Vicky Christina Barcelona, of course.  It seems as though Christina is at it again. This week she has announced that she is going to seize most of oil producer  (YPF)  holdings in Argentina.....There you go, 50% of the company confiscated by Vicky Cristina Buenos Aires.....Any company with an investment in Argentina right now must be wondering what in the world the second coming of Evita Perone is going to bring as time goes by. And that really is the way to view Vicky Cristina. She is a Peronist in every sense of the word.....She was a senator from the province of Buenos Aires, now she is el presidente, or whatever. She can wake up in the morning and decide she is going to take the company."

Honey EC: I don't know where Bob came up with the "Vicky" name, maybe someone else does. Please let me know. However, you can read more about this here: Argentinian president, Cristina Fernández de Kirchner, rejects criticism over YPF nationalisation Nationalisation of oil company YPF has been criticised as 'unjustifiable' but the takeover has support in Argentina

 KSFO 560: 1-4pm  (KSFO offers FREE  Moneytalk on Demand  for seven days after broadcast.)

Bob Brinker's guest today was John Quiggin: Zombie Economics: How Dead Ideas Still Walk among Us (New in Paper)

ON A LIGHTER NOTE:

 Jeffchristie's Final Exam Question from today's show:

This week's Moneytalk final exam question.

Bob Brinker calls Secretary of State Hillary Clinton:

A) The Wicked Witch of the West Wing.
B) Evita
C) Madonna
D) The Queen of Mean

Hint: The answer to this question was mentioned at the beginning of the second hour of Moneytalk today.

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April 21, 2012, DoubleLine Total Return Fund vs Vanguard Ginnie Mae Fund

April 21, 2012.... Bob Brinker sold a percentage of Vanguard Ginnie Mae Fund (VFIIX) from his income portfolio and replaced it with a 20% weighting in  DoubleLine Total Return Fund (DLTNX) on May 10, 2011.

Jeffrey Gundlach is the DoubleLine Fund  manager.  On a Moneytalk radio program, Bob Brinker once commented that in his opinion, Gundlach is the best bond manager in the world.

Now a year later, let's do a comparison. 

DoubleLine pays a higher dividend than Vanguard Ginnie Mae Fund, and its year-to-date return is better.  However, it is a much riskier with 25% "below B" bond holdings and  a duration of 2.65%.  Plus, DoubleLine  is only 2 years old and Ginnie Mae is 32 years old. .

I advise due diligence if you are considering investing in DoubleLine. Note the sub-prime holdings in their mortgage backed securities at their website.  (LINK)

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April 15, 2012, Bob Brinker's Moneytalk Show: Summary, Excerpts and Commentary

April 15, 2012....Bob Brinker hosted Moneytalk today.......(comments welcome)

STOCK MARKET....Bob Brinker said he was broadcasting today from warm Las Vegas after having spent the previous night at a baseball game with his grandchildren at Coors Field in Denver, Colorado.  Bob must have had jet-lag because he didn't notice the 800 pound elephant in the room -- the stock market had its worst week this year, and the S&P dropped two weeks in a row.  He only mentioned  the stock market once, said it had been a "roller coaster" over the past five years.

 (Marketwatch) The Dow Jones Industrial Average  fell 136.99 points, or 1.1%, to close at 12,849.59, its largest weekly hit since the middle of December. The S&P 500 dropped 17.31 points, or 1.3%, to 1,370.26, off 2% from the week ago close. The Nasdaq Composite retreated by 44.22 points, or 1.5%, to 3,011.33, leaving it down 2.3% from last Friday's close. The indexes also fell last week, the first back-to-back weekly losses for the S&P 500 and the Nasdaq of the year.

 BOB SEZ HE  MAKES INVESTMENT RECOMMENDATIONS MONTHLY NOW: Caller Bill from Illinois asked Bob what investments he would recommend if the next election brings gridlock in Washington. Bob replied: "I don't make my investment recommendations six-months in advance. I make them in real time....They are not investment recommendations for 2018 or 2015 or November of 2012. We'll deal with that in real time."

Honey EC:  That "real time" statement makes no sense to me. He's always had S&P 500 Index price targets out as far as a  year.  For example, in the October 2007 Marketimer,  Bob Brinker wrote:  ".....based on our estimate of $99.50, we see the potential for the S&P 500 Index to rise at least into the mid-1600s range next year."   (See my April 10th article if you want to know what Bob is projecting for the remainder of 2012.)

VANGUARD GINNIE MAE FUND (VFIIX)  Caller Don from Virginia Beach asked Bob, "What do you see for the Ginnie Mae?"   Bob replied: "You must make adjustments for distributions....Then you will find that the Ginnie Mae Fund is trading near its all-time-high....We still have our Ginnie Mae Fund recommendation. We've had it in the Marketimer investment letter  for many years. This has been an outstanding  holding for our subscribers. We have this fund in our page 7 income portfolio. We also have it represented in our page 8 conservative balanced portfolio....."

Honey EC: Bob has sold down more than half the weightings in both the (off-the-books) income portfolio and the balanced model portfolio III. How strange that he never mentions that fact.

SLOW GROWTH ECONOMY = LOW INFLATION AND INTEREST RATES:   Bob continued: "As long as you are looking at an economy that is growing gradually,  as this one is growing, and it is below trend. You know, the long-term sustainable, supposed trend is 3 - 3 1/2% for real Gross Domestic Product. We have not been able to get there....We've been perking along below that level, and I expect we are going to continue to see that for awhile. So what that means is that you are not seeing pressure on interest rates. You're not seeing pressure on inflation. Therefore, you not seeing pressure on interest rates. As long as that situation is in place, it's unlikely you are going to see a dramatic move in interest rates. When you will see a dramatic move in interest rate -- it may be gradual but still dramatic in its totality, that would occur when you see the economy reach a point of full trend growth -- 3, 3 1/2%+ a year in real terms. Then you could see what we call a normalization of interest rates. That would have consequences for net-asset-values (of Ginnie Maes)."

VANGUARD HIGH YIELD FUND (VWEHX): Jay in Orland Park, Illinois wanted to know why there are high-yield funds  in Bob's income portfolio and not in the balanced model portfolio III. Bob said: "The reason we have the high-yield fund in the income portfolio...is because the balanced portfolio has stocks in the portfolio through equity mutual funds. So we are taking risk in the stock market in model III, to an area of 50-50. A little bit over 50% of that portfolio in the equity market." 

Honey EC: Bob's model portfolio III is now over 60% in equities, about where it was when the megabear market started in 2008 when it lost over 20%.....  That took care of the re-balancing for him. :)

EC2: It was a big surprise when Bob added the Vanguard High Yield Fund to the "fixed income fund" in March 2003. Up until that point, he had been consistently negative about "junk bonds." As one would expect, this fund did well until the bear market hit in 2008, then it got clobbered right along with equities. So the income portfolio that Bob is now touting every single week, lost money in 2008 even though that year Vanguard's GNMA Fund was up 7.22% and the Total Bond Fund was up 5.24%. Fortunately for Bob (as well as myself since I own them) high-yield bond funds are doing well now.

VANGUARD WELLESLEY INCOME FUND (VFINX) IN MARKETIMER.... Caller Diane from Chicago asked Bob about the Vanguard Wellesley Income Fund.  Bob still highly recommends it as he did on Moneytalk last September:  "Yes, it has a great record. And yes, I have used that as a recommended fund in my investment letter.....I have the Wellesley Income Fund included, which is mostly a fixed income fund -- we've used it in the income portfolio, which we publish on page 7 of the investment letter. And we also have used the Wellesley Income Fund as one of our selections in the balanced fund -- model portfolio III on page 8....So we continue to use that fund. It's done extremely well, had a great year in 2011......"

Honey EC: Bob first added the Wellesley Fund to Marketimer portfolios in January 2011. The income portfolio weighting is 25%, and the balanced model portfolio III is 20%. 

WHAT IF YOU ONLY HAD $100 A MONTH TO INVEST? Bob told caller Neal from Utah, who said he was a beginner investor, that he should start by getting together the $3,000 minimum, then dollar-cost-average the $100 into the Vanguard Total Stock Market Fund (VTSMX).

CONVERT FROM IRA TO ROTH IRA? Caller Joe from Chicago wanted to know if it was a good idea to convert from a traditional IRA to a Roth IRA at age 64. Bob was not for it. He said that it would trigger both state and federal taxes and that money would be gone forever. 

Honey EC:  If one believes that taxes will be going up in the future, that might be something to consider. And of course, the younger you are the better. Here is a LINK to a Roth IRA calculator. 

WHICH TO WITHDRAW FROM FIRST, ROTH OR TRADITIONAL IRA? Caller Mark from Omaha has both a traditional and a Roth IRA and wanted to know which to withdraw from first. Bob said that it was better to withdraw from the Roth IRA first because there are no taxes on withdrawals. 

Honey EC: I had a different thought on this. If taxes are going up, and most of us think they are, wouldn't it be better to withdraw from the traditional IRA first and pay lower taxes sooner rather than higher taxes later? Here is a LINK that discusses which retirement assets  to use first. 

INFLATION:  Bob said: "Inflation is behaving well.....We are not seeing any acceleration. We are seeing a disinflation trend that has been coming into focus. Certainly not seeing any acceleration in the rate of inflation.....I'm not seeing anything right now that going to lead to runaway inflation." 

Honey EC: Yes, good old Bob has always said that rising oil prices were not inflationary. All I know is that it sure is inflating my credit card more when I fill up with gasoline!  And in the past when a caller has challenged Bob to go grocery shopping if he wants to witness inflation first hand, he has claimed that he does shop for groceries. Well, I usually shop at Safeway, Nob Hill or Costco, and I see prices going up, so sure don't know where Bob shops that he isn't seeing it. Here is a LINK to a complete report on inflation.

TAX CHANGES COMING AT THE END OF 2012.....Bob said: "We have things coming up at the end of 2012 that are monumental changes in the tax code unless a program is put together to resolve the whole mess. And I use that word mess advisedly. We have tax cuts expiring at year end. We have new taxes scheduled to go on the books next year. .....We have the 2% individual payroll tax cut expiring at the end of this year.....All of these things are triggered when the ball comes down at Times Square in the Big Apple this coming New Years Eve."

Honey EC: Here's a LINK to a detailed description of  Obama's 2013 budget and tax provisions.

ECONOMY:  Bob continued:  "And there are issues here. The health of the U.S. economy in 2013, for example....Now we all hope that the economy continues its gradual recovery.  And we certainly hope that it becomes a self-sustaining event, without any government intervention  like the 2% payroll tax cut.....So the economy going forward is certainly one of the factors under consideration with this tax policy...."

ILL-NAMED SUPER-COMMITTEE..... Bob continued: "Aside from all the humongous tax increases scheduled to take effect New Years Day, we are looking at about 600 billion dollars in spending cuts in defense and discretionary programs as a result of the failure of the Super Committee. Probably one of the most ill-named committee in the history of the USA -- was that committee they put together to resolve this mess.....It collapsed in total failure. In fact, the collapse was so total that they had to go back to the default outcome which was mandatory cuts -- $600 billion in 2013 those cuts begin."

POLITICS: Honey EC:  Several times today Bob put on callers who talked politics. Bob used those opportunities to slam  'partisan politics" and blamed "both parties" for budget problems.It's mostly repetition of his same views that he has expressed for some time. A couple of interesting points:

 
THE BUFFET RULE....Bob said: "The Buffet rule, a complete distraction from reality....A rule that would affect one in 1250 taxpayers. Such a rule does not even deserve the light of day on the campaign trail, but they will go out and they will campaign on such distractions....I would say this, the Buffett Rule is basically a populist measure aimed at winning votes in a presidential election year. That's why it's been embraced by the White House. That is why it's being promoted by the White House....."

POLITICAL QUOTE OF THE DAY: Bob said: "Until Barney Rubble recently announced that he was not going to run for re-election, he was one of these long, long, forever serving members of the House with the star-power, the celebrity powers, showing up on TV shows -- even showing up on comedy TV shows. Nobody would believe this stuff in another country. But here we have it in the grand USA political system. Six figure salaries, putting to shame the average worker. Great benefits, star-power -- I'm a celebrity. Of course they want to stay in office. And let me tell you, it beats working for a living. It beats getting a real job. And the astounding fact is that no matter how dysfunctional congress is....they still get re-elected at over 90% for incumbents seeking office."

AMERICA'S LONGEST-RUNNING INVESTMENT RADIO SHOW....Today Bob Brinker reminded listeners that he has been doing Moneytalk for 27 years and is the longest running investment program in the USA.

KSFO 560: 1-4pm  (KSFO offers FREE  Moneytalk on Demand  for seven days after broadcast.)

Bob's guest speaker was Mike Mayo: Exile on Wall Street: One Analyst's Fight to Save the Big Banks from Themselves

ON A LIGHTER NOTE: 

Here is Jeffchristie's Moneytalk Final Exam Question for this week. Jeff wrote: 

Today on Moneytalk Bob Brinker mentioned twice that the first broadcast of Moneytalk was in 1986 on:

A) Black Friday
B) Earth day
C) Super bowl Sunday
D) Cinco de Mayo day

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April 10, 2012, Bob Brinker's Most Recent Market Outlook and Fairholme Fund Tax Losses

April 10, 2012... With the S&P 500 Index dropping 4%, from 1419 to 1358, in the past five days, Bob Brinker fans may be wondering if he has made any changes in his stock market views. The answer is no, he's very bullish.  All of Bob Brinker's Marketimer  model portfolios remain still fully invested.  However, he recommends dollar-cost-averaging for adding new money to the stock market.

As the market was rallying, Brinker gradually raised his S&P 500 target range. Last month, he raised it slightly from low-to-mid 1400s to mid-to-high 1400s.  Now in the April 2012 Marketimer,  he raised it again.  Brinker wrote: "....we are taking a slightly conservative stance and using a P/E multiple range of 14.5% to 15 times 2012 estimated operating earnings. This P/E ratio range leads to a 2012 S&P 500 Index price target range in the upper 1400s to low-1500s going forward."

Caution: It's very important to remember that Brinker's advice has been wrong as many times as it has been right -- kinda like flipping a coin. For example, in October 2007, almost to the day that the biggest bear market in 70 years began, Brinker wrote this in the October, 2007 Marketimer: "Investors will begin to look forward to 2008 operating earnings, and based on our estimate of $99.50, we see the potential for the S&P 500 Index to rise at least into the mid-1600s range next year."

ITEM TWO:

Bartee commented that his tax accountant told him that one of the mutual funds that Bob Brinker recommended and then  sold last year had created a tax loss for him. 

Bartee said...

honeybee is right , can't stand to hear the voice of lynn or her views,, gasp,,, I went over my assets today being tax time,, and my tax accountant pointed out to me that brinkers choice of the fairholme fund had lost 75% of its value and then in 2010 or 11 .. brinker had us sell it ,, at a loss,, I am now aware of running the numbers month to month so this doesn't happen again,, honeybee is right, those numbers bob puts out of gain on his portfolios are for his newsletter to make him look good ,, thank you ms bee for making me aware again,,, buzzzzz

April 10, 2012 9:51 AM

(LOL! You gotta love Bartee's enthusiasm, and that's good advice to keep track of the funds in Bob's portfolios.).....I checked back through old Marketimers and found out that Bob told subscribers to add Fairholme Fund (FAIRX) to Marketimer model portfolios II and III in January 2007, and sell it in April 2011.

I don't know exactly when Bartee sold the fund, but today it is trading very near what it was when Brinker made the buy. But considering how volatile the fund is, it's surprising that Brinker would add it to his more conservative portfolio II and his balanced portfolio III which is for those nearing or in retirement.

Which reminds me, if you are in Brinker's Marketimer model portfolio III and comfortably think that you are 50-50 stocks and fixed income, better check it out. The portfolio is about 2/3 equities now.

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April 8, 2012, Bob Brinker's Moneytalk: Lynn Jimenez Fill-in Host

April 8, 2012....As most of us expected, Bob Brinker took Easter Sunday off from Moneytalk. Lynn Jimenez filled in for Bob today.

I didn't listen to much of the program, just parts of the third hour,  but Jeffchristie did and gave me a rundown. 

Jeff said that Lynn's  topics were oil/energy and why investing in the stock market is unfair to everyone except the "big players."  In general,  Lynn's attitude about investing in the stock market is very negative, and she referred to it as a "Ponzi Scheme"  today.  I have never heard Bob Brinker say anything remotely similar.

Lynn was rude to a couple of callers and cut them off when they dared mention an opinion that didn't fit with her own political agenda.

One of those hapless callers was Candice in the third hour. Candice pointed out that in spite of all the talk about oil reserves, Keystone Pipeline and refineries, Lynn had carefully avoided saying anything negative about the Obama Administration's role.

 Lynn actually screamed over Candice at the top of her lungs and said SHE was going to make the rules about what could be discussed and that did not include Obama. Later,  Lynn  tried to make light of her rudeness by making the comment:  "I never promised that I wouldn't yell at you."

Very nice, Lynn, very professional -- NOT!

Lynn's guest speaker was John Kilduff -- more discussion about oil/energy.   After all the whining Lynn did  about "Wall Street" being unfair to the "little guys," how ironic that the guest's resume looks like this:

John Kilduff, Founding Partner, has over 15 years experience in energy trading. His experience includes trading energy futures and options, over-the-counter energy derivatives, portfolio construction and risk management......Mr. Kilduff also participated in the launch of Round Earth Capital, a natural resources hedge fund.

Lynn made the comment that she: "loves algae." Maybe that "love" has something to do with this Forbes article: "The Obama Administration has already sunk $25 million into a Florida company—Algenol Biofuels—that is building an algae biorefinery using a patented technology that promises to streamline the process of extracting oils from algae so they be converted to ethanol directly from algae.

 ON THE LIGHTER SIDE

A couple of weeks ago, Bob Brinker gave the audience one of the Moneytalk Final Exam questions. Here it is:  "What seven states have no state income tax?"

Now, through his Secret-Moneytalk Decoder Ring, Jeffchristie has received another Moneytalk Final Exam question for this week. It's multiple choice:

The late Bill Flanagan was the substitute host for Moneytalk prior to Lynn Jimenez. Bill once expressed his feelings about GM cars when he said they were:

A) Pretty cars
B) Kiddy cars
C) Little bitty cars
D) Flanagan used one of the seven words that George Carlin said you couldn't say on television.

The answer can be found in the audio link below.  Skip to the 5 minute mark.

Moneytalk: Bill Flanagan Says a no-no 

Honey EC: I really enjoyed listening to Jeff's great find of Bill Flanagan filling in for Bob Brinker. We think this was shortly before Bill died -- probably 2009. He used a word that would give Bob Brinker nightmares. Bob wouldn't even give a book title a couple of weeks ago because it had the word "bitch" in it.  Guess his mom used a lot of soap on him. LOL!

Lynn's Moneytalk show from yesterday is now available and  Free on Demand at KSFO 560 in the 1pm, 2pm, and 3pm time slots.

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April 8, 2012 Happy Easter and Passover

April 3, 2012....Bob Brinker, Bob Brinker and Mark Hulbert Financial Digest

April 3, 2012.......................................................(comments welcome)

In my opinion, Mark Hulbert pimps (figuratively speaking) for both Bob Brinkers in the way he reports their newsletters performance in Hulbert Financial Digest.  He has done numerous shenanigans, such as  "risk-adjusting" and rearranging his performance lists to keep their newsletters  showing up as much as possible. (He created an  "Honor Roll" that Marketimer always makes it on regardless of performance.)

Hulbert began covering the Brinker Fixed Income Advisor from the time it was first published in 2005. The old saying, it's not what you know, but who you know comes to mind.  Or in this case, what's your daddy's name?  There is much confusion about who actually publishes this newsletter, and the Jr-Brinker makes it even more confusing by posting on his website and Twitter as "Bob Brinker." 

Today, Mark Hulbert wrote a Marketwatch snake-oil sales pitch about the Jr-Bob Brinker. Are they good buddies? I think that's very likely. At least, they are both on the Bob Brinker's Moneytalk and Marketimer band-wagon that takes loads of loot to the bank. :)

For Marketwatch, Mark wrote: "Brinker’s service is in first place for risk-adjusted performance over the last five years among the nearly 200 advisers tracked by the Hulbert Financial Digest." 

The deceptiveness of that statement is enough to make you shake your head in disgust. Note the words, "risk-adjusted." What he doesn't say is that in simple performance numbers, BFIA ranks number 14 -- which is still good -- but even that is misleading because it is ranked against stock newsletter.
 
 When I saw BFIA on the top-5 of  Hulbert Financial Digest Overall Performance Scoreboard, I wrote to Hulbert and asked if he knew that BFIA was a fixed income newsletter.  Here is my email to Hulbert:

From: DXXXXXXX]
Sent: Sunday, October 17, 2010 4:38 PM
To: Hulbert, Mark
Subject: RE: Robert M. Brinker's Newsletter

 

Thank you for your response. To answer your question about  the focus of my question:

Firstly, I did not know that you rated 100% bond newsletters along side 100% equity newsletters.

Secondly, I noticed that you listed the Fixed Income Advisor as holding equities as shown below:

Key:  U.S. Equities   Int'l Equities   U.S. Fixed Income   Int'l Fixed Income   Gold

Here is Mark's response to me. No fair laughing about  the "algorithm" thingee:

Sunday, October 17, 2010 1:52 PM

From:

"Hulbert, Mark"

View contact details

To: "DXXXXXX

Now I understand.

 

I think the source of this listing that you report is a function of the algorithm that determines the range of asset classes that are reflected in a newsletter’s portfolios.  I think the algorithm defaults to “E” whenever there is one or more securities that otherwise doesn’t get mapped specifically to one of the five classes.  I suspect that some of the exchange traded funds that Brinker recommends fall into this category, though without a lot more work I can’t be sure…

I'm not certain exactly when the Jr-Brinker added Wellesley Income Fund to his model portfolios, but I'm pretty sure it was soon after my email exchange with Mark Hulbert.

I've written before about the incredible mulligan that Mark Hulbert gave to Marketimer's Bob Brinker after the disastrous QQQ trade. Here are some comments posted to my  last article:  

• Dilbert, what a JOKER! said...
• "Please note: In late 2000, Brinker forecasted a several-month bear market rally and recommended an investment in the NASDAQ 100 Index, a trade that turned out quite unprofitably. However, because Brinker at the time of making this forecast chose not to make this trade part of his model portfolios (Not true. See note 1), his HFD record has not suffered as a result."
• 
  __ Mark Hulbert on Pg 16 of the January 2012 issue of "The Hulbert Financial Digest - Long Term Performance Ratings" under Footnote 10:
   
• Note 1: Brinker did not tell his subscribers this advice was "official" until weeks after the rally failed to materialize. Hulbert even admitted he bought QQQ for his portfolios then sold them for a loss when they didn't show up in Brinker's model portfolios while Brinker was saying to buy more in his newsletters as the fell from the $80s. (See "Bugging Bob Brinker" for proof.)
   
• The guy doesn't even lie well. Why trust him when his own paper trail is full of errors and complaints?
• April 3, 2012 4:42 PM

birdbrain said...

• Two points:
  
• Hulbert failed to acknowledge that Robert is not Bob, since Bob is on his "honor roll." More deception from the newsletter community.
  
  Poster @ 9:54 am today:
  
  Thought of the late comedian Sam Kinison's
  take about America's song Horse With No Name
  
  "You're in the middle of the desert with nothing else to do. Name the damn horse."
• April 3, 2012 6:58 PM

  Anonymous said...

• Yeah that Hulbert guy is certainly a bastion of credibility.
  
  tfb

April 3, 2012 8:32 PM

Honey here: It certainly is NOT true that Brinker "chose not to make the QQQ trade part of his portfolios at the time he made the trade" in October 2000.   As late as May 2001, he was still clearly spelling out the exact percentage of model portfolio cash reserves should be used to invest in  the trade. You may need to do some math to see that it adds up to the 65% cash reserves that he raised in August 2000 from Marketimer model portfolios:

May, 2001 Marketimer, Page3; Paragraph 4; Bob Brinker wrote: We continue to believe the Nasdaq has the potential to recover further in the months ahead. As we stated last month, "with or without a buy signal from our long-term model, we expect the Nasdaq composite and Nasdaq 100 Index to stage a significant recovery over the next several months."

Subscribers with conservative objectives and a low-risk tolerance are limited to no more than 20% to 30% of cash reserves in these shares. this equates up to 6.5%, to 9.75% of a total balanced portfolio. The remaining 70% to 80% of a balanced cash reserves remain in quality money funds. Subscribers with aggressive objectives and a high-risk tolerance are limited to no more than 30% to 50% of cash reserves in these shares. This equals potential investment of 19.5% to 32.5% of a high-risk aggressive portfolio. the balance of 50% to 70% of reserves remains in money market funds."

If you remember your history of what the stock market did in 2001, it never staged any kind of a "countertrend rally" like Brinker was calling for. It continued deeper into bear territory and did not bottom until March 2003.

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April 2, 2012, Bob Brinker's Moneytalk Tax Expert Interview

April 2, 2012...Yesterday, Bob Brinker's third-hour guest author was tax expert, Barbara Weltman,  J.K. Lasser's Your Income Tax 2012: For Preparing Your 2011 Tax Return

David Korn, who writes a weekly newsletter that includes summaries of Moneyalk, summarized Barbara's important points. Posted with David's permission:  

1. The deadline is not April 15th, but rather April 17th this year. That’s the deadline to file or request an extension.

2. You can get an automatic 6 month extension without giving a reason — just for asking. You still have to pay as much as you owe to avoid interest and penalties.

3. Don’t look for some of the provisions that were available on 2010 such as the making work pay credit the credit for buying a hybrid vehicle or the first time home buyer credit for most purchasers. Those expired.

4. There are some new forms – Form 8949 to report sales of capital assets such as if you sold stock or mutual fund shares. That form is summarized and carried over to schedule D. There is also 8938 which tells the IRS that you have certain foreign assets.

5. There has been a major tightening up of the scrutiny of capital gains of the IRS.

6. Brokerage firms starting in 2011 were required to report the basis of stocks that were bought and sold and starting in 2012 the basis for mutual fund shares will be reported. This way people can not just make up the basis as the IRS suspects many have in the past.

7. Common mistakes by people who do their own tax forms include: (1) putting in the wrong social security number; (2) failing to report the income that gets reported to them on the 1099 forms. The IRS cross-checks the income that has been reported to them on 1099 against taxpayer returns.

8. If you use a tax preparer to do your tax forms, they now have to file electronically. Now 80% of taxpayers file electronically.

9. The tax code has got more and more complicated. Barbara said this is the 75th year of their publication and each year it gets bigger due to the changes in the law.

10.  Barbara said at the end of 2011 more than 50 tax breaks expired and there hasn’t been any action on extending them so we don’t even know if some of those will apply this year such as the higher exemption amounts of the alternative minimum tax. We also don’t know what will happen at the end of 2012 relative to the Bush tax cuts.

11. Starting 2013, individuals with income over $200,000 or couples making over $250,000 will have additional Medicare taxes if the health care law is not declared unconstitutional by the Supreme Court.

Here are some more tax changes in 2012: Palisades Hudson Financial Group

And here is a link to the J.K. Lasser web site which has good tax information and all the books published by J.K. Lasser http://www.jklasser.com/http://www.jklasser.com

David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service. Copyright David Korn, L.L.C. 2012

Honey here: If you are interested in getting complimentary issues of David Korn's weekly newsletter, and The Retirement Advisor, published by David and Kirk Lindstrom, go here   (Look for David's link in the right hand column under "Related Links.")  Please see my summary of the first two hours of the show below.

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April 1, 2012, Bob Brinker's Moneytalk: Summary, Commentary and Excerpts

April 1, 2012....Bob Brinker hosted Moneytalk today.....................(comments welcome) 

STOCK MARKET.....Bob commented that this is the best first quarter since 1998. It's part of what Brinker calls a 29% "melt-up" that began on October 3, 2011.

Honey EC: Not even an inkling from Bob today that he might be thinking the market is ready to top...nada...no bear, no market top yet. 

INTEREST RATES.... "Very, very low" -- not much change at all.  The 5-year Treasury is in the vicinity of 1%, and the 10-year Treasury close to 2% -- historic lows. Bob said the Federal Reserve continues to be dedicated to keeping interest rates down.

NATIONAL DEBT AND THE INTEREST OWED ON IT:  Bob said: "It's a staggering number. Right now it's at 15 1/2 trillion dollars.....That's the national debt....the money that has been borrowed....
 national debt
I think that a lot of people are not aware of the make-up of the Treasury debt.....The average interest rate that we the taxpayers are paying on the marketable and non-marketable debt as of February data is 2.2% --- one of the lowest numbers ever.  Part of the reason that number  is so low is because the Treasury has chosen to skew their borrowing to the shorter end. That's not a real smart thing to do when you owe 15 1/2 trillion dollars because you, the borrower, in this case the Treasury, you take on the interest rate risk if rates go against you....."

WHEN THE TREASURY DEBT MATURES: Bob continued:  "The average maturity of this debt owed, the publicly traded portion which is roughly 9 to 10 trillion -- the notes and the bills and the bonds is an average maturity of 5 years and 3 months......That's pretty short.....The interest expense on the Treasury debt in fiscal 2011.... came to 454 billion dollars.....The amount of the Treasury debt that is coming due in the next five years is close to 6 trillion dollars....is going to have to be rolled over the next five years...."

ANNUAL DEFICIT FOUR YEARS AT ONE TRILLION DOLLARS: Bob continued: "I think there is a structural imbalance.....in Washington which is the annual budget deficit.  And we are in the fourth year now of annual budget deficits of over a trillion dollars....It's not being resolved....."

70% OF DEBT ROLLS OVER IN FIVE YEARS: Bob continued: "The United States will have to roll over almost 70%  of its privately held marketable securities in the next five years -- almost 6 trillion dollars....And that's unfortunate because the United States right now our deficit is 8.2% Gross Domestic Product. That's a big number, I said we want to see it down 3% or less....We're also running about 68% of Gross Domestic Product -- debt divided by GDP now 68%....."

Honey EC:  I wonder if  Bob isn't  a bit confused about the amount of debt to GDP.  On Moneytalk, July 24, 2011, he stated that the debt was at 90% of GDP.

NATIONAL DEBT INTEREST WON'T ALWAYS BE LOW:  Bob continued: "Here's the problem. There is no basis for anybody in Washington to assume that the rates that are out there today will be out there forever....There's no reason to expect that....What we should be expecting is normalization of interest rates over time....The cost of borrowing goes up fast because the average maturity is only 5 1/4 years and you have all this money to roll over...."

FED MAY DECIDE TO TIGHTEN DOWN THE ROAD:  Bob continued: "The Federal Reserve purchased about 60% of  net Treasury issuance in 2011....The Fed's not going to be in there making purchases like that forever. We don't even know at this point whether there will be a QE3 because if the economy does better, there won't be....There will only be a QE3 if they feel they need it to bail out the economy...These are all factors that could come together down the road." 

Honey EC: In the paragraphs above which are all part of Bob's outstanding first-hour opening monologue, he stated facts, and didn't  seem to be trying to scare listeners, but I found much of what Bob said very alarming. 

CONTINGENCY CASH RESERVES:  Caller Jerry from Virginia asked Bob if he considered three years  of liquid cash reserves adequate.  Bob said he thought three years might be a little long, but for holding them, he recommended low-expense money market funds, such as with Vanguard and Fidelity. (Honey: or Charles Schwab)


PURCHASING GOLD AND SILVER: Caller Brian from Illinois said if the world financial system collapses, bartering would be done with  gold and silver.   Bob said that he did not expect the imminent collapse of the world financial system.  However,  if you buy  gold or silver, never buy numismatic coins because of the tremendous mark-ups. He recommends avoiding the mark-ups by buying GLD, an exchange-traded fund based on gold bullion.

Bob  said: "Another way to go about it is to buy gold bullion coins, that you purchase for the purpose of acquiring the actual physical gold that is in the coin. This does not have to do with numismatics....The United States Eagle gold coin is trading at $1745.88 with a $75 dollar premium, but that premium only represents 4 1/2% of the value of the coin....Because of their portability, these coins tend to retain the premium....Now there are other Mexican Peso has a premium of less than 1% right now. The Maple Leaf has a 4% premium, as does the Krugerrand, but these are gold content coins, not numismatic coins." 

Honey EC: Bob seems to be branching out a bit more with the advice on buying gold bullion coins. He still maintains GLD on his Marketimer list of recommended individual issue -- no price or amount advice to go with it, however. 

 

HOUSING MARKET:  Bob said: "I was reading this week that there have been some bidding wars developing. And I don't even know the last time we had any bidding wars for real estate, but we've seen some bidding wars in places like Seattle, the Silicon Valley, Washington D.C. Even though prices are close to  six-year lows, we have certainly seen some activity and as a result the bidding wars in a few markets."  

Honey EC: In neighborhoods near me close to Santa Cruz, homes are selling like hotcakes, sometimes even before they go on the market.

ESTATE TAXES: Caller Sam from Silicon Valley asked Bob what to expect next year on estate taxes. Bob said that no one really knows for sure since Washington didn't even know. But there are "some people"  who think it will be around  $3 1/2 million per person -- $7 million married couple. Bob said he thought $1 million is too small.


MODEL PORTFOLIO III WITHDRAWAL RATE: Caller Andy from Oregon asked Bob what would be a sustainable rate of return  out of model portfolio III -- and when does one reach the Land of Critical Mass.

After Bob explained that the Land of Critical Mass is a wonderful land where you only work if you want to -- like Ross Perot, Bill Gates  or Warren Buffet, Bob said: "I'm okay with 4% and I'll tell you why. Because most of that 4% is generated by investment income and that's the reason that I say that. You take the investment income in the form of the interest that you earn on the interest bearing securities in the balanced model III in the investment letter. You take the dividends that are paid by the equity investments in that portfolio and then you have capital gains from time to time. Various funds pay capital gains distributions. You put all of that money together -- in a taxable account, it's all taxable -- and you put that toward your 4% annual withdrawal.  In some years, it will exceed 4%, which gives you the ability to put money back into the portfolio. And other years, it will be shy of 4%, you might do a little bit of fund liquidation in order to get up to 4%. But it should be pretty close most years. And I think that is a number I am comfortable with -- 4% withdrawal rate."

Honey EC: Bob is right that the Marketimer model portfolio III is a balanced portfolio -- roughly 50-50 stocks and fixed income. Last year, it was the only one of his official model portfolios that didn't lose money. It was up 1% for the year, exactly the same as the Wilshire 5000.  Bob told Andy that some years, he may have to sell some funds to raise the 4% withdrawal. Well in 2008, the portfolio lost 23.9%, so that year would have been equivalent to selling  almost  28% of your fund holdings to withdraw 4%.

As we know from past Moneytalk discussions, the portfolio contains  20% Wellesley Income Fund (VWINX), 20%  Vanguard Ginnie Mae Fund, 30% in Vanguard Total Stock Market Fund (VTSMX), some very small holdings in Vanguard International funds and the most recent and surprising addition, the Akre Focus Fund (AKREX). 

PRICE OF OIL POLITICAL CALL AND BOB BLAST OBAMA FIRST TIME....Caller George in Tennessee brought up the subject of oil and gasoline prices. Bob said: "I am extremely disappointed in this president in terms of his energy policy.  Some of the decisions coming out of this administration are so disappointing to me, I really have to restrain myself when talking about it. I want to be specific. I have nothing against wind and solar, but to make it the top priority of your energy policy when it only accounts for 1% of all of the energy produced in the world, to spend this much time talking about it makes no sense. It's pure folly as far as I'm concerned. What about the other 99%? And why haven't we unleashed the incredible potential of natural gas in the United States?    All of our trucks and buses should be propelled by natural gas. Easy to do, and the government could lead the way by an executive order from the White House stating that all government vehicles henceforth must run on natural gas.....No good reason not to do.....The last straw was this recent decision regarding the Keystone XL Pipeline. If ever I saw a no-brainer, it was to approve the Keystone XL Pipeline. So I would have to give energy policy in the White House today a failing grade."

On a lighter note

MEGA-MILLIONS LOTTERY TICKET WINNER....Bob said it's impossible for him to have the winning ticket because he doesn't buy lottery tickets. He reported that there are winners, one in a small town (Redbud) outside of St. Louis, one in Maryland and one in Kansas. He said the  take-out on the mega-million dollar lottery is 50% -- expensive gambling. (Honey EC: I'm with Bob on this one -- never bought a Lotto ticket in my life. Mostly because I know I won't win. LOL!)

BOB'S HOUR-TWO OPENING QUOTE: "Our money is your money, we print it for you to use." Bob said some have asked him about this and explained for us young sprouts that  it's  an old-time comedy team, Bob and Ray --  said he  was "always  a huge fan."

Bob's guest author-speaker today was Barbara Weltman:  J.K. Lasser's Your Income Tax 2012: For Preparing Your 2011 Tax Return

 KSFO 560: 1-4pm  (KSFO offers FREE  Moneytalk on Demand  for seven days after broadcast.)

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