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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