May 20, 2012, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

May 20, 2012....Bob Brinker hosted Moneytalk today........(comments welcome)

STOCK MARKET...Bob Brinker did not mention the stock market today in spite of these facts:  The S&P  500 Index posted its sixth consecutive decline, closing below 1300 -- a loss of 4.30% for the week.  This makes a total of three weekly declines and it's very close to the official benchmark 10% correction (around 1277), just under the 200-day moving average. 

Honey EC: In the May 2012 issue of Marketimer,  Brinker  continues to recommend dollar-cost-averaging new money into the market and considers "short-term corrections.....as a health-restoring development." All of his model portfolios remain fully invested.

GREECE AND THE EQUITY MARKETS:  The first caller asked if Greece would affect "the equity markets."  Brinker danced a fine jitterbug and didn't answer the question. Instead he said  that "it depends on what equity markets you are talking about," then launched into how Greece is bankrupt, and may soon be out of the Euro and have to print their own currency. 

Brinker said: “Greece represents 2% of the Gross Domestic Product of the Eurozone (worldwide it’s much less)….Now there are a lot of Greek sovereign bonds held by institutions….These are already substantially marked down as a result of the terms of the second annual bailout. And frankly by now, investors have already had a lot of time to adjust their portfolios to a reasonable level of risk to such a super junk bond represented by Greece…..The Greek situation has been going on for two years…..Is this going to be something that brings down the global economy….I don’t think it is.” 

FACEBOOK IPO AND BRINKER'S 15 YEAR-OLD CAR....Brinker listed some of the new Facebook billionaires:  Zuckerberg, $19 billion; James Breyer, who put in $14 million seven years ago that's now worth $5.8 billion -- and several others. He speculated that maybe these newly-rich will go out and buy  some $1200 jeans or $20,000 bicycles. Brinker said: "I certainly never will. I am proudly driving a 15 year old car, because I like it. I keep it in good shape and I like it." 

Honey EC: Brinker and I have something in common. I too, drive a 15-year old car (mostly) because I like it.  I compared it to new cars and decided I'd rather do the  needed work to keep it in  "good shape" and drive it at least another couple of years.  My decision was partly based on the horrific state sales tax in California. 

FACEBOOK IPO MANIPULATION? Brinker said: "Let's get it straight. Facebook is the single most over-hyped IPO of all time. Nothing even comes close....It went public at $38 and closed at $38.23. Come on, that's less than one percent.....Why didn't it go below $38 on the first day?  That's where the underwriter and stabilization agent comes in....In this case, Morgan Stanley is responsible for supporting the stock price  in the initial trades, certainly on the first day. The number one goal is to keep the price at $38 or better for psychological reasons....If it had gone below $38, then anybody that bought the stock on the IPO would be losing money. They might even ......decide to bail. The worst thing is when the stock goes below the offering price on the first day it is called a busted IPO.....It didn't happen because Morgan Stanley, no doubt, was in there buying stock at $38 a share, holding the line on the offering price." 

WHO IS TAKING FACEBOOK RISK? Brinker made the point that those who are buying the IPO are taking the risk, not those who have taken exponentially more money than they put in for the start-up. "They don't make the money until they sell the stock. And you'll notice that some of the early investors were not bashful about bailing out. I mentioned Peter Feel, he sold 1/3 of his holdings that only cost him $167,000 and he got $640 million.... that basically fell out of the sky. The same thing for the CEO at Zinga, he puts in $40,000 check and takes out $38 million dollars. You haven't made any money at all until you sell the stock. That's the only way that you make the money..... Will Facebook be able to monetize their social networking product that it will justify the share price?"    

GENERAL MOTORS DISAPPOINTED WITH FACEBOOK ADS....Brinker announced that just this week, GM took a $10 million ad budget away from Facebook because they didn't like the results they were getting.  "The ad revenue for the first quarter declined from $943 million down to $872 million." 

CALIFORNIA TAX-FREE MUNIS….Caller Dick from Foster City asked about the safety of "highly-rated California tax-free municipal bond funds issued by high-income school districts."  Brinker said: “You have to be careful. I would certainly go with Moody and S&P ratings on such school districts......And I would not make any large investments in any one small area." 

ZERO COUPONS....Caller Ron from Punta Gorda praised Brinker for getting him into zero coupon bonds 22 years ago and turning $74,000 into $700,000 -- tax-deferred. He asked if he should sell them. Brinker replied: "All you have to decide  is what you are going to do in terms of re-investing your money....If you do decide to take these enormous profits, it's important to remind yourself....Okay, you just sold a Zero Treasury at essentially the highest rate it will ever be.  Rates are so far down now, there's not that much left to go to zero." 

VANGUARD GINNIE MAE FUND (VFIIX)  Brinker said: "Yes, it's true that the Ginnie Mae has been a great investment. I'm eternally grateful that we've been recommending Ginnie Maes for so many years...even during many years when a lot of people out there were naysayers.....they were all wrong.  But you need remember, in the event down the road that we see a normalization of interest rates..... Then that is going to be reflected in the net asset value of all bond funds." 

ECONOMY, INTEREST RATES AND MANAGING RISK....Brinker said: "They are going to stay down if we stay on the slow growth track we are on because there is nothing to push them up. The Federal Reserve is trying to stimulate the economy.....That's what holds mortgage rates down. That's what helps the housing market to do a turnaround -- even though we are in the very early stages.....Normalization of interest rates is inevitable and US taxpayers are going to be horrified when that day comes . When they see how much more they have to pay interest on federal debt -- you don't even want to go there.....If you going to be in a bond fund, you develop a mental stop loss....These Federal Reserve statements are only good as long as the economy is growing slowly. If the economy should grow rapidly, they would throw that policy under the bus. I see a slow growing economy. At best, slow to moderate." 

REPORTING DIVIDENDS ON VODAFONE -- WILL BE ON MONEYTALK FINAL EXAM:  Larry from Springfield said he had emailed  Brinker about the yield on Vodafone. He said his local paper had it at 7 1/2 and Brinker's Marketimer has it at 5 1/2. "You told me in your email that you do not count the special dividend distributions. Would you explain that to me."  

Brinker replied: "When we quote a yield in the Marketimer investment letter, on a stock, we want subscribers to expect that based on the current dividend pay-out rate.....What you're talking about is, Vodafone received a special dividend from it's 45% ownership from Verizon....Vodafone passed most of that $40 million along to shareholders....but you can't be certain that will happen every year.....If you see this on the Moneytalk Final Exam, I'd hate to see you get it wrong......What is the annual indicated dividend payout rate on Vodafone common. The answer is a little over 5%.....Larry, if you get this wrong on the Moneytalk Final, I'm going to cry."

Honey EC: Vodafone is one of three stocks that Brinker has on  list of  recommended individual issues. The other two single stocks on the list are Microsoft and Suncor. The others are ETFs, including GLD and DVY.  Brinker first recommended Suncor (SU) May 2009, in the "mid-20's." It's still listed as a "buy" below $33 -- which means it's a roaring-buy right now at $26.86. It's done several round trips into the mid-$40s, but like Brinker usually does, especially with off-the-books recommendations, he never gives "time to take profit" signals.  

REAL ESTATE....Brinker said: "The things that are going on in real estate are just amazing. Now in general, we are in the early stages of stability and improvement in the real estate market.....Properties in Southern California, in some neighborhoods, are going on the market....are selling right away, getting multiple offers and selling above the offering price.....There are also  signs of increasing demand in other areas of the country in high-end properties, places like New York, places like Boston, and certainly along the coast of California. So it's not just the greater L.A. area.....I think it is stunning to see bidding wars breaking out in some areas....This would have been unheard of even a year ago."

Honey EC: In neighborhoods near me, homes are selling almost instantly, sometimes without even going on the market for desirable view-properties.  And inventories are dropping rapidly.

WHICH IS BETTER: THIRTY YEARS IN STOCK MARKET OR A 30-YEAR LOAN? John from New Jersey wanted to know which is a better choice for cash, taking out a 30-year loan and putting money into the S&P 500 for 30 years or paying off the house. He said a  friend had recommended the stock market route, claiming that over 30 years, nobody beats the stock market. 

Brinker replied: "If you have the money sitting in a money market fund getting next to nothing, you're better off paying for cash.....No person can speak for your tolerance for risk. I wonder how he would have felt if he had done that January of 2000, when the S&P 500 was trading in the 1400s, then a couple of years later, if he had looked at the account and seen it was down 50% at the bottom in October 2002. These people can be very cavalier with this sort of thing, but if you have it invested in a positive way, then obviously, you want to keep it invested.....The S&P 500 has a yield of close to 2%....And you get a write-off on your tax return....Let's not forget that we have no idea what the tax code will be in 2013."

Honey EC: Brinker regularly hearkens back twelve years to the 2000-2002 bear market because he was partially in cash for that one.  But he ignores the big pink pig in the room which is the megabear market that happened just four years ago. The 2007-2009 bear market was deeper than the 2000 -2002 bear. It was down 57% at the bottom, and he was fully invested the whole time. Both of his equity model portfolios lost over 50% from the top to bottom.  So if you did as Brinker pointed out and bought at the January 2000 top, you would now have ridden out TWO 50% bear markets. 

STOCK STEALTH GAMBLER AND DIVERSIFICATION.... Brinker explained that a stealth gambler is not a person who goes to the race track, or someone that hangs out in the sports books in Vegas or Reno, because that is very transparent gambling. Nope, it's someone who has most all of their money in one stock.  To those people, he recommends diversification. 

POLITICS.... Brinker repeated what he has said before about how no one in Washington will do anything about the tax deadlines that are looming at the end of this year. He says the US has the best government money can buy and that it is "dysfunctional." 

WHAT ARE OIL SPECULATORS?  Brinker said: "They are straw-men who are built by politicians in order to make populist points on the campaign trail....Speculators are straw-men manufactured by politicians to gain votes from voters  that don't know what day of the week it is......Oil speculators might be an oil company that is hedging its position in the futures market. What's wrong with that? They should do that. Their shareholders expect them to do that. This whole business of blaming oil prices on speculators is nothing but politics."  

COMEDY SKIT OF THE DAY; IT'S THE END OF THE WORLD, WATCH THE MOOSE:  AC in Oregon said: "There will be some major Earth changes. Within the next ten years, half the life on the planet will be deceased. I was wondering what kind of investments, maybe gold and silver rather than any form of stocks and the website is..........(Brinker bleeped that out)....There's going to be major earthquakes.... and Yellowstone will erupt. We've got moose moved down into eastern Oregon, western Washington." 

Brinker replied: "Well AC, I'm glad you had a chance to speak your mind. Let me just say this about that: I hope you're wrong. And that is not an investment question."  To next caller, Brinker said: "I saw the moose, I didn't get too close because I was warned, but I saw the moose on a trip to Yellowstone and Jackson Hole and that area. I was very impressed, but you don't want to get carried away with the moose."

Brinker's guest speaker was Daniel Borenstein, editor for the Conta Costa Times. He addressed the topic of outrageous public employee debt which right now is over $30,000 per household in the State of California. If you live in California or just don't want to pay to bail us out, I highly recommend that you carefully read this column:  Borenstein: California households owe an average $30,500 for public employee pension debt

On a lighter note, Jeffchristie wrote:

Today Bob talked about the Moneytalk final exam.  Here is this week's question.  Bob Brinker is a member of:

A) The Augusta National Golf club.

B) The Democratic party.

C) The New York Society of Security Analysts

D) Occupy Wall Street.

Moneytalk on Demand and To Go are FREE at KSFO 560 for seven days after broadcast. Download Sunday, hours 1-4pm.

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