August 26, 2012, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

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

STOCK MARKET:  Brinker is still bullish on the stock market even though he only made one passing reference to it today in the first hour......He said: "The market made its high for the year in April and now it's back very close to its high for the year."

INTEREST RATES.....Brinker:  "at or near historic lows."

BRINKER'S MARKETIMER MODEL PORTFOLIO III: In hour one, caller Tom in Boston wondered if it was still okay to use a 4% portfolio withdrawal rate since interest rates are so low.

Brinker replied: "We use that withdrawal rate in concert with our balanced model portfolio III in the investment letter (Marketimer). We have stock market holdings and we also have income holdings in that account. So we are able generate a decent cash return out of that portfolio.....And we can liquidate shares at year-end as necessary because we're having appreciation. We are seeing double-digit gains in our equity portfolios year-to-date, and excellent returns in our balanced portfolio -- high single-digit."  

In hour two, caller Bob from Tinley Park said that he is a subscriber who follows Marketimer model portfolio III. Brinker replied: "I'm happy to say, Bob, that model portfolio III is having a very good year so you should be a happy camper." 

Later in hour two, Caller Carl from Springfield, who said he was in his 80's and was managing a trust account worth $600,000, asked for Brinker's advice.  Brinker replied: "I would suggest thinking about a balanced portfolio. We publish one in the investment letter which is the balanced model III. It has both stock market and income objectives." 

Honey EC: Brinker chose to focus on his balanced model portfolio III today for his newsletter snake-oil pitches.  Previously, his focus has been on the "income portfolio" which is officially "off the books" in regard to his market-timing performance record. 

He bragged about this year's performance, but be aware that Brinker's equity model portfolio I has not yet returned to the same level it was before the 2008-09 megabear market crash.  And equity model portfolio II is barely back to even. Both of those portfolios lost 57% from the October 2007 high to the March 2009 low.  

The balanced model portfolio III did a bit better but still lost almost 24%  in the bear -- even though it was about 40% bond funds. So Brinker's advice to count on "stock appreciation" to make up a 4% yearly withdrawal may not work on those down years. Especially if he stays fully invested through all the bear markets, like he has for the past nine years.

MODEL PORTFOLIO III DANGEROUSLY OUT OF BALANCE

IN EDIT:  Jeffchristie has done the math for me to show the actual "balance" of Brinker's model portfolio III. Right now, the portfolio is 32% bonds and 68% equities.  That is not good news for those in or near retirement who believe it is balanced 50-50 stocks and bonds.

The total dollar amount of that portfolio  that shows on Bob Brinker's Land of Critical Mass website = $241,395.   Here are Jeffchristie's numbers:  

VFIIX $40,327 (bonds)

          VFSTX $17,818 (bonds)

VWINX (63% bonds) =s $26,290 _________

          $84,435 total in bonds.......$84,345 is 32% of $241,395.

VANGUARD GINNIE MAE FUND SMALL PART OF BRINKER'S MARKETIMER....Caller Tom from Boston, who said he followed Marketimer model portfolio III, made the comment that Ginnie Mae yields are low now.  Brinker replied: "Ginnie Maes are only a small part of that portfolio. Most of that portfolio is not in Ginnie Maes. It's in stock market funds and other holdings."

Honey EC: Brinker is right. He has sold a sizable percentage of the Ginnie Mae holdings in both the income and balanced portfolios. The income portfolio is down to 15% in the Ginnie Mae Fund and model portfolio III has 20%. Additionally, model portfolio III has a 10% weighting in Vanguard Short Term Investment Grade (VFSTX) and 20% in Vanguard Wellesley Income Fund (VWINX), which is 63% stock and 37% bonds. The remainder is invested in stock funds -- mostly Vanguard Total Stock Market Fund (VTSMX). 

TRADING ETFS AND CHARLES SCHWAB.....Caller Kyle from Carolina said he traded ETFs through a Schwab account and asked Brinker for some tips.

Brinker said: "I can't give you a trading strategy because  trading is a movable feast. An active trader can have different points of view daily or weekly. Certainly from a long-term perspective, I think my favorite vehicles for someone 24 years of age would be SPY or VTI. Those types of indexes are a good way to invest.....The market made its high for the year in April and now it's back very close to its high for the year......"

When Kyle followed up by asking  Brinker's opinion about Schwab, saying he made trades for free there, Brinker replied: "I don't know what's better than free. I don't know any way to tell you to beat free." (Then Brinker abruptly hung up.)

Honey EC: Brinker clearly has a bias against Schwab. I have speculated that it had to do with something that happened back when he was using them exclusively for his BJ Group accounts. 

HOUSING MARKET: Brinker comments: Housing is looking up after declining by about 1/3.  The median existing home price on a year-over-year basis is up about 9.4% -- the best year since 2006.   On a $200,000 property, that is about $19,000 in price appreciation.  It is now helping the economy instead of being a drag on it.

HOUSING PRICES AND INFLATION....Caller Mark from Atlanta said that he thought rising home prices were inflationary and a "horrible thing."  Brinker disagreed, he said it's  a good thing, especially for those people who are underwater on their loans. Inflation is only 2% right now.

"WHAT BROUGHT DOWN THE HOUSING MARKET? Brinker said: "The housing market was not brought down by interest that was being charged on Libor related mortgages. It was brought down by the irresponsible lending that occurred in the mortgage lending business." 

BRINKER: PRESIDENTS DON'T DETERMINE LEVEL OF UNEMPLOYMENT IN U.S.....Brinker said: "I question the notion that the president, doesn't matter who it is, whether it's George W. Bush, whether it's Barack Obama, determines the level of unemployment....Do any of these presidents really have a major impact on that outcome. I think it is highly questionable...." 

FISCAL CLIFF TAX INCREASES....Brinker said: "The capital gains rate, estate tax, tax on dividends are all  set to go up in January and all of the Brackets are scheduled to increase if nothing is done before the end of the year."

WAIT UNTIL CLOSER TO YEAR END TO TAKE EXTRA CAPITAL GAINS: Caller John from Illinois asked if he should sell $100,000 worth of stock now to take advantage of lower capital gain taxes. Brinker advised him to wait until later in the year. He also asked John about his income. John told him that he made about $200,000 a year. Brinker then said that he didn't think John would be affected by the possible Medicare 3.8% increase anyway.

POLITICIANS AND THE FISCAL CLIFF: During the first hour, Brinker said: "This is the most amazing thing. Both Parties will find anything that they can think of that they will talk about other than the fiscal cliff. How much discussion have you heard out of either party and the top candidates about the fiscal cliff. I would bet that you have heard almost no discussion. Now this is like the 800 pound parakeet sitting over in the corner chirping away and everybody pretending there is no 800 pound parakeet in the room. If it wasn't so pathetic it would be funny to see the Parties ignore the obvious." 

BRINKER AND NEWS MEDIA  BIASED REPORTING: In the second hour, Tom from Kansas City said he wanted to take issue with Brinker for saying that no politicians were talking about the fiscal cliff. Tom said: "I wanted to take  issue with you about what you said about politicians not wanting to talk about the fiscal cliff. For example, Romney, this past week was in Michigan hammering away on the economy and talking about the fiscal cliff for a good half hour. All the news media covered was a 10 second throw away joke line about the birth deal." 

Brinker replied: "Actually I did see coverage of that speech...." 

Honey EC:  Brinker abruptly cut Tom off the air. That was a prime example of how Brinker gets away with demagoguery, spouting off about "both Parties" even when it's a lie and he knows it. He admitted that he heard Mitt Romney talking about the subject, but still chose to spread the trash in all directions with no exceptions. 

Bob, you knew what you were saying wasn't entirely true, so why didn't you say so until Tom called you on it? You spent a great deal of the program blasting all politicians for not talking about the economy and fiscal cliff but never mentioned that you knew Mitt Romney had talked about it at length. 

Brinker again pointed out that he's not a radical partisan -- that's he's an Independent. I don't believe him.  

PROSPECTOR HAS 19 POUNDS OF GOLD: Caller Matt from Utah said that he had about 19 pounds of gold in his possession. He said he had found the gold himself over the years -- gold dust and nuggets.  Brinker said that would equal about half a million dollars, but Matt needed to know if it was pure gold. He told Matt that he needed to take it to a trusted assayer and find out. Brinker also cautioned him about having so much money in gold.

OWNING 15,000 SHARES OF J.P. MORGAN:  Caller Andy called himself a gambler and told Brinker that he owned 15,000 shares of J.P. Morgan  and had about a dollar profit per share. He wanted to know Brinker's opinion of the stock going forward.

Brinker replied: "You have to know when to hold 'em and know when to fold'em." (That's a line from an old song, "The Gambler.") Brinker said that he had no opinion on the stock but cautioned Andy about having so much of his net worth in one stock -- he recommends no more than 4% in any one stock.

HURRICANE ISAAC: Brinker gave updates on Hurricane Isaac several times during the program today.

Honey EC: There is no need to cover in depth what Brinker reported on the hurricane. It's all over the news and constantly changing. 

HURRICANE'S AFFECT ON OIL PRICES.....Brinker comments: The path of Isaac seems to have moved to the western Gulf of Mexico which increases the possibility that we could see impact on offshore energy rates -- short term degradation of supply....Generally the disruption to the oil infrastructure are minor on a hurricane one or a category two.

Brinker said: "There's no question that a category two hurricane is going to have regional impact.....The question is, is it going to result in a dramatic run-up in national gasoline prices. My guess it that it will not. It can have a spike in the regional area -- and shortage, but nationally, I don't see it." 

BRINKER RODE OUT A NO-BIG-DEAL CATEGORY ONE HURRICANE..... Brinker said: "I rode out a category one hurricane which is not that far from a category two. I rode it out on the east Florida coast years ago. And I can tell you right now, it wasn't that big a deal."

COMEDY CALL OF THE DAY: After Brinker spent almost the whole second hour opening segment talking about the hurricane, Andy from Alabama came on the air and said: "Hey Bob, you're doing a good job with all the issues from the Weather Channel." 

Brinker replied: "Well, my application has not been responded to but I'm ready."

Andy replied: "Ah well, it will be now." 

BRINKER'S MOST ENTERTAINING COMMENT OF THE DAY:  Charlie from Nevada said that he hopes we do go off the fiscal cliff because it will take pain to bring down the debt and he'd like to get it over with.

Brinker emphatically replied: "Charlie, you're on record. We'll put you down as 'Let it all go down.'" 

Honey EC: I laughed out loud at Brinker's reply to Charlie. Brinker really has a dry sense of humor that I find very entertaining.  If you want to hear Brinker's voice inflections on this call, it's about 35 - 40 minutes into the second hour.  Some day, I hope to be able to make short clips of the program and post them for you. 

Brinker's guest today was Cleve Stevens: The Best in Us: People, Profit, and the Remaking of Modern Leadership

San Francisco, Ca. KSFO 560: 1-4pm (KSFO archives Moneytalk Free on Demand for seven days after broadcast. You can download and listen on the go.)  

Here's why there is no final exam question. Jeffchristie, who lives in Florida, sent this picture earlier this morning. He says the water is even deeper now (about 3:30). He's standing in front of his home:

READ AND POST COMMENTS

August 19, 2012, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

August 19, 2012.....Bob Brinker hosted Moneytalk today............(comments welcome)

STOCK MARKET.....Bob Brinker said: "The stock market is doing well. It is trading less than one point off its closing high for the year. S&P 500 at 1418. Dow Jones also just about  4 points off its closing high for the year at 13,275. The S&P 500 is sporting very handsome double-digit gains year-to-date. So congratulations to all of our Moneytalk listeners that have taken advantage of the opportunity in 2012 despite all the naysayers out there -- despite all those out the sitting with cash.....You've made outstanding returns in what is essentially a zero interest rate world.....Nasdaq sitting at 3076, so all of the indexes have been doing well in 2012." 

Honey EC: Who knows? Perhaps we will eventually return to the S&P 500 all-time-high from October 2007.  Considering the fact that Brinker followers have ridden this market all the way down and all the way back up fully invested for five years, they can truly celebrate when that happens. Will Brinker ever raise cash again?  Right now, Brinker's target range is "upper1400s to lower-1500s."

BOND MARKET.....Brinker said: "It's been quite a year for investors. An opportunity to make money in the stock market......And also an opportunity to make money in the bond market year-to-date.....And I think they should be happy campers because when you are in a zero interest rate world, you deserve credit for making  an excellent return in your portfolio."

BRINKER'S MODEL PORTFOLIO FUND CHANGES....Caller Tom from Pasadena, a Marketimer subscriber, said: "In your last newsletter you recommended the Gabelli Fund to be sold and changed for the Vanguard Dividend Growth Fund.....Hello?' (Brinker: "I'm listening to you.") Oh, okay. Anyway, I thought it might be a good time to shift my from my portfolio two to three. Do you recommend dollar-cost-averaging into three? It would be the Rydex Fund and the Meridian Fund, I'd sell those, take my gains and....."

BRINKER'S ADVICE FOR BUYING STOCKS AND BONDS....Brinker interrupted Tom and said: "Tom, let me answer your question this way. When you go from model portfolio II, which is a long-term growth portfolio, into model portfolio III, which is a balanced portfolio that includes income securities -- when you make that change, you are making an asset class change. You going from some stock funds into other stock funds, fine. But you're also going some stock funds into....income oriented funds....For the fixed income funds in the balanced model III, I would recommend dollar-cost-averaging at this time...As far as changes that go from stocks to stocks -- if you are switching from one stock fund into another stock fund, in that case, I regard that as a sideways move. So in that situation, I would be willing to do it all in the same day....."

Honey EC: It was apparent that Brinker was not happy about Tom from Pasadena revealing the mutual fund changes that he had made in the August issue of Marketimer.  Indeed, Brinker did as Tom said and sold all of the Gabelli Asset Fund (GABAX) holding in both of the portfolios that Tom mentioned -- model portfolio II and III.  The replacement fund he bought for both of those model portfolios is Vanguard Dividend Growth Fund (VDIGX). I did a brief review of this new fund on August 3rd HERE.

And that wasn't enough for Tom, LOL, he went on to reveal two more of Brinker's Marketimer model portfolio holdings -- RYDEX (RYOCX) which is a proxy for the Nasdaq 100,  and Meridian (MERDX). Tom mentioned selling the 10% positions of both of those funds from model portfolio II and moving that money into the fixed income holdings in model portfolio III. Brinker advised dollar-cost-averaging into the bond/income funds, but he said to consider the stock holdings a sideways move.  I thought that made sense since the vast majority of model portfolio III stock holdings is in Vanguard Total Stock Market Fund.  

INTEREST RATES: At or near there record lows. Brinker recited the current yields. You can see them at this site: Morningstar

HOUSING MARKET: "...gradually improving." 

CYBER-SPACE BANKS.... Brinker said: "I like the idea of a bank that I can go in to. Even if I'm dealing online, I still know that the bank is there physically. The whole cyber-space bank thing, I'll leave that to others...The important thing is you know you have your FDIC coverage-- you're good." 

INFLATION:  Inflation "well-behaved".....The core  number (which the Fed looks at) is below 2%. Brinker does "not anticipate that number rising above 2% any time soon." He thinks the Fed's "primary goal is to prevent deflation." 

DROUGHT WILL CAUSE RISE IN FOOD PRICES...Brinker's comments: We are having a significant drought, looking at the history of droughts. We've see the price of items like corn skyrocket. I think that without any question, we face the possibility of rising food prices into next year. "I think we should all be prepared for that." If food prices rise in 2013, that will take discretionary spending money out of the pockets of consumers and put it in the grocery aisle, but we don't know how much.

ECONOMY WILL STAY ON SLOW GROWTH TRACK....Brinker said: "There's no question food prices could have an upward bias in the next year and that takes money out of consumer pockets. And that's going to keep the economy on a slow growth track. As you know, my expectation has been a slow growth track and I expect that to continue to play out.  It's been spot on over the past year and I think we will continue to see slow growth economy." 

ETHANOL CAUSING CORN PRICE TO SKYROCKET: Brinker comments: In addition to the drought, we have to deal with, we are under a five year old federal mandate that requires more ethanol go into gasoline each year. This government program has diverted close to half of the U.S. corn supply away from animal feed lots and into ethanol refineries. That is one reason we've seen corn prices skyrocket. It's  highly controversial program, but the politicians can't touch it -- it's the third rail in swing states like Iowa. Nothing will be done in 2012, no matter how severe the final tally is.

GOVERNMENT POLICY SCREWS AROUND WITH FOOD SUPPLY.....Brinker said: "In the United States, a government policy has been made to screw around with the food supply....Oh, that will be interesting....Well, we've done it, now we see the results of the drought. And now we are facing situation where into next year, I would expect you are going to see inflation in food prices. It seems inevitable at this point."

UNEMPLOYMENT.....Brinker comments: It's a tough labor market -- over 8.3% unemployment. Well over 20 million unemployed individuals  in the country. Underemployment rate about 15%.

WASH SALE....Brinker reminded listeners that the wash sale does not apply to profits.

PURDUE UNIVERSITY STUDY: DROUGHT DAMAGE ALREADY DONE....Brinker commented that he was reading a study this week from Purdue University which pointed out that the drought has already done its economic damage -- no turning it around now. Here's the link to the study: Report: Corn Ethanol

HYDRAULICS PARTS FACTORY -- OWNED BY CATERPILLAR.....Brinker's comments: Their union voted for a new contract that accepted almost all of the companies demands. You would never see this in a public sector union -- "they run roughshod over local city councils and usually get their way. That is one of  the reason so many municipalities are in fiscal trouble."  Many cities in California have already filed for bankruptcy and they admit that the public sector union contracts have driven them to that point.....It is good for shareholders when you see corporate management able to restrain labor cost....It's not easy to get a job and the workforce knows it.

FACEBOOK FIASCO....Brinker said: "Some people are calling Facebook the biggest IPO fiasco of all time.....I'll never forget this offering....Things started happening before the offering that had to raise your concerns. There was a news release from General Motors saying this Facebook advertising isn't doing so good....Then we starting seeing stories that they're going to have to monetize the mobile for Facebook....People still don't know how that's going to happen.....Then the underwriters started to raise the offering.....And then the underwriters botched the entire deal.....decided to greatly increase the size of the offering. What you have there is a recipe for disaster.....Looking at a 50% mark-down in weeks is a disaster......The stock that was locked up for 90 days.... are eligible for sale within a year or less...some of that is already out there.....There are more lock-ups coming.....Between October 15th and November 13th another 241 millions shares will be available for sale....Another 1.2 billion (did Bob mean million?) shares that expires on November 14th and another 149 million shares in mid-December....How do you spell supply....This was all known at the time of the offering.....

COMPARE FACEBOOK IPO TO GOOGLE IPO....Brinker continued: "As I told you at the time of the offering on this broadcast, when you compared the valuation  of Facebook at that IPO price of $38 to the valuation of Google, which was then traded at a price lower than it is now.....it jumped off the page -- the valuation exercise between the two companies jumped off the page."

WAIT UNTIL AFTER ELECTION FOR ACTION ON FISCAL CLIFF:  Brinker told a caller, who said he was thinking of selling out his portfolio before the end of the year to avoid a possible high capital gains tax next year,  not to expect any clarity from congress before the election on November 6th... Brinker also went over the possible capital gains tax increases and the scheduled Medicare tax on capital gains for high income earners.

Honey EC: I've covered all of that tax stuff ad nauseum. If you want to listen to it, it's about halfway into the first hour of the program. Here's a Fidelity article: Could Elections Impact Your Stocks: History Doesn't Always Repeat Itself

BRINKER'S POLITICAL VIEWS:  Brinker said: "It's going to be a rough and tumble year on the political front.  We're going to see a negative campaign the likes of which maybe we've never seen before.  If you take a look at some of the opening salvos and the many lies that have already been told on both sides of the campaign. You take a look and you have to conclude this has the potential to be one of the ugliest presidential campaigns of all time. It really is a shame....All we get is purely partisan pap on both sides of the aisle......I think this year, (voting) none of the above would do real well." 

Honey EC: As usual, he must almost break his arm trying spreading the blame" equally on both Parties, and he seldom is challenged.  Hey, Bob, speaking of purely partisan pap: Do you ever look in the mirror? It seems really disingenuous of you to me to use a national "money-talk" program for your propaganda. It's understandable why few are willing to brave your bully pulpit and cut-off switch which is almost always used when someone disagrees with you.  

Here's a Business Week Article that explains the difference between Obama and Romney's tax plans: Capital Gains Faultline as Obama-Romney Tax Plans Differ

ECONOMIC CALENDAR NEXT WEEK: Brinker reviewed it -- it's available HERE.

Brinker's guest-speaker was Edward Skidelsky:  How Much is Enough?: Money and the Good Life

Here is Jeffchristie's Final Exam Question for this week:

Which one of the following did Bob Brinker say was one of the most bizarre tax policies he has ever seen:

A)  The tax on Olympic medals.

B)  The tanning salon tax.

C)  The new Medicare tax on high earners in the health care law.

D)  Utah's additional 10% sales tax if you buy something from a nude person. 

Answer 

San Francisco, Ca. KSFO 560: 1-4pm (KSFO archives Moneytalk Free on Demand for seven days after broadcast. You can download and listen on the go.)  

READ AND POST COMMENTS

August 16, 2012, Bob Brinker's Replacement for Vanguard High-Yield Fund

August 16, 2012....In May 2011, Bob Brinker added Doubleline Total Return Fund (DLTNX) to his Marketimer income portfolio.  On Moneytalk, Bob Brinker has called Jeffrey Gundlach the most talented bond fund manager in the world.

In June 2012, Vanguard closed their high-yield (VWEHX)  fund to new investors. (Those who own the fund can add to their holdings.) That same month Brinker  recommended Metro West Total Return Bond Fund (MWTRX) as a substitute for those who cannot purchase Vanguard's high-yield fund in his income portfolio.

Let's take a quick look at how these three funds have stacked up over the past year. Looks like DoubleLine, even though it is by far the most risky and less diversified of the three funds, has lagged the others.

Metro is not a typical high-yield fund. It holds a lot of Treauries and Fannie and Freddy. It is  not keeping up with Vanguard Fund  and it pays about 2.5% less dividends.

It seems to me like different subscribers to Brinker's newsletter will have different returns in the income portfolio. Not that it matters to him, he will continue to rate the portfolio with Vanguard High-yield fund -- and this portfolio is not part of his official performance record.

READ AND POST COMMENTS 

August 12, 2012, Bob Brinker's Moneytalk: Neale Godfrey Fill-in

August 12, 2012....Bob Brinker did NOT host Moneytalk today. Neale Godfrey filled in again.

This is the third time in a row that Neale Godfrey has filled in for Bob Brinker when he takes his "well-deserved" (tongue firmly planted)  vacations every month.  Working 3 hours a week, three weeks  per month is not easy, ya know. :) You can read my previous Godfrey show comments at the links below:

June 10, 2012: Neale Godfrey

July 8, 2012: Neale Godfrey

August 12, 2012: Neale Godfrey

So what happened to Lynn Jimenez? I checked the KGO website and Lynn Jimenez is still a business reporter there and these comments are still in her profile: "Recently tapped as permanent substitute host for Bob Brinker on the nationally syndicated radio program MoneyTalk, Jimenez served previously as KGO Noon News co-anchor, and has often stepped in to handle breaking news." 

Image of Lynn Jimenez:

For the sake of maintaining this blog's continuity, I listened to all of Moneytalk today so I would know what was said, and more importantly, what was not said. 

There was nothing about investing that is worth commenting on, and nothing pertaining to Bob Brinker. Neale called the program "Money Talk," but her focus was promoting her political views under the guise of: "I want you to tell me how to change America."

Sorry friends, I am not going to torture myself or you by summarizing Neale Godfrey's inconsequential and often ignorant political comments that she spouted today -- or allowed callers to present unchallenged. Godfrey makes no pretense of being fair or balanced.

I do wonder how much damage Neale Godfrey is doing to Bob Brinker's reputation on the one San Francisco bay area station that carries Moneytalk now -- KSFO560. KSFO is the conservative sister station of KGO 810. KGO dropped Moneytalk altogether and KSFO picked it up. But if enough KSFO listeners complain about the Romney/Ryan bashing today, the station may take another look at carrying Moneytalk.

Jeffchristie's Moneytalk Final Exam Question:

Neale Godfrey was trapped in a hotel during the recent revolution in which of the following countries:

A)  Libya.

B)  Syria.

C)  Egypt.

D)  Bahrain. 

Answer: HERE

San Francisco, Ca. KSFO 560: 1-4pm (KSFO archives Moneytalk Free on Demand for seven days after broadcast. You can download and listen on the go.)  

The Moneytalk guest-speaker was Barry LePatner: Too Big to Fall: America's Failing Infrastructure and the Way Forward

READ AND POST COMMENTS

August 10, 2012, What Will Bob Brinker Do If the Cyclical Bull Market Gets Long-in-the-Tooth?

August 10, 2012....Bob Brinker's Moneytalk has been on the air over 26 years. During that time, Brinker's shtick has always been "stock market-timing," both on the air and in his newsletter -- Bob Brinker's Marketimer.

So how many times has he actually timed the stock market by raising cash as opposed to remaining fully invested and simply riding the market up and down like a buy-and-holder?

Surprisingly, the answer is twice.   The first time resulted in his subscribers losing out on a lot of stock market gains. A complete documentation of Brinker's timing history is posted HERE.  Brinker talked about what was actually the second and last time (year-2000)  he raised cash on the  August 5 Moneytalk show. 

In July 2012, Brinker reviewed his four timing model indicators and concluded that they were all in favorable territory.  (Brinker's four timing model indicators are: 1. Economic Outlook; 2. Monetary Policy; 3. Investor Sentiment; 4. Equity Valuations.)

As of August 2012, Brinker's Marketimer S&P target range is still "upper-1400s to lower 1500s," where he raised it to in April -- the time frame was "this year." In May, 2012, he extended the time-frame to "within the next 12 months." Now it is simply "going forward." 

So the question is, will Brinker call an end to this cyclical bull, declare a cyclical bear and raise cash?  In the August issue of Marketimer, he dropped a couple of hints that he might. He commented: "We remain concerned that the 2012 S&P 500 Index correction of 9.9% did not produce the level of health restoration that we saw in July 2010 and September 2011." Then he recommended dollar-cost-averaging only during periods of weakness and said: "All Marketimer model portfolios remain fully invested for now." 

Here's my answer to the question above: Nope, I predict that Brinker will never again call a bear market and raise cash from his fully invested model portfolios.  Why? Because he never raises cash for 10-20% corrections and he always says never sells into weakness. So by the time the market has dropped 20%, following his own rule, it's too late to sell stock. 

Is it possible that the S&P could hit his target range and he would decide to sell all or part of his equity holdings? Yep, but consider this, when the market was near its all-time-highs of 1565 in 2007, he began predicting it would reach the mid-1600s.  And we know he raised his target range twice already this year, he could easily just raise it again if it continues to climb.  As Brinker says: "We shall know in the fullness of time." :)

FrankJ sent this picture of Hobbes before he lost two pounds. He sure looks happy to me.  Later, I will post a picture of Hobbes enjoying his svelte outdoor lifestyle along with his comments. :)

READ AND POST COMMENTS

August 5, 2012, Bob Brinker's Moneytalk Summary, Excerpts and Commentary Part TWO

August 6, 2012....Bob Brinker's Moneytalk: Hour Two  (Part one is posted here)

David Korn covered a very important call from late in the second hour. David has over twelve years experience reporting Bob Brinker's history and adds his own unique perspective. I think you will enjoy reading David's commentary more than you would the actual transcription of the call. This is from David's weekly newsletter which contains a summary of Moneytalk. Posted with the author's permission:  

WHEN BOB'S TIMING MODEL TURNS BEARISH

Caller:  When your timing model indicates a secular bear market is coming,
will you invest in inverse ETFs?  Bob corrected the caller saying he must
have meant a "cyclical" (not secular) bear market, because we have been in a
secular bear market since 2000.

(David) EC:  I can understand why the caller was confused.  Bob did a flip flop on
the secular bear market outlook in the summer of 2007 when he declared the
secular bear market had ended (retroactively designating the end as a year
earlier in June 2006).  I remember writing that I thought Bob was wrong at
the time to declare an end to the secular bear market based on my view that
p/e ratios had not returned to their long-term averages.  In May 2009, which
followed the brutal bear market, Bob reversed course and said there is no
question that the secular bear market megatrend remained in tact.  For what
its worth, at various times, Bob has said that his timing model work is
based on cyclical (not secular) trends.

Caller continued:  The caller then followed up by asking whether Bob would
use inverse (bear market) mutual funds if his timing model indicated a
cyclical bear market was coming.  Bob said if his timing model indicates a
cyclical bear market, he would raise a lot of cash and pointed out that the
last time he did that was in January 2000 when he raised 65% of cash and
then redeployed it in March 2003.

(David) EC:  To be precise, Bob's timing model adopted a tactical asset allocation based on the market's close on December 31, 1999.  In his January newsletter he indicated he was raising 60% cash, then later in August he increased it by another 5% so that he was at 65% cash.  And then he made the ill-fated recommendation on October 16, 2000 to invest anywhere from 20-50% of those cash reserves into the Nasdaq-100 (QQQ) shares for a counter-trend rally that never materialized and blew up when the QQQs cratered.  But since they weren't included in his Model Portfolio results, his performance returns did not suffer.

Brinker continued:  Bob said the problem with using inverse ETFs is
two-fold. For starters, the inverse ETFs have high expense ratios, and don¹t
always correlate to the index they track.  On any given day, an inverse ETF
seems to correlate well with the index that it is tracking, but over time
that doesn't hold true.  That's one problem with them.  Bob said he is not a
big fan of them and said the way he handles a sell signal in his newsletter
is to sell the stocks and raise cash reserves.  It is not about what you are
making on that cash. You could use a combination of things like money
markets or bond funds depending on your outlook.  The objective, however,
when you think a bear market is coming is to preserve capital.  It is not
about trying to make money on an inverse fund.  Bob said anyone who raised
cash in January 2000 and then reentered the market in March 2003 when the
market was back to its low on the successful retest was happy, regardless of
how much they were making on their cash.

Honey EC: If I failed to point out that Brinker had to go back TWELVE YEARS to find a time when he actually raised cash, my readers would think I'm sick. :)   To do that,  Brinker had to ignore the 500 pound elephant in the room -- namely, the worst bear market since the great depression (2008-early 2009), which his timing model missed completely. He raised no cash for that grizzly bear that slaughtered the market only three+ years ago.

At the beginning of the second hour of the program Brinker talked extensively about  California city bankruptcies.  San Bernardino has now filed municipal bankruptcy after disclosing a $45 million dollar shortfall. This is the third California city to seek bankruptcy court protection since June 28th.

Brinker said: "Why are these cities declaring bankruptcy? Vallejo, Stockton, Mammoth Lakes, San Bernardino. Who knows what other cities could fall. There are rumors about pension liabilities on the upswing in places like Inglewood, Fairfield and Pomona and Stockton and Compton.....rose 6% to $4.3 billion in the year ending June 2010. So there's no question that there are strains to try to get the money together for these various payments that were agreed upon in the very one-sided negotiations between the public sector unions and the taxpayer representatives. The way I envision the taxpayer representatives are empty suits."

David Korn's comments about Bob Brinker's discussion of California's financial distress: 

Brinker Comment:  In San Bernardino they reduced the workforce by 20% over the last four years and they even negotiated labor cuts of $10 million a year, but they still had to file for bankruptcy.  It¹s the high cost of the city contracts that is killing these budgets. There is no question that there are other cities that are strapped for cash to come up with payments for public sector pensions.  Bob said when the well-prepared public sector union negotiators bargained with the taxpayer representatives, the latter Bob characterized as a bunch of empty suits which is why these cities are going broke.  Pension liabilities are on the rise.  Bob noted that pension liabilities in the California cities of Fairfield, Inglewood, Pomona, San Bernardino, Stockton and Vallejo rose 6% for the year ending June 30, 2010 from the prior year.  In Fairfield, California which is near Napa Valley in Northern California, 18% of the general fund is already going to city worker's pension funds, up from 14% from a few years ago.

(David) EC:  As you can imagine, there are plenty of people who are not happy about the bankruptcy.  A woman who derives her income from her husband's San Bernardino police union pension is one of them.  

Brinker Comment:  Stockton, California which has 292,000 residents is the
largest city that has filed bankruptcy.  Bob said he read news reports that
the Stockton police chief who left his job after serving 8 months at age 52
gets an annual pension of $204,000.  That¹s the third out of four chiefs who
occupied that position after serving less than 4 years and they get six
figure pensions.  Is it any wonder that the city had to file for bankruptcy?
  
SANTA CLARA

Caller:  This caller noted that Moody¹s downgraded $143 million in lease
revenue bonds backed by Santa Clara County.  The caller pointed out that the
county¹s redevelopment agency decided to keep the $30 million that was
supposed to go to the San Francisco 49rs new stadium complex.  In response,
the stadium authority is suing to try and force them to provide the funds.
Bob said he doesn't think the taxpayers should be placed into a position of
de facto subsidizing professional sport franchises.  Having said that,
according to Moody's, their downgrade of Santa Clara from an AA1 to an AA2
had to do with other issues.

According to Moody's, the downgrades reflect the county's "significantly
weakened financial position, following three consecutive years of general
fund deficits (2009-2011), and the limited prospects for rebuilding the
county's balance sheet in the current economic environment." Bob couldn¹t
understand why Santa Clara would be willing to provide any money to
subsidize a professional sports franchise.

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: You can get  free issues of David Korn's weekly newsletter and The Retirement Advisor published by David and Kirk Lindstrom HERE.  If you are looking for fixed income advice, I recommend the Retirement Advisor over Brinker (Jr) Fixed Income Advisor. Try them both and see if you agree (I get no commissions on either).

Jeffchristie's Final Exam Question for this week: 

Bob Brinker was critical of what current member of congress, who told Ben Bernanke to "Get to work".

A.  Maxine muddy Watters.

B,  Barney saber tooth Frank.

C.  Chuck the schmuck Schumer.

D.  Dirty Harry Reid.

The answer is in this summary, but if you can't find it or can't guess, here's the video answer:
Senator tells Bernanke "Get to work"

READ AND POST COMMENTS

August 5, 2012, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

August 5, 2012.... Bob Brinker hosted Moneytalk today...........(comments welcome)


STOCK MARKET....Brinker did not mention the stock market today.

EMPLOYMENT NUMBERS.....Brinker comments: Came in at 8.3% -- just too high. Underemployment, including part-timers that want full-time and those who have given up altogether, is 15%. Nobody has won  re-election to White House when unemployment was above 7.2%.

AIG....Brinker comments:  AIG is selling stock this weekend  that is priced at $30.50 a share. The seller, through the Treasury, is the American taxpayer. The sale on money will include a $3 billion buy-back from AIG, leaving $2 billion for the marketplace. After this deal is complete on Monday, taxpayers will still own 55% of AIG.

FACEBOOK FIASCO CONTINUES.....Brinker comments: The stock dropped again this week...down about 44.5%. What a fiasco that $38 IPO price was.

INCREASED MONETARY SUPPLY AND LIQUIDITY....Brinker said: "They (the Federal Reserve) increased the monetary base by an enormous amount during all the monetary stimulus programs they were doing. And as a result, with the usual lag time, it has now started to feed back into the monetary aggregate.  So we are seeing a very high rate of growth in the monetary aggregate. From a liquidity standpoint, I'd say they've done everything they possibly could to stimulate the money supply and make sure there's plenty of money sloshing around out there." 

THE US DOLLAR....Brinker said: "The dollar has been on a bit of a roll. I think it has surprised a lot who thought it could only  go down. It's held together reasonably well.... People have been running out of the Euro to buy the Danish Krone at a negative interest rate....But remember we have very low inflation. That helps protect the value of the currency."

BEN BERNANKE AMERICAN HERO....Brinker said: "I would call congress a ship of fools on the subject of monetary policy. But I think... is doing a very good job as Central Bank Chairman....As long as Ben Bernanke is there.....the Federal Reserve will be fine. Given the hand they were dealt, they have done an outstanding job."

WHAT IS THE FEDERAL FUNDS RATE...Brinker said: "The federal funds rate is the overnight rate that federal banks charge one another to borrow excess reserve so they can meet their reserve requirements."

KEYNESIAN ECONOMICS....Brinker said: "We don't practice Keynesian economics. We are about as far away from Keynesian economics as you  could possibly be." 

Honey EC: When all the bailouts first started in 2008, he was singing a different song. He said that was indeed Keynesian economics and he insisted that it was a good thing for the country.

NO INFLATION: Caller Otto from Illinois said he'd like to take Brinker grocery shopping with him and show him that food prices are going up. Brinker replied that he would rather not accompany him on a shopping trip because he would be doing his own shopping after the program.

HEADLINE AND CORE INFLATION RATES BOTH REPORTED...Brinker said: "You have the headline inflation number, which is very well contained. And then, you take out the food and energy because of the volatility in those sectors, and then you have core rate. So you have both rates." 

NATIONAL DISGRACE USING 40% OF CORN IN THE GAS TANK WITH ETHANOL.....Brinker said: "I have said many times on this program that you don't do that because you are messing with the food chain and eventually it will come and it will grab you.  And our dedication to using such a large percentage of our corn crop in ethanol is going to be one of the reasons that this drought is going to be really costly on the price of food."

HOW DO JUNK BONDS CORRELATE TO THE STOCK MARKET?  In answer to a question by Reggie from Terra Haute, Brinker said:  "The reason that there is some correlation between the performance of junk bonds -- high-yield bonds.... and the stock market.....For example, when earnings are increasing, a rising tide tends to lift all boats.....As a consequence when you have growing corporate earnings, as we do, then you have less pressure on corporate bankruptcies and less defaults in the junk bond market.....The lesser factor is rising rates.....For junk bond investors, it's been the perfect storm. You have improving corporate profits, improving liquidity and record low interest rates. It's been all systems go and that's the reason you've seen that fund go up 9% year-to-date." 

ANYONE KNOW WHICH "BOB" IS ON THE "MOTHER SHIP" AND WHERE IT IS DOCKED? BRINKER DID NOT SAY.

BOB ON THE MOTHER SHIP....Brinker said: "Alright, let's go out to the Mother Ship!  Bob you're on the line! What's up?"

Mother Ship Bob asked Brinker about the "design" of his income portfolio. 

Brinker explained that it was designed for those who are investing for income and very little interest in the stock market. Brinker said:  "Over 90% of  holding of that page 7 income portfolio are in fixed income securities.....We have about 10.6%  of that entire portfolio made up of  dividend paying stocks in one of the funds in the portfolio."

Mother Ship Bob asked Brinker if he would have any objection to using the Vanguard High-Yield Fund money in the income portfolio for the Doubleline Total Return Fund (DLTNX). 

Brinker replied:  "The reason I can't do that in the newsletter is because I already have an allocation to that fund in the newsletter, so it would be redundant for me to do it that way. However, keep in mind that that high-yield fund (VWEHX) remains open to anybody that has an existing position in the fund....That fund has done great. It has a total return this year of  9%, which is most excellent."

Honey EC: Brinker's "page 7" market timer income portfolio holdings include 25%  Vanguard High-Yield (VWEHX), Vanguard Wellesley Income Fund (VWINX) and 20% Doubleline (DLTNX).  

I've been very happy owning VWEHX since I bought in after the big drop in 2008 and clearly, it has beat the S&P 500 Index this year.  Brinker originally added the high-yield fund to his income portfolio in 2003 and like all of his portfolios, it remained fully invested during the 2008 mega bear market.  

VANGUARD HIGH-YIELD FUND....Brinker said: "In the interest of full disclosure, that is a fund that I am invested in because on an after tax basis, it's generating a very attractive yield for its duration. When you take a look at the duration, make up of the fund and the net yield on the fund after taxes. Then you make a decision on whether that is an investment you want to make."


Honey sez: "full disclosure"? Bull-puckey!


Brinker continued: "I've made a decision  a long time ago. Let's see I started putting money into that a couple of years ago, yeah, it was a couple of years ago, because it was in the low $5s, it's almost $6 now. It was in the low-$5 when I started to invest in it and I invested up to the mid-$5s. So aside from the outstanding net cash flow that the investment has produced, it is now producing capital gains, which I have not realized but it is there if at some point that is a decision to be made.....I would say that when it comes to high-yield junk bonds, that is something that I monitor very closely. So I'm making an ongoing decision, obviously in the context of the investment letter because that fund has been recommended in the investment for some time and it's done great....We've had that fund in our income portfolio invested in that fund and we've heard from a lot of happy campers that have included that in their income portfolio." 

Honey EC: Brinker says he bought this fund a couple of years ago int the low-$5s? Well his subscribers that bought it when he first recommended it in Marketimer paid $6 ($5.99) for it.   So once again we have an example of Brinker giving Marketimer subscribers recommendations that he doesn't take himself. 


He first added the Vanguard High-Yield Fund to Marketimer income portfolio in March 2003 at $5.99!!!!  It lost over 50% of its net asset value during the 2008-09 megabear market.  He never mentioned the fund on Moneytalk during that time, and I'm sure took no calls or emails about it either, because I received emails from terrified people here on the blog asking if they should sell or hold. 

So for Brinker, those capital gains look pretty good, for subscribers who took the roller-coaster ride and had to recover to even, not so many happy campers as he'd like you to believe. Perhaps he meant those new subscribers who have no way of knowing the true history unless they read this blog. 

This is the third time just recently that Brinker has given away the fact that he does not follow the advice that so many pay for in Marketimer.  

Item one: He owns no gold even though it's on his Marketimer recommended individual issues list. (See this summary)

Brinker said....Regarding how to buy gold, and I DON'T OWN GOLD, but for my money, there's only one way and that's the Exchange traded Fund.....the symbol is GLD. It is backed by gold bullion. And from my point of view, IF I WERE INTERESTED IN OWNING GOLD, that would be the only way that I would consider owning gold....I would never go to numismatic gold coins."

Item two: He owns Apple stock, but has never recommended it in Marketimer or on Moneytalk. (See this summary)

Brinker said: Right now, there's a  lot of excitement in the shares because the new IPad has been introduced.....and there's a lot of excitement .....around the new IPad.....You won't hear any complaints about Apple from me because Apple has been extremely good to me over the last decade or so....It's been a magnificent performer. It's a company that I'm invested in, and for the last ten years it's probably been the number one performer over that ten year period that I've owned.  As to when you make a decision to sell Apple? Well, I think that's a decision at some point will have to be made. But I think those who have stayed with it are very, very glad that they have stayed with it....." 

Item three: Now this week, we find out that, Brinker did not own Vanguard High-yield fund during the 2008 crash even though it was his income fund (on page 7) has a recommended 25% weighting. Anyone willing to take any bets that he was also out of the stock market during the 2008-2009 bear market -- the worst since the big depression. The one that he let his subscribers ride down fully invested while he called for all new money to be constantly invested at various levels or dollar-cost-average?

(This is a summary of the first hour of the program. I will post a summary of the second hour tomorrow.)


Brinker's guest-speaker today was David Wessel: Red Ink: Inside the High-Stakes Politics of the Federal Budget


San Francisco, Ca. KSFO 560: 1-4pm (KSFO archives Moneytalk Free on Demand for seven days after broadcast. You can download and listen on the go.)  

READ OR POST COMMENTS

August 3, 2012, What You Need to Know About Vanguard Dividend Growth Fund

August 3, 2012...Before you decide to buy, let's do a quick critique of Vanguard Dividend Growth Fund (VDIGX).  

It is a large blend domestic stock fund.   From Vanguard's website: 

This fund is designed to provide investors with some income while offering exposure to dividend-focused companies across all industries. The fund focuses on high-quality companies that have both the ability and the commitment to grow their dividends over time. One of the fund’s risks is the possibility that returns from dividend-paying stocks will trail returns from the overall stock market during any given period. Another risk is the volatility that comes with the fund’s full exposure to the stock market. An investor with a well-balanced, long-term portfolio who seeks exposure to dividend-focused companies may wish to consider this fund.

It has outperformed the Vanguard S&P 500 Index Fund and the Total Stock Market Index Fund over the past five years. The fund tends to own 50 or less large dividend-paying  solid companies.

Month-end ten largest holdings
(29.6% of total net assets) as of 06/30/2012
1 PepsiCo Inc
2 Johnson & Johnson
3 Occidental Petroleum Corp
4 Target Corp
5 Exxon Mobil Corp
6 Automatic Data Processing Inc
7 Microsoft Corp
8 United Parcel Service Inc
9 Medtronic Inc
10 International Business Machines Corp 

SEC Yield: 2.21%
Expense Ratio: 0.31%
YTD Total Return: 6.3%
Total Assets: 10.5 billion
Minimum Investment: $3,000
This fund can be purchased from Vanguard, Fidelity or Schwab.

READ AND POST COMMENTS