September 16, 2012, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

September 16, 2012....Bob Brinker hosted Moneytalk today.

STOCK MARKET....Brinker said: "The individual investor is making out like a bandit. The S&P has ridden up into the mid-1400s. We have a double digit gain on the books. Investors are doing great....."

LOVE, ERRR..POLITICS HAD NOTHING TO DO WITH IT.... Brinker said:  "Politics hasn't played much of a part in this....Anybody that has made investment decisions based on politics, what are they doing? They are sitting around earning next to nothing. I don't think you can make investment decisions solely on politics....Don't ever let your politics skew your investment approach.....And remember the S&P 500 hasn't gone up because of who's in the White House. The S&P 500 doesn't care who's in the White House. Index has gone up because corporate earnings have gone up.....And that's the key, with low inflation, low interest rates, rising corporate earnings. That's what's given you this great stock market run. And to those Moneytalk listeners who've been fully invested during this run, congratulations to you."

Honey EC: Brinker's Marketimer model portfolios are fully invested, as they have been for over nine years. As usual, he is recommending dollar-cost-averaging "on weakness" for new money. Brinker said he "wouldn't be surprised" to see Marketimer's projected 1.5% to 2.5% real growth forecast "remain intact through next year," but would adjust if the economic outlook changes. 

ETFS ARE MUTUAL FUNDS....Brinker said: "An ETF is a mutual fund. Why people try to separate them, I don't know."

Honey EC: There has been a lot of comparisons done between ETFs and mutual funds. Here is a Seeking Alpha author who does an analysis. 

WILL THEY PATCH THE AMT?  Brinker said: "I'm going to make a guess on this because I have no way of knowing. My guess is that they will try to patch it. Now whether it passes, I can't tell you because we have a dysfunctional congress....I think there will be an attempt to put a patch on the Alternative Minimum Tax again this year, and then it will come up for a vote."

QE3 and VANGUARD GINNIE MAE FUND (VFIIX)....Caller Rob from Portland asked Brinker how QE3 would affect Ginnie Mae Funds.   Brinker replied: "Ginnie Maes are mortgages. This is a program to mortgage securities. Ginnie Maes are the highest quality mortgage securities of all.....The bottom line is if the Fed is in there buying $10 billion a week, roughly, of mortgage securities, that creates demand for existing mortgage securities. And if you own them, you like people buying them.....So this is a positive for mortgage securities, including Ginnie Maes."

QE3 IS OPEN-ENDED PURCHASE OF MORTGAGE BACKED SECURITIES....Brinker said: "The big news of the week came Thursday when the Federal Reserve announced it will expand its holdings of long-term mortgage back securities with open-ended purchases on a monthly basis and an indefinite term of $40 billion a month. This is being called QE3, the third round of Quantative Easing, but the difference this time, it's open ended. It's going to remain in force until it's changed.....The Federal Reserve is interested in creating jobs and providing liquidity, but also supporting the housing  market with low mortgage rates....

HOUSING MARKET....Brinker said: "Long-term rates are now down under 4%. This is one of the reasons we have been seeing a better tone in the housing market."

FED CREATE NEW JOBS?    Brinker said: "The Fed chair says quote, 'we are looking for ongoing sustained improvement in the labor market. There's not a specific number we have in mind, but what we've seen in the past six months is not it.' unquote. Unemployment has been above 8% since February of 2009, and the Fed Chair has called this a 'great concern.' The Fed will continue to hold rates near the zero level, and they state now they'll do it at least through the middle of 2015. But we all know that that is a movable feast....If the economy should pick up steam and cause inflation worries, the Fed would be forced to take another look at that. But right now, they are taking an aggressive stand with regard to monetary policy....."

Honey EC: At the risk of sounding sarcastic, when did the Federal Reserve take over the whole United States economy, including creating jobs and managing the  housing market? That's a lot of power in the hands of an un-elected group of people with one man at the top. What happened to free markets? 

ACTUAL JOBS GROWTH....Brinker continued: "The focus on jobs growth is understandable. Net jobs growth in August 96,000 -- July 141,000.  So while congress twiddles and diddles and blathers, the Federal Reserve is taking action."

FED ACTION TO SPUR ECONOMIC GROWTH.....Brinker continued:  "In fact the Fed said, quote, 'The committee is concerned that without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions.'"

WHAT TO EXPECT FOR UNEMPLOYMENT....Brinker continued:  "And by the way, they are not expecting unemployment to get down into the 6 to 6.8% range until 2015. Which gives you some idea what the Fed is looking for in terms of the unemployment situation."

POLITICIANS  SHOULD STAY OUT OF MONETARY POLICY....Brinker said: "We need the politicians to stay out of the serious business of monetary policy.....In this country, we have already given the politicians in Washington full responsibility to manage the nation's fiscal affairs.....Congress appropriates all the money....Now we all know what's happened. They've turned the fiscal situation into a national train wreck. Now imagine the gall of these same politicians who want to interfere with monetary policy which they basically know nothing about."

LET ME KISS YOUR RING, BEN.... Brinker continued:  "So we can be grateful that we have an outstanding Federal Reserve Chairman in Ben Bernanke. And all the credit goes to those who have appointed him....and that starts with George W. Bush. The finest appointment of the Bush Administration and the original appointment several years ago. Because of Bernanke's work on the Federal Reserve, that's a major reason that we have seen some growth in the economy in recent years..... I think he's one of finest chairs that we've ever had....I think he's elevated himself in the past three years to rank right up there with Paul Volcker."

BEN COULD HAVE TAKEN EASY WAY OUT....Brinker continued: "Ben Bernanke could have take the easy way out this week. He could have waited until the December Federal Open Market Committee meeting after the election to announce QE3. It would have been easy to do. Unlike many in Washington who dither and blather incessantly while they ignore the problems and do nothing about them.  Bernanke announce QE3 just seven weeks before the general election because he thinks the economy needs further action.   He knows congress is a do-nothing congress. If Bernanke have waited until December, he would have avoided all of the political grandstanding going on out there.....The reality is Bernanke, who was appointed by George W. Bush.....there's  no evidence that he favors either political party. Never has been......By the way, Bernanke said the Federal Reserve did not take into account the upcoming presidential election when it made its meeting decision....."

Honey EC: In all of Brinker's enthusiasm above, he completely disputes what he said last week. Last week, as it shows in my September 9th summary, he said QE3 would likely do very little for the economy.  And he said that if Bernanke waited until December to do more easing that would indicate a political move. Now Brinker is all excited about how Bernanke will single-handedly save the economy, housing market and create jobs -- and how waiting to December would have been the "easy way." 

WHEN WILL QE3 END?  Caller Mike from Littleton, Colorado (Home of Marketimer and BB Jr's newsletter) asked when Bernanke might start and  then stop buying mortgage bonds. Brinker replied: "He's going to start buying bonds this month......He's been very specific about stopping it. He says he will stop it when he sees the economy where he wants to see it.....and the employment conditions sufficient to curtail the program....As it stands right now, the program has no end date.....He has been ordered by the United States Congress, his mandate includes low inflation, we have that,  and  maximize employment. We don't have that."

EXACTLY WHAT WILL THE FED BE BUYING?  Brinker said:  "He hasn't told us exactly which ones (Fannies, Freddies, Ginnies) he will buy, but we do know he will buy Mortgage Backed Securities for now with this new money.....Remember there is already a program in force where he is buying Treasuries. That's at a rate of $45 billion a month, and that one expires at year end."

ECONOMIC GROWTH AFFECTED BY DEFICIT....Brinker said: "There are many powerful forces that enter into the course of the economy, not the least of which is our $16 trillion dollar deficit. Because eventually, that could lead to a huge interest cost. It's not right now because of the low rates."

Honey EC: Brinker misspoke. He meant the $16 trillion national debt. The yearly deficit is over a $trillion. 

FISCAL CLIFF TAX WOULD BE BIGGEST IN WORLD HISTORY....Brinker said: "We've talked about the fiscal cliff becuase it's a big deal, and getting closer and closer. If it were to happen on New Year's Day, it would be by far, the largest tax increase in the history of the world. In fact, it would be so big, about a $500 billion dollar tax increase, that there wouldn't even be a close second in the history of the world. That's because there are so many taxes scheduled to go up. All of the tax breaks, all of the tax brackets are scheduled to rise in January. Everybody that pays taxes will be paying a higher percentage of their income."

Honey EC: Brinker again reviews all of the scheduled increases in the second hour opening monologue.  You can listen or download the program at KSFO -- see the link below. 

CHANCES OF TAXES GOING UP FOR ANYONE BUT HIGH EARNERS IS SLIM AND NONE...Joey from Texas whose income was $85,000, asked if he should make some portfolio changes based on the upcoming fiscal cliff. Brinker replied: "You are not subject to the new 90 points Medicare payroll tax, which is uncapped. You also are not subject to the new Medicare tax on capital gains, dividends and rents and royalties and passive income because you need to make over $250,000 to be subject to that.....The only thing you have to worry about in terms of income would be if all of the tax rates goes up and no deal is made to keep them down for everybody but the high-earners. And I would say that the chances of that happening are slim and none.....I would defer to next year if you can, and I'll tell you why. It looks like your rate will be the same."

BRINKER'S MOST SURPRISING QUOTE OF THE DAY: "Next time around they (Democrats) might look to Hilary Clinton if she's available and willing....She would be a strong candidate for president, in my opinion."

POLITICS....Honey sez: Even though Brinker got on his soapbox about how politics have nothing to do with the stock market or investing, he devoted a lion's share of today's program to talking politics. I won't waste my time and bore you by covering his views again. He still claims to be non-partisan.  I flat out don't believe him. If he believes that, he's either delusional or using his "money talk" program to demagogue.  Or a third possibility is that he simply wants to sell newsletters rather than actually give investing advice on the broadcast,  so he's just filling time while callers praise him for critical mass. Oh, and there's one more possibility -- that is, he's retired on the job. :)

Jeffchristie's Moneytalk Final Exam Question:

Which one of the following best describes Bob Brinker's feelings toward Ben Bernanke?

A)  Bob agrees with the state senator who called him a traitor.

B)  Bob is upset that Ben Bernanke has refused to be a guest on Moneytalk.  Bob thinks he doesn't want to appear because he is afraid of his tough questions.

C)  Bob thinks Bernanke is one of the best Fed chairman and the best appointment George W Bush made.

D)  Bob Brinker feels he is smarter than Ben Bernanke because his SAT score was much higher than Bernanke's.

(Answer: "C")

Brinker's guest-speaker today was Jason Kelly: The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything (Bloomberg)

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.)  

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