November 11, 2012, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

November 11, 2012....Bob Brinker hosted Moneytalk today.......(comments welcome)

THANK YOU VETERANS: "On behalf of all us connected with the Starship Moneytalk, we honor the veterans on Veteran's Day 2012." Several restaurants are giving free meals to veterans.

FISCAL CLIFF: On New Year's Day all personal income tax rates are going up if congress does act in the interim.  At that point, congress could then act to cut taxes and claim they voted for a tax cut.  "There is no evidence that the current tax rate on high-earners will survive."

PAYROLL TAX REDUCTION: "I would be surprised it that survives past the end of the year....It's not likely that they are going to extend coverage....That's 126 billion dollars in a de facto tax increase for 2013."

HIGH-EARNERS INCOME TAX INCREASE: "The other probable tax increase is going to be high-earners income tax rate. For example, instead of a 35% top bracket, we'd have a 39.6, which is what we had under William Jefferson Clinton."

(Edited with Brinker's EXACT words for those who questioned my paraphrase of what he actually said:    CALIFORNIA HAS HIGHEST STATE INCOME TAX:  Brinker said:   

"For example, the highest state income tax of all of America is California. They have just voted in favor of Jerry Brown's 13.3% top rate. California personal income tax top rate now. They voted in three tax increases on income taxes on election day. Basically, 11.3 on income over $250 (000), 12.3 on income over $500 (000), 13.3 on income over $1 million.

 Now let's say you run a business in California. Many people do. What is your new tax situation? 39.6 federal -- this is on salary, wages etc. If you have your own business, you will pay the entire Medicare freight, 3.8 will the new number, both sides, including the new increase. And then the new California top rate of 13.3 for high earners. And when you add all of that up, it's truly amazing. You're basically at 57%. So for high-earners in California, the new marginal top rate 57%.

And if you think you can avoid that through unearned income, well if it's taxable unearned income, it's going to be the same because the new health care tax of 3.8% applies to unearned income. I speak here of capital gains, dividends, rents, royalties, passive income from businesses and income from annuities. All of that stuff is in the category to be taxed at a new 3.8 tax rate for high earners. So that would apply anyway.

 So the new top rate in California for earned and unearned income -- round it out -- it's 57%. Which is a big number. That leaves about 43 cents on the dollar for the person that earned the income. The other 57 cents on the dollar goes out the window on taxes, federal and state for Golden Staters. That'll give you some example for what's going on out there."

Honey EC: As if that isn't bad enough news, it's pretty much accepted that "so goes California, so goes the nation." 

SEQUESTRATION CUTS: "They have these across the board cuts in defense spending, in discretionary spending...that are scheduled to go into affect next year. My expectation is that we will see some negotiation, horse trading....on these cuts and some kind of deal handed out."

UNEMPLOYMENT BENEFITS: "We have the expiration of unemployment benefits. That's worth $35 billion dollars next year. There may be some attempt to negotiate something there."

REDUCED MEDICARE DOCTOR RATES: "We have $15 billion in reduce Medicare doctor rates. We could see some negotiation there. I think those are the things that are going to be on the table."

ACROSS THE BOARD TAX RATE INCREASES: "Let me tell you what I don't think is going to happen. I don't think you're going to see this 300 billion dollar income tax increase across all brackets....This is the biggest single piece of the fiscal cliff. I don't see it happening, but if it does happen, I think they'll roll it back and make it retroactive."

STOCK MARKET: Brinker made no comments about the stock market today even though the Dow, S&P 500 Index and Nasdaq had their worst weekly percentage drop since June. This was the third consecutive week of losses -- now 6% off highs for the year.  Apple is down 22% from its closing high on September 19, 2012. (Brinker is on record saying that he has owned Apple for a long time.)

Last week when Brinker was asked about the effects of the election, he replied: "Wellll, the stock market will do what the stock market will do in terms of counting the votes. Short-term response will be whatever it is." Two weeks ago when he made a guest appearance on Red Eye Radio, Brinker told the host that he was "keeping an eye on it." 

Honey EC: Perhaps you will find comfort in knowing that Brinker is watching the stock market decline right along with you while remaining fully invested. There is a great graph by DShort that shows how the market reacted after the election. 

HOUSING INDUSTRY:  S&P Case Schiller Index of property values is improving after years of declining -- some areas lost up to 1/3 value over the past few years. Overall, there is a 2% year-over-year increase in the average property value in the top twenty cities, according to the latest data through the end of August.....Individual markets all over the place....In Los Angeles average property value increase 3.8%; Washington DC increase 8%;  Boston 1 1/2%; Denver 2.6%; San Francisco 7 1/2%; and Phoenix the highest with 10%.  Unfortunately some negatives....Chicago -1.5%; Atlanta -6.1; New York -2.3.

ESTATE AND GIFT TAX CHANGES:  Both are scheduled to go down to $1 million per person....

FIDELITY'S PRIVATE FINANCIAL STATEMENTS: Caller Larry from Parkridge told Brinker that Fidelity refuses to provide him with company financials. Brinker pointed out that they are privately owned and they have that right.  He advised Larry that if he is not satisfied with the answers he gets from a firm, he doesn't have to do business with them.

Honey EC: I did not realize that Fidelity was a private company. I assume that Vanguard is too. However, it's worth noting that Charles Schwab is a publicly traded company.

IN EDIT: StoxNbondz wrote: Vanguard is not privately owned. Vanguard is a mutual company. That means that anyone who owns shares in a Vanguard mutual fund is part owner of the company. Some banks and insurance companies also have the mutual form of ownership, like State Farm and New York Life. So if the caller wants the financial information of the company that holds his account, he could move his business to Vanguard, Schwab, or T. Rowe Price.

BOB BRINKER'S MARKETIMER PORTFOLIOS: "In my investment letter....I publish model portfolios. We publish model portfolio for aggressive investors, for long-term investors, for balanced investors, and also for income investors. We basically publish several model portfolios."

Honey EC: Brinker certainly made it sound like Marketimer has a virtual smorgasbord of portfolios. Actually, there are only three very similar equity model portfolios and an off-the-books income portfolio of bond mutual funds -- where he recently increased holdings in Vanguard Ginnie Mae Fund back to where they were before he lowered them. 

WHEN HONOR IS LOST, WHAT'S LEFT?  Joe from Laramie said: "I've got your newsletter, probably every copy for the last twenty years.....A question, I've been doing your model portfolio II for years and now I've started getting your income letter, newsletter, a couple of years ago. (referring to Brinker Fixed Income Advisor as being Brinker's -- IT'S NOT!) And I somewhat haphazardly started buying the bond stocks and think I really need to get the mix straight on paper so I really know what I've got. So would it make sense if I took the chunk of money that we've got and said that 65% would be in equity, 30% in bonds and 5% cash. To do like 65% in the Marketimer equity portfolio and then 30% would go into the middle bond portfolio?" (Joe's referring to Brinker's SON'S newsletter because Marketimer doesn't have a "middle bond portfolio. Jr's does.)

Brinker replied: "Joe what you are talking about is something that I just eluded to, a lot of people do this. That's called the mix and the match. And what you do is, you take the given portfolios in the Marketimer investment letter. You select from there. You take portfolios, perhaps from the Brinker Fixed Income Advisor and you might select portfolio holdings from there and you mix them and you match them. My feeling has always been that an investor to do that within the context of their personal investment objectives and their risk tolerance.  I have never seen any problem with that. Joe, I appreciate the kind words, good to hear from you there in Laramie."  

Honey EC: That is a first! Not Brinker's letting the caller believe a lie (that's happened before)  Not Brinker deceiving his national audience in order to sell HIS SON'S newsletter.  The first is Brinker recommending that subscribers need both his and HIS SON'S newsletter to "mix and match." The cost for both newsletters would total $285 a year.....

So what is the difference between Brinker's Marketimer income portfolio and Bobby Jr's portfolios? Very little!  They both contain DoubleLine Total Return Bond Fund (DLTNX), Metro West Total Return Bond Fund (MWTRX), Vanguard Ginnie Mae Fund (VFIIX), and until Bobby Jr sold all of his in October, they both contained Vanguard Wellesley Income Fund (VWINX).  

VANGUARD HIGH YIELD FUND....Caller Bob from New York asked: "From your newsletter, you eliminated the Vanguard High Yield. Was that a call on the fund or on high yield?

Brinker replied: "What happened with that fund when we took it out of the portfolio was this, we saw the yield on the fund drop below 5%. That's very unusual for that fund historically....As a result of that decline in the yield, the net-asset-value of that fund rose so much that I regarded it as an opportunity to take profits. I'm glad you asked that Bob. That decision had nothing to do with the fact that that fund had closed to new investors....It was not related to that. In other words, what I'm saying is, if that fund had remained open to new investors, the exact same decision would have been made."

Honey EC: Brinker can't help but respond to what is written on this blog, and I think it's hilarious. As my regular readers know,  since Brinker sold all of the Vanguard High-yield Fund in the Marketimer income portfolio, I have speculated several times on why he might have done it. When Vanguard closed the fund last August, Brinker recommended Metro Total Return Bond Fund (MWTRX) as a substitute for new subscribers. It makes sense to me that he would sell Vanguard and move the portfolio into Metro so that he could more easily track his performance record. Perhaps I was wrong. 

On the other hand, maybe I wasn't wrong. The truth and what Bob Brinker says don't always match. I'm looking at the October issue of Bobby Jr's Fixed Income Advisor and see that he had previously sold Vanguard High-yield Fund, because it's gone from this issue but he owned it last year.  So Brinker must have copied his son's lead when he sold in October.  

As usual, in the third-hour monologue, Brinker reviewed next week's economic reports. You can keep track here:  Economic Calendar

Brinker's guest today was Lauren Young who writes for Reuters. Here she is on Facebook

Jeffchristie's Moneytalk Final Exam Question:

In the third hour of Moneytalk Bob Brinker talked about beach front property with today's guest. This home in Palm Beach county is owned by which one of the following stock market Gurus.

A) Jimmy Rogers

B) Jim Cramer

C) Bob Brinker

D) Louie Navellier

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.)  

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