November 4, 2012, Bob Brinker's Moneytalk: Summary, Excerpts and Commentary

November 4, 2012....Bob Brinker hosted Moneytalk today.....(comments welcome)

JOBS REPORT....Brinker said: "We got the jobs report on Friday. It was a good report. Private sector jobs increased by 184,000 in the month of October....There was an upward revision for the prior two months -- that brought 84,000 into the count.....The under-employment rate came down to 14.6 -- very high numbers. That includes part-time workers who would like full time and workers that have given up looking.  By the way, the only president since World War II that has been re-elected with an unemployment rate above 6%, there is only one case and that was 1984. On election day 28 years ago, the unemployment rate was 7.2. And despite that Ronald Reagan won re-election in 1984. Unemployment right now, going into election Tuesday is at 7.9%."

Brinker itemized the unemployment demographic based on education:  Bachelor's Degree or higher: 3.8%; high school diploma: 8.4%; high school drop-out: 12.2%.

Honey EC: How can Brinker call that a good report when the unemployment rate is actually up?  And as he has said many times, the added jobs are not enough to bring the unemployed numbers down. 

THE ELECTION....Brinker said: "We are going to have lots of programming today on the election that is just two days away.....It should be interesting. We'll have lots to say on the subject of the elections in our third hour with our guest, and I'll have more to say as we go forward as well. He we are less than a day and half from the opening of the polls in that little New Hampshire community so I think it's a good time for us to take that topic and put it on the table."

Honey EC: Indeed, most of the program was dedicated to politics and the election. Brinker made his predictions again that the House will remain Republican and the Senate Democrat and  "the White House is up for grabs." Personally, I'm sick of all the polling, pontificating and predicting,  so I'll  try not to torture you with very much on the subject. :)

STOCK MARKET:  Wayne in Naperville asked: "Is the outcome of the election going to affect the stock market at all?" 

Brinker 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."

Honey EC: That was it folks. Believe it or not. He never answered Wayne's excellent and reasonable question. Nope! That was Brinker's total stock market commentary today!  Does this show an enormous level of contempt for his listeners? I can tell you this -- he is still fully invested. His projections for the S&P 500 Index is the same as it has been most of this year -- high-1400's to low-1500's -- operating earnings at $102.

Brinker then turned to politics to finish answering Wayne: "But I'll tell you this much. I put odds.....I'm convinced now that the House of Representatives will not change hands......If the president is re-elected, I think we are going to have more of this contention that we have seen. If Mitt Romney is elected, he's going to have to deal with the probability that the Senate will not change hands. So we've had a tremendous amount of gridlock in Washington, especially the past couple of years. I think it's probably a good idea to figure on more gridlock going forward. Why? Because if Romney wins, I think he is going to deal with a majority Democrat Senate. If Obama wins, I'm certain that he's going to deal with a majority GOP House. That's a gridlock formula for sure."

Honey EC: A later caller pointed out to Brinker that Obama had all three branches of government for the first two years of his presidency -- House and Senate were both Democrat controlled. 

BRINKER'S FIXED INCOME ADVICE....Caller Mike from Chicago asked: "With your help, I've got a pretty good handle on the equity portion of my portfolio, but the fixed income side has been a challenge....I recently heard you talk to a caller about Defined Maturity Bond ETF's, and it sounded like an ideal vehicle for building a ladder.....I wonder if you could comment on the pros and cons of that vehicle."

Brinker replied: "I suppose you could put together a ladder using an instrument like that. The reason that I haven't talked much about it -- and that was a caller that brought that up........is because in my point of view in terms of an income portfolio, and it's  certainly a challenging time for an income portfolio, I think you need a lot of diversification in there. And that's what we've done in the investment letter -- in our page 7 income portfolio.  We've put a lot of diversification in there and it's paid off for us. The income portfolio is having an outstanding year and I'm very glad we've gone down that path."

Honey EC: A couple of months ago, Vanguard closed its High-yield Fund (VWEHX) to new investors. Brinker said that Metro West Total Return Fund (MWTRX) could be used as a substitute. Then in October, he sold all of his income portfolio holding in Vanguard High-Yield Fund and replaced the holding with Metro West. That move may make it easier to plot the returns of the portfolio, but I question the wisdom of making it because VWEHX has outperformed Metro over the past couple of years. 

VANGUARD GINNIE MAE FUND (VFIIX) IN A MARKET CRASH: Mike from Littleton, Colorado said: "I did some research and I've been trying to find some assets that don't correlate with the S&P primarily for avoidance of corrections, pull-backs and crashes. So I looked at a lot of ten-year chart. You know we've had two really nice crashes in ten years and pretty much a correction every year -- couple of pullbacks a year along the way. And you know what, the only thing I found that didn't correlate with crashes? Basically  Ginnie Maes. There were things that had a beta of about .5, you know, gold, gold miners. But even corporate bonds, when stocks crash, everything crashes together, except Ginnie Maes. They didn't miss a beat in '02 or '08. Am I missing anything here?"

Brinker replied: "Well, Ginnie Maes have the Treasury guarantee standing behind the mortgage portfolio and therefore there is no principal risk in terms of the re-payment of the principal or interest as long as those mortgages our outstanding. If they're prepaid, then that's the end of them. Then that money has to be re-invested at the prevailing rate.....And that's the reason that you've had that safety quotient in the Ginnie Maes."

Honey EC: Over the past months, Brinker had lowered the Ginnie Mae holdings in his income fund down to only 15%. Coincidentally, callers stopped getting on the air to ask about Ginnie Maes -- which was quite a change from the past when there was usually more than one call every Sunday. Now Brinker has raised the holding to 25%  and Walla! we suddenly have a caller AND Brinker singing Ginnie Mae praises. :) 

One thing that the caller didn't seem to notice and Brinker did not point out -- the dividends are less than half what they were in 2002 or even 2008 -- down to 2.8%.   Another important point that Brinker seems to be ignoring right now is that when interest rates turn up (something Brinker says will happen someday), Ginnie Mae Funds will get creamed! 

GETTING AWAY WITH BLOODY MURDER ON NATIONAL DEBT: Brinker said: "Uncle Sam is very happy to minimize its expense. Right now, they're getting away with, we are all getting away with bloody murder on our 16.2 trillion dollar debt because they're not paying a whole lot in interest. This won't last forever, but as long as it lasts, they are getting away with bloody murder in terms of  financing the extraordinarily high national debt."

COMEDY CALL OF THE DAY: Caller Ray from Illinois said: "You are like the Michael Jordan, and I mean this sincerely because a lot of publications from people out there that call themselves expert and I really followed for the past 19 years. And I must admit that you are the Michael Jordan when it comes to the equity market and the economy."

Brinker replied: "Ray, I appreciate that very much, but I must add to that if you really need a game-winning shot with the clock running down on the hardwood boards, you probably want somebody else to take that final shot in the basketball game. Take my advice."

Brinker's guest-speaker was pollster, John Zogby.

FrankJ pointed out Brinker's new mantra: "We operate in real time."  My question is this: Is that anywhere near "Realsville?" LOL!

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