January 20, 2013, Bob Brinker's Moneytalk: Show Summary, Excerpts and Commentary

January 20, 2013...Bob Brinker returned to Moneytalk after a two week vacation. (comments welcome)

STOCK MARKET....Bob Brinker said: "2012 was really a very good year for investors.....There was a lot of money to be made...The S&P 500 Index in 2012 was up over 15% in total return for the year...."

INCOME INVESTING....Brinker continued: "There was also money to be made in income investing as well....The painful place to be was in short-term investments, money market funds, cash equivalents, places like that....The rate of return in that area was very close to zero."

HISTORIC CYCLICAL BULL MARKET....Brinker comments: The cyclical bull market that we are in that started back March of 2009, now ranks as one of the nine greatest of all time. An amazing run....which has now seen the S&P Index rise more than 100%. That's only the 9th time in history that we've seen a gain in over 100% in a bull market......As we look at it right now with the S&P Index sitting in at 1486, when you compare that to the starting date back on the 9th of March, 2009, when most investors seemed to think the banks were going under and it was over, S&P, at that time,  trading at the 676 level, so it's more than doubled in less than four years time."

Brinker continued: "It closed last in 2012 at 1426, having closed the prior two years, it closed out 2010 and 2011 at the 1257 level. So we had the S&P at the 1257 level at the end of 2010, also again at 2011, no change in the index that year, small dividend add-on, couple of percent. But then in 2012, the total return over 15%, index itself up 13%, plus a couple of percent dividend and finished out around 1426 in 2012.  So for the ninth time on record, we have a bull market in which the S&P 500 has risen more than 100%. That is historic."

Honey EC: Brinker hammered the point that this has been an amazing three-year cyclical bull market and he said that there was "a lot of money to be made" in 2012. But if you have been a Marketimer subscriber and had actually followed Brinker's advice, did you make a lot of money in 2012? Not unless you count re-gaining your losses as "making lots of money." 

Brinker's Marketimer model portfolios have been fully invested for the past ten years.  Therefore, those portfolios were cut in half from the October 2007 high to March 2009 and it took three years of this cyclical bull market (until August 2012) for Brinker's Marketimer model portfolio I and II to return to the same value they were before the bear market began. 

Why didn't Brinker ever mention on the air that he was happy that his followers were finally made whole from his devastating bear market blunder? In my opinion, he doesn't give full disclosure to the audience because it would become clear to the audience that, even though he's a good teacher, market-timing is not his strong suit. 

TARGET MATURITY DATE BOND ETFS....Mike in Denver asked Brinker  about them and said it was a new type of investment tool. Brinker didn't seem to know much about them.  All he said was that being new was "scary," and he would reserve judgment until they have a chance to show how they would react if rates were increasing.

WHAT DOES DURATION MEAN TO INTEREST RATE RISK:  Brinker explained the concept of duration again: "Duration is the amount of time over which the interest payments and the final return of principal are received  That gives you a duration computation and the duration computation gives you an indication of the price change risk that you are taking with an investment. For instance, if you have an investment portfolio of income securities with a duration of 3, what that means is that if the average interest rate on that portfolio goes up 1%, then the  net-asset-value on that portfolio is going to decline about 3%."


FISCAL CLIFF DRAMA.... Brinker said: "We told you on this program in advance that the entire drama over the fiscal cliff was just a drama. And that when all was said and done, with the exception of high-earners, the tax bracket would not change and they did not  change in terms of the personal income tax brackets....The high-earners don't come in to play until they are making over $400,000 a year in taxable income."

MORE FISCAL CLIFF THINGS TO KNOW....At the beginning of the second hour, Brinker continued discussing the Fiscal Cliff. His comments summarized: The estate tax remains at $5 million, adjusted yearly for inflation, so 2013 it's  $5 1/4.....Annual gift tax exclusion is now $14,000 -- twice that for a couple.....Capital gains tax basis of assets acquired from a decedent will be the fair market value of the property at the date of the decedents death....IRA charitable rollover has been re-instated for 2012 and 2013. If you are 70 1/2, you can roll over up to $100,000 from your IRA directly to a qualified charity with no Federal Income tax....A rollover made by the end of this month can be counted retroactively for the 2012 tax year....You have to check for any state ramifications....

IRA TAX CODE CHANGES: Brinker said: "The limit on IRA has increased...In 2013, you are allowed to put away up to $5,500 in your IRA. This applies to traditional IRA and to the Roth.....If you are 50 years or older, you are allowed.....an additional contribution of $1,000....What does IRA stand for? IRA stands for Individual Retirement Arrangement....."

DEBT CEILING MAY BE GONE AWAY FOR NOW....There is a vote scheduled for Wednesday will extend debt ceiling for three months with no demand for any spending cuts included. March 27th is the deadline for new spending cuts or the government will "shut down."

BRINKER SITTING IN VEGAS....John from a California coastal town (he didn't say where) talked about how it might decide it was worth paying the outrageous state income tax to stay in such a beautiful place near the beach,  instead of being out in the desert. Brinker replied: "John, sitting here in Vegas on a day when we are looking at 65 -70 every day this week. Perfect golfing weather. Sitting here in Vegas talking to you about this right now, I'm biased, so don't ask me."

Honey EC: John laughed out loud at Brinker's reply, and so did I --  because Brinker must not realize that we here on the California  coast  have year-round weather like he is experiencing this week -- with a few days off for some much-needed rain to water the TREES that Vegas (and most of Nevada) does not have.  Let's compare weather  in July, Bob and you can tell us about the dry tumbleweed....   :)

KEY TO SAVING MONEY...Brinker's comments: Get started and save as much as you can, but make it a minimum of 10%. Follow the rules and you are on your way to the Land of Critical Mass.

HOW TO GET STARTED INVESTING: Brinker recommends John Bogle's Common Sense on Mutual Funds. It's a great way to go down the learning curve and learn a lot of fundamentals of investing.  Bogle writes about  the benefits of keeping expenses low with no-load mutual funds, the value of diversification and asset allocation. (See the link in the right column on this blog.)

Brinker doesn't usually pre-announce his guest speaker, but in the first hour, he announced that his third-hour guest would be a former FDIC Chair, Sheila Bair --  and said he was "very excited" about it.

Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself

Jeffchristie's Moneytalk Final Exam Question:

Caller John a pilot who lives in California mentioned the Barrett Jackson classic car auction that took place this week in Scottsdale. Bob Brinker said he had no interest in owning the Batmobile. The original Batmobile used in the TV series sold at the auction for:

A) $25,000 

B) $100,000

C) $1,000,000

D) $4,200,000
Answer

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