February 26, 2013, Bob Brinker's Moneytalk Guest Summary

February 26, 2013....Bob Brinker's Moneytalk guest Sunday was Dean Clancy. Brinker seemed less than enthused about the interview. He gave Clancy no build up whatsoever and he was only on the air for 14 minutes.  Maybe there's a clue about Brinker's view of Dean Clancy in this summary.

Guest-writer, Frank J. wrote this summary of Brinker's third-hour Clancy interview:

Feb 24, Moneytalk third hour interview with Dean Clancy, VP of Public Policy, Freedom Works.

The third hour interview was with Dean Clancy, VP of Public Policy with Freedom Works.  The interview finally got underway at 3:38 pm and ended abruptly at 3:53.   Speculating here, maybe there was a mix up on when the guest was expected.  This might explain the filibustering Bob did during the first half of the final hour.   I began to suspect something was amiss when his review of housing prices went from thorough to exhaustive!   

In any event, here is a link to Freedom Works’ website.  Freedomworks

Bob started off by asking the guest about the sequester and the $44 billion in cuts that would affect the final 6 months of the federal government’s fiscal year.  Mr. Clancy said it only represents a small trimming of federal spending and if plotted on a graph showing projected spending, both with and without the reductions, you’d need a magnifying glass to see the difference. 

There was a little back and forth about the predictions swirling around about the dire consequences of cutting government spending, Bob mentioned a 57 item list put out earlier this week.   Here is a link to an article that lists all 57 items, in case anyone would like to see them.  57 Terrible Consequences of the Sequester

A short sampling:

#6. Nationwide Meat and Poultry Shortage.

#28. An Even More Porous Border. 

#51. Slower Reporting on Economic Data, Less Analysis of It

#55. Fewer Air-Quality Forecasts

To the list of 57, I would like to add one I read today:  bears in Yosemite National Park will be frequenting the campgrounds in greater numbers, raiding the garbage cans because trash pickup will be cut back. 

The guest sounded like he had seen the list, and said modest reductions can and should be done.  There was agreement that politicians and others with a vested interest in government spending are afraid if the cuts go through, people will actually see that we can cut spending without the sky falling -- and they will want MORE cuts. 

Clancy said if we get some relief it will be an important milestone for the fiscal conservative movement.  He is hopeful it will show we can do more to slow down government growth. 

Bob said that government spending has been essentially flat since 2009 at about $3.5 trillion and the deficit has come down.   There was some discussion of spending as a percent of GDP, as to what would be acceptable.  Clancy made the point that reducing spending may have a negative short term effect on the economy but this is outweighed by the positive long term effect of lower government spending.

Discussion then turned to income taxes.  Bob had asked what level of spending is appropriate.  Mr. Clancy answered by talking about the income tax and said if 10% is good enough for God, then it should be good enough for Uncle Sam.  Bob asked him if the income tax should be progressive and Clancy was emphatic in his answer that he did not think the government should levy an income tax, but if we are going to have one, it should be flat.    Clancy said graduated income taxes are bad because they lead to corruption and income redistribution. 

He recommended that the tax be as close to 10% as possible, mentioning that Sen. Rand Paul (R. Kentucky) calls for 17%; the  Heritage Foundation proposed 28% payroll tax and income combined.  Clancy said we should get rid of the income tax and fund government tariffs and excise taxes.   Government would then focus on only the powers given to it by the founders.

Bob pointed out that private sector jobs are  growing and public sector ones are declining.  Is this the trend you want to see?   Yes, said Clancy.  Grow the private sector and shrink the public sector because dollars that go out of the private sector into the public sector are used less productively.   There has been growth both in government jobs and in pay rates.   

Bob quoted Sen. Coburn from Oklahoma who said 10% could be cut from the Defense budget.  The USA spends $740 billion on defense and the Chinese spend about $90 billion.  How much should we spend on defense?   Clancy said conservatives are divided on defense but Freedom Works thinks the Pentagon is like any other bureaucracy and reductions are possible.  Then he said, the people best qualified to tell you the needs are the generals and senior officers.   Defense is projected to grow by 16% over the next 10 years vs. 20% so the cuts under discussion are really about cutting the rate of growth.

Bob commented that he has difficulty with the “Armageddon cloak” they’re putting over these tiny cuts.  And he mentioned he has a hard time trusting the generals on what to spend. 

Bob said that Medicare recipients get $3 in benefits for every $1 they paid in … what kind of reductions in benefits can we look forward to?   Clancy mentioned that Medicare is projected to be cut to help pay for the people under 65 who will be receiving health care benefits under the newly passed Affordable Health Care Act.  (Obamacare).    The Democrats want to ratchet down on payments, not realizing that this simply leads to rationing.  The Republicans want to get more choices out there, bring in more competition and get savings.  Clancy said that Medicare is a “giant check writing system” and the program contains 10% fraud, possibly up to 20%.  Only after the payments are already made, does any policing take place.   

Honey here: Many thanks to Frank J!  Please scroll down to read my show summary. 

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February 24, 2013, Bob Brinker's Moneytalk: Summary, Excerpts, Commentary and Discussion

February 24, 2013....Bob Brinker hosted Moneytalk today. (comments welcome)

STOCK MARKET...The only time that Brinker mentioned the stock market today was in answer to a caller who asked what "runaway inflation" would do to the stock and bond market. Brinker said that historically, the stock market did not like runaway inflation -- that it would be very challenging situation....The worst case outcome for investors is runaway inflation....That generally leads to chaos when you have a situation like that.

SYSTEM TO PROTECT AGAINST RUNAWAY INFLATION....Brinker said: "This is one of the reasons that you really want to have a system  that does not encourage runaway inflation. I think it's a very important thing to protect the integrity of the dollar. The charter of the  Federal Reserve requires them -- they are under orders from congress....that's why you see Ben up on Capital Hill answering questions....The Federal Reserve has received orders from congress on what their mission is, and their mission is a dual mission -- stable inflation, which defined right now as less than 2%, which where we are, and maximum employment. Boy,they are having a hard time on that. We are at 7.9 unemployment as we speak."

HOUSING MARKET....Improving all the time. Case Schiller Index comes out again next Tuesday.....Prices are up, up and away....San Francisco up 28% year-over-year. Brinker said: "Wow, that is a huge year-over-year increase."

Honey EC: Friday, I was talking to a realtor in the Santa Cruz area and he is actually getting worried that we are headed for another real estate bubble. In this area, and in San Jose, buyers are bidding up the buying prices on homes.  

SEQUESTRATION.....Brinker said: "The thing about this story that is hard to understand is why such a small amount of spending reduction would cause such a reaction.....The actual amount of spending reduction through September 30th, starting on March 1st, comes to 44 billion dollars....In terms of government spending it is a little bit more than 1%....And it's 1/4 of 1% of GDP.....For several years, we've been running deficits in excess of  1 trillion dollars a year.....The $44 billion dollar number is dwarfed by the big picture....Both sides reacting as though this is one of the worst things that ever happened.....How are we ever going to get closed to a balanced budget with this kind of rhetoric."

WHITE HOUSE WANTS MORE TAXES....Brinker said: "The policy that's come forth from the White House is to raise revenue sufficiently to pay for the sequester cuts by changing the deductions on income tax returns.....The White House wants to raise revenue to pay for the proposed problem....And so then we don't have to have spending cuts....So you see this is really a proposal out of the White House to continue the spending at the same level as now but to pay for it with increased taxes....How are we ever going to get a handle on our spending problem if the only way that anybody can up with to resolve it is to raise taxes....We already discussed what the deductions are that are at risk if the deductions are changed."

Honey EC: Here is Brinker's list from last week's summary where he thinks high-earner will see tax increases caused by these reduced deductions. 1. Reduce mortgage interest $million cap or means test (second home deduction). 2. Remove deductions for state and local taxes (They've already done it for AMT victims.). 3. Set income cap on charity deductions (president already proposed cap). 4. Tax employer health care benefits. 5. Change rules on municipal income taxes.

WHITE HOUSE REALLY LIKES TO GO AFTER HIGH-EARNERS....Brinker continued: "The White House really likes to go after high-earners. That's their favorite thing to do when they raise revenue. They just did it at the first of the year when they raised the rates on high-earners to 39.6% federal. Which means if you're in California.....you're in the 53% bracket right away and if you own your own business you're closer to 57% because you pay both sides of the uncapped Medicare."

NEW GOVERNMENT PROBLEM WORSE THAN WE THOUGHT....Brinker said: "Now we have a new problem  which worse than the problem we thought we had.....We have a government that right now is raising Cain in the media as you know. You've heard the drill, planes aren't going to be able to fly. We have a government that is so dysfunctional that they can't trim a little bit out of the budget without declaring Armageddon. And that's a new problem that's worse than we thought we had."

BRINKER'S SOLUTION TO DEBT PROBLEM: Brinker said: "Now I know you want a solution, let me give it to you. Until our dysfunctional federal government stands up to the need for entitlement reform, you're not going to see a solution to the problem you are observing. They must reform entitlements. They can do it with adjustment for today's younger people, not current recipients. They can do it with subtle changes in the Medicare program. They can do it, but until they are willing to tackle entitlements, you're not going to see any significant progress."

CONTINUING RESOLUTION....Brinker said: "In addition to the spending cuts starting next Friday, we have the continuing resolution issue in the last week of March."

ECONOMY...Brinker said: "The GDP will be revised Thursday. The median estimate is for 1/2 of 1% annual and that is called slow.....About the annual deficit as a percent of Gross Domestic Product....The economic community will tell it's about 3% and that as long as you have an economy that is growing at a reasonable pace, you can tolerate about 3% figure on the annual deficit divided by GDP. Right now, we are at roughly 6%. We've come down from 10, but we were coming out of an economic travesty there in 2008 with the banking system teetering. We have to get it down to at least 3% in order to feel better."

ITALIAN POLITICS....Brinker talked about the elections in Italy next week. (Honey EC: I'm not going to cover this topic, but here's an interesting take on it from the Guardian. Italy Elections: an end to sleaze and cronyism?

WHERE TO FIND DIVIDEND HISTORY OF AN INDIVIDUAL STOCK: Caller Ken from Albuquerque asked how to find the dividend history of an individual stock. Brinker told Ken to to go to the library there in Albuquerque and look in the Robert D. Fisher Manual of Valuable and Worthless Securities.  Honey EC: FrankJ sent this website that might save Ken a trip: Tesselation  Also, Jeffchristie said you can get it at Yahoo Finance. 

BRINKER'S FAVORITE MONEYTALK LISTENERS ARE NOT HUMAN....To caller Gordon from Santa Barbara, whose poodle, Sophie, went "woof, woof," Brinker said: "We have a lot of listeners in the canine community. We have shown nothing but respect for them. Tell me about your canine.  (Gordon replied: "This is Sophie, the standard poodle.") Sophie has just been on radio in 50 states and part of Canada and online worldwide. By the way, did you get a chance to see the 137 edition of the Westminster Kennel Show? Was it fantastic or was it fantastic? That big sheepdog got the runner-up. I think the judge had to throw that bone out because the audience had gone bonkers for it. What did you think of that affenpinscher that walked away with all the Kewpie dolls?.....Please give my very best to Sophie and tell Sophie that she is one of many in the canine world that are regulars on Moneytalk and we love everyone of them -- Santa Barbara Sophie, that's great."

HOW BRINKER BUYS HIS OWN TAX-FREE BONDS.....Brinker said: "I think the best way to own municipal bonds is to own them in a date-certain way. That's the way I own them. I own municipal bonds of several states, also New York City.....I have no concern about credit risk in any of my holdings. My plan is to hold them to maturity and be paid off at maturity and collect the interest in the interim. This way, I don't have all of this other risk that these people that are out there in the long-term municipal bond funds, they have all kinds of interest rates risk in those funds. I don't have that because my plan is to hold to maturity."

Honey EC: How interesting that Brinker is totally against owning tax-free bond funds, but Bob Jr. has a whole portfolio full of them in his Fixed Income Advisor -- at least he did according to the October 2012 complimentary issue on his website. The portfolio includes Vanguard High-Yield Tax-Exempt Fund (VWAHX). The other funds in it are VWITX, VMLTX, VWLTX and VWSTX -- pretty evenly divided. 

CHASING JUNK BOND YIELDS.... Brinker made the comment  that the Federal Reserve is concerned about investors "chasing junk bond yields."  Honey EC: My question is, why is it any of the Fed's business if people buy junk bonds? Is he going to bail them out if they need it?

MARKETIMER MODEL PORTFOLIOS AND INCOME PORTFOLIO....Brinker said: "We have the Vanguard Short-Term Investment Grade Fund (VFSTX) in our balanced portfolio. At this time, we do not have that fund in the page 7 income portfolio. That fund is not part of the page 7 income portfolio as we speak, but it does still have a small allocation in the model portfolio III which is on page eight."

Honey EC: Brinker is right, VFSTX is only 10% of his Marketimer "balanced" model portfolio III, "as we speak." The other bond funds he has in that portfolio are Vanguard Ginnie Mae Fund (VFIIX) and Double Line Total Return Bond Fund (DLTNX) -- these two funds are also in the page 7 "income portfolio" in equal proportions with Dodge and Cox Income Fund (DODIX) and Metro West Total Return Bond (MWTRX).

Brinker's guest-speaker was Dean Clancy.

Jeffchristie's Moneytalk Final Exam Question:

Today on Moneytalk Bob took a call from Gordon. During that call Bob acknowledged a K-9 listener who we could hear in the background. The name of this pooch is: 

A)  Bailey, the Black Lab from San Jose. 

B) Sophie, the Black Poodle from Santa Barbara. 

C) Bo, the Portuguese water dog from Chicago. 

D) Barney, the Scottish Terrier from Dallas 

Answer: B) Sophie, the Black Poodle from Santa Barbara.

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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February 17, 2013, Bob Brinker's Moneytalk: Summary, Excerpts, Commentary and Discussion

February 17, 2013....Bob Brinker hosted Moneytalk today. (comments welcome)

STOCK MARKET....Brinker said: "As we look forward to the week, we see a market that has had an incredible, almost straight up run. And now sits at 1519 in the S&P 500 and very close to 14,000 on the Dow.

STOCK MARKET WARNING....Brinker said: "Those indexes (Dow, S&P and Nasdaq) are all at or close to their 2013 year-to-date highs. And also at or near their highest levels in several years. There is a lot, there a lot of bullish sentiment  out there right now. If you look at the sentiment indicators,  a lot of the indicators are showing that there is a very high level of bullishness out there. Whenever you see that, you always have to recognize that, usually, at some point, those levels of over-enthusiasm, of over-zealous participation are very frequently cause for profit-taking. So if you see some profit-taking coming into the market, you should not be surprised when you consider the fact that there is such a very high level of bullish sentiment in a number of indicators out there right now."

Honey EC: It's been a very long time since I have heard Brinker actually give a cautionary warning like that on the air. Kudos to you, Bob! You sounded like the Bob Brinker that made me a fan twenty-six years ago.  NOTE: Brinker has NOT raised any cash and is still fully invested.

INFLATION BEHAVING WELL... Brinker said: "We get the Consumer Price Index data on Thursday... prices have been behaving well. CPI estimated for the month to go up a tenth of a percent. It was flat last month. The core number is expected to go up 2/10 of 1%. If that comes in, then the headline number would be 1.6 and the core number would be 1.8, so inflation continuing to behave very well."

UNEMPLOYMENT...Brinker said: "Initial claims for unemployment insurance on Thursday estimated at 355,000. Big drop last week down to 341,000....We want to see this number under 400,000. It's been there and its been staying there. That's why we have seen the jobs growth that you have seen. We've seen decent jobs growth for the past two years."

INCREASE TAX BY CHANGING DEDUCTIONS FOR HIGH EARNERS: Brinker said that the president's so-called "balanced approach" will include tax increase aimed at high earners. There are five areas where taxes will be increased with reductions in deductions. 1. Reduce mortgage interest $million cap or means test (second home deduction). Remove deductions for state and local taxes (They've already done it for AMT victims.). 3. Set income cap on charity deductions (president already proposed cap).  4. Tax employer health care benefits. 5. Change rules on municipal income taxes.

Honey EC: Brinker seemed convinced that this would only hit the wealthy and high-earners. I don't agree. I think that many of these deductions are enjoyed by the middle-class. 

WHEN TO KNOW INTEREST RATES WILL RISE: Caller Ned from Ohio wanted to know what signals to look for in order to know when interest rates would rise.

INTEREST RATE WARNING.....Brinker replied: "I think it's very important for all Moneytalk listeners to take note of the fact that the high risk in the bond market now is in the high-duration investing......My recommendation is to keep those durations on the shorter end.....The indicators that I follow on interest rates are far too numerous to mention. But let me highlight a couple that I think are very important. One of them is Federal Reserve Monetary policy." (Brinker explained how the low rates have helped unemployment and the housing market.) There's one more that I want to touch on and that's the economic growth rate. If you're looking at the economic growth rate above trend, and trend is still thought to be in the area of 3%, then chances are you're going to see some inflation and interest rate activity."

DON'T BUY TREASURY INFLATION PROTECTED SECURITIES (TIPS)....Brinker said: "I would not be using TIPS in here. My personal view is they are over-priced, over-valued."

SEQUESTRATION CUTS DROP IN THE BUCKET....Brinker said: "The Sequestration that we are talking about now is the $85 billion scheduled to take affect in less than two weeks on March 1st....The amazing thing about this is that this is a drop in the bucket."

TAKING IRA RMD FROM ONE ACCOUNT INSTEAD OF EACH ACCOUNT: Caller Dale from Denver asked a question like this: "Can an account owner just take a RMD from one account instead of separately from each account?"

THE IRS ANSWER: "An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs. Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from one or more of the 403(b) contracts.  However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts."

HOW TO BUY BRINKER'S NON-VANGUARD RECOMMENDED MUTUAL FUNDS: Caller Brad from New Orleans, who said he follows Brinker's model portfolio III, asked about the best way to buy mutual funds that Brinker recommends that are not Vanguard. 

Brinker replied: "If you buy it directly from the mutual fund, that's usually the least expensive way to buy it.....If you going to use a third party, whether it be Vanguard  or Fidelity (Honey EC: or Charles Schwab) brokerage, very frequently, you are going to have to pay a fee....That's an additional transaction expense." 

WARREN BUFFET FORCES TAX INCREASE ON HEINZ CO. SHAREHOLDERS: Caller Bob from San Francisco said he was long-term Heinz stock holder and wanted to hold it much longer. He was really ticked off  about Warren Buffett's purchase because it meant he (Bob) had to sell for cash if the deal went through and then pay big  capital gains tax on it.  He said that the same thing happened because of Buffett when Mars purchased Wrigley. 

Brinker agreed with the caller that he was going to have to pay a large amount of taxes since he was a high-earner in California. Brinker said: "There is a real irony here....The same person who perpretrated this takeover, the Sage of Omaha, has been out there for the past couple of years, campaigning, beating the drums, on increasing the tax rates. Then he comes in with this bid, and in Bob's case, he could lose 35% overnight on the tax bill....Amazing stuff, huh?"

HEINZ CO. SUSPICIOUS INSIDE TRADE:  Brinker's comments summarized:  Right after it was announced that H. J. Heinz Co. was being taken private at almost $72.5 billion in an offer by Warren Buffet, we learned that the SEC is suing some traders for suspicious trading activities.  No wonder some investors have left the stock market when this kind of thing happens. The SEC complaint alleges that traders earned $1.7 million by purchasing out-of-the-money call options just before the announcement was made. The trades took place in Zurich. They will probably find the people involved and go after them. 

The following summary and editorial comments written by guest-writer, Frank J: 

A summary of the interview with Alan Blinder on MoneyTalk, February 17, 2013. 

Alan Blinder was Bob’s guest in this Sunday’s third hour. Mr. Blinder is a Professor of Economics at Princeton, a contributor to the editorial pages of the Wall Street Journal, and a former member of the Federal Reserve. Blinder’s book, After the Music Stopped, is an examination of the economic meltdown and the reaction to it. The book is now on Bob Brinker’s reading list on his website.

Mr. Blinder said that the book came about as a result of the economic meltdown, which was a big, complicated mess that few Americans understand. He delayed writing the book because he “wanted to see how this play ends.” As to what happened, Blinder said we built a fragile financial system, and there was a desire to build complicated derivatives on top of mortgages. All this activity was predicated on the housing bubble continuing. People should have known that home prices would not continue upwards, and it didn’t help that regulators were looking the other way.

Blinder pointed out that there were “$200 – 300 billion of bad mortgages, … $600 billion at most.” The problem was that “trillions” in investments were built on top of these mortgages and institutions were too heavily leveraged. The topic of March 2009 market bottom came up and Bob Brinker asked if the fear that the banking system was going to go under was legitimate. Mr. Blinder’s answer was yes – however, he cited some actions by the federal government that he thought helped prop up the banking system: 1) the stimulus bill had been passed a few weeks earlier, 2) Treasury Sec. Tim Geithner had announced the need for stress tests on banks, 3) and the TARP program was operating, having been put in place in late 2008.

Bob asked if we have learned anything? Mr. Blinder’s answer was probably not enough, and he wondered out loud whether we would actually remember what we learned. Blinder pointed out a few things that we already knew: being excessively rich can be hazardous to your financial health. We knew that any unregulated financial system tends to go to excess; people get irrationally exuberant and begin doing things they shouldn’t. He said when this happens, the regulator’s role is to mitigate. The Federal Reserve “missed” all this because a lot of the worst mortgages were coming from outside the banking system. But, Blinder added that there were “disgraceful lending standards” and the Fed should have taken action against.

Bob hypothesized that the federal government made a conscious decision NOT to save Lehmann brothers. The guest agreed and said the decision by the government to let Lehmann go bankrupt was a mistake. He believed it could have been saved like Bear Stearns. The resulting confusion over the “rules of the game” led to a freezing of worldwide credit markets. When it came to AIG, the Fed and the Treasury found ways to stretch the law and help that company.

Bob asked if the “too big to fail” concept was the same as a license to do harm (by large financial institutions and traders). Blinder said the Dodd-Frank legislation in 2010 did away with the “TBTF” notion because if a bank looks like it is failing, the legislation calls for an orderly liquidation by the FDIC. Bob mentioned Republican presidential primary candidates who called for Dodd-Frank to be abolished, citing government actions as the cause of the meltdown. Mr. Blinder dismissed this and said the cause of the meltdown was government INACTION, and the notion of repealing Dodd-Frank was “beyond the Pale.”

Editorial comment: Not mentioned with regard to government actions in the form of the Community Reinvestment Act, and the activities of those quasi-government agencies, Fannie Mae and Freddy Mac. 

Carl, calling from WLS country asked a two part question, had Glass Steagall been in place would it have made a difference? And, if the original uptick rule was in place would that have slowed the downturn?

Editorial comment: At this point, MoneyTalk regulars might have listened a little closer because Bob has commented many, many times on the folly of repealing Glass Steagal and the lack of enforcement of the uptick rule. 

Mr. Blinder said that there were many bad practices and “zero” would have been prevented by Glass-Steagall. Only the Citigroup merger would have been stopped. He said that the repeal of Glass Steagall played “a very, very small role if any.” He dismissed the uptick rule as “speed bump” (to those who would short a security).

Honey EC: Thank you for that great summary, Frank. I can't believe that Brinker actually let those comments about Glass-Steagall go by unchallenged. As you said, he has repeatedly talked about how its repeal by "both Parties" was responsible for the housing-banking crises of 2008.

Jeffchristie's Moneytalk Final Exam Question: 

When Bob Brinker takes calls from people listening on the great KNUS radio he frequently says they are calling from: 

A) The emerald city.
B) The windy city.
C) The mile high city.
D) They city that never sleeps. 

Answer:    710knus

Brinker said he will be adding Blinder's new book to his recommended reading list:  After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead

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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February 14, 2013, Bob Brinker's Fixed Income Advisor: Summary, Update and Commentary

February 14, 2013....Bob Brinker's (the host of Moneytalk) son posts on the internet as Bob Brinker. Bobby Jr. left the field of computer technology about five years ago and began to follow in Daddy's bootstraps -- selling a newsletter.   He and Lisa Brinker edit and publish The Brinker Fixed Income Advisor.  Lisa's degrees are in English, German and Linguistics.

The latest complimentary issue of the Brinker Fixed Income Advisor (October 2012) is now on the website.  That's only four months old, so I will review it.

The first thing I did was look at my last summary of Jr's prior complimentary newsletter which I wrote last year on March 13th: LINK  and make comparisons.

ITEM: Firstly, I noted that Bobby Jr's economic forecast is identical to Brinker Sr's is in Marketimer and on Moneytalk:  Fixed Income Advisor, Page one, Paragraph one, Jr wrote: "The economic indicators we monitor suggest subdued economic growth ahead. We project real GDP growth will be near the bottom of our range of 1.5% to 2.5% this year. The economy grew at an annual rate of 1.65% during the first half of the year and we estimate third quarter GDP growth to be around that level. Looking ahead to 2013, the GDP growth estimate is more difficult. Our initial estimate of 1.5% to 2.5% GDP growth in 2013 is based on Congress taking action to limit the negative effect from the fiscal cliff during the lame duck session which follows the November 6th election....."

ITEM: I noticed that like Brinker Sr.'s income portfolio, Bobby Jr. removed all stock holdings from all of his portfolios.  Fixed Income Advisor, Page one, Paragraph two, Jr. wrote: "In light of the recent rally in both credit and equity markets, and diminishing prospects for accelerating growth in 2013, we are making a number of changes to our Model Portfolios this month....We are going to eliminate our exposure to equity prices by selling our holdings of convertible bonds and dividend yielding stocks. The proceed of these sales will be reinvested in safer fixed income securities."

ITEM: I noticed that several of the holdings that Bobby Jr. sold, and bought, were identical to Brinker Sr's.  E.g., sell Vanguard Wellesley Fund (VWINX), buy DoubleLine Total Return Bond Fund (DLTNX); increase Vanguard Ginnie Mae Fund (VFIIX) holdings; buy Metropolitan West Total Return Fund (MWTRX)

ITEM: I noticed that like Brinker Sr., Bobby Jr. had sold all Vanguard High-Yield Fund (VWEHX).

Conclusion: Bobby Jr's Fixed Income Advisor and Bob Brinker's Marketimer might be viewed as the "Red and Black" pair of newsletters. Is it planned that way? I don't know. I report, you decide. I can tell you this, Jr. refuses to let me subscribe to his newsletter. Why? What is he afraid of? Surely he has nothing to hide, or does he? 

Brinker Sr. keeps his Marketimer fixed income portfolio "off-the-books" -- and while Mark Hulbert does report its returns, he never includes it in Brinker's Hulbert Financial Digest performance ranking. While at the same time, Hulbert has covered Jr's Fixed Income Advisor from the first month it was published. (Based on what? the name? What else?) 

Moneytalk callers often tell Bob Brinker on the air that they subscribe to "both of his newsletter," and he rarely corrects the misconception. Here is some commentary that was sent to this blog:

FrankC said...Honey, I never knew that there were two Bob Brinkers, father and son. Thank you so much for shedding light on this sham of a newsletter. Back when I was a subscriber (sucker) to his father’s Marketimer, I received several solicitations for this Fixed Income Advisor in the mail. I always thought that they were part of the senior Brinker’s newsletter because they both listed similar Colorado addresses. The formatting of the pages was nearly identical to make it appear to have come from the same organization. Now I’m wondering how the junior Brinker obtained my mailing address to solicit this rag of a newsletter? Perhaps his father gave him the addresses of Marketimer subscribers? Or did he blatantly steal the addresses from his father? Either scenario speaks volumes for the unethical business practices of the Brinker clan!

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February 10, 2013, Bob Brinker's Moneytalk, Summary, Excerpts, Discussion and Commentary

February 10, 2013....Bob Brinker's Moneytalk was not a live broadcast today. The whole three-hour show was made up of spliced together old re-run calls and canned monologues.  

Why does Brinker allow his re-runs to air without letting the audience know that the program is not live and not to call.

Jeffchristie's Moneytalk Final Exam Question:

Today's final exam question is a repeat.  Unlike Bob Brinker I am announcing it in advance. 

The most frequent caller to Moneytalk is: 

A) Lynda Belinda from Yorbalinda
B) Andy from Redwood city
C) Donna Donna the Prima Donna
D) Tony from Brooklyn

Answer

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Please see my article just below this one for a discussion on Brinker's current market forecasts.

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February 9, 2013, Discussion of Bob Brinker's Current Stock Market Advice

February 9, 2013....Bob Brinker  is still bullish on the stock market, which seems a bit contradictory in light of the fact that he has announced on Moneytalk that he sold all Nasdaq holdings in his newsletter (Marketimer).

Of course, some of the same stocks in the Nasdaq 100 Index are also in the total stock market index which makes up the lion's share of all of his equity model portfolios. Matter of fact, the cash raised from selling RYOCX (mutual fund proxy for QQQ) went directly into the Vanguard Total Stock Market Index Fund -- so no cash was raised.

Brinker is also negative on junk bond funds now and sold all of Vanguard High-Yield Fund from his fixed-income portfolio back in October. There is a lot of negative talk about junk bonds recently. Here's an article that sounds very cautionary: Two Things about High-Yield Funds Investors Must Understand Today.

Brinker also cautions to stay short-term on maturity and duration in bond funds.

In the February issue of Marketimer, Brinker raised his S&P 500 Index target range:  "Applying the 14.5 to 15 P/E range to our 2013 S&P 500 operating earnings estimate of $105 provides the S&P 500 Index with the potential to trade into the mid-1500s range going forward." That is an increase from his  prior forecast of  "upper 1400s to lower 1500s."

There has been no recent words about the secular bear that he believes the stock market has been in since 2000,  or the cyclical bull that he says started in March 2009. A few months ago, he stated that the cyclical bull could run a while longer. Well, now it's run a while longer, but looks like he thinks it still has some "run" in it. :)

Both the S&P 500 and Nasdaq logged their sixth week of gains.  Friday, the S&P 500 Index gained 8.54 points to 1,517.93, and  rose 0.3% for the week. So here we are in the 1500s again. The last time we were there was in October  2007. 

Will Brinker call the top of this awesome bull run? He didn't call the top in October 2007. Just the opposite, he was a roaring bull and rode that nasty bear all the way down 57% fully invested. Consequently, his followers had no money to buy with when the market was near the bottom. All available stock market money was already invested if Bob Brinker's advice was followed, so subscribers/followers have simply regained losses during this current bull-run.

In my opinion, he has to be even more careful about going to cash now than ever before. He has his son's newsletter hitched to his star -- quite literally. Almost all callers indicate that they believe Bobby Jr's newsletter (aka Bob Brinker, also), is published by the famous talk show host. 

We shall know in the fullness of time -- this bull market won't last forever. Brinker has enjoyed this bull run, seeming to have completely forgotten what happened in the last bear. He has called multiple "buying opportunities" and then bragged about them -- never mentioning the multiple times he called buying opportunities during the bear -- just to have the market keep crashing down. 

Do I think he will ever raise cash? Nope, but hey, don't tell him I said that. LOL!

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February 3, 2013, Bob Brinker's Moneytalk: Show Summary, Excerpts and Commentary

February 3, 2013...Bob Brinker hosted the first two hours of the show. The third hour was a rerun of spliced calls. (comments welcome)

STOCK MARKET: Brinker did not talk specifically about the stock market, but he was very enthused and optimistic about all of the economic reports he gave today. He said nothing about a possible end to the cyclical bull market even though the S&P 500 Index is only 3.3% below its October 2007 all-time-high. It is very apparent that he expects the stock market to keep climbing.

Honey EC: Several times on Moneytalk, Brinker has talked about selling all of Marketimer's Nasdaq holdings, including QQQ.  If the Nasdaq continues to climb, I doubt you will hear him mention it again.  October 9, 2012 was the effective date for that sale. The Nasdaq closed that day at 3065 and closed last  Friday at 3179. (The QQQ is about 40 cents higher than it was on October 9th -- probably because Apple has taken a beating.) 

It is important, and perhaps fortunate for Brinker, that the money from the sale of Nasdaq holdings was all put directly into the Vanguard Total Stock Market Index (VTSMX) -- so his asset allocation remains at 100% fully invested. 

NEW JOBS ADDED...Brinker said: "Just on Friday of this week the jobs report came out for the month of January.....Payroll rising by 157,000 new jobs and the revisions were gonzo.....Because the previous month was revised upward to 196,000 new jobs. And the month of November was revise upward to 247,000 new jobs. As a result of these revisions an additional 127,000 new jobs added to the employment count in the months of November and December. And that's on top of the new report for January."

JOBLESS RATES UP.....Brinker continued: "Now as does happen from time to time when there is an improvement in the economy, we see more people enter the workforce....As a result, the jobless rate ticked up to 7.9, it had been at 7.8.... Obviously 7.9% unemployment is too high. It's unacceptable."

FEDERAL RESERVE.....Brinker continued: "And for that  reason, at this week's meeting of the Federal  Open Market Committee, we saw no change in policy, with the Federal Funds overnight lending rate remaining at the same level it's been at since 2008, which is between zero and 1/4 of 1%.

ECONOMY/RECESSION...Brinker said:"We had a advanced GDP number for the fourth quarter which was minus zero point one. There will be two revisions to that number. Let's see how that number comes out....On a  year-over-year basis, we saw the economy actually increase its rate of growth. The  year-over-year rate of growth for Gross Domestic Product for 2012 was 2.2%....Economy continues it this gradual expansion that we have seen."

BRINKER THROWS THUNDERDOME PUNCH... Brinker said: "Remember we talked during the year about the estimate that I had made at the early part of the year, that the economy in 2012 would grow between 1.5 and 2.5%....That projection that we gave on the program was made at a time when there were those out there talking about going into recession in 2012. Well, obviously, we did not have a recession in 2012. That forecast looks kinda silly now, doesn't it......Turns out that real GDP year-over-year grew 2.2% based on this latest report. And that was up from 1.8% for 2011."

Honey EC:  I laughed out loud when I heard Brinker slam "those out there talking about a recession" while he was predicting growth. It's been awhile since he mentioned the subject -- guess it couldn't have anything to do with my previous article. Nahhh.... :)

CONSTRUCTION PROJECTS UP: Went up almost 1%...up to $885 billion annual rate...best since summer 2009.

HOMEBUILDING UP:  Continues to improve....outlays up 2.2% to an annual rate of $308 billion....best since end of 2008.

HOUSING: Housing investment in 4th quarter up over 15% annually.

BRINKER LIKES BERNANKE'S ONGOING STIMULUS.....Brinker said: "I support Fed Chair Ben Bernanke in his continuing effort to stimulate economic growth. And that's exactly what he is doing coming out of FOMC meeting this week. There was essentially no change in the easy money, accommadative, stimulative,  Federal Reserve policy.  In my opinion, if it were not for the actions of the Federal Reserve in recent years, we would not be looking at the situation we are looking at right now."

JOBS RECOVERED....Brinker said: "First of all, we have recovered over 5 million of the over 8 millions jobs that were lost during bad times...."

GOVERNMENT DEFENSE SPENDING SLASHED....Brinker said: "Government defense spending dropped 22% at an annual rate....It is so big that it is the largest in 40 years. This happened back in 1972 during the Vietnam withdrawal process.....We are talking about programs here. We're not talking about personnel....Defense spending literally fell out of bed in the fourth quarter....It took 1.3% off of GDP....for that one item."

CALLER MADE MILLIONS ON BRINKER'S ADVICE: Caller Joe from Missouri started with $75,000 in 1991, followed Brinker's advice and now in 2013 it's worth $2.7 million. Joe said he  bought and paid off a home and put a child through college.

Honey EC: Any mathematicians out there who can figure what Joe's income had to be, and how much he would have had to save, to do that in 21 years?

GOLD: Caller Ann wanted to know if she should take $5,000 out of a $500,000 net worth and invest in gold.

Brinker replied: "Firstly, let me tell you, I don't have any money in gold. I don't have investments in gold, so you know that from the get-go. Secondly, at this time, I have no recommended weighting in gold in my investment letter. I'm not recommending in my investment letter that anybody in my model portfolios own gold. What I am saying is, which what I've said for years which is, if an investor has a desire to have a small hedge in gold, what I would do is use the Exchange-Traded-Fund, GLD as my vehicle. I would not do it in an IRA."

Honey EC: What a fine line Brinker often walks between truth and deception.  He said that he has no "recommended weighting" for GLD in Marketimer, and that he has no model portfolio recommendations in Marketimer. 

Here's the whole truth: Even though he implied differently, he did indeed add GLD to Marketimer's recommended "individual issues" list in May 2009, but has never offered any guidance as to weighting or the price (and it's still there in the February 2013 issue). 

 As he said, he has not added GLD  to his model portfolios. Here's why: if he did, it would become part of his official performance record -- out there for all to see, and for Mark Hulbert to rank in Hulbert's Financial Digest. The "individual Issues" list is off-the-books." Winners are mentioned, losers are not....

In my opinion, Brinker is either not reading his own newsletter, not remembering what's in it, or deliberately misleading the audience. 

USE SILVER IN PLACE OF GOLD: Caller Ron asked Brinker about buying silver in place of gold.

Brinker replied: "I think that silver could be considered as an alternative form of hedging in a portfolio. There is a preferred way and that would be the Exchange-Traded-Fund that holds the silver bullion, and that trades under the symbol, SLV. It's known as the Ishares Silver Trust. There is a derivatives investment under the ticker symbol DBS....holds futures contracts on silver....If I was going to consider owning a silver hedge, I think I would be looking at owning the bullion as opposed to the futures."

USES FOR SILVER: Brinker continued: "Silver has a variety of industrial uses .....About 40% of silver production is used for industrial reasons. It's used in photography, batteries, CDs, plasma TVs and also some of the emerging technologies are starting to use silver as well...silver embedded bandages, another example, water purification."

DOES BOND DURATION EQUAL STOCK BETA?.....Caller Jay from Illinois asked if it bond duration was the same as stock beta.

Brinker replied: "I think to the degree that the the beta-coefficient of a stock or a fund, measures the volatility of the fund, relative to a benchmark such as the S&P 500.....Moving over to the bond market, we measure the volatility of a bond price or portfolio of bonds by the duration. I think in that sense they can be viewed that way."

NO MARKETIMER CHANGES: Caller Jay started to ask a follow up question. He said: "You have made several changes to your fixed-income portfolio in your newsletter."

Brinker interrupted and said: "Jay, wait a minute. I don't want to mislead anybody. In the February investment letter which has just been published, we have not made changes to our income portfolio. Any changes were made in prior issues. I don't want you to mislead any listeners. This is very important."

Honey EC: Yes, Brinker is correct. He made no asset allocation or fund changes in his February Marketimer. 

SOME OF BRINKER'S PERSONAL HISTORY: About 45 minutes into the first hour, Brinker talked about how he had won a spelling bee in the 7th grade and the prize paid half of the tuition for him to attend a special high school.  But his parents couldn't afford the second half.

He had an aunt and uncle who had set up trust funds for all of the cousins in the Brinker family at that time -- all 15 of them. This gift was  enough to pay the other half of the tuition he needed to attend the special school. Brinker encouraged the audience to "be one of those wonderful, thoughtful, generous people and do good things that will always be remembered" like his aunt did for him.

BRINKER'S SUPER BOWL PICK....In the first hour, Brinker promised to give his "major Super Bowl pick" at the end of the second hour. Did anyone hear it? I didn't....

Jeffchristie's Moneytalk Final Exam Question:

Today Bob Brinker talked about the high school he attended. Bob won a 50%scholarship by winning a county wide spelling Bee. The remaining 50% of his tuition was paid from a trust fund that his aunt and uncle set up to cover education expenses for Bob and 15 other young sprouts in the extended Brinker family. This high school was run by which notorious organization? 

A) The Muslim Brotherhood
B) SEIU
C) The Christian Brothers
D) The Communist Party 

Answer:
Bob Brinker graduated in 1959 from LaSalle college high school which was run by the Christian brothers.

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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