March 24, 2013, Bob Brinker's Moneytalk: Summary, Excerpts, Commentary and Discussion PART ONE

March 24, 2013....Bob Brinker's Moneytalk Summary: Part One  (comments welcome)

STOCK MARKET: Caller Dave from Illinois asked Brinker if the Federal Reserve pumping money into the economy was driving the stock market going up.

Honey EC: Brinker gave a long answer to Dave's question that includes a lot of other information about what the Fed is doing,  it's affect on money supply, inflation, interest rates, unemployment and the stock market: 

Brinker replied: "It's called Quantitative Easing....The Federal Reserve is buying under the current round, which is technically, the fourth rounds....is purchasing $85 billion a month in U.S. Treasury and Mortgage-Back Securities.....And that put the money into circulation....No question that has flooded the market with money...And that is one main reason that rates are so low is there's money everywhere....Why did they do it? They started to do it in 2008 to avoid a collapse of the banking system."

Brinker continued: "Why have they continued to do it?  They operate under a congressional order that says they have to maximize employment while maintaining the stability of the dollar. Now that's measured in inflation terms.....That's defined right now as Core Inflation of less than 2% as measured  by the Personal Consumption Expenditure Index. And that's where inflation is.  It's 1 and a fraction using that Core Index. Therefore they're trying to create conditions favorable for job creation to get down the unemployment rate which is way to high at 7.7%. They want to get it down to 6.5% or less.....That money is out there in the financial system. Does some of that money find its way into the stock market? Of course it does. That's one of the reasons you're looking at record or near record prices on major stock indexes. Because of the fact that there has been so much liquidity created under this monetary policy."

Model Portfolio I and Akre Focus Retail Fund (AKREX).....Caller Dan from Illinois told Brinker that he tried to buy AKREX to go in model portfolio I, and found that the fund was closed.  Brinker replied: "That is not true. For anybody listening to Dan and mislead by Dan's observations, that is not true."

Honey EC: I have not checked whether or not AKREX is closed, but I'm sure Brinker would know if it was......In January 2012, Brinker sold the 15% Baron Partner (BPTRX)  holdings and bought AKRE in portfolio I -- as he indicated to the caller. All three of the model portfolios contain small holdings in AKRE.

GOLD NOT IN MODEL PORTFOLIOS....Caller Dan okay and asked about buying gold. Brinker replied: "Whether or not you wish to have a hedge in something like gold bullion, which you can easily do through the Exchange-Traded Fund, GLD....depends on whether you personally choose to have it. Now I have not chosen to have it. Consequently, we don't even have it in our model portfolios. But we do have GLD on our list of Exchange Traded Funds. As a consequence anybody who  wishes to have a hedge in that fund, can do it. The reality is, it hasn't been doing very well. GLD has really been doing quite poorly.....It does not pay a dividend....So the only thing you have in the fund is price change and price in that fund is down from a year ago."

Honey EC: This is the first time that Brinker has given any reason whatsoever to explain why he added GLD to his off-the-books short list of (all most-well known) ETFs in 2009. The list also includes three individual stocks: Suncor, Microsoft and Vodafone.

VANGUARD GINNIE MAE FUND (VFIIX)  Caller Paul said his parents had all of their money in Ginnie Maes.  Brinker replied: "We've had a tremendous run with that fund. And that fund has done so well. It's had a lot of payouts of distributions in the last year and a quarter. If you go back to December 2011, they've paid out something in the area of 26 or 27 cents a share. So if you add that to the current share price, you'd be at $11.10 a share. The actual price is $10.83 because the distributions were paid out to the shareholders......Having said that, remember Paul,  in our portfolios, we diversify....Although that fund is represented in our portfolios in certain places, we don't recommend concentrating all of your money in one fund.....If you look in our model portfolio III where a lot of retired investments are concentrated for subscribers in retirement or approaching retirement, you will see that fund represented there. We also have it represented in our income portfolio on page 7, but in all cases, we have a widely diversified portfolio."

Honey EC: I strongly question how "well-diversified" the two portfolios are that Brinker talked about today. He used to include Vanguard Short-Term Investment Grade Fund (VFSTX) and Wellesley Income Fund (VWINX)  in both portfolios.  Wellesley is now gone altogether and in its place are higher-expense managed fund.  Matter of fact, the only Vanguard Bond Fund in the fixed-income portfolio is a 25% weighting in Vanguard Ginnie Mae Fund -- even the Vanguard High-Yield Fund is gone.  The other three replacement components of that portfolio seem quite a lot more risky to me, especially Double Line Total Return (DLNTX) and Metro West Total Return (MWTRX). Dodge and Cox Income Fund (DODIX) is an old fund and may be more reliable, but is it as diversified? I certainly doubt it.

MONEY SUPPLY....Brinker said: "The money supply has gone up hugely over the last few years at record historic rates -- because I track it in my investment letter.

FRIEDMAN AND KEYNES....Brinker said: "I think Milton Friedman, who I was lucky enough to catch in a number of speeches in the Big Apple....is a absolutely brilliant guy.....If there's one topic that people are ignorant about it's John Maynard Keynes. They don't understand what the man stood for.....Keynes was adamant about countries building up excess funds in the good times so that they would be in a position to stimulate the economy in bad times. He was not favor of what the United States has done for decades which is running deficits every year in good times and bad....That is not Keynesian economics."

BEN BENANKE'S EXIT DOOR MAY BE OPEN....Brinker said: "He gave us some hints that the door to his exit from the Federal Reserve Chairmanship may be open....He said that he has 'spoken to the president' a bit. He says he does not feel personal responsibility to stay as Fed Chair as the Fed winds down it stimulative monetary policies. In fact he went on to say, 'I don't think I'm the only person in the world who can manage the exit.'.....If you ask me, during my lifetime, the two Super-Star Fed Chairs, they're Paul Volcker and Ben Bernanke. No hesitation at all about saying that...Does it matter whether he stays on or not? That's a question that cannot be answered because it depends on who replaces him when he leaves. If you get somebody as good, then it doesn't matter. If you come up with a turkey, then it matters....I'd rather see Bernanke in the chair during the withdrawal process, but he's going to do what he's going to do."

 CYPRUS.....Brinker said:  "Cyprus is hanging in the balance as the European Bank deadline on the table as we speak to see whether or not Cyprus is going to remain in the Euro."

Honey EC: Brinker covered this subject thoroughly last week, so I am not going to report much about it today. And clearly, the story has changed since last week and has even changed  since Brinker spoke about it early in the program. Here is a LINK to a  very good BBC update on the latest news on Cyprus.

THE NATIONAL DEBT WILL NEVER BE PAID....Brinker said: "I don't think it will ever happen.....Anybody that thinks they are going to pay off the national debt is dreaming....I don't see a major pay down of the National Debt. It's moving up toward 17 Trillion dollars and will cross 17 trillion this year.....When it comes to the National Debt, Party affiliation has meant very little. We've been running huge deficits in good times and bad times."

Honey EC: Hey Bob, maybe you should check into what's happened to the National Debt in the past four years and compare that to all that went before. It might surprise you.

THE WEEK AHEAD, Brinker comments:  Housing prices starting to improve. Tuesday Case-Schiller Housing Price Index comes out - median forecast is a year-over-year gain of close to 8%. Last month it was almost 7%.....4th quarter revision expected to be 1/2 of 1% growth. The earlier revision was 0.1%. Total  real GDP growth for 2012 looks like about 2.2%. Year before it was 1.8%....That's slow growth.  Initial unemployment  claims estimated at 340,000....Last week they were 336,000....They are well under 400,000 and that is where we want to see them.

Jeffchristie's Moneytalk Final Exam Question:

Bob Brinker once again sang the praises of Ben Bernanke. He ask if it would be a problem if he didn't stay around to unwind the expansion of the FED's balance sheet. He said it would be a problem if his successor was a:

A) A Dodo bird.

B) A Chicken hawk.

C) A Turkey.

D) A Vulture.

Answer

 Bob Brinker's guest-speaker was Charlie Maxwell. Guest-writer, FrankJ has written a summary of the Maxwell interview. See Part Two article above this one.

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