STOCK MARKET: Another program went by and Brinker made no comments about the stock market. From Barron's: Last week, the Dow lost 227 points, or 1.8%, to finish at 12,588.31, and is down 7.5% from 2012 highs, while the Standard and Poor's 500 index gave up 20 points, or 1.5%, to 1359.88, and is off 7% from highs. On friday, the S&P index rose 0.5%. The Nasdaq Composite dropped 52 points, or 1.8%, to 2853.13, and is now down 10% from highs, officially in correction territory.
Honey EC: Brinker remains fully invested. However, on a recent Red Eye radio guest appearance he warned that he is "watching" the market very closely for signs of deterioration. In the November Marketimer, he called the current cyclical bull "long-in-the-tooth," and said that he was "disappointed" that the stock market had not experienced a "health-restoring correction." Usually, he considers 10% a correction.
FISCAL CLIFF....Brinker said: Obi Wan Ben Bernanke has coined the Fiscal Cliff about a year ago....Now everybody uses it.....This has to do with all the stuff that is scheduled to happen on New Year's Day....Unless something happens in the interim like a deal....the George W. Bush tax cuts of 2001 and 2003 expire. That would result in a dramatic change in the personal income tax landscape as well as capital gains and dividends......The payroll tax cut which was one of the most important fiscal stimulus measures taken expires at year end. So every wage earner that's in the Social Security system gets a 2% hike.....up to about 113,000 dollars or so.....Also capital gains tax on long-term holdings will increase from 15% to 20%....It will be higher for high-earners.....Dividends would be taxed as ordinary income, although nobody expects that to happen......The Alternative Minimum tax, which was originally aimed at millionaire earners, that would capture about 26 million additional households...If the current law were to prevail."
SCHEDULED SPENDING CUTS....Brinker continued: "Then we have the spending cuts, roughly a 100 billion in the first of the the ten years of spending cuts that are on the board under current law.....I'm just talking about the fiscal cliff as it applies to all of these tax changes. I'm not talking about the healthcare taxes. I will get to the that. They are in a separate category....."
UNTHINKABLE ECONOMIC SITUATION IS DAMAGING ECONOMY: Brinker continued: "So here's the situation we're looking at right now. We have all this stuff set to happen on New Year's Day. We've had an initial confab between the president and representatives of congress.....It seemed to go reasonably well....They realize they are already affecting the U.S. economy....And they are affecting the economy. No question about it.....Because businesses are reluctant to hire when they are facing such tax code uncertainty and consumers are less anxious to make commitments and buy. So we have a federal government that has already affected the U.S. economy by providing an unprecedented level of uncertainty....with approximately six weeks to go....We are looking at a situation right now which borders on the unthinkable....They have to reach some sort of a deal where they can move forward because aside from the fiscal cliff issues, there are other taxes that will kick in in 2013.... just six weeks down the road.
NEW HEALTH CARE TAX ON SO-CALLED HIGH-EARNERS: Brinker continued: "I speak here of the healthcare reform taxes. These taxes are going to affect a wide swath of taxpayers. In a major way they will affect high-earners. What is a high-earner? .....We look to the politicians that tell us what we are to believe about this. And they and the administration has come up with the definition of what a high-earner is. Whose definition? Theirs of course. They say a high-earner is a person with an adjusted gross income in excess of 200,000 dollars or for joint filers, in excess of $250,000....These individuals are going to pay a surtax on unearned income starting in 2013. A 3.8% surtax. That means if you thought your top bracket at the federal level was 39.6%.....you were wrong. Actually, it's 43.4%. What falls into this unearned category?.... For example, dividends, interest, rents, capital gains -- including long-term, income from annuity contracts, house sales profits above a threshold amount, partnerships, royalties, the list goes on and on. All of this would be lumped together.... and be subject to this additional surtax of 3.8%.
MORE HEALTHCARE TAX INCREASES: Brinker continued: "It doesn't stop there. For this same category of earners, there is a new Medicare tax. I know I just said the 3.8 surtax was a healthcare tax. Well, there's another healthcare tax in addition to the Medicare tax liability. A 90 basis point surtax on Medicare taxes for these same high-earners. Let's say you're self-employed, you pay both sides of the Medicare tax, 2.9. You're going up to 3.8 next year....Let's say you're not self-employed and you pay a 1.45 Medicare tax and your employer pays the other 1.45. Well next year, you the employee will pay 2.35 on your Medicare. The reason this is important is because this is uncapped. No cap at all. It applies to all the money that you have in your paycheck....."
FSA ACCOUNTS NOW LIMITED BY HEALTH CARE TAX RESTRICTION: Brinker continued: "Flexible spending account contributions are going to be capped at $2500. This is a big deal for those using them....Right now there's tax related limit on how much you can put aside pre-tax to pay for medical expense. Next year there will be, so if you've been putting money away in a flexible spending account to pay medical bills, you're going to be capped at $2500. That's not enough money for a lot of families to pay their medical bills, but this is another new tax restriction."
HEALTH CARE PLAN REQUIRES MORE TO QUALIFY FOR MEDICAL DEDUCTION: Brinker continued: "Do you take a deduction for medical expenses? Well, you're going to have to have more medical expenses to qualify because the itemized deduction hurdle for medical expenses will be 10% of adjusted gross income. Whereas, it is currently 7.5%....."
PENALTY INCREASES FOR NON-MEDICAL HSA WITHDRAWALS: Brinker continued: "And the penalty on non-medical withdrawals from healthcare savings accounts is going to double to 20%. Wow! I'm not trying to name every specific element in the new tax code, but these are the primary taxes that will kick in in 2013."
PENALTY TAX IF YOU DON'T BUY HEALTH INSURANCE: Brinker continued: "Don't forget the penalty tax if you don't buy health insurance. Starting in 2014 and phasing in, this could range up to 4,700 dollars per person. This will depend the level of your income......"
MAJOR TAX INCREASES INEVITABLE: Brinker continued: "Those are the major elements of the health care reform taxation that's also going to be kicking in. And as I say, you really have to look at that different from the fiscal cliff taxation issues....because these health care reform taxes are scheduled to kick in and with the Supreme Court waving off on the Health Care Reform Act, these changes appear to be inevitable."
WHAT DEDUCTIONS MIGHT THEY ELIMINATE TO RAISE MORE TAXES: Brinker said: "You can have tax increases by reducing or eliminating the deductions. There are four main categories of deduction revenue money...this is where the money is. An obvious one is mortgage interest.... which costs the Treasury a lot of money because of that deduction...I don't think they are going to eliminate it because too many people benefit from it. However, they might cap it. They are going after the high-earners. Let's bring some logic in here. If we dare bring logic in to the equation when referencing the federal government....The president's been very clear, even during the campaign, saying that he wants to take a bigger bite out of the wallet of high-earners....He has said it over and over.....So you have the mortgage deduction and I think the biggest risk there is that if would be capped....It would be going after the rich.....Where else? Charity.....The president has already proposed capping the rate of deductibility of charity at 28%... So it can't be ruled out....Then we have state and local taxes. That could also be capped.....Then of course, is the health care benefit, where if you're working for a company and you're getting healthcare as part of your compensation, you're not paying income tax on the cost of that health care. It's basically a tax-exempt benefit you're getting....And they could start taxing that....."
Honey EC: If reading what Brinker reported above has you sitting upright in shock, you may want to read the 1500 or so page PDF of the whole document HERE. But be warned, don't even start to read it if you want to sleep soundly afterwards. Thinking of some government bureaucrat dictating and micromanaging personal health care choices is enough to give anyone nightmares.
ALL NASDAQ SOLD FROM MARKETIMER: Caller John from San Diego said: "I've been a subscriber of yours for almost as long as you've been on the air.....Recently, I noticed that you made some changes in your I and II portfolios.... (Brinker interrupted and asked what's your question).....It has to do with exposure the Nasdaq and I understand you...."
Brinker interrupted and said: "We don't have it anymore, John. In early October, we sold all of our Nasdaq direct exposure. So that meant that we sold our mutual fund that was invested in the Nasdaq 100....That came out of model I and model II and we also extended that to QQQ shares, which are also invested in the Nasdaq 100. We also sold any QQQ shares that subscribers held. All of those share in the Nasdaq 100, whether they be in the mutual fund or in the Exchange Traded Fund were sold in early October. So they're out of there. There's no more direct Nasdaq exposure anywhere in model I or in model II or anywhere within newsletter subscriber positions. We sold them out in early October. I felt at that time, based on all that I had seen in the Nasdaq that that was an opportunity to sell that index and that's what we did."
Honey EC: Those words above clearly show how Brinker ended a twelve-year deception on subscribers, and proves that his "official" performance record is phony. I will make a complete report on this subject later in the week, along with direct quotes from his November 2000 Marketimer.
* Please note that Brinker did not raise any cash when he sold RYOCX and QQQ holdings. He is still 100% fully invested.
VANGUARD GINNIE MAE FUND (VFIIX)....Caller Ian from San Francisco wanted to know if the Federal Reserve's QE3 bond purchases were making Ginnie Mae Funds safer. Brinker explained that Ginnie Maes have always had the full faith and credit of the Treasury guarantee so he didn't think so, but that the Fed's purchase program helped keep down rates.
Honey EC: Jim sent these comments about Brinker's GNMA flip-flop. Brinker sold the fund down earlier this year and then added it back in October:
Jim said...Honey EC: I agree with Jim, but I also think that this indicates that Brinker is confident that interest rates won't be rising any time soon. Earlier this year, he was often advising callers to use laddered certificates of deposit if they were worried about losing principal in the GNMA fund. Remember this: No matter the government guarantee of principal and interest, when rates rise significantly, Ginnie Mae Funds will drop like a rock!
I feel Bob Brinker revealed today why he did a "flip-flop" and bought more GNMA's recently after selling them earlier. He acknowledged to a caller that the Fed's purchase program of mortgaged-backed securities creates demand for them in the open market and helps keep interest rates low.
FrankJ wrote the following portion of the program summary
1. "Joe from Carmel" has been a frequent flyer on the Starship, and today, when Bob announced Joe, he mentioned station KION from Carmel. Joe corrected him, mentioning Salinas. On prior calls to the show, Bob has referred to him as "Joe from Carmel." Bob ran through the list of cities where KOIN is heard, before Joe asked his question -- which seemed to be, would prices on high end real estate be favorably impacted by the fact that Facebook shares "held up" since the most recent big unlock? Maybe Joe has discovered a way to get on the air -- link your question to Facebook's IPO, because Bob took the opportunity to bash the handling of the IPO, before telling Joe, to watch what happens with the mortgage rate deduction. The message being that eliminating it, or capping it would have a direct affect on home prices.
2. Caller Kate from New York said she was 64 years old, was receiving a $30,000 pension and was in the 15% tax bracket. She does not plan to take SocSecurity until she is 68 and then she will receive $12,000 per year. She has $90,000 in a 503B "stable fund" earning 4%. She called it a "503B" she might have meant 403B. Her question was should she start to withdraw from the $90K account while she is in a lower tax bracket?
Bob told her how lucky she was to have an investment earning 4% and then proceeded to scold her for worrying about coming changes to the tax code, telling her no one is talking about raising rates on people at her level of income. That is NOT what she was asking. She seemed to be looking for confirmation that by tapping money from the $90,000 investment, she could bump herself from the 15% bracket to the 25% bracket. When Bob finally got on track with this caller, he told her she needed "push a pencil," on these numbers, "do a spreadsheet", and "be totally accurate" with the tax bracket numbers." For much of the call, they were talking past each other.
For taxes to be paid in 2013, on 2012 income, the 15% bracket for single individuals starts at $8700 and ends at $35350. This is TAXABLE INCOME, which no one mentioned in the call. Assuming Kate takes the standard deduction and does not turn 65 before the end of this year, AND she takes herself as a personal exemption, she could take $15,000 from the fund and still be in the 15% bracket. (30,000 pension + 15,000 = $45,000 Adjusted Gross Income.) The standard deduction is $5950 and the personal exemption is $3800, so subtracting these from $45,000 yields $35,250, an amount just under the maximum for the 15% bracket.
Kate goes to the head of the class, for thinking ahead. Bob ... you get a grade of C- on this call.
Jeffchristie's Moneytalk Final Exam Question:
Bob Brinker refers to the expiration of the current tax code on 31 Dec 2012 as:
A) The slippery slope.
B) Taxmageddon.C) The fiscal cliff.
D) Critical mess.
Answer:
Brinker's guest-speaker today was David L. Scott: Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor
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.)
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.)
