September 30, 2011, A Question for Bob Brinker's Final Exam

September 30, 2011....Bob Brinker sometimes talks about the Moneytalk Final Exam.  I don't think that he will be giving that exam any time soon,  but here's a question  that Jeffchristie suggested which might surprise many of Bob's listeners:

Who was president when Bob Brinker last issued any kind of sell signal? 

It happened in January 2000.  Brinker sold 60% equities from his model portfolios,  recommending the money be held in money market funds. (He raised another 5% cash in August 2000.) That was the last time that Brinker ever recommended selling equities and raising cash to buy back at lower prices.

So does that make Bob a buy-and-hold advocate?  That depends on what your definition of is is....errrrr,  sorry, that was someone else.  But you guessed it -- it was President Bill Clinton.

Birdbrain said:

"In the April 1 2003 Kiplinger article:

(Bob) Brinker predicts market timing, in general, will be more valuable in the future. "The buy and hold days are over" he proclaims.

And what has been Mr B been doing in the over eight years since?
Altogether on three...1..2..3

BUYING AND HOLDING"

I did a search for the article that Birdbrain wrote about. It's very interesting to see what Brinker said about buy-and-hold stock investing one month after he returned all 2000 cash reserves to fully invested.

Back then, Bob was touting his market-timing skills and riding high, but in 2007-2009, he missed the worst bear market since the Great Depression and rode it down fully invested. How ironic that during the  ensuing eight years from 2003, he did exactly what he said "was over."  Here are  excepts from the 2003 Kiplinger article about market timing: 

"While market timing has been in disrepute for many years, Brinker, who has been in the investment business 35 years, says that's only because of the long bull market.  Brinker predicts market timing, in general, will be more valuable in the future. "The buy and hold days are over," he proclaims."

 Here are excepts from a 2009 Kiplinger article titled: "Can You Time the Market?"

"Newsletter editor and radio host Bob Brinker, for example, correctly called the market top in 2000 and turned bullish not long after the bottom in late 2002. But he didn't get out of the way of the 2007-09 bear market..." 

Brinker largely maintains his reputation as a market-timer (in spite of the fact that he has not changed his fully invested equity allocation in eight years) by repeatedly declaring stocks "attractive for purchase" at various levels.   Like Bill Clinton, he sees a lot of attractive (market) bottoms, but hasn't got any cattle in his hat to take advantage of them... (Sorry for the mutilated metaphor.) :)

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September 29, 2011, Bob Brinker's Moneytalk Guest: Charles Maxwell

 September 29, 2011.....................................................(comments)

Bob Brinker's guest-speaker last Sunday was Charlie Maxwell. David Korn, who has written a weekly summary of  Bob Brinker's Moneytalk for over a decade,  has graciously given me permission to post his summary of Charlie Maxwell's Moneytalk interview.  

David Korn wrote the following, including editorial comments:

MONEYTALK GUEST – CHARLES MAXWELL

Introduction:  Bob had on one of his favorite guests, Charlie Maxwell, Senior Energy Analyst for Weedon & Co.  Charlie was educated at Princeton and then Oxford.  He has been working in the oil industry since the 1950s.  In the 1960s he became an analyst on Wall Street and has been rated the #1 energy and oil analyst on many occasions.   Bob heaped heavy praise on Charlie as the best of the best in terms of energy analysts and mandatory listening for Moneytalk trekkies.  Bob also congratulated Charlie on receiving the M. King Hubbert E3 Ward for Excellence in Energy Education at the 2007 ASPO World Oil Conference.  I summarized the interview below.

Brinker/Maxwell:  Bob asked Charlie his thoughts on the collapse of the solar-electric company Solyndra.  Charlie says it is important that government step in and help at the early stage in new technologies. China is doing that allowing them to do preliminary research that doesn’t produce revenue and get them over the hurdles of the early days of the industry when there are little profits to have.   Our government has been remiss in not helping much.  They don’t have to give money, they can lend them money and check on them.  President Obama with a good thought in his mind and trying to help America went ahead to push solar power.  The problem is he doesn’t select companies or gives them the money and his underlings let him down by picking a loser who had a new and controversial type of solar power that they thought would be cheaper but turned out to be much more expensive and they couldn’t sell what they have made.  They should have pulled back from their help but they didn’t because they were told by the company that everything was all right and just needed time.  They weren’t analyzed carefully by the government and now a bad name has been given to the industry and to President Obama for helping.  It shows you can’t just throw money at problems, you have to monitor and evaluate and follow up.

EC:  Solyndra was a manufacturer of solar cells and last year was promoted as a model for government investing in green technology.  A $535 million loan guarantee was applied for under the Bush administration but was denied, but later granted under the Obama administration and private investors also invested more than $1 billion in the company.  Early last month, the company ceased all business activity filed for Chapter 11 bankruptcy and laid off all employees suspended all of its operations last month leaving behind the United States government as its largest creditor.

Brinker/Maxwell:   There is a lot of volatility in oil prices.  What do you see ahead?  Charlie says there is almost nothing that can stop a longer-term rise in oil prices because oil is the most attractive energy supply. It is easy to transport.  It is powerful as a fuel. And we have been using it like crazy for 150 years.  We have now reached a point where we are producing 88 million barrels a day and the earth is saying how can I continue to grow this much.  Getting the production going has been a real problem.  In 5 years we will probably reach a plateau and at some point we won’t  have additional barrels and the price will go up and we will have to ration oil for those who don’t have the money to pay for the higher rates.

EC:  Charlie is on record stating that agrees with the viewpoint of the renown Shell geologist, Dr. Marion King Hubbert, who predicted that the world oil production would reach a peak and then rapidly decline.  Hubbert said the amount of oil given to our planet when it was formed is finite.  When an individual field has produced 50% of its oil, you cannot force it to produce more oil on a daily basis.  Charlie thinks the we are not far away from when more countries have declining production versus those that have rising production.

Brinker/Maxwell:  Bob said we are sitting on incredible reserves of natural gas and many have implored the President to start a program that would require all federal vehicles to use natural gas which would jump start this program.  Charlie agreed that he has not picked up the ball on this issue.  We have problems with coal because of greenhouse gases (and he thinks we will have to reduce it); we are running short of oil, and we have the problems with nuclear energy now other countries saying no to nuclear following what happened in Japan. (Charlie thinks we will come back to nuclear in 20-30 years but it has been terribly delayed by the issues in Japan).  And here we have natural gas which produces less waste than coal or oil.  In the US, we have a surplus in gas and the price has dropped in half over the last five years so it makes sense to increase our reliance on it.  We should have growth of 4-5% a year, but instead it is 2% a year and the government is not sponsoring it.  Why not?  The environmentalists are a big factor.  They want to get rid of the fossil fuels (Charlie says we all do), but they fuel 80% of our energy and so we can’t get rid of it immediately.  Solar and wind just won’t cut it right now because they account for a very small percent of our energy and are expensive sources and take a long time to develop the capital equipment.  What we have available is fossil fuels.  So if we are going to be forced to use less oil and we want to use less coal, let’s go with natural gas.  Let’s use it for more transportation purposes where oil dominates.

EC:  Last time Charlie was on the show, Bob had asked him to comment on whether hydrogen would ever play an important role in our energy supply.  Charlie said he thinks it will in 40- 50 years because hydrogen is the most plentiful element on the planet.  Charlie also pointed out that he problem is that Hydrogen bonds so easily and powerfully on a molecular level with other elements that it requires a lot of energy to unbind it and, therefore, getting pure hydrogen is therefore expensive, and it costs money to transport and store.

Brinker/Maxwell:  Bob noted that Wind and solar energy only amounts to less than 2% of our energy yet there seems to be a huge lack of federal sponsorship for natural gas. Charlie says it is a political issue.  There is a battle between maintaining our standard of living and the ideology of the environmental movement.   Charlie said we are finding out new ways of opening source rocks that we have known about for a long time but could never open.  Using new cracking techniques with sand, we are getting lots more gas than we ever suspected we would.  We are going to have a lot more natural gas which can be converted to liquid form so many big trucks and buses can use it as well as for marine applications.  It can be compressed or put in a liquid by cooling. All of that will allow us to move to a natural gas economy over time.

Brinker/Maxwell:  There is a lot in the headlines about a move against the oil companies and the White House is talking about raising their tax bill.  What is your view?  Charlie said we need to do something if oil is going to reach a peak in the next 5-10 years.    We need energy efficiency.  However, we could use help to get a little more oil than we might otherwise get if we don’t make a real effort.  What we have seen so far is the President comes up with a good idea like increasing car miles per gallon, but then he slams the energy companies by taking away the means to do it. We have a government that wants to punish the oil companies for their success, but on the other hand needs the oil companies since the government can’t do it itself. The result is that we are not making the strides we need relative to our energy policy. We need leadership on this issue otherwise we will have big problems 7-10 years down the road.

Brinker/Maxwell:  Should we be drilling for more oil in the United States?  Charlie said every barrel we can save or can substitute for oil we should.  We need to cut down on the imports and increase the value of the dollar by not spending so many dollars on these imports. We are very vulnerable to being cut off from imports. We need to create greater efficiency and finding more oil where we can.  Charlie said we will never find enough oil in the United States to meet our needs.  It will never get back to the glory days of the late 1960s.  But we can develop some additional supplies and every barrel we do it will cut back our reliance on some of the very countries that are using that money to fuel terrorism.  Charlie said they can just give the oil companies a level playing field by removing some of the paperwork and ways that don’t involve tax breaks.

Brinker/Maxwell:  Are there any areas that are potential drilling regions in the country that you would be taking a serious look at if you were in charge?   Charlie said Alaska has areas that have never been tapped that have substantial amounts. The other is area is the Gulf Coast where there is a lot of oil and and we have found new sources of oil and gas.

Caller:  Don’t we have tons of oil in our country that we just haven’t found yet?  Charlie said we found oil in 1859 for the first time and we have been producing more and more since them. There has only been 5 or 6 years that production has been down. Then came Hubbard in 1956 and said this will last until the early 1970s then we will go over the peak. Then in November 1970, oil production peaked. He was absolutely right and we have been in a downward course of production from 1970 through today.  At that point we were the only country progressing downward in oil production but now there are 13 other countries including Russia that have a downward production and so this is a very well accepted theory around the world.  Soon the whole world will peak, probably in the late teens.

EC:  David Strahan has written a book called, "The Last Oil Shock."  In that book, he writes, "There are currently 98 oil producing countries in the world, of which 64 are thought to have passed their geologically imposed production peak, and of those 60 are in terminal production decline."  Learn more about that book at the hubbert peak web site at this url:
 
www.hubbertspeak.com

Brinker/Maxwell:  Bob asked Charlie to comment on China as it relates to energy.  Charlie said 70% of their energy is derived from coal and they don’t have the administrative restrictions that we do so it is blasting out into the world and polluting the sky and air.  We are all breathing air that has been polluted in China.  We are working with the Chinese, but they will probably not cut back on their economic growth and so they will probably keep up their coal use.  It is the cheapest source for electricity.  That is a long term problem that we can’t solve since it is not an American problem.  On the other side, we should be sponsoring a lot more natural gas. The Chinese have natural gas and they can easily import it through pipeline from a number of countries in Europe and Asia.  We should be helping them do that. They can also import it in liquefied form.

Caller:  This caller has been following the building of wind towers in Illinois.  The caller wanted to know what rate of capacity they are putting out because he read a report that they are spending a lot of money without getting much bang for the buck.   Charlie said he is afraid that he is right.  Although he can’t speak to the wind farms in Illinois, when you hear someone say you get 70-80% capacity when the wind is continuously flowing they are right; however, wind doesn’t continuously flow and during hot spells you have to fire up the coal production as a back up to the wind farm. It means you have to build the equipment even if you don’t use it.  This is being sold to the American public as a real answer and it is not a real answer. It is pretty close to break even in terms of making a profit bur we need to look elsewhere.  Photovoltaics will take over wind as a better long-term energy solution.

EC: Photovoltaics generates electric power by converting solar radiation into direct current electricity using semiconductors that exhibit the photovoltaic effect.  Try saying that five times fast. 

 David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2011

Honey here: If you would like to have a complimentary issue of David's weekly newsletter, or The Retirement Advisor that he co-publishes with Kirk Lindstrom, there are links to both here: David Korn's newsletters (look in the right column under "Related Links").

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September 25, 2011, Bob Brinker's Moneytalk: Summary, Excerpts, Commentary and Discussion

September 25, 2011....Bob Brinker hosted Moneytalk today............(comments)

STOCK MARKET....Brinker did not talk about what's been going on in the stock market today.  It may or may not have anything to do with the special online bulletin he issued last Thursday.  The S&P closed at 1129 that day.

We know that Bob did not issue a sell signal -- he's bullish and fully invested.  Bob Brinker's Marketimer target range prediction for the S&P has been low-to-mid 1400's since March 2011. He increased the time-frame in August from  "this year" to 2012.   My friend, Jim, has a theory that makes absolute sense to me:

Jim said...

I think Brinker is waiting to see what the market does. Brinker will only mention the bulletin if the market rallies from here. If it does not, he will cover it up like all his other failed buying opportunities.

September 25, 2011 4:18 PM

BOND MARKET....Bob said the quality bond market is at record highs. Treasuries yields are at record lows. Honey EC:  It's been ages since Bob took any questions about muni-bonds, general obligation bonds or I-Bonds. He no longer recommends  TIPS, Treasury Inflation Protected Securities. Earlier this year, he sold out the weightings in his fixed-income and balanced portfolios. 

SAFETY OF INVESTMENT FIRMS....Caller Don from Massachusetts wanted to know if what happened at UBS could happen at  institutions like Fidelity and Vanguard.

Bob said: "You have to understand that UBS has a trading desk where they trade for the banks account. And that is risky situation. Now  it's not unusual, most of the major banks are going to have a trading desk...... That's  not what you're looking at when you're looking at a mutual fund company.......A mutual fund company has a group of mutual funds, in the case of the companies you mentioned, a very large group of mutual funds for investors to choose from and it's the same situation where they are out there trading for their own account or speculating for the market. So my reaction to that question is that it's an apples and oranges situation.  Now if you said what about Citigroup, Bank of America, Wells Fargo, JP Morgan, yeah, I'm sure there's a lot of trading going on at places like that and that is part of the equation."

SAFETY OF MONEY MARKET FUNDS.... Caller Don followed up with a question about money market fund safety. Bob explained that any investments in money market funds that are not dollar-good are going to cost either the shareholders or the management company.  He said that those are the only two possible resolutions, and that is why he recommends dealing with very large companies.  Large companies are more likely to make good any break-the-buck losses.

REFINANCE HOME TO TAKE EQUITY OUT....Caller Steve from California asked Bob what he thought about his plan to re-finance a $300,000  home loan  on his $600,000 property  and borrow an additional $100,00 so he'd have more liquidity in case he lost his job. Bob agreed that would be acceptable if he wanted the extra money for a safety net and was willing to pay 4% for liquidity -- and if it was invested  prudently.

Honey EC: It surprised me to hear Bob give his okay to borrowing extra money on a primary resident to invest. As I recall,  Bob has always been very against doing that. 

LUMP SUM OR ANNUITY? ....Caller Maria from California asked Bob which would be better for her, a sizable lump sum retirement payment or a generous annuity.  Bob asked her for all the details and then told her that it really comes down to whether she wants to increase her net worth, and have more to leave to her two sons, or take the yearly annuity which paid 31,000 a year.   

WASH SALES RULE/TAX LOSS TRANSACTIONS....Caller Roger from Tucson wanted to know when was the best time to sell a stock for a tax loss. Bob said that both ends of the transaction have to occur within the same calendar year.  And you have to allow 31 days to elapse, so late November is the latest you can sell  in order avoid the "wash sale."   Bob  explained that if you are worried the market might go against you, you can buy  double of your shares, hold them for 31 days and then sell half.

KEYNESIAN SPENDING.... Caller Josh from Naples said that Bob was "mistaken" when he said that  "certain talk show hosts" equate the country failing with politicians failing. Josh said that half the country is against "fundamental change" by Keynesian stimulus. Bob literally shouted Josh down repeatedly until he finally shut up. Bob shouted "This is important, since Keynes can't speak for himself."   He said that  what the politicians have been doing is not what John Maynard Keynes wrote about.  Bob called Keynes a "genius."

Honey EC: At the beginning of the government stimulus packages, Bob clearly said it was Keynesian economics and repeatedly raved about how it was needed and was a great thing to do. 

VANGUARD GINNIE MAE FUND TOTAL RETURN....Caller Arthur from Oregon said the fund was showing a 6% interest rate for the year. Bob explained that the 6% was total return and  would include the increase in net-asset-value.  Bob said that Vanguard's expenses were very low.  Honey EC: So are Fidelity and Charles Schwab's Ginnie Mae Funds. 

GREECE SOVEREIGN DEBT....Bob spent close to half of each of the first two hours of the  program discussing Greece and European sovereign debt issues. Greece may default on its sovereign debt. He cautioned that their banks could be nationalized and investors could  lose 100% of their capital.

EUROPEAN STABILITY MECHANISM....Bob also reported that the establishment of the "European Stability Mechanism" may be sped up to come to the rescue of European economies.    From Businessweek: "European governments are exploring accelerating the start of a permanent rescue fund for their economies, with senior finance officials set to examine this week the cost advantages of setting up the European Stability Mechanism, or ESM, a year earlier than its July 2013 start, according to a document prepared for the meetings and obtained by Bloomberg News."  All of the news that Bob reported on is available online. Here is  link to several headline news stories.

Bob's guest-speaker today was Charlie Maxwell, oil analyst from  Weeden and Co.   I will try to write more about this interview during the week, but you may want to download the interview from KGO 810 radio. It is archived in the 3-4pm time slot. (It's free)

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