March 10, 2012, Bob Brinker's Marketimer Does Not Make Mark Hulbert's New Market-Timing Honor Roll

March 10, 2012.....Yesterday the March issue of Hulbert Financial Digest was published.  Mark Hulbert did a study that  he called "An honor roll of stock market timers."  He based this study on the question: "Which is easier to pull off successfully -- security selection or market timing." 

Hulbert said that he compared the same newsletters that he used last December when he published his self-created  "Honor Roll" which Bob Brinker was on, of course. This time Hulbert focused entirely on market-timing with no regard for security selection. One would think that Bob Brinker's "Marketimer" would be at the head of the class based on that criteria. One would be wrong.

Hulbert wrote: "Just 2% made it onto this new Honor Roll....The two percent that made it onto the Honor Roll both came from the same letter: Timer Digest, edited by Jim Schmidt.....All of the other letters for which the HFD has timing-only performance data back to 1998 did not make the Honor Roll." 

Hulbert concludes: "If you thought picking stocks and funds was difficult, timing the market's gyrations is even more so." 

Hulbert also did his yearly summary of Marketimer performance. It's important to remember that Hulbert bases his numbers on an average of Brinker's three model portfolios -- two are equities and one is balanced.   Hulbert pointed out that he tracks the record of Marketimer income and active-passive index portfolios, but he does not use them in his performance calculations.

Hulbert described Bob Brinker as  a "Long Term Market Timer" and explained: "Though Brinker is a market timer, he typically focuses on longer-term trends rather than on shorter-term gyrations."   (That is a comical understatement. Brinker has made no timing moves in twelve years.)

However,  Hulbert went on to explain: Over the 25+ years that the HFD has tracked his newsletter, for example, only twice has he deviated from being fully invested. The was after the 1987 stock market crash, a move that ended up costing his portfolios. His second deviation lasted from January 2000 until March 2003, which was a profitable one."

I wrote to Mark Hulbert, so I know that he knows that his Marketimer performance numbers are much higher than they would be if Brinker had included the big-time losses from the QQQ trade in his model portfolios -- like he recommended for his subscribers.

Hulbert also knows that it was the following month that Brinker "chose" not to include the trade in his model portfolios.  See the proof here and read the bulletin.  Hulbert's only concession to these facts (after several wrote to him) was to include a  footnote about the trade and state that Brinker's "HFD record did not suffer as a result."  

And even with all of this, Bob Brinker's Marketimer, over the "lifetime" that Hulbert has ranked it (26 years), does not beat the Wilshire 5000. Here are the simple numbers according to Hulbert:

Letter's Average +881.2 (9.5) 
Wilshire 5000 +892.0 (9.5)

Here is Hulbert's  graph comparing Marketimer to the Wilshire 5000 Total Market Index since 1986: 

Bob Brinker's Land of Critical Mass Marketimer: $185 X 26 years = $4710.00
Total Stock Market (VTSMX or VTI) buy and hold = 00.00

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March 8, 2012 Will Rising Oil Prices Put a Rope on Bob Brinker's Bull?

March 8, 2012....Bob Brinker's recent comments have had to do with the causes of rising oil prices, but he has not discussed how they may affect the stock market, economy or inflation.

I looked back at the archived summaries and thought you might want to know what he was saying when oil prices were rising in 2008 and the market was falling. 

July 12, 2008 Moneytalk, Bob Brinker said: "Oil prices are the wild card factor in the stock market, in my opinion, and I think that is what you are seeing play out....If they continue to make new highs, they are going to continue to make it very, very difficult for the stock market because of the reasons I just described..... 

Why is there this correlation between the price of a barrel of oil and what goes on in the stock market? I think the answer to that question is easy, and that is consumers wind up with less money to spend when they get pounded with these higher costs of energy, costs of gasoline, all the products in the energy complex. And that weakens the status of the consumer and also delays the potential for economic recovery.

Right now, Bob remains bullish on both the stock market and the economy. In the March 2012 Marketimer, Bob Brinker continues to estimate  ".....2012 real gross domestic product growth within a range of 1.5% to 2.5% with a midpoint of 2%," and he expects inflation to remain low in 2012. 

Perhaps Bob has read a recent study by a team of New Zealand academics that Mark Hulbert wrote about on  Barrons. Excerpts:

Hulbert on Markets | THURSDAY, MARCH 8, 2012
Will Rising Oil Prices Choke the Stock Market? By MARK HULBERT

           Will the rising price of crude oil and gasoline strangle a stock-market recovery?

That's a timely question to be asking as the price of oil has jumped 40% since early October, and the bull market for stocks has begun showing signs of fatigue after a solid run in recent months. 

The answer, according to a team of New Zealand academics, is that it depends on the underlying health of the global economy.  When the economy is strong, according to three researchers at New Zealand's Massey University, stocks more often than not react negatively to higher oil and gas prices. 

But when the economy is growing slowly, as it appears to be doing right now, those higher oil prices forecast stock-market strength rather than weakness.

Are you properly confused? Well here's the thinking: When the economy is weak, both oil and stocks have a common enemy—recession and the prospect of outright deflation. At such times, both asset classes tend to respond in unison to the same underlying economic factors.

So when the economy turns out to be stronger than expected, both oil and the stock market rise. And if and when it becomes clear that the economy is weaker than expected, then oil's price is a good leading indicator of a falling stock market.

For example, crude oil's price was cut by some 80% during the credit crunch and associated liquidity crisis, as significant chunks of economic activity simply evaporated and demand for oil dried up. Far from turning up in the wake of those lower oil prices, the stock market continued to plunge for quite a while longer.

It was only when the economy began to show signs of life in 2009 that oil's price also began to rise again—and, not surprisingly, the stock market did as well.

(Click here to download the New Zealand study.)

Tax Cost of a gallon of gasoline  by state.  Big surprise, California and New York are the highest.

Look at the price that I paid when I bought gasoline near Santa Cruz on Tuesday:

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March 4, 2012, Bob Brinker's Moneytalk Show Summary with Excerpts and Commentary

March 4, 2012...Bob Brinker hosted Moneytalk today......(comments welcome)

STOCK MARKET:  With the S&P 500 at 1369.63, Bob remains fully invested (since 2003) and bullish, advising dollar-cost-averaging for new money. The only change is that he has slightly raised his S&P target range from "low-to-mid 1400s" to "mid-to-upper 1400s."

Honey EC: It's important to remember his projections were even more bullish back when the market was at its all-time-high in the fall of 2007 -- he was projecting mid-1600s then.

S&P 500 INDEX BEST BAROMETER OF STOCK MARKET....Bob said: "I'm comfortable using the S&P 500 as a barometer of the market....as a measure of what the market is doing. You are talking about essentially the 500 largest companies in the USA. This is a market weighted index. The Dow is not a market weighted index.....There are only 30 companies in the Dow....I know that people quote the Dow....I don't think it can be compared comparably with the S&P Index." 

 GO FOR STOCK MARKET DIVERSITY: Caller Carol said that due to the death of her husband she would be receiving a  million dollars which a broker had recommended she put into 25 different stocks. Bob replied: "I would go for way more diversification and also minimize your expense by using something like a total stock market index fund. You can do this through Vanguard....Fidelity Spartan....You can do it through an exchange-traded-fund, symbol VTI."

Honey EC: She can also go to Charles Schwab.  Strangely, even though Bob used Charles Schwab's for the accounts he managed on a fee-basis through the B J Group (until he sold it), he never mention Charles Schwab. I think it's unfair. Are Vanguard and Fidelity paying him or giving him breaks somehow for mentioning them? I don't know.  But I do know that Schwab's expense rates on index funds are equal to or less than Vanguard's.

CAR INDUSTRY....Bob said:  "It's good news for the economy to see the automobile industry doing better.....We saw auto sales this week jumping to a 16% increase....and a four-year high."

COMPARING AUTO MAKERS: "Bob said: "For the month of February, General Motors was in first place -- 209,000 sales, an 18.2 market share. In second place, Ford Motor with 178,000 sales -- 15.5 market share....Toyota with 159,000 sales -- 14% market share. And then Chrysler in fourth place with 133,000 sales -- 11.5% market share. Then we had Honda, Nissan, Hyundai and a few others down the line. 

 In terms of the most popular vehicles out there, I'm sure many of our listeners are driving around in one of these vehicles right now....the Ford F-Series is in first place in the U.S.A -- 47,000 sales in the month of February. That's a 26% year-over-year gain....The second best seller, the Toyota Camry, 34,000 in February, up 27% year-over-year. And look at this vehicle, the Nissan Altima, 33,000 sales, up 58% year-over-year.  Next we have the Chevrolet Silverado,  32,000 sales, up about 2% year-over-year. And the Honda Civic with 27,000, up 27% Y-O-Y.....It's an important part of the economy."

 JOBS.....Bob said: "Now obviously, we've been seeing new jobs coming into the marketplace, and we should see some more new jobs when that's announced next Friday for the month of February......At the same we've seen higher gasoline prices in many sections across the country." 

UNEMPLOYMENT....Expected to stay close to 8.3%. Figures will be coming out this week. 

TREASURY  BONDS....Bob said: "The ten-year Treasury has a yield right now 2% which tells us a number of things.....Rates relatively holding steady.....People not really worried about the credit of the U.S.A., despite the credit change that occurred last year courtesy of the S&P."

INVESTING IN MARKETIMER INCOME PORTFOLIO....Caller Tim (age 50) said he was invested in equities and asked how to establish a position in Bob's Marketimer income portfolio on page 7.

Bob replied: "If you want to establish a separate income portfolio, certainly you could use the recommendations in the income portfolio that you cite there on page 7 of the investment letter. And then I would treat that as a separate portfolio and that would get you started with fixed income investing." (Tim asked if he should put his money in all at once)  

Bob continued: "If you put the money in all at once and the economy over-heats and rates go up, then you're going to see net-asset-value depreciation. That's the reality of the risk that you would be taking......Being in that portfolio would probably be to your benefit if rates stay on a relatively even keel. That's the real question you have to determine in terms of your tolerance for risk. Now you can dollar-cost-average into that portfolio over time, and that is a conservative way to go about it."

APPROACH FOR INVESTING IN INCOME PORTFOLIO (INCLUDING VANGUARD GINNIE MAE FUND VFIIX)...Kevin wanted to know about investing his fixed income allocation in all Ginnie Maes. Bob said: "If you're taking income investing as a subject matter, that you're just going to go with one item, like a Ginnie Mae for example. What we've done, and we have an income portfolio that we publish on page 7 in the investment letter and one of the callers referred to it earlier in the hour. What we do is take an aggregate approach to income investing. 

Matter of fact right now, we have five separate entries, five separate no-load funds that are in the income portfolio. And have various percentages that we assign to each....One of the funds happens to be a Ginnie Mae Fund. I'd rather take a top-down view at income investing, rather than just say we are going to look at Ginnie Maes....."

Honey EC: Bob is right, there are five no-load funds in the once-obscure, recently-famous, off-the-books income portfolio on page 7 of Marketimer. As he mentioned, Vanguard Ginnie Mae Fund is in it, but he  has reduced the weighting to 15% -- not much compared to the former 50%. He has  also told us that the income portfolio contains Double Line Total Return Fund, Vanguard High-Yield Fund and Wellesley Income Fund in the portfolio -- those are in almost equal shares. And the fifth fund is Vanguard Short-Term Investment Grade (VFSTX).  

MORE INCOME PORTFOLIO AND INTEREST RATES: Bob continued: "Rates are at historic low, and as long as they stay down, fine. People will collect their income and everything will be copacetic.  But the reality is someday, the likelihood is we will see normalization of interest rates....When we do, we are going to see changes in the bond market....The changes are going to be the obvious changes....And it's possible that you could avoid this whole subject by simply putting together a fully FDIC insured ladder of CD's. (Certificates of Deposit) Yes, interest rates are low, but you're not risking any principal." 

 Honey EC: It's important to remember that the income portfolio is not part of Bob's Marketimer official portfolios record. Mark Hulbert does not include it in his Hulbert Financial Digest Marketimer ratings.  Perhaps Bob doesn't want to talk about his equity model portfolios because they both lost money last year and under-performed the Active-Passive portfolio, which is 80% total market index/20% international index. More importantly, they underperformed the total market index (VTSMX). 

FIXED INDEX ANNUITY...Caller Cheryl asked Bob to give his views. Bob said: "No, I do not recommend these securities....I think they are too expensive....I think that they take too much off the top."

GOLD AND SILVER BULLION VS COINS....Caller Tony from New York asked Bob if there was any difference between buying gold and silver coins and bullion. Bob said: "In my opinion, one is a lot better than the other because one does not have a mark-up and the other one does......If you are going to invest in gold as a hedge in your portfolio, there is only one way that makes any sense.And that is to buy an exchange-traded-funds that's backed by gold bullion....symbol GLD....essentially tracks the price of gold....The problem with numismatic coins is the mark-up...Forget about coins....You can buy the gold bullion-content coins. The Krugerrand, the Maple Leaf, the Mexican Peso, the Austrian Crown, the U.S. Eagle, you can buy any of those. And typically the premium guideline that you could use on that is 4%." 

 HONEY EC: Personally, I like to use American Silver Eagles and other silver dollars for Christmas gifts. They are perfect for family members that "have everything." Just be sure that the recipient understands that you are giving them an ounce of silver, not $1.00.  :)

FEDERAL RESERVE INTEREST RATES POLICY COULD CHANGE....Bob said: "Ben Bernanke makes these comments  that the Federal Reserve has a policy of holding down rates into 2014.....I think the bottom line is this, yes, that is his intention based on everything he knows today. But it's a moveable feast. In other words, if the data changes, the policy changes.....Always remember that when the Federal Reserve makes a policy statement, the policy statement is within the context of all of the data that they have right now.....In the event that a year down the economy is gathering steam....I don't think there's any way in the world....that the Federal Reserve would be able to stick to their policy.....It's good for today, we'll see what follows."

CALCULATING CRITICAL MASS.....Bob said: "You are at critical mass when your level of income from your investment portfolio, coupled with whatever guaranteed  income you might have is enough to meet your outflow. It's really that simple."

GENERAL OBLIGATION MUNI-BONDS: Caller Mary from Colorado asked Bob about buying new issue muni-bonds. Bob said: "Almost every business day there are municipal issues that come to market in the form of offereings. And certainly you can buy those initial offerings for the most part through broker....The advantage of buying new issues is the seller pays the commission.....I'm comfortable with general obligations of the State of Colorado." 

ACTIVELY MANAGED FUNDS VS INDEX FUNDS.....Bob said: "Given the general record of active managers in mutual funds....the reality is they have a heck of a hard time beating the market over a long period of time. Let's face it, if you go back and look at the multi-decade record on managed mutual funds, it has been very difficult for fund managers to consistently outperform the indexes over the long term."

Best Bob Brinker quotes of the day:

* "Some of these listeners are so sharp that the sharks can't get the stuff by them." 

* "You believe everything that Obi Wan Ben says?"

* "It's just an opinion. Bob doesn't know everything, as we all know well."

Bob's third-hour guest-speaker was Adam Lashinsky: Inside Apple

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