October 26, 2012....Yesterday, Bob Brinker made another after-midnight guest appearance on Red Eye Radio hosted by Gary and Eric. Gary asked Brinker very pointed questions about the economy and the stock market. I think you will find Brinker's answers interesting.
CONCERNED ABOUT STOCK MARKET?
Gary: "
We've seen a couple of bad days in the stock market here recently.....How concerned should we be with this earning season the way it's going?"
Brinker: "I think we're going to have to keep a close eye on it. The reality is that the world is growing very slowly at this point. China is slowing down. Europe of course is in the doldrums as a result of their fiscal difficulties. Certainly we have continued slow growth in the U.S. You will a Gross Domestic Product release on Friday morning and it's going to be more slow growth. We're talking about an economy here in the U.S. that is growing a little bit shy of 2% in real terms in an annual basis. And this is the reason that you have not seen a measurable drop in unemployment. We're just not adding jobs fast enough to get that unemployment rate where the Fed would like to get it, which is frankly below 6%, which is a long way off."
WHAT ABOUT THE ECONOMY?
Gary: "Is the true number that we should always be looking at the GDP growth?"
Brinker: "I would say in terms of the track that the economy is on that the key number is real GDP growth adjusted for inflation. You'll see that number Friday morning. We're anticipating a number just shy of 2% which is really the track we're on. In the first half we grew at an annual rate of 1.65%.....That's the reality. The U.S. economy is becoming more of a mature economy. And we're functioning in a highly competitive world. We're competing out there on the export account with China, with Europe with Latin America in the world markets. Globalized competition is here to stay."
FEDERAL RESERVE'S MULTIPLE STIMULUS PACKAGES
Gary: "If you look at these earnings reports, it's kinda hard to see how the Dow is maintaining above 13,000 here. So how much of this is the Fed's involvement? How much is QE3?"
Brinker: "There have been about seven programs going back to 2008. Most of them by the Fed -- a couple of them by the federal authorities. But if go back to it, the first would have been the Fed taking rates to zero in 2008. Then you had the Fed announcing QE1, followed by the big stimulus package --$787 billion -- and some of that was good stuff like the tax cuts that were thrown into it. Then you had QE2 coming in there, and then you had the second stimulus. That's the one that expires at year end, Gary and Eric. That's the one that gave you the 2% payroll tax deduction. Then you had the Operation Twist and now you have the QE3.....Will all of this stuff thrown against the wall -- traditional stimulus such as monetary and fiscal -- look at the rate of growth in GDP in 2012. We're running just a little bit south of 2% annual, which is too slow to get the unemployment rate down."
THE DEFICIT AND NATIONAL DEBT NATIONAL DISGRACE
Gary: "One of the things that I have always said is that since government can't create wealth, the only thing that they can do is make the problem worse, but stretch it out over a longer period of time. Am I accurate when I say that?"
Brinker: "We are doing job at that. I'll tell you why. We have a fiscal problem that we as a nation are ignoring......by electing people that are dysfunctional and that certainly includes congress. Here are the numbers. Read 'em and weep. Right now our revenues are 17.8% of our GDP. Our expenditures are 23.3%. That's a 5 1/2% red ink annual gap. That's where we're getting these trillion dollar deficits. That where we've piled up the national debt to $16.2 trillion. Frankly guys, it's a national disgrace."
MARK FABER PREDICTS 20% MARKET CORRECTION - IS CASH KING?
Gary: "Marc Faber made some comments recently -- some strong advice. He said we need 50% cuts with the federal government which of course is not going to happen. But he also we are going to see a 20% correction in the coming months on the market. He is now said he has a lot of cash. Earlier this year, he actually was getting in and he said the market is going to see a bit of an uptick here. Now he is saying just the opposite -- it's time to hold on to more cash. Is cash king right now? What should we be doing in our 401K and our investment portfolios?"
Brinker: "Cash has certainly been trash in 2012. We know that. We know what the yields on cash is about close to zero as you can get. Whereas, the Standard and Poors 500 Index this year-to-date has chalked up a double-digit return. So anybody sitting in cash this year is probably in tears."
DOES BRINKER EXPECT MARKET CORRECTION?
Gary: "Should we expect a correction in the market over the next 15 to 18 months, you think?"
Brinker: "I think that, you know, here's the thing. We make projections in real time. (Gary: "Um") We are subject to change our view at any time. (Gary: "Um") As we speak here, we've been fully invested in 2012. We've enjoyed the fruits of this market. But as I said at the outset, right now, we are in what I would characterize a highly vigilant state of mind with reference to going forward."
Gary and Brinker then discussed the price of energy, the Keystone Pipeline, Bakken, fracking and natural gas.
WHAT DOES BRINKER PREDICT FOR 2013?
Gary's final question: "Alright Bob, what do you see for 2013 with the end payroll tax cut that we've had, with the fiscal cliff. I think there's a great possibility of that happening. I don't know if anything will get done in the lame duck session or President Obama wins, what do you see next year for growth?"
Brinker: "We are using 1 1/2 to 2 1/2% for real GDP, total goods and services for 2013. That's the same number we're using this year. We've been right on because the economy has been in a malaise, growing at such a slow rate. I think that's likely to continue at this point, but we are constantly monitoring this because giving the global slowdown environment we're in, we have to keep a close eye on this.
Gary: "Bob Brinker.com. You can get the Bob Brinker Marketimer investment newsletter and Moneytalk radio information there.....Thank you Bob, appreciate it.
Honey EC: I was very impressed at Brinker's ability to not answer stock market questions and still make Gary think he had. LOL! Gary made two clear attempts to get him to voice his view of the stock market going forward. Brinker used each one as an opportunity to snag some subscribers with his "real time" and "keeping an eye on it" schtick.
