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Saturday, October 13, 2007

Moneytalk Summary October 13, 2007

Brief Summary, Commentary and Bob Brinker Excerpts From Moneytalk, October 13, 2007


STOCK MARKET: Five weeks in a row on the upside. This week the stock market made another historic record high — has been “acting beautifully” and “celebrating.” The “backdrop has been positive for the stock market” because retails sales increased by 6/10 of 1% -- way more than the pundits, guru and experts said it would.

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FED POLICY/ RECESSION: The minutes from the last policy meeting of the FOMC show that the central bankers have been carefully staying away from using the “R-word.” A Fed quote: “Further policy decisions would depend on how economic prospects were affected by evolving market development and by other factors.” Brinker said that would be interesting if it wasn't so “obvious” and not just “more of the same.”

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TREASURY GROSS PUBLIC DEBT: “This is the number that we refer to when we talk about the total outstanding obligations of the United States Treasury…….$9.05 Trillion.” It has increased in the past year by $500 billion.

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INTEREST RATES: Remain “benign.” No inversion in the yield curve.

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ECONOMY: Should be able to grow – albeit slowly.

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MORTGAGE BUSINESS: “Things are not good…..” It's a difficult area of the economy to be involved in these days.

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SUB-PRIME LOANS ADJUSTING NEXT YEAR: Will lenders perhaps freeze rates? Bob Brinker said: “I don’t think anything is going to happen the general market place. Not anything that will affect the general level of rates, however, the Democrats want to bail people out of bad loans.” Perhaps they will pressure lenders to go “easy on adjustments.” There are a lot of people losing there homes and in a “lot of trouble” and “there is a lot more coming.”

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FDIC and SIPC: Are separate insurances. Go to FDIC website for more info. SIPC insures up to $½ million -- of which, up to $100,000 of the $1/2 million can be in the form of cash.

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ANNUITIES IN IRAS: You could call them the “Department of redundancy” because IRAs are already tax-sheltered.

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MONEY MARKET FUNDS: There has not been much history of money market funds deviating below $1 value. Very safe short-term investments – measured in weeks, and holding Commercial Paper, Treasury Bills, FDIC CDs—quality instruments. Quality money market funds have “not had problems.”

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COMPARING S&P 500 INDEX TO TOTAL STOCK MARKET INDEX: The total stock market index contains S&P Index stocks plus most of the extended market. No need for “specialization” into other funds if you own the total stock market index because it is “all inclusive.” Brinker is sure that John Bogle would agree with this.

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INFLATION NEWS: “Inflation has been behaving nicely." Core wholesale inflation came in this week at 1/10 of 1%. Over the past year, the core rate wholesale inflation is only 2%. “That is remarkable, because when we consider what we were told……. higher energy prices, they will leak, they will seep into the core index and they will drive prices higher – nonsense! This is utter nonsense. If that were true, with oil at over $80 a barrel, we wouldn’t be looking at 2% wholesale price inflation over the past year. We wouldn’t be looking at core inflation in general in the consumer realm, down at 1.8% in the personal consumption expenditure index. So we can see from the figures, how wrong these people have been that told us that rising energy prices were going to cause inflation – this is nonsense. Don’t listen to this nonsense, unless you want to be dragged down the primrose path.”

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BOND MARKET: “Continuing to act very, very well in the face of the slow growth that we are seeing in the economy.”

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BEN BERNANKE:The most powerful man in the universe is Ben Bernanke. He has the economy in the palm of his hand. That’s why we try to encourage him to make good decisions here on Moneytalk.”

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TAXING OUT OF STATE MUNI BONDS: “If you buy an out-of-state municipal, you’re going to get hit over the head by a tax of up to 9.3% in the State of California.Of course, this depends on your tax bracket.

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ECONOMY IS LIKE THE UNIVERSE: “Reality is that the U.S. economy and the world economy is an ever expanding pie.” Statistics show that over time, it grows in size and dollar-volume, so in that sense, it is “like the universe in that it is ever-expanding….” Who actually ends up getting the larger or smaller pieces of the pie depends on business models, management and production of new products.

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MODEL PORTFOLIO THREE: Is it okay to use CD’s as an alternative to holding to the short-term bond portion of portfolio three? “Yes, you could use FDIC insured Certificates of Deposits as an alternative holding to short-term quality bond fund.” Bob Brinker went on to explain that the caller had asked about a “…..portfolio that is a balanced portfolio. In other words, not all of the money is in the stock market in model portfolio three, but rather, in model portfolio three, a good chunk of that money is in fixed-income securities. This is a balanced portfolio. Basically it’s designed to generate current investment income. Obviously, this is for those entering or enjoying retirement……” (Honeybee sez: As Bob Brinker explained, this "model portfolio" is 50% stock and 50% bonds. The stock portion includes VTSMX ; 5% international growth funds; and approximately 10% in a couple of Mid-cap funds. The 50% bond portion is in GNMAs, TIPS and short-term investment grade bond fund—all Vanguard.)

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DVY: Is doing well and is up about 10% for the past year in spite of holding financials and no technology. DVY generates about two times more cash dividends than the S&P Index ETF. Brinker does not recommend comparing DVY to the S&P or to the total stock market index. DVY is fine for Roth IRAS, but his first choice would be the total stock market index.

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FALLING DOLLAR: It makes sense to have the dollar “gradually depreciate” because the United States is “trying to do something about its trade deficit problem.” A falling dollar “helps exports” and “hurts imports.”

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HEDGE AGAINST FALLING DOLLAR: “Buy international bond funds.”

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NUMISMATIC COINS: “Don’t fool with them....” However, they do have “portability value in third-world countries” for those who want to “sew them in their clothes” and try to “escape across borders” or “climb up on their camel and go trotting across the desert.” Most charge a 4% premium. Three low premium coins are the Krugerrand; the Mexican Peso; and the Austrian Crown -- all charge less than 1%...

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CHARTING Bob Brinker said: “I’m not a believer of projecting the future of the stock market by looking and studying and reading charts. I consider that to be financial astrology.”

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Bob Brinker’s guest in the third hour was Robert Reich, who is the author of “Supercapitalism,” and Bill Clinton’s former Secretary of Labor.



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5 comments:

mcrmgf said...

looks like bob showed what a flexible genuis he is by calling end to secular bear market. he had thought it was going to last 10 more years but when it went through old highs bob accepted the bull is running wild. shows he can change thats sign of great money man

Kirk Lindstrom said...

"looks like bob showed what a flexible genuis he is by calling end to secular bear market"

How can something end that never began?

We are still in a secular bull market that began in 1982. The bear market between 2000 and 2002 was simply a "cyclical bear market in a long term secular bull market."

What kind of genius says something ended that never was?

mcrmgf said...

bob stated we entered bear market in 2000 and we would be in 20 year bear market but after market confounded him and his prediction he nchanged his tune showing great courage admitting his mistake

Anonymous said...

mcrmgf-- simply not true. I have listed weekly for the past decade or so, and Bob never predicted a 20 year secular bear. He repeatedly has stated that historically, bear markets tend to last from 7-20 years. He never predicts the length, but rather gives the historical average lengths. He stated. for example, that the secular Bull that began in 2003 ran longer than past bulls because of the latency period in prices from 2004-2006.

Honeybee said...

Anonymous,

Everything that you said to mcrmgf is completely eroneous and false!
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Brinker NEVER said that the market entered a "secular bull" trend in March, 2003. He maintained that the market was in a "secular BEAR megtrend" that began in March 2000 and he didn't say it ended until June, 2006.

Brinker had a conversation on Moneytalk in February, 2006 and told the caller that the secular BEAR market was "intact."

And he absolutely DID predict his secular bear market would last TWENTY YEARS!

Here is what he wrote in Marketimer in May, 2006:

Bob Brinker said, "The current cyclical bull market, which in our view is unusual in terms of its length, has had to battle the headwinds of the secular bear megatrend that began in the first quarter of Year 2000. ...........by definition, the secular bear megatrend will continue as long as the S&P 500 Index is unable to
achieve a significant breakthrough of its March, 2000 historic high.
We estimate the likely duration of this secular bear megatrend within
a broad range of eight to twenty years, and we are now into year
seven."

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