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Sunday, November 11, 2007

Moneytalk Summary November 10-11, 2007

Brief Summary, Commentary and Bob Brinker Excerpts From Moneytalk, November 10-11, 2007
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STOCK MARKET: Bob Brinker opened the program today by looking at the stock market in the rear view mirror. The S&P 500 Index is sitting very close to the 1450 level which is 7% below the all-time-historic record high from just a few weeks ago – which was 1565. Brinker explained that we have seen a number of similar corrections like this in recent years in terms of “magnitude.”
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In 2004, “the bad news bears were telling us to run for the hills because the S&P 500 Index declined 8.1% from its high of that year to a correction low.” The “bad news bears” were wrong. (People who sold out after the correction in 2004 got out at S&P 1064.)
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In 2005 the S&P moved up to its new recovery high and corrected again by 7.2%. The “bad news bears told us get out while the getting is good, this thing is toast—and they were wrong again.” (People who panicked out after the correction in 2005, got out at S&P 1138.)
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In the spring of last year the S&P made another recover high and corrected 7.7%, and the “bad news bears said this is it, get out of Dodge—and they were wrong again.” (Last spring, people who panicked out after the correction, got out at S&P 1224.)
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This summer the S&P corrected by 9.4%. and the “……bad news bears told us if you don’t get out of the market now, you are crazy and they were wrong again.”
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PANIC STOCK SELLING: J. P. Morgan said: “Stocks tend to fluctuate.” Perhaps he made that statement during a correction sometime. True investors know about this principle and accept the volatility – others who sell out of the market often make bad decisions at the worst times.
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Bob Brinker said: "The wise investor has a diversified portfolio – they are not leveraged – they are not on margin and they know what they own.” However, like we are seeing in housing now, speculators always get "carried out." It’s just a matter of time and when it will happen—similar to driving a race car. “Sooner or later, you’re going over the fence or upside down.”
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BEAR MARKET: Bob Brinker said: “For those betting on a bear market right now, I’m taking the other side of that wager. I think the bad news bears are wrong again about their forecast out there of Armageddon right now."
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BORROWING TO BUY STOCK: Bob had a call from a woman who, along with her husband, had borrowed $50,000 on her home, which gave them $115,000 of investing capital for the purpose of “playing the stock” market. They used it to buy penny Stocks and have lost $35,000, which is a 30% decline in 10 ½ months Brinker said to “never” borrow money on your home to “play” the stock market and never invest in these “garbage portfolios.” Brinker identifies “penny stocks" as stocks which sell for less than $5. Bob Brinker said: “It’s not a professional way—it’s not a professional way to go about managing your money.”
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PENNY STOCKS: Brinker says to NEVER speculate in “penny stocks.” He defines penny stocks as those that sell for under $5 per share.
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RECESSION: The financial media is “pounding away that recession is coming and things look really bad……..." Brinker thinks this is irresponsible and creates the spectacle which can cause investors to panic and run for the exits. A recession is defined as two consecutive quarters during which inflation adjusted Gross Domestic Product – total goods and services, decline.
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FALLING DOLLAR: Caller said he was going to begin living in England next year. Bob Brinker said that buying the British Pound Sterling ETF might be a good way to hedge in case the dollar continues to fall. He suggested using the ETF – symbol FXB. After the caller moves, he should convert completely to the British Pound Sterling.
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ECONOMY: Grew at 3.9% annual for the second and third quarters--about 2 ½% growth for the year. “I think that we are going to have a slowdown and I think that the slowdown is going to be such that we are going to be looking at below trend growth despite the fact the fact that recent numbers have been pretty good.”.
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HOUSING MARKET: It’s too late to get bearish now. This is not the time to suddenly turn bearish because it’s already a “train wreck.“ We can expect below trend economic growth into 2008 caused principally by the “collapse of the housing market.”
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NEW JOBS: We have seen some slowdown in new job, but nothing dramatic. “We have seen very little evidence, on the payroll survey that there has been a lot of slippage – I expect there to be slippage. I think it would be surprising if we did not see slippage in the new jobs numbers.”
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FEDERAL RESERVE: The Federal Reserve is now “on the case” even though they “screwed up hugely up until mid-August.” Moneytalk listeners heard Brinker “…….pounding away at these guys locked up in their ivory tower acting like fools.” After mid-August conference call, they have done a much better job of paying attention, changed policy—and stopped the “silly policy of focusing on inflation, when in fact they don’t even have the luxury of prioritizing inflation at this time.”
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PEAK OIL: Brinker says we are way past Hubbert’s Peak—actually since the 1970s, and we need to pump oil from Anwar.
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FAIRTAX: This is a 30% sales tax that some are proposing, but seems to go nowhere. Brinker said it is “absurd” and a “giant waste of time” because it “is not going to happen.”.
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AMT PATCH: (Acronym for: Alternative Minimum Tax) Here is a paraphrase of some of Brinker’s comments: A one-year fix for taxpayers who are currently snagged in it all the way down to $50,00 income, which is being led by Charlie Rangel (congressman from Gotham City) to provide relief for 21 million American households that face the AMT this year because of inflation over the past four decades. The AMT was originally designed to catch 155 millionaires that were not paying income tax, has now morphed into people who are earning $50,000 a year. According to Brinker, Rangel’s AMT patch would be “.....raising revenue on these fat-cats that are benefiting from the 15% rate that on the income they make on their hedge funds and private equity funds—and knocking that rate up to 35. That would produce most of the revenue that would be lost by the AMT.“
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Here is an excerpt from an article by Amanda Carpenter about the AMT and Rangel's patch. For the whole article, go here:
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http://www.townhall.com/columnists/AmandaCarpenter/2007/11/08/rangels_amt_plan_would_hit_middle_class?page=full&comments=true
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Rangel's AMT Plan Would Hit Middle Class
By Amanda Carpenter
Thursday, November 8, 2007
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Seeking to beat back the “mother of all tax hikes,” House Republicans brandished a non-partisan government report that said if Rep. Charles Rangel’s (D.-N.Y.) alternative minimum tax elimination plan were enacted, 113 million Americans would be forced to pay higher taxes in 2011.
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According to the report, published by the Joint Committee on Taxation, which forecasts tax revenues for the government, 94 million families earning between $20,000 and $200,000 per year will pay more taxes if Rangel’s bill is passed and the Bush tax cuts expire as scheduled.
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Over ten years, this would cost taxpayers $1.3 trillion, prompting Republicans to call it the “mother of all tax hikes,” or MATH for short.
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Although most taxpayers would pay more money under the plan, the JCT report said 800,000 families would see a tax decrease.
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The White House said in a statement released by their budget office that it would veto the bill if passed. “The administration does not believe the appropriate way to protect 21 million additional taxpayers from AMT liability is to impose a tax increase on other taxpayers.”
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As Chairman of the Ways and Means Committee, Rangel has more power than anyone else to write tax policy, which must originate from the House of Representatives. The AMT was enacted in 1969 ensure that 155 wealthy households that were eligible for multiple tax breaks paid taxes. Since it was never adjusted for inflation, more and more Americans have been forced to pay the AMT each year, trapping some middle class families who earn $75,000.
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Last year, nearly 4 million people were hit by the AMT at a cost of $24 billion. The AMT is scheduled to reset in 2008, which would ensnare up to 23 million taxpayers.
To avoid this problem, Rangel’s bill seeks to repeal the AMT, but under the Democrats’ self-imposed “pay-as-you-go” rules, he must make up for the revenue through a tax increase or a spending cut.
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No significant spending cuts have yet been proposed.
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Despite Republicans complaints, Democrats are promoting the bill as a tax cut for the middle class......................."

8 comments:

Anonymous said...

Thank you for your valuable post! Your efforts are truly appreciated!

wejomerv said...

Thanks for the summary.

Bob came off very bullish. I just wonder/worry if perceptions are going to lead to reality. If people don't spend because they think the market is going to be in a recession, it may lead to a recession.

I did buy into the VTI so I am hoping for the best.

Do you think Bob discounts the impact of the increased demand for oil and limited and descreasing suppy will do to the economy in the coming years?

Anonymous said...

I've been a Brinker fan (and cheerleader) for around 20 years and I rate him A +++ . His perspective and wisdom have helped me achieve critical mass.

Markets do tend to fluctuate. And today, stocks fluctuated to the upside, to the tune of over 300 points on the DJIA. If someone is looking for confirmation of the bullish trend, today's action speaks volumes.

I hope that the discussion here will be positive rather than petty. Constructive rather than destructive. Thanks for providing the forum.

Honeybee said...

Anonymous said: "I hope that the discussion here will be positive rather than petty. Constructive rather than destructive. Thanks for providing the forum."
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Thank you for your interesting comments. I think they are very "constructive" and I agree that constructive is better. 8^)
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However, I try to present all sides of Bob Brinker's record. Some aspects of it may appear to be negative, but what I present will always be factual--unless it is clearly designated "my opinion only."
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Twenty years is about the same length of time that I have listened to Bob Brinker. Are you also a Marketimer subscriber?

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Honeybee said...

Anonymous said: "Your efforts are truly appreciated!"
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And your encouraging words are always appreciated. Thank you. 8^)

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Honeybee said...

wejomerv asked: "Do you think Bob discounts the impact of the increased demand for oil and limited and descreasing suppy will do to the economy in the coming years?"
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Hi wejomerv,

In the relative short-term, I think that Brinker takes the increased price of oil into consideration because he has commented that he expects growth to be "slow" going forward.

He has said that the price of energy and the housing slump are part of the reason for the expected slow growth.

Many disagree with Brinker, but he views high oil prices as having an effect similar to a tax on consumers, rather than inflationary.
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I don't recall Brinker actually talking about the increased demand and limited supply of oil on the economy over the "coming years"--other than to express outrage that we have not built nuclear power plants or used our own oil supplies--such as in Anwar.
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wejomerv said...

honeybee, I agree with Brinker that higher oil prices act like a tax since we import more than we produce so dollars leave our economy with the imports. So I agree with Brinker --- higher oil prices --> higher prices at the pump and higher costs to heat homes --> less discretionary income ---> decrease in consumer spending.

But I am wondering longer term. If the price of oil increases and stays high, it will increase production costs (even though it may not be as high as percent in the past).

If people cannot push the higher expenses onto consumers, we will have a slower economy down the line. And we won’t be able to rely on exports to make up for the slower consumer spending at home since other places will also be spending a lot on energy costs. Some emerging markets might be completely priced out of the energy market and their economic growth may die off.

If we do follow Brinker’s recommendation and build nuclear plants (what will we do with the waste?), it will take time to get them online. Biofuels seem like a ways off to be a reliable alternative. It takes energy to produce them and the pollution factor for them doesn’t seem like they will be a great alternative. In addition, use of biofuels may lead to higher food costs. Solar and wind energy production might increase some but that doesn’t seem to be the answer too.

I worry that there may be a period of time where the demand for energy from China, India, the US and around the world is going to outstrip supply and we haven’t prepared for that period. I don’t think we are there quite yet. I think some speculators think we are there now. However, it is just a matter of time before we get there and it seems like we need to do a lot more to prepare for it.

Honeybee said...

time test...