Sunday, December 2, 2007

Summary of Bob Brinker's Moneytalk, December 1-2, 2007

Brief Summary, Commentary and Bob Brinker Excerpts From Moneytalk, December 1-2, 2007.
STOCK MARKET: Bob Brinker said, “A good week in the financial markets. The stock market recovering nicely this week--the S&P up close to 3%. In fact, right now the S&P 500 standing in at 1481 is just 5.4% below its all time historic record high recorded in early October. As a matter of fact, the S&P 500 – if you go back to our major buy signal, March 11, 2003, which was a couple of days prior to the start of this great bull market run – the S&P at that time was sitting in at around 800, now sitting in about 1481, and adding in the cash dividends paid over that period, the total return now, during that period, is in excess of 90%.”
REAR-VIEW MIRROR STATISTIC: (Brinker comments paraphrased) Revision of the real Gross Domestic Product for the three months ending September 30th -- which came in at 4.9% is strictly a "rear-view mirror statistic." It tells us nothing about the future and the stock market is strictly a forward-looking vehicle.
ECONOMIC GROWTH: (Brinker comments paraphrased) Don’t anticipate third quarter kind of growth for the coming year. Stock market is expecting a relatively slow growth track. Look for an economy that will grow at a slow pace.
HOUSING RECESSION: (Brinker comments paraphrased) Turning into an impressive recession – will go down in history as a major recession. Serious markdowns….existing home prices: YOY, down home sales have “fallen out of bed and hit the floor hard” -- down 16.5% YOY. People will eventually look for a recovery in the housing market and that will benefit housing companies “some day.” Available housing at close to an eleven month supply….. We are somewhere in the middle of the recession – not at the end and not at the beginning.
BAILING OUT SUB-PRIME: (Brinker paraphrased) It’s important that the White House and the mortgage industry is working on a plan to temporarily freeze and re-set interest rates on some subprime home loans……. because we have over 2 million adjustable rate mortgages scheduled to re-set at higher rates over the next 24 months. This plan could have a stabilizing impact and appears that it may come to fruition because of some powerful names working on it -- like Henry Paulsen, who will speak at a housing conference this Monday. Brinker said: “We are talking a lot of homes here. About 100,000 loans are scheduled to re-set at a higher rate on a monthly basis over the next 2 years….it just keeps coming at you every month.” The delinquency is about 15% and still climbing.
MORTGAGE BROKERS: Bob Brinker summed up his opinion of the sub-prime fiasco by saying this: “If I were to make a video about what happened, I know what my title would be -- and I’m sure it would be a best seller. It would be “Mortgage Brokers Gone Wild.”
LONG-TERM CAPITAL GAINS RATE: A caller asked about the prospect of the capital gains rate going to zero in 2008 for those in the 15% bracket. Brinker pointed out that he is not a tax account, but said it sounded right to him.
BUYING A CAR WITH HOME EQUITY LOAN: Bob in Chicago asked which would be a better way to buy a vehicle – taking money out of IRA or using money from a home equity loan. Brinker said he preferred the home equity line because of the deductibility, but cautioned against institutionalizing the loan, and suggested setting up a 5-year cap for paying it off. Also, taking money out an IRA is a taxable event.
MODEL PORTFOLIO III: Brinker explained to a caller that Model Portfolio III is a balanced portfolio of “quality holdings.” (It is about 50% stock funds-- mostly VTSMX; and about 50% bond funds -- VFIIX, VIPSX, and VFSTX.)

FAIRTAX: Bob Brinker said, “Let me tell you something. This is one of the greatest follies that I have ever seen in my life. To come forth with a de facto federal sales tax which would be at least 30% added on to the price of the goods, possibly could be much higher than that—creating a new federal bureaucracy, which would be a federal sales tax department; which would have to be created to oversee and collect this tax even if it came through the states –and how you would get the states to comply is a whole separate question -- there’d be nothing in for them. But to create a whole new bureaucracy – to create a de facto federal sales tax and to apply this sales tax to some goods which would make it an unthinkable, an unthinkable tax. For example, new houses – how would you like to buy a new house for $100,000 and pay a $30,000 sales tax on that property? How would you like to go to a doctor and pay a $100 fee plus a $30 so-called FairTax, sales tax on your doctor’s visit? How would that make you feel? Now I’ve been overly generous to this FairTax nonsense, by calling it a 30% add-on to the cost of goods. The Congressional Joint Taxation Committee, they say I’m wrong. They say it would be a 35% add-on tax on the sales price. So I come in with 30%, the Congressional Joint Taxation Committee says, Bob, you’re low, it would actually be 36%. So from my point of view, the so-called FairTax is one of the greatest tax follies that I’ve ever seen. I think it’s basically – knowingly or unknowingly – I don’t know, maybe these people actually believe this nonsense –we don’t know. But I can tell you that I think it’s an effort to distort the realities of the tax system. And by the way, most people have a 100% propensity to consume. They live paycheck to paycheck. …….. Now obviously for the rich, it’s a boondoggle because they are going to save tons of tax money on this because they can invest their money. They don’t have to tax it cause many of them have nowhere near a 100% propensity to consume, so what do they care about a sales. It doesn’t bother them when they’re making investments. I’ll tell you what, you are better off believing in the 22 lane Mexican to North Pole Superhighway than the fiasco known as the FairTax. In my opinion, this is complete nonsense.”
FAIRTAX CALLS: A caller pointed out that the embedded tax on goods will no longer be there and the cost of goods would go down. Another caller poked several holes in Brinker’s arguments against the FairTax -- or so it seemed to me, but Brinker told him his was taking “nonsense,” talked over him, told him his arguments were “non-starters” and hung up on him—and then continued to explain his own viewpoints. (I hope that someone who understands this subject better than I do will bring balance to Brinker’s comments here. It’s not likely we will hear opposing viewpoints on Moneytalk.)
UNCORRECTED MISLEADING COMMENT OF THE DAY: Caller, “Let me thank you for making me wise – out in January 2000, in in March 11, 2003.” Bob Brinker replied: “Congratulations, Carl.” (Brinker did not recommend “getting out” of the market in January, 2000. He recommended leaving 40% of equity allocation invested.)
Sunday, Brinker’s opening monologue was mostly about how the presidential candidates rated in the recently released Iowa polls. And he repeated much of what he said yesterday about the sub-prime situation and Washington’s concern about it because of the upcoming elections. The remainder of the first two hours were (mostly) spent taking calls about the sub-prime situation. It was very repetitious....


Wednesday, December 5th Update: Neal Boortz has written a column addressing some of the misinformation that Bob Brinker is disseminating about the FairTax. I have posted an except in "comments" and the link to the article.


Jim said...

Thanks Honey for your review and comments... looks like were past the buy territory and into DCA for new money... let's hope we're on our way now to 1650 being 95% invested, 5% residual cash on hand... Jim

Anonymous said...

Great summary. Thanks for doing this each week.

Tom said...

Thanks a lot from me too! I find it very interesting and look forward to reading it.

Honeybee said...

Hi Jim,

Indeed, let's hope we have seen the correction bottom and are on our way to 1650. 8^)

Honeybee said...

Hi wejomerv and Tom,

Thanks for your nice comments--they are much appreciated. 8^)

Honeybee said...

Neal Boortz has written another column about the FairTax. In it, he addresses some of the misinformation that Bob Brinker disseminated about it:
For instance, Boortz wrote this about the home mortgage interest deduction:
"Now … Rudy Giuliani. Yesterday the AP reported that Giuliani said that the FairTax would hurt homebuyers. Rudy said “I think there are several tax deductions that are vital to our economy. This would not be a good time – I don’t know if there would ever be a good time to do this – to advocate ending the home mortgage deduction. The home mortgage deduction is considered by many critical to the ability of people to buy a home and keep their home.”
Giuliani just can’t be serious on this. Since he clearly hasn’t thought this through, let’s do it for him.
What does the home mortgage interest deduction do for people? Simple: It allows them to deduct the amount of interest they’ve paid on their home mortgage from their taxable income. This results in a lower taxable income figure and lower taxes. Now .. let’s approach one of these home owners and ask them a simple question. Would you rather have a nice income tax deduction so that your taxes would be lower, or would you not have to pay income taxes at all? The point here is so ridiculously easy even a politician can understand it --- a tax deduction is of no value whatsoever to someone who does not owe taxes! Under the FairTax all income taxes are gone! You are never going to find someone whining that they wish they owed some taxes so that they could make use of a tax deduction.
Congressman Linder, the author of H.R. 25, The FairTax Act, and I have authored another book “FairTax, The Truth: Answering the Critics.” This book, published by Harper Collins, will hit the bookstores on March 11, 2008. We offer our regrets and apologies to Lambro and Giuliani for not sending them a manuscript of this book when we finished it three weeks ago. It might have kept them from making fools of themselves."

Pehaps someone should send a copy of Boortz book to Bob Brinker.


rod_p_90037 said...

Thanks Honey. Your site is very helpful. Rod

Mark said...

Fairtax plan is as bogus nonsense as anyone can dream up. Its absolutely wacko.

Here is how wacko it is -- it depends on the government ITSELF paying ITSELF 400 billion dollars.

Read that again, and try to grasp it. It depends on the government ITSELF paying ITSELF 400 billion dollars.

The government CAN NOT possibly do it, just because ITS WACKO. Its a farce. You might as well write YOURSELF a check for 400 billion.

And it only BEGINS with that absurdity. But that absurdity would make the FAIRTAX more like 45%, not 23%.

Can you imagine what a 45% sales tax on cancer surgery would do?

Can you imagine what a 45% sales tax on nursing home patients would do?

Can you imagine what 45% sales tax on rent would do?

Cause RENT --is fairtaxed. SO are utilities -- yes, utlities. SO are insurance premiums/

SO if you rent, pay utilties, and insurance -- and get cancer - you could get a SALES tax bill of 100,000 dollars, even though you only make 30,000.

Try to grasp that asurdity.

Fairtax CAN NOT collect 100,000 dollars in taxes from a renter who gets cancer. Can't get the money -- sorry.

As you see the absurdity of Fairtax pretending to get 400 billion from governement (it cant) then get 550 billion from health care patients (it cant)

Then you will see how flipping INSANE this is.

IT doesnt even SLOW DOWN as stupid

ANd I hope and pray they do this.

I really want them do to do!! I do!!

Let the insanity unfold.

I want to SEE them try to get 50,000 sales tax from an 80 year old stroke victim in a nursing home.

I want to SEE them try to get 100,000 sales tax from the parents of a leukemia vicitm.

I want to SEE them explain to car manufacuterers why they had to put a 60-90% sales tax on their cars. And it would be 60-90%, if health care and rent and government get exemptions (which they would have to do)

This fairtax is wacked out nonsense, and by god, i would love to see it.