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

Brief Summary, Commentary and Bob Brinker Excerpts From Moneytalk, December 1-2, 2007.
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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%.”
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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.
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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.
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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 8.6%....new 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.
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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.
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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.”
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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.
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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.
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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.)
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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.”
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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.)
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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.)
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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....

____Honeybee

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.
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