Bob Brinker's Moneytalk Summary January, 26-27, 2008

Brief Summary, Commentary and Moneytalk Excerpts, January 26-27, 2008
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EXCERPTS FROM OPENING MONOLOGUE Bob Brinker said: “Well the stock market had volatile sessions on Tuesday and Wednesday of this week following the holiday on Monday and the chaos at Societe’ Generale’ on Monday where they dumped tens of $Billions of securities on the market in an effort to unwind a fraudulent trade that was put together by a 31 year old individual working in the bank who took positions of up to $80Billion, that is said, lost over $7Billion of company money and was found out last weekend in a routine audit check.
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It wasn’t a good day for the people who manage the second largest bank in France….because they had to unwind — sell at the market -- positions in the tens of $Billions that caused the European market to cascade lower on Monday….and spread all over the globe…….
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Tuesday and Wednesday were “tremendously volatile. We had some stability return, some normalization return to the U.S. marketplace on Thursday and Friday. Ironically, the day to day price changes at the close, which is what we study very closely, were small…..to finish the week up a fraction of 1% -- about 5 points on the S&P 500 gained on the week……..What we had was fear and emotion driving the market.………………
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There are some key fundamentals that play into what we’ve been seeing in the stock market in the United States. And as usual, if you’re a Moneytalk listener for a good portion of the past two decades, you know it usually starts with Federal Reserve monetary policy, which is currently under the control of, by far, the most powerful man in the world. His name is Chairman Ben Bernanke, out of Princeton University in Princeton, New Jersey. And this new Fed Chairman decided when he took over the rains from the maestro a while back that he would continue to raise short-term interest rates. And so he raised them and he raised them and took them up their high point in the summer of 2006 of 5 ¼%. After he was done raising rates to 5 ¼%, he held the rates at that level for over one year.
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And if you’re a Moneytalk listener you know that I disagreed vehemently with the Chairman’s decision to raise rates to 5 ¼. I said it on this program many, many times. That I believe that rates could easily been held in check as low as the 4 ¼ to 4 ½% area back then.”
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Honey sez: It is certainly true that Brinker has been negative about Bernanke from the time he was first appointed as Fed chair. So why doesn’t Brinker explain why (until last week) he has recommended the S&P mid-1400’s level as “attractive for purchase” every month since last August? Why doesn’t he explain why he was 100% BULLISH (short-term, intermediate term and long-term) until last week when he said that he had not "expected" the market decline. Subsequently he removed the mid-1400's buy level, recommends only dollar-cost-averaging, and is now working to identify the “area of a meaningful market bottom.”
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Brinker continued: “So after taking the Federal Funds rate, which governs short-term interest rates in the United States, up to this 5 ¼ level, the Federal Reserve Chairman found himself behind the curve of economic growth – behind the curve of this economy. This economy had to deal with the housing recession and consumers were dealing with high gasoline prices, high heating oil prices, high energy prices in general. And of course, how many times have we pointed this out – just stating the obvious – that these high energy prices simply tax consumers……..because of the higher prices which acted the same as a tax. This was a factor, of course, in slowing down the economy.
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We’ve talked about the slowing down in the economy, which we are now seeing. However, with all of this going on, Federal Reserve Chairman Ben Bernanke was moving more slowly than a tortoise in lowering rates. He had taken them down some, but not much. Then last weekend, they were still at 4 ¼%. And then on Monday, perhaps related to what he was seeing in the European market –although at the time, he certainly did not know it was a fraud –doesn’t matter much – at the time on Monday he staged a conference call between the members of the Federal Open Market Committee that govern monetary policy for all Americans. In this conference call, they reached a decision – not far from the decision we suggested should be done on last weekend’s Moneytalk, almost identical -- and the decision was announced Tuesday morning. And that was the decision for a record breaking 75 basis point Federal Fund rate cut which came on Tuesday.
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As far as I’m concerned the Federal Reserve Chairman made the mistake of holding short-term rates too high for too long because he misinterpreted high oil prices as an inflation threat, when in fact, it is an economic threat – certainly combined with the housing recession. But it is an economic threat to see prices high for oil…it taxes consumers and reduces their consumer discretionary spending power."
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Honeybee sez: We know that Brinker has been aware of Fed policy all along, and has been ridiculing the “bad news bears” for months.
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This is from my November 18, 2007 Summary: Bob Brinker said: “Well it’s been an interesting week in the stock market….remember last week the bad news bears were telling us, it’s all over now – we were in big trouble now. Well that’ what they were saying a week ago. Of course, it did not turn out that way. We talked about this last weekend. About those bad news bears and how wrong they have been for several years every year as they have been screaming fire in a crowded market only to find that their views were wrong again. This week the S&P 500 chalking up a gain to 1458.74 – a gain of about 1/3 of a percent. The Dow going up 1% to 13,176 and the Nasdaq gaining close to ½ percent, at the 2637 level…….”
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Brinker continued yesterday: "The United States Congress and the President seems to understand this fact, that’s why they are fast-tracking a stimulus package to get money into the pockets of the consumer……..but the Fed Chairman did not understand this fact. As smart as he is, he did not understand it, as far as I can see. He preferred, at least until Monday, to fight his imaginary inflation gremlins and did not ease monetary policy earlier. The Federal Reserve fell behind the economic curve. And I believe that mistake by the Federal Reserve was the core mistake that produced the loss of confidence in the Federal Reserve that forced them to capitulate and reduce rates 75 basis points this past Monday.
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It is the job of the Federal Reserve to anticipate economic developments. They have things to go on – they have the stats on the housing recession, irrefutable statistics. They have the statistics on what it is costing people to buy gasoline, heating oil and pay their energy bills. They have all of this information……. It is not just the job of the Federal Reserve to react to what happened, which of course is what we’ve been looking at.
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Now the Federal Open Market Committee has a regularly scheduled meeting coming up this Wednesday, January 30th. And it’s very likely that an additional rate reduction will be announced at 2:15 Eastern…….and if another rate reduction is announced, as is likely, that would take the Federal Fund rate down below its current 3 ½%. And that will bring the Federal Reserve closer to where they should be – where they should have been recently in terms of their monetary policy.”
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President Bush’ Stimulus Package: Bob Brinker thinks it’s a good idea as long as it targets those who will spend it. He also likes the incentives for businesses to invest in new equipment with an increase in allowable deduction. Brinker thinks this should be put on the fast track, but the bill still has to be signed. Brinker said: "So I think it’s a good package. I think it’s an extraordinary example – and it’s a piece, none of these things are meant to be deliverance from economic problems, it’s a piece of the puzzle, but I think it’s a good one. And I think the most remarkable thing to me – in fact this is exactly what we recommended on the first weekend of January right here on Moneytalk that they get a stimulus package out there. We talked a lot about it just three weekends ago right here. Congratulations to them, where they’ve come this far."
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Here are excerpts from David Korn’s Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service. Copyright David Korn, L.L.C. 2008
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http://david-korn.blogspot.com/

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“January 5-6, 2008 Newsletter
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GOVERNMENT STIMULUS PACKAGE NEEDED
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Brinker Comment: A slowdown in the economy means lower interest rates. It means the Federal Reserve will continue to cut rates, adopting an accommodative monetary policy to stimulate the economy. In addition, thereis even word out of Washington of the possibility of a stimulus package forthe economy. Bob said if there is a package proposed, we would hope that itis aimed at the people who have 100% propensity to consume, and not just to the wealthy so they can put more into their retirement accounts. We need a middle class tax cut which could help consumer spending which is under pressure from the higher cost of gasoline, heating oil and issues related tohousing. In response to a caller, Bob said when he refers to the middle class he is including everyone in the 15% tax bracket and possibly some inthe 25% bracket. Bob said to maximize the impact of a stimulus package, it should come out in the first quarter, and if he were in charge, the proposal would come out tomorrow.”
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TAX CUTS PERMANENT? Brinker said that the president was right to drop the subject off the table because it is irrelevant to this issue -- this issue is about stimulus for 2008. The tax cuts are on the book until 2010 under current law.
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HOUSING RECESSION: Brinker said: “In terms of the housing market, which is in recession--the housing market is now in recession – I think they’ve done something good here too.” The proposal allows Fannie Mae and Freddie Mac to purchase mortgages of up to $729,750, which is way over $417,000 – a big increase over current limit. This throws a lifeline into the jumbo loan category, which is needed because some areas around the U.S. are VERY expensive, such as Honolulu, San Francisco, NY, Los Angeles, Silicon Valley.
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Honeybee sez: It seems disingenuous to me for Brinker to say that the “housing market is NOW in a recession” as though this is something new. As my previous Moneytalk summaries show, for months now, he has said the housing market was in a recession.
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Here is what Bob Brinker was saying about the economy January 5-6, 2008, as summarized by David Korn. (See information above) Posted with the author’s permission. The following was written by David Korn:
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"OPENING MONOLOGUE - BOB'S TAKE ON THE ECONOMY
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Brinker Comment: Bob opened the weekend off saying that he was expecting a poor job's report and we got it as expected. Bob said he has been talking about a slow down in the U.S. economy. A lot of people were still looking at the 4.9% growth rate in the gross domestic product that we got in the third quarter, but that number really means nothing. You won't see that kind of a number for a while. Instead, you should be of the mindset that there is a real slow down in the economy. How much of a slow down are we looking at? Bob said he expects to see hardly any growth in real GDP growth in the fourth quarter of 2007. In addition, Bob said he doesn't see much growth in the first quarter of 2008 and probably the second quarter of 2008.
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That is three quarters, all of which will show very little real GDP growth. When we average those three months, we will see clearly that there will be a nine-month period from October 2007-June 2008, where we will see very little economic growth. Certainly, it will be below the long term trend rate of 3-3.5%. In fact, it should be well below that level and the average will be a very low single digit number.
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EC: A little spin by Bob and a change somewhat in his outlook in this opening remark. Bob's comments implied that he was predicting a reduction in the new jobs growth which was announced Friday. I recall no such prediction and if you read his January Marketimer, he only discusses the fact that jobs growth is the key to 2008 growth rate. If Bob had been expecting this big down drop in new jobs on Friday, I think he would have said something.
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EC#2: More importantly, is Bob's outlook for the economy because that plays an important role in Bob's long term stock market timing model. Bob has predicted real gross domestic product to come in a range of 1.7% to 2.7% in 2008. Given his comments today about the first two quarters having very little growth, he would need a good pick up in GDP in the second two quarters for this projection to come true.

Brinker Comment: Later on in the weekend, Bob made a prediction that when we get the GDP report out for the fourth quarter, he expects it will show that the economy grew at about 1% rate in real terms (adjusted for inflation) which is very low and way below trend. That slowdown will continue in the first quarter and second quarter. However, Bob said he thinks we can see a rebound in the economy in the second half of 2008. And if you study the stock market, you know that the stock market discounts the future by about 6-7 months in advance. So if we were to see a recovery in the second half of 2008, following this slow period, then the stock market would be in the process of having discounted that as we speak.

EC: I listened to that last segment a few times to make sure I had Bob's words absolutely correct. This last comment by Bob is really the foundation for his bullish outlook on the stock market. If Bob was expecting the economy to weaken further in the second half, presumably he would be forecasting a recession and that would throw his timing model into bearish territory. As he said today, he is expecting a rebound in the second half of this year."