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Bob Brinker's Stock Market Update for 2012
January 22, 2012
22, 2012 Newsletter Excerpts - Editorial
Comment ("EC") by David Korn:
Bob Brinker Fan Club Home Page - Bob Brinker's Asset Allocation History
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. 2012
CLICK HERE to download a FREE issue of "The Retirement Advisor"DAVID KORN'S COMMENTARY: Excerpts below
written by David Korn and Kirk Lindstrom
MARKET NUMBERS AS OF FRIDAY, JANUARY 20, 2012
Dow: 12,720.48, Nasdaq: 2,786.70, S&P 500: 1,315.38, 10-Yr. Bond: 2.028%
STOCK MARKET OFF TO GREAT START
Brinker Comment: The stock market is off to its best start in 15 years, up over 4%. The S&P 500 closed last year at 1257 right where it started, but is now standing at 1315, up over 4% in January.
EC (David Korn): It is not just the U.S. stock market that is off to a great start. Other world stock markets are doing great as well. The MSCI Asia Pacific Index is off to its best start in any year since 1988.
Kirk Here: See "World Markets at a Glance" for Daily and a 1 yr view.
NO RECESSION ON TAP
Brinker Comment: For those forecasting a recession in the U.S. economy they have been wrong so far. Bob said he is looking for fourth quarter GDP to increase over the third quarter rate which was at an annual 1.8%. For all of 2011, Bob said he expects real GDP to be at 1.5%. Bob noted that 1.5% was in the mid-range of his forecast of 1-2% growth rate that that he made some months back on Moneytalk.
EC: Good call by Bob on not jumping on the recession bandwagon. As far as his GDP prediction, well he had predicted it growing 2-3% as late as July of last year. It wasn’t until August that he reduced it to 1-2% which was a significant reduction in terms of percentage.
Kirk Here: My explore portfolio is off to a great start too at up 7.2% YTD as of 1/22/12!
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EC: Check out article entitled, “Bernanke near inflation target price, but jobs a concern” at this url: http://tinyurl.com/74rz4qu
CORPORATE BUY BACKS
Brinker Comment: Corporations are seeing value in their own stocks. Corporate buy-backs rose 46% last year with hundreds of billions of dollars of corporate cash being used to repurchase shares, with most of it going on in the open market. This is a means of reinvesting retained earnings. This creates demand for the shares. It also produces higher earnings per share since they are spread over fewer shares outstanding. It is an intrinsic way for a company to grow its earnings. And that is going on a lot lately and Bob said he expects more of it to go on this year.
EC: Standard & Poor’s estimates that companies spent at least $437 billion last year. And S&P estimates that during the current quarterly earnings season, 97 of the S&P 500 will enjoy a boost to earnings per share of at least 4% from repurchases alone. The real question is are companies getting good value when they purchase their stock on the open market at current prices. For example, stock buyback spending hit a record high in the third quarter of 2007 near the market’s peak and then declines 86% during the next seven quarters. Check out this excellent article from the Wall Street Journal entitled, “Buy Signals: How to Decipher Stock Buybacks” at this url: http://tinyurl.com/6uxgmcu
Caller: This caller wanted to know if he could use a GNMA Fund for all of his fixed income holdings. Bob said although he has recommended the Vanguard GNMA Fund for many years, he wouldn’t and doesn’t rely solely on it for the fixed income portions of his portfolios. Bob said he recommends including it in a diversified fixed income portfolio and has a weighting in his Model III Portfolio.
EC: If you go back to 2000, Bob at one point had given the green light on Moneytalk to a caller who wanted to own just one stock fund (the Total Stock Market Index Fund) and one fixed-income fund (the Vanguard GNMA Fund). And in hindsight, that would have beat many balanced portfolios. More recently, Bob had as much as 40% of his Income Portfolio in GNMA, but has since reduced that to a 15% weighting. I think Bob is prudent in reducing the holdings in that fund as its Net Asset Value has been at historic highs and when rates do normalize, the fund’s NAV will decline.
Kirk Here: I have charts and quotes for Vanguard's GNMA Fund at VFIIX .
Kirk Here: Last year I bought the maximum $10,000 in Series I Bonds to add to my i-Bond portfolio. Some of my older iBonds have a 3.0% base rate so with the current inflation rate they are paying me a whopping 7.67%! But, even the new ones that "only" pay the rate of inflation are paying 3.06% for the next six month. With CPI running at 3.0%, I expect they will pay more for the next six months. That sure beats US Treasuries even if you sell them and pay the small penalty if you need the cash before the five year penalty period passes.
Kirk Here: Rates are great
now. I just made my first payment on a 3.375%,
fixed 15 yr, ZERO COST loan. I offset the loan
amount with money in TIPS, Series I-bonds and the rest
in an FDIC savings account. If we get massive
deflation, then I can sell those investments and pay
off the loan. If we get inflation, I will be in
the cat-bird seat repaying the loan with inflated
dollars. When the Fed is stealing wealth from
savers with artificially low rates to lend to the
government, this is the safest way to fight
back. Banks don't want loans at these low rates
so my bank immediately sold my loan to Freddie
Mac. I still make payments to the bank so I
assume the bank gets a fee for brokering the loan then
monthly fees for servicing the loan while the taxpayer
takes all the risk of high inflation down the road
from the low interest rates.
EC: This call was timely in that this week the Appraisal Institute, which is the nation’s largest professional association of real estate appraisers, came out and said were not to blame for hurting home sales and that they are doing the same kind of work appraising real estate as they always have. The Appraisal Institute provided a handout to explain how appraisers use distressed sales as comparables. Read more in the article, “Don’t Shoot the Messenger: Appraisers Not at Fault for Low Home Values” at this url: http://tinyurl.com/7bkc38nKirk Here: David and I are very proud of our performance for "The Retirement Advisor:" Note how our "most conservative portfolio, with zero stock market exposure, made money every year. Brinker can's say that about ANY of his "income portfolios" in either of his newsletters.
The Retirement Advisor Portfolio Performance By Year Through December 31, 2011
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