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Bob Brinker Moneytalk Summary
September 11, 2011 Radio Show

Key TopicsMarket Update, 9/11 Memorial, Gold, GNMA, Social Security, Moneytalk Guest 

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September 11, 2011 Moneytalk Summary with Editorial Comment by Kirk Lindstrom
September 11, 2011 Moneytalk Update:    

In the Market Update section we show the market fell 19.6% from its 2011 peak to low last month on an intraday basis.  Bob must be screening callers like crazy as I would expect most want to know if he thinks that is "the bottom" or if the market will go lower.  At times like these when the markets are down a lot, Bob is happy to take calls patting him on the back for his GNMA advice or  to discuss anything but the US stock markets.  I've summarize some of the more interesting calls below.
Opening Comments:  Bob Brinker usually gives market statistics when the markets are going up and he's proud to be fully invested.  When the market is down significantly and he's been fully invested, he usually finds something else to talk about.  On Sunday he talked about how the events on 9/11/01 struck close to home for him because he used to work in the "canyons of Wall Street."  He said the replacement tower will be the tallest building in the country when completed.  It will have 100 floors, cost $3.2B with a scheduled completion date in 2013.
Kirk 1:  Read about the just opened  9/11 memorial site at this URL: http://www.911memorial.org/
Kirk 2:  CNBC reported last Friday that the replacement tower with its antenna will be exactly 1776 feet tall in honor of the year the US declared independence from England.
Gold:  Caller Tom from San Jose, California asked if silver and gold were in a bubble about to burst and if they would go higher with the government bailouts. 

Bob Brinker said the bailouts were "yesterday's news" since they occurred in 2008 as part of TARP.  Brinker said he believes gold and silver are going up mostly from speculation and to some degree from people substituting owning precious metals for fiat currency.  Brinker reiterated his advice he prefers people who wish to hedge up to 5% of their portfolios with Gold own its exchange traded fund, GLD.    GLD Charts and Quote    - Gold Charts and Quote
Kirk: I believe the caller may have been asking about the bailouts being discussed for Europe, especially Greece, not something that happened three years ago in the US. We know the bailout in 2008 and 2009 to save the US banking system led to higher prices for precious metals. Remember the "bailout" includes buying bonds with QE1 and QE2 to keep rates artificially low to cause inflation.  Low rates and higher inflation push the price of metals up.

Many believe the crisis in the European Union is a problem similar to the 2008/2009 collapse in the US banking system with the potential failure of Greece and other PIIGS (Portugal, Ireland, Italy, Greece & Spain)  causing similar problems as the failure of Lehman in the US.   Of course it is speculation that metals are going up just as the price paid to own a stock is speculation about future earnings and dividends.  The ONLY investments that are not "speculations" are CDs and Treasuries where you know exactly how much interest is paid and you will get your original investment back at the end of the term.   Of course, currency and precious metal "speculators" will say owning dollar based CDs and US Treasuries is also speculation in the value of the dollar.   If the US has to keep printing money to buy treasuries to keep rates low, it is little different than a company printing more shares of its stock which dilutes the value.

Remember, Brinker was completely blindsided by the US banking collapse so it would not surprise me his model doesn't fully realize yet what is happening in the European Union. 

GNMA Advice:  David Korn, my co-editor for the "Retirement Advisor" newsletter, DK summarized this call:

Caller:  This caller has 5% of his portfolio in the Vanguard GNMA and he is considering switching that into the Vanguard Wellington or Wellesley Fund.  Bob said that would be different than what he is recommending.  Bob said he has a recommendation in his income portfolio that has over 90% of its assets in income investments.  Even the portion that is not in income is in dividend paying stocks.  In that portfolio, he has a higher weighting in his GNMA than 5%.  He also has several other funds.  Bob said he would not’t recommend going to zero in GNMA – that is not something he has recommended.

DK:  The Vanguard GNMA Fund (VFIIX) closed today at $11.21.
DK#2: Bob used to refer to his income only portfolio as a “fixed-income” portfolio but when he added the Vanguard Wellesley Income Fund in January he changed the name to “income portfolio.”
Brinker Comment:  Bob said the GNMA fund continues to be an extraordinary investment.  Bob said he still holds the Vanguard GNMA fund in his Model Portfolio III which is a Balanced Portfolio as well as his Income Portfolio.  Bob said he has held them for many years.  These securities have done well, even through the financial crises.  Even as we speak, they are within a few cents of their all-time high.
DK:   WSJ article entitled, “Using Ginnie Mae Funds as a Cash Stash” at this url: http://tinyurl.com/3z83l2k

Kirk 1: Charts and quotes for Bob Brinker's recommended GNMA Fund at this link VFIIX
Kirk 2: Bob Brinkers's model portfolios #1 and #2 are 100% in equities and thus have no GNMA/VFIIX.
Continued below

Is Social Security Ponzi Scheme?    Bob Brinker took many calls asking about Texas governor and presidential candidate Rick Perry's charge that Social Security is a Ponzi scheme.  Brinker has been pretty clear he doesn't like what most of the GOP candidates have said so far and this was no exception.  His defense was almost laughable.

Brinker Comment:  Brinker said "The Social Security Trust Fund,  money  that should have been set aside for the payment of benefits, has been spent. And the reason it was spent was because when the government went to a unified budget many years ago, that gave them a license to take the payroll tax revenue that comes in every year and spend it not only on Social Security benefits, but anything else they chose to spend it on, and that's what they've done. "
Kirk:  Well, duh Bob!   Spending the money and using new funds to pay off current investors who wanted to take funds out is EXACTLY what Bernie Madoff did with the money people gave him to invest!  The Securities and Exchange Commission say the following about Ponzi schemes:
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.

Why do Ponzi schemes collapse? 
With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.

Obviously, the US government has no legitimate earnings other than taxes it collects.  If all the workers leave or stop working, then there is no flow of funds to pay off Treasury and Social Security debt including what is supposed to be in the "lock box."  The "IOU Lock box" many talk about is really just another form of US Treasury debt.  

Compare the Social Security lock box promises with a pension fund that makes investments in stocks in OTHER companies and bonds to pay workers who retire.  One of the biggest is CALPERS, the California Public Employees Pension System.  CALPERS makes investments in stocks, bond, real estate, hedge funds, TIPS etc.  The idea is CALPERS is fully funded so taxpayers in California are not responsible for the retirement of its workers unless CALPERS comes up short.  See
CalPERS Asset Allocation Ratio and Target Annual Return .  Compare that to Social Security and it is easy to see why so many call SS a Ponzi scheme.

Finally, liberal Nobel Prize winning economist, Paul Krugman, called Social Security a "Ponzi Game" here.
"Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today's young may well get less than they put in)."
INVESTING IN IRAQI DINARDavid Korn, my co-editor for the "Retirement Advisor" newsletter, DK summarized this call:

Caller:  This caller wanted Bob’s opinion on investing in the Iraqi dinar which he owns a bit of.  Bob said he has no money invested in the Iraqi dinar and thinks there is a scam risk associated with this.  Bob said the only people he expects to make money from this are the people that are selling it. 
DK:   Some states have issued warnings to investors to exercise caution about companies offering opportunities to invest in the Iraqi dinar.  Here is one such warning last month from the Wisconsin Department of Financial Institutions:  http://tinyurl.com/42ynds4

Kirk:  Scammers will always take advantage of investors seeking better returns.  Some people never learn that risk usually goes up much faster than return.  I've managed to avoid most scams by asking myself "if this was such a good investment, then why doesn't Warren Buffett or a big bank like Bank of America make this investment rather than make 15-year home loans at 3.5% or less?"  The latest I heard about was someone trying to recommend 9% CDs in Panama on one of my blogs!   We wrote a warning about it in the Alternative Investments under COACECSS Panama Savings and Credit Cooperative .  We may have to add "Iraqi Dinar" to that list of "alternative investments" we warn about.  
==> CURRENT Survey of Best Savings Account Rates <==

Market Update:   Bob Brinker remains fully invested.  On Sunday, July 31, 2011, Bob Brinker said (show summary) it was amazing how the stock market had taken all of the debate over the debt ceiling in stride.  He said the S&P 500 was "setting about 5% below its closing high for the year, which is truly amazing."    Bob Brinker's Marketimer newsletter portfolios #1 and #2 have been 100% equities (fully invested) since March 2003.  See Bob Brinker's Asset Allocation History  Bob said he was taking advantage of dollar cost averaging weakness lately and in fact bought some more into the market on Friday (July 29, 2011).   Bob said:
Of course, the market is now at 1292, a couple of percent higher than when that call came in at the end of June. So this is what happens. If that individual would have sold out at 1270 at that time, he would be faced now with either sitting it out or re-entering at a higher level.
Friday, September 9, 2011 the S&P500 (charts and current quote) closed at 1,154
Kirk:   I am sure glad I wasn't 100% in stocks at the top like Bob Brinker!  I lowered my asset allocation to equities just before the market top.  This gave me plenty of funds to send ten (10) different buy alerts to my subscribers announcing portfolio purchases in August with the majority very near the lows for the month.  I usually only have one or two explore portfolio changes a month but August was a special opportunity to get many good stocks well off their recent highs.  Some have yields over 4% too!
Market Statistics for Friday Sept. 9, 2011:  S&P500 closed at 1,154.23
  =>This means the decline from intraday high to intraday low is 19.6% and we are currently 15.8% off the peak.
  =>The decline in the S&P500 from the closing high to the closing low was 17.9%
  =>Today QQQ is $53.18 which is down 39.5% from $87.87, the highest QQQ was while Brinker was recommending it for up to 50% of 
      cash reserves. You can see an actual copy of the special bulletin advising purchase of the NASDAQ100 via QQQ HERE .

S&P 500 Intraday Stats

S&P 500 Closing Statistics
Date of last bull market high 05/02/11
Date of last bull market high 04/29/11
Last Bull Market High: 1,370.58
Last Bull Market High: 1,363.61
Date of last low: 08/09/11
Date of last low: 08/08/11
Intraday Low: 1,101.54
Closing Low: 1,119.46
Decline in Pts: 269.04
Decline in Pts: 244.15
Decline in %: 19.6%
Decline in %: 17.9%

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September 11, 2011 MONEYTALK GUEST

Bob had on Joseph F Hurley, author of the new books:

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