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Bob Brinker's Stock Market Outlook for 2012
January 1, 2012

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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. 2011

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written by David Korn and Kirk Lindstrom

January 1, 2012 Newsletter Excerpts  -  Editorial Comment ("EC") by David Korn:



Caller:  This caller noted that 2011 had been a great year for bonds whereas the stock market was flat and asked Bob for his outlook in 2012.  Bob first agreed and noted that he had never seen the S&P 500 show as little a change as it did this year.  Bob said as he looks out into 2012, his current stock market outlook is positive.  Bob noted that he is not saying he will have the same opinion in the fourth quarter of next year, or even the third quarter as that is too far out, but as of right now, he is bullish.  Bob said that provided his stock market outlook remains positive throughout next year, he thinks the probabilities are that stocks will outperform the bond market in 2012.  Bob later reiterated that unless he has a sell signal in 2012 or some other change in his market outlook, the stock market is likely to outperform the bond market and income portfolios in 2012.

EC (David Korn):  I was surprised and pleased that Bob gave his outlook on the first show of the year, especially when he is about to publish his January Marketimer.  I actually think it had more to do with Bob trying to get new subscribers as he plugged the Marketimer more than usual.  This is also the first time that Bob has even referenced a potential change in his stock market outlook or used the term “sell signal” in ages.  Conceptually, it makes sense that the stock market could have a run up into the election season, and then sell on the news once an election is done.  That of course is simply one scenario among many. For now, Bob and I are aligned in our bullish outlook for stocks in the near term.

Kirk Here:  When the market was at all time highs, Bob Brinker was bullish at the start of 2008 with a "gift horse buying opportunity" if it fell into the "mid 1400s."  At that time (the end of 2007 and well into 2008) he called for the S&P500 to reach the 1600s.  Of course, the market didn't rally and it went down to the 600s!  Despite being the worst bear market since the Great Depression, Brinker NEVER issued a "sell signal."

 Brinker was fully invested the whole time with new "buying opportunities" from the "mid 1400s" to the 800s but didn't give any advice to buy in the 600s or 700s!  In their December 19, 2011 article "Thank Goodness for Index Funds" Rick Ferri wrote:
Finally, index investors were saved from countless terrible market calls made by so-called experts. Here is a sample of bad advice that torpedoed the savings of many people:
Bob Brinker couldn’t have been more off the mark with his market prediction in late 2007.  “The short-term correction that began in October and continued into November has served as a health-restoring pullback and has paved the way for new record highs in the S&P 500 index.” The S&P 500 collapsed 37 percent in 2008.
So, it is good Brinker is bullish, but I don't give it much weight.  I believe his discussion of a "potential sell signal" is marketing to sell newsletters to those who don't already know his dismal record of market timing.  Make sure you read

Kirk Here:  See Series I Bonds  
 Kirk Here:  See ==> CURRENT Survey of Best Savings Account Rates <==


Brinker Comment:  Interest rates have just about disappeared.  Three month Treasury Bills are paying 0.01%.  That is as close to zero as you can get.  That means if you own a Treasury Bill you actually pocket 1/400th of 1 percent on an annual basis. 

Kirk Here:  When you are getting next to nothing, I prefer to have FDIC insurance for my cash outside of IRAs.  See "Best Savings Account Rates with FDIC."

Brinker continuedWhen you look at the annual yields of the Treasury bonds, it tells the story:

  • The six-month Treasury Bill has an annual yield of 0.6%.  
  • The one-year Treasury has an annual yield of 0.1%.
  • The two-year Treasury Note is yielding 0.25%.
  • The Five-year Note is yielding 0.875%.
  • The 10-year Note is yielding 1.9%.
  • The 30-year Bond is yielding 2.9%.

Brinker Comment: These rates are at the all-time historic lows!  Even the Treasury Inflation Maturities (TIPS) are sporting a negative base rate of 0.9% which means you lock in a loss of 0.9% for the year on the base rate and hope to make it up on inflation.

Kirk Here:  I did really well buying TIPS for my explore portfolio.  Here is how they finished 2011:

TIPS Performance

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 3.4%, 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.


Brinker Comment:
 Bob said the notion that the sovereign debt situation in Europe is going away is ridiculous.  How will this impact us?  Bob said so far the United States is a beacon of light in terms of its economy.  Our economy grew at 1.8% in the third quarter and Bob expects the fourth quarter number will be over 2%, and could even be in the area of 3%.  Bob said he is also looking for a decent jobs report this coming Friday when we get the jobs report.  Bob noted we export about 19% to the European countries which leaves 81% that we export elsewhere so we aren’t “heavily” dependent on exports to that area.  So far, the United States economy has surprised a lot of economists who were expecting something far worse.

EC:  Bob seemed as upbeat about the US economy as he has in a while, and for the first time that I recall increased his estimate of the fourth quarter GDP to as high as 3%.  I agree that there are a lot of positive signs for our economy, but I think the impact of a significant European recession on the United States remains far less clear so we have to keep a close eye on it.


Brinker Comment:
 The 2012 contribution limits to IRA are generous.  If you are married and filing jointly you can contribute $5,000 to a Roth IRA account and if you are age 55 or older you can invest $6,000.  If you are going to contribute to a traditional IRA, you can put in the same amounts.  You have to qualify on the income limits for both IRAs so you should check that first.  If you go with a IRA you get a deduction on the investment, and for the Roth IRA you put the money in after paying taxes but when you go to withdraw you don’t have to pay taxes on the withdrawal.

Kirk Here: Unless you get matching by your employer, I recommend using a ROTH if you qualify.  Money that comes out of a tax deferred IRA MAY reduce your Social Security payments because they are treated as ordinary income.  It is quite possible for a married couple with only one spouse working to save into an IRA while deducting at the lower joint rate then pay a higher tax rate when taking the money out after one spouse dies!  So, it is possible with today's laws to pay higher taxes than you saved AND see a reduction in your Social Security benefit.  As far as I know, this isn't an issue with ROTH IRAs. 

EC:  Here is the Infernal Revenue Web page which has info on the IRA contribution limits and requirements: http://tinyurl.com/4wtorb

Kirk Here:  In my IRAs at Vanguard and Fidelity, I like to buy short term CDs to get higher rates than their money funds AND get FDIC insurance.  See Best CD Rates and CD Rates at Largest US Banks.  I don't get the top rates you can get going directly to the banks, but they are certainly better than what the US Treasury or Vanguard and Fidelity money funds are paying.


Brinker Comment:
 Critical Mass is a situation where you have enough money invested and saved where you don’t have to work unless you want to because you could live off of your investment income and savings.  Bob said once you have reached critical mass, Bob recommends a withdrawal rate of somewhere in the neighborhood of 4%.  To get to that 4%, you add up all of your interest, dividends and capital gains and if that doesn’t add up to the 4%, then you liquidate some shares to get there.

EC: Found a very good article this week entitled, “Are Clients Ready to Retire: Money is important, but various studies offer surprising findings on what matters the most” at this url: http://tinyurl.com/7ga6ltv

Caller:  If you retire at an early age, such as age 50, would that change your 4% rule on withdrawal?  Bob said the earlier you begin your withdrawal program, the higher the chance that you will outlive your savings.  The 4% rule works well for people who start withdrawing money from their retirement accounts in their 60s. If you start at age 50, you might want to start with a 3% withdrawal rate for the first decade.

Kirk 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
Model Portfolio 2011
2010 2009 2008 2007 Combined
#1: Aggressive 0.5% 10.9% 19.7% (18.2%) 9.5% 19.5%
#2: Moderate Risk 2.2% 8.4% 13.2% (8.7%) 8.5% 24.1%
#3: Conservative 4.8% 5.5% 5.5% 3.7% 8.3% 31.1%

Kirk Here: Warning:  Recently Bob Brinker added a mutual fund to his income portfolio that has stocks in it so he changed the name from "Fixed Income Portfolio" to "Income Portfolio."   If you want ABSOLUTELY ZERO STOCKS, then the Marketimer portfolios are not for you.  Model Portfolio #3 in "The Retirement Advisor" is 100% out of stocks.  Unlike Brinker, we show returns by year here. Check it out and make sure you download a recent free sample issue.

MUST Read>>Bob Brinker's Asset Allocation History<<

January 1, 2012 MONEYTALK GUEST

Bob's guest for the third hour was Robert Stowe Englad, author of the book,

Black Box Casino: How Wall Street's Risky Shadow Banking Crashed Global Finance

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ArticleHow to Get the Best CD Rates

Kirk Here: For charts and quotes, see Vanguard Fixed Income Funds:   GNMA (VFIIX),                        
Total Bond (VBMFX),  TIPS (VIPSX) High-Yield/Junk Bond (VWEAX)

CLICK HERE to download a FREE issue of "The Retirement Advisor."
 Website for more information and annual Performance Data

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