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Bob Brinker's Stock Market Update for 2012
February 5, 2012

February 5, 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

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written by David Korn and Kirk Lindstrom


Dow: 12,862.23 NASDAQ: 2,905.66 , S&P 500: 1,344.90 , 10-Yr. Bond: 1.949% 
Click links for current quotes and graphs plus Markets at a Glance


Brinker Comment:  
The stock market is off to a happy start in 2012.  Year-to-date, the S&P 500 is already up close to 7%. All of this is happening at the same time that 10-year Treasury yield is 1.93%, not too far off the lows.  The S&P 500 has scored five consecutive weekly gains — the longest in a year.  The Dow is now at its highest level since May, 2008 and the Nasdaq is at its highest level since December, 2000!  

Kirk Here: See "World Markets at a Glance" for Daily and a 1 yr view.

EC (David Korn):  Bob remains very bullish and he is in good company.  Mark Hulbert wrote an article this week in which he looked at the Financial Digest database of advisors whose market timing advice beat a buy-and-hold in the stock market in each of the last four market cycles. Ten advisors, including daBrink, made the cut and most importantly, all of them are bullish.  Check out the article, “Will the bull see his shadow” which details the recommended equity weighting by each of the advisors covered (Bob Brinker’s model equity portfolios are 100% invested):  http://tinyurl.com/87a3flc

Kirk Here:  I don't understand how Brinker's advice beat buy and hold for each of the last four bear markets including the 20% bear market Mark Hulbert counts as occurring last year.  Bob Brinker was fully invested, thus "buy and hold" since March 2003.   Brinker was "buy and hold" for the greatest bear market since the Great Depression that being the 2008 bear market.  Brinker was so bullish at the top he issued a "Gift Horse Buying Opportunity" in the mid 1400s when the market was at its record high in the mid 1500s!  Even worse, Brinker had is "conservative model portfolio #3" two thirds in equities at the very top and told a worried caller to not rebalance to 50:50 because he was bullish for the future!  No wonder so few trust the big names on Wall Street anymore, including Brinker and Hulbert!

Whatever, my explore portfolio is off to a great start too at up 10.2% YTD as of 2/3/12!

Long Term Results that Speak for Themselves
Since 9/30/98 inception, "Kirk's Newsletter Explore Portfolio" is
UP 390%
vs. the S&P500
UP only 51% vs. NASDAQ UP only 57% (All through 12/31/11
Subscribe NOW and get the February 2012 Issue for FREE!  
(Your 1 year, 12 issue subscription will start with next month's issue.)
(More Info, Testimonials & Portfolio Returns)


Brinker Comment: We got the jobs report and it was outstanding.  There were 260,000 new jobs created in the private sector.  That’s where the growth is because the government continues to shed jobs, including 17,000 jobs lost last month, mostly at the municipal level this month.  The net new jobs after factoring in the declines in government jobs came to 243,000.  How good is that?  That is the best jobs report in 9 months and higher than any forecast that was out there in the new jobs survey. 

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

Bob said he was broadcasting from Nevada where Mitt Romney had just prevailed in the Republican caucuses.  Bob pointed out that if you are the incumbent President you want to see jobs growth because jobs growth and economic growth is what gets you re-elected.  Regardless of who you are voting for, the jobs report we just got was a great number for America because we want people to get new jobs which helps our economy and strengthens our country.

Bob noted that the jobs number was even more impressive because there was a revision to the December and November reports which were revised upward by 60,000 jobs.  The unemployment rate is at 8.3% which will take time to get down.  The U-6 number which includes the under-employed is above 15% and we want to see that get down as well.

EC: Read the employment report at this url: http://www.bls.gov/news.release/empsit.nr0.htm


Brinker Comment:  
The Federal Reserve finished a 2-day meeting this week and said they will hold interest rates down until 2014.  Bob said to take that kind of statement with a grain of salt.  The truth is that if unemployment remains high, and inflation remains low, they will keep rates down.  But if things change, Bob said the Fed won’t hesitate to act.

EC:  Ben Bernanke presented testimony on the economic outlook and the Federal budget situation last week before the Committee on the Budget, U.S. House of Representatives.  Read his remarks at: http://tinyurl.com/77uty5t

Kirk Here:  The Fed is trying to create inflation to inflate us out of trouble.  CPI inflation is running at 3.0% per year and Core PCE inflation, the Fed's preferred method of measuring inflation, is running just above the Fed's target of 1.8 to 2.0%.  This year and 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.

Caller: Do you think the market rising because of the Federal Reserve policy?  Bob said low interest rates help, but the stock market is reacting to the overall economic conditions.  Bob then commented on how the Federal Reserve is trying to be more transparent in their policies which is a good thing.  Bob said that Greenspan was too secretive in his conduct of monetary policy which contributed to the conspiracy theories and to the detriment of the system.  Now we have a Fed Chairmen who seems pro-transparency and Bob likes it.  The caller asked Bob if he thought the Fed would maintain transparency if we had another economic emergency.  Bob said that might be stretching the envelope and we won’t know until it happens.  

Kirk Here:   To get more than $10,000 per year, I bought individual TIPS for my personal IRAs and my newsletter "explore portfolio."
  • In "Kirk Lindstrom's Investment Letter" I sold my GNMA fund to go with a lot of my cash to buy individual TIPS for my explore portfolio.  They continue to do very well for me
Explore Portfolio TIPS as of  
02/04/12      More Information at KirkLindstrom.com
CUSIP Term Value Due Date Paid Buy Date Interest $ Gain % Gain
912828MF4 10-YR $36,305 1/15/2020 $29,847 1/11/2010 $847.53 $7,306 24.5%
912828PP9 10-YR $35,230 1/15/2021 $30,846 3/24/2011 $348.46 $4,732 15.3%
  • I may sell these to lock in gains or roll over into new TIPS to preserve the gains. You ALWAYS get your principal back if you buy new issue TIPS plus you get to keep all the interest paid so rolling over into new TIPS protects gains but means you may get lower returns going forward since the new TIPS come with much lower "inflation premiums" called "base rates."


Brinker Comment:  
The story that does not seem to go away is Europe.  Right now, they are still focusing on Greece which has been a nightmare of sovereign debt trouble.  What they are trying to work out is a gigantic haircut for bondholders of Greek sovereign debt.  The proposed deal would result in current bondholders accepting new bonds that were worth 50% less than their current bonds, plus a much lower coupon rate.  This would result in a 70% plus reduction in the present value for bond holders.

Greece is facing a $19 billion bond payment on March 20th and that is a major catalyst to the negotiations.  Notably, that comes right before the general elections in Greece in April where the austerity measures are facing a lot of resistance from many Greek citizens.  If they don’t reach a deal, Greece could leave the European union and they have to start printing their own currency, the drachma, and what would that be worth when the country is viewed as essentially bankrupt?

Remember in May 2010 there was an initial aid package of $120 billion to Greece.  There was a push to have the bondholders share some of the burden and then Greece implemented austerity.  The austerity measures, however, slowed the economy and now they have 18% unemployment and continue to run big deficits.  German officials, such as its Finance Minister, said this week that they cannot pay into a bottomless pit and Greece needs a new program but they must create conditions for it.  On the other side, you have the head of Orthodox church in Greece who believes the austerity program could cause a deadly social explosion.  

Bob said as far as he is concerned, if you can get private debt holders to take a 70% reduction in the net present value, then that is huge. Bob said there is another problem, however, if the Greece situation gets solved.  Portugal may raise their hand and say, “we are next” and want some kind of deal like Greece got.  These are small nations compared to the European union.  Greece is only 2% of the EU GDP and Portugal is not much different in size.  However, when there is contagion in that kind of thing, you have to watch close.

EC:  The euro is getting hit today as negotiations over the new Greek bailout gets close: http://tinyurl.com/7h99scq

Caller: This caller noted that the problems in Greece didn’t seem to impact Bob’s stock market forecast and wondered why.  Bob said the main impact Europe has had on his stock market view is that it helped create a tremendous buying opportunity in August-October 2011 when the S&P 500 stock market made a major bottom in low 1100s.  On the 22nd of September, Bob said he upgraded the market to a buying opportunity with the market being attractive outright for purchase (as opposed to a dollar cost average). Within 10 days, the market had turned around and is now in the 1300s as we speak,

Bob said one of the factors that contributed to the situation in the fall of last year was concern about sovereign debt – even US debt because that is when S&P 500 had downgraded US debt.  All of these things were coming to the forefront.  Bob said he was looking at the technical aspect of the market as well.   Another factor that helped produce the selling in the market was a forecast by a private economic group right around that time predicting that the economy was going into recession. Bob reminded listeners that at the time he said the forecast was incorrect but it created a lot of angst in the stock market because people were selling based on that forecast and it helped create a wonderful buying opportunity.  Sometimes you get the perfect storm and that was a 2011 bottom and we have had a terrific run since that time.  The stock market has moved almost straight up and is now 22% higher since that time frame.

EC:  Bob was referring to the Economic Cycle Research Institute’s recession forecast that was indeed big news at the time.  You may recall the stock market got down within a hair of 20% on a closing basis (Bob’s own bear market definition did not technically get reached in the S&P 500) before rebounding.  Check out this article entitled, “ECRI’s Recession Call gets Even Weaker” at this url: http://tinyurl.com/7jc39fb

Kirk Here:  Bob was right to stay invested last year but in 2008 ECRI made their last recession call and Brinker called ECRI and others who were bearish "Cassandras" while he issued buying opportunity after buying opportunity from the mid 1400s to the 800s as the market collapsed.  See the article ECRI asked me to publish for them on my blog back in March 2008 called ECRI Calls it "A Recession of Choice."  


Caller:  This 86-year old caller and his wife own a bunch of FDIC-insured Certificates of Deposits that mature in three months.   For the last couple of years, their income has been around $60,000, but after the CDs mature, his income will be reduced significantly.  What percentage should we put in the Wellesley Fund?  Bob said the Wellesley Income Fund is mostly an income fund but it has a dividend producing component as well.  Bob said if you view it as a balanced fund, then moving CD money to a Balanced Fund is a totally different deal.  Bob said he likes the Wellesley Fund, he recommends it and it has done very very well.  But it is not the equivalent investment to a risk-free Certificate of Deposit.

EC:  A bit of DavidK trivia for you.  I grew up in Wellesley, Massachusetts until I came to New Orleans for college, law school and a Cajun girl from Thibodaux.  But I digress.  The Vanguard Wellesley Income Fund (VWINX) that Bob now officially recommends is a little different from other balanced funds in that it allocates about one-third to stocks and two-thirds to bonds.  The fund’s stock holdings are focused on companies that have paid a larger-than-average dividend or that have expectations of increasing dividends.  The fund has an expense ratio of 0.31% and currently has a yield of about 2.77%.  Learn more about the fund which is one of the old funds that has lasted through good and bad times at the following url:  http://tinyurl.com/4a3cjf

Kirk Here: I didn't like Brinker's evasive answer to the 86-year old caller.  I believe Brinker put the fund in his "income portfolio" to get higher returns with higher risk so he gets a better ranking.  It is clear to me from the call that the changes he made to his newsletter have confused his subscribers.  The answer should have been CLEARLY EXPLAINED in his newsletter but it was not. In fact, the "income portfolio" only gets mention these days because it made money last year while Brinker's model porfolios one and two lost money in 2011 and model portfolio #3 only made 1%!  I think the "income portfolio" is only there so Brinker has something to brag about after his recommended portfolios do poorly.  I've never liked this "lack of transparency" about Brinker where he acts more like a late night info-mercial rather than "the World's most trusted financial advisor" out to help people.  . 


 A called asked Bob what the "Rule of 72" meant.  Bob said it is a general rule of thumb that tells you how long it will take to double your money based on your rate of return.  For example, if you invest at a compound annual rate of return of 5%, you will double your money in about 14 years.  If you can get 6% return, you will double your money in 12 years.

EC:  The "Rule of 72" is a mathematical short cut to figure out how long it takes to double your money.  First, you take the rate of return you think you can earn consistently.  For example, assume you could get a 10% compound annual rate of return.  Take the number 72 as your numerator, and the rate of return as your denominator.  Do the math, and you get 7.2 which is the number of years it will take you to double your money.  

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.  The Brinkers can's say that about ANY of their "income portfolios" in either of their two 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%

February 3, 2012 MONEYTALK GUEST

Bob didn't have a guest for the third hour.  In fact, Brinker took off to watch the Super Bowl and had taped calls from past shows but didn't announce this!

Bob's guest for the third hour on Jan 22 was Suzanne McGee, author of the book,

Chasing Goldman Sachs: How the Masters of the Universe Melted Wall Street Down...And Why They'll Take Us to the Brink Again

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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."
Top of page

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)

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 Website for more information and annual Performance Data

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