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Tuesday, November 25, 2008

Did Bob Brinker's Timing Model Predict The Bear Market?

This is an excerpt from David Korn’s November 22-23, 2008 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.


Caller: This caller slipped in the question of whether Bob's timing model (Marketimer Long Term Stock Market Timing Model) detect any of this chaos in the market?

Bob said it did not. Bob noted that earlier in October when he commented on it he was forthright in saying so on Moneytalk because he thought it was important to do at the time. After saying that, Bob immediately moved to the next caller.

David Korn: I thought that was kind of an odd response. Not the part about Bob saying that he commented on it in October, but that he thought it was important to be forthright about it at the time. Anyhow, if you are a new subscriber or missed it, on the October 11-12, 2008 weekend, Bob said this is the most difficult market environment he has seen and that "his work did not forecast this bear market decline, and he had no way of forecasting a global banking crises and if he had, that would have been a huge forecast and that would have caused a lot of disbelieve, but he would have made it if he had been convinced it would happen." Incidentally, during the show he also said that that he does not believe in selling into a panic atmosphere.

David Korn #2: With the S&P 500 at 800, Bob has basically done a round-trip. What I mean by that, is that his timing model last turned "favorable" in March 2003, when the S&P 500 was at 810. He stayed fully invested from 2003 to the present, thus his timing model completely failed. One would have thought that he might have made some asset allocation change in the last 5 years to protect some of the gains, but he did not.

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Monday, September 15, 2008

Ginnie Maes Over Fannie Mae and Freddie Mac

Bob Brinker's favorite fixed income investment includes Vanguard's GNMA Fund (Charts of VFIIX).

This is an excerpt from David Korn’s September 13/14, 2008 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.
"Caller: Do you have any predictions on where shares of Fannie Mae/Freddie Mac are going in the next few years? Bob said he did not and has never recommended either Fannie Mae or Freddie Mac on Moneytalk and has instead recommended Ginnie Maes. Bob noted that the GNMA fund that he recommends is trading near 1% of its 52-week high, during which the common shares of Fannie/Freddie have declined over 90%.

David Korn: The common shares of Fannie Mae and Freddie Mac were components of the S&P 500 Index Fund and the Total Stock Market Index Fund, which are funds that Bob Brinker recommends and which most of us own in some part in our portfolios. Standard & Poor's announced last Tuesday that it was removing Fannie Mae and Freddie Mac from the S&P 500 index after the close of trading on Wednesday because the companies no longer meet the $5 billion market capitalization standard needed to be an S&P 500 stock. Big help to us shareholders selling at the bottom. The two companies replacing Fannie and Freddie are and Fastenal Co."
Bob Brinker is comparing apples to oranges when he compares Vanguard's GNMA fund, a fund that buys GNMA bonds guaranteed by the US government, to the common stock of Fannie Mae and Freddie Mac.

From "The Rise and Fall of Fannie Mae and Freddie Mac."
  • Fannie Mae and Freddie Mac were hedge funds that privatized profits and socialized risk...

  • Fannie Mae and Freddie Mac had the closest thing to a license to print money. They legally borrowed money at below-market interest rates based on the perception that the government guaranteed repayment, and then they used the money to buy mortgages that paid market interest rates.

  • Way back in 1996, the Congressional Budget Office reported that Fannie and Freddie were using government support to increase their profits, rather than reducing mortgage rates to make homes more affordable, the reason for their existence.
At the current time, Bob Brinker has no recommendation for Vanguard's GNMA fund, VFIIX, in his recommended "active/passive" portfolio nor his model portfolio's number one or two, but he does have a position in "balanced model portfolio number three." His Active/Passive and model portfolios #1 and #2 have been fully invested in stocks since March 2003, including the current bear market.

Get a FREE SAMPLE of Henry, David and Kirk's newsletter, "The Retirement Advisor" newsletter in pdf:
Long-Term "Retirement Advisor" Model Portfolio Performance
The Retirement Advisor Model Portfolio NameDollar Value
on 8/31/2008

Aggressive Growth and Income Model Portfolio 1
Initial Value of $200,000 on 1/1/2007
Moderate Growth and Income Model Portfolio 2
Initial Value of $200,000 on 1/1/2007
Conservative Capital Preservation Model Portfolio 3
Initial Value of $200,000 on 1/1/2007

DJIA $11,544on 1/1/2007



Webbsite for more info and current Performance Data

Sunday, August 24, 2008

Charlie Maxwell Interview by Bob Brinker - August 2008

This is an excerpt from David Korn’s August 16-17, 2008 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

On Saturday (August 16, 2008), Bob (Brinker) had on one of his favorite guests, Charlie Maxwell, Senior Energy Analyst for Weedon & Co.

Charlie was educated at Princeton and then Oxford. He has been working in the oil industry since the 1950s. In the 1960s he became an analyst on Wall Street and has been rated the #1 energy and oil analyst on many occasions. Bob heaped heavy praise on Charlie as the best of the best in terms of energy analysts and mandatory listening for Moneytalk trekkies. Bob also congratulated Charlie on receiving the M. King Hubbert E3 Ward for Excellence in Energy Education at the 2007 ASPO World Oil Conference. I summarized the interview below.

Maxwell/Brinker: Bob opened the interview asking Charlie his view on what is going on in the energy market. Charlie said what happens next with oil is on everyone's mind. Charlie said he doesn't think we are deeply solving the problem of less oil being produced in the world in the coming years, while demand from foreign countries surges ahead. Many foreign countries subsidize the demand, keeping demand higher than it normally would be. Charlie said he thinks the price of oil will stabilize in the next 1-2 years, and in fact Charlie said he thinks we may see a significant decline in the price of oil down to the $80-90 a barrel range. Charlie said he was looking for oil to come down to those prices and then stay for quite a while around $100 a barrel.

DAVID KORN COMMENT: That would be huge. It also be closer to Charlie's prediction on Moneytalk last year when he forecast that oil would trade in the $50s to the $70s. His forecast that by 2010-2011 oil would trade over a $100 a barrel was obviously way off when oil broke easily through $100 some months back.

Maxwell/Brinker: Bob asked Charlie to comment on people suggesting we convert to wind and solar energy. Charlie said we want to use more solar, but people have to understand that today's solar energy is only about 0.1% of all the energy we use in this country. Even if we could get ten times as much solar, we would only be at 1.0%. Moreover, even if we did a nationwide push for solar energy, the best we might get in the next few years is 3%, and during that time we would have lost more than that in oil alone.

DAVID KORN COMMENT: Charlie's reference to losing more oil during that time is based on his agreement with Dr. Marion King Hubbert, who predicted that the world oil production would reach a peak and then rapidly decline.

Kirk Lindstrom's Comment: For more on what is called "Hubbert's Peak" I recommend the book "Hubbert's Peak: The Impending World Oil Shortage."

In Hubbert's Peak, Deffeyes writes with good humor in easy to understand language about the oil business and a sobering message: the 100-year petroleum era is nearly over. Global oil production will peak and the world's production of crude oil "will fall, never to rise again." If correct and "if nothing is done to reduce the increasing global thirst for oil--energy prices will soar and economies will be plunged into recession as they desperately search for alternatives."

Maxwell/Brinker: Bob asked Charlie to comment on using wind energy to combat the energy crises. Charlie said the first problem is the wind doesn't always blow. Sometimes when you have heavy hot spots, there isn't wind for a long period of time and you have to replace that energy with coal or some other fuel. You would have to build that extra capacity because you never know when you would need it. Plus, it takes a lot of energy to make the infrastructure for wind energy, and there are other problems with it, such as birds that get killed in the propellers. People also don't like the noise they make. And there aren't many places to build them. Even when they do produce electricity, the wind farms are often in areas that they would need to transport the energy produced to where it is needed. Charlie said we are working on superconductor transmission lines, but that is probably 20-30 years away. Charlie pointed out that not everyone agrees with him, and noted that T. Boone Pickins is one of the people pushing wind energy:

DAVID KORN COMMENT: On T. Boone's web site promoting his energy plan, he states that the Department of Energy reports that 20% of America's electricity can come from wind with North Dakota alone having the potential to provide power for more than 25 years. Read about it here:

Maxwell/Brinker: Bob noted that with the price at the pump so high, at some point it is reasonable to assume that price elasticity of demand would take effect. Charlie agreed and noted that when prices initially move higher, people will try to keep their old habits in place. They want to keep their SUVs because they are used to them and they are convenient vehicles. But they weigh about 6,000 pounds and so your gas mileage is not so good. Charlie said he thinks we are moving toward cars that will weight around 2,500 pounds which might produce 60-80 miles per gallon which means the effective cost of transportation would not be going up nearly as much as the price of gas.

DAVID KORN COMMENT: In economics and business studies, the price elasticity of demand (PED) is a measure of the sensitivity of quantity demanded to changes in price. It is measured as elasticity, that is it measures the relationship as the ratio of percentage changes between quantity demanded of a good and changes in its price. Water is a good example of a good that has inelastic characteristics in that people will pay anything for it so it is not elastic. On the other hand, sugar is very elastic because as the price of sugar increases, there are many substitutions for it.

Maxwell/Brinker: Bob asked Charlie to comment on the political movements both pro and con on drilling for oil. Charlie said this has become such a political issue, that some of the facts are lost. Charlie said if we could get more oil through drilling, that would be helpful provided it wasn't too costly in its environmental and economic impact. Charlie said drilling for oil in recent years has proved to be successful with environmental concerns taken care of. Its not a bad idea, particularly in the ANWR area where we have a reasonable chance of finding large supplies. That said, even if we do drill it might not solve the problem. There aren't that many good new areas to drill to make that big a difference. Some additional drilling would be useful, and every bit would help, but it isn't a panacea.

Charlie said there are other ways to spend our money that might bear more fruit, such as developments in clean burning coal since we do have a lot of coal available. Scientists believe we may be able to harness the CO2 and prevent it from going into the atmosphere. Another option is a return to nuclear fuel which does not produce any harmful gasses into the atmosphere.

Nuclear power has been accomplished in Japan and France successfully and China and Russia are moving in that direction. We know from history that the rise of a country's standard of living is proportionate to the availability of fuel and so if we can't continue to meet demand in a cost-efficient manner, we are in trouble. Charlie thinks as a country we are going to have to come back to nuclear power to compete.

DAVID KORN COMMENT: Just this week, France reaffirmed its faith in the future of nuclear power as they are building its first nuclear reactor in 10 years on the Normandy coast. Meanwhile, energy major Tata Power is planning to invest billions into nuclear power in India.

Maxwell/Brinker: How does a coals-to-liquid program play into all of this? Charlie said there was a consortium of governments and big companies to build the first coal-to-liquid plan. The concept is you turn coal to gas, and the gas to liquid. That consortium broke up a few months ago when they found out that the new estimates were triple what they originally projected. So, there isn't any political or economic action toward that move until we can get a trial going to build the first plant. The problem is the first one is going to be costly and might not work well since it is the first one. That said, Charlie thinks that one day this will get done.

DAVID KORN COMMENT: I read an article this weekend that the government gave a $1.4 million grant to the University of Kentucky to step up research on refining coal into liquid fuels and that the University will begin building a $12 million mini-refinery. Read about it here:

Caller: This caller believes that part of the motivation for the invasion of Iraq was for oil. What percentage of Iraq's oil production is online right now? Charlie said the Iraqis were at their maximum production about 7 years before the invasion and at that time were producing about 3.6 million barrels a day. Right now, they are back up to about 2.5 million barrels. They are overcoming terrible odds because their equipment is old and breaks easily. It is amazing that they can get 2.5 million barrels a day, and the potential is that they can easily get up to 6 million barrels a day.

DAVID KORN COMMENT: Time Magazine has an article out this weekend entitled, "Why Iraq is Still Oil Poor" at this url:

Maxwell/Brinker: Many emerging companies are going through economic growth like the U.S. went through from 1920-1980 which will require a lot of oil. Right now, our planet is producing about as much as it can yield. We are replacing older refineries with newer ones, but after 2015 we will be unable to produce enough to meet demand. Every year, the national oil companies must find 5 million barrels a day to equal the losses in depletion of reserves the prior year. The world uses about 86 million barrels a day, and then on top of that there is growth in demand so we need to produce more and more.

DAVID KORN COMMENT: Oil has broken well below its accelerated upward trend of the first half of 2008 and is now currently testing support of an upward trend that began in early 2007. That's what the folks at chartoftheday have to say. See for yourself at the following url:

Caller: Too many people talk about one solution to solve the energy problems. This caller suggested we need an integrated approach with a timetable. Charlie said the problem is so big, we probably need 50-60 smaller solutions. Even nuclear power, which could account for a larger and larger portion of the pie, won't run your cars right now and there is no hope in the near future for nuclear powered cars. The same thing goes for coal unless we convert it into a fuel. It is good for electricity, but not good for cars except for the growing number of electric cars that may come off of coal based plants.

We could get different solutions by higher prices where smart humans start to concentrate on this problem to find solutions. Charlie thinks that is a likely scenario and will work in the late 2020s and 2030s. Right now oil accounts for about 39% of total energy use. But as it moves down to the low 30s, what will we have to replace it? Charlie said that is what worries him about our country in the next 10 years.

DAVID KORN COMMENT: David Strahan has written a book called, "The Last Oil Shock." In that book, he writes, "There are currently 98 oil producing countries in the world, of which 64 are thought to have passed their geologically imposed production peak, and of those 60 are in terminal production decline." Learn more about that book at the hubbert peak web site at this url:

Maxwell/Brinker: Bob asked Charlie to comment on the use of natural gas and how it fits into the equation. Charlie said we are finding out new ways of opening source rocks that we have known about for a long time but could never open. Using new cracking techniques with sand, we are getting lots more gas than we ever suspected we would. This is being led by about 6-8 midsize companies, not the big boys. They are producing a lot of natural gas and all of a sudden the price of natural gas is down from $13 a few months ago to $8 today. Charlie thinks it will settle around $6-$7 and America will have a wonderful run of using it. Charlie said he is sad to see some of natural gas going toward electricity when there are more efficient uses for it. In the end, Charlie thinks it will become a very important fuel as use more compressed natural gas and we modify our cars to use natural gas.

DAVID KORN COMMENT: Last time Charlie was on the show, Bob had asked him to comment on whether hydrogen would ever play an important role in our energy supply. Charlie said he thinks it will in 40- 50 years because hydrogen is the most plentiful element on the planet. Charlie also pointed out that he problem is that Hydrogen bonds so easily and powerfully on a molecular level with other elements that it requires a lot of energy to unbind it and, therefore, getting pure hydrogen is therefore expensive, and it costs money to transport and store. Here is a link to an interesting article addressing hydrogen and peak oil:

Maxwell/Brinker: Bob asked Charlie to comment on the viability of getting fuel through oil shale. Charlie said we have huge reserves of oil shale in places like Colorado but they are extremely expensive to access. Charlie said in the technical sense we have to blow apart the rock, flood it with solvents, then take out the solvents, and then turn it into products. This is very energy intensive. Charlie said we would probably put 70 barrels into a process that might yield us 100 barrels. Thus, there is some modest gains to be seen, but it is not a salvation. On top of the technical problems, Charlie didn't think the environmentalists would allow large areas to be blown up for this purpose.

DAVID KORN COMMENT: Oil shale refers generally to a group of rocks rich enough in organic material to yield petroleum upon distillation. The U.S. Energy Information Administration estimates the world supply of oil shale at 2.6 trillion barrels of recoverable oil. Of that, about 1.2 trillion barrels exist in the United States. If we could just harness that energy in an efficient manner, we would be on to something big.

Maxwell/Brinker: Some say that even if we open drilling for oil off the continental shelf we won't see for another decade. Others say we could have the oil in 2 years. What is your opinion? Charlie said along the Atlantic coast if we started drilling it would probably be 8-10 years before we could get oil from it. In the gulf coast, it would probably be 4-5 years because of the infrastructure and Charlie said he thinks we stand a very high chance of finding additional oil there. Off the coast of Santa Barbara, we could have oil in 3-4 years because we know the oil is there and there are facilities there. How do we know there is oil there? Because we see oil seeping out from under the channel. The total oil you would get, however, does not do too much for the global oil problem, but it would help the situation in the U.S.

DAVID KORN COMMENT: The Wall Street Journal published an article last week that was an eye opener to me. The article cites a study by University of California estimating that natural seepage in the Santa Barbara Channel amounts to about 10,000 gallons of oil and 3.5 million cubic feet of natural gas per day! That means about every three years there is the equivalent of a natural Exxon Valdez spill. The article is entitled, "Most Oil in Santa Barbara Channel is Natural Seepage" and can be read at this url:

Maxwell/Brinker: What about drilling in ANWR? Charlie said right now we are getting 1 million barrels a day pumped through a 2 million/day capacity pipeline that once was full. The beauty of ANWR is we already have the existing facilities that are not full. It would help strengthen the dollar, help reduce our imports, and help reduce our reliance on foreign countries.

DAVID KORN COMMENT: I always enjoy it when Charlie Maxwell is on the show. He is a real class act. Charles Maxwell's bio is at this link:

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Friday, August 8, 2008

Brinker Fixed Income Advisor Newsletter

We think "The Retirement Advisor Newsletter," edited by Henry To, Kirk Lindstrom and David Korn, is a good alternative to the "Brinker Fixed Income Advisor Newsletter" that is edited by the son and daughter-in-law of ABC Radio's Bob Brinker.

FREE issues of The Retirement Advisor newsletter in pdf:
Long-Term "Retirement Advisor" Model Portfolio Performance
The Retirement Advisor Model Portfolio NameDollar Value
on 8/31/2008

Aggressive Growth and Income Model Portfolio 1
Initial Value of $200,000 on 1/1/2007
Moderate Growth and Income Model Portfolio 2
Initial Value of $200,000 on 1/1/2007
Conservative Capital Preservation Model Portfolio 3
Initial Value of $200,000 on 1/1/2007

DJIA $11,544on 1/1/2007



Webbsite for more info and current Performance Data


Tuesday, August 5, 2008

David Korn Summarizes Bill Wattenburg Moneytalk Interview

In his August 2-3 Newsletter, David Korn wrote the following
summary of Bob Brinker's Moneytalk guest speaker,
Dr Bill Wattenburg:

Dr. Bill: The main topic that Bob and Dr. Bill discussed was

In response to Bob addressing the failure of Congress to
address the energy problem, Dr. Bill said Congress has
lost touch with reality. Nancy Pelosi let the cat out
of the bag this week when she was asked in an interview
why she wouldn't allow the American public to not have
access to its own resources. Her response was that she
was there to save the planet. Bob said the Senate
majority leader was asked the same thing and he said that
they need to go on vacation. Dr. Bill said he knows
Harry Reed and thinks he will have trouble in his own
district if this continues.

Dr. Bill: Dr. Bill said he was listening to callers talk
about natural gas and thinks there is some misinformation
being spread by some of the environmental groups who don't
want to use any energy source except wind and solar.
The truth is that if we start using natural gas, or any of
our resources more, the price of oil will come down.
Saudi Arabia has three times as much oil to pump as they
are using right now as do other countries. Dr. Bill noted
that in the last few weeks, President Bush said he would lift
the ban on offshore drilling and the price of oil has fallen
$20 since then. If people in this country would stand up and
say we are going to use our own resources and agreed to power
just 10% of our cars with natural gas, the price of oil
would plummet.

Brinker/Dr. Bill: Bob asked Dr. Bill to comment on a caller
to the show who said he was using solar power cells and
plugging his car in at night. Bob told the caller that
since he was plugging his electric car into a coal-fired plant,
he wasn't helping that much. Dr. Bill said it doesn't pan
out. You must generate the electricity today in filthy
fossil fuel plants if you are going to charge batteries.
Moreover, if you had just 5% of the cars in this country
that were electric that had to be charged by our power
plants, you would have black-outs all over the country.
There is an enormous amount of energy that needs to power cars.

Dr. Bill: The dreams of having electric cars or plug in
hybrids making a big dent only makes sense if we have an
enormous amount of clean and inexpensive nuclear power
not polluting. Otherwise, we will increase global warming
by 10-times the amount through the use of getting the charge
via coal-burning plants. As far as why natural gas prices
are so high, it is because so much of it is being wasted in
power plants that should be non-polluting nuclear plants.
We have more natural gas in Alaska pumped back down in the
ground than we use in the other 49 states because we
aren't using it.

Brinker/Dr. Bill: Bob noted that we produce 70% of
domestic oil production out of the North Slope of Alaska.
We have the ANWR resource to the East or Prudhoe Bay.
It could potentially produce 1 million barrels of oil a
day for a long period of time. What's the deal?
Dr. Bill said on his web page he has posted pictures of
the ANWR plane which is really a baron area that is no
more precious than areas where we are asking other countries to
drill in. The Sierra club, who opposed the Alaskan pipeline,
are against drilling in ANWR and are willing to spend lots
of money and file lots of lawsuits to stop it. There game
is to create hysteria to get people to pay dues. They have
opposed everything. They oppose nuclear everywhere. They can
never admit a mistake. Nancy Pelosi and Barbara Boxer have been
political shills for them.

Bob/Dr. Bill: Bob noted that in France, they get the bulk
of their power from nuclear energy, which must drive the
Sierra Club nuts. The obstructionists don't want you to
hear about this. Dr. Bill pointed out that France uses a
standard design for their plants -- one they took from
the United States. So do the Chinese. Dr. Bill said if
we start building nuclear power plants right now it will
be 8-10 years before they even are operational. Today,
most of us drive to work and will continue to drive to
work using gasoline for the near future. Dr. Bill said
Patrick Moore, the co-founder of Greenpeace, has been a
voice of reason for using clean nuclear energy.

Bob/Dr. Bill: T. Boone Pickens is talking about using
wind power to create 20% of our power. Bob noted that
wind and solar power provides less than 3% of worldwide
energy. Dr. Bill said they are trying very hard in other
countries to develop wind power and they are finding it
causes enormous disruptions when the wind doesn't blow
hard enough. The British just concluded they can't
rely on it more than 5-7%.

EC: On a previous show, a caller said that Dr. Bill
didn't mention the importance of solar power in three ways.
First, it is an unlimited source of energy. Second, it is
economic power because you are not renting your energy from
a company and third, it is decentralizing politically
because it is available to everyone. The caller referenced
a book by Travis Bradford called, "The Solar Revolution"
which suggests that the cost of solar power will go down
40% in the next 3-4 years and be the cheapest way to power
your home and business. Dr. Bill said he uses it and
knows what it cost. The reason you don't see solar power
everywhere is because it is not feasible on a large scale.

Dr. Bill: Dr. Bill said one of the Democrats top
advisors told Dr. Bill who said they did polls in which
they believe only 30% blame the Democrats for the energy
problems - the other 70% blame Bush. Dr. Bill said if the
Republicans are smart, they will come up with a national
educational campaign to let the public know that 19 times
the House has voted to open offshore drilling in ANWR and
was killed in the Senate by Democratic filibusters and
the one time it passed, it was vetoed by President Clinton.
If the Democrats get their agenda passed, we will see
$10 a barrel for gasoline and be way behind the curve.

Caller: This caller noted that today we have computers
that can shut down a nuclear plant that make them much
more safe than the days of Three Mile Island and Chernobyl.
Bob said a lot of people got hung up after Three Mile Island
and we haven't built a nuclear facility since then. Dr. Bill
said the problems at Three Mile Island and Chernobyl were
both the result of stupid operators. It was the equivalent
of airline pilots deliberately flying planes into a mountainside.
If a pilot did that, we wouldn't stop everyone from flying planes.
The new nuclear plant designs used around the world do not allow
the operators to override the safety features. As far as
Chernobyl is concerned, Dr. Bill said that was a badly designed
nuclear plant to begin with and we shut down our reactors of
that design right after World War II. In addition, it was
ignorant operators that caused the problems there. Dr. Bill
said France has really come to the forefront on safety by
having common design, common training, no possibility for
operators to shut down safety features. The main thing today
is the improvements in safety controls. Nuclear plans shut
down first, and questions are asked later. That said, there
is nothing that is completely safe and cheap. It cost a lot
to build a safe plant. We have 104 nuclear plants operating
safely, and France has another 80.

Brinker/Dr. Bill: What about nuclear waste? Dr. Bill said
ask any politician what they know about nuclear waste, and
you will find out they know practically nothing. Nuclear
waste is actually a valuable resource. The spent fuel rods
are 96% pure uranium plus a little plutonium has been
generated which is good fuel for the plant. There are some
poisons, and if you recycle them and reprocess like the
French and Japanese are doing, you have a very small amount
to store away. After 60-80 years, the bad stuff disappears
and the rest is valuable and reusable. The anti-nuclear
crowd invented the idea of nuclear waste by saying you can't
do anything with the fuel rods and can't bury them.
Dr. Bill pointed out that if you took the amount of
nuclear energy that a family of four uses over a 20-year
period, the equivalent amount of nuclear waste that it
would produce would fit in a shoebox. If you reprocess
the fuel rods, the only waste fits into a shot glass.
That is what the France is doing. If we reprocess the rods,
its less than the radioactive stuff coming out of hospitals
each year.

Caller: A caller asked Dr. Bill when the last time a
nuclear reactor was built without a containment building.
Dr. Bill said the last time was Chernobyl. Today in the
United States, Dr. Bill said no nuclear reactors are
operating without a containment facility. There were
some after World War II but they were shut down immediately.
The caller told Dr. Bill that he was spreading
misinformation and pointed out that in 1977, he put a
containment building up. Dr. Bill asked the relevance
of that, since this is 30 years later. The caller said
he was simply trying to make the point that Dr. Bill
was not being forthcoming. Dr. Bill told the caller he
was wasting everyone's time because today there are
no nuclear plants in the U.S. that operate without a
containment facility.

Caller: This caller said he was in favor of nuclear
power until he read a report by Dr. Templin and Gofman's.
Dr. Bill said he is very familiar with those individuals,
and was within the same University system as Dr. Gofman
who he knew well.

EC: John William Gofman was Chairman of the Committee
for Nuclear Responsibility. The report the caller was
referring to is entitled, "Poisoned Power: The case
Against Nuclear Power Plants Before and After
Three Mile Island."

Caller continued: Dr. Bill said he disagrees with
Gofman's views and asked why they didn't point out
the dangers of coal burning plants which produce
25,000 tons of uranium and thorium each year. Gofman
told people the world was going to hell because of
nuclear plants which produce 1 or 2 tons. The caller
said his findings about nuclear power were negative
and he was a full professor. Dr. Bill said his
opinions were, but that doesn't mean anything.
Dr. Bill pointed out that there is another full
professor on the University of California faculty
that preaches that HIV/AIDS is not caused by a virus,
but by people's bad habits and drug addiction. So
much for what a full professorship means said Dr. Bill!
And he got more press in scientific journals than
Gofman got. The caller said with nuclear it is a very
long term contamination. Dr. Bill said that is a lie.
The French do not have to store even the small amount
of toxic materials for more than 60-80 years. The half
life of strontium and cesium is 30-40 years. Gofman
refused to recognize this fact.

Caller: This caller is in New Mexico and he says
they are primed for geo-thermal energy and nobody
talks about it. Dr. Bill said producing geo-thermal
energy is not cheap. You can't just get energy off of
hot rocks. There are not as many as you think. That
said, Dr. Bill said he believes you should develop all
sources of alternative energies and if you have someone
willing to put money into it, then by all means.

EC: Geothermal energy is heat from the earth.
Resources of geothermal energy range from the shallow
ground to hot water and hot rock found a few miles
below the earth's surface and down deeper to molten rock.
Did you know that the U.S. Department of Energy has a
"Geothermal Technologies Program." If you did,
you know more about it than me. I read about it
for the first time today......."

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

Posted with permission by Honeybee, editor of "Honey's Bob Brinker Beehive Buzz." For info about David's newsletter, see links on this page

Thursday, July 10, 2008

Bob Brinker's Market Timing Model Fails To Predict The Bear Market

David Korn just reported:

Bob Brinker's long term stock market timing model, unfortunately, has failed. According to Bob's own definition, the model (as revised after it failed in the late 1980s) was designed to help avoid a decline of 20% on a closing basis in the S&P 500. Will it be revised again?


In an article published yesterday in Barron's Online, Mark Hulbert wrote of Bob Brinker:

Bob Brinker's Marketimer: Bullish. In his most recent issue, which was published in early July, Editor Bob Brinker reported that his stock-market timing model remains in favorable territory. However, he cautioned that oil's price constitutes a "wild card."

  • "In the event oil prices continue to rise, consumers and the stock market will be held hostage to the cost of energy. This would provide a strong headwind against the economic recovery process. If oil prices stabilize or decline from current levels, we believe stock prices can make progress into 2009."

Brinker is recommending that subscribers' stock portfolios be fully invested.

Friday, July 4, 2008

Bob Brinker Comments on Oil Prices

Bob Brinker opened the weekend (Saturday June 28, 2008) reminding listeners that he has been talking about the importance of oil prices and energy on today's economy. There is a direct correlation between rising oil prices and the economy as well as the stock market and we saw evidence of that this week as the S&P 500 closed Friday at 1278.
This commentary on Oil is an excerpt from David Korn’s June 28-29 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.
David Korn: You may recall that on January 22, 2008, the S&P 500 closed at 1310, and then reached a new low on March 10, 2008. During that time frame, and the months that followed, Bob recommended using periods of weakness in the market to buy stocks specifically when the S&P 500 was trading in the low 1300s, or any weakness below that level. Bob specifically recommended against selling any stocks at that time and, in fact, Bob said he was adding to his own positions during that time frame. With the S&P 500 now trading at 1278, Bob would seemingly be screaming "buy" again, but he didn't mention one word about that this weekend.

Brinker Comment: Oil prices spiked to a historic record high on Thursday and Friday, a little above $140 a barrel. Why is the price of oil so important? Because it has a direct impact on consumer spending and that accounts for the vast majority of the gross domestic product in the United States. Consumer spending is the engine that drives our economy. Consumers have a perception about oil prices through things like gasoline prices more so than other changes in their cost structure. For example, if your rent goes up, you will be reminded once a month that your rent went up and you have to budget for that. However, with gasoline prices you are reminded once or twice a week of how much money you have to fork over at the pump. But every time you drive down the street you see the price of gas posted and that increases the consumer's consciousness of the increased cost to drive your car. In addition to that, consumers are seeing their energy bills going up. The daily reminder of gasoline prices is really the kicker.
Kirk Lindstrom Comment: Brinker seems to be downplaying that inflation is much higher than he thought it would be when he told his listeners:
"We have always maintained that rising oil prices act as a tax on consumers, and are therefore counter-inflationary as they have a negative impact on consumer discretionary spending power."
[From March Inflation Up on Higher Energy and Food Costs]
This graph from the St. Louis Fed showing the year over year percent change in the unadjusted CPI data shows inflation is anything but low on an historical basis.

[Click graphs to see larger images]

Why is oil $140 a barrel? In Washington, they spent the week blaming the speculators for the price of oil. Bob said this type of blame is flawed. There is no evidence that the speculators are a material factor in the price of oil. Bob said at best, the speculators might cause a tiny premium in the price, but even that is not a given. Moreover, there is no way to know how much of an impact, if any, speculators are having on the price of oil.

Bob said in his opinion, any role that the speculators may have in the price of oil would be very small. There are trillions of dollars flowing through the futures markets on a daily basis and, therefore, it would be very hard for speculators to have a significant and lasting impact on the price. This is especially true of a commodity such as oil which is produced and consumed in the neighborhood of 80 million barrels a day. That is 560 million barrels of oil per week and over 2.2 billion per month, every month. To do anything in that kind of marketplace with that kind of volume would not be easy to do. For the most part, the blame on speculators is a paper tiger and simply a tactic to divert the attention of the voters. A few callers over the weekend took the side that speculators are driving up the price of oil, but Bob dismissed them saying there was no proof of that.
Kirk Lindstrom Comment: A Futures Contract is a standardized, transferable, exchange-traded contract that requires delivery of a commodity, bond, currency, or stock index, at a specified price, on a specified future date. Hedgers often trade futures for the purpose of keeping price risk in check. (See futures contract)
So what is causing the increase in oil if it is not the speculators? It isn't the increase in demand. We have seen a lot of growth in demand in China and India, but demand in the U.S. is about the same as last year. We have actually seen a decline in the miles driven by U.S. consumers in the first few months of this year. That's not surprising given how much money you have to put in the gas tank to fill up your cars.

There are no shortages of gasoline like there was in 1974 when Saudi Arabia announced their boycott of shipments of oil to the U.S. We don't have price controls and we don't have windfall profit taxes or boycotts, which is why we don't have shortages. The gasoline is there if you are willing and able to pay for it.
Kirk Lindstrom Comment: I don't think Bob Brinker or David Korn answered the question "what is causing the increase in oil if it is not the speculators?" The truth is not everyone who buys a futures contract is a "evil speculator." A company like FedEx (FDX) may know they can make money in September 2008 with oil at $140 but not at $175 so they buy futures contracts for oil at prices that allow them to plan their business. If the oil sellers think oil is going to be higher, then they may ask more for the contract than the present price of oil. In short oil is going up in price because people think oil will be more expensive in the future. The price of oil thus goes up and up in a "speculative bubble" similar to a wage-price inflation spiral. To pop this speculative bubble, something has to be done to make people think prices will be lower in the future. Some ideas are
  • Drill for oil where we know there is oil, such as ANWR and off the coast of the US
  • Announce a "Manhattan Project" to develop alternative energy sources such as converting algae to fuel.

  • Convert a large part of our auto fleet to PEV (Plug-in Electric Vehicle) that charge overnight using electricity generated in new nuclear power plants.
The higher price of oil is really hurting certain industries that rely on petroleum products. The automobile industry comes to mind. Look at Detroit which is stuck with gas guzzling products and they are getting creamed.

David Korn: General Motors stock hit a 53-year low on Friday. Yup, you read that right. Shares closed Friday at $11.43 following a downgrade by powerhouse Goldman Sachs. GM is now down 70% from its level one year ago, and dropped by 13.3% in just the last two trading days. Even at $11.43, I wouldn't touch this stock right now. When you see this kind of dramatic decline, the bankruptcy wolves start licking their chops.

David Korn #2: There is also collateral damage in other companies, such as auto-part suppliers. American Axle & Manufacturing Holdings, one of GM's largest suppliers of parts for light trucks, declined 14.7% on Friday. I don't know about you, but when it cost me $65 to fill up my car on the way to Yosemite this weekend, I was fantasizing about a Prius, or other hybrid.

Brinker Comment: The airline industry is getting hammered as well. Another 100 cities are expected to lose airline service this year according to news reports out this weekend. The higher price of oil is impacting companies in this industry in a big way.

David Korn: American Airlines and its regional affiliate American Eagle are cutting 42 flights to LaGuardia alone. Although it might mean less congestion, it also means less supply and perhaps higher prices. Not to mention, the airlines are starting to nickel and dime you on your baggage now, charging higher fees for luggage every which way. There is now talk in Washington of having Congress suspend federal taxes and fees on airline tickets until March 2009 if oil remains above $100. Check out BusinessWeek's article entitled, "If We Help Save the Airlines (Again)" at this url:
Brinker Comment: The U.S. is a service-based economy which is a good thing because a manufacturing-based economy is much more vulnerable to higher oil prices. That said, the U.S. has a transportation system that is almost entirely petroleum based. The amount of non-petroleum based vehicles is simply a drop in the bucket.

Caller: What's your take on the impact of the weak dollar and the price of oil? Bob said they are linked as we pay for oil in dollars. If our dollar loses value in the international market place, which it has, then oil is more expensive for us. Our country has a strange policy relative to the dollar. Our policy is to always say that we "favor a strong dollar." That has been a mantra repeated by the Treasury Department, regardless of who has been in office. The U.S., however, has done nothing to support that philosophy of a strong dollar. We live in a country where spending is through the roof and there is no end in sight to our deficits. If there was one thing that would impress global currency investors, it would be if we operated with a balanced budget mandate. That would probably do more for the U.S. dollar than anything.

Brinker Comment: Bob said he thinks the price of oil is really responding to the geopolitical concerns. The supply/demand cushion is gone, and yes demand has increased, but the kind of increases you have seen this year must be attributed to the psychology of investors who are worried over what will happen with supply. This weekend, for example, Iran has threatened to impose control of the Persian Gulf and Strait of Hormuz if they are attacked. Nobody knows how this will play out and the uncertainty is causing consternation in the markets.

David Korn: Here is a link to an article entitled, "What's Really Fueling Those Sky-High Oil Prices:

Get a FREE SAMPLE ( January 2008 Issue ) of Henry, David and Kirk's newsletter, "The Retirement Advisor."

Portfolio Performance
Long-Term "Retirement Advisor" Model Portfolio Performance
The Retirement Advisor Model Portfolio Name Dollar Value
on 6/30/2008
Bob-Brinker Portfolios
Aggressive Growth and Income Model Portfolio 1
Initial Value of $200,000 on 1/1/2007
$210,317 5.2% P1: -7.4%
Moderate Growth and Income Model Portfolio 2
Initial Value of $200,000 on 1/1/2007
$213,843 6.9% P2: -2.4%
Conservative Capital Preservation Model Portfolio 3
Initial Value of $200,000 on 1/1/2007
$221,274 10.6% P3: 1.6%

To read the table, The Retirement Advisor Model Portfolio #1 is up 5.2% since January 2007, 18 months ago, while Bob Brinker's Model Portfolio #1 is down 7.4% over the same 18 month period..

In fairness, Brinker's P3 should be compared to our P1 since both are "balanced" with 50% in equities and 50% in fixed income.

Through 6/30/08: Bob Brinker YTD Results:

P1 down 11.8%,
P2 down 10.5%
P3 down 5.8%
VTSMX down 10.91%

See "The Retirement Advisor" Model Portfolio Performance through 6/30/08 for more information.

This above commentary on Oil is an excerpt from David Korn’s June 28-29 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

Thursday, May 8, 2008

Bob Brinker on Portfolio Withdrawal Rate and the Dollar

This is an excerpt from David Korn’s May 3-4 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.


Caller: A caller wanted Bob's advice on what her rate of withdrawal should be in retirement. Bob said he favors using a 4% withdrawal rate from your portfolio during retirement. That is a conservative number which should allow you to make annual withdrawals but keep your portfolio in tact. For someone a little more aggressive, Bob said you could go up to 5%, but recognize that depending on the economy and stock market, you may lose purchasing power of your portfolio over time. Bob said he wouldn't go above 5% for a withdrawal rate.

Kirk's Comment: See What Is A Safe Withdrawal Rate in Retirement?

Caller: Our dollar has been getting killed. What can we do to improve its status around the world? Bob said one thing that would help the most would be if we had a bona fide energy policy which did not put us at the mercy of relying on oil production around the world. Throughout the weekend, Bob discussed the need for a more comprehensive plan for reducing our reliance on foreign oil and suggested our government needed serious action, something in the nature of the Manhatten project, but one for energy.

Brinker Comment: Another thing that would help the dollar would be fiscal responsibility and a balanced budget. If we had that, we would not need to sell our Treasuries to foreign governments. Those two things would be huge in providing positive momentum for the dollar. The last 15 years, under both Bush and Clinton, have been a disaster in terms of energy policy. Fiscal policy has been a disaster as well. Even with a Republican Congress and Republican President, the spending went unchecked and Bob said the new Democratic-controlled Congress doesn't seem to be any better.

Later in the broadcast, Bob said he has not seen anything from any of the Presidential candidates that would suggest they have a program to reduce the national debt. In terms of at least getting a balanced budget, Bob doesn't see that happening either as none of the Presidential candidates have offered any kind of plan to get there. Obama and Clinton have proposed many new programs, not the least of which is health care for everyone which under Clinton will cost $110 billion and which many think will be much higher.

DAVID KORN: The dollar is near a two-month high against a basket of major currencies, but still has been getting hammered over the longer term. Just try to go travel in Europe and you will how painful it is when you exchange your dollars for euros.

Get a FREE SAMPLE ( January 2008 Issue ) of Henry, David and Kirk's newsletter, "The Retirement Advisor."


  • Our strategy paid off in handsomely this year. Our Aggressive Growth and Income Model Portfolio 1 produced an annual return of 9.52% for 2007. This portfolio handily beat the S&P 500 by almost double, despite only having 50% of the portfolio invested in equities.
  • Our Moderate Growth and Income Model Portfolio 2 produced an annual return of 8.58% for 2007. This portfolio also handily beat the S&P 500, despite only having 29% of the portfolio invested in equities.
  • Our Conservative Capital Preservation Model Portfolio 3 produced an annual return of 8.32% for 2007. Like our other two portfolios, this portfolio also handily beat the S&P 500, despite having no investments in stocks.
See "The Retirement Advisor" Model Portfolio Performance through 3/31/08 for more information.

Wednesday, May 7, 2008

Bob Brinker on New iBond Rates

See I Bond Rates (iBonds) for current rates.

This is an excerpt from David Korn’s May 3-4 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

Caller: This Caller wanted to know if Bob would recommend purchasing I-Bonds at this juncture given that the rate was reset on May 1st.

Bob said when they reset the rate on May 1st, they decided that the fixed rate, which lasts the life of the bond, will be ZERO. Yup, nada, zippo, zero. The inflation component will be at an annualized 4.84% over the next six months. Bob said he would not buy them now because he doesn't want to get stuck with a 0% fixed rate for the life of the bond.

DAVID KORN: I agree. Unless you think inflation is about to get out of control, I wouldn't go for the I-Bonds right now. The Series EE bonds, which pay a fixed rate, also got a haircut this week. EE bonds now pay just 1.4% a year down from 3.0% on bonds bought in the last six months. Our government seems to be trying to push some people out of savings bonds and into regular Treasuries.

Kirk Comment: We've done very, very well with TIPS in "The Retirement Advisor" model portfolios and we continue to like those at the current base rates. We update this each month. Here is an excerpt from our May 2008 Newsletter (Volume 2, Issue 5):
  • 5, 10, 20 and 30-year TIPS currently pay a higher fixed (base) rate than I bonds so their total interest payments will be higher for any inflation adjustment. The base rate or “coupon” is set at the time of purchase but it changes with market demand just like Treasury bills, notes and bonds that have net asset value fluctuation. The principal amount is adjusted for inflation and paid at maturity. If there is deflation, then you get your original investment back For full details, see
  • The base rates for TIPS continue their recovery. All TIPS have significantly higher base rates now than I-Bonds. The “flight to quality” by fixed income investors seeking safe returns and fears of inflation after the FOMC cut rates has continued to benefit our TIPs fund, VIPSX, which was up 11.6% in 2007 and is up 3.1% YTD for 2008.
  • We do not recommend the 30-yr TIPS and no auctions for them are scheduled.

Get a FREE SAMPLE (January 2008 Issue) of our NEW newsletter, "The Retirement Advisor."


  • Our strategy paid off in handsomely this year. Our Aggressive Growth and Income Model Portfolio 1 produced an annual return of 9.52% for 2007. This portfolio handily beat the S&P 500 by almost double, despite only having 50% of the portfolio invested in equities.
  • Our Moderate Growth and Income Model Portfolio 2 produced an annual return of 8.58% for 2007. This portfolio also handily beat the S&P 500, despite only having 29% of the portfolio invested in equities.
  • Our Conservative Capital Preservation Model Portfolio 3 produced an annual return of 8.32% for 2007. Like our other two portfolios, this portfolio also handily beat the S&P 500, despite having no investments in stocks.
See "The Retirement Advisor" Model Portfolio Performance through 3/31/08 for more information.

==> Very Best CD Rate with FDIC <==

Tuesday, May 6, 2008

Bob Brinker on Warren Buffett

This is an excerpt from David Korn’s May 3-4 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.


Brinker Comment: Warren Buffett's company, Berkshire Hathaway, is holding is annual shareholders meeting. Buffett told his shareholders that the Fed did the right thing by stepping in for Bear Stearns because "just imagine the thousands of counterparties around the world having to undo contracts." Buffett said that the big investment banks are almost too big to manage their risk and you need someone whose "DNA is very, very much programmed against risk." Bob said he agreed totally with Buffett and the reality is that many of the big Wall Street firms don't have managers that are capable of handling risk and the recent write-downs of billions show just how much incompetence there is.

DAVID KORN: Buffett has also previously stated that he thinks we are in a recession and it won't be a short or swift one. At the annual meeting this weekend, Buffett said there will be a "lot of pain to come" for mortgage holders but that he does think that the worst of the global credit crunch is over.

EC: For more on Warren Buffett and his market views see the May 5, 2008 article

Get a FREE SAMPLE (January 2008 Issue) of David's NEW newsletter, "The Retirement Advisor."


  • Our strategy paid off in handsomely this year. Our Aggressive Growth and Income Model Portfolio 1 produced an annual return of 9.52% for 2007. This portfolio handily beat the S&P 500 by almost double, despite only having 50% of the portfolio invested in equities.
  • Our Moderate Growth and Income Model Portfolio 2 produced an annual return of 8.58% for 2007. This portfolio also handily beat the S&P 500, despite only having 29% of the portfolio invested in equities.
  • Our Conservative Capital Preservation Model Portfolio 3 produced an annual return of 8.32% for 2007. Like our other two portfolios, this portfolio also handily beat the S&P 500, despite having no investments in stocks.
See "The Retirement Advisor" Model Portfolio Performance through 3/31/08 for more information.

Monday, May 5, 2008

Richard Russell says Secular Bull Market Continues

Richard Russell says Secular Bull Market Continues

This is an excerpt from David Korn’s May 3-4 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

Richard Russell, one of the most widely followed and perhaps the oldest newsletter writer and proponent of Dow Theory, has just published an article in Barron's magazine that is worth commenting on. In the article, Russell takes the position that the secular bull market that began in the 1980s is still in tact. He basis his reasoning on a few things. First, is the 50% Principle which can be traced back to Charles Dow (the originator of Dow Theory) and George Schaefer (one of the later Dow Theory interpreters) which says that the primary trend of the market remains intact and bullish if the Dow doesn't fall below a 50% retracement during the course of the pull back. Russell points out that the Dow reached a low of 759.13 in 1980, to a high of 11,722.98 in 2000. In its bear market low of October 9, 2002, the Dow managed to stay above the 50% retrenchment level. This positive technical development was confirmed in the most recent correction. Russell also points out that Dow Theory as applied this year (the action of the Dow transports and Dow industrials) further bolsters the view that the primary trend is bullish. And finally, Russell points out that short interest on the NYSE has reached a record 15.2 billion shares which will ultimately need to be covered. Russell concludes with his forecast that the U.S. economy will improve and the bull market will end with a surge of stocks surprising everyone along the way. You can read Richard Russell's article entitled, "A Rally With Serious Muscle" at this url:

One of the reasons for bringing up Russell in today's newsletter, is because I am of the opinion that Russell's view on the secular trend is one of the reasons that Bob Brinker changed his view that we were in a secular bear market. You may recall that last year, Bob abandoned his long held view that we were in a secular bear market and retroactively declared the end of it to 2006.
The implication that we are in a secular bull market is important because if you follow that belief than you should be expecting record all time new highs in the major indices BEFORE ANY BEAR MARKET ARRIVES. That would mean significant gains, even from these levels. Indeed, a record new high in the S&P 500 would mean a close above 1565.15 and a record high in the Dow would mean a close above 14,164.53. Those gains won't come quickly, or easily if history is a guide. The market doesn't move in a straight line as we all well know. But I thought you would find this information interesting as it certainly jives with the outlook of the market timer, Bob Brinker, whom many of you follow.

Get a FREE SAMPLE (January 2008 Issue) of David's NEW newsletter, "The Retirement Advisor."


  • Our strategy paid off in handsomely this year. Our Aggressive Growth and Income Model Portfolio 1 produced an annual return of 9.52% for 2007. This portfolio handily beat the S&P 500 by almost double, despite only having 50% of the portfolio invested in equities.
  • Our Moderate Growth and Income Model Portfolio 2 produced an annual return of 8.58% for 2007. This portfolio also handily beat the S&P 500, despite only having 29% of the portfolio invested in equities.
  • Our Conservative Capital Preservation Model Portfolio 3 produced an annual return of 8.32% for 2007. Like our other two portfolios, this portfolio also handily beat the S&P 500, despite having no investments in stocks.
See "The Retirement Advisor" Model Portfolio Performance through 3/31/08 for more information.

Sunday, May 4, 2008

Bob Brinker Stock Market Outlook for 2008

This is an excerpt from David Korn’s May 3-4 weekly newsletter (Click for a FREE SAMPLE) that comments on Bob Brinker’s Money Talk.

Bob Brinker’s Stock Market Outlook

Caller: Given the problems with the huge national debt and foreign countries not wanting to purchase our stock, where do you think the stock market is going forward?

Bob said the stock market is not dependent on foreign purchases which are a negligible factor for stock prices. What's important for the U.S. stock market is corporate earnings and the U.S. economy going forward. People looking in the past and don't know why the market is going up. They don't understand why the S&P 500 is already above 1400 and the Dow above 13,000. The stock market is looking into an economic recovery later this year, and it is looking at rising corporate earnings going into 2009. That is what smart investors are looking at.

David Korn: Bob's response to this call shows his bullish outlook for stocks. The next caller is even more evidence of Bob's confidence of that view.

Caller: This 59-year old caller has a portfolio of over $800,000, and has adopted a very aggressive position in terms of her asset allocation with 99% in stocks. She practically apologized to Bob for taking that kind of risk.

Bob said she did not need to apologize for being a fully invested position because he thinks the people in cash look more foolish every day. The caller said she has only lost 4% this year to which Bob said when you look at the gains over the last 20 years, 4% is nothing. The caller said she agrees with Bob that the stock market is going to be positive going forward this year. They then had a virtual hug (as I imagined it anyhow).

The caller said she wanted to switch from the retirement plan she was with over to Vanguard.

Bob said to find out how long it takes to get the money transferred. Ideally, it could be done in one day, but if you find out it takes many weeks, the market could be at a different level by then and that is potentially a situation you won't like.

David Korn: The fact that Bob didn't even balk at the fact that this caller was pretty much 100% invested in stocks, even at her age, shows just how strong he feels that the stock market is moving higher. Bob's comments about getting the money transferred over to another fund also shows that he thinks the potential exists for the market to continue its rise even in the coming weeks. Of course, Bob isn't always right about the short term (or long term for that matter), so if the market corrects again a delay in the transfer could actually be beneficial. We have had quite a few summer-time "corrections" in recent years, so it certainly is not out of the range of possibilities. I think a lot depends on how fast and furious this rally is.

Get a FREE SAMPLE ( January 2008 Issue ) of Henry, David and Kirk's newsletter, "The Retirement Advisor."


  • Our strategy paid off in handsomely this year. Our Aggressive Growth and Income Model Portfolio 1 produced an annual return of 9.52% for 2007. This portfolio handily beat the S&P 500 by almost double, despite only having 50% of the portfolio invested in equities.
  • Our Moderate Growth and Income Model Portfolio 2 produced an annual return of 8.58% for 2007. This portfolio also handily beat the S&P 500, despite only having 29% of the portfolio invested in equities.
  • Our Conservative Capital Preservation Model Portfolio 3 produced an annual return of 8.32% for 2007. Like our other two portfolios, this portfolio also handily beat the S&P 500, despite having no investments in stocks.
See "The Retirement Advisor" Model Portfolio Performance through 3/31/08 for more information.

Tuesday, March 4, 2008

Larry Swedroe Interview By Bob Brinker on March 1, 2008

Bob Brinker had Larry Swedroe as a guest on Moneytalk's Saturday broadcast. Larry is a prolific author of investing books and his most recent one is called, "Wise Investing Made Simple." You can find out about his book here:

Brinker/Swedroe: Bob began the interview by noting that this is an election year and one of the ways to get elected is to bash the economy and say things have never been worse. Larry agreed and said it is very difficult for people to deal with the emotions of bear markets and people tend to panic and sell and end up with lousy returns. Larry said one of his favorite sayings is that bear markets are the mechanism by which money is transferred from those with weak stomachs and no plan to those with strong stomachs and well thought out plans. We have all this bad news, but if you look back to 2003, if you had a crystal ball everyone would have been shorting stocks. At that time, we had the SARS virus, the Iraq invasion, mutual fund scandals, global deflation threat, etc., and yet stocks had a great year with many asset classes producing returns of 50%, 60% and even 70% in some of the international markets. Stock markets are forward looking. They already include all of the bad information we could possibly know about the market and therefore it is too late to do anything about the bad news.

EC: I can almost hear Bob's thinking process as Larry is talking. For starters, Bob would dispute Larry that we have had a bear market. Bob defines a bear market using the S&P 500 on a closing basis, and so far, the max it has declined is around 16%. Larry may have been speaking in terms of other asset classes, and even some stock indices other than the S&P 500. There are certainly some bear markets out there, just not the benchmark that Bob tracks. The second thing Bob was probably wanting to say is that his crystal ball allowed him to buy back in on March 11, 2003, which just about marked the retest of the bear market lows to the day. But then he might have to add that he was still long the QQQQs with a sizable chunk of the portfolio. In any event, Larry didn't give him a chance, and his next comment seemed to grab even Bob's attention.

Swedroe: Larry said that even if you could perfectly time recessions and your crystal ball allowed you to get out of the market before the recession began and then get back into the market the day after the recession ended, there have been 11 recessions in the post-war era and the stock market has actually gone up an average of 7% during those recessions and that would have outperformed risk free Treasury bills. Thus, it is very difficult to out-fox the market.

EC: That is an amazing statistic and one I didn't know. It certainly is something all investors should be aware of. Incidentally, the average duration of recessions since World War II excluding the 2001 recession is eleven months. If you want to read how the National Bureau of Economic Research's Business Cycle Dating Committee determines recessions, go to this url:

Brinker/Swedroe: Bob said we have not had a bear market as the S&P 500 is only down 15% so the stock market is solidly in correction territory and got as high as just 16% on January 10th. (I told you Bob was thinking that!). Bob asked Larry how it could be with all of the bad news out there, including the credit markets being in complete shambles and the recession talk, that the market is just down 15%? Larry said that is the great mystery and if anyone could answer that question they would be much richer. Larry went on to say that NOBODY has shown any great ability to forecast the stock market.

EC: Uh oh. Dem's fighting words. Does Larry not realize he is talking to the world's most famous self-appointed market timing guru? Did not the call screener tell Larry that putting down market timing is anathema on Moneytalk? Oh, the humanity!

EC#2: Joking aside, Bob's question tells a lot about why he remains bullish at this juncture. Bob has always discussed how the stock market discounts the futures by 6 months at a minimum. Bob is right that the news has been terrible, and at least so far the market's worse showing was a 16% decline. In fact, the market is now right at the level which Bob most recently gave an outright buy signal.

Swedroe: Larry said a lot of people will point to hedge funds to support the view that some geniuses can successfully predict the market. Well, if you look at hedge funds, the academic research shows that even they have had a difficult time keeping up with Treasury bill returns when you take into account for the risk that they take and the biases in the data. There are so many unexpected events, it is impossible for anyone to guess where the market is going. For that reason, Larry said the most prudent strategy is to anticipate bad markets. We have had two horrible bear markets where we saw 50% declines, the last time in 2000-2002 and then in 1973-1974. Build that possibility into your financial plan. If you are in the accumulation phase, you should be rooting for bear markets so that you can buy cheap. It is only in the withdrawal phase that bear markets are painful and if you panic and sell into weakness, that can really take a toll.

EC: As you know, Bob's newsletter is called Marketimer. During one broadcast, where Bob was being asked specifically about his market timing efforts, Bob said what he does is "anticipatory market timing" which he acknowledged, in a moment of candor, to be one of the most difficult things to do. Bob's market timing efforts in recent years have been good, although it depends on whether you include all of his timing efforts, such as the QQQQ trade. If you go back to the inception of his model portfolios, you have two problems. First, Bob reset the beginning date of his model portfolios. And then, when his timing model failed in the late 1980s, he said he changed his timing model to where it is today. If you go back to the beginning, according to Mark Hulbert, Bob's timing efforts have led to underperformance which would support Larry's view. If you start tracking Bob's timing efforts since 1991, well then he has done much better although it bears pointing out that he has only made a few timing calls since then and that other than the 2000 tactical asset allocation move (followed by the QQQQ trade), and back into the market in 2003, Bob's portfolios have been very similar to a buy and hold position. In a secular bull market, that can work. If we are headed for a bear and Bob stays fully invested, well..., let's not get ahead of ourselves right now.

Brinker/Swedroe: Bob said individual investors tend to do so much worse than an index funds because they do sell out when they see huge declines. Larry said investors buy yesterday's winners and therefore buy high, and yesterday's losers cause you to sell. The key to successful investing is to restore your asset allocation and rebalance by selling into strength and buying into weakness. Every study done has shown that the average investor significantly underperforms the very mutual funds they invest in because they chase winners. There was only one fund family that was able to outperform and that was Dimensional Fund Advisors (DFA) and their outperformance has nothing to do with the funds they selected. It was because DFA requires you use an approved advisor and they keep their clients disciplined.

EC: On my list of topics to cover in a future newsletter is to provide a primer on Dimensional Fund Advisors. It is a unique shop for sure. Here is a link to their web site:

Brinker/Swedroe: With the credit market in turmoil, what is your impression of what is going on? Larry said he thinks it is a classic mistake of investors, particularly the hedge funds which treat the unlikely as if it is impossible. When you purchase high risk securities, one of the risks you undertake is illiquidity and when that shows up, you can get slaughtered. That is why investors should be very careful in the fixed income side of their portfolio. The fixed income side of your portfolio should be invested in securities that allow you to sleep while you take the risk on the equity side of your portfolio. Therefore, you should only be invested in the safest fixed income securities, such as U.S. Treasury bills and Treasury Inflation Protected Securities which are great and only the highest grade corporate bonds if you are going to go that route. Larry said he would avoid hybrid securities such as preferred stock, convertible bonds, and junk bonds which are the worst of the asset classes. Larry said he would even avoid emerging market bonds even though they have some diversification benefits. If you want to take risk, take it on the equity side where you can invest in a much more tax efficient manner.

EC: I agree with Larry and his view that the fixed income side should have the highest quality whereas you take the risk on the equity side. That is one of the premises of how my partners and I constructed our Model Portfolios for those in retirement in our Retirement Advisor Newsletter. (see,

Brinker/Swedroe: There has been incredible volatility in the municipal bond market and a lot of the municipal bonds funds have been hurt. Bob said it obviously is not because of rising rates, so it must be credit concerns. Larry said that was not correct. In this case, the municipal bond market, once seen as a boring market, became the target of hedge funds who were trying to take advantage of the steep yield curve in the muni market. They would buying longer municipal bonds and taking big positions and leveraging them. The hedge funds were getting margin calls because the banks did not want to put up the money anymore in this type of environment which forced the hedge funds to sell in a distressed environment. As a result, the prices were collapsing because there is not enough buyers. This is really a liquidity crises and creates a wonderful buying opportunity for individual investors to take advantage of the pain suffered by the hedge funds. You might not want to go to long out because of inflation concerns, but at least now you are getting compensated justly. This is not a credit story, it is a liquidity story. All instruments, even if they are very safe, are being priced for liquidity risk. That risk is always there, it just doesn't show up often.

EC: Great points by Larry. The Los Angeles Times has an article out this weekend entitled, "Credit-market mess poses opportunity in muni bonds." If you are in the market for a municipal bond, you should definitely check out this article:

Caller: One of the fears that everyone has is the price of oil going through the roof. What is driving the price of oil? Is it fundamentals, or hedge funds manipulating the price? Larry said he is not an expert on oil and it might be a combination of things, but it is irrelevant unless the price of oil impacts your portfolio. Larry said what he recommends to hedge against such an outcome is having a small allocation in your portfolio devoted to commodities. Larry says he specifically recommends PIMCO's Commodity Real Return Fund because it acts as portfolio insurance. Commodities tend to have their best returns when stocks or bonds are doing poorly. For example, during the eight bear markets or eight years of negative stock returns since 1970, commodities have returned an average of 23% and in the nine years of negative bond returns, commodities have returned an average of 30% a year! The main reason for this is that commodities are positively correlated to inflation whereas stocks and bonds are negatively correlated to inflation. Thus, Larry thinks you should own 5-10% of your equity allocation in this type of investment. Thus, if your allocation was 70% equities and 30% fixed income, you should own somewhere between 4-7% in commodities as a way to hedge your risk against the kinds of events that could drive oil through the roof.

EC: PIMCO's Commodity Real Return Fund (symbol: PCRAX) is a no load fund with an expense ratio of 1.24%. It has an impressive rate of return in recent years as commodity prices have surged. Here is a link to the fund's profile on Morningstar:

Caller: Is now a good time to purchase zero coupon bonds? Larry said you have to always consider how the addition asset will impact the entire risk profile of your portfolio. Zero coupon bonds are generally very long term maturities which means you will take inflation risk by owning it, but it will also provide a hedge against deflation situations like recession when interest rates fall. You also have to consider your human capital. If your potential for work fluctuates widely with the economy, then maybe its a good thing that you have a long term bond because if you get laid off in a recession, that long term bond will help you. On the other hand, if you are a retiree, and you are subject to inflation risks then the zero coupon might be a bad investment. Larry said he doesn't believe in trying to predict interest rates, so it gets back to where does it fit in your portfolio and how does it fit with the other assets of your portfolio.

Brinker/Swedroe: There has been a lot of angst over bond insurers lately. How much weight do you put in that? Larry said in his view you should never make an investment based on the bond insurer's credit rating. People think that all single A rated bonds are the same. Not true. A single A municipal bond that is uninsured is 95% less likely to default than a single A rated corporate bond. If you are buying municipal bonds, you should look at the underlying credit rating of the bond without regard to insurance and the minimum rating you should look for is A, maybe AA or even AAA. Larry said he wouldn't purchase any municipal bond that had less than a single A rating for its underlying credit rating whether it had insurance or not.

Swedroe: Larry said he has a general rule about financial products that are offered. The more complex the product, the more you should avoid it because it is more likely that it was designed to be sold instead of bought. Certainly, you don't need it in the fixed income side of your portfolio where something like Treasury Inflation Protected Securities are all you need for your taxable dollars. If you want something to help out with taxes, and you are going into the municipal bond market, stick to AAA and AA. In a shorter maturity, you could go to an A rating. But beyond that, you don't need to get fancy. Larry said he has looked at all of the different asset classes and how they all mix, and you can do a more efficient portfolio and ignore junk bonds, convertable bonds, etc. which are totally unnecessary.

EC: Learn about Treasury Inflation Protected Securities in depth at this url:

Brinker/Swedroe: Bob said people have been hurt chasing yield going back many years. Larry agreed and said it can also be an illusion. For example, take the Vanguard High Yield Bond Fund which is really not a junk bond, but generally at the higher end of the bonds that are non-investment grade. That fund has only provided a 50 basis point higher return than 5-year Treasuries despite the fact that yields on the funds are much higher than the yields on Treasuries. Most of that yield is illusionary because of call risk. If you need a little more return in your portfolio, take the extra risk on the equity side of your portfolio, not the fixed income side. Historically, you have done much better. Moreover, these types of junk bonds tend to do worse when stocks are cratering which is just the time you need to feel good about the fixed income side of your portfolio.

EC: Interesting. I thought Bob might have taken the other side of this argument because for some time now, Bob has held the Vanguard High Yield Corporate fund (VWEHX) in his fixed-income portfolio, allocating 15% of the portfolio to that fund. I suspect that Bob would say that since that portfolio has no weighting in stocks, he feels that you can take some extra risk by owning the high yield fund.

Caller: This GM employee asked Larry what he thought of GM Demand notes paying 5% which he owns. Larry said don't confuse what is familiar with what is safe. Larry said if it were him, he would sell it. Larry said he only invests in the safest instruments on the fixed income side of his portfolio which is your safety net to allow you to take risk on the equity side of your portfolio knowing that you will get the return of your principal back. GM is a risky company and there is always a chance you won't get your money back. Bob said for 5% yield, you were taking a ton of risk, including your principal, when you could earn just a little bit less in something like the Vanguard Prime Money Market fund and not have to worry about losing your principal. Larry said some of the best investments right now are FDIC-insured CDs. Do not confuse familiarity with safety. This often occurs with people who work for a company and take the risk of owning a lot of shares of that company when they also have the added risk of human capital in that they work for the company. Many people have been hurt over the years by companies they worked for.

EC: More good points by both Larry and Bob. There is no guarantee that GM will be in business long enough to pay back its notes. Sure, it is a blue chip company that has been around for years. But so was Xerox and Enron and MCI right? Sure, they are offering 5% yield, but if you want that yield, you can purchase 7-year FDIC insured CD from PenFed and sleep knowing your principal is not at risk.

Brinker/Swedroe: What kind of grade would you give Ben Bernanke? Larry said Ben has it tough. He is faced with rising inflation, a weakening dollar and a real credit crises. He really doesn't have a choice but to ease interest rates to avoid a liquidity crises. The real trick will come if inflation keeps going up. At some point if that happens, he will have to raise interest rates. Larry complimented Greenspan for the job he did until the last few years when he didn't do enough about the bubble, and as a result the current conditions aren't really of Ben's making.

Brinker/Swedroe: What is your reaction to the stimulus package that Congress passed and Bush signed? Larry said he didn't like it and thought it was a bad package. There is nothing long term in the package. If you want to stimulate the economy the best thing to do is give an immediate write-off to corporations on investments. They should cut the corporate tax rate to keep more jobs here in the U.S. Larry said he feels this package is spending oriented instead of incentive oriented and being a free market economist, Larry thinks they should have created stimulus. Larry said the evidence shows that people spend money on projected income they will receive over the long term, not a one time check for a few hundred dollars.

EC: Great interview! Larry Swedroe is one of the best. Larry was also a guest on Moneytalk in 2005 and 2006 and I did a full summary of those interviews as well. If any subscriber would like me to e-mail them the past interviews, I am going to consolidate all three interviews into one e-mail and would be happy to send it to you. Just let me know.

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