David Korn - The Retirement Advisor Coeditor

The Retirement Advisor

2011-11-10T08:42:00.001-08:00

David Korn and I created The RetirementAdvisor investment letter specifically to address the concerns of the mature investor – someonewho is seeking quality bonds, CDs, and other fixed income instrumentsas well as individuals who want to keep abreast of the stock market aspart of a balanced approach to investing. So you are not confused about my other newsletter, please read Kirk's Two Investment Letters.

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Stop Losses

2009-03-18T19:33:00.001-07:00

Excerpt from 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. 2009

STOP LOSS PRIMER

First, a word about terminology. The term, “stop loss” is also referred to as a “stop order.” Essentially, it is an order to your broker to buy or sell a security once the price of the security has climbed above or dropped below a specified stop price. When the specified stop price is reached, the stop order is converted to a market order and you get the next price of the security.

For purposes of this primer, I am primarily focused on the aspect of implementing a stop loss to be executed once a security you own goes DOWN. This is designed to protect you from further losses.

The stop loss concept is very simple, deceivingly so. Say you purchased a stock at $100, but didn’t want to risk anymore than 10% of the money you invested. You put a stop loss at $90, and if during intra-day trading the stock traded at $90, your stop loss order would be triggered and you would be sold out of the stock at $90 (assuming a liquid stock) and you would be out of your position. If the stock then went to $1 a share, you would be congratulating yourself on how smart you were to limit your losses to $10 a share. If the stock touched $90, triggered your stop loss, but then shot up to $500 a share, you might be kicking yourself for years to come. The latter would produce strong feelings of seller’s remorse. But it wouldn’t destroy your portfolio. It would simply mean you would have lost out on an opportunity.

What is the difference between a "stop loss" and "stop limit" order? A "stop loss" order WILL sell your shares immediately once your stop-loss price is executed. In my current QQQQ trade, once shares hit $24.97, the next trade below that will automatically sell my shares. A "stop limit" order will ONLY sell my shares if QQQQ trades at $24.97 and there is a buyer at the other end. The difference between the two could come into play if, for example, the market opened way way lower (i.e. after a terrorist attack). Suppose the QQQQs gapped from $26 and opened up at $20 when they resumed opened for trading. Under that scenario, the stop-limit would not have been executed, and I would still own the shares, whereas the stop-loss would give me the first trading price below the stop-loss price (presumably $20 in this hypothetical).

The stop loss can be one of the most important tools in anyone’s investment portfolio. But its importance is not so obvious. And the reason for that is a premise that I ask you to consider by answering the following questions:

How easy is it for you to buy stock you don’t own or purchase more shares of stock you do own? (assuming you have the funds)

Now ask yourself this question. How easy is it for you to sell a stock that you own?

Here is the really tough one. How easy is it for you to sell a stock that has already declined from the price you paid for it?

If you are like me, and most humans, the truth is that it is very hard to sell a stock at a loss. As a position starts declining, our brain’s wiring goes into an irrational mode. Behavioral finance has studied this phenomenon and offers several explanations to describe the psychological reaction that occurs. One theory is that individuals follow the Kubler-Ross model of the Five Stages of Grief when a stock that they were certain had the potential to go up, declines markedly. First, you go into denial that the bad news impacting the stock is true. Then you are angry and blame third parties (such as short-sellers for example). Then the bargaining process begins (well if I wait a little longer, things will turn around or I could double up on my shares). Then depression — being paralyzed by the movement, and finally acceptance. The problem is the acceptance part of it all comes way too late in the game. By then, the stock has already gone through its declines.

The breakeven fallacy is adopted by many investors who are in a losing position. The brain rationalizes the losses under the fallacy that the security will reach a break-even point at which they put their money in and at that point they will sell. This might work for a diversified holding like the total stock market provided you have an extremely long investment horizon, but it doesn’t work so well for individual issues. (As a side note, some traders assign support and resistance levels to stocks that they believe represent a break-even point for many investors. But that is a topic for another day).

The stop-loss order, in my opinion, should be decided in advance of your purchase. Why? Because if you do it then, you are not emotionally vested in the position. Your ego won’t be bruised because you made a mistake and purchased a stock that immediately went down. By setting the stop loss in advance, you are simply evaluating how much you are willing to risk losing before you even put a penny of your money into a stock. If you wait until you establish a position, and then there is a sudden move in the stock in either direction, the stop-loss level you choose will be colored by the emotion of what just happened to the stock and you might act irrationally.

Trailing Stop Losses

When stocks are rising, I like the practice of using trailing or laddered stops. A trailing or laddered stop is simply a stop order that is raised periodically to compensate for changes in the price of the security. Trailing stops can be used to protect against losses, and to lock in profits and let them run. A trailing stop that is incrementally changed to follow the current trading price allows profits to continue, but presumably is far enough away from the current price level to compensate for intra-day volatility as price moves into a larger trend. That is exactly what I am doing now relative to the QQQQ shares. A word of caution: make sure you cancel your previous stop order every time you raise it.

Some online brokers offer trailing percentage stop orders. These types of stop orders work with a ratchet effect, trailing price movements by a set percentage but only in the direction of the trend. If the price reverse direction, the stop remains at the previous level and will be activated if price reverses by more than the trailing percentage. Here is a link to an article showing visually how this works:

http://tinyurl.com/d7oc3f

Another Example

Some people think stop-loss orders are only for the penny stocks. Not true by any stretch. Let’s use one of the bellwethers by way of example. Suppose you purchased General Electric back in the 1999-2000 time frame. General Electric was considered the bluest of the blue-chip companies at the time and was one of the most widely held stocks, not only by institutions but also by individuals as well. Jack Welch was at the helm and over his 24-year term, the company went from a market cap of $14 billion to $410 billion. From 1990-2000, the stock had risen from $10 to $60, and shares had split three times with hardly a correction along the way. A series of trailing stop losses with enough room for relatively contained pullbacks would have allowed you to capture the bulk of the gains before the stop loss ever was triggered.

When the bear market of 2000-2002 came about, if you had been exercising trailing stop losses, you might have been able to lock in a large part of your gains. (It depends of course on how deep your trailing stops were).

Now flash forward. For about 5 years (2003-2008), General Electric was trading in the neighborhood of the $30-$40 range. There was probably a lot of cumulating of the stock during this time frame. In the last 52-weeks, GE traded as high as $38.52. The $30 was certainly a support level that stood for a long time, even as of September of last year. The stock then slowly, but orderly, declined from about $30 to about $12 last November when the market reached its lowest point of 2008. The stock then rallied a bit going into the new year, but once again started its decline to eventually hit its 52-week intra-day low of $5.87 on March 4th, and closing low of $6.69 the same day. It has since rallied to $9.62 where it closed Friday.

There were many times over the course of the last decade that a stop loss would have prevented much more serious losses in GE. The same holds true for many stocks (particularly in the financials and housing stocks) over this bear market.

Incidentally, I used GE as an example here in part because the company was in the news this week when Standard & Poor’s credit rating agency downgraded the company from AAA to AA-Plus, the first time ever. Barron’s has a feature article out this weekend saying that bonds of GE’s financial arm, GE Capital, are looking attractive despite still holding some risky assets. GE Capital’s bonds are yielding a full percentage more than those of the parent company. That kind of individual corporate bond ain’t my cup of tea, but if it interests you, here is a link the Barron’s article entitled, “GE: Bringing Good Bonds to Life”:

http://tinyurl.com/dzn7dw

A final word about stop loss orders and trailing stops and the like. There is no panacea to investing. Charter subscribers of mine have seen me get stopped out of a position that subsequently rallied. Other times, I couldn’t have been happier that a stop loss was triggered. JP Morgan Chase is a good example of that last year. I think on balance, the use of stop losses has been net very positive for me and I encourage all of my subscribers to learn as much as they can about them. To that end, let me know if you have any follow up questions on this topic.

To learn how to subscribe to my newsletter, simply click on the link at the top of this web page. - David Korn

DISCLAIMER: The information contained in this newsletter and or published on my web site, http://www.BeginInvesting.com is not intended to constitute financial advice and is not a recommendation or solicitation to buy, sell or hold any security. This newsletter is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice. Copyright David Korn, L.L.C. 2009.

David Korn writes "The Retirement Advisor" and "David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service" newsletters.

Bob Brinker, Moneytalk and Charlie Maxwell

2009-02-23T17:58:00.000-08:00

Excerpt from 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. 2009
February 21-22, 2009 Newsletter

On Saturday, Bob 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. I summarized the important parts of the interview below.

Bob noted that we are hearing a lot about alternative energy, such as wind and solar power from the White House and asked Charlie to comment. During the course of the interview, Charlie touched on the major energy issues. I decided to break them down by topic for your ease of reference.

Wind Power

Maxwell: 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. 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 even if we put money toward it, the best we could get it up to over the next 15-20 years would be 3-4% of our power needs. However, it will never be a large proportion of energy source for the simple reason that the windy parts of the United States are quite far from where the power is needed. If the wind doesn’t blow, you need the coal generating capacity already built to replace it. The result is that while you might produce energy from wind, you have to spend money on substitution energy sources for when the wind doesn’t blow which is a huge added-on cost to wind power that many people don’t consider.

EC: On T. Boone's web site promoting his energy plan, he states that the Department of Energy reports that 22% 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:

http://www.pickensplan.com/theplan/

Solar Power

Maxwell: Charlie said we produce much less solar power than wind power today. It only accounts for about 0.1% of all the energy we use in this country. Charlie said that even by spending a lot of money on it at best over the next 20 years, solar could only provide 1.5%-2.0% of our energy needs, so it is also not something we can rely on.

EC: I was checking my notes, and Charlie was on Moneytalk a couple of years ago and forecast that solar would only constitute 1% of our future needs. Today, he said it could go up to 2%. Why am I even bringing this up? Well, 2% is a 100% increase over 1%, even though the total piece of the pie is still small. Thought it was worth noting since I think it represents a significant change in forecast, although Charlie’s bottom line view about solar hasn’t changed.

Maxwell: Another problem is that solar energy isn’t a dense source of energy. The result is you spend a lot of time and energy making solar panels and thus the net power the solar cell generates is not that much compared to what it cost to put it there.

EC: Last week, I was writing about “green” investments that might benefit from the stimulus plan. There is an article out this week you solar fans might be interested in entitled, “Solar-power firm fired up about stimulus” which you can read at this url:

http://tinyurl.com/cqxzzz

Coal

Maxwell: Charlie said there are some very encouraging developments for a source of energy that could really help us. Charlie said we have excellent long term prospects for developing clean energy from coal. We are learning how to sequester the bad stuff like CO2 and other pollutants and isolating them deep under the earth where it won’t harm the air. Charlie said we won’t have this for another decade as the technology is not fully developed yet, but it is something we can look forward to with relative confidence to using in the future.

EC: The notion of “clean” coal energy is not without controversy. As you might expect, some think clean coal is an oxymoron. Learn more about the concept at this url:

http://tinyurl.com/6j8e83

Natural Gas

Maxwell: Without coal being able to contribute much over the next decade in terms of clean fuel, we have to look to other sources. The good news is that we are finding out new ways of getting a lot of natural gas from under the ground. Over the last five years, there have been some incredible new horizontal drilling methods. Using new cracking techniques with sand, we are getting a lot more gas than we got in the past 20 years. Now the gas business is growing and of vital importance to us. Charlie said natural gas as a fuel for transportation is an area where the current administration could really make some strides. It has such potential, it could be as big as nuclear energy. Japan already produces cars that use natural gas, but we need to make a concerted effort to bring that to our country.

EC: Natural gas prices hit a 7-year low this week. Natural gas was trading at $3.01 per 1,000 cubic feet on Friday, less than a third since last July and the lowest since 2002. The Energy Information Administration is forecasting wholesale prices to average $5.01 per 1,000 cubic in 2009 and $5.93 in 2010.

Nuclear Power

Maxwell: Charlie lamented the fact that we don’t yet have the broad-based public support needed for nuclear power. Charlie opined that nuclear energy is safer than it ever has been. We have had 5 generations of new equipment developed since Chernobyl and Three Mile Island. The rest of the world is using nuclear power safely and efficiently.

Charlie pointed out that we have about 400 nuclear units under United States control that we don’t think about much — those are the naval ship and submarines that use nuclear power. We are one of the world’s nuclear powers because of our navy and we have a resource of many fine men and woman who are familiar with that power. But it takes about 8-10 years to design and build nuclear plants, so there has to be a movement now if we want to get those online in the next decade. Charlie said he does think there will be a ground swell of support for nuclear power in the next 4-5 years in our country.

Caller: A caller pointed out to Charlie that the New York Times ran an article about how Sweden was somewhat resistant to nuclear power a decade ago, but they have changed and are now embracing it. Charlie noted that the France, Japan and Canada have all done well with nuclear power. Charlie said he doesn’t think the main problem with nuclear safety is human error anymore, it is terrorism. That is an issue that we will have to address. It is not insurmountable. But we need stricter security since a determined group of people can do something awful.

EC: I found the New York Times article entitled, “Sweden Takes Another Look at Nuclear Power” at this url:

http://tinyurl.com/dbw29p

Battery and Hybrid Technology

Maxwell: A caller asked Charlie whether we have the resources in North America to mass produce fuel cell and battery technology. Charlie said it is a concern and China is tying up a good deal of minerals around the world. There are going to be shortages of various metals. The good news is that we do have a large amount of these resources, particularly in Alaska and Canada. There are some metals in Africa and Asia that we don’t have that we will have to trade for. But for the rest of them, we are in pretty good shape.

EC: By some estimates, Africa holds 30% of the world’s mineral resources, including much of the world’s platinum and chromium. Course, they got lots of the the good stuff like diamonds and gold as well (over 50%).

Oil

Maxwell: Oil prices have been crushed. Charlie noted there was so much public and government commotion when prices where going up, but nobody seems to be paying attention to it now. Charlie said he is concerned that the debate over fossil fuels has waned. The recession has created a supply/demand scenario where we can enjoy lower prices of oil — but it is only temporary. We are not solving the problem. As soon as China, India and the emerging markets begin to recover, we are going to see oil, coal rand gas rise again. It won’t be long at these low prices where the whole energy price system will turn back to rising demand. Charlie said we need to prepare for the time frame of vulnerability between 2012-2025 where we won’t have enough coal, or oil and will have to depend on natural gas. All of this we will come back to tough days with high oil prices so we need to keep our guard up.

EC: These comments jive with my own view for establishing a position in oil. The more I think about it, the more I believe that it makes sense to diversify an investment portfolio not only across different stocks, sectors, and countries, but also asset classes. Given the availability of ETFs to do that these days, it makes it easier than ever if you want to.

Energy Efficiency

Maxwell: By creating greater efficiency use of the energy we have, that in a sense is another source of energy. Charlie said he thinks the final revolution in energy over the next century will be conservation and efficiency. We will be able to maximize our resources in a more cost-effective and less wasteful manner.

EC: 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:

http://tinyurl.com/yup3fz

DISCLAIMER: This e-mail is neither sanctioned by, nor written under the auspices of ABC Radio Networks, Moneytalk or Bob Brinker. This e-mail is not a substitute for listening to Moneytalk, it is only my interpretation and commentary of some of what is discussed on Moneytalk, along with additional educational information that I include, editorial comments about the market and helpful financial links. I also provide my own stock market commentary to subscribers as part of my service and give them access to my web site, http:// www.BeginInvesting.com. If you want to know what was said verbatim on Moneytalk, listen to the show live or subscribe to "Moneytalk on Demand" which allows you to listen to the show in case you missed it live. The web site, bobbrinker.com has all the links to the ABC Radio Network stations that broadcast the show live. The information contained in this newsletter is not intended to constitute financial advice and is not a recommendation or solicitation to buy, sell or hold any security. This newsletter is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice. Copyright David Korn, L.L.C. 2009.

David Korn writes "The Retirement Advisor" and "David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service" newsletters. Just ask us for details on how to get a discount on subscriptions to both newsletters.

Bob Brinker/Moneytalk/Stephaen Fitch/Pensions

2009-02-14T09:21:00.001-08:00

Excerpt from 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. 2009

If you enjoy listening to Bob Brinker, I write a newsletter that provides commentary on the radio show Moneytalk. Here is an excerpt from my newsletter last weekend in which Bob Brinker had guest, Stephane Fitch, who recently wrote an article entitled “Gilt-Edged Pensions.” Here is a synposis of that interview. To find out how to subscribe to my newsletter,

Fitch’s article discusses the pension obligations of states and municipalities. The article begins by giving the real life example of Glenn Goss who retired from the Delray Beach, Florida police department at age 42 after working there for 20 years. He immediately began drawing a $65,000 annual pension that is guaranteed for life, is indexed to keep up with inflation and comes with full health benefits! That is the equivalent of a $2 million package based on the present value of his vested retirement.

After retiring at age 42, Goss did what most of us would do. He went out and got another job, this time as police chief in Highland Beach making $90,000 a year and building another pension. This idea of retiring a multi-millionaire in your early 40s is usually reserved for corporate executives. The surprising thing is a large number of public employees are able to retire with very significant benefits.

Fitch said Goss is a good guy and simply following the rules of the system. Fitch said cops put themselves on the line and so he has no problem with compensating them at a high level. The problem is that huge retirement pensions for public employees have put many states on the hook for billions upon billions. Fitch noted that Illinois is $60 billion behind; New Jersey $50 billion behind; Florida is behind $25 billion. The only way to close the gap is tax hikes and the reduction of services. They will get paid for because they are guaranteed by State constitutions. Nobody is bailing out private citizen’s 401(k) plans, but as taxpayers we will be required to fund those pension plans.

Fitch said you can try and blame the union bosses, but they are simply doing their job to get the best deal for their members. The real blame is the politicians who make the deals. The politicians who are coming into office now have to deal with the issues. Fitch noted that state and local government workers are getting paid an average of $25.30 an hour which is 33% higher than the private sector’s $19 according to our government’s own labor statistics data. When you add in pension and other benefits, the gap grows to 42%.

Fitch said that if you have a private sector company, and the company can’t afford its obligations, bankruptcy is often a solution. Fitch noted that the reality is that States aren’t going to declare bankruptcy, and even if they did, chances are a bankruptcy judge would still make the State pay these pension obligations since they are constitutionally backed.

Four in five public-sector workers have lifetime pensions, versus only one in five in the private sector. When small municipalities get behind, there is really not much they can do about it. With the market declining so much, it has become an enormous problems, even for bigger government entities. Fitch used Chicago as an example. They have a Fireman’s pension fund that is 19% funded, or 81% under-funded. It shows the irresponsibility of a generation of politicians. At best, they felt that the market would bail them out and continue to generate extraordinary returns.

Caller: A union negotiator called up and said that Fitch didn’t point out that many of these public employees who receive pensions don’t get social security. He thought it was unfair that public servants are unfairly targeted. Fitch asked how many States will come up with the money to pay for the pension benefit shortfall. Fitch said the unions aren’t to blame, the politicians and lawmakers are in bad faith as they gave out something they couldn’t afford.

Caller: A caller pointed out that his city once published the salaries of all city workers and people were astonished to see how many six-figured incomes there were, and that much of it came from overtime wages. Fitch noted that the average New York City employee makes $107,000 a year. That is breaking the City’s budget. In California, prison guards can earn $300,000 year with overtime pay.

Fitch said that in Las Vegas, Nevada, fireman can collect an inflation-protected $40,000 a year for life on top of their pension for disability and they can collect that even if they are healthy enough to work in another occupation. If you get heart disease, you would qualify even if you could work another job.

EC: The article Fitch wrote is an eye opener and worth a read. Check it out at this url:

http://tinyurl.com/bxql5l

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

2008-11-25T06:01:00.000-08:00

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.

TIMING MODEL QUESTION

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.

Discount: Members of our mailing list get a discount on David Korn's newsletter that includes summaries of Bob Brinker's monologues and key calls. For an example, see David's summary of the show following Bob Brinker's announcement to his radio audience he was returning to fully invested in March 2003. Just ask us for details on how to get the discount.

Ginnie Maes Over Fannie Mae and Freddie Mac

2008-09-15T11:08:00.000-07:00

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 Salesforce.com 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:

=> January 2008

=> January 2007

Long-Term "Retirement Advisor" Model Portfolio Performance
The Retirement Advisor Model Portfolio Name	Dollar Value on 8/31/2008	Percent Increase
Aggressive Growth and Income Model Portfolio 1 Initial Value of $200,000 on 1/1/2007	$208,065	4.0%
Moderate Growth and Income Model Portfolio 2 Initial Value of $200,000 on 1/1/2007	$213,219	6.6%
Conservative Capital Preservation Model Portfolio 3 Initial Value of $200,000 on 1/1/2007	$222,454	11.2%
DJIA $11,544on 1/1/2007	$11,544	(7.7%)

Webbsite for more info and current Performance Data

Charlie Maxwell Interview by Bob Brinker - August 2008

2008-08-24T06:35:00.000-07:00

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:

http://www.pickensplan.com/theplan/

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:

http://tinyurl.com/5kl5t6

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:

http://tinyurl.com/6q65du

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:

http://tinyurl.com/6cb8c5

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:

http://www.hubbertpeak.com/

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:

http://tinyurl.com/yr93jj

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:

http://tinyurl.com/5ukbc8

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:

http://tinyurl.com/yup3fz

Get a FREE SAMPLE ( January 2007 Issue ) of Henry, David and Kirk's newsletter, "The Retirement Advisor."

Brinker Fixed Income Advisor Newsletter

2008-08-08T08:11:00.000-07:00

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:

=> January 2008

=> January 2007

Long-Term "Retirement Advisor" Model Portfolio Performance
The Retirement Advisor Model Portfolio Name	Dollar Value on 8/31/2008	Percent Increase
Aggressive Growth and Income Model Portfolio 1 Initial Value of $200,000 on 1/1/2007	$208,065	4.0%
Moderate Growth and Income Model Portfolio 2 Initial Value of $200,000 on 1/1/2007	$213,219	6.6%
Conservative Capital Preservation Model Portfolio 3 Initial Value of $200,000 on 1/1/2007	$222,454	11.2%
DJIA $11,544on 1/1/2007	$11,544	(7.7%)

Webbsite for more info and current Performance Data

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David Korn Summarizes Bill Wattenburg Moneytalk Interview

2008-08-05T07:23:00.000-07:00

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
energy.

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
.

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

2008-07-10T11:10:00.000-07:00

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?

See:

>>Bob Brinker's Asset Allocation History <<

>>Brinker's Bear Market Definition <<

>>Official Bear Market <<
>>David Korn's Post <<

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.

Bob Brinker Comments on Oil Prices

2008-07-04T06:29:00.000-07:00

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:

http://tinyurl.com/58d4ak

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:

http://tinyurl.com/6yk76k

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	Percent Increase	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.

Bob Brinker on Portfolio Withdrawal Rate and the Dollar

2008-05-08T08:28:00.000-07:00

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.

WITHDRAWAL RATE AND PURCHASING POWER OF THE DOLLAR

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."

Excerpts:

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.

Bob Brinker on New iBond Rates

2008-05-07T08:19:00.000-07:00

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 http://xrl.us/TIPSInfo
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."

Excerpts:

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 <==

Bob Brinker on Warren Buffett

2008-05-06T08:17:00.000-07:00

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.

THE ORACLE OF OMAHA

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

Warren Buffett Answers To Becky Quick's Questions

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

Excerpts:

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.

Richard Russell says Secular Bull Market Continues

2008-05-05T08:14:00.000-07:00

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:

http://tinyurl.com/4y6pln

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."

Excerpts:

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.

Bob Brinker Stock Market Outlook for 2008

2008-05-04T08:04:00.000-07:00

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."

Excerpts:

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.

Larry Swedroe Interview By Bob Brinker on March 1, 2008

2008-03-04T09:34:00.000-08:00

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:

http://tinyurl.com/39kfox

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:

http://www.nber.org/cycles/recessions.html

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:

http://www.dfaus.com/

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, http://www.theretirementadvisor.net/)

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:

http://tinyurl.com/2zyxhy

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:

http://tinyurl.com/3y9kfn

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:

http://tinyurl.com/6elhv

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.

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

Excerpts:

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.

Bob Brinker and Trading the QQQQ Shares

2008-02-16T12:17:00.000-08:00

Excerpt from David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.

STCTBMTROOFST (Short term counter-trend bear market trading rally opportunity only for sophisticated traders)

THE FINAL GRADE (Taken from a David Korn Newsletter)

(Modified Slightly Since Original)

I have studied Bob Brinker's market timing model and enjoy listening to him analyze the markets. Believe me, I wouldn't be spending my entire weekend analyzing and interpreting his viewpoints if I didn't think he had something important to offer. With that said, I think it is important to objectively analyze Bob's recommendations. Why? Well, many people base their investment decisions based on his recommendation. If we can't be honest with his ability, then we risk hurting our own financial well being. So, here it goes. I have decided to grade different aspects of the STCTBMTROOFST which will cumulate in a final grade on what Bob previously referred to as a short term trading "experiment."

Identifying the Opportunity: Grade A. Bob gets the highest marks for identifying the beginning of the bear market rally in May, 2000. Some will say he did it after the fact, but given that he announced it on the first Saturday after it occurred, he gets an A in my book. The truth is Bob announced that he bought QQQ in the mid-70s on the Saturday following his purchase which was made on the previous Wednesday - just three days earlier. People who wanted to take advantage of his recommendation, however, based solely on the radio discussion, were left out in the cold if they followed Bob's advice to the letter.

Notifying Listeners of the Opportunity: Grade B minus. While Bob did provide listeners with some parameters over when the bear market rally would start, there were some short falls to his advice. First, although he did tell listeners that the bear market rally would begin on lower volume than the previous highs, he made it clear that this would occur in conjunction with positive divergences in the market. There were many calls into the show asking for additional explanations on what Bob meant by positive divergences. In my opinion, Bob was relatively vague on this issue, although he did mention advance decline lines, new highs vs. new lows and the like. Unfortunately, in my opinion, Bob fell short of explaining how he would find these positive divergences, how he would apply them and the weighting he would put on these types of technical indicators. Many of the regular posters on bobbrinker.com were posting questions about this, and Brinker, who believe me used to post there, did not provide any additional specific advice, despite the clear desire to have more information.

When the bear market rally was triggered after the closing low on lower volume on May 27th, I thought the positive divergences were present that Bob was talking about, although frankly I wasn't certain. This led me to buy some speculative call options instead of dumping a ton of money into the QQQs. Although it worked out well later, I remember searching the Internet that night and the following two days to see if anyone else had agreed with me. I went to bobbrinker.com and this site and the consensus was pretty much that the positive divergences weren't there. Bob Brinker or even Bob Brinker Jr. could have posted that Bob believed the counter-trend rally had begun. Even a Brinker alias could have. Instead, there was nothing said. It may have been because Bob himself needed a few more days to see if that low would be breached before he could determine if it was right.

What might be of particular interest to investors now, is the fact that the same market internals that Bob relied on in May, I didn't see present this fall when Bob was suggesting another counter-trend rally. In fact, I posted the market internal analysis I did on January 2nd and later on April 4th which suggested a near term bottom was at hand (and so far has held). I do not know if Bob relied on something else this time around when making his predictions in the fall. Here is the link to my market internal analysis I posted on April 4th:

http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=15617038

Staying Consistent: Grade C plus. When the QQQ trade was going great, Bob was emphasizing to the audience that many of his listeners bought QQQs at the market's open on the following Tuesday at $80s recognizing that a 20-25% upside meant they still were going to do well in the trade. However, once the trade went somewhat sour, Bob changed his emphasis to pointing out that he only recommended that you purchase the QQQs in the mid-$70s. One other point relating to this is that I bet most retail traders who decided to buy Tuesday morning did not get QQQ at $80. The QQQs shot up that day and when I purchased them that morning around one hour into the trading day, I was filled at $82 a share. In fact, the rapid rise in the QQQs that day was attributed in part to the "Brinker effect" by James Cramer of the Street.com at the following link:

http://www.thestreet.com/comment/wrongrear/949670.html

Entertainment Value: Grade. A. Almost every week, we hear a new caller get through who just discovered Moneytalk. However, I imagine that most of his listeners are like my subscribers -- seasoned Moneytalk trekkies. Bob has been doing this for 15 years and realizes that his listeners have become more sophisticated and don't want to hear about Ginnie Maes on every show. In addition, I am sure Bob gets bored talking about the same things. This discussion of STCTBMTROOFST provided an opportunity for a new topic that provoked heated debate in many circles. Of course, it also made for some great radio -- something that is lacking these days.

Predicting the Range of the STCTBMTROOFST Opportunity: Grade A+. Bob was almost uncanny in his identification of the buy point of the QQQ and his prediction that the QQQ would peak in the 4200-4400 range. It did exactly that. It was frankly astounding that he predicted the range and you can't take that away from daBrink.

Exit Strategy: Grade D. Although traders made a profit, Bob's selection of $84 as the sell price if it was reached was pretty much the worst exit point traders could have gotten during this entire bear market rally. Indeed, an analysis of the QQQ chart on the day QQQ reached $84 reveals that it only traded below $84 for a short while before shooting up and closing the day incredibly strong above $90 a share. Check out this chart that shows QQQs activity on the day the sell order was activated:

http://www.suite101.com/discussion.cfm/investing/17453/81

Now of course anyone participating in this trade could have taken profits at any juncture along the way. However, I am grading Bob, not anyone else. And Bob told listeners to stay with him and wait until he gave the green light on a weekend broadcast. For that, he received a D in this category.

Trading Savvy: Grade D Minus: Bob had multiple opportunities to advise listeners to sell the QQQs over 16 points higher than where they got out of at $84 a share. I think even Bob was shocked when the QQQs took out $84. I sent out a Special Alert that day saying I was not going to sell my QQQs. I didn't sell simply because the Nasdaq seemed to be oversold at that point and you would be selling into weakness. I assume that Bob felt the need to protect the trade with profits and so the $84 stop was necessary.

The other component to Bob's trading savvy is the fact that he waited way to long to institute a stop or base level from which traders could take profits. For example, I still don't know why Bob didn't simply set higher and higher stops each weekend as the trade went higher, although Bob did say on this weekend's broadcast that he never uses stops in his own personal trading. Nevertheless, he could have discussed this possibility on his show so that others could take advantage of it if they so desired. Did Bob learn from this mistake? I think we all know the answer to that.

I sent out an e-mail to my subscribers on July 14th saying you could sell the QQQs that day for $100 a share. That weekend, Bob could have set the stop at $99 and when traders sold the following week, he would have looked like a genius. Instead, I looked smart, and believe me I ain't that smart!

Discussion of Exit Strategy on Radio: Grade D. Bob lost big marks in this category in my opinion when he clammed up about the QQQ trade. Bob's excuse was that too many people were misinterpreting what he was saying about the QQQs and, therefore, he decided he would just tell people when to exit. I think this began when several posters on his website who appeared pretty unsophisticated, were insisting that Bob had said the QQQs were going to $120, when Bob had never made that statement. Remember the caller to Monetyalk who had $500,000 in the QQQs and was leaving the country and wanted to know what to do? Bob refused to give her any guidance, or to recommend that she exit the trade immediately (which would have yielded her a much higher price assuming she got out at $84). Instead, Bob told her to go visit bobbrinker.com where she could read an announcement of the sell signal when it occurred. Obviously, at that juncture, Bob still believed that he was going to be able to get people out at the right time. Bob's decision to avoid discussion of any exit strategy to me displayed some arrogance on behalf of Mr. Brinker. Moreover, many listeners were interested in learning more about technical analysis and wanted a better understanding from Bob as to what he was looking for in an exit strategy. Personally, I think Bob was looking for a classic "double top" in the Nasdaq composite where we retest the highs on lower volume. Unfortunately, the extreme volatility and dramatic downturn caught even Bob off guard and to protect profits in the trade, he had to institute the $84 stop. Just imagine if the QQQ had never recovered from that point -- Bob felt that had to take some action.

Educational: Grade D. I imagine this will be my most controversial grade and it was tough giving Bob a "D" in this category, so let me explain my reasons. I was going to give Bob an A for this category simply because he opened up an entire area of investing that many people were not familiar with; namely, trading. For example, the constant monitoring of the market, the pitfalls of dramatic moves, analyzing technical indicators, using stop losses were all issues that relate to trading. Unfortunately, Bob failed to discuss or acknowledge the two most important lessons of all that every trader learns. The first lesson you probably starts with the letter "G" and was made famous by Michael Douglas in the movie WallStreet. Yup, GREED. It is a lesson that I feel I am still learning and I have been a victim to my own greed in my trading experiences. During the weekend of July 14th, QQQ had already broken through and closed at $100 a share! Bob did not even acknowledge that fact and during that weekend's broadcast, Bob avoided callers questions about the QQQ trade, even screening out callers (according to posts on the net) who wanted to discuss the trade. Listen to that weekend's broadcast and you will here Bob snip at callers saying he would tell them when to exit the trade. This brings up the second most important lesson of trading: OVERCONFIDENCE. Trading is a humbling experience. Those who believe that they can accurately predict short term moves quickly learn not to take anything for granted. Bob's identification of the exact bottom of the bear market rally, the unbelievable rise immediately following that call, probably caused Bob to react as many of us do -- he got cocky and overconfident. So confident that he simply told callers the Nasdaq would return to the 4200-4400 level and he would be able to tell them when to exit the trade. To analogize to baseball, I think Bob was looking for the ultimate grand slam with this trade. In reality, if he had simply told callers to put a market stop sell order (or a mental stop) at QQQ 100 that weekend, he would have hit a home run. Greed and Overconfidence. Two of the most important lessons to learn from short term trading and Bob didn't acknowledge either of them. Finally, Bob scored low on another important lesson - RISK. Early on, Bob emphasized that the trade was only for sophisticated traders. Once the trade was going well, Bob implicitly approved of people who sounded like they had no business trading. How did he do this? Well, Bob told callers to simply wait for him to tell them what to do. Sophisticated traders would know better. The lady with about 1/2 million in QQQs going out of the country was wondering what she should do. Bob told her to listen to the radio, and if not, she could check his posted summary of the show to see what he advised. This type of caller seemed the norm after a while and rather than encourage this type of person against participating in the trade, Bob seemed to relish the roll of starship commander in charge of the trade. I imagine similar complaints could be made at present about Bob identifying the risks of current opportunities.

FINAL GRADE C. I am sure some would argue the grade should be higher, some would argue it should be lower. The fact is Bob helped listeners turn a profit (albeit a small one) on a short term trading opportunity which is an extraordinarily hard thing to do even for a Market Savant like daBrink. Fortunately, or unfortunately, Bob may not have learned from his own trading lessons. Perhaps his Achilles heal -- his ego -- got in the way as he could have hit a grand slam if he had simply not become overconfident and greedy with his own prescient abilities.

HOW TO GET MY NEWSLETTERS: If you would like to learn how to subscribe to my newsletter which gets you my interpretation and commentary of Bob Brinker's Moneytalk e-mailed to you, just Click for a FREE SAMPLE of David's Newsletter

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Where to Live in Retirement

2008-02-13T10:27:00.000-08:00

The article "Where to Live in Retirement" is from Page two of the May 2007 issue of "The Retirement Advisor." Click these for Free Sample Issue and Performance Data.

The decision of where to live in retirement can be one of the most important ones you make. Obviously, the decision is an important one in terms of the quality of your life where factors such as proximity to family, recreational opportunities, and even weather can play a role. However, deciding where to live in retirement also can have a significant impact on your financial well-being. We at The Retirement Advisor have found that very few investment advisors address this issue and thought our subscribers would benefit from a discussion of this topic. This month, we tackle the issue of taxes and retirement.

Income Taxes

It is no coincidence that Florida remains one of the favorite states for retirees. In addition to the warm and sunny weather, Florida does not have any income tax on earned income or unearned income such as interest and dividends.

When you are in retirement, interest and dividends can be a key source of money that pays for your living expenses. The less of your interest and dividends that goes to pay taxes, the more that you get to keep and spend in retirement.

There are seven states in the United States that do not levy an income tax on earned and unearned income. These states all provide a possible starting point in formulating a decision of where you might want to spend your golden years. The seven states are:

• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington
• Wyoming

Two others, states, New Hampshire and Tennessee do not levy tax on earned income; nevertheless, they do levy taxes on unearned income and dividend income.

The Federation of Tax Administrators has compiled a detailed analysis of each state’s individual income tax rate and it is now available online. The information includes the tax rates, the income brackets and personal exemptions. The information was just updated and is current for tax year 2007. We recommend that our subscribers bookmark their web site which you can find at the following URL:

http://tinyurl.com/2tr64

Sales Taxes

Even if your income is not subject to state income tax, or your state has a low income tax rate, it doesn’t matter too much if what you purchase with your money is subject to high sales taxes. After all, in retirement, you are now spending the money you previously saved and you want your dollar to go as far as it can.

State sales tax rates can range dramatically. There are only five states that have no state sales taxes, including Alaska, Delaware, Montana, New Hampshire and Oregon. On average, most states levy a sales tax of around 4-5%. However, at least five states have sales taxes that are 7% or higher, including California, Mississippi, New Jersey, Rhode Island and Tennessee. A few states have exemptions on sales taxes for such items as food, prescription drugs and non-prescription drugs. The following URL will bring you to a web site that shows a state-by-state breakdown of sales taxes:

http://tinyurl.com/cot8p

Individuals approaching or in retirement, should also be aware that many states have tax “holidays” each year. In 2007, for example, Alabama, Connecticut, Georgia, Florida, Iowa, New Mexico, North Carolina, South Carolina, Tennessee, Texas, Virginia and the District of Columbia all designate specific dates (usually in August) where consumers can purchase various items without paying sales tax. Typically, the tax holiday applies to items such as clothing, school supplies, and computers. For many consumers, waiting to purchase these items until a tax holiday represents a significant savings, although most states do place a cap on the amount you can purchase during the tax holiday. Nevertheless, a penny saved is a penny earned. You can find a table of each state’s tax holidays and information about what is covered at this URL:

http://tinyurl.com/rd724

State Taxation of Social Security and Pensions

For many individuals in retirement, their pensions and social security can account for a significant portion of their retirement income. Ten years ago, the AARP (formerly named the American Association of Retired Persons) Public Policy Institute prepared a brief that addressed the personal income tax treatment of Social Security benefits and pension income for the 41 states and the District of Columbia that have a broad-based income tax. That publication was updated in 2001 and subscribers can use it to help them make decisions on where to retire based on differences in tax treatment. Subscribers can find the publication by going to the following URL and clicking on the section entitled, “Issue Brief (PDF)”:

http://tinyurl.com/2rpl7a

We will address other issues related to the topic of where to retire in future newsletters. If there is a specific area that you would like discussed, please e-mail us.

The article "Where to Live in Retirement" is from Page two of the May 2007 issue of "The Retirement Advisor." Click these for Free Sample Issue and Performance Data.

Bob Brinker on Hillary Clinton's Proposed Health Plan

2007-11-12T14:08:00.000-08:00

HILLARY'S HEALTH PLAN

Caller: What is the economic impact of Hillary Clinton's health care plan?

Bob said if the true cost of Hillary's health care plan could ever see the light of day she would be run out of the country. It is an open ended program that will add trillions of dollars to the national debt. The caller said that is what she thought and noted that we already have a medicare and medicaid. Bob said our health care system needs fixing, but Hillary's proposal makes no financial sense.

David Korn: There are many different articles about Hillary's proposed health plan, but it was tough to find one that I thought might be objective, so I have linked below a search result that has a bunch of different articles on the topic:

Hillary's health care proposal

Excerpted by Kirk Lindstrom from "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. 2007." November 10-11, 2007 Newsletter

Click for a FREE SAMPLE of David's Newsletter. Ask for the rest of the "November 10-11, 2007 Newsletter" you saw here.

Bob Brinker on Oil Prices and Hubbert's Peak

2007-11-12T13:15:00.000-08:00

This is an excerpt from David Korn’s November 10-11, 2007 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

Oil and ENERGY PRICES

Caller: Senator Lieberman has proposed closing ANWR to oil development.

Bob said that is ridiculous. The original U.S. geological survey in 1980 estimated that along the ANWR coastal plane could produce 17 billion barrels of oil and 34 trillion cubic feet of natural gas. Bob said anyone who opposes the drilling is not in touch with reality. The caller said he is from Alaska and people who suggest the oil drilling will kill the wildlife are not telling the truth.

Bob said it is the same thing with nuclear energy, people who oppose it because of the alleged danger it poses are in the pockets of special interest groups and aren't facing reality. Bob noted that only 8% of ANWR would be subject to exploration, 92% would not. In addition, there are estimates that it would create tens or maybe hundreds of thousands of jobs.

Caller: This caller asked Bob to discuss the theory of "Peak Oil."

Bob said it is not a theory, it is real. Hubbert's peak was the model used to predict that the U.S. oil production would peak around 1970 and from there the rate of production would enter a terminal decline. Bob said we have already experienced peak oil here in the U.S., and it's going to happen in other parts of the world as well. Bob said he thinks peak oil is good science even if others disagree.

The caller asked Bob if he agreed with the Armageddon forecasts that are based on the eventual decline in oil production?

Bob said he didn't because we don't rely on oil near as much as we used to as well as the fact that we now have alternate sources of fuel that are being tapped. Oil only accounts for only 4.5% of GDP in the U.S., whereas years ago it was in the teens. That is why you haven't seen a significant economic impact even with oil trading in the mid-$90s. That said, world oil production is either at, near or past Hubbert's peak. Countries like China and India are growing very fast which puts a lot of demand on oil. We obviously have supply/demand oil issues; otherwise oil wouldn't be trading above $90. This is hurting people who live paycheck to paycheck. Bob said he doesn't know where oil prices are going at this point and only a fool would try to predict that at this point.

David Korn Comment: Charlie Maxwell, the oil energy expert, was on Moneytalk in September and predicted that oil should stay in a range of $50s up to $80 a barrel for another two years. Bob took up this mantra in response to a caller some weeks back saying he was going to go with Charlie's prediction. Up until recently, Charlie had been pretty on the mark as oil had only gone to the upper $70s. With oil now knocking on $100 a barrel, the prediction Charlie last made is pretty much out the window.

Get a FREE SAMPLE ( January 2007 Issue ) of Henry, David and Kirk's newsletter, "The Retirement Advisor."

Bob Brinker's Moneytalk (From David Korn's Newsletter)

2007-11-04T05:36:00.000-08:00

Excerpted from "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. 2007." October 27-28, 2007 Newsletter

MICROSOFT

Brinker Comment: Microsoft reported earnings on Thursday night and it was a great report! The new version of Windows has really increased the growth rate at the company. The Vista version has really been on a tear. Sales of Windows Vista are up 25%. Net income is up 23%. Revenues are up 27%. Every one of the company's five divisions exceeded goals. Coming up in February, Microsoft will issue updates to its products. If you go back to the early 1990s, Microsoft has been an incredible stock. If you invested $7,000 in Microsoft in 100 shares in the 1990s, that would be worth $252,000 today. How can that be? The stock split so many times that you would now have a quarter of a million dollars. The stock rose 9.5% on Friday alone, bringing the stock up into the mid-$30s. All in all a great report for Microsoft.

EC: Microsoft is one of only two stocks that Bob has maintained a "hold" rating on in his newsletter for many many years. The last stock he recommended was UTEK, and given the fiasco surrounding that stock, I think he is gun shy over picking another individual stock, and I think it is possible that he never will again. As far as Microsoft is concerned, it has underperformed the market until recently, but the earnings report was wonderful. Bob recommended it for purchase many years ago, then switched to a hold, and then in March 2003 recommended it as a buy again, and now it is a hold. He hasn't really talked about it for a long time, but in the wake of this great earnings report, I think he wanted to remind listeners that he still covers it in his newsletter.

EC#2: You may recall that I purchased Microsoft for my newsletter portfolio not all that long ago based on my view that Vista would be an earnings boost. I sold Microsoft for a gain, after my stop loss was executed during the correction process this summer. Should have bought back in, but I am happy about putting some of the cash reserves into the QQQQ shares which are up almost 11% since my purchase, and include shares of Microsoft. In fact, QQQQ constitutes over 5% of that index. The Spiders Select Technology (Ticker: XLK) which I also own in my newsletter portfolio has a ton of Microsoft in it, almost 10% of that exchange traded fund holds Microsoft, so it has benefitted from that company's performance as well. Here is a link to Microsoft's Investor Relations web site where you can download the earnings report listen to the webcast and read the 2007 annual report:

http://tinyurl.com/2agbgz

EC#3: Another interesting development in Microsoft is its announcement that it is taking a $240 million equity stake in Facebook's next round of finance at a $15 billion valuation. Microsoft is being given exclusive third-party advertising platform partner to Facebook and will begin to sell advertising for Facebook internationally in addition to the U.S. Read more about it here:

http://tinyurl.com/yw8tap

EC#4: Microsoft is also getting a lot of interest from the gamers for its latest video game Halo 3 on the Xbox 360. This game is big big business. Halo 3 sold more than $300 million in sales in the FIRST WEEK ALONE! That makes it the fastest selling video game ever. I may have to purchase that game -- for my kids of course, not me. Really. Learn more about it here:

http://tinyurl.com/ys8xr9

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DISCLAIMER: This e-mail is neither sanctioned by, nor written under the auspices of ABC Radio Networks, Moneytalk or Bob Brinker. This e-mail is not a substitute for listening to Moneytalk, it is only my interpretation and commentary of some of what is discussed on Moneytalk, along with additional educational information that I include, editorial comments about the market and helpful financial links. I also provide my own stock market commentary to subscribers as part of my service and give them access to my web site, www.BeginInvesting.com. If you want to know what was said verbatim on Moneytalk, listen to the show live or subscribe to "Moneytalk on Demand" which allows you to listen to the show in case you missed it live. The web site, bobbrinker.com has all the links to the ABC Radio Network stations that broadcast the show live. The information contained in this newsletter is not intended to constitute financial advice and is not a recommendation or solicitation to buy, sell or hold any security. This newsletter is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice. Copyright David Korn, L.L.C. 2007.

Bob Brinker says "The Stock Market Looks Good"

2007-10-30T10:38:00.000-07:00

STOCK MARKET LOOKS GOOD

Brinker Comment: The stock market had another good week. The S&P500 is just 1.9% below its all-time record high. The S&P 500 closed Friday at 1535 and is acting very nicely. The Dow is at 13806. We have seen volatility in the market, but part of that is due to the fact that we are at very high levels. The financial media might make a big deal out of the number of point move in an index, but the number of points is not as important as the percentage move. If the Dow were trading at 100,000, and it was down 1,000 points that would only be 1%. Today, a 1% move in the Dow is 138 points. In 1982, a 1% move was 8 points. When the financial media gets focused on the number of points the Dow is down, ignore it. Focus on the percentages.

Brinker Comment: We like to see what we had a week before last where we had a big down day which shook out some investors. This is a good development because it rids people who should not be in the market. "Stocks tend to fluctuate" as J.P. Morgan once said, and that is an absolute truth. The investors who get bent out of shape over short term fluctuations in the market should not be in the market.

EC: Bob remains bullish on U.S. equities. In his opening remarks, he gives some insights into how he views quick drops in the market during an ongoing bull market. Remember we had over a 300 point drop in the Dow on October 19th? For some market-timers (particularly the momentum type), that kind of drop can trigger sell signals. For some technical types, it also doesn't bode well because it is usually accompanied by horrible market internals. For purposes of Bob's long term stock market timing, this kind of down day in the context of a bull market is a healthy development.

MICROSOFT (MSFT )

Brinker Comment: Microsoft reported earnings on Thursday night and it was a great report! The new version of Windows has really increased the growth rate at the company. The Vista version has really been on a tear. Sales of Windows Vista are up 25%. Net income is up 23%. Revenues are up 27%. Every one of the company's five divisions exceeded goals. Coming up in February, Microsoft will issue updates to its products. If you go back to the early 1990s, Microsoft has been an incredible stock. If you invested $7,000 in Microsoft in 100 shares in the 1990s, that would be worth $252,000 today. How can that be? The stock split so many times that you would now have a quarter of a million dollars. The stock rose 9.5% on Friday alone, bringing the stock up into the mid-$30s. All in all a great report for Microsoft.

EC: Microsoft is one of only two stocks that Bob has maintained a "hold" rating on in his newsletter for many many years. The last stock he recommended was UTEK , and given the fiasco surrounding that stock, I think he is gun shy over picking another individual stock, and I think it is possible that he never will again. As far as Microsoft is concerned, it has underperformed the market until recently, but the earnings report was wonderful. Bob recommended it for purchase many years ago, then switched to a hold, and then in March 2003 recommended it as a buy again, and now it is a hold. He hasn't really talked about it for a long time, but in the wake of this great earnings report, I think he wanted to remind listeners that he still covers it in his newsletter.

EC#2: You may recall that I purchased Microsoft for my newsletter portfolio not all that long ago based on my view that Vista would be an earnings boost. I sold Microsoft for a gain, after my stop loss was executed during the correction process this summer. Should have bought back in, but I am happy about putting some of the cash reserves into the QQQQ shares which are up almost 11% since my purchase, and include shares of Microsoft. In fact, QQQQ constitutes over 5% of that index. The Spiders Select Technology (Ticker: XLK) which I also own in my newsletter portfolio has a ton of Microsoft in it, almost 10% of that exchange traded fund holds Microsoft, so it has benefitted from that company's performance as well. Here is a link to Microsoft's Investor Relations web site where you can download the earnings report listen to the webcast and read the 2007 annual report:

http://tinyurl.com/2agbgz

Excerpted by Kirk Lindstrom from "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. 2007." October 27-28, 2007 Newsletter

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Bob Brinker Update for October 20-21, 2007

2007-10-25T09:45:00.000-07:00

BOB BRINKER FIX: This isn't a week I am doing an Interpretation of Moneytalk. I did listen to the programs, and there was no indication of any change in Bob's outlook. Specifically, the important points were as follows:

Bob noted that the stock market is showing resiliency in the face of record high oil prices, with the S&P 500 only off 4% from its record high.
Quality bonds are acting extremely well.
The inflation data continues to be good with the latest data from the CPI and core PCE showing benign inflation.
Bob expects the Fed to cut rates by 25 basis points at the October 30th
meeting.
Bob expects the trend of the dollar to be gradually lower.

Excerpt by Kirk Lindstrom from "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. 2007"

Hulbert Stock Newsletter Sentiment Index October 2007

2007-10-25T09:23:00.000-07:00

David Korn reports:

HSNSI: The readings from the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average stock market exposure of a group of short-term market timing newsletters tracked by Hulbert Digest, stands at 40.3% as of Thursday night. That is about half of HSNSI's all-time record high of 79.7%, so that's not out of hand high. By comparison, the last time I reported on this number was in mid-August near the correction lows when this data point stood at a minus 11.3% which was a bullish sign. Mark Hulbert writes about the sentiment picture right now, and addresses the HSNSI, Investors Intelligence and the AAII surgey, concluding that an analysis of these three suggests that the market will be 2.5% higher in three months time. For those of you that are interested in tracking sentiment, this is a good article to read. Entitled, "Is glass half-full or half-empty" you can read it here:
http://tinyurl.com/ypk4s3

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Excerpt by Kirk Lindstrom from "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. 2007"

Charlie Maxwell Interview by Bob Brinker - Sept. 2007

2007-09-10T12:56:00.000-07:00

This is an excerpt from David Korn’s May 19-20, 2007 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

September 8-9, 2007 Newsletter

MONEYTALK GUEST - CHARLIE MAXWELL

Maxwell/Brinker: Bob opened the interview praising Charlie for his predictions on Moneytalk that the price of oil would trade in the $50s to the $70s which has been right on the mark in recent years. Bob asked Charlie if he had changed his forecast. Charlie said we have seen oil go from $25 a barrel in early 2003, to as high as $75 a barrel, with a peak at $78. There was a lot of oil being traded at $75. The rise from $25 to $75 is huge and represents a 200% increase. Nevertheless, Charlie said he thinks supply and demand are roughly in balance today and might stay here for a while, particularly given the weakness that is going on in the U.S. economy. A slower U.S. economy can translate into reduced imports, and thus slow foreign demand from countries like China. This period of transition where we stay in the range of $50s up to $80 a barrel should stay with us for another two years.

Looking forward after the next two years, Charlie gave his forecast as to where he thought the price of oil was going. Charlie pointed out that we have to take into account world population increasing and the demand for more cars in countries such as Russia, India and China -- all this suggests that demand is going up while supply is not. With this as a backdrop, Charlie thinks that by 2010-2011, we could see oil trade at over a $100 a barrel.

EC: Charlie has actually gone on record in the past projecting that West Texas Intermediate Crude would rise to rise to $85 by 2010, $180 by 2015 and $300 by 2020. Based on today's interview, it looks like he raised his 2010 prediction by $15 a barrel.

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Bob Brinker on Energy Prices and Charlie Maxwell

2007-07-29T17:44:00.000-07:00

This is an excerpt from David Korn’s July 28-29, 2007 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

ENERGY PRICES

Brinker Comment: The price of oil has been rising. It is peak driving season in the U.S. which causes demand for gasoline prices. Gasoline prices have been rising, not just because of the demand from drivers, but also because of the fact that we are strained in our refinery capacity. When we take out refineries for routine maintenance or because of a break down, it causes problems. The entire refinery industry has been pretty stagnant. Crude oil is now at $77 a barrel which is essentially at the record. The all-time record close is $77.03 and on Friday it closed at $77.02. That is close enough to call it a record level. One of the things that has helped make oil priced high is the rebound in GDP in the second quarter which many think can continue into the future.

David Korn Comment: Over the last year or two, Bob has stayed firm in his prediction that the price of oil would trade between the $50s and $70s per barrel. Bob said he bases that prediction on the outlook expressed by energy expert, Charlie Maxwell. That means that we are at the very high end of that prediction.

Brinker Comment: The U.S. has fallen flat on its face in terms of managing its oil needs. We knew back in the mid-1970s when we waited in gas lines that we had a problem. Here we are 33 years later and we still have a problem. One problem is that we, as a nation, consume 24% of all the oil produced around the world. The International Energy Agency is forecasting that worldwide oil demand is going to increase 1.8% next year. While that might not sound like much, when you consider that in the world today we consume 80 million barrel a days, then a 1.8% increase is another 1.5 million barrels a day that will be consumed. A lot of this has to do with China and other emerging markets. How is the world demand going to keep up with supply? That is the question. In the U.S., we can do more. Its hard to believe that the U.S. doesn't like nuclear power. Other countries in the world use nuclear power widely, including France, Japan and others. Even China has announced 40 new nuclear plants.

David Korn Comment: The International Energy Agency recently made its July 2007 report available to the public. In the report, they are projecting global oil demand to rise by 2.5% in 2008. Read the report at this url: http://omrpublic.iea.org/

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July 7-8, 2007 Recap

2007-07-09T06:32:00.000-07:00

BOB BRINKER FIX

This isn't a weekend I am doing an Interpretation of Moneytalk. Bob published his newsletter earlier in the week, and the shows that follow that usually are relatively bland as these were. Bob did show up, and here the highlights in bullet form:

1. Bob discussed the recent jobs report saying that the number of new jobs reported of 132,000 fell right in the "sweet spot." As for the stock market, it is now only about 1% from its all time highs.

2. Bob noted that the FOMC left interest rates alone, and predicted that they will remain unchanged at the August meeting.

3. Bob mentioned an auction of the Treasury Inflation Protected Securities next week. Here is a link to the TreasuryDirect auction web site:

http://tinyurl.com/n4ytz.

4. Bob said he still likes GNMAs and expects them to trade in a range of $9.50-$10.50. If you can't handle the volatility, Bob suggested creating a laddered portfolio of CDs.

Finally of note, Bob got a mention by Mark Hulbert this week in an article where Mark analyzed the top market timers. Mark quoted from Bob's June Marketimer where Bob had wrote that he believes there is "no risk" of a bear market occurring this year. I referenced that quote in my June 9-10, 2007 newsletter. It bears noting that none of the other market timers are bearish right now and their average stock market exposure is 79% --- exactly the same as mine. Read Mark Hulbert's article entitled, "Top market-timing newsletters are still bullish" at this url:

http://tinyurl.com/29vy2d

See: Thursday, June 26, 2008 Bob Brinker Fan Club Market Update - DOW down 19%

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June 30-July 1, 2007 Recap

2007-07-01T18:27:00.000-07:00

BOB'S ADVICE ON NEW MONEY TO INVEST

Caller: This caller had $300,000 to invest and wanted Bob's advice. Bob recommended that she take a"top down view" which means first trying to determine what your asset allocation should be. To do that, you consider your age, your tolerance for risk and make your decision on how you are going to allocate between stocks, bonds, real estate and any other asset class. Bob said for new money, he would recommend a dollar cost average approach using either the Vanguard Total Stock Market Index Fund for the equity portion of your portfolio or the GNMAs for the fixed income side.

EC: A couple of things here. First, Bob obviously isn't too worried about the terrorist attack because he is still recommending going into stocks. We aren't at the market highs, nor are we at Bob's last "buy" level of 1380. Thus, the dollar cost average approach seems to be the conservative advice Bob will maintain unless the market declines a fair amount further.

Charlie Maxwell Interview by Bob Brinker

2007-05-20T12:28:00.000-07:00

This is an excerpt from David Korn’s May 19-20, 2007 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

MONEYTALK GUEST - CHARLIE MAXWELL

Brinker Comment: Bob introduced 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.

Maxwell/Brinker: Bob opened the interview praising Charlie for his predictions on Moneytalk that the price of oil would trade in the $50s to the $70s which has been right on the mark. Bob asked Charlie if he had changed his forecast. Charlie said he sees more of the same, but knows that it can't last forever. There are two schools of thought. One school thinks oil can go to the low $30s. Charlie wishes that would happen because it would help our economy, however, he doesn't see it happening. When you look at the large oil producing countries, it looks like things are getting tighter, not looser. Charlie thinks in one or two years, we will actually move out of the range that he has projected and move higher.

Maxwell/Brinker: Bob said we are close to a record in gasoline prices. What is going on?

Charlie said there are two factors causing the increase. The first is that we have had a return to the high end of oil prices, now in the upper $60s. Over the summer, we will probably run in the low $60s which could reduce pressure. We have also had a series of refineries go down in the U.S., in part because they have been running so hard that maintenance was inevitable. It looks like now that we will have enough gasoline over the summer. Charlie thinks we may hit $3.15 as a peak this summer, but that it will then recede to below $3.00.

Caller: This caller asked Charlie about the implications of our country not preparing for oil running out. Charlie said we are not preparing ourselves either materially or psychologically to meet a sudden emergency. If there was a sudden outbreak of war, for example with Iran, or between Israel and Iran, we could find that 60% of the oil supplies were on the wrong side of the coin. What we have done is created the Strategic Petroleum Reserve. The Reserve gives us 6 months to a year supply, but long term we need to do something else, whether it is nuclear energy or clean burning coal. If we had a sudden cut-off in supply, it could seriously impact our economy.

David Korn Comment: As of Friday, the Strategic Petroleum Reserve Inventory stood at a total of 689 million barrels. We have 274 million barrels of the sweet stuff and 415 million of the sour stuff. Sweet and sour oil. All of a sudden I have a craving for shrimp fried rice. Keep track of the reserves of the inventory at this url:

http://tinyurl.com/2vgohz

Maxwell/Brinker: Bob asked Charlie where he stood on the idea of using nuclear energy. Charlie said he is for it because it has a proven record of clean burning fuel. However, Charlie said you shouldn't discount the fifth fuel. What is the fifth great fuel? Well, number 1 is oil; number 2 is gas; number 3 is coal; number 4 is nuclear. The fifth great fuel is "conservation." Charlie said that usually we need a warning shot -- such as a threat to cut off the oil from the Middle East.

David Korn Comment: If you are interested in energy conservation, Wikipedia has a very well-developed web page on the issue here:

http://tinyurl.com/24s7hm

Maxwell/Brinker: Bob noted that France is way ahead of the game in terms of building nuclear plants. China has announced its intention to step up their efforts and other countries are talking about that as well. Is this the reason for the big move in the price of uranium? Charlie thought it was and said that one of the enduring sources of supply in the future looks to be nuclear. What our country needs to do is recognize that we are going to be less competitive if we don't make the switch soon.

David Korn Comment: The last time Charlie was on the show he said we had thought for many years that the supplies for uranium would have been almost limitless. It turns out that we have about 60-80 years left of it.

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