Once you are approaching your retirement years, you start to think of how you are going to implement your retirement and spend your money. Choosing a place to live can have a profound impact on how far your money goes. In this article taken from a past Retirement Advisor Newsletter, we discuss some of the tax issues associated with where you decide to live your retirement years.
WHERE TO LIVE IN RETIREMENT
There is a growing realization among United States citizens that government services at the Federal level are likely to decline at the same time that taxes are going up. Budget deficits that have accumulated over the years have to be paid off. Where retirees might get hit hardest, could be dependent on where they live. Many state and local governments were hurt deeply by the recession with revenues declining, against the backdrop of significant liabilities. The decision of where you live in your retirement years is dependent on many factors, such as proximity to family, recreational opportunities and even weather. However, the dramatic change in our economy in recent years has made the issue of financial security come to the forefront in many people's decisions on where to retire. It is not a topic that many investment advisors take time to address, as most are usually focused on the bottom line return.
State Income Taxes
Many states have started the new fiscal year with tax codes that are vastly different than last year. And many states are scrambling to raise money. In November, Californians will vote on a ballot initiative that would raise the income tax by a quarter-cent, while taxes would increase on those earning $250,000 or more annually.
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 and 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.
A nonpartisan educational organization, the Tax Foundation, has compiled a detailed analysis of each state’s individual income tax rate and it is now available online. The information includes individual state tax rates, income brackets, personal exemptions and other noteworthy changes.
http://tinyurl.com/c7jvxjm
Local Income Taxes
Depending on where you live, cities, municipalities and other local governmental bodies can institute their own wage, income, and occupational privilege taxes. In 4,943 jurisdictions in 17 states, cities impose a tax on residents. The following URL will take you to a listing of local taxes for the major cities in the United States:
http://tinyurl.com/79y789
We will post part II of this article in the coming days, be sure to check back. In the meantime, read a sample of our Retirement Advisor Newsletter and learn how to subscribe."The Retirement Advisor"
Sunday, July 8, 2012
Thursday, November 10, 2011
The Retirement Advisor
David Korn and I created The Retirement Advisor investment letter specifically to address the concerns of the mature investor – someone who is seeking quality bonds, CDs, and other fixed income instruments as well as individuals who want to keep abreast of the stock market as part 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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Wednesday, March 18, 2009
Stop Losses
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.
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.
Monday, February 23, 2009
Bob Brinker, Moneytalk and Charlie Maxwell
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.
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.
Saturday, February 14, 2009
Bob Brinker/Moneytalk/Stephaen Fitch/Pensions
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
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
Tuesday, November 25, 2008
Did Bob Brinker's Timing Model Predict The Bear Market?
This is an excerpt from David Korn’s November 22-23, 2008 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.
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.
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.
More Articles:- What Is A Safe Withdrawal Rate in Retirement?
- Using Asset Allocation to make money in a Flat Market
- Winning on the zigs, losing on the zags
- Beware of Annuities
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.
Monday, September 15, 2008
Ginnie Maes Over Fannie Mae and Freddie Mac
Bob Brinker's favorite fixed income investment includes Vanguard's GNMA Fund (Charts of VFIIX).
This is an excerpt from David Korn’s September 13/14, 2008 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.
From "The Rise and Fall of Fannie Mae and Freddie Mac."
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%.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.
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."
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:
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%) |
Sunday, August 24, 2008
Charlie Maxwell Interview by Bob Brinker - August 2008
This is an excerpt from David Korn’s August 16-17, 2008 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.
On Saturday (August 16, 2008), Bob (Brinker) had on one of his favorite guests, Charlie Maxwell, Senior Energy Analyst for Weedon & Co.
Charlie was educated at Princeton and then Oxford. He has been working in the oil industry since the 1950s. In the 1960s he became an analyst on Wall Street and has been rated the #1 energy and oil analyst on many occasions. Bob heaped heavy praise on Charlie as the best of the best in terms of energy analysts and mandatory listening for Moneytalk trekkies. Bob also congratulated Charlie on receiving the M. King Hubbert E3 Ward for Excellence in Energy Education at the 2007 ASPO World Oil Conference. I summarized the interview below.
Maxwell/Brinker: Bob opened the interview asking Charlie his view on what is going on in the energy market. Charlie said what happens next with oil is on everyone's mind. Charlie said he doesn't think we are deeply solving the problem of less oil being produced in the world in the coming years, while demand from foreign countries surges ahead. Many foreign countries subsidize the demand, keeping demand higher than it normally would be. Charlie said he thinks the price of oil will stabilize in the next 1-2 years, and in fact Charlie said he thinks we may see a significant decline in the price of oil down to the $80-90 a barrel range. Charlie said he was looking for oil to come down to those prices and then stay for quite a while around $100 a barrel.
DAVID KORN COMMENT: That would be huge. It also be closer to Charlie's prediction on Moneytalk last year when he forecast that oil would trade in the $50s to the $70s. His forecast that by 2010-2011 oil would trade over a $100 a barrel was obviously way off when oil broke easily through $100 some months back.
Maxwell/Brinker: Bob asked Charlie to comment on people suggesting we convert to wind and solar energy. Charlie said we want to use more solar, but people have to understand that today's solar energy is only about 0.1% of all the energy we use in this country. Even if we could get ten times as much solar, we would only be at 1.0%. Moreover, even if we did a nationwide push for solar energy, the best we might get in the next few years is 3%, and during that time we would have lost more than that in oil alone.
DAVID KORN COMMENT: Charlie's reference to losing more oil during that time is based on his agreement with Dr. Marion King Hubbert, who predicted that the world oil production would reach a peak and then rapidly decline.
Kirk Lindstrom's Comment: For more on what is called "Hubbert's Peak" I recommend the book "Hubbert's Peak: The Impending World Oil Shortage."
In Hubbert's Peak, Deffeyes writes with good humor in easy to understand language about the oil business and a sobering message: the 100-year petroleum era is nearly over. Global oil production will peak and the world's production of crude oil "will fall, never to rise again." If correct and "if nothing is done to reduce the increasing global thirst for oil--energy prices will soar and economies will be plunged into recession as they desperately search for alternatives."
Maxwell/Brinker: Bob asked Charlie to comment on using wind energy to combat the energy crises. Charlie said the first problem is the wind doesn't always blow. Sometimes when you have heavy hot spots, there isn't wind for a long period of time and you have to replace that energy with coal or some other fuel. You would have to build that extra capacity because you never know when you would need it. Plus, it takes a lot of energy to make the infrastructure for wind energy, and there are other problems with it, such as birds that get killed in the propellers. People also don't like the noise they make. And there aren't many places to build them. Even when they do produce electricity, the wind farms are often in areas that they would need to transport the energy produced to where it is needed. Charlie said we are working on superconductor transmission lines, but that is probably 20-30 years away. Charlie pointed out that not everyone agrees with him, and noted that T. Boone Pickins is one of the people pushing wind energy:
DAVID KORN COMMENT: On T. Boone's web site promoting his energy plan, he states that the Department of Energy reports that 20% of America's electricity can come from wind with North Dakota alone having the potential to provide power for more than 25 years. Read about it here:
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
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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."
Friday, August 8, 2008
Brinker Fixed Income Advisor Newsletter
We think "The Retirement Advisor Newsletter," edited by Henry To, Kirk Lindstrom and David Korn, is a good alternative to the "Brinker Fixed Income Advisor Newsletter" that is edited by the son and daughter-in-law of ABC Radio's Bob Brinker.
FREE issues of The Retirement Advisor newsletter in pdf:
Webbsite for more info and current Performance Data
.
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
.
Tuesday, August 5, 2008
David Korn Summarizes Bill Wattenburg Moneytalk Interview
In his August 2-3 Newsletter, David Korn wrote the following
summary of Bob Brinker's Moneytalk guest speaker,
Dr Bill Wattenburg:
.
Dr. Bill: The main topic that Bob and Dr. Bill discussed was
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
.
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
.
Thursday, July 10, 2008
Bob Brinker's Market Timing Model Fails To Predict The Bear Market
David Korn just reported:
See: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?
- >>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.
Friday, July 4, 2008
Bob Brinker Comments on Oil Prices
Bob Brinker opened the weekend (Saturday June 28, 2008) reminding listeners that he has been talking about the importance of oil prices and energy on today's economy. There is a direct correlation between rising oil prices and the economy as well as the stock market and we saw evidence of that this week as the S&P 500 closed Friday at 1278.
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.
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.
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.
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:
Caller: What's your take on the impact of the weak dollar and the price of oil? Bob said they are linked as we pay for oil in dollars. If our dollar loses value in the international market place, which it has, then oil is more expensive for us. Our country has a strange policy relative to the dollar. Our policy is to always say that we "favor a strong dollar." That has been a mantra repeated by the Treasury Department, regardless of who has been in office. The U.S., however, has done nothing to support that philosophy of a strong dollar. We live in a country where spending is through the roof and there is no end in sight to our deficits. If there was one thing that would impress global currency investors, it would be if we operated with a balanced budget mandate. That would probably do more for the U.S. dollar than anything.
Brinker Comment: Bob said he thinks the price of oil is really responding to the geopolitical concerns. The supply/demand cushion is gone, and yes demand has increased, but the kind of increases you have seen this year must be attributed to the psychology of investors who are worried over what will happen with supply. This weekend, for example, Iran has threatened to impose control of the Persian Gulf and Strait of Hormuz if they are attacked. Nobody knows how this will play out and the uncertainty is causing consternation in the markets.
David Korn: Here is a link to an article entitled, "What's Really Fueling Those Sky-High Oil Prices:
Get a FREE SAMPLE ( January 2008 Issue ) of Henry, David and Kirk's newsletter, "The Retirement Advisor."
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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.
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."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.
[From March Inflation Up on Higher Energy and Food Costs][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 areThe 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.
- 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.
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/58d4akBrinker 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
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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
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.
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