Bob Brinker Free Discussion Site 59,820+

Top 1020. Jan 29, 2006 11:36 AM

» iamacamera - Re: Re: civil tone

In response to Re: civil tone posted by allancoleman:

"Kirk took dija up on his offer and asked dija not to post here anymore ."

Kirk, is this true?

I wondered what happened to Dija.

-- posted by iamacamera

Top 1021. Jan 29, 2006 12:50 PM

» allancoleman - Re: Did anything happen ont he show Saturday?

In response to Did anything happen ont he show Saturday? posted by dukeandduke:

nothing interesting happened yesterday , dukeandduke . i'm set up to listen again today too . bob's guest yesterday was interesting for those with questons on educational investment options .

-- posted by allancoleman

Top 1022. Jan 29, 2006 4:08 PM

» iamacamera - Re: Re: Did anything happen ont he show Saturday?

In response to Re: Did anything happen ont he show Saturday? posted by allancoleman:

Today, Brinker had yet another lefty prof talking about "our" collective duty to the great unwashed.

-- posted by iamacamera

Top 1023. Jan 29, 2006 4:25 PM

» allancoleman - Re: Did anything happen ont he show Saturday?

In response to Re: Re: Did anything happen ont he show Saturday? posted by iamacamera:

' healthcare ' , iamacamera , is a issue that we all must face . unwashed or not . lefty or righty . old age and health problems has a way of separating the politics down to the nitty - gritty . as bob brinker says , " after you've achieved critical mass , focus on your health " .

-- posted by allancoleman

Top 1024. Jan 29, 2006 4:53 PM

» dukeandduke - Today, Brinker had yet another lefty prof talking about "our" co

Yes Bob and his politics are tiresome which is the reason I tune in briefly at the beginning of the show to see if he changed his market indicator. I am "one of the leeches" who does not pay for his newsletter. LOL

The remaining portion of health care not paid for by the state (medicare, medicaid) will become socialist. People who can afford it will pay extra for quality treatment on demand (if the government doesn't jail doctors for providing this as the Hillary Health Scam dictated). The hundreds of millions stuck in the general system will have rationed care.

Today, people give away their assets and then demand to go on the state welfare program to fund their final years in a nursing home / hospital. The entire system is a disgrace and patients families and some providers are criminals.

At the beginning Bob spoke about how the January indicator and other indicators are superstition and pretty much worthless. In 2003, Jan was a down month yet the year was terrific and anyone following the Jan indicator in 2003 was burnt in a major way. Other than that, there was general advice regarding bonds, mortgages, mutal fund fees, etc.

I agree with other posters who state Bob will not change his market indicator anytime soon (though I still think it can be done in 2006).

-- posted by dukeandduke

Top 1025. Jan 29, 2006 7:04 PM

» iamacamera - Re: Re: Did anything happen ont he show Saturday?

In response to Re: Did anything happen ont he show Saturday? posted by allancoleman:

healthcare ' , iamacamera , is a issue that we all must face . unwashed or not .

Thanks for the tip, Allan.

-- posted by iamacamera

Top 1026. Jan 29, 2006 7:17 PM

» allancoleman - Re: Did anything happen ont he show Saturday?

In response to Re: Re: Did anything happen ont he show Saturday? posted by iamacamera:

you're welcome grasshopper . smile .

-- posted by allancoleman

http://www.bobbrinker.com/order.asp

Top 1027. Jan 29, 2006 9:49 PM

» David_Korn - Bob Brinker's Timing Model (from David Korn's Newsletter)

Hi everyone. I am pleased to be able to share with you an exerpt from my newsletter this weekend which discusses the issue of Bob Brinker's stock market timing model. Because the excerpt is so long, I will have to divide it into two posts, but they are meant to be read together. I hope you enjoy them! - David Korn

Post I of 2

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. 2006

Web site: http://www.BeginInvesting.com

Excerpt from January 28-29, 2006 Newsletter

BOB BRINKER AND HIS STOCK MARKET TIMING MODEL

With the stock market just a few points away from its bull market highs, several of my subscribers have asked me whether I think Bob's timing model has or is about to turn bearish. In my opinion, the answer to both those questions is no. I thought I would use this weekend's newsletter to provide some analysis to back up that opinion. (Bob's next Marketimer newsletter comes out on Feb. 4th).

ROOT CAUSES OF A BEAR MARKET

Back in the days when the secular bull market was coming to an end, Bob was asked how he would know a bear market was coming. At that time, Bob discussed the five factors or "root causes" as he refers to them that foretell a bear market. Those five root causes include the following: (1) tightening monetary policy by the Federal Reserve; (2) rising interest rates (especially short-term rates); 3) rising inflation; (4) rapid economic growth; and, (5) over valuation in the market.

If you look at the foregoing five factors, is there is cause for concern? Certainly we have rising short term interest rates. However, inflation (so far) remains benign. We also haven't seen rapid economic growth, as evidenced most pointedly by the recent GDP numbers and the jobs picture. And valuation (depending upon who you ask), seems reasonable given the current earnings picture.

I always think its interesting to get other opinions on these types of issues, and Kirk Lindstrom, who is a bit of a Brinker historian himself, agreed to give his thoughts on these factors as well. Let's see what Kirk has to say:

*************************
GUEST CONTRIBUTOR
*************************

Title: Analysis of the Five Causes of a Bear Market
Author: Kirk Lindstrom (with editorial comments by David Korn)

Kirk: In Bob Brinker's January 2000 Marketimer newsletter, he published what he referred to as the "Five Root Causes for a Bear Market." Those five causes include:

1. Tight Money

2. Rising Rates

3. High Inflation

4. Rapid Growth; and,

5 Over Valuation.

In January 2000, Bob adopted a tactical asset allocation and moved 60% from equities to cash because of:

1. Tight Money: Bob said the Fed was reducing M2 to slow growth -- BEARISH Indicator

2. Rising Rates: Bob was predicting higher long and short term rates to continue. This did not happen, but it was BEARISH for his model.

3. High Inflation: Bob said the CPI was approaching 3% and import prices were up 5% which would further impact inflation. We didn't get high inflation, but this was BEARISH for his model nonetheless.

4. Rapid Growth: Real GDP growth was approaching 5%. Bob felt the Fed would use rates to try and slow this. This was BEARISH and correct.

5. Over Valuation: According to Bob's newsletter, he wrote, "We believe valuation levels in the U.S. market are stretched to the limit." Another BEARISH indicator.

All 5 of his root causes were BEARISH at that time.

DavidK EC: For a very long time, if you requested a complimentary back issue of Marketimer, Bob would send his January 2000 newsletter. I think he then switched to his March 2003 newsletter. In any event, you can request a complimentary issue by going to this link:

Kirk continued: All 5 of his root causes were BEARISH in January 2000. On the radio program at the time, he said he was not bearish, but the odds favored a decline over the market going up more than 5%. As such, he recommended reducing the equity allocation from 100% to 40% in his model portfolio numbers one and two. He also lowered his Model Portfolio III (which is a balanced portfolio) equity allocation from 50% to 20%. In the Summer of 2000, when the market was a bit higher, he recommended taking another 5% out of equities.

DavidK EC: That recommendation actually took place in August, 2000 bringing Bob's tactical asset allocation at its most conservative to 35% equities and 65% cash.

Kirk continued: In October 2000, Bob recommended putting 20% to 50% of his cash reserves back into the market via the Nasdaq-100 (QQQQ shares) for a counter trend rally despite saying his model had not given a buy signal. The QQQQ trade was a disaster, but his long term timing model was correct to predict further weakness because 2001 and 2002 were both down years for the markets. The market bottomed in October 2002 and his model correctly gave him a bullish buy signal within 5% of that bottom in early 2003.

Now, let's look at the 5 Root Causes of a Bear Market and see where they stand today:

1. Tight Money: Long term interest rates are still near historic lows. If you look at the chart I created at the following link, you will see that rates are up off their lows, but remain half what it was in the late 1980s:

http://tinyurl.com/by7og

In the foregoing chart, you can also see the large spike in 2000 lines up well with the start of the bear market in the S&P 500 as people were selling bonds to buy stocks. Today it is the reverse; people are buying safe US Treasuries rather than stocks. BULLISH

2. Rising Rates: Bob and I seem to be in agreement that the Fed is only normalizing rates. This means they are going up, but it really doesn't count because they are going up to where they should be if we had not had a 9/11 terrorist attack AND a major recession. I rate this NEUTRAL!

DavidK EC: Bob Brinker is already on record saying he thinks the Fed could have easily stopped raising rates when the Fed Funds rate got to 4.0%. Bob said he would have stopped at 4.0% if he was in charge to see how higher oil prices would have an impact on consumers.

Kirk continued: I also believe this will turn bullish because the Fed should stop rising rates given the low 1.1% GDP growth announced this past Friday, January 27, 2006, and several months of data suggesting the housing speculation has ended. Others, like Ed Yardeni, think the Fed will raise rates to 5% this year. I would say this would be bearish if short-term rates, now at 4.25% are raised above 4.5%.

DavidK EC: Dr. Ed Yardeni is a well known figure in the financial circuit. For a while he was Chief Investment Strategist and a Managing Director of Prudential Equity Group, LLC, and before that Chief Investment Strategist for Deutsche Bank. He was also an economist with the Federal Reserve Bank of New York. Kirk is right about Yardeni. In his 2006 forecast, Yardeni said he expects the economy to expand at a rate of 3.5% in 2006 (pretty much in line with Brinker), and inflation will remain at around 2%. According to Yardeni, "With inflation at 2%, the Fed will be hard pressed to explain why it's raising interest rates over the next few meetings." However, Yardeni predicts the Fed Funds rate will be at 5.0% by May, 2006. Yardeni believes the stock market should appreciate 7-8% in 2006 and he has a price target of 1410 for the S&P 500 for 2006. Check out his entire market forecast, including his stock picks and pans, at this url:

http://tinyurl.com/a2z3q

DavidK EC#2: Dr. Yardeni is perhaps best known for popularizing the so-called Fed Model. This model compares the interest rate yield of the 10-year U.S. Treasury note and the yield equivalent to forward operating earnings per share of the S&P 500 index. Dr. Yardeni has all sorts of public data available on his web site at this url:

http://www.yardeni.com/

3. High Inflation: As long as there is an internet connecting China and India to the U.S., I do not see wages being in danger of high inflation. Higher energy prices have led to slightly above target core inflation, but the deflationary forces are secular in nature and should help to contain core inflation. If energy prices remain high, they could actually lead to lower inflation in future quarters as we become even more efficient at converting energy dollars in to GDP dollars. I rate this BULLISH!

4. Rapid Growth: With fourth Quarter GDP growth at 1.1%, people now are worried we will fall into a recession if the Federal Reserve continues to raise rates. The January 27, 2006 report at the following url from the U.S. Department of Commerce shows fourth quarter 2005 was the lowest quarter of GDP growth since the last quarter of 2002:

http://tinyurl.com/c6wzn

The ECRI's WLI is moving higher which says we should see a bit more GDP growth in future quarters, but no huge growth and no recession. This is VERY BULLISH.

DavidK EC: The term "ECRI" Kirk is referring to is the Economic Cycle Research Institute which Bob references on the show occasionally. The "WLI" is the Weekly Leading Index. You have to pay big bucks to get much of ECRI's data, however, some of their information is reported in the news if you do a little digging and I do a lot of that! On Friday, the ECRI said its weekly leading index edged up to 138.3 in the week ended Jan. 20th from an upwardly revised 137.8 in the prior week. The annualized growth rate of the index rose to 3.8% in the latest week, compared to 2.7% the prior week. The growth rate has reached a 20-month high! According to the director of research of ECRI, "Despite a drop in gross domestic product growth in the fourth quarter the weekly leading index affirms that no recession is imminent." Read more here:

http://tinyurl.com/dbu4y

5. Over Valuation: I wrote in my most recent newsletter that for 2006, S&P estimates "as reported top down earnings" (that includes options expensing) will be $82.87 (on 12/16/05 it was $82.87) for a forward PE of 15.1 which is very reasonable. I don't think we have anything to worry about unless these pass 18 or 20 as long as long term interest rates give an earnings yield in excess of 20. I rate this BULLISH.

DavidK EC: You can learn about Kirk's newsletter at the following url:

http://tinyurl.com/3mb7h

Kirk conclusion: My "interpretation" as David likes to say, is that four of the five factors that Brinker says cause a bear market are bullish, with only one neutral. My conclusion is that Bob Brinker will not be predicting a bear market in the weeks ahead.

DavidK EC: Thanks Kirk for the analysis!

Now, onto the stock market timing model...

Post 2 of 2 follows.

-- posted by David_Korn

Top 1028. Jan 29, 2006 9:54 PM

» David_Korn - Post 2 Bob Brinker's Timing Model (from David Korn's Newslette

Post 2 of 2

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. 2006
Web site: http://www.BeginInvesting.com

Excerpt from January 28-29, 2006 Newsletter

DavidK: The "root causes" of a bear market is the starting point for Bob's analysis. Bob also analyzes the history of past markets to see if their is historical evidence to support a bear market. In addition, Bob examines trading volumes, the cumulative advance/declines, new highs and new lows, all of which falls in the realm of technical analysis, although Bob says he does not use "charting" to predict the future. Finally, for Bob to actually adopt a risk-averse position in equities, that decision is made according to the dictates of his "long term stock market timing model." To answer the question of how Bob's timing model might be looking right now, I consulted with SteveT, one of my charter subscribers and also a Brinker historian of sorts.

*******************************
GUEST CONTRIBUTOR #2
*******************************

Title: LTSMTM UPDATE
Author: SteveT (with editorial comments by yours truly)

Introduction.

SteveT: Those veteran David K. subscribers have in the past seen my interpretations of Bob Brinker's model. The purpose of this guest editorial is to give my thoughts on how I think Bob sees his model this last weekend in January 2006.

DavidK EC: For the benefit of my new subscribers, and as a refresher for the rest, we refer to Bob's model as the "LTSMTM" an acronym for Bob Brinker's Long Term Stock Market Timing Model. Mr. Brinker's timing model has four major components, all with approximate equal weighting. They include: (1) Valuation; (2) Monetary policy; (3) Economic; and, (4) Sentiment.

SteveT is quite modest, but he has accumulated quite a bit of knowledge about Bob Brinker, his timing model and methodology. I think Steve has great insights into Brinker's operations. Quite frankly, I know that Brinker knows about Steve's work, and I don't think he is all that happy about it, as Steve hits the mark quite often!

SteveT: A while back I got to wondering what causes Bob's model to change from bullish to bearish or bearish to bullish. Is it simply his personal expectation for future market returns? Does he really have a "model" that he completely relies on? Over the years, certain things kept coming up repeatedly that led to a hunch on my part about "the model." I have looked back in time trying to identify what triggered a change in Bob's model and I believe I am on to something.

I have written in the past about how I thought Bob viewed his “model” at that particular point in time and how I believe the “model” is constructed. We all know Bob looks at numerous indicators and the “model” is quantitative and does ultimately depend on Bob making a subjective judgment at some point to alter his allocation. The “model” was originally entirely comprised of fundamental analysis indicators. After Bob made a major mis-timing move, getting out of a bull market in 1988 and not becoming fully invested again until January 1991 when the DOW was some 20% higher, he added the Technical analysis component. Technical analysis ("TA") relies on things happening a certain way because they acted that way before under the same conditions. Detractors often say TA is not reliable since things are never exactly the same as they have been in the past. In one sense, Bob’s “model” in entirely technical analysis since he is relying on things falling into place this time because they did previously. You can see how it is easy to go in circles trying to follow this stuff. I will say having a model to study does have the advantage of partially eliminating some of the emotions we all face at the tops and bottoms of the market cycle.

We all know from listening to Bob on the radio that he claims to be able to know when to be in the stock market and when not to be. I believe Bob's model is simple but logical. Everyone knows the stock market is uncomfortable with things like inflation and a tight money supply. We also know that trees don't grow to the sky, and there is a limit to how much people will pay for the prospect of future earnings. When economies grow to fast and future inflation fears arise, interest rates will increase and that has historically put pressure on share prices.

It has been said that the stock market is a discounting mechanism. It tries to anticipate what a stock or group of stocks will be worth 6-12 month down the road. In the interim, volatility can move stock prices widely, offering opportunity for both buying and selling of stocks at favorable prices. Or at least that is the theory.

Methodology.

I have always believed that Bob has a great deal of respect for valuation. Every Monday when he examines his model, I believe Bob starts by calculating the current P/E ratio of the S&P 500 -- the Index which Bob says his current timing model tracks. Determining the market's valuation can be a daunting task since there are many methods to choose from. We do know the stock market is a forward looking device. Based on Bob's past statements, I believe he looks at forward operating earnings.

In going back to look at what makes his model tick, I found it practical to use actual earnings for the period in question. This minor adjustment would cause my figures to fluctuate from the actual numbers Bob may have used.

I believe after making the initial P/E calculation, Bob compares that to the P/E of the FED model. What is that you say? Simply put, you take the yield of the ten-year Treasury bond and divide that by 1. For example, if the current yield is 4.75%, you use the formula (1/ 4.75)*100 = 21.05. If the current P/E is below 21.05 the market could be deemed undervalued and if over 21.05 it could be classified as over valued.

Throughout his history, Bob seems to be fixated with catch phases that he uses. One example, would be that his model "projects an increase of 10% to 20%" or "up to 20% or more." Do you ever recall Bob saying things along these lines? I believe when the P/E calculation Bob makes every Monday is between 80% and 120% of the FED model P/E he calls the valuation indicator neutral. When below 80%, it is bullish and when above 120% it is cautionary. Taken to the extreme, when above 150% it could trigger a sell signal no matter what the other indicators tell him.

DavidK EC: Bob has been consistent in saying that his model is "either bullish or bearish." In other words, there is no in between which suggests that he might actually assign a number based on the data points which triggers the decision to issue a buy or sell recommendation.

SteveT continued: It is important to separate historic valuation from current valuation. Bob's method allows you to stay invested in equities when valuations are high historically, provided we are in a low interest rate and low inflation environment. You might be tempted to go back to the 1988 to 1991 and check this theory. I'll save you the trouble. It doesn't jive, but remember Bob's timing model failed during that time, and he allegedly changed it after wrongly exiting a bull market in the late 1980s.

After making the first calculation, I believe Bob quickly reviews the other segments of his model. My guess is that he starts with the Monetary policy indicator, followed by the Economic indicator. Then, he finishes up with his newest indicator, Sentiment, which seems to be evolving to this day. I suspect that even if the last three indicators were in conflict with the Valuation Indicator, Bob would still be hard pressed to announce a change in his model outlook. In fact, I believe he uses these secondary indicators to confirm what the Valuation Indicator is saying. He may even look to these secondary indicators to pick a precise time to pull the trigger.

Bob often references the five root causes of bear markets. Those being; tight money, raising rates, raising inflation, rapid growth, and over valuation. As of today I don’t think anyone would claim money is tight. M-2 money supply is growing nicely and anyone desiring credit or mortgages does not need to spend much time searching. The Fed Funds rate has risen 1.75% in the past nine months while the ten-year treasury yield has barely moved. It seems we are all waiting to see where the FED stops. This is something I am sure Bob will be monitoring closely in the coming months.

Inflation is creeping back into the picture but for now is not out of control despite the pain we all feel when we fill our gas tanks. Final Fourth Quarter 2004 GDP was expected to come in at 4% but actually finished at 3.8%. This indicates an economy humming along in the sweet spot and in no danger of overheating. Valuation is certainly reasonable, with 2005 forward P/E coming in at slightly above 17 using Bob’s $69 as the earnings guess. Considering the inflation environment one could hardly make a case for over valuation. All in all, I can see why Bob’s last newsletter implied that further gains in the U.S. stock market are expected this year and he fully expects new cyclical bull market highs and his model is not anticipating becoming bearish anytime soon.

The art and science in all of this, is trying it assimilate the information and determine which indicators deserve the most weighting at any particular time. With that said, and with DavidK's help, let's look at the individual components of the model with an eye toward how they might translate based on this final week in January.

MODEL ANALYSIS

VALUATION INDICATOR

SteveT: The S&P 500 closed Friday at 1283.72. Using Bob's 2006 estimated operating earnings of $79 we get a Price-to-Earnings multiple of 16.25. This is reasonable in our current interest rate and inflation environment. I am sure Bob will be keeping closer tabs on earnings after the weaker than expected GDP. Despite the headline of the economy slowing dramatically, nearly half of the S&P 500 companies have reported earnings and so far 64% have beaten earnings expectations. Moreover, 17% of those companies have matched earnings expectations and only 18% disappointed. Wall Street loves to climb the proverbial wall of worry, but I don't see anything to lose sleep over here and don't think Brinker will either. In short, the VALUATION INDICATOR is BULLISH.

DavidK EC: Bob Brinker tracks the P/E ratio of the S&P 500 when analyzing the valuation component of his timing model. Contrary to what some people think, he does not use the Dow, nor does he use the Wilshire 5000. Bob's earnings estimate of $79.00 is pretty much in line with the estimates from Standard & Poor's. Right now, Standard & Poor's is estimating earnings of $78.87 through the first quarter of 2006 and $80.48 through the second quarter of 2006. Bob has pointed out that the average P/E ratio for the market when we have periods of low inflation comes in around 18-1/2. Keep in mind that is a historical average during periods of low inflation. If earnings continue to improve, and inflation remains benign, the market can afford the types of valuations we presently have. I agree that the Valuation Indicator as Bob tracks it is bullish. I would note, however, that the terminology and definitions we use probably deserve more scrutiny. For example, the so-called "quality" of earnings has changed over the years, as accounting standards have changed. Thus, there is a debate over the usefulness of historical P/E comparisons -- a topic I hope to address through a guest editorial in the future.

MONETARY POLICY

SteveT: This topic is going to be getting special attention in the coming week. Tuesday will be the final meeting for the eighteen year Federal Reserve Chairman, Alan Greenspan. This could be a rather complex meeting. As recent as ten days ago, it was a foregone conclusion that short term rates were going to increase .25% on Tuesday. Not only is the Fed going to be pouring over the most recent GDP data, but we also have a U.S. dollar weakening, stronger Durable goods, along with stronger than expected employment numbers to consider. My view is that the GDP report probably won't change the course of the Federal Reserve at the coming meeting. Of course, the interest rate announcement often takes a back seat to the Statement that accompanies the rate announcement which is released at 2:15 p.m. Eastern Time on Tuesday. Remember, the current goal of the Fed is not to fight run away inflation, but to "normalize" rates. Real M-2 Money supply is still on the anemic side barely keeping up with inflation. I would think Bob is going to view Monetary Policy as accommodative or Bullish while closely monitoring it.

DavidK EC: Bob follows the monetary supply to determine the necessary liquidity for continued expansion in the United States economy. Bob has referred to the M-2 money supply as "the fuel of our economic growth." You may have noticed that Bob has been discussing monetary policy more and more frequently on the shows of late. I think (like Steve pointed out), all eyes (including Brinkers) are on the Fed to see how they react after Greenspan. Bob is already on record saying he thinks the Fed could have easily stopped raising rates when the Fed Funds rate got to 4.0%. Bob said he would have stopped at 4.0% if he was in charge to see how higher oil prices would have an impact on consumers.

DavidK EC#2: I agree with Steve that the Fed will likely raise rates at the next meeting. According to the Federal Funds futures, traders have priced in a 98% probability that the FOMC will increase the target rate by at least 25 basis points (from 4.25% to 4.5%) at the January 31st meeting. There is only a 2% probability of no rate change. I am not sure Bob would rate this indicator as outright Bullish, but given the other indicators which I do believe are bullish, I don't think it changes the outlook for his model.

ECONOMIC INDICATOR

SteveT: The Economic indicator is composed of the GDP, which is a measure of our economic growth. The big headline for this week was the announcement that GDP grew at only 1.1% rate in the fourth quarter (after growing at a solid 4.1% in the third quarter). The good news is that most are expecting the economy to improve during the remainder of the year. The bad news is the same folks predicting a stronger economy, were also predicting Friday's GDP report to be about 3%!!! What Bob is going to be looking at is whether GDP will rebound via revisions and the first Quarter 2006 report.

Brinker Comment/EC: On this weekend's Moneytalk broadcast, Bob addressed the 1.1% GDP report and pointed out that nobody was expecting 1.1% in the economic community and even the lowest estimates weren't even close. Bob took a look behind the numbers. First, there was a big slowdown in consumer spending. Motor vehicles fell out of bed. You might remember that many of the car makers had phased out the incentive programs. In the fourth quarter, consumers were cutting back on spending due to higher energy prices. In addition, business spending slowed which was a bit of a surprise. Moreover, military spending fell out of bed. This came as a total shock given all of the military operations going on. It doesn't make much sense, and many think these numbers will be revised. Bob noted that his target growth for GDP for calendar year 2005 was in a range of 3% to 4%. Guess what the final number was? It was 3.5%, a direct hit as far as Bob was concerned. (I would call a direct hit a bit of a stretch given the range of his prediction). This represents a slowdown from the prior year's number of 4.2%, but keep in mind that the Fed has been on their rate hike train since June of 2004. As the Fed hikes the rates, this puts the breaks on the economy slightly. Bob blasted the Fed this week for its decision to raise the Fed funds rate above 4.0%, and said there is no need for them to continue raising rates at this juncture - no reason whatsoever!

Bob also announced his 2006 forecast for GDP on this weekend's show. Bob is predicting 2006 GDP to come in between 3.0% and 3.5%. However, Bob said he is going to continue looking at the economic fundamentals, because until the Federal Reserve starts to conduct itself in a responsible way with reference to short term rates, it is something that will need to be monitored.

SteveT: Interestingly enough, a week ago an acquaintance of mine predicted a much weaker than expected GDP after he saw the lower revenue than expected from General Electric. I plan to research whether there has been any correlation in the past between GE revenue and GDP.

DavidK EC: Steve might be onto something about analyzing GE. I read an article today which described GE as a company "whose size and range of businesses make it a barometer of the overall U.S. economy..."

http://tinyurl.com/93xwf

SteveT: At some point, continued lower company revenues from GE (and others) will translate to lower earnings. This can turn things nasty if it spirals into lower employment and wages, which in turn can lead to lower consumer spending. For now, that is something we haven't seen. Moreover, I suspect that Bob being an optimistic kind of guy will for now consider the Economic portion of his model as Bullish. After all, one report does not make a trend. Who knows, we may even begin to hear the term "soft landing" in the financial press!

DavidK EC: The GDP numbers reported Friday were "Advance" numbers which will be subject to revisions later on by the Commerce Department.

DavidK EC#2: At one time, Bob has also mentioned that "forward earnings momentum" and "economic momentum" comprise this indicator. What is important relative to this indicator is the rate of growth in the economy. I have a hunch he also looks at productivity as a way to see just how much growth we can enjoy without inflation becoming a problem. The forward looking indicators, like the ECRI WLI as I referenced earlier, are pointing toward growth this year. As of this moment, I think the economic or business cycle is in the bullish camp.

SENTIMENT INDICATOR

SteveT: Analyzing sentiment is something that Bob added to his “model” after the poor performance he suffered in the 1987 to 1991 time frame. When I first recall him mentioning it, the primary data point was the Investors Intelligence four week moving average of Bulls/Bulls + Bears. The latest report from Investors Intelligence shows 53.7% Bullish and 25.3% Bearish. This gives us a ratio of 68%. The four-week moving average is 70.39%, just barely into what I think Bob views as the cautionary area. Other data points are the VIX, TRIN, and volume. Lately he has mentioned several times the Put/Call ratio, both the 10 day and 60 day moving averages. I would think Bob is encouraged that the 60-day Put/Call ratio is still above 80, currently at 0.81, while the 10-day Put/Call ratio is 0.83. Bob also looks closely at market internals such as advance/decline line and new highs/new lows. I think the recent volume and the market internals have looked very bullish overall.

DavidK EC#2: Bob views Sentiment as a contrarian indicator. As Steve accurately noted, I believe Bob began with primarily the weekly poll of investment newsletter writers done by Investors Intelligence. Bob uses the formula bulls/(bulls + bears) to yield a percentage. When the number comes in between 50% and 70%, Bob views it as a neutral sentiment data point. When the number comes in under 50%, it is viewed as a bullish indicator as it means the majority of newsletter editors are out of the market, and the only way they can affect the market is by buying back into it. If the percentage drops to under 50% (after checking the other indicators) it often in the 1990's indicated a buying opportunity or as Bob said, a "Gift Horse Buying Opportunity." Again when it drops to under 50% that means that one or more of every two newsletter writers are bearish. They are out of the market when they should be buying. Bob has referred to the newsletter writers who are in the "Correction" category as "clueless" and do not factor into his calculations. When the number is over 70%, it represents a lot of bullishness among advisors, which is a dangerous level from a contrarian standpoint. Bob attempts to smooth out the weekly bumps by looking at the 4-week moving average of this percentage.

DavidK EC#3: I was surprised to discover that the put/call ratio closed Friday at 0.80, despite the strong up move in the market. As Steve noted, the 10-day put/call ratio is 0.83; the 21-day ratio is 0.78 and the 60-day is 0.81. Bob viewed the 60-day bullish even when it was as low as 0.78, so that's good news.

SteveT: I believe that as time goes by, Bob has learned more about technical analysis and added other data points to this Indicator in an attempt to diversify and avoid mistakes. During the panic of autumn 1998, Bob started talking about other indicators such as the Put/Call ratio. It was also then he seemed to key in on market internals such as new highs/new lows, advance/decline, volume, etc. He liked to see the market make a bottom and then drift higher, then retest the low on lighter volume. The theory was that those that were going to sell already did and that only left buyers left to move the market. To my way of thinking, the current data is bullish and in the short term could very well propel the S&P 500 to new recovery highs. The Sentiment Indicator is BULLISH.

DavidK EC: In recent times, it appears Bob added the TRIN and the VIX to the mix and there are quite a few more. I agree with Steve in that the combined results of all these Sentiment Indicators is bullish. Every couple of months, I do an extended version of the sentiment data so look for it some time in the near future.

CONCLUSION

SteveT: To summarize, I think that Bob would view all four major model components as Bullish. It would appear the economy is in no danger of over-heating. This bodes well for an end to rate increases by the FED in the near future. Valuations are reasonable and we do have some room for P/E multiple expansion. Additionally, there is still a healthy amount of fear, which as a contrary indicator is bullish. My guess is Bob is so bullish, he may even increase to 1190 from 1180, his target for the S&P 500 to change from a Dollar Cost Averaging recommendation, to an all out buy. So there you have it. Use this information at your risk or not. Record the numbers and make up a spreadsheet like I did to track the model components and see what you come up with.

DavidK EC: I agree with Steve and believe Bob is still bullish on the market. I actually think Bob's next correction level outright buy recommendation might be 1200. I want to thank Steve very much for sharing his views on Bob's long term timing model and the market. I welcome comments from any of you concerning this discussion of Bob Brinker's long term timing model. Once again, thanks for contributing Steve!

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-- posted by David_Korn