Moneytalk Bob Brinker Summaries - Information ONLY

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Top 632. Dec 6, 2002 5:54 PM

» David_Korn - Bob Brinker's Moneytalk Commentary by DavidK

David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials and Special Alert E-mail Service. Excerpt from October 26-27, 2002 Edition

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BOB BRINKER'S GREATEST BUY SIGNAL OF ALL TIME!
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Caller: This caller recalled how a certain weekly business magazine called for the death of stocks at the end of the last long term bear mark. Bob seemed to get agitated or excited (sometimes it is difficult to interpret the difference!) I figured Bob was about to say something important, and I wasn't dissappointed. Bob noted that in August, 1982, when he was first on the radio in New York, he made what he considers the most important "buy" recommendation of all time as it marked the beginning of a secular bull market lasting until 2000. Bob sad he has rarely ever mentioned it on the radio, and only a few people even remember it, but the reason he brought it up today was that he recalled the magazine article referenced by the caller as being completely bearish at the time that Bob turned completely bullish.

EC: Very interesting. I have a few comments to make here. First of all, I think Bob's comments here reinforce that he doesn't think we are at the beginning of a bull market yet. Secondly, I found it a little ironic that Bob says he doesn't consider magazine covers in his stock market timing, but then points out that his most famous buy signal came at the same time as a famous magazine being incredibly bearish. Maybe its not ironic, maybe Bob is just being cute. We know that Bob analyzes sentiment, so perhaps he is really saying that he only quantifies measurable sentiment indicators, versus subjective sentiment signs as a magazine cover would suggest. I would suspect this to be the case.

EC#2: Bob and the caller were both referencing the now-infamous cover story from Business Week magazine entitled, "The Death of Equities." However, according to my research, both Bob and the caller have the date mixed up. The "Death of Equities" story came on the August 13, 1979 cover of Business Week, a few years before the secular bull began. In addition, and in all fairness to Business Week, it bears noting that in May, 1983, Business Week's cover proclaimed, "The Rebirth of Equities" as the bull market began gathering steam. Here is the source for my information:

http://www.businessweek.com/1999/99_13/b...

EC#3: With respect to Mr. Brinker's "buy" call in August, 1982, I have saved several messages posted by daBrink under an alias where he boasted about issuing a buy signal at Dow 777 in August, 1982. I don't know why Bob doesn't discuss it more often, as it would represent a great market timing move at the beginning of a secular bull market (very similar to his tactical asset allocation call near the end of the secular bull market in 2000). What does concern me, is that Bob doesn't mention that following that buy signal, his timing model failed to identify the bear market in the late 1980s. Now, Bob would probably say that he fixed his timing model after that, but if that's the case, then it wouldn't be the same model that predicted the secular move in 1982, right? The most important question remains; namely, will Bob's long-term stock market timing model be able to predict cyclical bulls and cyclical bear markets on a consistent basis such that it will add value to a portfolio over an approach where you steadily dollar cost average into the market over time. Past history does not give us any guidance, given the changes to Bob's timing model, and so far Bob has chosen not to delve into his past performance on this issue.

BOB BRINKER'S WORST BUY SIGNAL OF ALL TIME!

Caller: This caller wanted to know if Bob thought the QQQ shares, which are now trading at $24.62, are attractive for purchase, or are represent a good opportunity to short and bet that they will go lower. Bob got a little annoyed with this brazen caller, who snuck in this question behind an innocent one. Bob asked the caller how long he had been listening to the program, to which the caller said a few years. Bob then sternly told the caller that in the summer of 2000, he made an announcement that he would not make any short-term recommendations on the radio show relative to investing in the stock market. Bob said he thinks it was the right thing to do, and he is going to stick with that policy.

EC: I checked my archives, and Bob did explain that he wouldn't be sharing his short-term advice relative to the QQQ during the October 21-22, 2000 broadcast. I think you will find his reasoning for not sharing the information interesting:

Excerpt from October 21-22, 2000 Interpretation

Brinker Comment (October, 2000): On both Saturday and Sunday's show, Bob commented on why he wasn't sharing the latest QQQ counter-trend rally trade advice on the Radio broadcast. Bob referenced his prior counter-trend rally call in the QQQs which he made in May. In looking back over that recommendation, Bob has concluded that due to his world-wide listening audience (5-7 million listeners), Bob can have a "significant impact on the market" by making a recommendation on the air. Bob noted that when he recommended the QQQ shares back during the May 27-28th weekend, the QQQ shares had a material "gap" to the upside when they started trading (Tuesday after memorial day). In addition to the gap up, Bob felt that the QQQ going down to $84 (where he recommended to sell at the market), only to rise back up immediately, was further evidence of Bob's influence on the market.

EC (October, 2000): During the last short-term counter-trend rally in the QQQs, I provided links to articles written by James Cramer of thestreet.com where he mentioned Brinker's recommendation. Bob actually read from one of those articles on Sunday's show to further buttress his belief that he can move the markets through recommendations on the radio. Here is an excerpt from Cramer's article on May 31, 2000:

"Yesterday was one of those days. Coming in to the day we had aggressive Nasdaq 100 buying. I couldn't figure out where it was coming from. No one in my office could either. Some of that aggressive buying from the get-go, it turns out, stemmed from a radio report by Bob Brinker, a man whom I do not closely follow, who has been negative on the market since January. His decision to go positive for a trade over the weekend probably moved the thinly traded market that was yesterday's session substantially. He has a huge and deserved following."

http://www.thestreet.com/comment/wrongre...

EC (Present Day): Interesting huh? Personally, I don't think that reason is legitimate anymore, even if it once was. If Brinker could move the markets with his QQQ recommendation, I am sure he would have accomplished it by now with the QQQs!

EARNINGS

Brinker Comment: One of the hallmarks of this bear market has been the implosion of stock prices when bad news comes out. This past week, we witnessed that again when companies such as Cigna Corp. (NYSE: CI) and Texas Instruments reported earnings and lowered guidance below analysts' forecasts. Cigna, which is the third-largest U.S. health insurer and a member of the S&P 500, lost 38% of its value in one day after it cut its profit forecasts. Similarly, Texas Instruments (NYSE: TXN) plunged 29% as the company projected 10 percent lower revenues in the fourth quarter and announced 500 job cuts.

Bob noted that the economic recovery has been pushed out by many in Wall Street. Those who were hoping for a big economic recovery this year, were sipping from "hope cocktail." With the economy slowing down, this translates into the growth of corporate earnings. Analysts are finally starting to trim their estimates. Analysts expect fourth quarter earnings for the S&P 500 to rise 17.3%; however, this number is a dynamic number that has been on a downward slope over the last few months. As of October, 2002, earnings were supposed to rise 19.9%. On September 1st, the projections were for 22.9%. As you can see, this number is steadily declining.

EC: I think that the past few comments by Bob were based on an article he had in front of him that you can access at this link:

http://quote.bloomberg.com/fgcgi.cgi?pti...

EARNINGS DILUTED FROM PENSION LIABILITIES

Brinker Comment: Bob said it is extremely unlikely that we will see an earnings explosion this year -- even in the fourth quarter. Sure, we will get some gains in the fourth quarter, but the real important issue is earnings for 2003. Bob then painted a cautionary picture for 2003 earnings noting that many companies are still making their estimate projections based on 10% growth in their pension funds. Bob thinks that is not only too optimistic, but totally unrealistic. If Bob is right, and they don't have that type of growth from their pension funds, they will have to make it up from cash flow.

EC: I am glad Bob raised this issue, as I think it is an extremely important one. When the bull market was roaring, pension funds were making money, just like everyone else. With the bear market, pension funds have suffered along with the rest of equity holders. Many companies are obligated by law (or by the terms of their plan), to divert money into their depleted pension funds. What is amazing, is that many of these companies are still projecting that their pension funds will earn rates of return that they generated during the 1990s. What happens when this doesn't happen? The bottom line can suffer. And when the bottom line suffers, that usually doesn't help the stock price. Check out this timely article entitled, "Ticking Sound May Be Your Pension Fund" which you can read at the following link:

http://story.news.yahoo.com/news?tmpl=st...

VOLUME

Caller: This caller wanted to know if Bob analyzes the volume of shares traded as part of his work. Bob responded by saying that last week's market action was very interesting. For the most part, the market averages would have ended flat, but a rise on Friday helped contribute to an up-week. Bob said that if you were watching the market Friday, it really solidified and began trading higher following the news that Senator Paul Wellston was killed in a plane crash. Bob thinks that traders may have pushed the market higher betting that Senator Wellstone's death would result in the Republicans regaining control of the Senate. Bob added that the buying volume was "light" and the "conviction poor."

EC: Bob didn't really address the caller's question directly by saying whether he looks at volume as part of his timing model. I know that Bob has looked at volume in connection with examining the market internals when he attempts to call market bottoms. However, lately, for whatever reason, Bob has been trying to disavow his use of technical analysis in connection with his market timing. Analyzing volume, after all, is one form of technical analysis. Personally, I definitely monitor volume, both on individual issues, and with respect to the broader market. Volume plays an important role in trying to decipher what is happening beneath the surface of the actual stock price.

USING MAGAZINE COVERS AS CONTRARIAN INDICATORS

Caller: This caller wanted to know if Bob had read the cover story in this week's Barron's magazine entitled, "Ready to Roll - The Big Money managers anticipate the bull's triumphant return." Bob said that when it comes to stock market timing, he does not use any commercially available publication in connection with making a decision. Bob noted that he prefers to construct data based on how the market has historically performed, including what the market has done in this cyclical bear market, and how it has behaved in past cyclical bear markets. Bob also said he studies economic indicators, valuation, monetary policy, sentiment and all of the other indicators that go into the "science of investing."

EC: Perhaps Bob meant to end that last sentence by using the phrase, "the art of investing."

SIR JOHN TEMPLETON

Caller: This caller wanted to know if Bob had seen Sir John Templeton's recent interview on Louis Rukeyser's Wall Street. The caller said he was perplexed by Templeton's suggestion that he would be 50% U.S Treasuries, and 25% short the S&P 500, with 25% long in a managed mutual fund. Bob said he saw the show, and didn't understand Templeton's position given that the short position would offset the long position, and that he may do even worse than break even if the managed mutual fund underperformed. Bob also took a shot at Templeton saying he shouldn't be recommending that type of allocation on a national program given the audience that may have been watching. Bob noted that people have raised Templeton to "deity" which means he can say and do no wrong.

EC: Bob didn't have much good to say about Templeton, who Money Magazine dubbed "the greatest global stock picker of the century." Templeton launched his flagship fund, Templeton Growth, Ltd. in 1954. Each $100,000 invested then with distribution grew to total $55 million in 1999. He was knighted "Sir John" by Queen Elizabeth II in 1987 for his accomplishments, including the $1 million-plus Templeton Prize for Progress Toward Research or Discoveries about Spiritual Realities. He is now about 90 years old, but still incredibly active. The show that the caller was referring to, was the October 11, 2002 airing of Louis Rukeyser's Wall Street. Dow Jones Business News wrote a story about Templeton's appearance, which you can read at the following link:

http://biz.yahoo.com/djus/021013/1954000...

EC#2: Sir John Templeton is recognized in the "Money Masters Directory" and you can find his profile at this link:

http://home.netvigator.com/~raymondo/MMD...

EC#3: And for those of you interested in Sir John Templeton's spiritual side, check out the Templeton Foundation at this link:

http://www.templeton.org/

I-BONDS!

Caller: This caller is going to buy some I-Bonds and he wants Bob's opinion on whether he should purchase the I-Bonds before the end of October, or wait until the new fixed rates are established on November 1st. Bob said that the only reason to wait for November 1, would be if you expect the base rate to be increased. Bob said he can't think of any reason to support the Treasury deciding to raise the base rate. Bob concluded that the chances of them raising the base rate, are pretty much "non existent." For that reason, Bob couldn't think of any reason to wait until November 1st to purchase I-Bonds.

EC: Just this month, the government started offering investors another way to buy inflation-indexed savings bonds over the Internet. You can now choose the option of debiting a bank account to pay for the bonds. Learn more about this announcement at the following link:

http://story.news.yahoo.com/news?tmpl=st...

LONG-TERM BONDS

Brinker Comment: Bob said he would NOT go out into the long-term bond situation right now. You can find bond funds that have a pretty high duration. If you do that, you are opening yourself up to a 10-25% loss of capital if we get a sustainable rise in long-term interest rates. Could that happen? Yes, if we get into a situation where we see a sustainable economic recovery. In that situation, Bob thinks interest rates would rise, and you would face material depreciation in that asset value.

EC: Bob took a pretty strong stance this weekend against investing in long term bonds. Recently, he has stated that he still likes state general obligation municipal bonds for tax-deferred accounts, with maturities around 10 years.

GINNIE MAES VERSUS TIPS

Caller: Is there less risk in owning Treasury Inflation Protected Securities (TIPS) versus Ginnie Maes in a rising interest rate environment? Bob thinks there is less risk in TIPS if there is a major interest rate increase. You don't have inflation protection in the Ginnie Maes, like you do with the TIPS. If there is a substantial increase in interest rates, you will get all of the inflation back in the form of interest return when you own TIPS. With Ginnie Maes, you would see a decline in principal value.

Caller: What percentage of a portfolio do you recommend to invest in TIPS? Bob said in his newsletter, he has made two recommendations depending on your asset allocation. If you have all of your money in the bond market, with no equities, Bob has recommended up to 25% of your portfolio be in TIPS. If you are a balanced investor (50% fixed income and 50% in equities when fully invested), which Bob refers to as his Model Portfolio III, he has recommended that 25% of the fixed income portfolio be invested in the TIPS. Bob said this is a snapshot of where they are right now, and that he makes changes to his portfolio from time-to-time.

EC: I like Bob's idea of diversifying a bond portfolio. I was doing some digging around, and I came across the Oakmark Equity & Income I fund (OAKBX) which has done very well. As of the end of September, 2002, the fund held 38% of its portfolio in Treasuries, with about 40% of that allocation in TIPS. Link to story follows:

http://biz.yahoo.com/smart/021007/200209...

CYCLICAL BULL MARKET DEFINITION

Caller: Is there a particular definition you use to define a cyclical bull market in terms of duration, and in terms of percentage gains? Absolutely. Bob defines a cyclical bull market as lasting 1 to 3 years, and producing gains in excess of 25% as measured by the S&P 500 Index.

EC: Here is a link to an article that discusses some historical cyclical (short term) markets within the context of secular (long term) markets:

http://www.jsonline.com/bym/invest/apr02...

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Investor Sentiment
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EC: Not surprisingly, some of the advisors turned bullish in the latest reported Investors Intelligence survey. According to Barron's, Investor's Intelligence this week shows that bullish sentiment increased to 40.8%. Bearish sentiment stands at 35.7%. (The remaining 23.5% are basically bullish but calling for a correction or short-term weakness). For those of you tracking this sentiment indicator using the 4-week moving average that Bob Brinker uses in his timing model, using the formula [(bulls)/(bulls + bears)], the percentage comes to 53.33%, with the four week average standing at 46.97%.

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November
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EC: Historically, the month of November has generally been favorable to the stock market during midterm-election years, such as the one we are presently in. Over the last 50 years, November has ranked in the top 3 months (along with December & January) in terms of best performing months for the S&P 500 Index. It also marks the beginning of the "Best Six Month" seasonal market timing strategy, which of course coincides with Halloween and, therefore, is often referred to as the "Halloween effect." As noted in last week's e-mail, many of the marketimers who use this strategy, already entered into the market in October based on the Moving Average Convergence Divergence which I believe, may in part, have contributed to this rally.

I provide this information because I find it interesting. As to whether the Almanac provides any predictive value, I will leave that for the historians to decide!

Source, Stock Trader's Almanac 2002 Edition, pp. 102. Editor, Yale Hirsch & Jeffrey Hirsch. http://www.STOCKTRADERSALMANAC.COM/index...

FINAL THOUGHTS FROM DAVID K: If you want to know how to subscribe to my newsletter, just e-mail me at:

mailto:davidk555@earthlink.net

Or, visit my website:

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

DISCLAIMER: I am not associated with ABC Radio Networks, Moneytalk or Bob Brinker and this service 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, helpful financial links, guest contributors and even humorous remarks. I also provide Special Alerts to my subscribers as part of my e-mail service and give them access to my web site, www.BeginInvesting.com. If you want to know what was actually said verbatim on Moneytalk, listen to the show live. The web site www.bobbrinker.com has all the links to the ABC Radio Network Stations that broadcast the show live and via the Internet. There used to be free summaries of the Moneytalk shows on that web site. The information contained in this e-mail is not intended to constitute financial advice and is not a recommendation or solicitation to buy, sell or hold any security. This article is strictly informational and educational and is not to be construed as any kind of financial advice, investment advice or legal advice. Copyright 2002 David Korn, L.L.C.

-- posted by David_Korn

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