Moneytalk Bob Brinker Summaries - Information ONLY

» David_Korn - A Trader asks Bob Brinker Is the Bull Market Over?"

Excerpt from David Korn's Newsletter - Interpretation of Bob Brinker's Moneytalk

CALLER OF THE DAY!
(Fiboncacci, Bob Brinker's long-term outlook and more)

Caller: This caller thanked Mr. Brinker for putting the market's recent move into perspective. However, the caller suggested that to really put the market in perspective, you need to go back to the all-time highs in 2000. The caller said that if you do that, there is evidence that suggests the next bear market leg is about to begin. The caller explained his rationale as follows. If you look at where the market is today, relative to the all-time highs, the Dow Jones Industrial Average has retraced exactly .786%, the S&P 500 has retraced 0.50% and the Nasdaq has retraced 0.382%. The caller noted that these are typical retracements in a bear market rally according to the Fibonacci theory which the caller said suggested that this is a perfect time for the next leg of the bear market decline to begin.

dramatic pause.

Bob took a moment to collect his thoughts because this caller was suggesting a market move totally opposite to Bob's current outlook.

Launch attack mode.

Bob pointed out that the most famous Fibonacci code supporter in the world has been predicting that the Dow is going to 400. Bob said if this fact alone didn't discredit the Fibonacci theory, he didn't know what else would.

Editorial Comment ("EC"): Bob is referring to Bob Prechter, who he previously gave the nickname, the "Georgia Peach Bear." Mr. Prechter is an infamous market timer who publishes the newsletter, "The Elliot Wave Theorist." He also is author of the book, "Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression." Mr. Prechter gained some notoriety in the 1980s with some very accurate market calls, but during the 1990s, his bearish outlook tarnished his credibility.

caller rebuttal

The caller told Bob that the person who predicted 400 in the Dow, was simply one person's interpretation of the Fibonacci code, but there were many others who interpreted the data differently. The caller added that he is a technical trader and there are many who trade every day using Fibonacci successfully. Bob got a little hot under the caller pointing out that there are thousands of interpretations of Fibonacci, and of course some of those are going to be more right than others, but all can't be right.

EC: The Fibonacci sequence of numbers (0,1,2,3,5,8,13,21,34...) was discovered by the Italian mathematician Leonardo de Pisa. If you look at this sequence of numbers, you will notice that the first two terms of the sequence are 0 and 1 and each successive number in the sequence is the sum of the previous two numbers. A fellow by the name of R.N. Elliott believed that markets have well-defined waves that could be used to predict market direction. This is now referred to generally as the Elliot Wave Theory which is rooted on the Fibonacci sequence of number. For a good primer on the Elliot Wave Theory, I would start at this link:

http://tinyurl.com/2nfbn

Caller continued: Bob said he doesn't follow the Ellioit Wave Theory. Instead, Bob said he believes in secular and cyclical moves in the market. Bob defines secular moves as very long term moves in the market -- moves that tend to last 8-20 years. That doesn't mean they make their absolute low at the end of the 20 years. For example, during the secular bear market from 1929-1949, the absolute low was made in 1932, even though the secular bear movement continued through 1949. In fact, even after the bounce from the lows to the highs in the 1930s, there came another massive cyclical bull market within that secular trend.

EC: The secular bear market Bob is referring to here began with the Dow trading at 381.18 in September, 1929. Twenty years later, the Dow closed at 161.60. That was a 58% decline in price value over 19.8 years. Ouch. (Note: that does not include dividends).

Caller continued: Bob noted that the last secular bull market began on Friday the 13th in August, 1982 when the Dow was trading at 777. That secular bull market persisted all the way through until January 14, 2000 at 11,272. Bob said it is his contention that the secular bull market for the Dow ended in January 2000 and for the S&P 500 it ended in March 2000. The only way to defeat that notion is to sustain price levels "substantially above the old highs." That means for the S&P 500, you would have to see the market well above 1527 to refute the argument of the secular bear. We are now 4 years from the end of the secular bull market, and with the S&P 500 at 1120, there is no refuting the fact that we are in a secular bear market. Within that trend, you have cyclical bulls and cyclical bears. We had cyclical bear market #1 which began in the first quarter of 2000 and ended on March 11, 2003. This followed an initial bottom in October, 2002, followed by a successful test on March 11, 2003. We then entered a cyclical bull market which began on March 11, 2003 when the S&P 500 closed at 800.

Caller continued: The caller agreed that we are in a cyclical bull market, but suggested that at the current levels, the cyclical bull market may have run its course, and the next cyclical move is going to be a cyclical bear market. Bob told the caller he is entitled to express his opinion, but that is not Bob's opinion.

EC: For a while, I was wondering whether Bob was going to use October 9, 2002 or March 11, 2003 as the beginning point for the cyclical bull market. I am disappointed that Bob choose the latter as he always said that the closing price determines when cyclical bulls and bears begin. If you look at his past Marketimer newsletters, he has always followed this approach when discussing cyclical moves in market history. The fact that he is now using the March 11, 2003 date as the beginning point of the cyclical bull market might be great for his own personal marketing efforts, as he can say he "called" the beginning of the cyclical bull market. But in reality, the Dow, S&P 500, Wilshire 5000 and Nasdaq all closed lower in October, 2002 and for that reason I think he should be using the October lows as the starting point for this cyclical bull market.

David Korn, editor of http://www.BeginInvesting.com/

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

mailto:davidk555@earthlink.net

-- posted by David_Korn

» Kirk - BLOG: Bob Brinker Posted Using an Alias

-- posted by Kirk

» David_Korn - Summary/Commentary of Bob Brinker's Moneytalk

Brinker Comment: Bob said that recently he has pointed out that the "bad news bears" have been doing a very poor job of talking down the stock market. The total correction in the S&P 500 on a closing basis has never exceeded much over 5%. The market rose 45% from its March 11th lows of last year through the first quarter of this year. This correction is a very modest pullback by any measure given the run-up. This market has shown a lot of resilience. The bad news bears have been wishing and hoping the market would fall down, but the market generally does not accommodate such people. The bad news bears are "talking trash" and they get on Bob's nerves. Bob said he gets so tired of them, but he won't name them since it is not in his nature to "name names."

EC: You don't think I am going to let that slide do you? I have a list of approximately 17 Wall Street Strategists who Bob gave various nicknames too during the history of Moneytalk. Perhaps Bob's nature has changed!

Brinker Comment: The outlook for the stock market is different now than in March of last year when the S&P 500 was bouncing around the 800 level, not far above the lows reached in October, 2002. The beginning of the cyclical bull run represented a fantastic buying opportunity to put cash reserves back to work. With this recent correction, the bad news bears went into panic mode waiting for the market to go down even further.

EC: Although we had a nice correction, Bob certainly didn't issue a "buy" signal, or suggest that investors with cash on the side "lump sum" back into the market. In the past, Bob has on occasioned referred to "gift horse" buying opportunities where he has varied his dollar cost average advice into the market (once he has already been fully invested in his model portfolio). He didn't do that this time, and has instead maintained a dollar cost average approach.

EMPLOYMENT REPORT

Brinker Comment: The bad news bears told us there would be no new jobs. They couldn't have been more wrong on that front. This Friday, we got the jobs report that we have been waiting for. It was simply fantastic! Bob said new jobs is the only thing we needed to complete this economic recovery. The new jobs were added at an outstanding pace in the first quarter.

Nonfarm payroll employment rose 308,000 in March. This came along with the good news that the data for the prior two months also needed to be revised by adding 46,000 more jobs in February and 159,000 in January.

The new jobs report is also good for President Bush. Bob said he may have his differences with the current administration, but you have to give President Bush credit for turning this economy around. Specifically, Bob said Bush deserves praise for reducing the marginal tax rates because they have put more money in the pockets of working Americans. Bob said he hears some candidates talk about raising income taxes which Bob thinks makes absolutely no sense in this type of environment.

Caller: This caller is with a company that employes 27 people and last month they hired 4 new people. Although it is only anecdotal evidence of the entire jobs situation, he thinks the employment report Friday is legit and was glad to see the numbers. Bob said he, along with others who have been bullish on the economy, were very pleased to see this report. Bob added that he was very disappointed to hear the rhetoric from certain politicians who were trying to negatively spin the most recent jobs data. Although Bob doesn't like to name names, he tore into Senator Kerry as launching one of the most ill-timed advertising campaign attacking the jobs situation in our country, on the weekend following the great employment report.

Brinker Comment: If you look at the jobs report, many of the new jobs are in the service sector. Manufacturing jobs were basically flat, although it is better to be flat than to be losing ground. The grocery workers returning to work after the labor strike also helped. One of the soft spots was information technology which lost 1,000 jobs -- just about the only significant category to lose jobs. Part of this is probably attributable to the outsourcing of jobs to places like India.

Brinker Comment: Average weekly hours worked fell .1 from 33.8 to 33.7 which is not a big deal, but not the direction we want it to go. The increase in average hourly earnings was up only 0.1% and average weekly earnings was hardly changed as well. Despite these numbers, Bob is very optimistic about the jobs situation. There have been some excellent gains in productivity which is keeping unit labor costs way down, and pushing corporate profits nicely higher.

Although the spinsters are trying to talk down this employment report as an isolated event, Bob said in his opinion he does not foresee the jobs situation collapsing going forward. If you look at past history, these things usually play out in such a way that we will continue to get jobs growth.

EC: Read the Employment Situation report from the Bureay of Labor Statistics at this link:

http://stats.bls.gov/news.release/empsit...

Brinker Comment: Despite all of the rhetoric against outsourcing jobs, there is hardly any positive talk about the benefits we get from outsourcing. Inexpensive foreign manufactured products are very helpful to every consumer in our country that buys them. In a lot of cases, consumers in our country would not be able to afford products if they were produced solely in the United States.

HIGHWAY BILL

Caller: This caller is concerned about the growing debt in our country and wanted to know if Bob agreed. Bob said he is absolutely concerned with it and has publicly taken issue with some of the spending policies of the Bush administration. Bob said he thinks President Bush must veto the highway bill that is coming across his desk which is loaded with pork. Bob thinks President Bush must send a message that the open door policy on spending is over.

EC: The U.S. House of Representatives passed a record $275 billion transportation bill on Friday voting 357-65. The House bill must be reconciled with a $318 billion Senate version. Both the House bill and Senate bill were approved by margins strong enough, that if they held, could override a Presidential veto.

DON'T MAX OUT YOUR 401(K)?

Caller: This caller read an article in Business Week where a University Professor and Federal Reserve Bank official discussed reasons why you should not max out investing in your 401(k) plan, the main one being it would lower your income tax bracket and impact the amount of interest you would be able to deduct if you had a mortgage. Bob called that assertion "ridiculous" because you have to consider the interest rate on the mortgage. Bob thinks the people who wrote the article are missing the point of maximizing your 401(k) plan, which is to achieve "critical mass." The way to achieve that is to save and invest.

EC: The caller was referring to comments made by economists Laurence J. Kotlikoff of Boston University and Jagadeesh Gokhale of the Federal Reserve Bank of Cleveland who argued that many workers would do better by switching contributions from their 401(k) to other accounts. Bob didn't really explore the issue to deeply with the last caller, but if you want to read the arguments these two fellows make, I found the article entitled, "Are You Overstuffing Your 401(K)?" at the following link:

http://tinyurl.com/3e8ss

DON'T SPECULATE IN THE MARKET WITH SHORT TERM MONEY

Caller: In March, 2003, this caller's daughter had $110,000 in cash from the sale of a house which she was going to use to purchase another house in November, 2003. Despite Bob's March 11th buy signal, he advised his daughter to keep the money in cash since she was going to be using it to purchase a house that fall. Now she is blaming him for not telling her to put the money in a mutual fund during that time period when stocks did very well. Bob told the caller that he gave the right advice. If you have cash that you have earmarked for a house 6 months down the road, you shouldn't be speculating in the stock market for that short a period of time.

EC: This advice marks one of Bob's tenants on market timing. As far as I know, he has never advised using short-term cash that is earmarked for real estate to speculate in the stock market. His short-term trading advice with the QQQ (as bad as it was), was meant to be used with cash reserves from an investment account, not with money that was going to be used to purchase a home.

BOND TIMING?

Caller: This caller in his mid-50s has about $1 million split between 60% stocks and 40% bonds. The caller noted that after the good jobs report announced Friday, there was a tremendous sell-off on bonds. Should he trim his bond holdings and put more in stocks, or just wait out the fluctuations in interest rates. Bob said you should stick with an asset allocation you are comfortable with, and chasing a stock market that has already risen over 40% in the past year doesn't make a lot of sense. The caller then asked Bob if it would make sense to at least trim the bond portfolio and put some of that money in cash. Bob said it would depend if you are comfortable with the returns you get sitting in cash where you can only get about 1%. If you want the investment income off of your bond holdings, then don't do anything, pocket the returns, and recognize that the net asset value will fluctuate with interest rates moves over time.

EC: Bob doesn't really do much, if any, "bond timing" as other market strategists do. In other words, some timers will go in and out of bonds based on their predictions for the direction of interest rates. That ain't Bob's bag, baby.

CREATING A LADDERED PORTFOLIO OF CERTIFICATES OF DEPOSIT

Brinker Comment: One of the ways to put your bond money to work, is to purchase date certain maturities, such as a laddered CD approach. You go to FDIC insured banks, purchase a ladder of CDs with various maturities. That will always give you money coming due and different dates which you can then reinvest at the interest rates prevailing at that time. Your CDs are FDIC insured and will always come due at full value. This is a great conservative strategy. You will have the cash flow. You will have the money coming in at maturity dates and you don't care what happens to rates, because you will be reinvesting a portion of your bond portfolio at any given time taking advantage of whatever rates are being offered when one or more of your CDs comes due. Its true that CD rates are low, but all bond rates are low, with the 30-year Treasury paying less than 5% and the 10-year Treasury paying only 4.15%. The 10-year rate is about the same as what was being offered in January, and then we had this wave of bogus opinion that came in during March where people thought we would have no new jobs and the economy wouldn't recover. This produced what Bob viewed as an aberration in the 10-year where rates fell below 4%. Bob said he could see the 10-year trading in a 4-5% range as we go forward in the next several months.

EC: The Rising Rates Opportunity ProFund (Ticker: RRPIX) which I purchased last month in my newsletter portfolio is a way to exploit a rising interest rate environment, whether as a hedge to a bond portfolio or as a way to speculate on increasing your capital if you think rates are moving up.

BONDS AND INTEREST RATES

Brinker Comment: You will always see rising interest rates when the jobs reports are favorable because that is what starts people thinking about inflation, or at least "inflation expectations." When you get the jobs, that is when you get inflationary expectations and a concomitant rise in rates.

Caller: This caller was trying to decipher a comment Bob once said about the returns in a bond portfolio during a rising interest rate environment. The caller was confused over whether in a rising interest rate environment, the higher income a bondholder received by virtue of the higher rates might offset a decline in the net asset value. Bob didn't think so and noted that a basic tenant of bond investing is that bond prices decline when interest rates rise. When you own a bond mutual fund, you have a "moving feast" of maturity dates which means the bond fund's net asset value will invariably decline in a rising interest rate environment -- more than enough to offset any increase in interest income you might receive by virtue of new bonds being added to the fund portfolio that carried the higher rates.

EC: Bob seemed to get a little flustered in this conversation, and I think he is bracing for an onslaught of calls in the coming months who are concerned about declines in the net asset value of their bond holdings (such as Ginnie Maes). You have to give Bob credit on this issue-- he has repeatedly warned that a rising interest rate environment will negatively impact bond fund holdings.

Caller: This caller in her 60s, used all of her pension to care for her mother and has $527,000 left to live on for the rest of her life. She has a lot of money in Ginnie Maes, and is getting panicked over the decline in her net asset value. She purchased Ginnie Maes for $10.75 in 2000, and the NAV is now down around $10.54. Bob told her that she sounded like an investor that had a zero tolerance for risk. In that case, Bob suggested she take the assets and put them in FDIC-insured certificates of deposit and build a ladder with varying maturity dates to roll-over into the prevailing rate structure. Bob told her that she is risking a 5-10% decline in the net asset value of a Ginnie Mae fund if there is a "major move in rates."

Brinker Comment: If a 2-3% decline in net asset value over a 2-3 year period is bothering you, despite having received a premium interest income return during the same time frame, you better re-evaluate your tolerance for risk.

EC: I guess the GNMA callers are already lining up. The last call came later in the broadcast, but I put it here to drive home the point.

TIPS OR GNMAs?

Caller: This caller asked Bob if he was recommending Treasury Inflation Protected Securities over Ginnie Maes at this time? Bob said his recommendation has been to take a diversified approach in a bond portfolio. However, if rising rates are going cause you to lose sleep at night, you should purchase date certain maturities of CDs. You can completely avert bond market risk with a portfolio consisting of a ladder of FDIC-insured CDs.

EC: This is a very conservative approach to a fixed income portfolio. You may recall that during the spring of last year, Bob was recommending using I-Bonds to create a laddered bond portfolio.

I-BONDS OVER TIPS

Caller: Which investment do you prefer right now, I-Bonds or Treasury Inflation Protected Securities (TIPS)? Bob said the I-Bonds are extremely attractive relative to TIPS, because I-Bonds have automatic deferral of interest income for tax purposes which you don't get from the TIPS unless you hold them in a tax-deferred account. You can also get tax-free treatment from I-Bonds for education if you follow the guidelines. In addition, the base rate on the I-Bonds is 1.1% which is competitive with TIPS. You also get the consumer price payout. All in all, the I-Bonds are extremely competitive in the inflation protected bond arena.

The caller then asked if Bob thought they would raise the I-Bond rate in May? Bob said he doesn't see anything to suggest the Treasury should raise the rates in May. Although he could change his mind between now and then, at this point, Bob does not expect to see the base rate on the I-Bond rise at the pricing scheduled for May 1st.

EC: The new rates for I-Bonds will be posted on May 3, 2004. For a snapshot at what I-Bonds offer, go to this link:

http://www.publicdebt.treas.gov/mar/mart...

CRUISING COMMODITIES

Caller: This caller wanted Bob's opinion on the price of commodities, such as some metals and paper which have been going up substantially. Bob didn't have much to say, other than there has been a lot of demand or these commodities coming out of China which is one of the main reasons you have seen the price action.

EC: The Reuters-CRB Futures Index, which tracks a basket of oil, metal and other commodities rose to a 22-year high last month! Can it continue? Check out this article in which an analyst warns that global commodities demand will continue from China, but at a slower pace than 2003:

http://tinyurl.com/3flxa

THE BEST INVESTMENT

Caller: This 29-year old caller is going to start investing in a Roth IRA and wanted to know what the best security to purchase would be? Bob said he likes the idea of using a Wilshire 5000 based fund. The Total Stock Market Index name usually refers to a fund that tracks the Wilshire 5000. Bob recommended that the caller find a total stock market fund with expenses of 20 basis points or less with no load.

EC: You could also purchase Vipers (ticker: VTI), the exchange traded fund that tracks the Wilshire 5000 which I have as part of my newsletter portfolio. It trades in real time, you just have to be cognizant of the commission you pay and I would recommend a discount online broker where trading commissions can be very reasonable. Personally, I use Scottrade and have been very happy with them. Check out their website here:

http://www.scottrade.com/

REITS

Caller: Do real estate investment trusts (REITs) react to interest rates increases similar to bond funds. Bob asked the caller rhetorically what happened on Friday? REIT funds were hurt significantly. Bob said that REIT investors stated clearly on Friday that they were not happy with the move in interest rates.

EC: Bob missed the boat on REITs in recent years. Several of my subscribers have done very well investing in REITs and I have some good information stored to do a longer editorial on the issue. (I did a primer on REITs in my March 1-2, 2003 newsletter if anyone would like me to send them a copy).

TIMING QUESTION

Caller: When you make market timing calls, does that include international funds? Bob said that when he issued his buy signal in March, 2003 to go fully invested, at that time he recommended all of his cash reserves be placed into the U.S. stock market. The reason he did that was because he felt the visibility for the cyclical bull market in the United States was very very good. That doesn't mean that at other times he won't make recommendations as to international funds, and in fact he still has a small portion in the international arena in his model portfolios.

EC: Bob's stock market timing model is based on the S&P 500, which is the largest 500 U.S. companies by market capitalization. He already had an international weighting as part of his 35% equity allocation before the March 2003 buy signal. (This does not include the 20-50% weighting in the Nasdaq-100 trust (QQQ) which was recommended to his subscribers prior to the March 2003 call.

WILL THE FED RAISE RATES SOON?

Caller: This caller wants to know if Bob thinks the Federal Reserve will react to the jobs report. Bob said he doesn't see how it is possible for the Federal Reserve to ignore this kind of strength in the jobs market. Although it just appeared in the report on Friday, with the revisions upward in the prior two months, this is something that needs to be looked at in the context of the entire first quarter. That said, Bob said he would be surprised if Greenspan and the FOMC instituted a rate hike before their next meeting. There are FOMC meetings scheduled for May, June and August. As for the economists who don't think the Fed will raise rates in calendar year 2004, Bob disagrees.

EC: The Fed has been getting increasing criticism for leaving interest rates low for so long. A USA Today survey of 54 economists showed that one-third thought the interest rate policy was "too easy." This week, Federal Reserve Governor Donald Kohn defended the Fed's policy in a speech given at Widener University entitled, "Monetary Policy and Imbalances" which you can read here:

http://tinyurl.com/2yes4

EXPENSING OPTIONS

Caller: This caller is a shareholder of a company that has a vote coming up as to whether to expense the company's stock options. The board of directors wants him to vote against it. Bob noted that the issue is a timely one in that the Financial Accounting Standards Board has recommended that regulators require companies to record company stock options as expenses. At the same time, there is a lot of controversy over how any such expensing would be implemented. It is such a difficult subject to pin down, that there are even varying views assuming expensing should be done. Stock options that are exercised dilute the ownership value of your shares. That is something that can not be argued away. One advantage to voting in favor of the proposal is that expensing the options might discourage the Board of Directors from issuing so many options!

EC: The Financial Accounting Standards Board web sites has all sorts of information on this topic. The FASB's recommendations which were published on its website, http://www.fasb.org/ in the form of a draft is accepting comments through June 30, 2004. If the draft is approved, the guidelines would be put into effect by the Securities and Exchange Commission. It bears noting that Standard & Poor's estimates that FASB's recommendation if adopted would reduce its 2004 forecast average earnings per share to $48.45 from $52.30, a 7.4% decline!

THE IMPACT OF RISING RATES ON GOLD

Caller: Will the rise in interest rates bode well for the price of gold? Bob noted that as interest rates go up in the U.S., it attracts foreign capital into our country because our interest-bearing instruments (such as treasuries), have a higher absolute rate of return. This increase in rates hurts gold two ways. First, instruments with higher yields serve as a direct competitor to gold as an investment. It also hurts gold because gold does not pay any rate of interest. In fact, gold bars have an intrinsic negative rate of return on interest because you have to store it in a warehouse and pay for those storage costs. For both of those reasons, you did not see gold celebrate the jobs report.

EC: As much as Bob lambasts the stock market "bad news bears" he has been a bad news bear on gold for sometime now, even in the face of what has clearly been at a minimum a cyclical bull market in gold. Judging by his comments to the last caller, Bob continues to have a bearish view on gold. There are still plenty of gold bugs out there. Check out Peter Brimelow's article on the topic at this link:

http://tinyurl.com/yrr7w

RISING RATES TO STOCK MARKET

Caller: This caller wanted to know the relationship between interest rates and the stock market in general and whether rising interest rates could pose a problem to the stock market going forward. Bob said rising rates aren't the problem for stocks right now. Interest rates become a problem for the stock market when investors start to worry about the Fed tightening the reins on the money supply to such an extent that it puts the economy in jeopardy.

CHANGES IN THE DOW

Brinker Comment: The Dow Jones Industrial Average underwent its first shake-up in almost four years, evicting three major U.S. Companies, AT&T, Eastman Kodak and International Paper. These companies will be replaced with Pfizer, American International Group and Verizon. Its interesting to note that if they had made those changes back in 1999, the Dow would be 400 points higher than it is now. Bob added that the Dow is not that good an index to track for purposes of following the market. It is only 30 stocks equal weighted. Bob said he much prefers to use the S&P 500 or Wilshire 5000 for money management purposes, and every money manager he knows uses the S&P or Wilshire 5000 to measure performance. The Dow has been as low as mid-7000s during the cyclical bear market low and in the 11,000s at the end of the cyclical bull market. Eastman Kodak has been through so much as they have tried to move their company into the 21st century with all of the changes in digital photography. Bob said he can understand the changes and agrees with them, especially with AT&T. The Dow has 107 years of history which makes it unique. Remember, the Dow is equal weighted, not market cap weighted.

EC: Bob used to refer to the Dow in connection with the analysis of his long-term stock market timing model, but now always refers to the S&P 500.

Brinker Comment: There aren't many funds that just track the Dow. Most funds and indexes track either the S&P 500 or the Wilshire 5000.

EC: If you wanted to purchase a proxy for the Dow Jones Industrial Average, I would recommend going with the Diamonds Trust, Series 1. Known as "Diamonds" this is an exchange traded fund that tracks the Dow Jones Industrial Average and trades under the ticker symbol, DIA.

http://www.djindexes.com/jsp/avgFaq.jsp

GREENSPAN AND BUSH

Caller: As far as the improvement in the economy, what part did Alan Greenspan play in terms of getting interest rates where they are today compared to President Bush? Bob noted that Alan Greenspan is responsible for the role of monetary policy. His job in a difficult economy, especially following 9/11, was to do everything in his power to make the money supply grow. He accomplished that job. The Federal Funds rate is at 1%, its lowest level since 1958. In Bob's opinion, Dr. Greenspan has handled his role very well since 2001. Prior to that, Bob had some issues with the Fed chairman, not the least of which was his refusal to raise margin requirements. The President's role has nothing to do with monetary policy, other than a persuasive power if any. President Bush's role was to do something with fiscal policy, and he did that with a movement to lower taxes and put money back in the consumer's pocket.

DON'T RISK HOUSE MONEY

Caller: This caller is trying to save up a 20% down payment for a house he wants to purchase in about a year. He has the money invested in a limited maturity bond fund, but after Friday's bond market action, he is rethinking his strategy. Bob told the caller that if he is absolutely certain that he does NOT want to lose money, he should not invest it in a bond fund, and put it where Bob would invest it - in a money market account.

EC: Assuming his 20% is less than 100,000, I personally would go with ING Direct Savings Account, which is FDIC insured and yielding 2.0%, about twice as much as most money market accounts. Send me an e-mail, and I will send you a link where you get $25 free just for signing up. I have an account there and am very satisfied with it.

GAS PRICES

Caller: This caller is paying about $2.00 for a gallon of gas in Chicago. Don't you think the increase in gasoline prices is going to hurt the consumer, small business and the economy? Bob said the price of gas is a consequence of 30-years of irresponsible energy policies in our country. Thirty years ago, the royal family in Saudi Arabia committed an act of war against the U.S., and they stiffed us again last week when they voted to cut oil output. Bob said this policy is essentially resulted in taking money out of working Americans and putting it in the pocket of the Saudi Arabian government.

EC: Bob didn't really answer the caller's question of how the increase in gasoline prices would impact the economy. It certainly is not a good thing for our economy, and if the price continues to skyrocket, it will have serious consequences. That said, the price of gas in real, or inflation-adjusted terms, is around where it was in 1985. Mark Hulbert took up this point in an article this weekend entitled, "This just in: There's no gas price crisis" which you can access here:

http://tinyurl.com/3y6up

NEXT WEEK

This coming week has only 4 trading days, as the market will be closed April 9th in honor of Good Friday. The week's economic data includes ISM Services, Consumer Credit and the Producer Price Index. This link brings you to the economic calendar for next week:

http://tinyurl.com/3ar36

We also kick off earnings season next week with big names such as Alcoa, Yahoo! and General Electric, just to name a few. This link brings you to the earnings calendar for next week:

http://tinyurl.com/5xev

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or visit my website,

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 and helpful financial links. I also provide my own stock market commentary to subscribers as part of my service and give them access to my web site, www.BeginInvesting.com. If you want to know what was said verbatim on Moneytalk, listen to the show live or subscribe to "Moneytalk on Demand" which allows you to listen to the show in case you missed it live. The web site, bobbrinker.com has all the links to the ABC Radio Network stations that broadcast the show live and a link on how to subscribe to Moneytalk on Demand. 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. 2004

-- posted by David_Korn

» Kirk - 5/15/04 Show: Brinker Remains Bullish & Comments on the Fed

I heard much of the show yesterday and Brinker sounded like he was back to his old self poking fun at “the bad news bears.” He said he was still bullish and corrections like we are currently seeing are to be expected.

[Kirk's Comments on The Fed Model:
Brinker recently raised his calendar year 2005 earnings target for the S&P500 to $65. At the current level of $1096 for the S&P500, this works out to a PE of 16.9. Brinker said he is comfortable with 18 to 20 times earnings in the current environment of low inflation so this would allow for a reasonable upside if the market were to hit a PE of 20 and make $65 in operating earnings next year.

The Fed model says a 10 year TBill rate of 5% would allow for a PE of 20. Currently the 10 Yr note is at 4.78% as it is already pricing in higher inflation. A 10 yr TBill rate of 4% would suggest with the Fed Model that a PE of 25 was reasonable. One reason we are seeing a correction is people are now discounting higher rates which lowers the acceptable market PE. It has been my belief all along that the market has priced in a 5% TBill rate for some time which is why the Fed Model has been showing the market under valued by 25% or so.

For more, see our article Earnings Trends; Some Context for the FED Model

FWIW, Brinker is not going out on much of a limb with his estimates for $65 in CY 2005. Standard and Poors is estimating CY2004 operating earnings of $65 and CY2005 operating earnings of $72. If you follow Brinker long enough, you find he likes to keep his earnings estimates low then raise them to the actual numbers as time draws closer which is why some consider him conservative.]

Brinker’s show is much more fun to listen to when he is bullish on the market where he can poke fun at the bad news bears.

Brinker Hammers the Fed

I had a good chuckle when Brinker confirmed that he is on the radio as entertainment. A few weeks ago he said he “doesn’t like to speak ill of anyone on his show.” Saturday he was all over the Federal Reserve Chairman Allan Greenspan for not raising rates.

I think it is rather silly for all the pundits on TV and radio to beat Greenspan up for not raising rates yet. Greenspan said all along that the Federal Reserve “would remain accommodative for a considerable period.” Only a mental midget would not know that the Fed was saying they would keep rates low to “give the economy a push away from a potential deflationary spiral.” Deflation would be disaster for the economy as the Fed is powerless to do anything once we get caught in one of those. Greenspan has been saying for nearly a year that they would prefer inflation where they could have an orderly reflation of the economy.

Brinker Admits the Fed is Right

A caller held Brinker’s feet to the fire so to speak for his bashing of Greenspan. Brinker admitted that he thought Greenspan was doing a good job and was doing what he should do. Brinker admitted that “it is my job” to bash these guys. People forget that it is Brinker’s job to provide radio entertainment and something to talk about.

In other words, Brinker knows why Greenspan has not raised rates yet but Greenspan is an easy target for radio show hosts to attack. It is OBVIOUS that rates should be raised so saying so on the radio is a “no-brainer.” Greenspan has made it easy by telling us before hand that he would keep rates low longer than he should as insurance against deflation.

Shows with sophisticated audiences or a true desire to educate will discuss how long it will be before Greenspan and the Fed think it is safe to raise rates. Those shows looking for an easy target bash the man for doing what they agree all along if pressed is the right thing to do. Sadly, Brinker once again showed he was more interested in entertainment and bashing others rather than educating his audience.

I don’t mind Brinker bashing the bad news bears as that is funny and they have a clear, honest difference of opinion. I think it is dishonest to bash the Fed for doing what Brinker admitted was the right thing to do when a caller held his feet to the fire.

-- posted by Kirk

» hoopstar - Brinker on Market Timing

On Sunday May 30, Bob spoke eloquently about market timing. This subject has come up before and there are many differing opinions on it including those who insist it absolutely can't be done. I'll paraphrase some of BB's thoughts from the last show...

Long term stock market timing can be used as a resource to maximize returns during positive market periods and attempt to preserve assets during difficult market periods. The record has shown long term stock market timing CAN be done. Those who are members in in the Church Of Buy And Hold, a quasi- religion, believe it is impossible to do anything in the market but to buy and hold and whatever happens, happens. This is why many of them saw their entire portfolios sliced in half from early 2000 to March 2003.They actually believe that the only thing they can do is buy and hold because they are incapable of doing anything else.

If they want to believe that they can. BB believes long term market timing can mitigate the effects of a general market decline. There have been cases where entire portfolios have been mostly wiped out by bear markets. The cyclical decline from Sept. 1929 to 1932 saw a decrease of 89%.

Secular megatrends last from 8-20 years. Cyclical trends typically last 1-3 years

The current secular bear megatrend began in early 2000 and should last 8-20 years. A classic double bottom, created when the market successfully tested it's lows in March 2003, gave a long term buy signal and began the current cyclical bull market. Even with the current correction, the market is up over 40% since that time.

[Kirk's Editor Comment:
Briker’s buy signal in March 2002 came with the S&P500 at $808
The S&P500 made two lows in the 700’s in 2002 so this was actually the third lowest “bottom.”

<img width=520 height=301 src=http://stockcharts.com/def/servlet/Sharp... >

<img width=520 height=301 src=http://stockcharts.com/def/servlet/Sharp... >

Brinker did make a good buy level in March 2003 ]

-- posted by hoopstar

» Kirk - Brinker Quoted in Media

I highlighted the Quote from Brinker in the article below:

Article URL: http://www.wnd.com/news/article.asp?ARTI...

MEDIA MATTERS
Is FCC beginning 'new McCarthy era'?

Talk-radio hosts debate future of government control over airwaves

Posted: May 25, 2004
5:00 p.m. Eastern

By Les Kinsolving
© 2004 WorldNetDaily.com

NEW YORK – Government censorship was the topic du jour for radio talk-show hosts from around the nation – both liberal and conservative – gathered here to discuss the implications of the Federal Communication Commissions recent crackdown on obscenity.

"This is the new McCarthy era!" declaimed Tom Leykis of Los Angeles and the Westwood One radio network.

"It's an election year, so the Federal Communications Commission is taking action that has nothing to do with protecting children," he declared to hundreds of his fellow radio talk show hosts at Talkers magazine's annual New Media Seminar over the weekend.

Leykis, who is one of the comparatively few liberal hosts in the business, called on all his colleagues to take to their airwaves on the following Monday and deplore what has been done to shock jock Howard Stern.

Stern has been dropped from six stations on the Clear Channel Network, and stations who broadcast his obscenity-strewn shows, in which he continues to violate the licensing agreement against obscenity, have had the amount of their fines so substantially increased by the FCC as to constitute far more than loose change for many broadcast empires.

While Leykis' speech was something of a spellbinder, it was decisively deflated by talk-show host and columnist Michael Medved of Salem Radio Network and program director Jim Horn of WSBA in York, Pa.

Medved noted that some government involvement in radio licensing is essential so the broadcast area of one station not be invaded by other stations.

In reaction to theories that government action against pornography and obscene speech on the air can lead to censorship of all political or ethical statements on the air – or a revival of the so-called "Fairness Doctrine" (requiring equal time for any political controversy expressed by hosts) – Medved declared:

"This is crying wolf. There must be some government involvement to protect your station's frequency. There should be some standards for every broadcaster, such as no kiddie porn. Or, how many of you are in favor of racist radio?"

Said Horn: "I have heard a number of people say if you don't like hearing certain words, you can turn it off. Is that what we're broadcasting for? To get people to turn off their radios? What about responsibility in broadcasting?"

There was further dissent from what Talkers magazine headlined on its cover page as THE FIRST AMENDMENT'S LAST STAND?

Radio Business Report, which was circulated at this talk-show convention, quoted Bob Brinker of the ABC Radio Network as saying:

"The First Amendment does not provide on-air talent with a license to say whatever they please regardless of how offensive it may be. The laws of common decency must also apply, and on-air talent that has no respect for the laws of common decency should find another line of work."

And New York's Mike Gallagher of Salem Radio Network said:

"I'm surprised that many of my colleagues act as if indecency guidelines established by the FCC suddenly appeared after the Super Bowl incident. Surely they realize that restrictions against indecent broadcast material have been in place for years. As a result of high profile cases, the American people are expecting those guidelines to finally be enforced.

"This isn't a 'free speech' issue – none of us own the airwaves or even the radio networks or stations that employ us. Like it or not, radio and TV licenses are issued by the government, and the free and public airwaves are regulated by the government. The only shocking aspect of that fact is that it's taken so long to start enforcing these rules."
--------------------------------------------------------------------------------

Les Kinsolving is WorldNetDaily's White House correspondent and a talk-show host for WCBM in Baltimore. His show can be heard on the Internet at www.wcbm.com 8-10 p.m. Eastern each weekday.

-- posted by Kirk

» hoopstar - Buy And Hope

Members of "The Church Of Buy And Hold" regard investing like a religion. They have to stick to it everyday, all the way through, regardless of what is happening. From Sept. 1929 to June 1932 the DJIA declined 89%. Their one hundred dollar investment was now worth 11 dollars. I am sure there were people then that were members of this Church Of Buy And Hold that held their entire position down 89%. Buy and Hold is a financial theology. (They believe) if the market goes against you, that's life. There's nothing you can do...

From the first quarter 2000 to the recent bottom, The S&P declined 49%. There are people in The Church Of Buy And Hold that rode it the whole way down...

My advice is out there in a glass house for all to see. I have to expect that people are going to disagree with me. Just like there were people who disagreed with me in January of 2000. People attacked me in January of 2000 for attempting to do long term market timing. People made fun of me for coming out with that sell signal. The reason I don't mind it is because it goes with the territory. It doesn't bother me at all...

The most criticism I've seen out there comes from The Church Of Buy And Hold. They really hate anybody that tries to do something different from their financial theology That's just who they are.

-- posted by hoopstar

» Kirk - Brinker Mentioned in Brimelow Article

Marketimer trades mutual funds only. A recent addition to its recommended list of no-load funds: Jensen Portfolio (JENSX).

Full Article:
http://www.investors.com/breakingnews.as...

Brave bulls charging again
By Peter Brimelow
Last Updated: 6/10/2004 1:17:00 AM

NEW YORK (CBS.MW) -- I've been interested in the three letters I call "the brave bulls" -- Richard Band's Profitable Investing, Larry and Jesse Czelusta's Index Rx, Bob Brinker's Marketimer -- since they called the low on the Dow in early 2003.

(See my March 13 2003 column).

They stayed with the bull market when it stumbled last fall.

But recently, in the hour this spring when many advisors wavered, one bull bolted.

That was the Czelustas' Index Rx. It sold out Feb. 5 and went to cash.

Well, the big news is that Index Rx is back on side. Its proprietary system gave a buy signal May 26.

"Remember, we use a trend following, technical timing system," say the Czelustas. "A sell signal cannot be generated in a rising market, but a buy signal can be triggered in a rising market or a falling market."

This obviously didn't pacify all Index Rx's readers. The Czelustas note in pained tones that their February sell signal generated some vitriolic comments. ("Grow your own dope. Plant an Index Rx editor!")

But they say their object is "both to decrease risk and increase returns."

It seems to be working. The Hulbert Financial Digest has been monitoring Index RX only for three years, through the end of May. But over that period, it was up 8.3 percent compounded, vs. negative 0.5 percent for the dividend-reinvested Wilshire 5000.

Over the past year, Index Rx portfolios gained on average 24.9 percent, vs. the Wilshire's 20.5 percent.

Index Rx's unusual strategy is to buy index funds, but then to trade them actively. Recently, it introduced a new portfolio, Excel Rx, "designed to SUBSTANTIALLY outperform the market, but with more risk than our other portfolios."

As of its last issue, Excel Rx was holding ProFunds Ultra Small Cap (UAPIX), ProFunds Ultra Mid Cap (UMPIX) and iShares S&P 600 Value (IJS).

The other two brave bulls are positively bellowing.

Profitable Investing's Richard Band anticipated in his June issue that "the stock market will soon find its footing -- and push back to new highs for 2004. In fact, the rally may carry us all to Election Day (and beyond.)"

But in a hotline on Tuesday, Band said "the market needs a bit of a rest... I suggest waiting for a pullback to the 1120-1130 area on the S&P 500 before throwing new money at stocks."

Note well: He said this before Wednesday's break.

Meanwhile, Band continued, income investors should buy John Hancock Preferred Income Fund (HPI) if it falls below $23.

Marketimer's Bob Brinker is proud of his buy signal issued March 11, 3003. But he says the easy money in this cyclical bull market was made during the rally of the March, 2003 lows. He expects an alternating pattern of cyclical bull and markets as in the 1966-1982 period. Right now, he says, "we view the market as attractive for purchase on dips below the 1,100 level on the S&P 500."

Marketimer trades mutual funds only. A recent addition to its recommended list of no-load funds: Jensen Portfolio (JENSX).

* Best-performing timers still bullish

* Market exposure among market timers

* Profiles of All Star Fund Trader, F.X.C. Newsletter, No-Load Fund Analyst, Timer Digest

© 1997-2004 MarketWatch.com, Inc.

PERIOD Total Returns   Kirk’s   W5000  S&P 500 Nasdaq
                         NL     VTSMX   VFINX   ^IXIC
1 Year to 3/31/04      +70%    +40%    +35%    +49%
3 Year to 3/31/04      +37%     +8%     +2%     +8%
5 Year to 3/31/04     +102%     +2%     -6%    -19%

 

Total Return:
                           Kirk   W5000 S&P500 NASDAQ 
5 Yrs 3/31/99 - 3/31/04   +102%   +1.6%  -6.2% -19.0%
Annualized Annual Return +15.1%   +0.3%  -1.3%  -4.1%
 
Click for a free issue of my newsletter 
Suitable for the aggressive growth part of your
  diversified investment portfolio. 

-- posted by Kirk

» hoopstar - BB Recap June 20

Bob says that was the easy money phase of the cyclical bull. From middle of March 2003 through the beginning of this year. The cyclical bull market has not ended. Now we have to fight for and grind out our profits. We have to be patient in a market that can be frustrating. He does not see the evidence at this time that it's over.

-- posted by hoopstar

» Will_L - Finally Some REAL Brinker peformance numbers

The difference between the newsletter and the BJ group of course is that the BJ group used real money and charged a wrap fee of up to two percent to invest according to the "Brinker investment strategy". Here is the table of the performance when you got all of Brinker's advice.

http://www.suite101.com/files/mysites/Br...

These are extrapolations from the chart and they may vary slightly from the actual dollar amounts but came within a fraction when I began in 98 and extroplated the dots through 2004.

1) Sept 98---March 99

Brinker Aggressive BJ Portfolio + 28%
Benchmark porfolio + 28%

2) March 99 thru March 2000

Brinker's BJ portfolio + 28%
Benchmark portfolio + 17%

3) March 2000 thru March 2001

Brinker BJ Porfolio (28%)
Benchmark Porfolio (18%)

4) March 2001 thru March 2002

Brinker BJ Portfolio (4%)
Benchmark Porfolio 0 (flat)

5) March 2002 thru March 2003
Brinker BJ portfolio (10.2%)
Benchmark portfolio ( 20%)

6) March 2003 thru March 2004
Brinker BJ porfolio 35%
Benchmark Porfolio 45%

An interesting period is the 4 yr period between the beginning of the bear market and 2004.

7) March 2000 thru March 2004

Brinker's BJ portfolio (9.6%)
Benchmark portfolio (8.0%)

Of the 6 consecutive time frames selected the following occured.

On one occasion the results were the same

One one occasion Brinker's BJ portfolio gained substantially more than the benchmark

On one occasion the the benchmark gained substantially more than Brinker's BJ portfolio.

On two occasions Brinker's BJ portfolio lost more than the benchmark.

On one occasion the Benchmark lost more than Brinker's portfolio

If you begin counting at the beginning of 99--the last year of the bull market, Brinker beats the benchmark with annual gains of 3.4% to 2.8% for the benchmark for a _+0.6% advantage.

If you begin counting at the beginning of the bear market in 2000, for the 4 year period Brinker trails the benchmark by 1.6% losing 1.6% more than the benchmark from the beginning of the bear through March 04.

Thus Brinker's outperformance of the buy and hold index of 0.6% was primarily due to a superior performance in 99-the last year of the bull market. If you compare the performance since the beginning of the bear market March 2000, Brinker"s BJ portfolio using his timing, underperforms the buy and hold index.

It seems quite odd that the fractional outperformance Brinker shows in the only performance figures I've ever seen on the man that involves real money, is based on an outsized performance during a few months of the last bull market, soon to be off the 5 yr charts. It is very significant, given Brinker's claims about marketiming that those lines so closely mirror each other and in fact Brinker's management lags the buy and hold benchmark since the beginning of the bear in early 2000.

-- posted by Will_L