Some people seem to be having withdrawals. An excerpt from my e-mail (I left out the juicy stuff, but you can e-mail me if you want the rest):
Excerpt from David Korn's Stock Market Commentary, Interpretation of Moneytalk, Financial Education, Helpful Links, Guest Editorials and Special Alert E-mail Service.
Website: begininvesting.com
September 28-29, 2002 Edition
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TACTICAL ASSET ALLOCATION WATCH
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Editorial Comment ("EC"): Here is how the major market indexes have played out since Bob Brinker's timing model turned "unfavorable" based on the S&P500 Index's close on December 31, 1999 and he recommended investors sell equities to raise 60% cash reserves (later increased to 65% cash reserves in August, 2000):
S&P500 Index: Down 43.69%
Dow Jones Industrial Average: Down 33.02%
Nasdaq Composite: Down 70.53%
NOTE: In October, 2000, Bob Brinker recommended to his subscribers with aggressive objectives that they invest 30% to 50% of their cash reserves in the Nasdaq 100 (QQQ shares). He also recommended to his subscribers with conservative investment objectives that they invest 20% to 30% of their cash reserves in the QQQ shares. That recommendation was repeated in January, 2001. He has maintained a hold on the QQQ shares ever since.
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BOB'S STOCK MARKET TIMING MODEL
Caller: This caller has heard Bob say that he expects to recommend going back into the market within a year or so. The caller asked Bob to give an update as to where the various indicators in his long-term stock market timing model stand at this time. Bob said he was going to update his model this coming week in connection with the publication of the October Marketimer newsletter which he plans on completing toward the end of next week. Bob noted that his model is "far too detailed" to go into on the radio, but in general, he studies many disciplines in his long term stock market timing model. Bob said he looks at the economic cycle, monetary policy, valuation and sentiment, among "many other factors" when he is looking at the market outlook. It is a complex subject due the number of variables. Bob concluded by reiterating that "down the road" he will recommend going to a fully invested stock market position in anticipation of a cyclical bull market.
EC: Bob played a little coy here, as I suspected he would. My guess is that in October's newsletter, he will imply that the indicators in his model are improving, and that subscribers should be on the look out for a special Bulletin in which he will post on his web site any change to his model portfolios based on his model turning favorable.
GNMA CAUTION!!!!
Caller: This caller has been reading about "duration gaps" and Fannie Maes and how they deal with that in connection with callable debt and hedging. In the Ginnie Maes, do they have similar mechanisms? Bob said you would have to check with each fund manager. Some funds are out-there doing exotic moves. Bob prefers the funds that keep it simple in this area -- Vanguard, for example, is conservative in their Ginnie Mae fund.
Brinker Comment: The important thing to recognize now with Ginnie Maes, is that yields are down under 5%. The yield has been slipping as interest rates have fallen. In addition, mortgage rates are way down. All of this suggests, that if we see rising rates, that will negatively impact the net asset value of Ginnie Mae funds. Therefore, you want to make sure your portfolio is adequately diversified, so you don't have all your eggs in one basket. A caller pointed out that if interest rates rise, so will the yield on the Ginnie Mae Fund. Bob agreed, but pointed out that the increase in yield will NOT make up for the decline in net asset value if/when interest rates rise.
EC: Bob sounded more cautious about the Ginnie Maes than I have ever heard him before! I am not surprised, given that interest rates are at historic lows. At some point, the only place for interest rates to go will be up. And when that happens, the Ginnie Mae net asset value will suffer. Check out the next call which buttresses my interpretation of Bob's cautionary outlook toward Ginnie.
Caller: This caller wanted to transfer some money from one GNMA fund family to another. She noted that the net asset value of the GNMA fund she was looking at, was trading near its 52-week high and wanted to know if she should dollar cost average into it or just lump sum invest it. Bob didn't address that question specifically, and instead asked the caller if she had some Treasury Inflation Protected Securities (which she didn't), so Bob recommended she invest some of her fixed income money into TIPS to ensure that her bond portfolio was diversified.
EC: The Vanguard GNMA Fund Investor Shares (VFIIX) which I imagine that some of you probably own, closed Friday at $10.76 - a 52-week high! Notice how Bob specifically recommended the caller allocate a portion of her fixed-income portfolio to TIPS -- which protect against interest rates rising. It would appear that Bob believes that the risks favor rising interest rates, versus falling interest rates going forward.
Brinker Comment/Caller: One last comment relative to the Ginnie Maes came up in the context of stock market cash reserves. A caller wanted to know if he should keep his stock market cash reserves in Ginnie Maes, or in a money market account. Bob said at this juncture, he would recommend cash reserves be kept in money market accounts.
EC: This marks a shift in Bob's prior position on stock market cash reserves. Prior to this weekend, Bob said he didn't have a problem with people keeping their cash reserves in Ginnie Maes. This weekend, he made clear that any stock market cash reserves should be held in money market accounts where the principal will not be at risk.
SIDEWAYS MOVE OUT OF VANGUARD U.S. GROWTH FUND
Caller: This caller owns the Vanguard U.S. Growth Fund. The fund is under performing the index that it tracks. He wants to know how long he should wait before making a sideways move into another mutual fund. He heard you should wait 3 years before you transfer from one fund to another. There will be no tax consequences since he owns the fund in a tax-deferred account. Bob doesn't think you need to wait to transfer the money once you have made up your mind to make a sideways move from one fund to another because of under-performance.
EC: The Vanguard U.S. Growth Fund (ticker: VWUSX) has performed horribly this year, down 38.57% year-to-date versus a negative return of 19.40% for the S&P500 Index. According to an interview given by Dan Wiener, editor of The Independent Advisor for Vanguard Investors, the U.S. Growth fund has seen significant outflows this year. If you own a lot of Vanguard funds, his interview is worth reading:
forbes.com
PHILIP MORRIS COMPANIES, INC.
Brinker Comment: Philip Morris' shares fell to a 52-week low on Friday, and they have been creamed the last few months. The company has faced difficulties with California verdicts in court. They had another verdict go against them last week. Wall Street had a consensus growth rate estimate for the company of 19%. However, the company announced that it is only going to increase earnings by 3% to 5%. The company is going through much more difficult times than Wall Street was predicting. Bob said he hopes their sales go to zero. (Bob hates tobacco companies).
EC: The 12-member jury in Los Angeles awarded $850,000 in compensatory damages to a 64-year woman with lung cancer who blamed Philip Morris (NYSE: MO) with her tobacco addiction and for failing to warn her of the risks of smoking. If you think the award is high, you better be sitting down. The jury hasn't even begun deliberating on punitive damages. In my opinion, they are going to award punitive damages. Of course, I don't know for certain, but I did read the jury's verdict, and they found that Phillip Morris had committed "fraud, malice, or oppression by clear and convincing evidence." You don't make that kind of statement, if you aren't prepared to slap some punitive damages down. This is an important case, because it is the first trial since a California court ruled that smokers could not use evidence of deception from 1998-1998 when a legislative ban on cigarette maker liability was in place. More on the verdict at this link:
biz.yahoo.com
GAIL DUDACK
Caller: This caller wanted to know if Bob had seen Gail Dudack on CNBC last week. Bob said he didn't watch it. The caller said that Gail said hope for the best, but prepare for the worst. That was the end of this call.
EC: Bob has mentioned Gail Dudack many times throughout the years. He teased her bearishness in the 90s, referring to her as the "Wall Street Honey Bear." He defended her when she got kicked off as an Elf on Wall Street Week with Louis Rukeyser. Gail is the Managing Director of Research and Chief Investment Strategist for SunGard Institutional Brokerage, Inc. Prior to SunGard, Gail was the Chief Investment Strategist for UBS Warburg. She is a founding member of the International Federation of Technical Analysis and a former president of the Market Technicians Association.
EC#2: One of my subscribers, who is in the investment advisory business, got to spend about 2 hours with Gail Dudack last week and she had some very interesting things to say about the market. He graciously agreed to post his notes under the "Market Gurus" section of the discussion threads on BeginInvesting.com. One of the most interesting comments she made, is that she recognizes that she is known as a bear, bit that she is close to becoming a bull. I am in her camp on this one. Make sure you check out the post by "Investingbob" on the Market Guru thread to read his notes from his meeting with Gail Dudack.
begininvesting.com
HEWLETT-PACKARD COMPANY
Brinker Comment: Hewlett-Packard (NYSE HPQ) announced that it would accelerate the number of lay-offs and let go another 1,800 employees on top of the 15,000 employees already scheduled to be laid off. The company's management said the additional job cuts are due to a continued market slowdown. On top of their other problems, they now will face head-to-head competition from Dell Computer. Hewlett-Packard has been under tremendous pressure during this bear market and their stock price reflects that pressure.
EC: The competition Hewlett-Packard (HP) is expecting from Dell is in the printer market. This is obviously HP's bread and butter, as everyone knows HP makes top quality printers. Dell entered into a deal with Lexmark International (NYSE: LXK) for the two companies to develop and produce Dell-branded printers. Lexmark is already the No. 2 printer maker behind HP, so it should be interesting to see if the combination of Dell/Lexmark will unseat HP from their number 1 dominant position in the printer market which they have held for so long. More on this story at the following link:
biz.yahoo.com
SBC Communications
Brinker Comment: SBC Communications (NYSE: SBC) announced that it was going to cut 11,000 jobs citing increased competition and slower economic growth. About 9,000 of those job cuts will come in the 4th quarter of this year. They had already cut 10,000 jobs this year, prior to this most recent announcement.
EC: The baby-bells came under pressure Friday following SBC's announcement. More on this story at the following link:
biz.yahoo.com
CALLABLE BONDS
Caller: This caller has Bank of America bonds which she originally purchased for $46,000. Their market value now is about $48,000. Her broker told her that the bonds were "called" for $46,000. What's the deal? Bob said it sounds like the bonds were called prior to their maturity date which allows the issuer to call the bond at a certain price. Bob noted that when you consider purchasing a bond, you always should determine whether the bond is callable. Not all bonds are. Most Treasury bonds are not callable. That means you don't have to worry about losing the rate of interest you are generating on the bonds. "Callable" simply means the bond is redeemable by the issuer prior to the scheduled maturity date. The issuer must pay the holder a premium price which is called the "call price." Bob noted that it is not uncommon in this type of interest rate environment for an issuer to call in the existing bond, and issue new bonds at lower rates. It makes sense for the issuer, because they can essentially lend the money out at a lower rate.
EC: Here is an good article entitled, "Understanding Callable Bonds -- Know Your Bets In The Investment Portfolio":
cbai.org
ZERO COUPON BONDS
Caller: What do you think of short-term zero coupon bonds right now? Bob said he isn't enthusiastic about that investment at this time.
EC: Learn how a zero-coupon bond works at the following link:
open-ira.com
CALLER OF THE DAY!
Caller: This caller raised a interesting point, which got Bob all excited. The caller pointed out that after Bob has recommended a fully invested position, if you are in retirement and have a balanced portfolio (50% stocks and 50% bonds), why is there a need to maintain 50% of your money in stocks, when you now have the option to invest in Treasury Inflation Protected Securities which would protect you against the risk of inflation. Bob praised the caller for bringing this to the attention of listeners world-wide. Bob referenced one of the old axioms on Wall Street which was told to people over and over again. That axiom was that you need to invest in the stock market because that is the only way your money will grow and outpace inflation. Bob pointed out that this axiom is no longer true. In a tax-deferred account, you can get complete inflation protection through TIPS. The issuance of Inflation Protected Securities by the U.S. treasury has changed the investing landscape. TIPS afford a new mechanism which can limit the amount of risk that an individual might need to take in the stock market. Bob said he has never heard anyone on Wall Street make this point. Bob then ranked this call as one of the most important calls ever made in the 16-year history of the Moneytalk Program!!!
EC: Wow. I am breathless. Not because of the call, but because I am eating a DoubleStack Wendy's cheeseburger and typing at the same time.
EC#2: In all seriousness, the caller did raise an excellent point. For people in or approaching retirement, TIPS provide a vehicle to protect you against inflation, without the risks associated with equities. In a secular bear market, this investment strategy has a lot of appeal. For those of you who have never considered TIPS, here is a good introductory article from the Fool.com, which provides a nice overview of how they work:
fool.com
BAD NEWS BEARS
Brinker Comment: For the first time in a while, Bob referenced the "bad news bears" or "doomsdayers" who are predicting Armageddon for the U.S. economy and massive declines in the stock market going forward. Without mentioning Bill Gross by name, Bob derided "that bond guy," who was predicting 5000 in the Dow. Bob also sarcastically referred to the "Georgia Peach Bear" who is sticking with his decade-long forecast that the Dow will fall to 400. Bob doesn't think any of these doomsdayers will be correct, UNLESS the housing market falls apart.
EC: Bob's comments here are but another sign to me that he is growing more confident that the bear is coming to an end soon. Bob's reference to the "Georgia Peach Bear" is a nickname Bob gave a long time ago to Bob Prechter. 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. This link brings you to an interview Mr. Prechter gave this summer:
businessweek.com
WAR WITH IRAQ
Brinker Comment: The United States is pushing for a UN resolution establishing a 30-day deadline for Baghdad to comply with weapon inspections. Bob pointed out that in prior weeks, he said he didn't think a war with Iraq would begin until November. Bob said he forecast that war with Iraq would begin no earlier than November, but no later than the end of the first quarter of 2003. Bob said that everything is in place for his prediction to come true.
EC: Perhaps Bob will begin offering a newsletter called "WarTimer."
AIRLINE COMPANIES
Brinker Comment: Bob began this segment by asking a rhetorical question: How many times has he said on the program that the airline's business model's don't work anymore. (Why is nobody listening to Bob?) Despite the failure of these models, the airlines keep flying, they keep losing money, and they keep asking for money. Bob does not think we should give any more taxpayer money to the airlines. If your company does not have a business model that works, it should not exist. U.S. Airways has already filed for bankruptcy. United Airlines may have to file for bankruptcy. This week, Delta Airlines -- once considered a blue-chip airline -- announced that they will lose $350 million in the third quarter due to sluggish revenue and demand. Delta has decided to cut 1,500 flight attendant jobs. Delta has warned that the airline industry may lose $8 billion this year. Delta's shares are now down to $9.16.
EC: Bob may have had a misquote, because the closing price I see on Delta's shares is $8.69. More on Delta's announcement this week at this link:
biz.yahoo.com
GREENSPAN KNIGHTED
Brinker Comment: Bob had some fun with the report that U.S. Federal Reserve Chairman Alan Greenspan received an honorary knighthood from Queen Elizabeth. Greenspan received the Knighthood in recognition of his contribution to global economic stability. In a back-handed compliment to Dr. Greenshades, Bob proclaimed him "King of All Financial Media."
EC: That's a title that would make even Howard Stern proud. While over in London, Dr. Greenspan gave two speeches. They are actually kind of interesting if you have time to read them. The first speech he gave was to the Society of Business Economists entitled, "Regulation, Innovation and Wealth Creation." You can read that speech at this link:
federalreserve.gov
The second speech he gave was at Lancaster House, entitled, "World Finance and Risk Management." You can read that speech at this link:
federalreserve.gov
SAVING FOR COLLEGE
Caller: This caller has a 2 month old baby, and wants to start a saving's plan for his child's education. Bob referred him to the web site SavingForCollege.com as a great resource on the Internet to learn about 529 Plans. Bob also plugged the book, "The Best Way to Save for College" written by Joe Hurley, a CPA who runs SavingforCollege.com.
EC: SavingForCollege.com now has a place on its web site where you can select the state you live in and view the college savings programs offered by that state. If you go to this link, you fill find the section I am referring to on the bottom right side of the page:
savingforcollege.com
TAKING ADVANTAGE OF INTEREST RATE SPREADS
Caller: There is a giant spread on the interest rates being offered for certificates of deposit. For example, the caller found a 7-year CD for 5%. On the other hand, a 2-3 year CD is only offering 2-3%. What choice would you make? Bob pointed out that 2-3 years in this type of interest rate environment is like an eternity. To try and project where rates will be 2-3 years from now is virtually impossible. The caller had an idea -- why not go with the 7-year CD, get the higher rate, and if interest rates start to jump, sell the CD, and pay the penalty. If rates stay low, keep the CD. Bob said he thought a lot of people were adopting this type of strategy, and that the risk of this strategy is that you pay a hefty penalty when you sell your CD early. Make sure you read the fine print VERY VERY carefully. Bob noted that the banks are aware of this strategy, and don't want people doing this, so they are going to make it difficult to do.
EC: Interesting strategy. Along those lines, I found a product offered by RBC Centura Banks which began offering a two-year Rising Rate certificate of deposit which provides a schedule of graduated rate increases until maturity with the option to redeem funds every six months without penalty. As always, do your own due diligence. Here is a link to the article describing this product:
biz.yahoo.com
GOLD
Caller: Do you have any gold investments you like right now? Bob said the problem with gold is that we have low inflation, and the prospects for inflation are that it will remain benign. For that reason, the fundamentals don't support an investment in gold. Investing in gold right now, is really a "disaster" investment at this time. If you get a prolonged war or nuclear disaster there could be a flight to gold. Bob opined that if we don't get a nuclear war between India and Pakistan, and the United States takes care of Iraq relatively quickly, then gold will face pressure. Gold faces the headwinds of low inflation. Bob said IF you were going to invest in gold, he would go with an index fund.
EC: The Fidelity Select Gold Fund (FSAGX) is the largest gold mutual fund. Other gold mutual funds include The Midas Fund (MIDSX), Tocqueville Gold (TGLDX), and Gabellie Gold (GOLDX). Compare these funds to each other at the following link:
cbs.marketwatch.com
MORTGAGE RATES & REAL ESTATE
Brinker Comment: Bob thinks the current mortgage rates are "remarkable." Interest rates remain at 40-year lows with the economy faltering. Bob noted that the 15-year mortgage rate is now at 5.25%. Six months ago it was over 6%. In addition, 30-year mortgages are now averaging 5.75%. These are historic lows for mortgages in the modern era. The one-year adjustable rate is at 4.18%. The mortgage bankers are handling record number of home owner applications as people refinance to get the lower rate.
EC: Want to check out the mortgage rates for your state? Go to this link, choose your state, and presto - you will have rates for the 30-year, 15-year and one-year adjustable mortgage in your state:
bankrate.com
Brinker Comment: For the month of September, there was a record number of mortgage refinancing. To give you an idea of how this translates into more money for consumers, consider the following. Six months ago, if you had a 30-year mortgage for $150,000 at interest rates, you could refinance now and save about $100 per month. Property values have held up, which has encouraged people to go out and borrow more money to purchase housing. Unlike other recessionary periods, we haven't seen the kind of personal savings during this economic contraction. When your home increases in value, you can borrow money against it, and go out and use that money to make improvements in the property, or just go out and spend spend spend.
According to the National Association of Realtors, the medium value of a home in the United States is $157,700. That is a 7.5% increase from last year. There is so much demand for refinancing mortgages, that the time frame for submitting a loan application, and getting it approved, has grown from 2 months to 4 months. One of the reasons for this delay, is the lack of qualified appraisers.
Brinker Comment: In response to another caller who felt like he might be getting taken from his mortgage lender, Bob suggested the caller pay a nominal fee to find out the most competitive rates in his area. Bob recommended the caller take advantage of HSH Associates.
EC: HSH Associates is the nation's largest publisher of consumer loan information. Their web site has a ton of useful information on it. Check it out at the following link:
hsh.com
Brinker Comment: Another caller was considering waiting to get even a lower mortgage interest rate, because he didn't think the economy would improve. Bob didn't think that was realistic. With rates at these levels, you would have to be betting on the United States undergoing a depression, and Bob said he doesn't see anything that suggests a depression will occur.
EC: Although I share Bob's opinion that a depression is not likely in the United States, I would like to point out listeners should be skeptical of anyone who tries to predict interest rates, including Bob Brinker. Sure, some people can correctly guess on the direction of interest rates, but you don't often hear them admit when they were wrong. Predicting interest rates is tantamount to predicting where the economy is headed, and you have seen how even the best economic minds in the world can completely screw that up. According to my notes, Bob pretty much said he thought mortgage rates had bottomed within the last year, and they have gone significantly lower since then. Bottom line? If anyone could predict with accuracy the direction of interest rates, they would be the wealthiest person in the world so be wary of any such predictions. I don't mean to take away from Bob's view (and mine), that mortgage rates are incredibly attractive at these levels -- unbelievable really in terms of historical norms.
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Next Week
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Brinker Comment: Bob noted that the consensus of economists is that there will be no job growth when we get the unemployment report this coming Friday. We have certainly not seen much new job activity. There have been some minor increases in payrolls, but overall, new job growth area has been discouraging. Some people are calling our economy, a "Jobless expansion." We had a 9-month documented recession. Usually, when you come out of a recession you see a lot of activity on the upside in the job market. We haven't seen that this time. When you factor in all the variables in the economy, new jobs is absolutely critical.
EC: This link brings you to the economic calendar for next week:
mam.econoday.com
EC: Not much coming up in terms or company's reporting earnings next week. Keep an ear out for earnings pre-announcements. Link to earnings calendar follows:
biz.yahoo.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 are also 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. |
