Victoria, your sister's Bob letter is more recent than the following? tia
========================================================
Following is Brinkers Marketimer Newsletter dated October 9th.
A recented 'supposed' bulletin has been sent out and received today (Oct 15), but this newsletter is the last thing I have from Brinker.
----------------------------------
page1:
Dirksen'a Three Laws of Politics:
1. Get elected. 2. Get re-elected.
3. Don't get mad) get even.
...Senator Everett Dirksen
STOCK MARKET TIMING
DJIAi 10784.48
S and P 5001 IA34.32
The six short-term interest rate increases spawned by the Federal Reserve in an effort to reduce economic growth are now beginning to take hold. Growing reports of corporate revenue and earnings shortfalls are evidence that the rate of real gross domestic product growth in the third quarter will be less than the robust 5.2? average growth recorded during the first half.
Although the Federal Reserve is attempting to lower the inflation-
adjusted rate of gross domestic product growth to the 3,5X to 4? range, it is too early to determine whether a period of growth below that level will be the end result of the Fed's efforts to temper economic activity.
The year-over-year consumer price index increase of 3.4S appears
high enough to keep the Federal Reserve on the defensive. Following the October third Federal Open Market Committee meeting, a release was issued stating "the utilization of the pool of available workers remains at an unusually high level." The release added "the Committee believes the risks continue to be weighted mainly toward conditions that may generate heightened inflation pressures in the future." Clearly, the Federal Reserve is maintaining a highly vigilant posture with regard to inflation risk.
Stock market investors continue to wrestle with the problem of high
valuation. Based on our current estimate of $57.00 in operating earnings for the Standard and Poor's 500 Index this year, the index is now priced at 25-times earnings, a lofty level by historical standards. The historic record multiple of 28-times operating earnings occurred for the Standard and Poor's 500 Index in July of 1999. However, since then, a process of price-earnings multiple compression has been underway. During this period of multiple contraction, investors have been adjusting to, the reality of
higher inflation and reduced economic growth prospects.
The Nasdaq Composite Index, which can best be described as stocks
in the fast lane, continues to trade at extraordinary valuation levels, despite the 30S decline that the index has experienced since March 10. We estimate the 30 largest profitable companies in the Nasdaq 100 Index are trading at an average price-earnings multiple of 96 times next year's estimated operating earnings. We continue to expect the Nasdaq Composite Index to experience serious resistance in the 4200-4400 range. This price range has contained prior bounces off the late-May lows in recent months. Any residual countertrend Nasdaq rally that may occur is expected to fail in the 4200-4400 range as it did in mid-July (4274) and in late-August (4234).
Many companies are using convenient excuses to account for newly
announced revenue and earnings disappointments. Two popular alibis
are the decline in the euro versus the dollar, and the Increase in oil
prices. We find these explanations curious for two very obvious reasons.
P.O. Box 229 / IRVINGTON, NY 10533 / PHONE: 914-591-2655 / EDITOR: ROBERT J. BRINKER
-------------------------------------------------------
page2:
STOCK MARKET TIMING (continued from page 1)
Firstly, the euro has been 'in a bear market since its introduction in
early 1999. In fact, the decline in the euro this year has not been
large. Most of the weakness in the euro occurred during calendar year
1999. Secondly, the price of oil has been climbing since its trough
in December of 1998 at $11 per barrel. Oil prices have been rising
steadily since then, and oil price increases have been part of corporate income statements for several quarters. History shows that corporate managements frequently roll out any reason they can find to account for what many would simply call poor execution of the business plan. In reality, the six rate hikes put in place by the Federal Reserve are now having an effect on corporate revenue and earnings. Investors who have not carefully managed their risk exposure this year are experiencing the inevitable disappointment that restrictive monetary policy brings to the stock market.
We urge subscribers to continue to pay close attention to our
maximum exposure guideline that says any one stock should not materially exceed 4X of equity holdings. Those ignoring this guideline run the risk oversized positions may melt down in the event any company earnings disappointments come tonight. The market has now become a minefield of specific stock risk. Investors in many stocks have been exposed to price blowups. In September alone, severe declines occurred in such well known names as Dupont, Eastman Kodak, Intel and Apple Computer.
In our August 7 issue, we observed "investors who preserve their
capital with a risk-averse portfolio composition will be best positioned to exploit the next major stock market buying opportunity. This is likely to occur after the excesses that developed in the bull market of the 1990's are exorcised. The purging process is usually extremely painful for those who fail to appreciate the dark side of the investment equation, which is risk."
We recommend new subscribers use any residual strength that may
occur in the 1469-1527 range of the Standard and Poor's 500 Index to
position portfolios defensively. Our tactical asset allocation guide-
lines recommend a 65S stock market cash reserve, a 25? U.S. weighting
and a 10? non-U.S. weighting. We have recommended the majority of stock market monies should be held In the form of money market cash reserves since January when the Market imer stock market timing model turned bearish. We are pleased to report that all of our model portfolios generated modest positive returns during the first nine months of the year, while the DJIA, Standard and Poor's 500 Index, Wilshilre 5000 Index and Nasdaq Composite Index all declined on a total return basis.
FEDERAL RESERVE UPDATE
Federal Reserve passivity prior to general elections is a well
honored tradition in Washington, and this year was no exception. The
Federal Open Market Committee held its scheduled meeting on October
third, however no change in interest rates or policy bias was made.
The Fed held firm to its contention that the risks are weighted
toward potential heightened Inflation pressure going forward. The
results of this meeting have been baked in the cake for several months, and there were no surprises. The November meeting follows the election, and the Fed will be free to pursue future policy goals without the constraint of a general election.
As prior rate hikes continue to work their way through the economy,
a slowdown in real gross domestic product seems likely into next year.
Future Fed policy actions will be a function of whether reduced levels
of growth are sufficient to contain inflation risks.
--------------------------------
page 3:
FEDERAL RESERVE OPDATE (continued from page 2)
We regard M-2 as the key monetary aggregate guiding future
economic activity. M-2 consists of currency in circulation, demand
deposits, savings accounts, time deposits under $100,000, money
market mutual fund shares, overnight repurchase agreements, and
overnight eurodollars.
The latest figures continue to show very slow growth in M-2
adjusted for inflation, as the Federal Reserve continues its ongoing
effort to restrain economic growth. We expect slower growth to appear
during the third and fourth quarters.
Table A
Latest Monthly Data
(Billions)
Y-O-Y Real Y-O-Y*
September 2000 September 1999 Changes Changes
M-2 $ 4,869.2 $ 4,592,0 + 6.0% + 2.67,
M-3 $ 6,907.9 $ 6,250.1 +10.57, + 7.1%
Table B
Table B
Annualized Rfal Ann.
Annualized Real Am
September 2000 March 2000 Changes Change
M-2 $ 4,869.2 $ 4,730.6 + 5,9% + 2.5g
M-3 S fi.907.9 $ 6.607.5 + 9.IZ + 5.11
M-3 $ 6,907.9 $ 6,607.5 + 9,1% + 5.7%
* Real changes year-over-year (Table A) and six-month figures enpressed l-n annualleed terms (Table B),
adjusted for consumer price Index Increase of 3.4% for the IZ-month period ended S-31-00.
MARKETIMER MODEL PORTFOLIO PERFORMANCE UPDATE
Marketimer publishes two managed model portfolios which attempt
to outperform the stock market based on market timing and fund selection. These portfolios, I and II listed on page eight, have an all-equity position when fully invested. Both portiolios have maintained very high stock market cash reserves since mid-January. We have updated the performance of these portfolios for the past one, two and three-year periods ended September 30, 2000. Here are the results:
One-Year Period ended 9-30-00;
Model Portfolio 1: + 43.7%
Model Portfolio II: $ 9,1%
Wilshire 5000 Index; + 17.8%
Wilshire 5000 Index; + 49,8%
Three-Year Period ended 9-30-00!
Model Portfolio 1; + 88.U
Model Portfolio II; + 53,2%
Wilshire 5000 Index: + 53,6%
The Wilshire 5000 Index performance figures reflect the total return of the Vanguard Total Stock Market Index Fund listed on page eight of Marketimer.
MODEL PORTFOLIO III REBALANCING
In order to restore model portfolio III to & 50X. weighting in fixed-income securities, we are making the following adjustments effective Immediately!
REDEEM: $ 10,000 Vanguard Prime Money Market
BUY: $ 5,000 Vanguard Short-Term Federal
BUY: $ 5,000 Vanguard Ginnie Mae Fund *
----------------------------
pages 4-5-6 give list of Brinker recommended No-Load funds
-----------------------------
page 7:
INTEREST RATES/FIXED-INCOME INVESTING
Both the IO-year and 30-year Treasury securities continue to trade close to the midpoint of our anticipated 5,50X to 6,50% trading range. Treasuries continue to trade at rich valuations due to the ongoing buyback prograin and the relative scarcity of new offerings due to the cash flow surplus at the Treasury. We expect relative stability In the Treasury market as evidence of slower economic growth
provides a firm underpinning to credit risk-free Instruments.
The Marketimer fixed-income recommendations currently show an average yield of 6.7K and an average maturity of 5.3 years* We continue to rate Vanguard Ginnie Mae Fund as our top choice for high-quality Investment Income. This fund has had & great year through the first nine-months, with a total return of 7.4X for the period)
which translates into an annuallaed rate of return of close to 10%.
Fixed-Income Investments ~ Weighting Current Yield Average Maturity
Vanguard Fixed-Income Short-Term Federal 50% 6.52% 2.7 years
Vanguard Ginnie Mae Fund (800-662-7447) 50X 6.89% 8.0 years
The next Treasury Direct auction of two-year notes Is tentatively scheduled for October 25. Two-year notes remain very attractive and interest is state tax-exempt. Subscribers seeking tax-exempt income in no-load funds may choose from:
Vanguard Long-Term Tax-Exempt, yielding 5.11X, average maturity 12.5 years;
Vanguard California Insured Long-Term, yielding 4?9%1 average maturity 13 years;
Vanguard California Insured Intermediate, yielding 4.37%, average maturity 7.5 years
We also recommend state general obligation tax-exempt bonds with 10-to-12 year maturities for subscribers in high tax brackets.
Our favorite money market funds are Vanguard Prime Money Market, yielding 6.35%, and for tax-exempt income. Vanguard Municipal Money Market) yielding 4.2%.
ACTIVE/PASSIVE PORTFOLIO
Subscribers seeking an active/passive strategy for stock market investment may use the following guidelines. A $100,000 portfolio would currently Include $65,000 In Vanguard Prime Money Market) $25)000 in Vanguard Total Stock Market Index, $51000 In T. Rowe Price European or Vanguard European Index, and $5)000 in Vanguard Inter-
national Growth. This portfolio utilizes the asset allocation recommendations set forth In Market irner, and invests in low-cost no-load funds which generate very low annual taxable distributions. Vanguard Prime Money Market currently yields 6.35%.
INDIVIDUAL ISSUES
Marketimer has no individual stock purchase recommendations at this time. Market exposure remains very low at 25% U.S. plus 10% non-U.S., with 65? Invested safely in money market funds. Individual company holdings are Included In the 35% equity allocation. The maximum holding in anv one common stock should not exceed 4%. This
guideline does not apply to SPY, DIA or QQQ which are linked to index performance.
ISSUES Beta Exchange Symbol 10/4 Price Est. Earnings per Share
Microsoft 1.28 Nasdaq MSFT 55.44 1.90 (.6-01) 2.15 (6-02)
Vodafone/AirTouch 0.90 NYSE VOD 37.06 0.90 (3-02) 1.30 (3-03)
S&P Dep. Receipts 1.00 AMEX SPY 143.69 5.70 (2000) 6.00 (2001)
DJIA Diamonds 1.00 AMEX DIA 107.89 5.70 (2000) 6.45 (2001)
Nasdaq 100 Index 1.58 AMEX QQQ 85.63 * *
Ultratech Stepper 1.25 Naadaq UTEK 15.68 0.30 (2000) 0.90 (2001)
Gabelli Equity Trust 0.54 NYSE GAB 11.63 NAV $ 11.69 as of 10-3-0
* Marketimer estimates that the 30 largest profitable companies In the Nasdaq 100 Index are trading at an average price-earnings multiple of 96 times fiscal year 2001 estimated operating earnings. This Index is primarily comprised of companies that operate in the technology sector.
MANAGED ACCOUNT SERVICE - While Marketimer offers helpful monthly guidance, daily supervision and professional Investment management services are provided by our money management affiliate, The BJ Group, a division of Centurion Capital Managed For details call 800-BJ2-2044 or check out our website; ww.bjgroup. corn.
(i) |
