Bob Brinker Fan Club
by Kirk

July 16-17, 2005 Newsletter Excerpts from David K's Interpretation of Moneytalk (Bob Brinker Host) for July 16-17, 2005 Newsletter (email David for a free copy of the full report.) ECONOMIC DATA -- BULLISH! Brinker Comment: We have been getting some magnificent economic reports lately. The June employment report, for example, supports Bob's bullish outlook for the U.S. stock market. In the first six months of 2005, we have had average monthly new jobs growth of 181,000. If you looked for the "sweet spot" you would get between 150,000 and 200,000 new jobs on average, and that is exactly what we have. EC: Read the employment report for June at this url: http://stats.bls.gov/news.release/empsit.toc.htm Brinker Comment: We are also getting the kind of reports we want to see on the inflation front. The Consumer Price Index (CPI), seasonally adjusted, was unchanged for the month of June. The year-over-year CPI including everything is up 2.5%. This benign number underscores Bob's projection that inflation is not a problem at this time. For those who have made the mistake thinking that higher oil prices are inflationary, they have been wrong. If you take out food and energy, the core-rate is 2.0% for the same time period. If you want these delivered to your email box, usually within 24 hours after Sunday's show, then send us a note at TalkAboutMoney@gmail.com and ask us how to subscribe to David's Service. Energy prices are up 7.3% over the last year, but those gains are nothing compared to what they had been. Oil closed at $58.09 a barrel at the end of the week. If you look at the "real" cost of oil, adjusted for inflation, you are paying the same for oil that you were paying 15 years ago right before the Persian Gulf War. Oil is also less important to GDP growth than it used to be. These are the reasons why oil is not impacting the economy as much as you might expect. The price of oil has also run into a lot of overhead selling pressure when it gets into the low $60s. EC: On Tuesday, the Energy Department, which oversees U.S. supply and demand statistics, said it expects oil prices to average $59 a barrel through September. This is significant because its prior estimate just a month ago was $53. Although there might have been some resistance this week in the low $60s, I certainly don't think there is any guarantee we won't see even higher prices this fall. Brinker Comment: When we look at consumer price inflation, it is important to look at what components are higher than the headline number. We know oil is higher by 7.3% and transportation is up 3.7%, which is not surprising given the oil "flow-through" cost that is impacting that component. Medical care costs continue to be the "Sword of Damocles" and is up 4.2% on a year-over-year basis. EC: These literary references stir my soul. Time for some chicken soup. Read the June CPI report here: http://stats.bls.gov/news.release/cpi.toc.htm Brinker Comment: The producer price index (PPI) is watched closely on Wall Street because sometime it gives you an early indication of inflation. If that's the case, we got more good news on the inflation front this past Friday when the June PPI was released. For the month, the PPI was flat with no change at all. The core rate actually declined 0.1%. If you look at the year-over-year numbers, the PPI is up 3.6%, but you know that has a lot to do with energy prices. In fact, the core rate, which excludes energy and food, is only up 2.2% on a year-over-year basis. When you look at the core PPI year over year at 2.2% and the CPI core at 2.0%, the inflation picture is benign. The inflation hounds just don't have much to chew on. EC: Metaphorically speaking, is the fox still guarding the hen house? Read the June PPI report here: http://stats.bls.gov/news.release/ppi.toc.htm Brinker Comment: Consumers appear to be happy about the economic data. The University of Michigan Consumer Sentiment Index was up to 96.5 which was a good showing because it includes the effect of the London bombings -- the worst bombing in London since World War II. Despite this incident, consumer confidence rose. EC: The University of Michigan's consumer sentiment index was 96.0 in June, so it ticked up just 0.5 in the report out Friday. This report is actually a preliminary survey, whereas a more complete survey will be reported in two weeks. Brinker Comment: Industrial Production was up 0.9% for the month of June, up more than twice as much as analysts were expecting. That is good news. Its the fastest growth since February of last year. Even auto makers are increasing their production, up 2.8% in June and 1.1% in May. EC: The index of industrial production measures the physical output of the nation's factories, mines and utilities.

Back to Bob Brinker Fan Club Home Page   Subscribe to Bob Brinkers Marketimer [Newsletter Subscription] Record Moneytalk yourself using your own computer and Replay Radio Bob Brinker Update for: December 2005 November 2005 October 2005 September 2005 Get on our FREE Mailing List Info FREE issue of Kirk’s newsletter   Brinker Portfolio Return Info Other Investment Gurus Other investment gurus to keep an eye on. Click to Chat but register here first (one time only) This is a FREE chatroom where you can discuss investing with other fans of Bob Brinker while you listen to the show. If you want these delivered to your email box, usually within 24 hours after Sunday's show, then send us a note at TalkAboutMoney@gmail.com and ask us how to subscribe to David's Service.

If you want these delivered to your email box, usually within 24 hours after Sunday's show, then send us a note at TalkAboutMoney@gmail.com and ask us how to subscribe to David's Service. Brinker Comment: When we look at the economic data, all of it is pointing to a continuation of the cyclical bull market. Indeed, we now have another new cyclical bull market recovery high. Bob noted that since his March 2003 major buy signal when he recommending putting all cash reserves into the stock market, the S&P 500 has increased over 53%, and 57% if you include the dividends. Brinker Comment: What can you say about the bears? They are boxed into a trap. They set it in the spring when the market sustained only a modest correction. The bears panicked when they saw price weakness. Look what has happened. Bob said he has no idea how the bears are going to get out of their trap. The London bombings, which the bears thought would have hurt the market, hasn't impacted it at all. In fact, the S&P 500 is now at its highest level during this bull market, closing at 1227 on Friday. EC: I don't think you need me to tell you that Bob sounds incredibly bullish. My only suggestion is that you be prepared for a correction at any time. Hopefully, we will get to ride this up trend for a bit more, but even cyclical bull markets don't move in a straight line up. COULD THIS BULL BE A SECULAR ONE? Caller: This caller and his buddies all listen to daBrink, probably with their Moneytalk t-shirts, mugs and sexy Trekkie calendar posted nearby. He wanted to know what would make Bob think this cyclical bull market might not be the start of a secular bull market. Bob said if it did, it would make the bear market that began in 2000, the shortest secular bear market of all time. History suggests this is not the case. Bob went on to say that he doesn't use the calendar to make specific market timing moves -- for that, he relies on his timing model indicators. EC: Another scenario is that the secular bull market that began in 1982 has never ended and the bear in 2000 was simply a cyclical bear market. Its not a theory I subscribe too, but one that I have seen others suggest is the case. WHAT CAN YOU DO IF YOU CAN'T TIME THE MARKET Caller: This caller said he doesn't do a think without Bob's advice. (Does that include choosing wall paper?). He wants to know if it would be ok to adopt a dollar cost average approach over the long term if Bob is not around and there is no successor to interpret the stock market timing model. Bob said as a last resort, if you had no idea of when to be in the market or out of the market, dollar cost averaging would be acceptable. EC: Dabrink is laying it on a little thick if you ask me. Bob got the 2000 and March 2003 timing correct. But he blew two other major ones as well. He has a good streak going, which I hope continues for his followers, but a dollar cost average approach over the long haul would have produced comparable results to following ALL of his timing advice. TERRORIST ATTACK RISKS Caller: This airline pilot and his colleagues are very concerned about another terrorist attack on our country's homeland. What are your thoughts on the economic impact if we did have another terrorist attack? Bob first reiterated something he brought up last week; namely, the template that he thinks we are operating under in which conventional terror attacks (as opposed to nuclear or weapons of mass destruction) on non-U.S. soil seem to have little impact on investor psychology in the United States. There was no economic fall-out in the United States after the Madrid bombings, and so far after the London bombings. Having said that, the geopolitical situation is very dangerous and people who have become complacent since we haven't had an attack since 9/11, need to wake up. Bob referenced a new book coming out called "Qaeda Connection" by Paul Williams. The book talks about the very real possibility of an attack on the U.S. using weapons of mass destruction in which the author names places like Boston, New York, Los Angeles, Houston and Washington that are targets. The caller said he was 59 years old and concerned how this kind of terrorist strike would impact his portfolio which was modeled after Model Portfolio III. Bob said at age 59, he would also have a balanced approach to investing, which means you are heavily insulated from such a strike since you have 50% of your portfolio in quality fixed-income instruments. EC: The book Bob was referring to is called "Al Qaeda Connection: International Terrorism, Organized Crime, and the Coming Apocalypse" which you can learn more about at this link: http://tinyurl.com/72nl7 If you want these delivered to your email box, usually within 24 hours after Sunday's show, then send us a note at TalkAboutMoney@gmail.com and ask us how to subscribe to David's Service. MARKET PERFORMANCE Caller: What accounts for the discrepancy in performance between the Dow versus the Total Stock Market Index Fund since the beginning of this year. Bob noted that if you look at only 6 months, you generally only get "noise" versus a trend. Bob added that the Dow has lagged the S&P 500 by a lot during this cyclical bull market. The Dow, however, doesn't represent the market since it is an index made up of only 30 stocks. Brinker Comment: The S&P 500 has a total return year-to-date of 2.2%. The Total Stock Market is up 2.9%. Some people will look at the Wilshire 5000 and say the index is only up about 3% year-to-date, but if you annualize that, you get 6% and that is not far off what you would expect on an annualized basis during a secular trend. Bob added that he is of the opinion that we are in a favorable time during this secular trend and that is illustrated by the fact that the S&P 500 is up 53% since March 2003. Don't expect double-digit percentage gains each year like we saw during the latter part of the 1990s. That was during a secular bull market. Its a whole different ball game now. EC: The Dow is lagging the S&P 500 by about 12 percentage points since Bob's March 11, 2003 buy signal. The Dow closed Friday at 10,640.83. Its closing cyclical bull market high was recorded on March 4, 2005 at 10,940.55. ASSET ALLOCATION UNTIL THE SELL SIGNAL Caller: This caller was trying to follow Bob's Model Portfolio I; however, after talking to Vanguard, some of his minimum balances don't allow him to use some of the funds Bob recommends in that portfolio. Bob suggested that he just go with the Active/Passive approach which has done very well. Since January 2000, the S&P 500 is down 12%, but the Active/Passive Portfolio is up 47%. The Active/Passive portfolio allows you to own just a few funds. Bob noted that as long as he gets the market direction right, that portfolio will do very well. Bob cautioned that past performance does not guarantee future results. Caller: This caller is 57 years old and plans to retire in a couple of years. His current asset allocation is 60% stocks and 40% bonds which is a little riskier than some might recommend, but he thought it was appropriate given that we are in a cyclical bull market and wanted Bob's opinion. Bob said he had no problem with that view at this time, and noted that asset allocation is a very personalized choice depending upon your risk tolerance Caller: This caller has been very satisfied with Bob's Active/Passive portfolio, but says that he will be hitting critical mass in a two years and thinks he should switch to a balanced approach (50% bonds 50% stocks). Bob agreed and said it makes sense to adopt a balanced approach when you are in or approaching retirement. The caller noted that as he switches to a balanced approach, how should he handle the dividends which will be taxed as distributions. Bob doesn't see any reason to reinvest the dividends and thinks you can use the distributions as a way to ease into the ratio of stocks/bonds you desire since you will be cutting back on your equity portion anyhow. The caller asked if he should make this move over the next two years or all at once. Bob said he would use the period between now and 2 years to get yourself into a position you are comfortable with. The only exception would be if we get a sell signal during that time period. At that point, we would have to take "significant defensive action in all portfolios." EC: This is the prologue to what eventually will be Bob's next major timing signal. It looks like he is setting the stage for another tactical asset allocation move where he sells a percentage of equities to raise cash. Recall in January 2000, he moved from a 100% fully invested position, to 40% invested (60% cash). He modified this once more in August 2000 when he went to 35% invested (65% cash). He never went beyond that, and in fact recommended up to 50% of the cash reserves into the QQQ (now QQQQ) shares beginning in October 2000. Caller: This caller wants to invest $5,000 into a very aggressive stock. The problem is that many of the stocks he is looking at are trading at a 52-week high and he is looking for stocks that are trading below their 52-week moving average because he believes that stocks trading below their 52-week moving average have a higher chance of rising than stocks above their 52-week moving average. Bob said he is not sure he agrees with that theory as it ignores momentum. Bob said there are studies showing that momentum can impact a stock's price in the short term. Beyond that, Bob noted that stock prices in general are based on discounted value of future earnings. Speculation aside, its a fundamental story based on the perception of future earnings and dividends. This is a function of the company's business plan, with exceptions for instances like takeovers. Bob said he has a policy of not recommending individual stocks. Bob noted that he talks about no load mutual funds that provide you the diversification across a basket of stocks. EC: There was a landmark study conducted by Sheridan Titman and Narasimha Jegadeesh who concluded that maintaining a long position in past strong performers and shorting past weak performers could earn investors abnormally large returns over a 6-12 month time frame. Check out this article entitled, "The Truth Behind Momentum Investing: The theory works, until you factor in trading costs": http://tinyurl.com/6347d I-Bonds Caller: This caller bought some I-Bonds in 2001 which have done very well. He took out a home equity line of credit which is costs him about 5%. With I-Bonds yielding about 4.8%, should he cash in the I-Bonds to pay down the home equity line? Bob noted that the I-Bonds allow you to defer taxation on the interest you are earning out to maturity. However, the interest you are paying on your home loan is tax deductible which serves to reduce the rate you are paying. Bob said he doesn't see any reason at this time to make a change. EC: I recently purchased an I-Bond as a gift for a youngster. You can purchase them for denominations as little as $25 when purchased electroncically via TreasuryDirect or $50 when purchasing paper bond certificates. Learn more here: http://tinyurl.com/ac7vx INTEREST RATES Brinker Comment: Interest rates are very low right now with 91-day Treasury Bill yielding 3.2%; the 10-year at 4.17%, and the 30-year at 4.38%. There is a bit of a squeeze between variable rates and fixed rates as variable rates rise. Bob has recommended locking in longer-term rates instead of being at the mercy of the lender as rates get jacked up by virtue of the Federal Reserve raising rates. EC: The Federal Reserve posts selected daily interest rates if you are ever wondering what the actual rates of government instruments are. I have this link bookmarked for the Federal Reserve Statistical Release on Selected Interest Rates (Daily): http://www.federalreserve.gov/releases/h15/update/ If you want these delivered to your email box, usually within 24 hours after Sunday's show, then send us a note at TalkAboutMoney@gmail.com and ask us how to subscribe to David's Service. REAL ESTATE ROCKS Brinker Comment: The real estate market has been astounding. The number one real estate market in the country right now is been Bradenton, Florida where medium house prices are up 45% over the 12 month period ending March 31st. In fact, eight of the top ten real estate markets are in Florida in cities like Sarasota, West Palm Beach and Ft. Lauderdale. Outside of Florida, Riverside/San Bernadino properties rose 32.6% and Las Vegas rose 29.4%. Not all areas are hot. Some real estate markets have actually gone down over the last year like Beaumont, Texas and Waterloo/Cedar Falls, Iowa. The red hot markets are creating a lot of speculation which worries some people. EC: Bob was reading this information off of an article entitled, "Hot and cold home markets" which you can access here: http://tinyurl.com/8ludk Caller: This caller read that only 10% of people can afford a house in the San Bernadino area. Is there going to be a real estate crash? Bob said he saw the results of a study on property value risks at the University of California. The opinion expressed in that study was that the risk in the Bay Area was not more than 25%, and the area in the Los Angeles was not more than 20%. This is economic risk, not natural disaster risk. Thus, in a worst case scenario based on economic factors, your risk could be 20-25%. A rising long-term interest rate environment is something to watch which can precipitate declines in real estate prices. EC: I think Bob relies on Ken Rosen, an expert in real estate and chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley. Rosen was interviewed, along with two other "experts" in a San Francisco Chronicle article entitled, "On the Record: Bay Area real estate" which you can read at this link: http://tinyurl.com/6llpz NEXT WEEK Brinker Comment: There is not much going on in terms of the economic front. We get Housing Starts on Tuesday and the Leading Indicators on Thursday. The real story is that earnings season kicks into full gear next week. EC: This link will take you to the full earnings calendar for next week: http://tinyurl.com/5xev This link brings you to the economic calendar for next week: http://tinyurl.com/7gssd FINAL THOUGHTS FROM DAVID KORN: Have a great week! - David FINAL THOUGHTS FROM DAVID K: I am starting a new subscription period to my newsletter shortly. If you would like to learn about my service and how to subscribe, visit the Bob Brinker Fan Club - David K DISCLAIMER: This e-mail 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. 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. If you want these delivered to your email box, usually within 24 hours after Sunday's show, then send us a note at TalkAboutMoney@gmail.com and ask us how to subscribe to David's Service.