January 2006 Marketimer Model Update
Bob Brinker Fan Club (home Page)
by Kirk

Now let’s look at the 5 root causes today: Tight Money: Long term interest rates are still near historic lows This chart shows is up off its lows, but it remains half what it was in the late 1980’s. [graph that was emailed to members on the Fan Club Mailing List] You can also see the large spike in 2000 lines up well with the start of the bear market in the S&P500 as people were selling bonds to buy stocks. Today it is the reverse; people are buying safe US Treasuries rather than stocks. BULLISH Rising Rates:: Bob and I seem in agreement that the Fed is only normalizing rates. This means they are going up but it really doesn’t count because they are going up to where they should be if we had not had a 9/11 attack AND a major recession. NEUTRAL I also believe this will turn bullish because the Fed should stop rising rates given the low 1.1% GDP growth announced Friday January 27, 2006 and several months of data suggesting the housing speculation has ended. Others, like Ed Yardeni, think the Fed will raise rates to 5% this year. I would say this would be bearish if short-term rates, now at 4.25%, are raised above 4.5% High Inflation: As long as there is an internet connecting China and India to the US, I do not see wages being in danger of high inflation. Higher energy prices has led to slightly above target core inflation but the deflationary forces are secular in nature and should help to contain core inflation. If energy prices remain high, they could actually lead to lower inflation in future quarters as we become even more efficient at converting energy dollars in to GDP dollars. BULLISH Rapid Growth: With fourth Quarter GDP growth at 1.1%, people now are worried we will fall into a recession if the Federal Reserve continues to raise rates. This 1/27/06 report from the US Department of Commerce shows Q4 2005 was the lowest quarter of GDP growth since the last quarter of 2002. ECRI’s WLI is moving higher which says we should see a bit more GDP growth in future quarters, but no huge growth and no recession. This is all VERY BULLISH. Over Valuation: I wrote in my most recent newsletter : “For 2006, S&P estimates ‘as reported top down earnings’ (that include options expensing) will be $82.87 (12/16/05 was $82.87) for a forward PE of 15.1, very reasonable. I don't think we have anything to worry about unless these pass 18 or 20 as long as long term interest rates give an earnings yield in excess of 20. BULLISH I have 4 at bullish and 1 at neutral which tells me Bob Brinker will not be predicting a bear market in the weeks ahead.   If you want updates on what Brinker is saying on Moneytalk delivered to your email box, usually within 24 hours after Sunday's show, then send us a note at TalkAboutMoney@gmail.com and ask to get on our mailing list. So, what do you think? DO you agree with my interpretation of Bob's 5 Root Causes of a Bear Market?  Send me an email with your feedback. Since beating the market is hard for most to do, I recommend a "Core and Explore" approach to investing. Core means place 80 to 99% of your money into a CORE, buy-and-hold, no load, mutual fund portfolio and then EXPLORE with the remainder. To build your core portfolio, I suggest a diversified basket of index funds such as one of the two Vanguard index fund core portfolios I recommend in my newsletter. For the remainder, I recommend Kirk's Newsletter Explore Portfolio. Through Jan 1, 2006, these two core portfolios, aggressive and conservative, composed of seven different Vanguard Index funds, have beaten the S&P500 over the past five and seven years by over 20% using no market timing and only rebalancing once a year. These index fund portfolios include US equities, international equities and an REIT index fund. As of 12/31/05 the Total Return for "Kirk's Newsletter Explore Portfolio" since 12/31/98 is Up 197% while the S&P500 only up 12%!!! & NASDAQ only up 1%!!! (My explore portfolio beta is about 1.5) For followers of Bob Brinker, I recommend my newsletter core portfolio as an ALTERNATIVE to the QQQQs that Bob Brinker recommends for his three model portfolios. The data here shows followers of Bob Brinker would TURBO CHARGE their returns had they replaced his recommended QQQQ exchange traded fund with the securities in my newsletter portfolio. FREE Chat while listening to Moneytalk:  http://www.suite101.com/discussion.cfm/investing/16375/900-902#message_3 ==> Drop in anytime for friendly chat while the Moneytalk is on.  If your favorite radio station is covering sports and you want to hear "Moneytalk" on the internet, then drop in.  Ask our regulars in chat to give you a link to listen to Moneytalk for free on the internet!        Kirk Lindstrom ====> Click for a Free Sample of my Newsletter Editor: Investing and Personal Finance @ Suite101.com Click for Kirk’s: Reading List, Financial Links, Investment Guru Links Kirk's Internet Tips, Tricks & Hacks, Semiconductor Resource Page Bookmark my new page: World Market Graphs & Country Information

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