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Monday, December 31, 2007

Bob Brinker Shadow Stock Market Timing Model Update

Bob Norton has udated the "Bob Brinker Shadow Long Term Stock Market Timing Model" and reports it "remains in favorable territory as we move into the month of January 2008. "

The "Shadow" Long Term Stock Market Timing Model now has 3 bullish indicators and one neutral.

This is a "A Special Report" by Bob Norton for Bob Brinker Fan Club readers. You can read the whole report here.

Read Bob's full report to see if you agree with his conclusion and update on the four basic model indicators:

  • Valuation
  • Monetary
  • Sentiment
  • Economic Cycle

Then give Bob your feedback on this in our Bob Brinker Free Discussion Forum at facebook's "Investing for the Long Term" group.

If you want updates on what Brinker is saying on Moneytalk delivered to your email box, often within 24 hours after Sunday's show, then follow the instructions at the Bob Brinker Fan Club.

Click Bob Norton for more articles by Bob Norton.

Monday, December 24, 2007

Bob Brinker's Mid 1400's Buying Opportunity

As we review the charts, it appears Bob Brinker's advice to dollar cost average "new money" into the market with prices in the "mid 1400's" attractive for lump sum purchases will work out well if the Santa Claus Rally takes us back into the 1500's.
Click chart to see full sized version courtesy of
Honey's Bob Brinker Beehive Buzz reported:

In July, 2007 Marketimer, Bob Brinker predicted a "move into the S&P 500 Index 1600's range as we move forward....."
In August, 2007 Bob Brinker said: "We rate the stock market as attractive for purchase on weakness that occurs in the area of the S&P 500 Index mid-1400's. Above that level, we recommend a dollar-cost- average approach."
Brinker repeated the "mid-1400's" buy signal in September, October, November and December.

Friday's close of 1484.46 was above my definition of "mid 1400's" or 1420 to 1480.

Click chart to see full sized version courtesy of

Your mileage may vary, but investors had several opportunities to buy under 1450 with the S&P500 hitting 1435.65 intraday in December 2007 after hitting 1406.10 in November.

I hope you did your "Christmas Shopping in the mid 1400's" and unwrap stocks at higher prices in the coming happy new year!

Merry Christmas Everyone!

Sunday, December 16, 2007

Bob Brinker Moneytalk Recap: Saturday Dec 15, 2007

Bob Brinker FINALLY correctly stated the link for oil prices and CPI, a measure of inflation, Saturday.

If anyone wonders if Bob Brinker reads the blogs and message boards that are critical of some of what he says, yesterday's complete about face where he correctly stated the FOMC could raise rates to lower the impact of higher price oil on inflation should end all doubts. This is what I've been posting for some time to those who have said Brinker is right that higher priced oil is not inflationary.

My Friday article "Bob Brinker WRONG about Oil Prices and Inflation"

Brinker also correctly said that it is hard to lower the demand for oil by raising rates because much of the new demand comes from China and India. We can slow their demand for oil by killing demand in the US , their big customer, via a recession or slowing growth to just above zero but those economies will still want to grow as they embrace capitalism.

About the only thing he held on to from his past incorrect statements about oil not being inflationary was saying "core inflation is up a small 1.9% despite huge gains in oil prices." This is not "small" and is at the upper end of the Fed's acceptable range of 1 to 2%. It was higher at 2.9% earlier this year but when core inflation fell to under 2%, the FOMC started cutting rates. Given the collapse in the housing market, if not for inflation from higher priced oil and other commodities, we might be worried about a dangerous deflationary spiral from falling housing prices and repriced SIVs (note #1).

Bob Brinker made a lot of good comments about how we wasted our opportunity to get off Middle East oil after the 1974 embargo. His guest, an auto writer emeritus from Forbes, said America is a bunch of fat people who want and need big, comfortable cars to drive to their $100,000 jobs and the current price of oil is not a big deal relative to being comfortable. He also said this was true in Europe too where rich Germans love their big, powerful cars. (just look at the big, powerful, heavy Audi's, BMW's and Mercedes with 8 cylinder engines. ) The guest also said he believes gasoline will have to get to about $7 per gallon before Americans make significant changes in driving habits.

  1. SIV is "Structured Investment Vehicle." Here is a good article on SIVs called "Shedding Light on SIVs"

Friday, December 14, 2007

Bob Brinker WRONG about Oil Prices and Inflation

For years Bob Brinker has been telling his audience that higher prices for energy, especially oil for heating and gasoline, were not inflationary. (Reference 2006 Monologue "Oil prices literally going through the roof, and yet to the consternation of many, not listeners to Moneytalk, but to many, including, apparently, the Fed Chairman, they think oil prices are inflationary. That's because they don't understand, they don't understand the taxing effect that these higher gasoline prices have on your pocketbook.")

Brinker correctly says higher energy prices "act like a tax" and slow growth, but he forgets that tax rates are not 100%. This means that oil prices are "less inflationary" than if they didn't act as a tax, but they are still inflationary. Taxing your pay check doesn't mean your pay check turns negative! It just means you get LESS take home pay. Likewise, the "taxing effect" means you get less inflation pressure from the higher prices, not a sign change!

When the inflation component for iBond rates came in at a very low 1.0% last year, Brinker said this "proved he was right" about higher energy prices not causing inflation. I posted a note at the time showing that the price of oil was down 0.6% year-over-year for the period used to set I-Bond rates so it didn't prove what he said. (see I Bonds Explained)

Today the Wall Street Journal reported "Inflation Accelerated Last Month On Higher Prices for Energy"

WASHINGTON -- U.S. consumer prices surged in November on the back of sharply higher energy prices while underlying inflation accelerated at its fastest pace in 10 months, providing fresh evidence that the disinflation trend in place for much of 2007 may be coming to an end.

The data could complicate the Federal Reserve's task of addressing downside economic growth risks at a time when officials remain worried about inflation, and may make them less willing to use their main interest-rate tool to address credit-market strains.

The consumer price index jumped 0.8% in November, the Labor Department said Friday, up sharply ...

To read the rest of the article: 75% off the Wall Street Journal + 8 Weeks FREE!

Lately Bob Brinker has tried to distance himself from his incorrect statement that higher priced oil is not inflationary by saying it doesn't cause core inflation to go up. Well, core inflation is CPI inflation with the more volatile food and energy prices removed. So, of course higher priced energy won't cause a big change in core inflation when you remove energy prices from the calculation!

MarketWatch reported this AM:

U.S. Nov CPI up 0.8%, core rate up 0.3, higher than forecast
Last update: 8:30 a.m. EST Dec. 14, 2007

WASHINGTON (MarketWatch) - The underlying rate of U.S. inflation accelerated in November, the Labor Department said Friday. The consumer price index increased 0.8%, driven by a 5.7% gain in energy prices, the fastest increase in energy prices since March. This is the biggest gain in consumer prices in more than two years. Food prices rose 0.3%, and apparel, airline and drug prices also spiked. The core CPI, which excludes food and energy costs, was up 0.3% in November, the biggest gain since January.

November core inflation at 0.3% times 12 months comes in at 3.6% a year, certainly not "low core inflation" by anyone's definition.

FOMC chairman Ben Bernanke says "price shocks" from higher prices for energy or other commodities like food can cause core inflation to go up if "consumer expectations for inflation" expect more inflation in the future. In practical terms, this mean core inflation will go up if you start telling your boss you need a bigger raise to pay the heating bills and gasoline bills to commute to work just to break-even. As today's inflation data shows, this is starting to happen.

The price of gold is considered the ultimate "inflation hedge" and it is soaring.

This is a very interesting chart from Chart of the Day

"Today's chart presents the Dow divided by the price of one ounce of gold. This results in what is referred to as the Dow / gold ratio or the cost of the Dow in ounces of gold. For example, it currently takes 16.7 ounces of gold to “buy the Dow.” This is considerably less that the 44.8 ounces back in the year 1999. When priced in gold, the 21st century US stock market has been in one big bear market."

I can't wait to hear how Bob Brinker spins the inflation data this weekend. Even if he doesn't admit he was wrong and the Fed was correct to be worried about inflation, it should prove to be an entertaining show.

Sunday, December 09, 2007

Highest Yielding Certificates of Deposit

Yesterday Bob Brinker recommended a caller consider CDs rather than US Treasury Bonds or notes because CDs are paying better rates.

A 3-month Treasury Bill currently pays 3.07%, the 5-year note pays 3.50%, the 10-year bond pays 4.11% and the 30-year T-Bond pays 4.57%

From the Highest CD Rates Survey at, the best CD rate is 5.45% at Countrywide Bank for 3 months

Below are some more rates, terms and where to get the CDs

6 Months
5.35% at Countrywide Bank

1 and 2 years
5.21% at Apple Bank for Savings (Scarsdale NY)

3 years
5.00% at Capital One Bank, Eastern Savings & Flagstar Bank

5 years
5.26% at Apple Bank for Savings

7 and 10 years
5.10% at Capital One Bank

CDs are also paying better rates than iBonds which currently pay 4.28% (I-Bond Details)

Friday, December 07, 2007

Asset Allocation Question

I am sure Bob Brinker Fan Club members would be interested in this question from our forum "Novice Corner - A place to learn and help others" in the facebook group "Investing for the Long Term."

JG Singh asked:

My question is regarding diversifying or balancing my portfolio.

I have two 401k accounts, 2 IRAs, 2 rothIRAs and a trading account. I have noticed that I have been diversifying and balancing each account on its own resulting in too many positions and more diversification than probably needed. As a result I move with S&P. (altough I am recovering faster than S&P since last week)

What should my approach be? should I be diversified overall (in combined portfolio) or should I worry about diversifying them individually?

I am sure most of you have multiple accounts, how do you deal with this issue?

My reply:

I not only have multiple accounts, but multiple strategies as I experiment with new ideas. I believe in diversification of strategies not just asset classes so I have some "buckets of money" that follow my explore portfolio, some that follow index investing and some that I use to "wing it."

The most important thing to do is put it all on a single spreadsheet where you track your overall asset allocation. It doesn't matter if you have my free portfolio that consists of 120 less your age in equities (VTSMX) with the remainder in Total Bond (VBMFX) or the 7 Vanguard Index Fund core portfolio I recommend in my newsletter mixed with 16 stocks from my explore portfolio and 100 stocks and funds you've accumulated over the years. You want to start with EVERYTHING on a single spreadsheet to see where you are.

The hardest part with putting it all on a single spreadsheet is figuring out how your managed mutual funds are allocated. Mutual funds often have “style drift” where they might start out as a small cap US fund, do great for 10 or 20 years then drift into international and large cap funds as they try to invest the money that keeps flowing in. I’ve owned Fidelities fantastic Contra and Low Priced Stock funds for a long time and they have crushed the S&P500.

Chart of relative performance

Click to see full sized chart courtesy of

As you can see from the links, FLPSX has drifted to a “mid-cap blend” whereas I bought it in 1998 when it was a small cap value fund. I bought FLPSX to diversify from my small and large cap growth stocks that I made a small fortune on in the 1990’s. Value and small cap have done great the last decade vs.growth so the fund’s style has drifted. Not only that, but FLPSX is only 65% in the US and 35% overseas (Fund Holdings) as it has gone overseas to find value. Its top holding as of 9/30/07 was Petrobras, the oil company in Brazil!

If you really want to stick to plan, you should update your asset allocation to account for style drift each year and make sure you break-down your large holdings into their component asset classes, especially if this materially changes your overall asset allocation.

Make sure you visit:

Saturday, December 01, 2007

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Bob Brinker's LTSM Timing Model Update for December 2007

The Bob Brinker Shadow Long Term Stock Market Timing Model remains in favorable territory as we move into the month of December.

Article by Bob Norton, posted Saturday Morning on the Bob Brinker Discussion Forum at Facebook's Investing for the long term group.

ECs (Editor's Comments): by Kirk Lindstrom


Market close 11/30/07 S&P 1481

S&P earnings projection for 2008 is 102.86 as of 11/28/07.
p/e based upon S&P 1481/102.86 = 14.39

S&P Investment Policy Committee's most recent 2008 price target of 1650 presently yields a p/e of 16.04.

I anticipate that the S&P IPC may lower their forecast between now and the end of the year. On 11/26/07, one of my valued sources from which to make comparisons with Bob Brinker, Evergreen Investments, have lowered their 2008 guidance of S&P earnings from $100 x 17 =1725 down to $98.50 x 16.5 = 1625.

The Morningstar Valuation Graph has the market in deeply undervalued territory.

The NYSE 30 Day Advance/Decline Oscillator and the NYSE New High/New Low Ratio ( both indicate extreme oversold conditions.
  • EC: This chart shows the number of NYSE stocks that are making new 52 week lows (red spikes) plotted with the S&P500 in black. You can see from the chart that spikes above 450 new lows are fairly rare. On Nov. 9, 2007, the NYSE made a second spike above 450 in just a few months!

Yesterday the 10 year Treasury closed at 3.97%, falling further away from the June 2007 level of 5.25%. Downward pressure on yield is a result of the flight to quality coming from the sub-prime mess, along with as-of-yet unsubstantiated recession fears.

The ratio of the 10 year 3.97% divided by the inverse of the S&P p/e (1/14.39) yeilds .572..... confirming that the market is substantially undervalued. In the December 3rd edition of Barrons, Don Hays of Hays Advisory Group said that this is an excellent indicator in that it shows that "money goes where it is treated best"

This indicator is BULLISH.


As of November 12th, M2 liquidity came in at 7403/6945 (year ago) =
6.59% increase minus 3.50% (headline inflation) = 3.09 inflation adjusted increase. M2 expansion is slipping against the projected 2007 GDP growth rate, but is still marginally ahead of 2008 consensus forecasts of 2.0 - 2.5% (Northern Trust, however, lowered its estimate to 1.7% earlier this month).

M2 growth trend needs to be monitored closely going forward, especially considering the Federal Reserve's task of balancing duel concerns over the housing-related slowdown with the recent uptick in headline inflation.

Headline inflation has jumped from 2.8 to 3.5%. Core CPI is slightly above the Federal Reserve comfort zone at 2.2%.

The PCE has risen to 2.9 from 2.4%, with the all-important Core PCE now standing at 1.9%.....still withion the 1-2% Federal Reserve comfort zone.

For the time being, core PCE is well behaved.

This indicator is BULLISH


AAII bullish readings have fallen to 28.6 (12/2/07) from the 11/2/07 reading of 44.7

Investor's Intelligence Survey (bulls/bulls +bears) 11/20/07 from Market Harmonics stands at .643. This provides continued relief from the worrisome readings of over .70 which were consistent throughout the month of October.

A recent reading of the moving average of the 60 day put/call ratio stood at .999... still showing sufficient negativity in the investment community.

  • EC: The 60 day moving averate of the Put/Call ratio was under 0.50 in early 2000 when Bob Brinker's timing model signaled sentiment was too bullish. A reading of 0.50 or less means two bullish call options were bought for every bearish put option.
  • chart: something wrong clicking the chart so I will upload it here later.

The ARMS Index of declining versus advancing NYSE issues has showed continuing improvement from the highly elevated readings of November 12th. Further improvement back toward a neutral stance is desired.

This indicator is BULLISH


The November 30th 3rd quarter GDP revision of 4.9% yields an average GDP growth rate of 3.3% for the first 3 quarters. Still, there is widespread concern regarding the potential for a serious slowdown in the 4th quarter.

ECRI Forcasting (Lakshman Achuthan) noted on 11/30/07 that deterioration in their indicators continues, but that they still fall short of a recession call.

Paul Kasriel is the director of economic research at The Northern Trust. They publish an excellent monthly report entitled "U.S. Economic and Interest Rate Outllook". Northern Trust has also been reluctant to make a recession call thus far, but their work suggests that a 2008 recession may be close to unavoidable. Their 2008 GDP forecast has been reduced to 1.7 from 2.0%. They make the case that the Federal Reserve needs to get short rates down to the area of 3- 3 1/2 % by mid 2008. But they also state that the Fed's hands may be tied by less than cooperative future inflation data. This report is definitely worth reading.

For the present time, a slow growth economy still wins out over recession as we begin 2008.

This indicator is BULLISH, but may be deteriorating toward a neutral stance. Federal Reserve policy announced at the upcoming December 11th meeting and incoming data during this month will play an important role in clarifying the direction of this indicator going forward.

Summary comments:

All four indicators are bullish, but with the economic indicator under some pressure. The immediate outlook for inflation still looks benign, even with the elevation in the headline number.

The falling dollar is viewed by many as making U.S. exports attractive to foreign purchasers and may provide a partial offset to future lower domestic spending caused by the "taxing effect" of higher energy prices. If higher energy prices do begin to leak into the core PCE, as I speculated about last month, then we may need to start discussing the possibility that a watered-down version of stagflation may set in.....but certainly nothing like what happened back in the 1970s.

As we close out 2007, the October 9th S&P high of 1565 was less than 1% (high or low) from the predictions made by Bob Brinker, the S&P Investment Policy Committee, and other sources which I monitor. It will be interesting to see how right they are next year!

That's it for now. As always, your insight and comments are welcomed and greatly appreciated!
Bob Norton
(more Posts by Bob Norton.)

EC: Great work Bob! Thanks.

Thursday, November 22, 2007

Bob Brinker Timing Model Update

Update on what Bob Brinker's "5 Root Causes of a Bear Market" and "Marketimer Stock Market Timing Model" are saying to the members of our discussion group.

This was posted today in our "Bob Brinker Discussion Forum" at Facebook's discussion group "Investing for the Long Term."

George asked:

Since the chances of a recession keep going up each day, could someone explain to me how a recession fits into the 5 root causes of a bear market as developed by Brinker? I think I understand the 5 root causes fairly well from reading the Brinker web sites and having subscribed to his newsletter in the past. However, none of the 5 root causes seem to deal with a recession. It seems to me that if you have a recession, profits are going to drop significantly. If profits drop significantly I would think you could easily have a bear market at least until the market could see the end of the recession. The 5 root causes could all be favorable or neutral but it seems like you could still have a bear market. The impression I have is the 5 root causes model has a lot of credibility with people associated with this site. What am I missing?
Allan replied to George's post:

In his November 5th newsletter , George , Bob Brinker sees " no evidence in our work that a recession will occur " . " The Conference Board Leading Economic Indicators and Coincident Economic Indicators show no signs that a recession is on the horizon , and we view the cacophony of financial media stories on this subject as highly suspect " .
Ivan replied to George's post:

A recession could follow if all 5 of the data points lined up and pointed to a bear which they do not.

The biggest piece would be tight monetary policy which we did not have IMO, and we never truly inverted the yield curve which is significant.

+ 5 major causes for a bear market (20-50% decline)

1) tight monetary policy - tight money when fed acts to limit the growth of money supply;
2) rising interest rates - currently or prospectively
3) high inflation
4) rapid econmic growth
5) overvaluation - overvaluation will not cause a bear

His timing model will give you clues of possible recession

Economic Cycle


it is not however fool proof IMO
Dan replied to Ivan's post:
"Smile, in light of the dismal stock market, it is amazing that not a single one of those 5 causes is negative. I don't think we have to have all five negatives for a bear market, but when not even one is, that makes you think.

The only one I can see that might even remotely be negative is inflation, and that's only if you view oil prices as the sole measure of inflation. And that's certainly not the case."

Join us and give your inputs on what the model is saying to you these days! Request Invitation to facebook discussion group "Investing for the Long Term" to participate in our "Bob Brinker Discussion Forum."

Have a safe and Happy Thanksgiving!

Wednesday, November 21, 2007

Kudos for Bob Brinker Analysis

Kirk's assessment and analysis of Brinker's recommendations are brilliant. My interest in the market has been tinged with naivety, and I appreciate someone like Kirk, who can truly work with the numbers and objectify results. Many thanks, Kirk.

- Dick M on November 17, 2007

Thanks for the kind words Dick. I appreciate them. It would be nice if I could share this with others. Thanks again for your support.

- Kirk L on November 18, 2007

Feel free to share, Kirk. I'm not particularly facile with facebook, despite my kids' abilities... - Dick

- Dick M on November 18, 2007

Request Invitation to FREE facebook group "Investing for the Long Term" where you can participate in the "Bob Brinker Discussion Forum."

Sunday, November 18, 2007

Missing Audio - 11/10/07 Moneytalk On Demand

Bob Brinker's "Moneytalk on Demand" delivered less than advertised.

A reader named "Rob" sent in the following:
The hourly MP3 downloads for hours 1 and 2 for Moneytalk on 11/10/07 only have about 28 minutes of audio each, as opposed to the typical 38.5 minutes. Bob's program opening monologue is completely missing from hour 1 (though it is referenced by a caller at minute 10), and instead it starts abruptly with a call to the show. I find it frustrating that I don't listen to the radio broadcast because I count on this paid service, yet sometimes I receive less program with the paid service than had I listened to the free on-air broadcast. I'm not sure how this happens, but strongly feel that the quality control for this paid service (that I know generates a ton of money) needs to be higher.

I recommend "Replay A/V." For details, see "How to record streaming Audio & Video"

No monthly charges to your credit card!

Replay AV automatically finds a station and records the show for you. No need to stay home tied to your computer. Listen live or listen at your leisure.

Download Replay AV now and try it for free this weekend!

Thursday, November 15, 2007

Bob Brinker Still Bullish According to Mark Hulbert

Mark Hulbert reported today that Bob Brinker remains bullish along with the other eight top market timers Mark tracks. The best news is the worst market timers are bearish.

In his article "The best vs. the worst: Best long-term market timers believe we're in a bull market," Mark writes of Bob Brinker:

Bob Brinker's Marketimer: Bullish. In his most recent issue, which was published in early November, editor Bob Brinker writes: "We continued to believe that there is no risk of a cyclical bear market (a decline of 20% or more as measured by the S&P 500 index (S&P500 chart) in the months ahead ... We expect the stock market to set a series of new record highs into next year." His model portfolios are fully invested.
Mark covers nine of his top market timers and concludes Bob Brinker is not a "lone voice in the wilderness" with his bullishness.
"None of these nine top timers is bearish. The average equity allocation among all nine is 83%. This is down only slightly from where this average stood in recent months."
The best news is the worst market timers Mark Hulbert covers are quite bearish with an average recommended equity weighting of only 9%:
This 83% average is good news for the stock market in its own right, of course. But it's particularly bullish relative to the average forecast of the ten stock market timing newsletters with the very worst risk-adjusted performances over the last decade. The average recommended equity exposure among these worst performers right now is just 9%.

In other words, the worst market timers are quite bearish right now, while the best timers are quite bullish. Rarely are we presented with a contrast this stark.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

Full article by Mark Hulbert: "The best vs. the worst: Best long-term market timers believe we're in a bull market"

Thursday, November 08, 2007

Bob Brinker Fan Club Special Alert

As Honeybee posted in the article "Bob Brinker's Market Timing"

Bob Brinker is currently very bullish on the stock market. As he has said on Moneytalk and in Marketimer, he rates the S&P 500 Index “attractive for purchase on any weakness that occurs in the area of mid-1400’s.” Above that level, he recommends a “dollar-cost-average approach.”
$1450 qualifies as "mid-1400s!"

Click for more charts


Tuesday, November 06, 2007

Bob Brinker's LTSM Timing Model Update for November 2007

Bob Norton's "shadow" Update of Bob Brinker's Long Term Stock Market Timing Model (LTSMTM) has been posted at the "Bob Brinker Fan Club." Here is the URL:

Bob writes: "My version of the LTSMTM remains in favorable territory as we move through the month of November." Read his full report to see if you agree with his conclusion and update on the four basic model indicators:

  • Valuation
  • Monetary
  • Sentiment
  • Economic Cycle

Then give Bob your feedback on this in our Bob Brinker Free Discussion Forum at facebook's "Investing for the Long Term" group.

Friday, November 02, 2007

Jim Rogers Says Bernanke Is `A Nut' for Cutting Interest Rates

According to Jim Rogers, Federal Reserve Chairman Ben Bernanke is "a nut" for cutting interest rates in "an inflationary environment." Rogers says cuts in the Fed Funds Rate is harming the US Economy by fueling inflation. "“It’s been a disaster... He’s going to print money until we run out of trees."

Visit the Jim Rogers Fan Club

Rogers predicts the dollar will rally now that "everyone is short" but he advises selling dollars on this rally before it collapses.

Rogers, in a video interview with the Financial Times, said the U.S. Federal Reserve and Secretary of the Treasury’s willingness to print money and drive down the greenback is clear. “It doesn’t take a genius to figure out that it’s a currency that’s going to be going down for some time to come."

Rogers on Bernanke:

  • "This man is a nut. The dollar is collapsing, commodities are going through the roof, which means inflation's going through the roof. These people are leading us to terrible problems down the line.''
  • "Bernanke loves printing money."

Rogers says of FOMC chairman Bernanke's job performance:

  • “It’s been a disaster." and "If a 6% decline in the stock market causes the man to go and cut interest rates by a half a percent, when inflation is running rampant, when the dollar is under pressure anyway, what’s he going to do when the market is down 36%? What’s he going to do when we have a real crisis? He’s going to print money until we run out of trees. I don’t want to own U.S. dollars in an environment like that.”

On US Election:

  • "A pox on both their houses as far as I am concerned. Both Democrats and Republicans."
  • "If Ron Paul gets anywhere near the nomination, I'll support him." "He's the only one with a clue."

On China:

  • "China is one of the best run governments in the World."
  • Says they are having their problems just like the US and UK had when we were emerging world powers.

Bookmark the Jim Rogers Fan Club

Tuesday, October 30, 2007

Options Predict The Fed Will Cut Rates

Last weekend Bob Brinker said that a 25 basis interest rate point cut is "baked in the cake." Beyond that amount, he doesn't know. How does he predict this?

The Cleveland Fed has a nice page that shows what the futures predict for rates over time: "Monetary Policy :: Fed Funds Rate Predictions." On that page they currently show this graph:

Click to view larger graph

The odds can be read off the side of the graph. The odds are now:
  • 70% for a 0.25% cut to 4.50%
  • 15% for a 0.50% cut to 4.25%
  • 15% they leave rates unchanged at 4.75%

So... there is an 85% chance we get a rate cut of 0.25 to 0.50% and 15% chance they keep rates at 4.75%. So, Bob's rate cut cake is "85% baked" as of yesterday's data.

Thursday, October 18, 2007

Bob Brinker's Bad News Bear Mahendra Sharma Predicts Market Melt-down

Mahendra Sharma predicts that all stock markets will "Melt-down" and everyone should exit all positions today. Sharma advises "Get out from all position before 18 October including metals, Uranium and Alternative energy stocks."

I found this interesting post on Silicon Investor.

To: da_cheif™ who wrote (28242) 10/18/2007 10:54:54 AM
From: Chip McVickar Read Replies (1) of 28249

Here's some entertainment and a posting for the wall

My date for melt-down in all financial area has arrived, we are 24 hours away from shall start with asia.....
More -
Thursday, October 18, 2007, Mahendra Sharma


Prophecy - i am warning to every one as i see great fall in all..i am buying us dollar.....
More -
Thursday, October 11, 2007, Mahendra Sharma


Free- "CRASH" Worst period like 1929/1987 will repeat again any time after 11, October 2008
but this time fall will be so huge in all...

Thursday, October 11, 2007

Dear Member,

We are approaching toward worst volatile period like 1929 and 1987. I advise please stay alert and just watch market. Hold cash as many will fall with fall of commodities, stock market and hot bubble currencies. This will happen in the next two weeks.

As predicted today ....

I predicted major crash in all stock market from 18 October so watch this date closely and plan your trades accordingly. There will blood-bath in Asian market and may few of the market will close down for few days so watch carefully. Get out from all position before 18 October including metals, Uranium and Alternative energy stocks.


Thanks & God Bless
Mahendra Sharma,

11 Oct 5.50AM

Mahendra Sharma must be one of those "Bad News Bears" that Bob Brinker Talks about.

Sunday, October 14, 2007

Bob Brinker on California Municipal Bonds

October 13-14, 2007 Moneytalk with Bob Brinker Commentary by David Korn (newsletter excerpt)


Caller: This caller owns some California municipal bonds and asked Bob whether he should make any additional investments in the municipal bond market pending a decision by the Supreme Court on the case that is testing the taxability of municipal bonds issued by other states. Bob said if you are a California resident and purchase a municipal bond from another state you are going to get hit over the head with up to a 9.3% tax depending on your tax bracket. Bob said we may have to wait until spring before we get a decision, which means May or June of 2008. Bob said we don't know what the court decision will be, or the impact of the court's decision. There are a lot of unknowables. The one thing we do know is that if you go out of state right now, you are going to have to pay the tax.

David Korn: Bob didn't seem too enthusiastic about making such purchases before the Supreme Court weights in on the issue. Here is an article out this month discussing the case entitled, "Municipal bonds making big wages."

- David Korn

More articles by David Korn:

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[ David's Newsletter: People on the Bob Brinker Fan Club mailing list get a discount on David Korn’s newsletter. Details on the discount are in the introductory mailing. ]

Thursday, October 11, 2007

Talker Magazine says 1.75 Million Listen to Moneytalk with Bob Brinker

Bob has 1.75 listeners according to Talker Magazine.Brinker may not be in the "Heavy Hundred" but his audience size is still listed at 1.75 million, the same audience size estimated by Talker Magazine in their 2005 and 2006 surveys.

Howard Stern tied for third place with Michael Savage in 2005 with an estimated audience of 8.75 million, but he is not included on the 2006 and 2007 lists because of his move to satellite radio.

Audience (in millions):

The top 12 Slots for spring 2007:

1. Rush Limbaugh, at least 13.5 million
2. Sean Hannity, 12.5 million
3. Michael Savage & Dr. Laura Schlessinger, 8 million
4. Glenn Beck, Laura Ingraham, 5 million
5. Neal Boortz, Mark Levin, Dave Ramsey, 4 million
6. Mike Gallagher, Michael Medved, 3.75 million
7. Jim Bohannon, Clark Howard, Bill O'Reilly, Ed Schultz, Doug Stephan, 3.25 million
8. Bill Bennett, Jerry Doyle, George Noory, 3 million
9. Rusty Humphries, Kim Komando, Lars Larsen, Jim Rome, 2.25 million
10. Bob Brinker, Dr. Joy Browne, Tom Leykis, Mancow, 1.75 million
11. Alan Colmes, Thom Hartmann, Hugh Hewitt, Lionel, G. Gordon Liddy, Stephanie Miller, Randi Rhodes, 1.5 million
12. Dr. Dean Edell, Bill Handel, Opie & Anthony, Michael Reagan, 1 million.

The top 37 Radio Shows for Spring 2007:

1 Limbaugh, at least 13.5 million
2 Hannity, 12.5 million
3-4 Savage & Schlessinger, 8 million
5-6 Glenn Beck, Laura Ingraham, 5 million
7-9 Neal Boortz, Mark Levin, Dave Ramsey, 4 million
10-11 Mike Gallagher, Michael Medved, 3.75 million
12-16 Jim Bohannon, Clark Howard, Bill O'Reilly, Ed Schultz, Doug Stephan, 3.25 million
17-19 Bill Bennett, Jerry Doyle, George Noory, 3 million
20-23 Rusty Humphries, Kim Komando, Lars Larsen, Jim Rome, 2.25 million
23-26 Bob Brinker, Dr. Joy Browne, Tom Leykis, Mancow, 1.75 million
27-33 Alan Colmes, Thom Hartmann, Hugh Hewitt, Lionel, G. Gordon Liddy, Stephanie Miller, Randi Rhodes, 1.5 million
34-37 Dr. Dean Edell, Bill Handel, Opie & Anthony, Michael Reagan, 1 million.

Reference: 2007 Talkers Magazine Talk Host Survey.

Why Continue to Talk About QQQQ Trade?

On Wednesday, October 10, 2007, Honeybee posted the article:

Two Important Bob Brinker Market-Timing Anniversaries
In the comments section, she was asked:
"Why do you and Kirk keep beating that dead horse that Bob has all ready laid to rest?"

My answer:

Saying "oops" does not mean it was "laid to rest."

Being laid to rest would be Bob Brinker reporting his results that included following his October 2000 NASDAQ 100 advice in his model portfolios such as we have done in this article: Effect of QQQ advice on reported results

The conclusion is anyone who followed Brinker's advice with 50% of cash reserves that was also in his "model portfolio for aggressive investors" saw their totals reduced 29.5% from what Brinker reports in his advertising.

  • Brinker's P1 on 01/01/88 $20,000 Brinker's P1 on 07/27/07 $206,144
    Brinker's Reported APR 12.7 %
  • QQQQ Effect is 29.0 % or $59,782
  • Subtract QQQQ Effect $146,362
  • QQQQ Adjusted APR 10.7 %
  • Wilshire 5000 APR 12.0 %
    (Wilshire 5000 APR over the period 1/1/88 to 7/27/07 was calculated by Padraig Cremin of Wilshire Associates Inc and "Ivan Smile" in post #40. )
Someone doing due diligence should know that following Brinker's market timing advice for his best performing Portfolio #1 under performs the Wilshire5000 by 1.3% per year over nearly 20 years. With compounding, as shown HERE, this "performance penalty" means:
  • $10,000 compounding at 10.7% between 1/1/88 and 7/27/07 grows to $73,181
  • $10,000 compounding at 12.0% between 1/1/88 and 7/27/07 grows to $91,848

If you are fine paying for market timing advice to underperform the Wilshire5000, perhaps you do much worse on your own and value the hand holding, then that is fine. Read Winning on the zigs, losing on the zags to see that most people on their own significantly under perform. But you should be aware going in of the past historical record.

Friday, October 05, 2007

Bob Brinker Bullish and Fully Invested

Market Hulbert reported today at MarketWatch that the best long-term stock market timing newsletters are still "charging ahead." Mark reported of Bob Brinker's Marketimer:

"Bullish. In his most recent issue, published in early October, editor Bob Brinker wrote: "We expect significant additional stock market progress into next year as investors discount growing corporate earnings in an environment of low inflation and benign interest rates." His model portfolios are fully invested."

Mark reports that Bob Brinker is not a "lone voice in the wilderness" with his bullishness. Of the top nine market timers over the last decade according to Mark's formula, none of them are bearish! (See list below.)

S&P500 @ 1542.84
Click Graph to View Full Sized

The other market timers are:

  1. Blue Chip Investor: Bullish. Editor Steven Check's model portfolio is 92% invested in equities.
  2. Chartist and Chartist Mutual Fund Timer. Bullish. Editor Dan Sullivan. Sullivan's model stock portfolio currently is 72% invested, and his model fund portfolio is currently 98% invested.
  3. Investors Guide to Closed-End Funds: Moderately bullish. Editor Thomas Herzfeld's "U.S. Equity Funds" model portfolio is around 48% invested.

  4. Medical Technology Stock Letter: Bullish. McCamant's model portfolio currently is 93% invested, while his "Trader's" portfolio is aggressively bullish, with 183% invested (83% on margin, in other words).
  5. No Load Fund Investor: Neutral. Editor Mark Salzinger is currently allocating 70% of his "Wealth Builder" portfolio (his most aggressive) to U.S. equities.
  6. Timer Digest: Bullish. Editor Jim Schmidt bases this newsletter's market timing model on a consensus of the top market timers. The newsletter's model portfolios currently are about 60% invested in stocks, on average.
  7. Vantage Point: Bullish. Editor John Harris's model stock portfolios are fully invested.

With today's great jobs report (US Economy Gains 110,000 Jobs in September 2007) we should expect the stock markets to rally to new all time highs today.

DJIA @ 13,974.31

Click Graph to View Full Sized

Mark Hulbert's Full Article: "Best long-term market timing newsletters still charging ahead."

© Kirk Lindstrom

Wednesday, September 19, 2007

Correction Statistics and Profits Booked

Click charts to view full sized

How many of you took profits as the market rallied so you could put them to use in the correction?

I just booked a $501 gain on 100 shares of Agilent I bought for my newsletter portfolio on August 15, 2007. A $16% gain in just over a month! Booyah!

Correction Statistics for 09/19/07


  • Last Market High 07/16/07 at 1,555.90
  • Last Market low 08/16/07 at 1,370.69
  • Current S&P500 Price 1,536.33
  • Decline in Pts 19.57
  • Decline in % 1.3%
  • Max Decline 11.9%
  • This means the correction from high to low has been 11.9% and we are currently 1.3% off the peak.
  • The decline off the high on a closing basis has been 9.4%
  • More S&P 500 Charts


  • Last Market High 07/17/07 at 14,021.95
  • Last Market Low 08/16/07 at 12,517.94
  • Current DJIA Price 13,853.27
  • Decline in Pts 168.68
  • Decline in % 1.2%
  • Max Decline 10.7%
  • This means the correction from high to low has been 10.7% and we are currently 1.2% off the peak.
  • The decline off the high on a closing basis has been 8.1%
  • More DJIA Charts

Subscribe now and you too can take advantage of market volatility to make extra return.

Click this graph to see the S&P500 bottomed at 1370!

See my article "Using Asset Allocation to make money in a Flat Market" to get a better understanding how I do this.

Sometimes I wish we had this much market volatility every month! 8^)

Saturday, September 15, 2007

Allan Greenspan's new book "The Age of Turbulence"

Click book to order.

On Saturday September 15, 2007, Bob Brinker talked about 81 year old Allan Greenspan's new book "The Age of Turbulence: Adventures in a New World" scheduled for release Monday September 17, 2007.
Greenspan considers himself a "libertarian Republican" and takes the GOP to task for excessive government spending. "My biggest frustration remained the president's unwillingness to wield his veto against out-of-control spending," Greenspan wrote.
From the Wall Street Journal story:
  • Greenspan "attributes the housing boom to the end of communism, which he says unleashed hundreds of millions of workers on global markets, putting downward pressure on wages and prices, and thus on long-term interest rates."
  • "In coming years, as the globalization process winds down, he predicts inflation will become harder to contain. Recent increases in the price of imports from China and a rise in long-term interest rates suggest "the turn may be upon us sooner rather than later."
  • "Left alone, he said, the Fed's policy-making body, the Federal Open Market Committee, can keep inflation between 1% and 2%, but that could require forcing interest rates to double-digits, a level "not seen since the days of Paul Volcker," his predecessor as Fed chairman. "I fear that my successors on the FOMC, as they strive to maintain price stability in the coming quarter century, will run into populist resistance from Congress, if not from the White House," Greenspan writes.
  • Mr. Greenspan writes that in early 1997, he told his colleagues the Fed should raise interest rates as a "preemptive" move against a stock-market bubble. But transcripts of Fed meetings from that period do not support his book's version of events: They show Mr. Greenspan argued for a rate increase principally because of inflation.
Reports say Penguin Books paid Mr. Greenspan over $8 million in advance for the book "The Age of Turbulence: Adventures in a New World" (Please order the book with my link)

Thursday, September 13, 2007

Moneytalk Guest Charlie Maxwell

Excerpt from David Korn's September 8-9, 2007 Newsletter

On Saturday, Bob had on one of his favorite guests, Charlie Maxwell, Senior Energy Analyst for Weedon & Co. Charlie was educated at Princeton and then Oxford. He has been working in the oil industry since the 1950s. In the 1960s he became an analyst on Wall Street and has been rated the #1 energy and oil analyst on many occasions. Bob heaped heavy praise on Charlie as the best of the best in terms of energy analysts and mandatory listening for Moneytalk trekkies. I summarized the interview below.

Maxwell/Brinker: Bob opened the interview praising Charlie for his predictions on Moneytalk that the price of oil would trade in the $50s to the $70s which has been right on the mark in recent years. Bob asked Charlie if he had changed his forecast. Charlie said we have seen oil go from $25 a barrel in early 2003, to as high as $75 a barrel, with a peak at $78. There was a lot of oil being traded at $75. The rise from $25 to $75 is huge and represents a 200% increase. Nevertheless, Charlie said he thinks supply and demand are roughly in balance today and might stay here for a while, particularly given the weakness that is going on in the U.S. economy. A slower U.S. economy can translate into reduced imports, and thus slow foreign demand from countries like China. This period of transition where we stay in the range of $50s up to $80 a barrel should stay with us for another two years.

Looking forward after the next two years, Charlie gave his forecast as to where he thought the price of oil was going. Charlie pointed out that we have to take into account world population increasing and the demand for more cars in countries such as Russia, India and China -- all this suggests that demand is going up while supply is not. With this as a backdrop, Charlie thinks that by 2010-2011, we could see oil trade at over a $100 a barrel.

EC: Charlie has actually gone on record in the past projecting that West Texas Intermediate Crude would rise to rise to $85 by 2010, $180 by 2015 and $300 by 2020. Based on today's interview, it looks like he raised his 2010 prediction by $15 a barrel.

Maxwell/Brinker: Bob asked Charlie to address Ben Bernanke's view about inflation. Charlie said he thinks the Fed is so cast in the role of fighting inflation that are ignoring the real threat which is deflation. Bob noted that Ben is on record saying that deflation is the biggest threat, but he doesn't act that way. Charlie said he would allow the system to pick up liquidity and began dropping rates by 25 basis points every few months, unless there were serious problems and then he would open the floodgates. Overall, Charlie said he would bet on a 25 basis point cut at the next meeting, and Bob agreed.

Maxwell/Brinker: Bob asked Charlie to comment on alternative ways of getting fuel, like through oil shale and wind power,etc.. Charlie said we have huge reserves of oil shale in places like Colorado. They are extremely expensive to access. It takes almost as much energy to break up the shale to get oil out of it as we derive from it. It's like clean burning coal. We don't have an economic answer yet for oil shale. If you add all this up together, it only accounts for about 2% of world energy. That is such a tiny bit, that even if it grows rapidly to 5%, the problems we are facing from the main sources of energy (oil/coal) make the alternative energy solutions not pragmatic in the short term. The real game for alternative energy will be in the 25-35 year time frame from now. For us, however, the danger lies in the years 2010 to 2020 where we could face serious economic crises if we don't solve the energy problem.

Maxwell/Brinker: Bob asked Charlie to comment on whether hydrogen will ever play an important role in our energy supply. Charlie said he thinks it will in 40- 50 years. Hydrogen is the most plentiful element on the planet, but it bonds so easily and powerfully on a molecular level with other elements that it requires a lot of energy to unbind it. Getting pure hydrogen is therefore expensive, and it costs money to transport and store. We need a lot more research before it becomes useful.

EC: Here is a link to an interesting article addressing hydrogen and peak oil:

Maxwell/Brinker: Bob noted that we use natural gas throughout the country, but we waste a lot by generating electricity by burning natural gas when we should be using it for other things like mass transportation. Charlie agrees and pointed out that the government has allowed the utilities to use natural gas when it was very cheap and so it became embedded as a major part of the utilities fuel (around 21%). For the government to come out now and say we made a mistake is a tough thing to do from a political perspective. Bob said when you use natural gas in a bus system, relative to burning gas or diesel, it is much cleaner and produces half as much pollution as coal. Charlie agreed that natural gas is better, but it is still a hydro carbon fossil fuel. The only fuel we have in sufficient quantity that creates only heat pollution would be the nuclear energy. Charlie said the "green movement" is finally starting to come around to this fact and befriending the nuclear industry. It is clear that electricity will be the dominant form of energy going forward and nuclear energy will have to be the solution.

Charlie said that coal is a real problem. We have obligations to the rest of the world not to pollute so much. But we must also put pressure on India and China to cut back their use. Charlie pointed out that we are now starting to breathe in the refuse from coal burning plants in China and it is starting to pollute our skies.

Bob asked Charlie about the Oxford-based group he is in and to tell the listeners about it. Charlie said the organization is comprised of former ministers of OPEC and other industry executives from 30 countries who meet twice a year to discuss trends within the energy field. Charlie said OPEC is less importance today than 40 years ago, but it is still important. There is an upcoming OPEC meeting on September 11th. If they agree to increase production as they are being asked to do, they could produce another 1-1.5 billion barrels a day, that could provide a base to allow $60 a barrel during the winter months. Charlie, however, thinks they are running scares over the possible recession in the U.S. and they will be afraid to give us greater supplies.

EC: So far, it looks like Charlie might be right about OPEC's decision this coming Tuesday. OPEC's president, Mohammad bin Dhaen al-Hamil, said before leaving for Vienna that "current supplies to the petroleum market are sufficient." Read more at this url:

Charlie said if he is right, that means we will head into the winter months facing $70+ a barrel for oil which is unfortunate because we are running on the edge of recession that could happen going into the first quarter of next year. Charlie said he is working hard with his group to convince people in OPEC to give us the extra oil.

EC: Charlie seems to be a lot more worried about recesssion than Bob, but Bob didn't challenge him on it.

Caller: Is there anything on the horizon that suggests the technology is available to convert coal to other types of fuel like Germany did in World War II? Charlie said that is called the Fisher Tropsch process. It was discovered in 1923 and is still being used and being improved. The problem is it costs a lot of money to convert coal into natural gas. Then you go from gas to a liquid which is a separate process which requires a loss of about 25% of the thermal value of the gas. But then you have a liquid that is very clean burning and you can make it into a diesel for trucks, or gas for cars. It is low sulpher and high quality. If we were in a war time situation, we could use this process, but it is horrendously expensive under the scale we need it. What if we went to 100 times the scale, could we bring the price down under conditions of tight environmental laws? We don't know yet. The real answer is let's talk about it in 10 years because right now it isn't feasible.

EC: The Fisher-Tropsch process is a catalyzed chemical reaction in which carbon monoxide and hydrogen are converted into liquid hydrocarbons. The name comes from German researches Franz Fisher and Hans Tropsch working at the Kaiser Wilhelm Institute in the 1920s. There are a few companies that have commercialized this technology, including Shell, Rentech, Sasol (in South Africa), Choren Industries (German), Changing World Technologies (CWT) and GTL Corporation in Oklahoma.

Caller: The U.S. charges 54 cents a gallon import tax to bring ethanol into the country which begs the question why don't we bring more sugar into the country to produce ethanol. Then you find out there is a cap on how much sugar we can import. Why do we have an import tax on ethanol? Charlie said the reason is political. It acts as a subsidy to certain portions of our country that are heavy corn producers. There is no economic basis to it. Left to market forces without the tax, we would be importing large amounts of ethanol from Brazil where they produce vast amounts of ethanol at much cheaper costs. Right now, 98% of the ethanol produced in our country comes from corn which is driving up the price of corn and related products. This is hurting many people who rely on corn for a source of food. We are trying to develop other sources to produce ethanol other than corn, and that is where we need to devote our time and energy.

EC: James Surowiecki of The New Yorker wrote an article explaining why subsidies in the sugar and ethanol markets were bad policy at this url:

Caller: The caller asked Charlie about the outlook for gas and oil drilling in ANWR with the new female governor in Alaska. Charlie said she is a pistol and thinks you will see a lot of positive and notable developments in Alaska. The problem is that Alaska is only so big. According to Hubbert's peak theory, when oil production begins declining, even if we add on Alaska, it would only give us about an extra four months. Bob said if we get an extra million barrels of oil each day, wouldn't that help? Charlie said it would help the dollar and trade, it just wouldn't make a big difference in the long term relative to supply.

EC: Sara Palin is the current Governor of Alaska. She is only 42-years old. Recently, she joined efforts to promote an "all-Alaska" natural gas pipeline.

Caller: What has the energy department done in terms of trying to set policy? Charlie said the energy department has its policy set by others. It can't set its own policy -- it is the Presidential administration and Congress that tells the energy department what to do. One problem is that there is such a varying degree of opinions out there. Exxon, for example, which Charlie said is very knowledgeable, thinks there is no problem. Charlie said that sounds incredible because if there was no problem why did oil go from $25 to $75 in the last few years? Exxon doesn't see a Hubbert's peak and thinks production will rise for the next 30-40 years and meet our needs. Others say we can use all the coal we want, but others don't want to use coal because it pollutes. In a Democracy such as ours, all of these different opinions have their own lobbying groups. The energy department says it will execute a policy, but what is the policy? As a whole, our country has not been able to formulate a policy because we just don't know what to do. Perhaps the only way to create one is if it evolves out of a crises, at which time a consensus will quickly be formed.

EC: There is a lot of good information on the U.S. Department of Energy's web site which is at this url:

Maxwell/Brinker: Bob noted that France is way ahead of the game in terms of building nuclear plants and is getting close to 90% self-sufficient power from nuclear energy. Our country has a dismal record recently for nuclear power. Charlie said it goes back to the environmental movement. Chernobyl scared the wits out of many people, as did Three Mile Island. But lately, safety has increased and the environmentalists are beginning to form alliances with nuclear because it is cleaner than oil and coal. Our coal is the number one polluter in the world, but next year China will take over that role. And the scary thing is China is growing and has little regulation to control that.

EC: I always enjoy it when Charlie Maxwell is on the show. He is a real class act. Charles Maxwell's bio is at this link:
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Saturday, September 08, 2007

10-day and 60-day Put Call Ratio at Record Highs!

In his September Marketimer, Bob Brinker wrote very highly of the "extraordinary" high levels for the 10-day and 60-day moving average of the CBOE put/call ratio.

Click graph to view full sized

The CBOE (Chicago Board Options Exchange) Put/Call Ratio (CPC) is the ratio of the trading volume of put options to call options. Bearish investors buy put options that gain in value when the market goes down. Bullish investors buy call options that gain in value when the market goes up. A high put/call ratio is bullish for us contrarian investors.

I track the 10-day and 66-day moving averages of the put call ratio. 66 days is three months. As the graph shows, the 66-day and 60-day moving averages are nearly identical and both are at record high levels. This is GREAT NEWS for us bulls!!!

  • Get my newsletter with its buy and sell levels for my explore stocks I feel are ready to explode TODAY!
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Friday, September 07, 2007

Dollar Cost Average or Lump Sum?

Should you Dollar Cost Average (DCA) or Lump Sum into the market?

Lump sum investments into the market usually offer the best returns but dollar cost averaging can help you avoid the pain of unexpected declines.

Bill Flanagan eloquently stated on Moneytalk back on June 2006 that dollar cost averaging (or DCA) was for the timid and not a good idea for getting the best long-term investment results.

Bill made the point if you believe the market is going to be higher in the future, then you should lump sum your money in ASAP. The reason you do this is the odds favor being in the market so the sooner you are in the better your odds are of making maximum returns.

I agree with Bill. I tell new subscribers to my newsletter that if they want to get my advertised returns going forward, then they have to plug their noses, duplicate my portfolio exactly, and mirror my moves exactly. Since I have very large gains and some cushion for short-term losses, I can handle market declines since I would still be up and they would be down. For this reason, I suggest they might want to dollar cost average into my recommended positions to avoid the pain of sudden losses but they will not get my returns going forward.

  • If you believe the market will be higher in the long term, then you usually get the best returns going forward if you lump sum into the market. Corrections can be painful, but you are investing for the long term. You only recommend dollar cost averaging if you believe the pain of corrections outweighs the potential for higher returns.

Bob Brinker recommends DCA almost all the time. For example, Brinker has been mostly recommending DCA since he told his listeners in March 2003 that he recommended a fully invested position. Read David Korn's summary of this here. Rare exceptions for DCA by Brinker are after the market has had a significant correction, such as the S&P 500's recent correction where Brinker has a buy in the "mid 1400's."

Bill Flanagan correctly states that the odds favor the market going up so it make sense to lump sum in ASAP in most all situations. He is 100% correct.

Newsletter writers such as Brinker and I have learned over the years that people hate to lose 10% but they hardly complain if they only make 10% rather than 20% from being too conservative. That is they hardly feel 10% in "lost opportunity to the upside" but they feel terrible about an actual 10% loss to the downside. Thus, telling people to dollar cost average helps them not only get into the market but stay in the market for the long term should there be a significant market correction soon after they start their DCA program.

Bill Flanagan is a regular guest host of ABC's "Moneytalk" and author of Dirty Rotten CEOs. Read more about Bill Flanagan here and feel free to offer comments about his dollar cost average comments or this article.

Bob Brinker is the regular host of ABC's "Moneytalk" and author of Marketimer newsletter. We also have a Bob Brinker Discussion Forum that many like to use to discuss the market, Bob Brinker's general advice and Marketimer newsletter.

I look forward to your comments about this article or those radio hosts in general.

Effect of Bob Brinker's QQQQ advice on his Reported Model Portfolio Returns

This article examines the effect of Bob Brinker's QQQQ Advice on his model portfolios.

In Jan 2000 Brinker moved 60% of his equity portfolios to cash. In August 2000 he moved another 5% to cash for a total of 65% in cash reserves. He told subscribers to wait for instructions on how to use these cash reserves. If he had stayed there, this move would have looked brilliant. But, the story is only beginning.

On October 16, 2000, Brinker’s subscribers got a special bulletin vial USPS mail advising the they could"Act Immediately" and buy QQQ in anticipation of a 2 to 4 months "counter trend rally" for a 20% or more gain. Confused callers to the Marketimer office were told "Bob is comfortable with QQQ at $86" by office staff. You can read the rest of what happened at Bob Brinker's QQQQ Advice but basically the QQQ(Q) fell from a high of $87 to just under $20 and Bob held all the way down. This was not reflected in his model portfolios where he kept the 65% cash reserves in cash, thus having it both ways.

In the October 2000 bulletin, Brinker recommended 30 to 50% of cash reserves be put into QQQ(Q) for his aggressive (Model Portfolio #1) subscribers. The average price for the week after the bulletin was sent was about $82.

  • P1 money market allocation on 9/30/2000: $95,359
  • Adjusted P1 money market allocation after QQQ buy: $47,969.50
  • Added P1 QQQ allocation: $47,969.50

In the March 2003 bulletin, Brinker made no mention of the prior advice for QQQQ but he recommended subscribers return to a fully invested position per the model portfolios.

Reported P1 money market allocation on 2/28/2003 : $102,716

Since the money market balance includes the accumulated interest, removing half of the ending balance from the March 2003 total automatically takes into account the loss in interest. This reduces the money market balance by $51,358.

QQQ closed at about $24 on the day the second bulletin was issued, and again on the next day. Since Brinker's new P1 recommendations were all mutual funds, the closing price is the one he had to use in calculating his reported results.

March 2003 PRICES for QQQQ

The $47,969.50 in QQQ was reduced to $47,969.50 x 24/82 = $14,039.85.

The reported balance for P1 on 2/28/2003 was $126,712. We need to subtract the half of the money market fund that was used to buy QQQ and replace it with what was left of the QQQ holding.

  • $102,716 - $51,358 + $14,039.85 = $89,393.85 "adjusted" P1 balance.

Calculate the reduction in Model Portfolio #1 reported results due to QQQ:

  • [($126,712 - $89,383.85) / $126,712] x100% = 29.5%

Thus, anyone who followed Brinker's advice with 50% of cash reserves that was also in his "model portfolio for aggressive investors" saw their totals reduced 29.5% from what Brinker reports in his advertising.

  • Brinker's P1 on 01/01/88 $20,000 Brinker's P1 on 07/27/07 $206,144
  • Brinker's Reported APR 12.7 %
  • QQQQ Effect is 29.0 % or $59,782
  • Subtract QQQQ Effect $146,362
  • QQQQ Adjusted APR 10.7 %
  • Wilshire 5000 APR 12.0 %
    (Wilshire 5000 APR over the period 1/1/88 to 7/27/07 was calculated by Padraig Cremin of Wilshire Associates Inc and "Ivan Smile". )

What do you think? Did I make a mistake on any of these calculations?

Conclusion: I calculate the QQQQ advice caused Brinker's reported total to drop by 29% and his APR to drop 2.0% a year such that his best performing portfolio #1 under performs the buy and holders of the Wilshire 5000 by 1.3% per year since the inception of P1.

Please post your questions below.

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