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Wednesday, January 30, 2008

Jim Cramer says "Financials Can Be Bought Now"

Where is Bob Brinker? Jim Cramer just came on TV (Noon PST, January 30, 2008) and said with today's 0.50% rate cut by the Fed after cutting 0.75% last week, Financials (Citigroup, XLF, etc.) can be bought here as the fed "gets it" and "all is forgiven." Bond Guru Bill Gross of Pimco followed and took a bow for predicting on National TV and on his web site that the Fed would cut rates to 3.0% in 2008. I can vouch for that as I saw and read Bill Gross predict the Federal Reserve Open Market Committee would need to cut rates to 3.0%. Bill gets high kudos from me as he did this without ranting and raving about Ben Bernanke like the other two did.

Has Bob Brinker said anything about the markets or sent any special buy bulletins of late? If I missed any announcements by Brinker about finding that bottom he was looking when the S&P500 was at 1325, please send me an email or post about it on our "Bob Brinker Discussion Forum" at Facebook's "Investing for the Long Term."

For Brinker's sake, I hope he didn't switch from "Lump Sum in Mid 1400's" to "Dollar Cost Average until I identify a bottom" nearly to the day the market bottomed!

Only question is why wait for Jim Cramer or Bob Brinker? I already bought financials for my newsletter and personal account. Citigroup currently at $29 yields 4.60%, more than you will get at Vanguard's money fund after they cut rates and more than many CDs will pay once banks start to lower rates. XLF at $28.64 yields 3.66%. Why wait for Brinker or Cramer to tell you how to invest?

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Monday, January 21, 2008

Markets Plunge. Bob Brinker Says "Remain Fully Invested"

Despite the market's decline from record highs, Bob Brinker recommended in a special bulletin last night that his subscribers remain fully invested and dollar cost average new money into the markets. His model portfolios one and two are 100% in stock market equities so they have benefited greatly from the bull market that began in October 2002. Now that the market is down considerably, they too are down. Model Portfolio Three is a "balanced" portfolio with half in equities and half in fixed income so it goes up less in bull markets and down less in bear markets.

Since Brinker did not rebalance his "balanced portfolio" as it went up, it is suffering more in this decline than many in retirement want to see. This is a why I recommend rebalancing once a year since I believe NOBODY CAN TIME THE MARKETS, including Bob Brinker.

Based on the sell-off in the S&P500 Futures Market, the S&P500 is currently in "bear market status"
  • (1597-1261)/1597 = 21.04% A bear

The fear that the US is headed towards a recession over its subprime meltdown mess caused the stock markets in Asia to plummet today. The US Stock markets are closed today to celebrate Dr. Martin Luther King's birthday, but the S&P futures market was open and it continued to plunge to enter into official bear market territory, down 21% from the peak, earlier today.

Charts at a Glance - Daily
Charts at a Glance - 5 days
Charts at a Glance - 1 yr

India's Mumbai index set a record with a 7.4% plunge.

The markets in Singapore, Hong Kong and mainland China all saw 5% or more declines on the day.

Hang in there. If this decline is too painful for you, then wait for market strength to lower your exposure to equities. If we are not in a true bear market rather than a selling panic, then we should get a rally to new highs where you should THEN use the opportunity to lower your allocation to equities and give up the false belief in Santa Clause and Market Timing.

Most people who under perform the markets do so by trying to time them, failing at the attempt, then selling in a panic which is what makes markets bottom.

This only goes to show why experts say "nobody can time the markets" so the best way to hadle market volatility is with a diversified portfolio of equities and fixed income such as I recommend in "Kirk's Investment Newsletter" where I advise a "core and explore" approach to investing.

My most aggressive model portfolio is 80% in equities at max so there is always money to buy declines. My "explore portfolio" is 70% in very volatile equities to make up for the 30% in fixed income. I use this portfolio to buy and sell as the markets or my individual stocks go up and down, using mostly asset allocation. Keeping to a fixed, target asset allocation and regular rebalancing (at least once a year) means I take profits when the markets are up and put them back into equities when the markets are down.

I believe Brinker did not rebalance his "balanced" 50:50 portfolio so it started 2008 with much more than 50% in equities, something I do not recommend for retired people. I think they should ALWAYS rebalance once a year to maintain their 50:50 target so declines like we are in now are not so painful.

Wednesday, January 16, 2008

Critical Mass for Investors: Definition of Term

"Critical Mass" is a term made popular by Bob Brinker, host of ABC Radio's "Moneytalk" and editor of the newsletter called "Marketimer." For investors, your investments are said to have reached "critical mass" when your investment portfolio can generate enough growth and income to meet your lifestyle needs and protect you against the ravages of inflation without you having to work.

Reaching critical mass gives you the financial freedom to retire or work at a job for the love of the work rather than the money!

For example, if you need $50,000 a year to live on, then using the "4% safe withdrawal rate" rule-of-thumb, you need $1,250,000 to retire. ($50,000 divided by 0.04)
Generally, a good critical mass portfolio has between fifty and sixty percent of assets in a well diversified basket of equities with perhaps ten to twenty five percent of that in international funds and the remainder in something like a total bond fund, CD ladders or United States Treasuries or GNMAs.

Rule of Thumb:

A good rule of thumb is, with regular rebalancing, a 65 year old can take 4% a year out of a "balanced portfolio" that has 50% of assets in the total stock market and 50% in the total bond fund at Vanguard or Fidelity. Both fund families offer very low cost index funds. If you go elsewhere, then the amount you can "safely" take out of your portfolio will be reduced by the higher expenses for the index funds.

What is meant by "safely?"

A "safe withdrawal rate" means there is a 90% or greater chance you will not out live your money by removing that amount at the start of each year.

"The Retirement Advisor newsletter" (only $99 a year!) gives three fairly conservative portfolios that range in equity exposure from zero to fifty percent.
  • 2007 Results:

    The Retirement Advisor Aggressive Growth and Income Model Portfolio 1, designed for someone approaching retirement who is interested in a portfolio allocation designed to provide income and capital appreciation while avoiding excessive risk, gained 9.52% in 2007, its first year of existence. This portfolio was 50% in stock index funds and 50% in fixed income index funds (or ETF equivalents.) It benefited greatly from TIPS for inflation protection which we feel allows a lower allocation to equities and a 4% withdrawal rate.

    The Retirement Advisor Moderate Growth and Income Model Portfolio 2, designed for someone who has retired and seeks to maintain their current standard of living, even with inflation, gained 8.48% in 2007, its first year of existence. This portfolio was 30% in stock index funds and 70% in fixed income index funds (or ETF equivalents.) It benefited greatly from TIPS for inflation protection

    The Retirement Advisor Conservative Capital Preservation Model Portfolio 3, designed for someone in the later stages of retirement who wants to avoid any losses in their portfolio and who does not need a lot of inflation protection, gained 8.32% in 2007, its first year of existence. This portfolio was 100% in fixed income index funds (or ETF equivalents.) It benefited greatly from TIPS for inflation protection.

CLICK HERE to download the free, inaugural issue of "The Retirement Advisor" that has the portfolios that gave the above returns. You will need to SUBSCRIBE to get the latest portfolios since we made some changes to the model portfolios for 2008.

Other Definitions of Critical Mass:

"Critical mass" in physics refers to the amount of fissile material needed to sustain a nuclear chain reaction which will generate power or, under the proper conditions, explode (such as an Atomic Bomb). Wiki says for a bare sphere of fissile material, that the critical mass is about 50 kg for uranium-235 and 10 kg for plutonium 239. One needs to take what you read at Wiki with a "grain of Plutonium" as it is not always accurate.

"Critical mass" is also enough bike riders on the Streets of San Francisco to shut the city down. The group that does this calls themselves "Critical Mass."

Core and Explore Portfolios

For those who want to dabble in individual stocks via "Kirk's Explore portfolio" to use my "core and explore" approach to investing, "Kirk's Investment Newsletter" contains aggressive and conservative core portfolios made from seven Vanguard Index funds along with a portfolio of individual stocks and EFTs. Start making great retuns and subscribe NOW !

Saturday, January 12, 2008

Bob Brinker Free Discussion Forum Comments

Some comments this morning on our Bob Brinker Discussion Forum at our facebook group "Investing for the long term."

Honey O (no network) replied to Jack's post 15 hours ago.
Jack said: "I think an entry point will be below dow 12,000".Oops...if that happens, what will Brinker say?He's on record saying that there is ZERO chance of a 20% bear market.MOF: He's been predicting the S&P 500 going to new highs, and into the MID-1600's, for months now.

Jim F (no network) replied to Honey's post 13 hours ago.
Could be a repeat of the year 1998 (correct me on the year if I'm wrong), when Brinker said there was zero chance of a bear market, but the market did have a 19% correction before recovery.
  • Kirk Lindstrom’s Comment: The “correction” in 1998 was 19.9% on a closing basis and over 21% intraday top-to-bottom. Bob Brinker is careful to always say “less than 20% on a closing basis” when he talks about that period in time. Readers should note what matters is the markets were up significantly in the longer term despite Brinker giving a “Buy Signal” at 8,650 before the DJIA fell to a low of 7,400. Like today, many were fearful when the markets continued well below Brinker's "buy level" but those who held on were well rewarded.
  • Shortly after missing that “20% correction in the DJIA in 1998, Brinker switched to using the S&P500 rather than the DJIA in his newsletter.”
Here is a chart of 1998 from Click it to view in full size.

Dan G replied to Jim's post 12 hours ago.
Well, technically 19% is 1% away from a "bear market" by most definitions, so "da Brink" escaped disaster by a hair, Jim."Honey Bee", if Brinker is wrong on this bear market, he's toast I'm afraid. He's staked his reputation on being able to call a bear market within 5% or so from its top. If he misses it by 20% or more, what good is his model? Frankly, I hope he's right, but I've pulled in my horns just in case.

Bob N (Boston, MA) replied to Dan's post 8 hours ago.

Hello Dan,

Just a few words of comfort for you. I am encouraged by Ben Bernanke's statement that the Federal Reserve is prepared to act aggressively in adjusting short rates to combat the current economic downturn. This can can only be viewed as a strong positive for the intermediate term health of Mr. Market.

I completely understand and agree with your feelings of anxiety over the health of the market and the economy right now (I'm presently 98% equities and 2% cash having recently bought more IWF shares when the market was around the 1410 range).

The key thing to remember is that core inflation is not an issue right now and the Fed is on a campaign to lower rates. I would be VERY concerned if inflation were a factor which the Fed would have to react to with rate hikes. Mr. Market LOVES contained inflation and lower rates.....always has, always will.

But the problem right now is that we have to sit tight and suffer while all the bad news gets out of the picture (certainly yesterday's news about Merrill and AXP doesn't help). This is an election year. I can't imagine that the markets won't recover as a result of Fed policy adjustments and cash infusions into some of the truly distressed financial firms (the politics of Middle Eastern cash buying influence/control over these firms I'll leave for others to stress over).

When I write the monthly Bob Brinker "Shadow", I do it to try and think the way he thinks. Keep in mind that Brinker's methodology is ONLY geared toward qualifying LONG TERM stock market appreciation prospects. When the housing/credit mess was unfolding 6 months or so ago, Bob's indicators sinply weren't giving negative signals. Imagine where the stock market might be if inflation were more of a concern back then? A hamstrung Federal Reserve six months ago would have led us to a much darker picture for the health of the economy and Mr. Market. This all goes back to the notion that if an investor can't stomach a 10% or so correction, then maybe CDs are a better choice.

So.....all I can say is hang in there and don't get too caught up in all of the noise in the financial press right now. We may have a lot to talk about after the market recovers later in the year. I maintain that after we recover, we will then have to watch core inflation and the Fed very carefully. Eventually they may to have to turn around and go the other way with rates. That is when we may really have to consider heading for Mr. Market's exit sign.
And when that happens.....Jack Swanson's nightmare may really come true.

Bob Norton

Mavericks Surf Contest Live Video

I know Bob Brinker has spoken fondly of surfing so I hope he is watching the Mavericks competition LIVE today from this URL.

The waves are very smooth and the weather is great here today. I have windsurfed in the winter just around the point from Mavericks, in the protected cove on big, high wind days. When a wave breaks, it sounds like a bomb is going off.

Today, the waves have been "rather small" for Mavericks with the big ones 25 to 30 feet which the riders have been able to catch by paddling. Really big waves need a tow. The riders are letting many ride-able waves go by hoping for a monster wave since only the two best rides of the heat count and the big scores come on big waves.

Friday, January 11, 2008

FOMC Chairman Ben Bernanke says 'Substantive' Rate Cuts May Come Soon

Bob Brinker has said the Federal Reserve Chairman Ben Bernanke has been making rookie mistakes to worry too much about inflation. In a speech yesterday FOMC Chairman Ben Bernanke strongly hinted the Fed would reduce its short-term interest-rate target, probably by half a percentage point from its current 4.25%, at the central bank's next meeting, Jan. 29-30. He said the Fed could act before then if needed but it would take a dramatic deterioration in the markets or exceptionally bad economic data.

From Bob Brinker Moneytalk Summary, January 5-6, 2008, Honeybee wrote:

Excerpts of Brinker's reply (to a caller): “I think we can identify what we certainly know would cause a recession. One thing would be if the Fed gets it wrong. If the Fed interprets, for example, high oil prices as a priority – now so, far they have not done this…………then they would make the mistake, which would be very disappointing, that they would think that they can actually control oil prices – which they cannot. They have no power whatsoever. Oil is a global commodity, and they have no power whatsoever at the Fed, or to even have a significant impact. If they make the mistake of thinking that they have to fight oil prices by raising rates, then that will cause a recession. All they have to do is go back into a pattern of raising interest rates –tightening monetary policy--that will definitely cause a recession. There is no question in my mind.
So far they have gone the other way……..I expect them to cut rates again by the end of this month – at the January 30th meeting, at the latest……And I wouldn’t be surprised to see them cut rates again after that, because they are behind the curve. We have a ROOKIE at the controls at the Fed. I’ve talked about it for months, and you have ROOKIE risk. And ROOKIE risk tells you that the ROOKIE in control may not do everything the perfect way…….They were locked in their IVORY TOWER going into August. We were badgering them to death – I don’t think they care.
Bernanke said the Fed must "remain exceptionally alert and flexible, prepared to act in a decisive and timely manner and, in particular, to counter any adverse dynamics that might threaten economic or financial stability."

The Wall Street Journal reported today:
  • The speech comes at a crucial time for the Fed. Mr. Bernanke noted that until last spring the central bank thought it was facing "the classic problem of managing the midcycle slowdown" -- guiding the economy from rapid to slower growth in order to keep inflation in check. But the dramatic deterioration in housing and credit markets since then has significantly raised the risk of recession -- an outright contraction of economic activity and employment lasting at least six months.
  • Inflation concerns figured in yesterday's decisions by the ECB and the Bank of England to leave their interest-rate targets at 4% and 5.5%, respectively.ECB President Jean-Claude Trichet suggested at a news conference following the ECB's meeting that the threat of higher inflation remains the central bank's top concern. Euro-zone consumer-price inflation in November and December was at a 6½-year high of 3.1%, well above the ECB's goal of just under 2%, and policy makers expect high food and energy prices to keep the rate elevated in coming months. Mr. Trichet warned the ECB "is monitoring wage negotiations...with particular attention."
  • The Bank of England will release minutes of yesterday's meeting on Jan. 23. They are expected to show the bank kept rates steady because of inflation concerns -- including fresh utility-price increases and the pound's 7% fall against the dollar since November.

Asked about a possible recession, Mr. Bernanke said, "The Federal Reserve is not currently forecasting a recession. We are forecasting slow growth.'s very important for us to stand address those risks and provide some insurance against those negative outcomes."

What changed for Mr Bernanke?

The U.S. employment report for December showed a decline in private-sector jobs. Mr Bernanke said this was "disappointing," and added "[Previously,] relatively steady gains in wage and salary income [were] providing households the wherewithal to support moderate growth" in spending. "Should the labor market deteriorate, the risks to consumer spending would rise," he said.

The higher unemployment rate, 5% in December up from 4.7% in November, shows that one inflationary pressure, higher wages from tight labor markets, is declining.

To make the Fed's job harder, the labor department yesterday reported initial claims for unemployment benefits fell 15,000 to 322,000 last week, the second straight decline, suggesting the labor market isn't deteriorating dramatically.

When former FOMC Chairman Allan Greenspan kept increasing interest rates above 4% to reign in the housing bubble, Bob Brinker complained on his Moneytalk radio show by saying:
"What does Allan Greenspan have against people's home prices going up?"

Clearly the FOMC was right to be concerned and they probably should not have kept rates so low for so long and better monitored the loans member banks were making so they would not have a mess to clean up today.

Friday, January 04, 2008

Brinker's 60-day Moving Average Put/Call Ratio Indicator Remains Bullish

One of Bob Brinker's sentiment indicator components is what he calls the "60-day put/call ratio." 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.

The current reading for the 60-day put/call ratio is 1.00.

  • In January 2000, when Brinker last lowered his asset allocation to equities , the 60-day put/call ratio was 0.525
  • In March 2000, when the S&P500 peaked before the 2000-2002 bear market, the 60-day put/call ratio was all the way down to 0.475.
  • In November 2002, shortly after the markets bottomed in October 2002, the 60-day put/call ratio was 0.86
  • In March 2003, when Brinker returned to a fully invested position, the 60-day put/call ratio was 0.82
This chart shows the sixty day moving average of the equity put/call ratio.

Click chart to see full sized version courtesy of

In his January Marketimer, Bob Brinker reported:

"The 60-day put/call ratio remains in bullish territory as the new year begins."

Brinker remains bullish, does not expect a bear market (as defined as a 20% or more decline in the S&P500) and he looks for new highs to be made in the year ahead.


If you want to read what Brinker said in his full update of this Marketimer stock market timing indicators, then you have to subscribe to Marketimer.

You can also read Bob Norton's free "estimate" of what Bob Brinker's timing model would do in "Bob Brinker Shadow Stock Market Timing Model Update." Brinker doesn't say if his individual indicators are bullish or bearish, but it seems Bob Norton made a direct hit with his estimate Brinker would remain bullish and fully invested.

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