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Wednesday, August 12, 2009

Bob Brinker's Market Outlook and Buy Signals

On the weekend of July 26 and 27, 2009, Bob Brinker said "clearly we are in a cyclical bull market. "
It is a mark of prudence never to place our complete trust in those who have deceived us even once.
__Descartes’ first meditation
Bob Brinker speaks about "going out on a limb" in January of 2009 with a prediction that the market will be significantly higher in 2009. What Brinker neglects to mention is he said the same thing at the start of 2008 PLUS he issued a "gift horse buying opportunity" with the S&P500 in the mid 1400s! .
"In summary, the Marketimer stock market timing model indicates that conditions are favorable for the market as we enter 2008. We expect the S&P Index to achieve new record highs this year and to reach the 1600's range in the process. We continue to rate the market attractive for purchase on any weakness into the S&P 500 Index mid-1400's range. Above this range we prefer a dollar-cost-average approach for new purchases. All Marketimer model portfolios remain fully invested as we enter 2008. "
___January 2008 Marketimer, pg 3, with S&P500 @ 1468.36
Brinker has had 100% of his model 1 and model 2 portfolios invested in the stock market since March 2003. At the peak of the bull market in 2007, he had nearly 2/3rds of his "balanced" model portfolio #3 in equities and he told a caller to NOT REBALANCE back to 50% equities. He was more bullish at the top than at the bottom.

To brag now about predicting higher stock prices is like a broken clock bragging about telling the correct time twice a day.

Brinker also neglects to mention that the market had bear market performance right after his January 2009 prediction for a higher market. The S&P500 dropped about 25% to 676.
While the market was in the 600s and 700s Brinker did not issue any buys. All he could tell his subscribers was he was "looking for a bottom."
March 5, 2009 Marketimer Newsletter with S&P500 at 696.33: “The process of establishing a major bear market bottom can extend over a period of several months, as we saw in 2002-2003. Clearly, the process of registering the final bottom in this bear market has been relentless, which has rendered our efforts to date unsuccessful.


Due to the fact that the November 20, 2008 S&P 500 Index closing low failed to hold during the testing process, we believe a new bottoming process will be necessary in order to put an end to the bear market. This means that in order to set the stage for a sustainable market advance, we need to see a sequence of events consisting of:
(a) the establishment of an initial closing low; (b) a short-term rally; (c) a test of the area of the initial closing low on reduced selling pressure.
Brinker did not issue a buy at 696 nor did he mention “dollar cost average” anywhere in that March newsletter. With the market back in the 1,000s as I type (S&P500 chart is currently 1,010) in Auguest 2009, he recommends “using periods of short-term weakness as buying opportunities,” but he doesn’t define what “weakness is!

Also note the the market has rallied 49% without a test of the bottom that Brinker said was needed for a "sustainable market advance" five months ago.
(1010 - 676) / 676 x 100% = 49%
This shows the calls graphically:

Charles D. Ellis, Winning the Loser's Game:
"Market Timing is a wicked idea. Don't try it --- ever."
Vanguard founder John (Jack) Bogle in Common Sense on Mutual Funds: , pg 20
"The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly fifty years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently. Yet market timing appears to be increasingly embraced by mutual fund investors and the professional managers of fund portfolios alike."


  1. I've been listening to bob now for 20 years, and I have to say he has been pretty accurate on every call. However, this was a different type of Market that hot the world, and no one was willing to say a word about when the bottom would occur.I thank you so very much for this blog area, it has a lot of information that I was looking for. I was interested in reading what bob had predicted in his latest newsletter, and you gave me even more than I needed, great job.


  2. The folks at Vanguard render the enclosed opinion about bond mutual fund yields and prices. In some ways, it's similar what Brinker has espoused across the decades. How accurate is this idea?
    Bonds and rates: The reality behind the headlines
    FEBRUARY 02, 2010

    Moves in interest rates are notoriously hard to predict, but that hasn't stopped many market observers from declaring that rates are headed up in the near future. If the predictions are right and rates do climb, you're sure to see headlines about how such an environment is bad for bond investors.

    As is so often the case, the headlines won't tell the whole story. It's true that a general rise in rates will cause bond prices to fall and thus reduce the returns of most bond funds in the short term. But the higher rates can boost returns for long-term bond investors who stay disciplined about reinvesting their interest income. The reality is that if you're steadily reinvesting your interest income, rising interest rates can be good news.

    See for yourself
    Why maturity matters to you
    Wondering how your bond fund might be affected by a move in rates? A bond fund's maturity can give you an indication of its relative income and share-price stability and help you make more-informed choices about your bond investments. Learn more »

    The interactive graphic below gives you some perspective on why holding on to a bond fund in a rising-rate environment can pay off over time. The hypothetical scenario assumes that interest rates rose by 1 percentage point in each of the first 2 years, climbing from 4% to 6%.

    In the first year, the bond fund's total return—price change plus reinvested income—would be –0.8%. But as interest earnings and any maturing bonds are reinvested at higher yields, the fund's return would rise. After 7 years, the bond fund would have produced an average annual total return higher than the returns for two other hypothetical scenarios shown—one in which rates fell and another in which rates remained constant. Please note: These hypothetical returns are not meant to illustrate the returns of any particular investment, nor do they consider the effect of inflation.

    How rates affect bond prices and yields
    Interest rates influence the yield, or the annualized rate of interest income, provided by bonds and bond funds. Interest rates also influence bond prices. When rates go up, the price of a previously issued bond can fall. That's because you wouldn't pay full price for a bond with a face value of $1,000 and a yield of 4% if you could get a new bond for the same price yielding 5%.

    In the short term, bond fund returns suffer because of this price drop. But then the benefit of higher interest income starts to kick in. New bonds purchased by the fund can provide higher yields. As a fund shareholder, you can earn more by staying invested and reinvesting your interest income at higher yields. And over time, the effect of compounding—earning interest on interest—can more than compensate for an initial price decline.

    Keeping rate moves in perspective
    Why not try to jump out of bonds before rates climb and then get back in after rates have settled? This market-timing approach sounds good in theory, but the reality is that it can be a losing strategy because of the difficulty of predicting rate moves.

    Focusing on interest rate moves and short-term changes in bond prices can be counterproductive. Over the long term, it's interest income—and the reinvestment of that income—that accounts for the largest portion of total returns for many bond funds. The impact of price fluctuations can be more than offset by staying invested and reinvesting income.

    So if you're holding bond funds as part of your long-term asset allocation, a rise in rates probably shouldn't prompt you to make any changes. Indeed, you can benefit by sticking with the bond allocation that's right for you.

  3. The example from Vanguard leaves out two cases which is no surprise because those two cases encourage you to take your money out and put it elsewhere.

    A: "put money in CDs in backs outside Vanguard for a year that pay 1.5% to 2.0% (See Highest CD Rates Survey" to see a 1 yr CD paying 1.75%.

    B: Fed Funds Rate jumps back to their "normalized" or target 3.0% from the current 0 to 0.25% rate....

    C: Total Bond and GNMA Fund rates jump 2% in a year thus losing SOME net asset value.

    D: Cash in CDs and buy GNMA or Total Bond Funds with cash that is now worth 1.76% rather than less due to NAV decline.

    and the second case they didn't give is what happens if the Fed prints TOO MUCH money and interest rates soar like they did in the 1970s to double digit rates?

    The idea of being in safe CDs and/or TIPS is to not lose money if rates go up... it is not to get the very best rate available as money still pours into bond funds.


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