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Monday, March 28, 2011

Worried About Inflation, Fed to Consider Ending QE2 Early

Some members of the Fed are quite worried about inflation and speaking their mind:
Fed Should Consider Curtailing Stimulus Program, Bullard Says
March 28 (Bloomberg) -- St. Louis Federal Reserve Bank President James Bullard said policy makers should review whether to curtail a plan to buy $600 billion in Treasury securities, noting that the U.S. recovery may not need that much stimulus.

“The economy is looking pretty good,” Bullard said to reporters in Marseille, France, on March 26. “It is still reasonable to review QE2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short,” he said, referring to the second round of so-called quantitative easing.
“If the economy is as strong as I think it is then I think it may be reasonable to send a signal to markets that we’re going to start withdrawing our stimulus, and I’d start by pulling up a little bit short on the QE2 program,” Bullard said. “We can’t be as accommodative as we are today for too long, we’ll create a lot of inflation if we do that.”
CPI is above its 2008 level so SS recipients should get a COLA this year, but like most of us who work and pay into SS, the gain will probably be eaten up completely by higher medical insurance costs.
At least most people on SS got a nice, big 5.8% raise in 2009 that they kept when CPI fell while most of the country took pay cuts or got no raises.
It ruins my day just to think how much my own medical insurance went up since that last SS COLA of 5.8%! 

Bob Brinker on Inflation

Bob Didn't have much to say about inflation this weekend other than his regular comparison of the Treasury Inflation Protected Securities yield versus regular Treasuries. He said the 10-year TIPS has a base rate of 1% and when you compare that to the 10-year Treasury yielding 3.43% you get a Treasury inflation expectation of almost 2.5% for that time frame. For the longest time frame, the 30-year TIPS is yielding 1.87% versus the 30-year Treasury Bond which is yielding 4.5% which prices in annual implied inflation rate of 2.625% over the next 30 years.  Bob believes these are the rates of inflation that the Treasury market expects on an annual basis over the next 10 and 30 years, respectively.

I don't completely agree because the federal reserve with QE2 is printing money to buy US Treasuries to keep rates low.  They currently buy about a third of treasury debt issued so there is significant demand holding rates lower than they would be in a "free market" environment.  Their buying could easily distort this calculation.

MONEYTALK GUEST March 27, 2011  
Bob Brinker had on John Mauldin to discuss his book, "Endgame: The End of the Debt SuperCycle and How it Changes Everything"

Wednesday, March 23, 2011

Powershares QQQQ Reverts Back to QQQ

The NASDAQ just announced it was changing the trading symbol of QQQQ back to QQQ (QQQ charts and Quote) effective immediately.  Bob Brinker's long-term subscribers remember QQQ well.  In fact, if they followed his advice to the letter, then they are still holding a large percentage of their portfolios in this fund well below their purchase price over a decade ago!

The last time Bob Brinker raised cash and lowered his asset allocation from 100% in equities was in early 2000 when he went from 100% equities to 35% equities and 65% money market funds.
See => Bob Brinker's Asset Allocation History
Bob Brinker's advice to his newsletter subscribers in early 2000 was to keep the cash liquid and wait for instructions on how to deploy that cash for short term trading "opportunities.
Starting on October 16, 2000, Brinker’s subscribers started to get a special bulletin vial the US mail advising them to "Act Immediately" and buy QQQ in anticipation of a 2 to 4 months "counter trend rally" for a 20% or more gain.  The message boards related to "The Bob Brinker Fan Club" were on fire with activity because Brinker recommended even his most conservative subscribers put a large percentage in this risky asset class.  Confused subscribers who called the Marketimer office were told "Bob is comfortable with QQQ at $86" by office staff.
See => Bob Brinker's QQQ Advice
Many of the individual stocks inside QQQ rallied but the majority did not so QQQ continued its plunge.
Click for full size image
When it came time to publish his November 2000 Marketimer newsletter, Brinker decided to "hedge" by not including the QQQ trade in his measured results while using full pages to justify his belief in the rally with new recommendations to buy in latter Marketimer newsletters as QQQ fell to the $40s where he eventually said "hold for future recovery" and never mentioned the trade again.

I believe he dishonestly advertises his results because he does not include this QQQ trade in his performance numbers.  Several of us did a calculation to see what the overall effect of the advice on his results:
=> Effect of QQQ advice on reported results
With his partner Sheldon Jacobs, Bob Brinker used to manage money for a fee.  As the letter below shows, those people didn't have a choice to not include the QQQ trade in their results as the BJ Group made the trade for them.

PowerShares Symbol Changes

Please note that effective immediately, Nasdaq has implemented the following ETF symbol changes. Any open ETF or option orders for impacted symbols have been cancelled.

Please update your Watch Lists and Alerts for these new symbols as the old symbols will no longer be recognized.
ETF Symbol Changes Current Symbol New Symbol
PowerShares QQQ Trust, Series 1 QQQQ QQQ
PowerShares S&P SmallCap Materials Portfolio XLBS PSCM
PowerShares S&P SmallCap Energy Portfolio XLES PSCE
PowerShares S&P SmallCap Financials Portfolio XLFS PSCF
PowerShares S&P SmallCap Industrials XLIS PSCI
PowerShares S&P SmallCap Information Technology Portfolio XLKS PSCT
PowerShares S&P SmallCap Consumer Staples Portfolio XLPS PSCC
PowerShares S&P SmallCap Utilities Portfolio XLUS PSCU
PowerShares S&P SmallCap Health Care Portfolio XLVS PSCH
PowerShares S&P SmallCap Consumer Discretionary Portfolio XLYS PSCD

Copies of Bulletins sent in the mail
Copies of Bulletins sent in the mail
Click to View
Click to View
Click to View what Brinker sent in the US Mail

Sunday, March 13, 2011

Bob Brinker on Earthquake & Tsunami in Japan

Bob Brinker came to work today and started off talking about the disaster in Japan.  Bob said, 
"In our lifetimes, we have rarely seen anything of this magnitude."
Kirk Comment:   As earthquakes go, this magnitude 8.9 shaker was the biggest quake in Japan's history and rates as the fifth largest earthquake in the World since 1900.  
Economic Impact:
Brinker tried to get a handle on how this disaster affects the world of money.  He said, "In terms of trying to quantify the economic impact of this.... I don't like doing this....  On a global scale it is about seven tenths of one percent of global business activity."
Brinker explained, "Japan is 8.7% of Global GDP"  and explained about eight percent of Japanese GDP was "in the path of the destruction."  So, 8% of 8.7% gives you about 0.7%.  (0.08x8.87=0.70%)
After the break, Brinker talked about the important data that will be released this week.    Brinker didn't go out on a limb and make any predictions but here is the data and what the market expects:
DateStatisticForMarket ExpectsPrior
Mar 15Empire ManufacturingMar17.015.43
Mar 15Export Prices ex-ag.FebNA0.9%
Mar 15Import Prices ex-oilFebNA0.8%
Mar 15Net Long-Term TIC FlowsJanNA$65.9B
Mar 15NAHB Housing Market IndexMar1716
Mar 15FOMC Rate DecisionMar0.25%0.25%
Mar 16MBA Mortgage Index03/11NA+15.5%
Mar 16Housing StartsFeb570K596K
Mar 16Building PermitsFeb573K562K
Mar 16PPIFeb0.6%0.8%
Mar 16Core PPIFeb0.2%0.5%
Mar 16Current Account BalanceQ4-$110.0B-$127.2B
Mar 16Crude Inventories03/12NA2.52M
Mar 17Initial Claims03/12387K397K
Mar 17Continuing Claims03/053750K3771K
Mar 17CPIFeb0.4%0.4%
Mar 17Core CPIFeb0.1%0.2%
Mar 17Industrial ProductionFeb0.6%-0.1%
Mar 17Capacity UtilizationFeb76.5%76.10%
Mar 17Leading IndicatorsFeb0.9%0.1%
Mar 17Philadelphia FedMar28.035.9

Top CD Rates at Largest US Banks

Interest rates are starting to go up on the long end while the short term rates are terribly low. This week's survey or CD rates at the largest US banks shows BofA advertises 2.25% for a 5-year CD with Citibank paying the lowest for 5-years at 2.0%.    Historical CD Rate Graphs

When we did our last survey of rates at the largest banks, a 5-year CD at the largest US Bank, Bank of America, was only 1.40%.  Chase and Citi paid 2.5% and 1.50%, respectively.  

Unfortunately, short term rates remain extremely low.  Thus, I've kept most of my "cash reserves" in high rate savings accounts with the top rate now 1.30% at American Express. See  Best Savings Account Rate Survey 

A half hour into the show, Brinker took his first call.   

Darin from Rohnnert Park told Brinker he thinks the dollar could become worthless if they keep buying US Treasuries with quantitative easing programs because he doesn't believe they can cut it off in time.  Brinker agreed that this would happen if they don't end the easing as planned but he didn't seem compared that the US dollar will lose its status as the World's reserve currency with all the troubles the Euro faces.  Darin worried the US was already going down the tubes following Greece.  Bob said the reason California can not pay its debt is because "they have a dysfunctional government that thought they could borrow their way to prosperity."

1800-934-2221 "Ed's on the Line from the Show Me State of Missouri."  Ed raised a point I thought of last week when took major profits in my TIPS mutual funds on Friday.  Ed suggested the Japanese would use their major US Treasury holdings as a source of funds for rebuilding.  Bob said it would not be an ongoing issue but it would be a source of funds.   My fear is the Japanese will not roll-over their US Treasuries into new issues so they don't take a loss.  They can then use these funds to rebuild their infrastructure and make low cost loans to rebuild homes and small businesses.  This will have the effect of countering the Federal Reserve's QE2 policy which will push rates higher.

I sold the majority of my managed TIPS mutual funds at Fidelity for my own "core portfolio" and may sell more held at Vanguard this week.  See:
I still hold some managed TIPS funds plus I have individual TIPS that I can hold to maturity and not lose money but I might sell those as they are in my "explore portfolio."

Check back later and I'll add more information as I have time to listen to more of the show I have recorded automatically on my PC with ReplayAV

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