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Sunday, December 23, 2012

Means Testing Social Security

Today a caller suggested to Bob Brinker that one part of a compromise package to avoid going off the fiscal cliff would be to means test social security benefits.

Bob Brinker agreed with the caller's suggestion calling it a "no brainer."

What do you think?


Monday, December 17, 2012

VWALX Vanguard High-Yield Tax-Exempt Bond Fund


Bob Brinker on VWALX, VANGUARD'S HIGH YIELD TAX-EXEMPT BOND FUND
Moneytalk with Bob Brinker Commentary for December 16, 2012 Radio Show
The following commentary is from my "Retirement Advisor" writing partner,  David Korn. 
Caller:  This caller owns the Vanguard High-Yield Tax-Exempt bond fund (VWALX) which has a net asset value of $11.37.  
Bob said the highest that fund has been at any point this year is $11.40 so it is within 1% of its high for the year.  
Caller:  What¹s your forecast on the fund?  
Bob said when you are dealing with high yield securities, you are dealing with a level of credit risk.  Bob said watch how investors react to the quality of the holdings in the fund.  If they get worried about the quality that can impact how much they are willing to pay for shares.  The other thing to watch is interest rates.  We haven¹t seen much movement in the interest rate arena since they came off their lows.
Kirk Comment: Hmmmm... I seemed to have missed the answer to this question.  I went back to the show archives and didn't hear Bob give an answer. 
EC (David Korn):    The Vanguard High-Yield Tax-Exempt bond fund (VWALX) is up 13.02% for the year ending 11/30/2012.  Read more about the fund at this url: http://tinyurl.com/ch34xwv
Kirk Comment: Note that this fund is known as a "junk bond fund" and it has risk similar to stocks during bear markets for equities.  I prefer to own stocks since the upside is better (unlimited) for stocks while the downside is very similar.  From Vanguard:
Vanguard High-Yield Tax-Exempt Fund Admiral Shares (VWALX)This low-cost municipal bond fund seeks to provide a high level of federally tax- exempt income and typically appeals to investors in higher tax brackets. The fund’s lower credit quality may provide a higher yield, but it makes the fund more susceptible to price volatility due to uncertain prospects for the bond issuers. Investors who are looking for a fund that may provide sustainable federal tax-exempt interest income and can tolerate moderate risk to principal may wish to consider this fund as a complement to an already diversified fixed income portfolio.
Kirk Comment:  Read: Best Retirement Portfolio For You 

Bob Brinker on Gold

Moneytalk with Bob Brinker Commentary for December 16, 2012 Radio Show
The following commentary is from my "Retirement Advisor" writing partner,  David Korn. 


Caller:  This retired fellow is age 77 and has cash sitting in Vanguard¹s Money Market account.  Should he invest 20-30% of his portfolio in gold and if so how should he buy it? 

Bob said Bob said the first question is whether you want to "speculate" in gold because when you buy gold it is like all precious metals ­ you are speculating what other people will pay for it in the future. If you are going to buy gold, Bob would limit it to a small percentage of your portfolio as a hedge ‹ meaning 5% or less of a portfolio and he would use the exchange traded fund GLD. Stay away from numismatic coins unless you are a certified coin dealer. Bob reiterated that he does NOT view gold as a long-term investment, merely a speculation.

EC (David Korn):    The SPDR Gold Shares (GLD) closed Friday at $164.13 and have traded in a 52-week range of $148.27 to $174.07.
 
Kirk Comment Bob Brinker has GLD listed as a "hold" on page 7 of his December 2012 Marketimer under "INDIVIDUAL ISSUES" as a HOLD at $166.05  He says in the newsletter "individual stocks are limited to no more than four percent of total equities in order to control specific stock risk."  Gold is not an "individual stock" but an ETF much like VTI, SPY and DIA that he also recommends under "INDIVIDUAL ISSUES."   Looking back:
  • Bob Brinker had GLD listed as a "hold" on page 7 of his December 2012 Marketimer under "INDIVIDUAL ISSUES" as a HOLD at $166.05.
  • Bob Brinker had GLD listed as a "hold" on page 7 of his December 2011 Marketimer under "INDIVIDUAL ISSUES" as a HOLD at $170.13.
  • Bob Brinker had GLD listed as a "hold" on page 7 of his December 2010 Marketimer under "INDIVIDUAL ISSUES" as a HOLD at $135.42.
  • April 2013 Update:  GLD is currently at $140.91.  Its most recent low was on April 15, 2013 at $131.31.
See 

Kirk Comment:  Read: Best Retirement Portfolio For You 
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Friday, December 07, 2012

Intel Bob Brinker's Favorite Trading Stock - INTC

Does anyone remember "the old days" of the 1990s when Bob Brinker almost seemed frustrated with all the calls he got asking about Intel?  I could never figure out why he talked about it so much as his "favorite trading stock" but never had it in his newsletter, even as an "off the books" recommendation.

Why Intel is a Great Buy (while at $19.75).

When was the last time Bob Brinker took a call on Intel?  If you remember him taking a call about Intel in the past five years and what he said, please send me an email or post a comment with what he said.

To me, it seems missing the last TWO bear markets (remember we had a 20% intraday bear last year) has left Brinker deflated and much younger people, like Jim Cramer, with more energy have taken over the airwaves while Brinker's show was cut from 6 hours a weekend to 2 hours plus an hour of interviewing a guest on less popular radio stations.

Now and then I like to watch Jim Cramer's "Mad Money" show on CNBC to see what direction the wind is blowing.  That is, I think Cramer has a very entertaining show, especially if you like shouting and nobody taking the other side of his arguments, but it seems he echos what is "group think" that tells you "why" a stock is up or down, but does very little for making good, long-term decisions.  Sponsors who sell trading strategies love his show as it is easy to sell stocks and advice for stocks that are moving.

On his October 28, 2012 show during the "Lightning Round" he gave a bearish call on Intel:
Intel (INTC): "During the period when it was doubling and doubling again, I was behind it, but I have walked away from it. INTC has a good yield, but it has no product used by mobile to speak of, except their own, and that isn't doing so well. INTC is stuck in the world of the PC, so even though it has a good yield, I say 'don't buy."
Two weeks later, on November 11, 2012, I bought shares for my personal account at $20.06.  I also increased the "Auto buy at $19.75" price target in my newsletter for my "Explore Portfolio" to anything under $20.25 to take advantage of any price weakness.

Late last month, on November 21, 2012,during the "Lightning Round" Cramer again gave a bearish call on Intel:
Intel: "I’m not going to tell someone to sell this stock with a 4.6% yield. I am going to say wait until it goes to 4% for a bounce, because I do believe the yield will support it, but I don’t see any reason why you should own it. Sell it only after a bounce when the yield drops to 4%."
Yesterday I heard him trash talk Intel again on the "Morning Bell" show by saying Intel should have used their cash to buy Arm Holdings (ARMH) when Arm was cheap. I couldn't have disagreed more. That motivated me to write this article saying why I disagreed:

Why Intel is a Great Buy (while at $19.75).  Excerpts
  • I bought my first shares if Intel in April 1993. At a split-adjusted price nearly 10 times what I paid for those shares, I believe Intel is a safer, more compelling buy now than it was in 1993.

Intel Since Inception
  • Yesterday, Dec. 4, 2012, Intel announced the largest bond sale in its history to buy back stock. This offering was 20% larger than its $5 billion similar offering in September 2011.
  • Wise investors will take advantage of low prices now to buy before tax loss selling ends and Intel uses these funds to repurchase shares.
  • I think Intel did something far better than buying ARM. Intel invested billions in new semiconductor equipment to build products with better performance than anyone can get from ARM chips running on competing processes.
  • Summary 
    Intel is a great buy here, especially under $20. Intel's valuation numbers will improve as they buy back shares with the funds from its just announced $6 billion bond offering. I took profits at $27.25 in February of this year with my newsletter explore portfolio, but now I am buying back
  • I would not be surprised to be taking profits in some of the Intel stock I've bought recently right around the time when TV gurus jump on the Intel bandwagon again next year. Jump on now and get a good seat!

Yesterday Intel closed at $19.85 and now it is over $20.



Was yesterday the last chance to buy Intel under $20?  I didn't mention in in my Seeking Alpha article, but I think Intel will probably build chips for Apple (AAPL) in the near future. By the time that is public knowledge (ie Intel chips showing up in tear-downs of Apple products) the stock will probably be $30 and then Cramer will change his tune.

More articles by Kirk Lindstrom at


October Jobs Report - Big Government Creates Jobs

Today's Jobs Report:
THE EMPLOYMENT SITUATION -- OCTOBER 2012  
Total nonfarm payroll employment increased by 171,000 in October, and the unemployment rate was essentially unchanged at 7.9 percent, the U.S. Bureau of Labor Statistics reported today. Employment rose in professional and business services, health care, and retail trade.
Labor Secretary Hilda Solis
(Dept. of Labor photo)
73% of New Jobs Created in Last 5 Months Are in Government!!!
(From CNSNews.com) - Seventy-three percent of the new civilian jobs created in the United States over the last five months are in government, according to official data published by the Bureau of Labor Statistics.

In June, a total of 142,415,000 people were employed in the U.S, according to the BLS, including 19,938,000 who were employed by federal, state and local governments.

By November, according to data BLS released today, the total number of people employed had climbed to 143,262,000, an overall increase of 847,000 in the six months since June.

In the same five-month period since June, the number of people employed by government increased by 621,000 to 20,559,000. These 621,000 new government jobs created in the last five months equal 73.3 percent of the 847,000 new jobs created overall.
 See Table A-8. Employed persons by class of worker and part-time status
Household Survey Data Both the unemployment rate (7.9 percent) and the number of unemployed persons (12.3 million) were essentially unchanged in October, following declines in September. (See table A-1.)

Among the major worker groups, the unemployment rate for blacks increased to 14.3 percent in October, while the rates for adult men (7.3 percent), adult women (7.2 percent), teenagers (23.7 percent), whites (7.0 percent), and Hispanics (10.0 percent) showed little or no change. The jobless rate for Asians was 4.9 percent in October (not seasonally adjusted), down from 7.3 percent a year earlier. (See tables A-1, A-2, and A-3.)
Earnings rising slower than 2.2% inflation rate: 
In October, average hourly earnings for all employees on private nonfarm payrolls edged down by 1 cent to $23.58. Over the past 12 months, average hourly earnings have risen by 1.6 percent. In October, average hourly earnings of private-sector production and nonsupervisory employees edged down by 1 cent to $19.79. (See tables B-3 and B-8.)
and
Consumer Price Index - October 2012 The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in October on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.2 percent before seasonal adjustment.



Friday, November 30, 2012

California Income Tax Rates


Due to passage of Proposition 30, the tax rate for 2012 income in California is 13.3% for taxpayers with state taxable income in excess of $250,000.  This change from the November 6, 2012 election is retroactive to income earned for the full year, since January 1, 2012.  Here is a summary of 2012 and 2013 California tax rates.



State sales tax rates are also increasing another .25%, up to a new base-level sales tax rate of 7.5% (before county/city tax) for every California taxpayer beginning January 1, 2013.  Even the poor get to enjoy this portion of Prop 30.

In Santa Clara County, where I live, the current sales tax rate is 8.375%.  This goes up to 8.675% on January 1, 2013.

Don't forget property taxes.  You will probably pay $15,000 to $25,000 a year in property taxes if you buy a home in Cupertino, Los Altos or Palo Alto, cities with top schools.



Los Altos, CA 940224 Beds 3 Baths


Sunnyvale, CA 94086 - 4 Beds 2 Baths
This "average home" in Santa Clara County will have property taxes of about $10,000 in 2013!






Monday, November 19, 2012

3.8% Medicare Surtax on Unearned Net Investment Income

This weekend a caller to Moneytalk asked Bob Brinker about the new tax on unearned income to fund Obamacare.  Brinker gave a "clarification" of the new 3.8% Medicare Surtax on "unearned" Net Investment Income which becomes effective starting Jan 1, 2013 for those with "Adjusted Gross Income" (AGI) exceeding $200,000 for taxpayers filing as "Single" and exceeding $250,000 for taxpayers filing "Jointly".

What bothers me about this tax is people like me who live in the expensive parts of California or New York who have very large capital gains on our homes bought long ago will have to pay this tax if we want to move or sell our home to move to a smaller, retirement home.  Much of the gain I have on my property  is due to inflation so the government has found a way to tax me on inflation it creates!

I found a very good summary of the new tax, who qualifies and how it will be implemented with a few examples at: http://health.burgess.house.gov/...pdf 

Here is the gist:


Net investment income- Income received from investment assets such as bonds, stocks, mutual funds, loans and other investments  

Capital gain- When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for (or a capital loss if it is sold for less) 

Basis- the cost of an asset which includes the purchase price, shopping, installation, and other services associated with the asset

Adjusted gross income (AGI) - measure of income used to determine how much of your income is taxable and is calculated as your gross income from taxable sources minus allowable deductions, such as unreimbursed business expenses, medical expenses, alimony and deductible retirement plan contributions.

You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less  than your basis.


Who is subject to this tax?

Taxpayers with incomes or an adjustable gross income (AGI) over $200,000 who file individually or $250,000 for married couples filing jointly could be subject to this tax.  The provision imposes a 3.8 percent tax (identical to the combined employer/employee tax rates on earned income) on income from interest, dividends, annuities, royalties and rents which are not derived in the ordinary course of trade or business, excluding active S corporation or partnership income.  Gross income does not include items, such as interest on tax-exempt bonds, veterans’ benefits, which are excluded from gross income under the income tax.  If capital gains on a primary home sale exceed $250,000 for individuals or $500,000 for a married couple, and the income threshold is met, the excess realized gain is subject to the 3.8% tax.

How does this relate to the sale of a home?

There is no sales tax on home sales in the Reconciliation Act; instead, there is a tax which includes capital gains, rents, dividends and interest income that will only apply to taxpayers under limited conditions.  

When determining if an individual or a couple is subject to the 3.8% tax:
  • A home sale MAY result in a capital gain that increases net investment income
  • A home sale MAY result in a capital gain that increases a taxpayer’s AGI 
NOTE: When selling a home any profit is considered capital gain resulting in a taxpayer’s possible eligibility to qualify for the 3.8% unearned income tax. 


How is this different from the Medicare payroll tax?

Unlike the Medicare payroll tax, this is an unearned income tax.   Unearned income is the income that an individual derives from investing capital. It includes capital gains, rents, dividends and interest income.  

For more, read "New 3.8% Medicare Tax on "Unearned" Net Investment Income"

Tuesday, November 13, 2012

VWEHX Vanguard High Yield Fund - Bob Brinker's Junk Bond Fund Advice

Bob Brinker's comments on why he deleted the Vanguard High Yield (junk bond) Fund from his model portfolios  (Charts and quote at  VWEHX)

Moneytalk with Bob Brinker Commentary for November 11, 2012 Radio Show
DELETION OF VANGUARD HIGH YIELD FUND

Caller:  Why did you eliminate the Vanguard High Yield Fund from your newsletter Model Portfolio? Was that a call on the fund or something else? 

1-yr Chart

10-year chart

Bob said he saw the yield on that fund drop below 5% which is very unusual historically.  As a result of that decline in the yield, the net asset value of the fund rose so much that he regarded it as an opportunity to take profits. 

Kirk Lindstrom's Comment:  That is odd.  In the October 2012 Marketimer, Brinker shows VWEHX with a yield of 4.8% but the chart above shows the yield at about 6% and Google also shows the yield at over 6%.  


Checking Vanguard's website, I find the following yields as of 11/12/12:
This is a good lesson and reminder to ONLY trust the information on mutual funds that you get directly from the mutual fund companies.When I do the monthly updates for  "Kirk's Two Investment Letters"  I always go directly to Vanguard and Fidelity.  It is a good thing Brinker is paying attention! 

Bob noted that decision had nothing to do with the fact that the fund had closed to new investors.  If that fund had remained open, he would have made the exact same decision.  Bob added that even though the fund closed to new investors, it has done that in the past and then reopened at a later point in time. 

EC (David Korn): :The Vanguard High Yield Corporate Fund closed to new investors in May, 2012 because so much money had flowed into it in the prior six months (more than $2 billion).  The move did not limit current investors in the fund to contributing more, and if you are a cline of the Vanguard Asset Management Services or Vanguard Flagship Services, you can invest in it.  Learn more at this url: http://tinyurl.com/avn6xta

The above commentary is courtesy of my writing partner, David Korn
David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2012
More from David Korn:
If you would like a free sample of David's complete "Brinker related newsletter" and his "Retirement Advisor" newsletter, then click this link to send an email request and please tell us a bit about yourself too.

Wednesday, October 31, 2012

California Income Tax Rate Proposition 30

Bob Brinker's comments on California Taxes and Tax Rates.

Moneytalk with Bob Brinker Commentary for October 28, 2012 Radio Show

Brinker Comment: Bob opened the broadcast discussing the new figures on gross domestic product. Bob said his projection has been for a slow-growth economy as defined by a slow rate of growth in real GDP (adjusted for inflation) and we continue to see that with the number for the third quarter coming in at 2.0%. When you couple that number with the first half of the year, you are looking at an annual rate of growth of 1.8% for the first 9 months which is the type of slow growth that Bob thinks we will see for the remainder of the year
The following commentary is from my "Retirement Advisor" writing partner,  David Korn. 

CALIFORNIA INCOME TAX

Caller: This caller is seeing businesses pulling out of California in droves. 

Bob said one of the reasons you are seeing that is Jerry Brown’s proposition 30. You already have a 10.5% maximum state income tax rate in California. Jerry Brown wants to raise it and if you make over $1 million the income tax rate will go up to 13%

If you take the federal income rate for the highest earners it is supposed to go to 39.6% in January.  When you add the 13% California state tax, the uncapped Medicare tax to 3.8% all of a sudden you are in the 60% tax rate for top earners in California if the Proposition passes. 

The caller said it is 64%. Bob said when a tax rate gets that high, and you are taking most of the money someone makes and people will say that’s too much, I am out of here. Bob noted that in France they just passed a new top rate of 75% and there are a lot of one-way tickets leaving France by the well-to-do. You can run the rates as much as you want and as high as you want, but people will run away and leave.

EC (David Korn): : An article out this weekend entitled, “Would Prop. 30 really drive millionaires out of California” can be found at this url: http://tinyurl.com/8b3rxza
It's refreshing, therefore, to see some hard data on the issue, and illuminating to learn what it tells us, which is: Not so.
The 2005 increase did not boost out-migration among the $1-million-plus population — in fact, the rate of millionaire out-migration declined after the hike. The 1996 tax cut didn't increase the flow of millionaires into California, either.  

Kirk's Comment:  Bob has it wrong.  The really rich stay after giving themselves pay raises to make up for higher taxes. 

The truth is the rich stay but they move jobs for those who work for them out of CA so they can lower their overall costs and make up for the higher taxes.  They save a ton by not having to pay extra for workers to move to CA where costs and taxes are very high.  A worker making $100,000 in Texas might need to make $150,000 to move to CA to afford a mortgage on a much more expensive home and offset the higher taxes.    Jobs have been leaving California since the 1970s!  

When I graduated from UC Berkeley in 1979 with a degree in Electrical Engineering and Computer Science, I went to work in the Silicon Valley designing semiconductors for communications, what was to become the internet.  I actually started as a summer intern in 1978.  What struck me then was  HP was ALREADY starting to move jobs out of California to lower cost states and countries.  California has a business property tax which I believe drove out most of the semiconductor industry.  The managers stay in CA since they can just give themselves a bigger raise to pay to live here. 

Back in 1978, Intel, HP, and many other companies built semiconductors in the Silicon Valley.  Today almost all the plants are gone.  New plants cost about $5 billion to build. Why would anyone sane build a $5B plant in a state that charges 1% a year tax on that plant?  Other states and countries like Singapore gave HP and Intel "tax holidays" to build new plants so they would have highly paid workers whom they could tax.  Also, the workers would spend their paychecks near the new factories making new jobs.

Check out my recent articles:



The above commentary is courtesy of my writing partner, David Korn
David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2012
More from David Korn:
If you would like a free sample of David's complete "Brinker related newsletter" and his "Retirement Advisor" newsletter, then click this link to send an email request and please tell us a bit about yourself too.

Tuesday, October 30, 2012

Will US Pay Off National Debt? Budget Deficit & Bob Brinker's GDP Estimate

Bob Brinker's comments "Will the US ever Pay Off Its National Debt?" 


Moneytalk with Bob Brinker Commentary for October 28, 2012 Radio Show
The following commentary is from my "Retirement Advisor" writing partner,  David Korn. 

Brinker Comment: Bob opened the broadcast discussing the new figures on gross domestic product. Bob said his projection has been for a slow-growth economy as defined by a slow rate of growth in real GDP (adjusted for inflation) and we continue to see that with the number for the third quarter coming in at 2.0%. When you couple that number with the first half of the year, you are looking at an annual rate of growth of 1.8% for the first 9 months which is the type of slow growth that Bob thinks we will see for the remainder of the year

DEBTS AND DEFICITS

Caller: At some point, the Federal Government will start to have to pay off the national debt. The caller said he thinks it seems like an unsustainable situation that will either be addressed by cutting spending or raising taxes. Or the government could start printing more money which could lead to inflation or hyper-inflation. How likely is it that we would see inflation or hyper-inflation and is there anything the average investor can do to hedge against this possibility?
"Witnessing the Republicans and the Democrats bicker over the U.S. debt is like watching two drunks argue over a bar bill on the Titanic."   Kirk Lindstrom
 Bob said there are essentially no cases in the history of the world where the country has paid off its national debt and we will probably never even make a serious down payment on paying off the $16 trillion national debt. We will pay the interest on the national debt as long as we can afford to do so. As far as the national deficit, that is in play and must be addressed and that is a big deal. Hopefully, Congress will get to work on the annual deficits which at the current pace is not sustainable.

EC (David Korn): Our $16 trillion dollar national debt amounts to $51,484 for every man, woman and child in our country. Check out this interesting article entitled, “Breaking down the national debt” at the following url: http://tinyurl.com/8p9vy5u

Kirk's Comment:  I don't think enough attention goes to just how large the deficit is and how much borrowing occurs for every dollar spent.  I like how Bob Brinker has warned about excessive spending for years and I'm doing my part to spread the word.  Read my Seeking Alpha article:
Kirk's Comment:  Can you imagine asking anyone for a loan, home equity or a refinance of a home loan, if you knew you would never pay it back?


The above commentary is courtesy of my writing partner, David Korn
David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2012
More from David Korn:
If you would like a free sample of David's complete "Brinker related newsletter" and his "Retirement Advisor" newsletter, then click this link to send an email request and please tell us a bit about yourself too.

Monday, October 29, 2012

Bob Brinker on Economic Stimulus and Growth Effects

Bob Brinker's comments on the economic stimulus packages and their effects on economic growth. 

Moneytalk with Bob Brinker Commentary for October 28, 2012 Radio Show
The following commentary is from my "Retirement Advisor" writing partner,  David Korn. 

ECONOMIC GROWTH

Brinker Comment: Bob opened the broadcast discussing the new figures on gross domestic product. Bob said his projection has been for a slow-growth economy as defined by a slow rate of growth in real GDP (adjusted for inflation) and we continue to see that with the number for the third quarter coming in at 2.0%. When you couple that number with the first half of the year, you are looking at an annual rate of growth of 1.8% for the first 9 months which is the type of slow growth that Bob thinks we will see for the remainder of the year.

Bob said he is keeping a close eye on the economy because of its slow growth. In fact, the world economy is growing slowly. China is slowing down. Europe has been in the doldrums, with some countries in a recession and some worse, like Greece. In the United States, we are adding jobs, but not fast enough to get the unemployment rate down below 6% which is where the Federal Reserve would like to see it.

EC (David Korn):  In the second quarter, real GDP increased 1.3%. The 2% figure for the third quarter is the advance estimate that is based on source data that is incomplete or subject to further revision. The “second” estimate for the third quarter, based on more complete data, will be released on November 29, 2012. Read the GDP report at this url: http://tinyurl.com/2d5zdv

ECONOMIC STIMULUS

Brinker Comment: Every year that goes by, our country is becoming a more mature economy. And we are dealing with a much more competitive world than we used to. Our exports compete with China, Europe and emerging markets. Bob said in his opinion one of the most stunning things about our economy is that despite al of the things that have been done in the last few years to try and grow the economy, we still are only growing at 1.8% in 2012. Bob pointed out that there have been seven major initiatives since 2008 taken in an effort to stimulate the economy:

  1. First, the Federal Reserve brought the fed funds rate down to basically zero. It has been at 0-0.25% since then. And that was one of the most powerful tools the Fed has to stimulate economic growth.
  2. Then we had quantitative easing (now known as QE1) which resolved the liquidity crises by flooding the system with a ton of money.
  3. Then we had the stimulus package which amounted to roughly $800 billion. And there were some good parts of that such as the tax cuts which put money back into consumer’s pockets.
  4. Then we had QE2.
  5. The fifth measure was the second stimulus package. This came at the end of 2010 to be effective in 2011. You may recall this involved a 2% tax holiday on the payroll tax. That was the big part of the stimulus package.
  6. Then we had operation twist which sold short-term federal reserve holdings to buy longer term maturities. This helped lower long term rates and is one of the reasons you are seeing historic lows in the mortgage market.
  7. Finally, we had QE3 which was announced a few weeks ago.


EC: That’s a lot of stimulus. One wonders where we would be without all of the actions by the Fed and Congress. Check out this article entitled, “Without Stimulus Economy Would Collapse” at this url: http://tinyurl.com/8p6tvqg

Brinker Comment: These seven things, two of which were by the federal government and five by the Federal Reserve, were all measures aimed at improving the economy. And here we are at the end of October 2012, and we still have a slow growth economy with real GDP growing at less than 2%. What does this tell us? It tells us there has not been enough demand in the economy to push the growth rate up. And that is why you have seen an unemployment rate that is too high. It is all about demand. Without increased demand, you go nowhere. You can muddle along around 2%, but that cannot produce enough new jobs to get the unemployment rate down and so the wheels keep spinning without the economy going anywhere.

Bob acknowledged that the unemployment rate has come down from 10.1% to 7.8%, but that’s now low enough for the Federal Reserve which has a mandate from Congress to stimulate the economy to get employment maximized, consistent with low inflation. We have low inflation, but we have not been able to get GDP moving such that it would move unemployment to where it would be and create the demand needed.

Bob noted that some of these same problems have happened in Europe and their prescription to deal with it has been “austerity.” How has that worked? Well, in Greece they have come up with an austerity program to stay in the euro and they are essentially in a depression. Although we see Greek citizens rioting in the streets over the austerity program, the reality is if they leave the euro those same people who might receive a pension or other government check will be so sorry if the country is out the euro because their purchasing power could be devalued by as much as 70% on whatever new currency the country is forced to adopt.

Austerity programs are not easy. Just look at Spain’s program. They have an unemployment rate of 25%. That was our unemployment rate during the Great Depression in the 1930s. Austerity is not a recipe for growth. Anyone who tells you otherwise is a clown. If people who want austerity in our country get their way, we will not get growth — we will get contraction in the economy.

EC: I think Bob might have brought this topic up in light of an article in Forbes out this weekend entitled, “Austerity Didn’t Work in ‘37...What about Now?” which you can read at the following url: http://tinyurl.com/9mkw9f2

Kirk's Comment:  I don't think enough attention goes to just how large the deficit is and how much borrowing occurs for every dollar spent.  I like how Bob Brinker has warned about excessive spending for years and I'm doing my part to spread the word.  Read my Seeking Alpha article:

Caller: If the country wants to bring down unemployment, why not hire tons of people to work on public works projects? The caller said he thought that would be a lot cheaper than raising taxes and it would give people jobs and fix our country’s infrastructure.

Bob said that would require another stimulus package and right now, the word “stimulus” has become a dirty word in Washington. Bob said based on his reading of the political environment in our country right now, there is so much backlash against the idea of another stimulus that it is pretty much a non-starter.

The above commentary is courtesy of my writing partner, David Korn
David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2012
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Thursday, October 11, 2012

Larry Elder, Jack Welch and Bob Brinker On Jobs Report


Larry Elder spoke with Bob Brinker, Host of Money Talk, about Jack Welch's claim that the recent employment numbers in the September Jobs Report were cooked to make President Obama look good.  

The unemployment rate decreased to 7.8 percent in September, and total nonfarm payroll employment rose by 114,000, the U.S. Bureau of Labor Statistics reported today. Employment increased in health care and in transportation and warehousing but changed little in most other major industries.
You can listen to the interview on Larry's website here:


Bob pointed out Jack Welch, the former CEO of GE, is not a politician so "I don't think it is his calling to do something like that and I am disappointed in him."

Brinker said the US needs about 150,000 new jobs each month just to absorb new workers.

Brinker doesn't believe the president of the US is responsible for the growth rate of GDP.

Larry Elder tried on several occasions to get Brinker to comment on President Obama's economic record and Bob showed he was better than the politicians at not answering the question.

When pressed, Brinker said he feels President Obama's debate performance was "so pathetic that at this point I don't know what to think about the president." 

Note this requires a FLASH player.  

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