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Wednesday, June 27, 2012

Stock Market and Interest Rates

Moneytalk with Bob Brinker Commentary for June 24, 2012 Radio Show
The following commentary is from my "Retirement Advisor" writing partner,  David Korn. 

STOCK MARKET

Brinker Comment:  The S&P 500 (charts) closed the week at 1,335 in a volatile week of trading.  With 25 weeks into the year, we have a total return of 7.1%.  That’s not too shabby in a zero interest rate world.  During the broadcast, a caller asked if he should lump sum into the stock market, or dollar cost average.  Bob said at this point he would be in a dollar cost average position with new money geared toward the stock market.  Bob said he would put it in at a pace that is comfortable with you.  As a general rule, Bob said he prefers not to chase the market when it is rising, and instead attempt to identify buy points during market weakness like the ones that occurred last fall.

EC:  There has been no change in Bob’s bullish outlook and he is on record of late projecting the S&P 500 to reach into the 1500s over the next year. 





Kirk Comment:   Bob Brinker remains bullish and as of his June Marketimer continues "fully invested" and still believes "the S&P500 Index will reach our target range in the upper-1400s to lower-1500s withing the next 12 months."  Bob Brinker has attended what he calls "the church of buy and hold" since March 2003 and thus was fully invested for the last two bear markets.  I think it is clear these days he promotes the very aggressive Marketimer newsletter when stocks are up and then promotes the more conservative "fixed income advisor" newsletter when the market is down.   For more, read: 

INTEREST RATES AND INFLATION

Brinker Comment:  
Rates remain at or near record lows across the board in the various maturities.  The 3-month Treasury Bill is laughable with a yield of just 8 basis points.  The 6-month Treasury is yielding just 14 basis points.   The 1-year Treasury Note is yielding just 17 basis points.   The 2-year Treasury Note is yielding 0.30%.  The 5-year Note is yielding 0.75%.  The 10-year Note is yielding 1.67% and the 30-year Bond is yielding 2.75%.  The problem with these rates is they create an attitude in Washington that the money is free and there is a level of complacency that the money can be borrowed at no cost and as a result we are headed for $16 trillion in national debt.  If and when the date comes when interest rates normalize, the interest payments on the national debt will be enormous.

EC:  The Treasury is slated to sell another $35 billion in two-year notes on Tuesday; $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday.

Brinker Comment:
For inflation indexed securities, five year maturities have a negative base rate of 1.0%.  So it costs you (the buyer) 1% a year to own one of these while you hope that you will get something back on the inflation side.  Right now, the CPI is 1.7% year-over-year, so there is not much inflation.  The 10-year TIPS have a negative yield of 0.5%.  So you have the same deal there where you sign on for a negative return on the base rate with the hope of making it up on the inflation rate.

EC:  See the article, “Treasuries Gain; TIPS Sell at Record Low Yield” at this url: http://tinyurl.com/76nzgxo


Kirk Comment:  More useful links:
Kirk Comment: In my newsletters (Kirk's Two Investment Letters), I have VIPSX in the more conservative portfolios and VGSIX in the more aggressive portfolios.  I am VERY pleased with the performance of both:


Vanguard Funds YTD Returns as of 06/26/2012
NameSymbolPrice as of 06/26/2012 YTD as of
06/26/2012
PriceYield
GNMA Fund Investor Shares VFIIX$11.04 3.00%
1.40%
Total Bond Mkt Index Inv VBMFX$11.10 1.88%
2.35%
Prime Money Mkt Fund VMMXX$1.000.04%
0.02%
Inflation-Protect Sec Inv VIPSX$14.65 –0.71%
4.09%
REIT Index Fund Inv VGSIX$20.89 note
10.21%
Total Stock Mkt Idx Inv VTSMX$32.80 2.04%
5.75%

Long Term Results that Speak for Themselves
Since 9/30/98 inception, "Kirk's Newsletter Explore Portfolio" is UP 390%
vs. the S&P500 UP only 51% vs. NASDAQ UP only 57% (All through 12/31/11
(More Info, Testimonials & Portfolio Returns)
Q1 2012 Update:  Up 11.3% YTD  as of 3/31/12
(remember this 2012 performance is with 1/3 in fixed income!)
Subscribe to my service NOW and get the June 2012 Issue for FREE!   

Brinker Comment:  10-year quality municipals are yielding 1.9%.  Even in the highest tax bracket, that results in just a 3% after-tax return.

EC:  Found an article that suggests it might be time to move from a CD Ladder to Municipal Bonds at this url: http://tinyurl.com/86cyoay
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.

2 comments:

  1. Translation of the latest (July) MarketMistimer:

    "We missed two major declines, one was a 22% bear market, by being too bullish. We saved our ass by giving a worthless buy signal when the market was down so we have something to market now that it is back up. The stupid think we added value. Now this last decline, we CORRECTLY predicted would be limited to single digits. Yet when the market was withing points of 10%, double digits, we wet our pants and froze, thus missing another marketing opportunity. Oh yeah, we are smart and the bad news bears are wrong. The market is nearly back to the 1400 level it was in 2008 when we called them "Casandras" for warning of a recession just before the biggest bear market since the Great Depression. We issued buy signals all the way down from 1400s to 800s but we again pissed our pants and froze in the 700s and 800s. OUR ADVICE: No Change since March 2003. Stay fully invested and dollar cost average in any lotto winnings or big inheritances."

    ReplyDelete
  2. Oh yeah, if we miss another bear market like the last two (SEE Two Bear Markets Missed in Half a Decade) then expect a repeat where we take calls on the radio show praising GNMAs and our "Income portfolio" that only has 7% in stocks while not counting against our Dilbert ratings. You see, we've figured how to look right no matter what the market does!

    ReplyDelete

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