Caller: Recently this caller inherited some money and he wants to invest $400,000. Bob said at this point in time, he was recommending a dollar cost average approach into the stock market because of the current level of stock prices.
EC (David Korn): Bob has adopted a more cautious approach toward the bull as we get closer to new highs. He will continue to recommend dollar cost averaging until one of two things happens: (1) the market has a big enough drop that he thinks it represents a lump sum buying opportunity; or, (2) he decides to change his asset allocation and make a market timing decisions to sell some sock because he believes a bear is on the horizon.
Kirk Comment: This should be no surprise. Brinker has been FULLY INVESTED without rebalancing even his P3 since March 2003. He missed the last two bear markets so I wouldn't get too excited about his current market outlook. Read:
INVESTMENTS AFTER THE ELECTION
Caller: On the day after the election (November 7, 2012), if Obama is elected the caller thinks we will have a continuation of the policies and an eventually fiscal crises due to our deficits. He is considering liquidating his entire portfolio of stocks and bonds then and investing it in gold based on the theory that inflation is coming.
Bob said the probability is that whoever wins the White House there will be gridlock and they will have to come up with a band-aid for the fiscal cliff to some degree. We already have a presidential proposal to keep the tax cuts on the books for those making under $200,000 ($250,000 for couples) which means most people would not see their personal income taxes increase. The only way you will get power in one party or another is to have the White House, a majority in the House of Representatives and 60 votes in the Senate. Bob think the chances of either party getting 60 senate seats in the vote this fall are basically zero and so he expects gridlock to continue.
EC: Bob didn’t directly address the caller’s question of his idea of selling his stocks and bonds and buying gold, but that’s because I think Bob thought it was a fairly ludicrous proposal given what Bob traditionally recommends. Even if Bob was to issue a “sell signal” after the election, I doubt it would be to sell all stocks and bonds, and I don’t think he would recommend using any of the cash proceeds to buy gold.
Kirk Comment: There are some SUBTLE changes to Brinker's Outlook. In his June Marketimer with the S&P500 at 1310, Brinker said:
"We anticipate that the S&P500 Index will reach our target range in the upper-1400s to lower-1500s withing the next 12 months."In the July Marketimer with the S&P500 at 1362, he hedges a bit by saying
"This valuation exercise suggests that the S&P500 index has the potential to reach the upper-1400s to lower-1500s range withing the next year."
Interesting it was "our estimate" last month and this month it is only a " valuation exercise."
On the topic of fiscal cliffs:
FISCAL PROBLEMS AT ALL LEVELS OF GOVERNMENT
Brinker Comment: Bob said he is often criticized for his conservative fiscal policies, like balancing the budget. It is fair to say, however, that the level of incompetence in Congress is at a record high. As things now stand, taxpayers face enormous tax increases on January 1st. The tax increases will apply across-the-board, while Congress refuses to do anything about it because it is an election year. We all know that the partisans gather their talking points every morning and rant about their agendas. If you ran your business the way Congress operates you would be in bankruptcy in no time. The same goes for many local governments. Look what happened in Vallejo, Stockton and other cities in California.
Kirk Comment: Read List of California Cities and Municipalities In Or Near Bankruptcy
Brinker Continued: When elected officials allow public unions to make demands that are not financially viable, the piper will have to be paid. Fortunately, there is no law that says you have to pay public sector benefits that are way better than yourself. There is no law that requires you pay bloated benefits that they won at the bargaining table that you, the unrepresented taxpayer, have no recourse. If you want, you can give credit to the unions if that is where your sentiment rests, but you can also choose to live wherever you want. And if enough taxpayers leave town, who will pay for all those benefits? It will be resolved in bankruptcy court. You are seeing this lack of fiscal responsibility at the local level show up more and more these days, with the latest being San Bernardino.
EC: I didn’t realize how bad the situation was in San Bernardino. The city declared a fiscal emergency this week which allows them to skip lengthy negotiations with its debt holders and go straight to filing for Chapter 9. More on the story here: http://tinyurl.com/7ln68lb
Brinker Comment: At the federal level, the government tried to do something about the deficits with the Simpson Bowles Commission. They failed to address the black hole in the budget known as Medicare.
Brinker Comment: There are other areas of concern with regard to our national debt which has grown to around $16 trillion dollars. The average interest we are paying on the national debt is almost about 2% because interest rates are so low. The 10-year bond is only yielding about 1.5%. When you look back historically, the average interest rate on the national debt is 5.8% which illustrates the gap between the current rate environment and what would happen if rates normalized. That accounts to around $640 billion annually which represents the increase in interest costs the taxpayers are exposed to as our mounting federal debt skyrockets.
Brinker Comment: The sequestration that is supposed to hit next year would cut out about $108 billion next year which is not that big a piece. But even that idea is flawed because all of the programs get cut, including the good programs. What has happened is career politicians have promised too much and yet Congress is getting ready to go on recess for the summer.
EC: Sequestration is a form of automatic cuts that apply largely across the board and is scheduled to start in January 2013 and cover the period through 2021. This all came about as a way to increase the incentive for the Joint Select Committee on Deficit Reduction to reach a compromise, because if they didn’t, the sequestration were to go into effect — and that’s exactly what will happen unless Congress changes the law.
EC#2: This past week, the House of Representatives passed a bill by a 414-2 vote that would give the President 30 days to detail how the spending cuts would be distributed.
Caller/Brinker Comment: Bob said given we are in a slow-growth economy, our government should not raise taxes in January on anyone. Bob said he doesn’t think there is an economist worth their salt that would recommend raising taxes when the economy is struggling as it is. So, Congress should delay any of the tax increases that are set to go into effect in January. Beyond that, they should adopt a long-term, 10-year plan that reduces our national debt to 3% of GDP.
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)
Q2 2012 Update: Up 5.9% YTD as of 6/30/12
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
- July 18 List of California Cities and Municipalities In Or Near Bankruptcy
- July 11 Historical LIBOR Rates Graphed from 1993 through June 2012
- July 10 ECRI Believes We are NOW In A Recession
- July 09 Jeremy Siegel Predicts DOW 15,000
- July 05 Mark Levin Slams Bob Brinker Over Economy
- June 27 Bob Brinker on REITS and Preferred Stocks
- June 27 Bob Brinker on Stock Market and Interest Rates
- June 24 Alan Blinder Interviewed by Bob Brinker
- June 21 WTIC (West Texas Intermediate Crude) - Crude Oil Price Per Barrel History