Bob Brinker's MOABO: August in Review

Oil prices fell another 8% in August, down to about $116, while the markets overall basically went nowhere. (Officially the markets had a small gain in August but this chart shows the last month which is 30 days back into late July)

Bob Brinker says the price of oil is a wildcard. On the July 12 Moneytalk, Brinker said:

"Here we see oil having closed the week at an all-time-record-high, close to $145 for a barrel of oil………..And there is an inverse relationship that has developed between upward spikes in oil prices and the stock market, and that inverse relationship has really been showing up now for some time.

The stock market wants to see an economic recovery scenario. It does not want to see an increased oil price scenario, which is was it’s seeing right now. Now I wish I could tell you what the price of oil is going to be in a week, a month, a year. I don’t know. I have no way of knowing and I think only a fool would try to forecast the price of a barrel of oil in the world we live in…….” [Full story]

Concerns over the economy, inflation and troubles in the financial sector weighed heavy on investors in August despite oil prices falling about $9 from $125 to $116


Despite being fully invested since March 2003 and riding this bear market down fully invested, Bob Brinker issued yet another "all in the pool" buy level in the low 1200s in early August. So far, that was too late to do anyone any good as the market had already recovered by the time he issued a the latest buy level.

Brinker's Model Portfolio #1 (P1) Performance
(Data from Bob Brinker's Marketimer for end of month totals)

Brinker P1 as of 10/31/07 = $302,561
Brinker P1 as of 07/31/08 = $249,993
Thus P1 is down $52,568 or 17.4%

Gain required for P1 from 7/31/08 to "break-even" with its 10/31/07 value is 21.0%

I will update this table with the August numbers as soon as they are published, but from the top graph, I would not expect them to be very different.

Bob Brinker's MOABO

I sure hope the markets have made a bottom and they do not go lower. As an asset allocator and stock picker who does not short stocks, I would love to see the market go up all the time with the occasional correction to buy back profit taking shares to add to my returns.

It would sure be ironic if Bob Brinker's original prediction of a secular bear market with a MOABO (mother of all buying opportunities) at the end of that bear market, turns out to be true. I imagine he is kicking himself raw for calling for new highs in 2008 last year just as the bear market was starting.

Bob Brinker on Obama Tax Plan Marginal Rate

Honeybee's summary of Bob Brinker's Sunday's Moneytalk show contains Brinker's comments on Senator Barack Obama's proposed tax plan.

"Brinker went on to explain how easy it would be (under the Obama tax plan) to construct this 60%+ marginal tax bracket for a lot of American entrepreneurs who create jobs."

It looks like Brinker was talking about the MARGINAL TAX RATE and I believe his numbers are correct.

Marginal tax rate is the effective tax you pay on additional income above the threshold, $250,000 in this case. You already deducted your home mortgage, etc. so that is not relevant in this discussion.

That is if you make $260,000, how much tax will you pay on that extra $10,000 under Obama vs McCain. He seems to have made an allowance for deducting state taxes since his number is less than adding up all the components.

Brinker showed how, in a high tax state like California or New York, the marginal rate for those making over $250,000 AGI will be about 62%.

Lets do a quick comparison (2008 tax rates)

Current Federal Taxes under Bush Tax Plan for single taxpayers who own their own business (pay both sides of Social Security tax) making $260,000:

Marginal Federal tax rate = 33%
Social Security Tax = 0% + 0% = 0%
Medicare Tax = 2.9%
Total = 35.9%

Proposed Taxes under proposed Obama Tax Plan for single taxpayers making $260,000 :

Marginal Federal tax rate = 39.6%
Social Security Tax = 6.2% + 6.2% = 12.4%
Medicare Tax = 2.9%
Total = 54.9%

Change in tax rate 54.9% - 35.9% = 19%

So under the Obama tax plan, small business owners who have to pay both sides of the Social Security tax will see their Federal tax rate on what they make in excess of $250,000 skyrocket (19%/35.9% x 100%) 53% in total tax dollars paid.

For California, he got the numbers close. The marginal tax rate in CA is 9.3%. Under current law, this is deductible on your federal return.

Current marginal Fed + CA Tax Rate:

35.9% + 9.3% x (1 - .33)
35.9% + 6.3%
Total = 42.1%

Marginal FED + CA Tax Rate under Obama:

54.9% + 9.3% x (1 - .396)
54.9% + 5.6%
Total = 60.5%

A 60.5% marginal rate in California means that a small business owner who makes $260,000 will pay $6,050 in taxes on that $10,000 above $250,000. Under the Bush tax plan, she now only pays $4,210.

If Brinker only has 20,000 subscribers to his newsletter (we have read he has as much as 200,000 subscribers) then his gross income is about $3.7 million! ($37 million income if he has the reported 200,000) It is not in his best interest to want higher taxes and I can't fault him for doing all he can to keep his rates low. His listeners only need to know he is not unbiased.

Obama supporters say those making over $250,000 should pay this extra $1,840 in tax for every $10,000 they make above $250,000 since they are doing so well under the current plan and can afford it. They also say McCain's plan will raise taxes on middle income workers by adding employer paid health care to taxable income. Let me know if there is a complete analysis with all the proposed changes to compare the two tax plans for all income groups.

Please leave comments about any tax rate changes, errors or omissions. Please note I am just a writer with a calculator, not a tax accountant so there could be some errors in my assumptions. Please feel free to point them out in the comments section.