Pension Spiking is "Legalized Fraud" according to Moneytalk Host Bob Brinker

This weekend a caller asked Bob Brinker about a practice called "pension spiking." According to Wikipedia,

Pension spiking is the process whereby public sector employees grant themselves large raises or otherwise artificially inflate their compensation in the years immediately preceding retirement in order to receive larger pensions than they otherwise would be entitled to receive. This inflates the pension payments to the retirees and, upon retirement of the "spikee", transfers the burden of making payments from the employee's employer to a public pension fund. This practice is considered a significant contributor to the high cost of public sector pensions.

Bob Brinker agreed with the caller that pensions in CA are a problem that need to be fixed.

Brinker said it was legalized fraud.

"The loser in the pension spiking is...I am tempted to use the word fraud, but it is legal.... legalized fraud.... the losers in that are the tax payers...."

The caller pointed out the income tax rate in California is 9.3% of anything over $47,000. Brinker agreed with the caller that CA tax payers are very generous.

The caller probably missed my article here titled "2009 California Tax Rates" where I compare 2008 to 2009 and show the 9.55% rate for income of $46,439 and up.

Not only is the rate for California's top bracket going up 2.7% from 9.3% to 9.55% but California is lowering the income level at which this takes effect by 1.31% from $47,055 to "only" $46,439

Brinker said:

"I know you have a very high sales tax (9.75% in Los Angeles and many other counties).

I guess in California.....kinda reminds of me of that old Johnny Cash song.... How high are the taxes Mama? Nine and a Half and rising!"

Bob agreed with the caller that there is a problem in California where tax payers are "held up" by "pension spiking."

"It is a problem. Oh that pension fund spiking in the last few years of employment and the tax payers get HELD UP!"

This chart shows the wage gap between federal "civilian" and private sector employees is growing according to the Cato Institute. Note that the table shows the total compensation package that includes benefits like pensions.

Chart courtesy of Agorafinancial.com

Back in 2000, about nine years ago, the average federal civilian employee earned 66% more than the typical worker in private industry. Today, that gap in compensation has grown to be MORE than double the average! Much of that wider gap is due to pension spiking for government workers at the same time private companies were eliminating pensions (FedEx that competes with the US Post Office eliminated 401k Matching to save money!) or going bankrupt (like United Airlines, Chrysler and GM) and cutting pensions.

It is positive feedback. Put more and more people on the government payroll, pay them well and of course they will vote for bigger government which will put even more on the government payroll. Add in "pension spiking" and you can see we have a problem.

By Noodles Aug. 30, 2009

Make sure you read: Best Investment Newsletter

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 131% (over a double!) vs. the S&P500 DOWN 1.7% vs. NASDAQ down 7.9% (All through 9/5/09)

As of September 5, 2009, "Kirk's Newsletter Explore Portfolio" is up 18.8% YTD vs. DJIA up 7.6% YTD.

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2009 California Tax Rates

Bob Brinker loves to bash California politicians for "out-of-control" spending and a "totally dysfunctional government." I agree 100% with Brinker on this.

At $117.4 billion, last year California collected 80% more taxes than the next highest taxed state, New York. New York "only" collected a total of $65.4 billion from its citizens. (Source 2008 tax collections)

On Saturday, August 1, 2009, Bob Brinker said:

California is obviously a totally dysfunctional government from a fiscal standpoint.... It's a joke. They are going to have to redo their constitution or they're not going to get past it on a long-term basis.... That's how screwed up it is."

Despite having the highest tax collections in the US, Californians will pay higher taxes this year even if they make less money!

Not only is the rate for California's top bracket going up 2.7% from 9.3% to 9.55% but California is lowering the income level at which this takes effect by 1.31% from $47,055 to "only" $46,439.

Table courtesy of the LA Times, article "Even higher taxes coming for Californians."

Federal Tax Rates for 2009

Note CA tax rates are indexed to inflation. We have 1.3% CPI deflation year-over-year so the brackets were lowered.)

This is not the only gain in our tax rates. Besides rising the income tax rate by 0.25%, California went to the well for more money by:

• Slashing the dependent credit by more than two-thirds.
  
• Nearly doubling the vehicle license fee to 1.15% of a car's value.
  
• Increasing the California sales tax by 1%. In some counties like Los Angeles, the sales tax rate is 9.75%!!!

I just bought a new van for my windsurfing equipment. I more than made up for the higher tax rates by the large discount Ford is giving to get slow-to-sell, low MPG metal off its lots but I sure don't like paying the highest tax rate in the country.

By buying a new van, I've done my part to both stimulate the economy and help California raise cash to pay its IOUs. It is always good to have cash for economic downturns so you can take advantage of the bargains.

The new van did not qualify for the "Cash For Clunkers" program despite my old van only getting 11 MPG and the first tank of gasoline saw my MPG improve over 30% to 15 MPG!

More info:

• Federal Tax Rates for 2009
  
  
• Tax Rates by State for 2008
  
  
• 2008 Tax Revenue by State
  

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 128% (over a double!) vs. the S&P500 DOWN 0.4% vs. NASDAQ down 7.8% (All through 8/27/09)

As of August 27, 2009, "Kirk's Newsletter Explore Portfolio" is up 17.3% YTD vs. DJIA up 9.1% YTD.

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Gil Gross' "Real Estate Today" Replaced Bob Brinker Moneytalk at WABC in NY. Is KGO in SF Next?

Gil Gross' show replaced Bob Brinker on New York's WABC radio. KGO's general manager, Mickey Luckoff, says he carries Moneytalk because the station owner, Citadel, requires it. Citadel dropped Moneytalk from WABC s othat "requirement" may have changed. Who will be next to cancel Moneytalk? Could it be KGO?

It could be too late, but you need to write KGO and let them know you like the show if you want it to stay on the air.

According to yesterday's story in the San Francisco Peninsula Press Club, Gil Gross's "Real Estate Today" replaced "Moneytalk hosted by Bob Brinker" in New York's WABC:

Gil Gross' show replaces Bob Brinker in NY
KGO-AM afternoon host Gil Gross began moonlighting a few months ago as the host of a two-hour nationally syndicated weekend program about the real estate industry, which has just been picked up by WABC-AM in New York. In fact it airs on Saturdays from 4-6 p.m. Eastern, replacing longtime WABC financial host Bob Brinker. At the moment, Brinker doesn't have a New York affiliate. No station in the San Francisco market has picked up Gross's "Real Estate Today" program yet. However, KGO-AM president and gm Mickey Luckoff said on Ronn Owens' show in May that the station's owner, Citadel, required him to carry Brinker's program. His comment was in response to a caller who disliked Brinker's show, feeling it didn't fit in with the rest of KGO's lineup. Luckoff didn't disagree. Maybe that policy has changed now that Brinker has been dumped by Citadel's flagship station, WABC.

I often listen to Gil Gross on KGO Monday through Friday 2 to 4PM PST as his "talk about anything" show is quite good.

How long will Citidel require KGO to carry Moneytalk over giving the spotlight to their own talent, Gil Gross?

If you want to keep Moneytalk on the air, you need to write the station and tell them why. Sooner is probably better than later too.

If you want to ask WABC to put Bob Brinker's Moneytalk back on the air, then you need to write the station and tell them why.

• KGO-SF AM 810 Email Address
  
  
• WABC-NY Email Address

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Bob Brinker Moneytalk Summary

Today Bob Brinker talked about how well the US stock market has done year-to-date. During his monologue, he gave statistics for the S&P500 and US Total Stock market saying they were up 13% and 15% YTD, respectively.

Brinker didn't mention how well the international markets have done which is odd since they have done even better!

Emerging markets leads the list up 50% YTD!

Gold and precious metals is a close second up 48% YTD.

YTD Returns as of 08/14/2009

Vanguard Funds	Symbol	Price	SEC Yield	YTD Return
S&P 500 Index Fund	VFINX	$92.78	2.14%	13.02%
Emerging Markets Fund	VEIEX	$22.42	—	50.47%
Extended Mkt Index	VEXMX	$29.22	1.23%	21.73%
European Stock Index	VEURX	$24.19	—	18.52%
GNMA Fund	VFIIX	$10.68	3.99%	3.68%
Inflation-Protect Sec	VIPSX	$12.12	1.54%	5.25%
Pacific Stock Index	VPKIX	$9.58	—	16.69%
Pacific Stock Index Inv	VPACX	$9.57	—	16.71%
Precious Metals & Mining	VGPMX	$17.31	—	48.04%
REIT Index Fund Inv	VGSIX	$12.70	note	8.47%
Total Bond Mkt Index Inv	VBMFX	$10.29	3.71%	3.82%
Total Int'l Stock Index	VGTSX	$13.34	—	23.63%
Total Stock Market Index Fund	VTSMX	$24.73	1.99%	14.75%
Total World Stock Index Fund	VTWSX	$15.98	—	19.97%
Prime Money Mkt Fund	VMMXX	$1.00	0.22%	0.47%
Tax-Exempt Money Mkt	VMSXX	$1.00	0.27%	0.35%

During the first half hour, Bob Brinker wore his arm out patting himself on the back for being bullish at the start of the year and recommending a buying opportunity in the mid 800s. He must have forgotten his buying opportunity and recommendation to be fully invested in the mid 1400s back at the start of 2008. Perhaps he figures people have short memories or he can fool new listeners.

GNMA Fund - (VFIIX Charts):

A caller asked about the viability of Vanguard's GNMA fund. Brinker said she must be "going off the deep end" worrying about this as that fund is backed by the full faith and credit of the US Government. That means the government will print money to bail out the fund should it run into trouble. I've never heard Brinker mention that the government does not guarantee you will earn interest or that if the Government National Mortgage Association runs into solvency troubles it could take some time to get your money back, but you will get it back.

Obama's Health Care Plan

Many callers called to talk about the health care proposals. One wanted to know if taxes could go lower. Brinker said the CBO estimated the programs being proposed will cost between $1 trillion and 1.5 trillion US dollars. With that extra cost, Bob doesn't see how taxes could go down. Brinker said the people who are complaining loudly at the town hall meetings are retired folks who like the great deal they have now and don't want any changes.

Replace US Dollar with a "World Currency"

Brinker again said he was in favor of a new World currency based on the currencies of the "industrialized nations of the World" that would compete with the US Dollar and all the other international currencies such as the Euro and Yen. He thinks this would "help to bring the politicians in Washington back to their senses" to protect the integrity of the US dollar due to "spending gone wild."

The Federal Reserve

About the people who complain about the Federal Reserve (the Fed) having too much power, Brinker says they are wrong. The Fed's mission is to maximize employment consistent with minimizing inflation. Brinker says ANY attempt to politicize or eliminates the Fed turns monetary policy over to the "people in Washington who are spending the country into oblivion."

If you turn the monetary system over to the politicians, then its over at that point.

He says what the politicians will do is simply inflate to pay down the national debt with inflated dollars. In the extreme you will need a wheelbarrow full of money to buy a loaf of bread. He says "we've been there and done that."

Health Insurance Reform

Brinker says renaming the health care reform debate to "health insurance reform" could lead to fewer health insurance policies being written. He says insurance companies won't write policies if they can't make money so we may find it difficult to get health insurance just as it is now hard to get hurricane insurance in the gulf states.

Saturday Guest

Brinker's Saturday guest was Michelene Maynard who Bob says was ahead of her time when she wrote in 2003, "The End of Detroit: How the Big Three Lost Their Grip on the American Car Market."

Michelene Maynard said she wishes she was wrong and that the people in the industry had read her book and made changes so they could have prevented it from happening. Follow Micki on Twitter.

Vanguard Equity Index Fund Charts:

• Total Stock Market (VTSMX)
  
• S&P500(VFINX)
• Extended Market (VEXMX)

Vanguard Fixed Income Fund Charts:

• GNMA (VFIIX)
• Total Bond (VBMFX)
• TIPS (VIPSX)
• High-Yield/Junk Bond (VWEAX)

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Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 131% (over a double!) vs. the S&P500 DOWN 1.7% vs. NASDAQ down 7.9% (All through 9/7/09)

As of September 7, 2009, "Kirk's Newsletter Explore Portfolio" is up 18.8% YTD vs. DJIA up 7.6% YTD.

(More Info & FREE Sample Issue)

Bob Brinker Fan Club Reading Suggestions

Here are some good, short articles with charts to read that should be of interest to Bob Brinker Fan Club readers.

August 14, 2009
Elaine Garzarelli Gives Market Targets On Kudlow Report

She thinks the S&P500 can go much higher but would short the market if FASB imposes new "mark-to-market" accounting rules on the banks.

Inflation Adjusted Gasoline Prices 1980 - 2009

This chart provides some perspective on the long-term average US price for a gallon of unleaded gasoline.

US Unemployment Rate: Historical Chart 1948 to 2009

It is worth noting, however, that a one-month decline in the unemployment rate (even a small decline) after a significant spike (i.e. the unemployment rate spikes by 1.5 percentage points or more) has tended to occur slightly after a recession had ended.

S&P500 Inflation Adjusted Earnings

Q3 2009 may see the first 12-month period during which S&P 500 earnings are negative

Bob Brinker's Market Outlook and Buy Signals

On the weekend of July 26 and 27, 2009, Bob Brinker said "clearly we are in a cyclical bull market. "

“It is a mark of prudence never to place our complete trust in those who have deceived us even once.”
__Descartes’ first meditation

Bob Brinker speaks about "going out on a limb" in January of 2009 with a prediction that the market will be significantly higher in 2009. What Brinker neglects to mention is he said the same thing at the start of 2008 PLUS he issued a "gift horse buying opportunity" with the S&P500 in the mid 1400s! .

"In summary, the Marketimer stock market timing model indicates that conditions are favorable for the market as we enter 2008. We expect the S&P Index to achieve new record highs this year and to reach the 1600's range in the process. We continue to rate the market attractive for purchase on any weakness into the S&P 500 Index mid-1400's range. Above this range we prefer a dollar-cost-average approach for new purchases. All Marketimer model portfolios remain fully invested as we enter 2008. "
___January 2008 Marketimer, pg 3, with S&P500 @ 1468.36

Brinker has had 100% of his model 1 and model 2 portfolios invested in the stock market since March 2003. At the peak of the bull market in 2007, he had nearly 2/3rds of his "balanced" model portfolio #3 in equities and he told a caller to NOT REBALANCE back to 50% equities. He was more bullish at the top than at the bottom.

To brag now about predicting higher stock prices is like a broken clock bragging about telling the correct time twice a day.

Brinker also neglects to mention that the market had bear market performance right after his January 2009 prediction for a higher market. The S&P500 dropped about 25% to 676.

• Chart for DJIA - S&P500 - NASDAQ
  

While the market was in the 600s and 700s Brinker did not issue any buys. All he could tell his subscribers was he was "looking for a bottom."

March 5, 2009 Marketimer Newsletter with S&P500 at 696.33: “The process of establishing a major bear market bottom can extend over a period of several months, as we saw in 2002-2003. Clearly, the process of registering the final bottom in this bear market has been relentless, which has rendered our efforts to date unsuccessful.

and

“Due to the fact that the November 20, 2008 S&P 500 Index closing low failed to hold during the testing process, we believe a new bottoming process will be necessary in order to put an end to the bear market. This means that in order to set the stage for a sustainable market advance, we need to see a sequence of events consisting of:
(a) the establishment of an initial closing low; (b) a short-term rally; (c) a test of the area of the initial closing low on reduced selling pressure.”

Brinker did not issue a buy at 696 nor did he mention “dollar cost average” anywhere in that March newsletter. With the market back in the 1,000s as I type (S&P500 chart is currently 1,010) in Auguest 2009, he recommends “using periods of short-term weakness as buying opportunities,” but he doesn’t define what “weakness is!

Also note the the market has rallied 49% without a test of the bottom that Brinker said was needed for a "sustainable market advance" five months ago.

(1010 - 676) / 676 x 100% = 49%

This shows the calls graphically:

click chart courtesy of stockcharts.com for full size image

More:

• August 6: Abby Joseph Cohen Stock Market Outlook
  
  
• July 31: ECRI Predicts End of Home Price Downturn
  
  
• July 17: Best Investment Newsletter - More than Doubled Your Money in a down market
  
  
• SU Suncore Energy Charts Information Discussion
  
  
• Bob Brinker's California GO Bond Advice
  
  

Charles D. Ellis, Winning the Loser's Game:

"Market Timing is a wicked idea. Don't try it --- ever."

Vanguard founder John (Jack) Bogle in Common Sense on Mutual Funds: , pg 20

"The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly fifty years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently. Yet market timing appears to be increasingly embraced by mutual fund investors and the professional managers of fund portfolios alike."