Bob Brinker Fan Club Blog: June 2012

Thursday, June 28, 2012

REITS and Preferred Stocks - Brinker's Opinion

Moneytalk with Bob Brinker Commentary for June 24, 2012 Radio Show

The following commentary is from my "Retirement Advisor" writing partner, David Korn.

REITS

Caller: This caller is trying to come up with a way to increase the returns in his portfolio against a backdrop of a market that has low interest rates and incredibly low yields on Treasuries. What do you think of investing 10-20% of his portfolio in real estate investment trusts? Bob said if you are going with a real estate investment trust, you really need to do your homework. REITs have been very volatile and all over the place. Bob said he would be inclined to use a diversified format, such as the one offered by Vanguard. That would come with low expenses which would be a bonus. Bob said he would prefer a fund over an individual REIT to get the diversification. Later on in the broadcast, Bob mentioned that Vanguard also offers the REIT Index ETF which trades under the ticker VNQ.

EC: The Vanguard REIT Index Fund Investor Shares (VGSIX) has an expense ratio of just 0.24% -- which is one of the lowest ones around. Learn more about it at this url: http://tinyurl.com/yb7288l

Kirk Comment: I have had this REIT fund in my newsletter (Kirk's Two Investment Letters), for a decade. I also recommend its ETF alternative (See page 33 of recent issues.) I am VERY pleased with the performance of both:

As of 03/31/2012 from Vanguard

VGSIX	1 Year	3 Year	5Yr	10 Year	Since Inception 05/13/96
REIT Index Fund Inv	12.76%	43.25%	0.31%	10.45%	10.86%

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! !

PREFERREDS
Caller: This caller also wants to increase his portfolio returns and has heard a lot of good things about preferred stocks as way to generate higher returns. Bob said he would be very careful before investing in these kinds of securities. Over the last few years, a lot of money was lost in preferred stock. Look at Freddie Mac which came out with preferred stock that disappointed investors. Bob wouldn’t even give the caller a recommendation in this area.

EC: Everyone knows what common stock is - that's the stock that you see on CNBC every day -- the stock that investors are buying and selling every day on the major exchanges. Well, some companies also offer "preferred stock" which is simply another class of ownership in a corporation. Preferred stock generally grants preferred stockholders rights that common stock holders do not have, hence the name "preferred stock." For example, owners of preferred stock receive payment of dividends before the owners of common stock and have preference over common stock holders if the company declares bankruptcy. Some preferred stocks are "callable" which means that the company could force the owner of the preferred stock to sell it back to the company for either cash or common stock. The price and conditions are usually set up when the stock is issued. For practical purposes, many investors own preferred stock because they are seeking current income (via the dividend) and preferred stocks typically pay dividends quarterly and offer higher yields relative to long-term Treasury bonds. Bob has never been a fan of preferred stock and neither have his guests like Jeremy Siegel or Larry Swedroe.

Vanguard Funds YTD Returns as of 06/26/2012

Name	Symbol	Price as of 06/26/2012		YTD as of 06/26/2012
Name	Symbol	Price	Yield	YTD as of 06/26/2012
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	$1.00	0.04%	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%

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

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:

Two Bear Markets Missed in Half a Decade

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:

TIPS Funds: Fidelity FINPX, Vanguard VIPSX

US Treasury Rates at a Glance

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

Name	Symbol	Price as of 06/26/2012		YTD as of 06/26/2012
Name	Symbol	Price	Yield	YTD as of 06/26/2012
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	$1.00	0.04%	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%

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

Tuesday, June 26, 2012

Alan Blinder Interviewed by Bob Brinker

Moneytalk with Bob Brinker Commentary for June 24, 2012 Radio Show

On Sunday, Bob interviewed Alan Blinder, former Vice Chairman of the Board of Governors of the Federal Reserve System and current Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University and Co-Director of Princeton's Center for Economic Policy Studies. The following commentary is from my "Retirement Advisor" writing partner, David Korn.

Here are the important points from the interview:

Bob said nobody asked Ben Bernanke this week whether if there is a QE3 what kind of impact he would hope to get. How would you answer that? Alan said if and when they do QE3 it will most likely be concentrated in mortgage backed securities in order to push mortgage rates down even further.

What did you think of QE1? Alan says QE1 was a success. It came out in the height of the crises when the MBS market had died. The fed came in as a big time buyer and re-established a market reducing the spread relative to Treasuries. That would be the object again in QE3 but it could not have the success as QE1 because the market is not in a catatonic state

What about QE2? Alan said the upper limits you could have expected from QE2 was probably a B rating and we got a B- grade. It appeared to have pulled down the medium to long-term maturity yield.

What do you think of Operation Twist? Alan said it is weaker than QE2 because in Operation Twist it is buying long term maturities and selling short ones. Buying bonds is expansionary, but selling bonds is contractionary. So you are pushing up with one hand that is stronger than the other hand that is pushing down. So it is not as potent as QE2.

Alan said the big punch from the Fed was when it brought the Fed Funds rate from 5.25% down to essentially zero. That is a lot of interest rate power which you would expect to have major effects on both short term and long term interest rates and it did. QE1 was very beneficial because of the chaos. Once we got into QE2, expectations were lowered as to how much effect it would happen.

Bob asked Alan about our national debt. Alan said it is worrisome that we have a huge debt. The good news is he thinks Congress will get serious about bringing down the deficit in a bi-partisan way once interest rates start rising. Right now, people including politicians see this low interest rate environment and don’t react. But once the government starts paying 4% for the 10-year bond versus 1.5%, things will move quickly.

What do you think of the US adopting an austerity program. Alan said he is not in favor of it right now as we are having no problem borrowing money on a global basis. We are getting money for free. In fact, in real terms, we are getting it at negative rates. We could put this money to good use. There are roads that need repairing and other infrastructure issues that money could be well spent on.

A caller asked if at some point all of this quantitative easing will translate into an inflationary force? Alan said the money supply has not grown all that much, but bank reserves have exploded. Normally, they keep only the legal requirements. But since Lehman brothers they have been accumulating money, $1.7 trillion. At some point, those bank reserves have to get sucked back in. It will be inflationary if the Fed does a bad job. If you put the bank reserves back too quickly it will cause a recession like in the 1930s. Or you could leave it too long and get an inflationary spiral. Alan doesn’t think the Fed will get this 100% right. But he is not worried too much about inflationary consequences and believes that the Fed will get it more or less right.

Bob asked Alan whether when you are on the Federal Reserve, is it a free and open exchange of ideas or do you basically defer to the chairman. Alan says when he was on board under Greenspan, it was a little more dictatorship like. Ben Bernanke never felt that was the best way to run things and he has changed things considerably from what he has heard and there is much more of a free flow of information being exchanged where objections are raised.

Could we get an inverted yield curve if Operation Twist is bungled? The yield curve only becomes inverted when monetary policy is tightened and the Fed is pushing up the Fed Funds rate. You can see this in the current situation because even with the way depressed 10-year bond rate at 1.65% against the fed funds which is 0.15%, that is a 150 basis points above the historic slope over the last few decades. To get an inverted yield curve, it is always because the Fed pushed up the short end dramatically and the long end couldn’t keep up pace.

Given we have been in a slow growth economy for some time, why with zero percent interest rates isn’t the economy showing more life? Alan said when economies go into dumps because of huge debt crises it takes longer to climb out. We are experiencing a deleveraging following a time when consumers had huge debts. Also, the housing market has shown minimal recovery. Past recoveries would suggest we should be in a home building boom by now. But we are not for a variety of reasons, including the overhand of bad mortgages that are still hanging out there. Government spending is actually falling as well.

EC: Learn more about Dr. Alan Blinder on his Princeton University web site at this url: http://tinyurl.com/5oacth

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

Sunday, June 03, 2012

Brinker Market Update - DOW Negative YTD

The current market pullback is down 10.2% on an intraday basis and down 9.9% on a closing basis.

2012 Downturn	Intraday	Closing
S&P 2012 High	1,422.38	1,419.04
S&P 2012 Low	1,277.25	1,278.04
Decline in Pts	145.13	141.00
Decline in %	10.2%	9.9%

From Briefing.com's Weekly Recap:

Index	Started Week	Ended Week	Change	% Change	YTD %
DJIA	12454.83	12118.57	-336.26	-2.7	-0.8
Nasdaq	2837.53	2747.48	-90.05	-3.2	5.5
S&P 500	1317.82	1278.04	-39.78	-3.0	1.6
Russell 2000	766.41	737.42	-28.99	-3.8	-0.5

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."

ECRI still expects a recession:

ECRI's Weekly Leading Index At 20-Week Low

Of course, Brinker has remained bullish and fully invested since March 2003 and thus missed the last two bear markets including the biggest market decline since the Great Depression. See

More charts and tables:

S&P500 Closing Values

2012 Downturn	Intraday	Closing
DJIA 2012 High	13,338.66	13,279.32
DJIA 2012 Low	12,107.48	12,118.57
Decline in Pts	1,231.18	1,160.75
Decline in %	9.2%	8.7%

DJIA Closing Values

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 NOW and get the June 2012 Issue for FREE! !