Here is an excerpt from my last newsletter which provides summary and commentary of Bob Brinker's Moneytalk.
BOB BRINKER SAYS THE SUMMER DOLDRUMS ARE HERE
Bob Brinker Comment: This was a very quiet week for the stock market. The changes in the major indices were very small. The Dow was only up 6 points for the week. The S&P 500 dropped only 1.5 points, and the Wilshire 5000 fell 11.8 points, which is only about .1%. This is the time when people leave town for their summer vacations and the summer doldrums hit Wall Street.
Editorial Comment "EC": The Stock Trader's Almanac rebuts the widely held belief that summer produces the greatest rally of the year. The so-called "summer rally" was defined by Ralph Rotnem as the lowest close in the Dow in May or June, to the highest close in July, August or September. The Almanac points out that there are rallies in every season of the year, but the summer is actually the weakest statistically speaking. Nevertheless, a rally is a rally and over the last 40 years, the summer rally produced on average gains of 9.2% using Mr. Rotnem's guidelines.
source, 2004 Stock Trader's Almanac (p. 70), Yale Hirsch and Jeffrey A. Hirsch editors, http://www.stocktradersalmanac.com
BOB BRINKER'S VIEW OF THE LONG TERM TREND
Brinker Comment: Bob said that we had an indication that the secular bull market from 1982-2000 came to an end during the speculative peak in the first quarter of 2000 which ushered in a new bear market megatrend. We are now in year 5 of that secular bear megatrend, which Bob thinks will last anywhere from 8 to 20 years. Nothing Bob sees right now, however, suggests to him that this secular bear market will end anytime soon.
BOB BRINKER'S OVERALL VIEW OF THIS CYCLICAL BULL MARKET
Brinker Comment: Bob said he feels that we began in earnest a cyclical bull market in March, 2003 which was the successful and final test of the initial bottom that occurred in October, 2002. Bob said he has referred to this as a market "double bottom" which is where you get a low for the market, followed by a failed rally, and then a crucial retest which determines whether you get a buying opportunity. Bob said we saw the initial low in October, 2002. This was followed by a failed rally into the winter of 2002, and then a successful final retest of the low area in March, 2003. On March 11, 2003, the S&P 500 closed at the 800 level, just 3% from its prior low which is when Bob issued his buy signal when he "saw what he needed to see."
EC#1: As I have discussed in prior newsletters, I believe that Bob decided to return to a fully invested position after seeing the market had a 90% down day which occurred on March 10, 2003. In fact, it was based on the market's close of March 10th (not March 11th), that Bob's timing model issued its "buy signal" and Bob recommended investors return to a fully invested position based on the market's close that day. I am aware of at least two other advisors who turned bullish at the same time, both in large part due to the 90% down day phenomenon in my opinion.
EC#2: I realize that Bob likes to refer to the market as a "double bottom" but I maintain that it is more accurate to refer to this as a "triple bottom." Bob likes to use the S&P 500 area of 800 as evidence that it had tested the lows of October. However, the S&P 500 actually CLOSED at 797.70 on July 23, 2002! That was the first bottom in my opinion, followed by the lowest close which occurred in October, 2002. The third bottom occurred in March, 2003, but the October 2002 saw levels significantly lower in the Nasdaq Composite.
BOB BRINKER SAYS THE EASY MONEY HAS BEEN MADE
Brinker Comment: The stock market is up over 40% since the buy signal in March, 2003. However, Bob thinks that the "easy money" phase of the cyclical bull occurred from March, 2003 until earlier this year. The consolidation period, which we are in now, has been very modest. Even now, the S&P 500 is within 3% of its recovery high, and has never been more than about 6% from its recovery high. Nevertheless, since the easy money was made during the initial 40% thrust from last year, we will now have to fight for our profits and be patient.
EC: I agree, and that is why I am trying to identify inflection points such as the buy signal I identified on May 17th, which so far marks the correction bottom this year.
THE CYCLICAL BULL MARKET HAS NOT ENDED
Brinker Comment: As we move through this consolidation phase, we will have to be patient in a market that can be more than frustrating as it has shown so far this year. AT THIS TIME, however, Bob said he does NOT see the evidence that this cyclical bull market is over.
EC: The cyclical bull market we have seen thus far comports with other cyclical bull markets. If you would like to see my analysis of all cyclical bull market in the last secular bear market, just e-mail me at davidk555@earthlink.net.
HOW LONG DOES BOB BRINKER THINK THE CYCLICAL BULL MARKET WILL LAST?
Brinker Comment: Bob said cyclical bull markets tend to last 1 to 3 years. However, how long it lasts doesn't really matter. What matters is that you are on the right side of the market when it does end, whether its in 1 year, or 3 years or even longer. Bob said his stock market timing indicators have done a very good job of identifying major moves in the stock market and he is going to stick with those indicators and not try to predict when the cyclical bull market will end. As of right now, however, Bob does not think the cyclical bull market is over. Bob will wait until the indicators give the all clear.
EC: No surprise here. The indicators that Bob tracks in his stock market timing model don't suggest to me that Bob will be turning bearish anytime soon. I will update those indicators in a future newsletter.
WHAT HAPPENS NEAR THE END OF A CYCLICAL BULL MARKET?
Caller: This caller wanted to know what will happen with jobs and interest rates toward the end of a cyclical bull market. Bob said that these are economic issues, and the economy, just like the stock market, is subject to cyclical moves. One of the first places that you will see a change in the economy is in the jobs market. You will see the absence of new jobs, you will see layoffs and if you are living in a housing community that is sensitive to new jobs, than you could see that impact the prices of housing as well.
EC: The stock market can turn, however, before the economy turns. Remember, the stock market is a discounting mechanism as investors try to anticipate what the future will hold for corporate earnings and the economy, usually six months in advance.
INVEST IN THE WILSHIRE 50000
Caller: This caller has $100,000 to invest and wanted Bob's recommendation on a security to invest in. Bob said he likes the idea of investing in the Wilshire 5000 because it will basically earn you the rate of return of the U.S. stock market. If you purchase a low expense fund that tracks the Wilshire 5000, you will get a tax efficient investment, diversification and you are assured of not under performing the market as so many managed mutual funds are prone to do.
EC: The Vanguard Total Stock Market Fund (Ticker: VTSMX) is the way to go if you want to own the Wilshire 5000 through a no load mutual fund. It only has an expense ratio of 20 basis points or 0.20%. I prefer to own the Wilshire 5000 through the exchange traded fund VIPERS (ticker: VTI) because you can trade it in real time. The only downside is you have to pay a commission when you buy and sell it, but a discount broker minimizes those transaction costs.
TREASURY INFLATION PROTECTED SECURITIES
Caller: This caller subscribes to Bob's Marketimer newsletter and observed that he made a recommendation to reduce holdings in some TIPS mutual funds. Bob said he made that recommendation some time ago, although he still keeps a small portion of his portfolio in TIPS. The caller then asked what Bob thought the optimum conditions were for TIPS? Bob said the optimum situation is what we saw a couple of years ago when the base rate was up near 3%. Recently, the base rate got down into the ones and Bob's concern was that people would demand a higher base rate and they have and that is why you have seen depreciation in the share price.
EC: Looking for inflation protection? Check out this article entitled, "Inflation-Proofing Your Portfolio" which you can access at this link:
http://tinyurl.com/2n6zm
STARTING OFF SMALL
Caller: This caller's 16-year old wants to learn about investing and purchase some stocks. Bob said he would like a young person to learn about investing, rather than actually start investing in stocks. The caller asked if Bob knew of a way to invest small amounts of money into stocks. Bob encouraged the caller not to adopt this route. Instead, he said he would rather the child wait until their early 20s, keep the money liquid in a money market account and start investing after college.
EC#1: I take a different stance on this issue than Bob. I think it can be very beneficial for children to start investing in stocks at a young age. It gets them interested in the concept of investing, and can be financially rewarding to boot. Moreover, there are now companies that allow you to buy stocks for a very small amount per transaction. One such company is Sharebuilder which allows you to start buying stocks at just $4 per investment. Learn more about Sharebuilder at this link:
http://www.sharebuilder.com/
EC#2: Another way to invest in stocks without paying commissions is through what are called "Drips." Drips is actually a nickname for the acronym DRP which stands for Dividend Reinvestment Plan. A related concept are the Direct Stock Purchase Plans (DSPs). These plans are offered typically by blue-chip companies where you can invest small amounts of money by purchasing stock directly from the companies. Want to learn more about this type of investing? Start here and follow the links:
http://www.fool.com/school/Drips.htm
David Korn, editor of http://www.BeginInvesting.com
E-mail me at: mailto:davidk555@earthlink.net
DISCLAIMER: I am not associated with ABC Radio Networks, Moneytalk or Bob Brinker and this service is neither sanctioned by, nor written under the auspices of ABC Radio Networks, Moneytalk or Bob Brinker.
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