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The Independent Investor: The Brexit Primer

By Bill Schmick
iBerkshires Columnist

At this time next week the results of a United Kingdom referendum on whether or not to leave the European Union will be announced to the world.

The polls are too close to call and the odds are changing every day. For the past several days equity markets worldwide have been selling off in fear that the Brits will vote yes to a Brexit. Why so much angst over one country leaving the EU?

The obvious concern is that if one nation decides to leave, how many other nations will follow suit? And if they do, the chances that Europe's currency, the Euro, survives would be dicey at best. That's a big deal since it is the second-largest trading currency in the world after the U.S. dollar.

As the days grind on, the predictions of doom and gloom have escalated. As they do, investors have run for the hills. Even our Federal Reserve Bank has decided to postpone any interest rate hikes for the foreseeable future as a result of the uncertainty this event has generated.

The departure by Britain, the second-largest nation in the community after Germany, would deal an economic blow to one of the three largest regions on the globe. The EU can ill-afford that kind of downside since it has been struggling for years to climb back from the abyss created by the financial crisis of eight years ago. Despite herculean efforts by the European Central Bank to jump-start the region's economy, so far, the results have been mediocre at best.

Struggling countries such as Greece, Spain and Portugal, for example, have already expressed disappointment (and even outrage) at the treatment they have received by EU authorities. And more and more of Europe's citizens have grumbled about the viability of continuing in the EU.

The International Monetary Fund has warned that if the UK decides to exit, it could cause severe implications for their economy and that of the EU's other member countries. Other nations, including the U.S., have warned that an exit would create an entire basket of problems from defense to trade and immigration.

Clearly, there are pros and cons of exiting the EU for Britain. There is a perception among the English that the rewards for giving up some of their sovereignty to Brussels, the seat of EU power, have been found wanting. While the EU spews out mountains of new regulations, rules and guidelines per year, say the Exiters, the United Kingdom's representation on any vote is less than 10 percent of the total.

Most Brits have no idea how and what laws are concocted in Brussels, but they feel that more and more of this legislation favors the largest multinational organizations, while hamstringing their small and mid-size companies. The country's Chambers of Commerce state that the total cost of this EU regulation is about 7.6 billion pounds/year.

Immigration is also a big issue that concerns Britain. The massive exodus to Europe's shores over the last two years by refugees from the on-going strife in the Middle East has burdened the resources of almost all members of the EU. The UK and Germany, thanks to the strength of their economies, are prime targets for these new refugees looking to start a new life.

The results have been a huge increase in immigration with the UK now hosting 2.3 million workers from outside the EU.

Since the UK is an island nation where over 50 percent of goods and services produced and consumed are dependent on trade, leaving the tariff-free benefits of the EU could be a substantial negative. It could also create a substantial hit to jobs as well as investment in the country. Pro-EU campaigners warn that Britain could lose as many as 3 million jobs, which are linked to trade with the EU. Given that London is considered the financial center of the EU, there is also a great deal of concern that finance and investment will revert back to mainland Europe on any exit from the EU.

Like our own presidential elections, separating fact from fiction in the Brexit campaign is difficult at best. Clearly, there is a lot at stake for Europe and by implication, the rest of the world's financial markets. My own opinion is that the impact, at least on the UK, will be at best short-term in nature. If they decide to exit, however, Europe's future may be a different and on-going story.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

The Independent Investor: How Does the Stock Market Perform in an Election Year?

By Bill Schmick
iBerkshires Columnist

There is quite a bit of worry over this year's presidential elections. Most of that angst centers on the possibility that Donald Trump might be elected to the office and that this could be a disaster for the stock market. If history is any guide, those concerns may be misplaced.

Granted, we haven't seen a candidate quite like the "Donald" in modern history. Some would like to point out that Ronald Reagan, a movie star best known for co-acting with a chimp, did not give many Americans a warm, fuzzy feeling either. Others say Reagan was a pillar of common sense compared to Trump. A President Hillary Clinton, on the other hand, would be a down right relief.

Supporters will argue that you can't take Trump at his word. His statements are merely negotiating positions that are not meant as policy, but simply bargaining chips with some of our foreign partners. That said, Trump, say his detractors, is unlike Reagan or anyone else who ran for office over the last 22 presidential election years. It does seem that he has the knack of piling one outrageous idea upon another.

Building a wall between Mexico and the United States, embargoing Muslims from entering the country, torturing terrorists' families, renegotiating NATO, our U.S. Treasury debt and our trade pacts, if implemented, could easily sink our stock market and those of pretty much every nation on Earth.

Now, I'm sure that if I look back through history, there have been plenty of outrageous statements articulated by candidates. Remember, during the Great Depression, for example, a whole raft of politicians were against any government interference in the economy at all.

Plenty more were dead-set against social security or public works, or any other attempt by American society to alleviate the plight of more than 25 percent of the population. Back then, "Let them eat cake" was not just a French attitude. Plenty of Americans had a similar attitude toward the poor and disenfranchised.

By the way, both parties' isolationist trade policy during the 1920s and 1930s make Trumps' view on trade down right dovish. We tend to forget (or hide) the fact that during WWII, this "just" nation incarcerated entire communities of citizens of Japanese descent behind barbed wire for years. In that context, some American politicians of the past would have had no problem building walls or excluding Muslims. We won't even go in to how our Heroes of the American West treated Native Americans.

Before you protest these examples, I know times have changed. Supposedly, we are living in an "enlightened" nation today. I just wonder how many of us are truly appalled by Trump's statements. From the polls, it appears that there are quite a few Americans who have yet to see the light. If so, then maybe this year won't be as bad as we fear.

If you look at the historical data, between the close of May and the close of October, the S&P 500 Index has rallied 19 of the last 22 election years. That's 86 percent of the time with an average gain of 6.2 percent. Those results, however, have been influenced greatly by just a few election years.

The financial crisis of 2008 (and an election year), saw the S&P Index fall by 31 percent. In 1932, the market gained 55.7 percent, only to give it all back when the Hoover presidency drove us deeper into the Depression. We also had two near 20 percent gains in 1936 and 1940 as well. If you accommodate for those outliers, we could lower the average gain per year to say 4 percent. In addition, volatility appears to be more pronounced during the months of July and August, which was almost 40  percent greater than across the 12-month span.

Although history rarely repeats, it does rhyme, and this election year should be no different. Regardless of who wins, there is a tendency by the electorate to become more hopeful once the elections are over. Wall Street and the markets usually catch that fever and will give the new president the benefit of the doubt until it doesn't. As such, the chances are that we should see a single-digit gain this year in stocks.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

The Independent Investor: One For The Little Guy

By Bill Schmick
iBerkshires Columnist

The retirement world is changing. A long-sought-after regulation by the Department of Labor was released in April. It goes a long way toward protecting retirement savers from brokers and insurance agents. Here is what you need to know.

The new ruling insists that those who advise investors on appropriate investments for their IRAs, 401(k)s and other tax-deferred savings plans must put the client’s interest above their own and the company they work for. In short, they must act as a “fiduciary” rather than simply recommend “appropriate” investments.

You see, an “appropriate” investment for someone with little investment experience might be an annuity or a target retirement fund. The fact that these securities might also have a very high cost (called an expense fee) or perform poorly over time doesn’t matter. They are still an appropriate investment. Most investors do not realize that their broker buddy and his company take advantage of this. It is why he has a new car every year and a swimming pool while savers like you lose over $17 billion a year in unnecessary fees.  

Readers may recall that I have been on a crusade for the last nine years in my columns to change these abuses. Despite enormous protests from their friends in Congress, the DOL ruling is in effect now. Brokers and insurance agents have a year to become compliant with the new regulations.

So what does this mean for you as a saver? It should reduce the fees that you are charged in your retirement plan. Remember, that independent research has revealed that over a 25 year period of savings in these plans, fully a third of the assets is consumed by these fees and expenses.

In past columns, I have written that over a 25-year period of savings in these retirement plans, fully a third of a retiree’s assets are consumed by fees and expenses.The new ruling, plus a wave of successful lawsuits by disgruntled retirees against companies whose plans charge exorbitant fees, have plan sponsors rethinking their plan offerings. As company managements realize that they (and not the brokers who advise them) are on the hook in these large class action settlements, a new attitude is emerging. High-priced mutual funds are being replaced by exchange traded funds whose fees are a fraction of the costs and whose performance is better 85 percent of the time.

This is no secret. We have been investing our clients in these low-cost, better-performing ETFs for years. It is why we are fiduciaries and brokers are not. Now, retirement advisers and their firms are required to acknowledge their fiduciary status, enter into a contract with their clients, and explain investment fees and costs clearly. In addition, they must have policies and procedures in place to mitigate harmful effects brought about by conflicts of interest and keep certain data on their performance. It is what we have been doing for years and, in my opinion, it is the only fair and honest way to do business.

Now, realize that these brokers (turned fiduciaries) can still charge you commissions, revenue sharing and 12b-1 fees (a kick-back from mutual fund companies they are recommending). The difference is that now you need to sign a contract agreeing to all of the above.

If you can’t get a plain English explanation from that person sitting across from you in his silk tie and dark blue suit, say goodbye. You should expect and demand an explanation for every charge and fee that they are proposing and how it compares to the competition. There is absolutely no reason that you should agree to a revenue-sharing scheme or paying 12b-1 fees, in my opinion. If you have any questions on the topic, shoot me an e-mail or call at the numbers below. The onus is on you to make the right decisions.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

 

     

The Independent Investor: How to Avoid the Pitfalls of Multi-Level Marketing

By Bill Schmick
iBerkshires Columnist

So you want to be your own boss, make lots of money and do it all from the comfort of your home? It is the siren song of direct sales that has recruited legions of Americans through the years. Some make it, most do not. Here are some tips to help you in your new adventure.

Whether you want to sell jewelry, vitamins, candles, cosmetics or home products, a healthy dose of skepticism should be applied to the promises these companies make on their websites. Many reports, including those filed with the Federal Trade Commission, warn that almost 99 percent of multilevel marketing (MLM) distributors lose money. In addition, the dropout rate is upwards of 60-70 percent per year. Those are daunting statistics. Consider them well before jumping on board an MLM.

Critics argue that this style of personal retailing is a thing of the past. Retailing directly to friends and family on a one-on-one basis requires people to change their buying habits. The future wave of selling is largely internet based where convenience, price and a myriad of choices are just a keyboard away. Remember too that despite the existence of MLM companies since the Eighties; their combined market share of retail sales in the U.S. is under 1 percent.

Over the years, quite a few of these companies have gone bankrupt. In addition, disgruntled ex-recruits have waged a good many lawsuits against several of these MLM businesses. The chief complaint: that they are simply pyramid schemes or just out-and-out scams. Lawsuits allege these companies promise you the world, but only after you buy your way to success through increasing product purchases. In the end, they conclude, many victims are left with nothing to show for their efforts but a mountain of debt.

Unfortunately, accusations of deceptive marketing against these firms are hard to prove.

The legality of the MLM sector is largely based on a 1979 ruling on one company. There seems to be a lack of government legislation and oversight by state and Federal authorities, nor are they subject to the same rigorous regulations as a franchise might be. Given that many state anti-pyramid statutes are vague or weak, it could take many years and a lot of money to prove guilt.

Most supposed victims have failed to receive any satisfaction in the courts.

Armed with those facts, if you still want to embark on a career (part time or otherwise) in individual selling, there are some obvious questions you should ask before joining an MLM.

Where is this company's focus? Is it on recruiting rather than selling? If so, it is an immediate warning sign.

Are you given any training by the company? Do they provide you with actual business techniques to increase product sales? Do they offer any support, or is it all about convincing new recruits to join?

How much product inventory are you required to buy? Watch out for "fast track" purchasing deals or buying expensive business packages to pay for "extra training."

High-pressure sales pitches by your company rep should also be a warning sign. You should never have to make a decision "right now" in order to get a great deal or a special price.

Most legitimate companies allow you to discuss their proposals with family or take a few days to decide if their proposition makes sense to you.

Finally, as in most things, if it seems too good to be true, than it probably is. If you are promised outsized rewards for little effort than buyer beware. Are the products truly as good as they promise and if so, ask for proof. If you are promised back-up and support, once again ask for details.

A good dose of healthy skepticism should keep you out of trouble. Not all MLM companies are scams. Just do your homework because who knows, you may actually make a little money and have fun while you are doing it.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     

The Independent Investor: Let's Have a Jewelry Party

By Bill Schmick
iBerkshires Columnist

Contrary to all the present and future trends in retailing, multilevel marketing (MLM) is still alive and well in this country. Exactly what is MLM and why are so many Americans enamored with hitting up their friends and relatives in an effort to succeed at personal retailing?

MLM is a marketing strategy in which the sales force is compensated not only for what they sell but for the sales of other people they recruit. These new recruits in the chain are referred to as the participant's "downline" and, if done right, can provide multiple streams of compensation.

Most readers are familiar with these companies. Amway, Avon and Mary Kay come to mind, as does Herbalife, a company most recently accused of being nothing more than a pyramid scheme. Many of these companies have been around since the late sixties and have never accounted for more than 1 percent of retail sales in the United States. And yet, every day hundreds, if not thousands, of new recruits are happy to shell out money, time and effort in order to win the golden ring of promise so aptly portrayed in MLM advertising.

A look at just one jewelry website gives one a flavor of the sales pitch. Not only will you create lasting friendships, make your own hours and get rewarded every step of the way, promises the company, but "a consultant holding just 1 average party a week, earns $850/month," while "a leader holding two parties a week with a team of three consultants will earn about $3,000/month,"

For someone sitting at home as a house spouse or looking to make some part-time money, these offers can be irresistible.

"I wanted to make some extra money," said one newly-minted saleswoman/social worker, who also happens to have a master's degree in psychotherapy and a private practice in the same field. "It is part time, a different kind of work and it's fun, besides I don't have to go back to school or retrain to sell jewelry."

She has only been doing it for a month and has already made $1,000 plus $700 in free jewelry. All she was required to invest was $139 for a starter kit of forms, brochures and jewelry. So far she has held four parties. The guests have been all her family and friends in the area, which is typically how new salespeople get started. But what happens when she runs out of people she knows?

"I haven't really thought that far ahead," she confesses. "I'm a little obsessed with it all. I'm having fun with it, but really haven't thought about how things will turn out down the road. I guess I could move out of my region if I wanted more clients."

Barbara, my wife and president of Berkshire Money Management, has attended four of these events and hosted one of them. Twelve of her friends showed up and bought over $1,500 in merchandise. She received $500 in free jewelry for hosting the event.

"It's really an excuse to get together with my women friends and have fun. I guess I've spent $100 per party so far, but for most of us who have attended there will come a time where we won't buy any more. For example, I am committed to attending four more parties but at most I plan to buy only one piece."

Granted, these are only anecdotal incidents, but clearly both buyers and sellers seem to be enjoying the process. It is these attractions which make the MLM business so enticing to so many. In my next column, we will look at the pitfalls to avoid if you are thinking of entering personal retailing on your own.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

     
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Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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