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The Independent Investor: Clicks vs Bricks — Who Will Win the Retail War?

By Bill Schmick
iBerkshires Columnist

Have you noticed that you are buying more products via the internet? Do you find yourself showroom shopping when you do make the trip to that department store or mall? It is happening to all of us and as it does, the traditional brick-and-mortar retailers are feeling the loss.

That doesn’t mean the demise of malls or department stores altogether, but over the next decade there will be fewer of them, especially in depressed areas of the country. The main culprit in this story is e-commerce or internet shopping. In the first quarter of this year, e-commerce accounted for $74.9 billion. That might sound like a lot of money but it still only accounts for 7 percent of overall consumer spending in this country.

Still, online shopping has taken market share every year since it began and is growing at roughly 8 percent per year. Its main attractions are convenience, lower prices and increasingly, free shipping. Clearly, without the overhead costs of physical storefronts, e-commerce companies such as Amazon can undercut traditional retailers at every turn. As more and more internet retailers develop huge logistics networks around the country, it will become both easier and cheaper to ship to their customers.

Wall Street analysts are quick to predict the demise of malls, shopping centers and department stores. They estimate that the brick-and-mortar crowd will need to close as many as 20 percent of their stores nationwide in the future. Weaker retailers (like Sears and J.C. Penny) will bear the brunt of shuttered shops.

Although traditional retailers are fighting back with their own e-commerce efforts, they find that when they close a storefront, what e-commerce traffic they had before the closing also declines. That generates a double whammy to their bottom lines. Despite that fact, most brick-and-mortar retailers are forging ahead in establishing their own e-commerce businesses.

In addition, they are establishing "loyalty programs," which reward the shopper by discounting merchandise. They are also issuing their own credit cards with various bonus schemes attached to how much you purchase on those cards. You may have also noticed that in certain stores there are more and more interactive or digital displays for comparison shopping on the spot. Other stores have developed entertainment for the kids while the parents shop as well as eateries and other efforts to enhance the experience of your shopping trip.

So don't play taps for traditional retailers just yet. There are also some things an online website just can't replicate. You can't, for example, touch and feel a product before buying it on the internet. That doesn’t stop someone like me from checking out the product and price in the store and then buying it on the internet anyway. That's called the "showroom effect." In my own case, however, if the store has a knowledgeable and professional staff, depending on the product, chances are that I will buy it in the store anyway.

Higher-end retail stores and malls will continue to thrive, in my opinion, as they meet the challenge of the internet. Just check out your neighborhood Apple emporium to get a taste of what the future brick-and-mortar stores will look and feel like. The experience will be worth the trip for many. And let’s not forget the social aspects of shopping, at least for those of the Baby Boomer generation. One elderly client I recently talked with admitted that he loves shopping and enjoys wandering the aisles checking out new and varied products.

I imagine that there are people of all ages that still "hang out at the mall" or just visit the brick-and-mortar storefronts for a day of shopping; but the younger you are, the less likely that you will want to spend time doing that.

In summary, there is still going to be room for both clicks and bricks kind of shopping in the future. At least until the likes of Amazon can somehow bring virtual reality shopping into our living rooms. Don't laugh; I wouldn't put it past them to be working on something like that right now.

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.


@theMarket: Who Is Next?

By Bill Schmick
iBerkshires Columnist


The vote is in and all you have to do is look at world markets to discover the verdict. The citizens of the United Kingdom voted to exit the European Union. Chaos reigned for today but tomorrow may be a different story, at least for U.S. investors.

Do not panic. Most of my readers are heavily invested in the U.S. equity and bond markets. As such, the fallout from Brexit will be short-lived here at home as investors come to the realization that, for now, the United States is the only game in town. As I look at Friday morning's damage to our markets, I am impressed at how well we are doing compared to Europe. Essentially, all we have done is give back a week's speculative gains on the back of Wall Street's totally incorrect view that Britain would remain in the EU.

Europe, however, is, and will be another story. As I mentioned before, the UK was the European Union's second largest economy (although it never agreed to use the Euro as its currency). Think about it. Your second most valuable player leaves the team. What are the odds your team continues to have a winning season? Clearly, the European economy is going to take a hit from this event. To make matters worse, it is just coming out of recession as we write this.

Then too, what will the exit of one of your MVPs mean to the rest of the team? In this case, nearly every member state of the EU has a political party or organization that is lobbying for a referendum to leave the EU. Here are some of the countries at risk with the percentage of voters wanting a chance to vote for their own exit: Italy (58 percent), France (55 percent), Sweden (43 percent), Belgium (42 percent), Poland (41 percent), Spain (40 percent) and even 40 percent of Germans, the EU's largest and most stable partner, want a chance to vote and possibly bolt the union.

But not all will come up roses for some U.S. companies. There will be repercussions that could hurt our largest multinational corporations as a result of Brexit. Many U.S. companies have invested in the UK partially because of their free-trade access to the rest of Europe. It would be like a Japanese company building an auto plant in Mexico in order to take advantage of our NAFTA agreements with Mexico. We might find that these companies will face a large decline in profitability on their UK assets. The US financial sector may also go through some rough times for the same reasons.

There is no question that this breakup will cause disruptions throughout Europe and reduce mutual trade and financial flows. Remember that an exit will take at least two years to implement. I have long said that markets can deal with the good and bad, but can't handle uncertainty. Imagine this upcoming period of extended uncertainty. It will most assuredly reduce corporate and investor confidence abroad.

Trade agreements will need to be renegotiated among the EU and with the rest of the world. In the case of Great Britain, where trade accounts for over 50 percent of this island nation's GDP, everything will have to be renegotiated. That will take time and a lot of it.

Optimists point out that there are countries in Europe that have done well without inclusion in the EU. Switzerland is always most pundits' prime example. The problem here is that the Swiss economy is only a fraction of the size of Great Britain, so it is like comparing apples to oranges.

Currencies will also be a problem. Volatility will reign supreme in currency markets as traders and corporations try to hedge this new element of risk in the world. The U.S. dollar may strengthen. It certainly has today, and, if so, that too may cause problems for our export-oriented companies. One thing is sure; volatility is here to stay for the foreseeable future.

Hopefully, you took my advice over the last few weeks and reviewed your own risk tolerance because the heat is certainly rising in the kitchen. The U.S. is the best game in town and as such you are in the right place at the right time.

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: Pet Insurance & Why You Should Have It

By Bill Schmick
iBerkshires Columnist
Titus and his ball.

Whether you are adopting a pet or buying that pure blood breed, the first thing you should consider is pet insurance. Skipping this step could cost you several times the purchase price of your new pet each year. Better be safe than sorry.

Pet insurance is like any other insurance, human or otherwise. The cost of coverage is based on your pet's age, health profile, breed and however much insurance you want to purchase.

You will pay a yearly premium, have a deductible, co-pays and a maximum cap on how much your insurance covers per year.

The best time to take out insurance is before your pet develops health problems. Learn from my mistakes. In my case, Titus our seven-year-old, chocolate Lab, developed arthritis in his right shoulder two years ago. It is a common and chronic health problem among Labs (as is arthritis of the hips), and has cost us several times his purchase price over the years. Even though I could still buy insurance for him, it would make little difference since the policy would not cover pre-existing conditions such as his arthritis.

If you plan to adopt an animal, my advice is to get a clean bill of health from the shelter, adoption agency or veterinarian prior to bringing it home. Otherwise, you may be stuck with an existing condition that will drain your bank account for as long as you own the pet. A common mistake would-be pet owners like myself make is ignoring the emotional attachment that develops between man and beast.

I am a dollars and cents kind of guy and convinced myself that once Titus' health bills passed a certain plateau, it would be time to put him down from an economic point of view. That plateau has come and gone many, many times and Titus is still very much part of the "family."

He will be with us no matter the cost until he dies. So much for my cold calculated strategy, I just wish I was smart enough to buy insurance seven years ago when it made sense. Learn from my mistakes.

You need to decide how much insurance is right for you. Skin problems are the largest source of health claims for dogs with minor issues averaging $210 a visit while benign skin masses were higher at $347 per visit, according to a 2015 analysis of pet insurance claims.

Diabetes ($862/visit) and urinary tract infections ($441/visit) led the list for health claims for cat owners.

Like every insurance policy, there is a ton of fine print that you must wade through. Your job is to identify and understand what is excluded from coverage. Be sure you identify any waiting periods before the particular insurance policy kicks in. For example, some dogs develop ligament injuries quickly, but you may find that those kinds of injuries have much longer waiting

periods than other health issues.

Every policy has "extras" and most of them concern wellness issues — annual checkups, vaccinations, even teeth brushing. Carefully compare what those services would cost on their own outside of insurance before buying them.

Finally, make sure you comparison shop before settling on one plan. Every insurance company charges different rates for coverage. Some offer discounts if you cover more than one pet, for example. Deductibles may be lower on one plan, but check what kind of reimbursements you will be receiving. Some companies reimburse a certain percentage of what your vet charges you, but others only give you back what they deem to be "usual and customary" for the cost of a particular treatment.

Bottom line: pet insurance can save you a lot of money, if it is purchased properly and at the right time. It should be your number one agenda right out of the gate after acquiring your pet.

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: 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.

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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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