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@theMarket: A Race to the Bottom

By Bill Schmick
iBerkshires Columnist

Faced with slowing economies and sluggish employment, more and more countries throughout the world are devaluing their currencies, slashing interest rates and stimulating growth wherever they can. That should be a recipe for further global growth in the years to come.

These days wherever you look — China, Canada, Denmark, Sweden — central banks are announcing surprise interest rate cuts on a weekly basis. Last month's announcement by the ECB of their own additional quantitative easing efforts evidently triggered a rush of responses by other banks across the world.  So far this year 26 out of 34 major central banks are establishing or maintaining monetary easing policies.

This has had the effect of lowering the exchange rate of their currencies, which will, over time, allow their exports to grow and thus their economies. In a sense, this amounts to a price war, where those who can sell their goods at the lowest price (exchange rate) benefit the most. In times past, this kind of action would elicit howls of protests from organizations such as the G-20 group of nations. However, this time around, in their last meeting two weeks ago, the membership actually condoned this global trend.

"But isn't all this money printing inflationary?" one client asked.

Actually, under different circumstances it would be, but right now, most nations, including our own, have the opposite problem. The central bankers are worried about deflation today as economies stumble toward recession and the price of commodities and other products decline further.

Clearly, there is a lot of uncertainty in the world. Investors are skeptical that all this stimulus will have the desired effect. Yet, look at what happened in this country. Despite a gaggle of naysayers, after four years of QE stimulus, our economy is growing at a 2.8-3.0 percent clip and unemployment is gaining. If it worked here, it will work overseas, in my opinion.

Notice what is happening to the stock market, despite this wall of worry. The averages are making new highs. NASDAQ reached its highest closing level since the dot-com boom and bust of 15 years ago. Only this time, these gains are backed up by solid earnings and a strong future outlook.

The participation within the market is broadening as well, which is always a sign of strength. The market's advance is becoming less dependent on megacap stocks (last year's favorites) and leadership is becoming more democratic. Usually, this indicates the likelihood of longevity, or market staying power.

In a stock market like this, one actually hopes for pullbacks. What you want to see is a gain followed by a pullback that makes a higher low, and then a higher high. There are plenty of triggers in the world for these kind of movements — Greece, ISIS, oil prices, the Ukraine. Don't let any potential sell-off spook you. Stay the course.

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: The Labor Market Is on Fire

By Bill Schmick

Non-farm payroll employment increased by 257,000 jobs in January and the gains for the preceding two months were revised upward as well. Even better news was hourly wages that jumped 0.5 percent in January to $24.75 after declining in December. That's the biggest gain in six years and bodes well for the economy overall.

Wall Street has been debating just how fast or slow the U.S. economy is growing for months now. The faster the growth, the more likely the Fed will raise interest rates. Why is this so important?

One school of thought says interest rate hikes are "bad" for the stock market. In times past, when rates rose the stock market has sold off, sometimes a lot, other times not so much. Since June is supposedly the target date for a rate hike, and markets usually discount such events by six months or more, we are in ground zero -- if you believe in this scenario.

Weighing in on the other side of this argument are those who believe the Fed won't raise rates for a variety of reasons. Number one, the U.S. economy is not as strong as many think it is (thus the debate over every data point). Even if growth in America does grow a bit more, it won't be enough to pull the rest of the world out of the doldrums. As proof, they point to the decline in oil prices.

In slow or potential recessionary economic climates, the demand for oil dries up as fewer goods and services are demanded. Most often the decline in the price of oil almost always heralds a slowing of the economy, not only here, but worldwide. In that kind of environment, the Fed would be crazy to hike rates. Some say they should actually restart the QE program before it is too late. No wonder the markets are as volatile as they are given these diametrically opposing views.

Which view is accurate, or are they both wrong? Clearly, the energy issue may have much more to do with the explosion of new energy sources brought on by breakthroughs in technology over the last decade. Weakening energy demand may not be the case at all. It may simply be that this new supply has overwhelmed demand in the short term and price declines are the adjustment vehicle to once again bring the oil market into equilibrium.

There is no question economic growth is slowing around the world, however, various governments are doing their utmost to stimulate their economies as the U.S. has done over the past several years. Their efforts should bear fruit if we use our own QE programs as a guide.

One might wonder that the fear of the unknown, of change, may be at the bottom of these issues. We have been in a low to non-existent interest rate environment for so long in this country that even a small uptick in rates makes us uncomfortable. All you need to do is look back in history prior to the financial crisis to understand that rising interest rates in a growing economy has actually been a good thing for stocks.

In any case, the markets this week have actually turned positive for the year. The oil price was the trigger for three straight days of one percent or more in gains. Unfortunately that means that oil is still the tail that is wagging this dog. I have no idea whether we actually have seen the "bottom" in oil prices, but if we have then we can expect markets to continue higher from here.

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: More Stimuli Equal Higher Markets

By Bill Schmick
iBerkshires Columnist

We can thank Mario Draghi, the head of the European Central Bank, for snapping the stock market out of its monthlong lethargy. This week, the ECB launched a trillion-dollar program of monetary stimulus that gave investors worldwide a shot in the arm.

The program amounts to an injection of 60 billion Euros per month into the EU economies through the purchase of private and public debt. The quantitative easing will continue until September 2016. However, ECB spokesmen hinted that if more time is needed the program could be extended indefinitely.

Clearly, the ECB is benefiting from lessons learned over here. Our Fed created uneeded volatility over several years by launching and then shutting down a series of QE stimulus programs based on the short-term health of the economy. Finally, ex-Fed Chairman Ben Bernanke announced that our QE three program would be an open-ended commitment until employment and economic growth were on a sustainable uptrend.

The amount of the ECB program was about double the quantitative easing most investors were expecting. It lifted world markets by over one percent or more, as it should, since we now have three of the world's largest economics — China, Japan and Europe — actively stimulating economic growth.

Readers, however, must remember that it took years here in the U.S. before our central bank programs succeeded. Even today, our economy and employment rate is still not one I would call robust. True, the U.S. is doing better than most but it took four years to really turn the corner.

At the same time, our stock market, anticipating success, doubled over that time period despite the ups and downs of the economy. The same thing should happen to those economies that have only now embarked on stimulus programs.

Another reason for rising markets is the price of oil. It has at least stopped going down (for now). The death of King Abdullah of Saudi Arabia led traders to hope that his successor, half-brother Crown Prince Salman, would have a different view of where the price of oil should be. Saudi Arabia has refused to cut output despite the precipitous decline in oil this year. I would not hold my breath expecting the new ruler will cut production.

Saudi Prince Alwaleed Bin Talal, one of the country's most astute investors, warned that the price of oil might still not have found a bottom.  And for those who expect a sharp rebound in the price soon, Alwaleed suspected the road back to $60-$70 a barrel will neither be easy nor quick. I agree with him.

As readers may know, we are now in earnings season once again and so far the banks have been disappointing. The level of legal costs and fines that sector has had to pay out based on wrong-doing during the financial crises, coupled with poor trading results have hurt their bottom line. I am expecting companies exposed to currency risk (a rising dollar or falling Euro) will also disappoint.

There may be a counterbalance to those disappointments by companies who benefit from lower energy prices and a rising dollar but earnings overall will be somewhat checkered.

Nonetheless, I am sticking with this market on the basis of more central bank stimulus means rising stock markets. What else do you need to know?

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: Tail That Wagged the Dog

By Bill Schmick
iBerkshires Columnist

Rarely do we see a single financial asset, in this case oil, have the ability to sway the prices of trillions of dollars worth of investments on a daily basis over such a prolonged period of time.

Oil has been in a months-long tailspin. Its decline was supposed to be a good thing for most consumers, governments and markets worldwide. Why, therefore, has oil's plunge had the opposite effect?

The answer depends on the reader's time horizon. If you are the type of investor who trades with "high frequency," as do almost 70 percent of market participants these days, then your concern is how much you can make or lose by the close of the day. The price momentum of oil is clearly to the downside (interspersed with short, sharp relief rallies). When you ride a successful trend like that, momentum becomes a self-fulfilling prophecy. Declines begat further declines and where it stops nobody knows.

Technical analysts say the next stop on oil prices is $40 a barrel. Until then, shorting oil and anything oil-related is what is called a "no-brainer" in the trade.

But wait a moment, if cheaper energy is good for most global economies, stocks, etc., why are they falling in price as well? The simple answer is that the benefits of sustainable lower energy prices are longer-term in nature. That's why the Fed ignores the short-term price gyrations of energy or food in its inflation calculations. All too quickly what came down, goes back up.

The market knows this but chooses to ignore it. Consider December's "disappointing" retail sales data. The Street had convinced itself that Christmas sales should be terrific simply because oil prices were dropping. Consumers would (so the story goes) take every dime saved at the pump and immediately go out and buy holiday presents (ala Scrooge) for one and all. As a result, retail stocks soared in early December.

Analysts were falling over themselves hyping the sector and short-term traders made money.

Did anyone bother to ask whether consumers might have other uses for those windfall savings? Maybe paying down debt or actually bolstering savings might have taken priority over a new computer or television.

Consumers, like the Fed, have seen pump prices rise and fall many, many times in the past decade. Clearly, those energy savings, if sustainable, will translate into higher spending over time but the real world operates under a different time schedule than Wall Street.

For those who have a longer-term time horizon, however, theses short-term traders are creating a fantastic buying opportunity for the rest of us. And I don't mean by just buying a handful of cheap oil stocks either. You will have plenty of time for that. So many pundits are trying to call a bottom on oil that the only things I am sure of is that we haven't reached it yet. And what if we do?

I was around for the mid-1980s oil bust when the price of oil fell 67 percent between 1985-1986. It took two decades for oil prices to regain their pre-bust levels. Sure, energy stocks were cheap but they remained cheap while the rest of the stock market made substantial gains. Why take a chance on picking a bottom if your only reward is a dead sector for years to come?

Why not look to buy long-term beneficiaries of a lower oil price in areas such as industrials, technology, and transportation and yes, consumer discretionary? In the short-term, have patience because as I have said I believe the markets will decline in sympathy with oil until we reach at least that $40 barrel number. After that, by all means, do some buying. I know I will.

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: What Will the New Year Bring?

By Bill Schmick
iBerkshires Columnist

It was a good year for the stock market. The S&P 500 Index was up in excess of 12.5 percent with the other averages putting in a good performance as well. Naturally, investors are hoping for another year of stellar returns. Is that a reasonable expectation?

At the beginning of each year, people like me are expected to gaze into crystal balls or swirl the tea leaves at the bottom of a cup and pontificate on what the New Year will be like for investors. Unfortunately, I have an "Eight Ball" but no crystal ball and I drink coffee not tea. Honestly, I have as much chance of calling the market over the next 12 months as you do. However, there are some things I do know to be true.

Working from the top down, I expect the U.S. economy to continue to grow, while unemployment declines further. As jobs gain, I also expect wage growth will finally begin to accelerate. Coupled with the declining price of oil, that spells higher consumer spending than most anticipate. And since consumers drive over 67 percent of GDP growth, I'm looking for a better than expected first half in the United States.

As for Europe, I am in the minority when looking at the prospects among the members of the European Union. Although Europe is teetering on the edge of recession, the European Central Bank does not appear to have the political backing to launch a U.S.-style quantitative easing program. ECB head, Mario Draghi, continues to promise more, but delivers less and less. Unless the ECB does implement a full QE, the prospects for the continent appear neutral to negative at best.

However, there are also risks ahead that could substantially change the playing field in Europe. The southern tier of European countries will hold elections this year. Populist movements, led by long-suffering voters in Greece, may repudiate the austerity programs that the northern, economically-stronger countries have demanded in exchange for bail-outs over the last few years. If that were to occur, all bets are off as far as investing in the European stock markets and the Euro currency as well. There are too many risks that depend on politics and not economics for my liking.

Over in Asia, readers are aware that I like China. I am betting that the government there will continue easing monetary policy and stimulating an economy struggling with a transition from an export-led to a consumer-led economy. Japan, on the other hand, is in the middle of a full-fledged quantitative easing program that will hopefully pay positive economic dividends in 2015.  

That leaves me liking the three largest economies in the world: China, the United States and Japan. In addition, I believe the U.S. dollar will continue to rise in 2015 while the Japanese yen and the Euro will continue to fall. There are specific exchange-traded funds and mutual funds that allow investors to invest in these areas. Let me know if you are interested.

Readers must be aware that what happens economically may not translate into gains for stock markets. Remember that most markets discount economic events six to nine months into the future. In which case, the U.S. stock market may have already discounted much of the growth I see, especially in the first half of the year. On the other hand, most investors are so U.S.-centric that they either do not believe or chose to ignore the prospects for China and Japan.

In my next column, I will get down to particulars in what I see are the risks and rewards for the stock markets in the year ahead.

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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