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@the Market: Second Quarter Earnings on Deck
By Bill Schmick On: 07:53PM / Sunday June 28, 2015

Next week we get to do it all over again. The second quarter ends in three days and investors will begin to focus on company results once again. The first quarter was nothing to write home about and the second quarter may be more of the same.

The final revision of first quarter GDP resulted in a contraction of minus-0.02 percent, which was less than the minus-0.07 percent decline that was originally reported. The culprits: bad weather, the West Coast port disruptions, a decline in energy spending and a strong dollar. Over the second quarter some of these negatives should begin to dissipate.

Weather has taken care of itself. The ports are back to business, although the logjam that was created by the labor strike could linger on and spill over into some companies' results. Energy spending is still down with little hope for an uptick until oil prices improve. After reaching a bottom in the low $40s, oil has traded in a tight range around $60 a barrel for weeks.

The dollar has halted its ascent and has also been trading in a tight range against most other currencies over the last several months. That may have allowed multinational companies to hedge their exports at more reasonable levels. However, the dollar has not really declined much from its 12-month highs. That could mean there could still be currency related earnings declines.

Wall Street analysts had originally been predicting earnings would decline by 4.7 percent last quarter, but when all was said and done earnings actually registered a 0.30 percent growth rate while the total revenue decline was minus-2.9 percent. At the end of March, analysts were still expecting that second quarter earnings would decline by minus-2.2 percent. So far 77 companies have issued negative guidance for the quarter, while only 29 have issued positive forecasts.

The earnings season won't get into full swing until the second week of July, but given the lack of other things (except Greece) to fret about, investors may pay undue attention to the results. As I have mentioned before, I'm not looking for many upside earnings surprises this quarter. Earnings will be ho hum for the most part and as a result will continue to cap any potential gains in the stock market here in the U.S. I expect we will see much better news in the third and fourth quarters, however.

Where does that leave us — in a continued trading range that could take us into August or even September. We could see a 5-6 percent pullback at some point, especially if the Fed does decide to raise rates in the fall.  If so, I would expect any sell-off to be temporary at best and an opportunity to buy the dip. In the meantime, I still see better prospects overseas.

China is in the midst of a much-needed pullback in its A shares market. We are only 100 or so points from a full 20 percent correction in that market in just two weeks. As I have warned readers several times, Shanghai is one of those wild and wooly markets that should not be more than 5-10 percent of anyone's portfolios.

But it is almost always a good idea to buy "when the blood is running in the streets," as Baron Rothschild once said. It doesn't get any bloodier than this in Shanghai for those with a brave heart and nerves of steel. No one ever calls the bottom, but buying a little at a time as a market declines is the way I do it.

As for Europe, investors are exhausted over the wrangling between Greece and its creditors. I believe that any negative fallout from Greece has already been largely discounted by the markets.  Stay invested, stay calm and use any declines, especially overseas, as a buying opportunity.

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: From Russia With love
By Bill Schmick On: 08:05AM / Saturday June 20, 2015

The newest wrinkle in the Greek debt crisis occurred this week when Greek officials met with Vladimir Putin to discuss a gas pipeline extension as well as the possibility of lending the cash-strapped nation additional funds.

Deliberate leaks to the press during negotiations, accusations that Europe is blackmailing Greece and constant grandstanding by Geek Prime Minister Alexis Tsipras has not only turned off EU, IMF and ECB negotiators, but has created a growing chorus of those who just want an end to the farce. There will be another last-ditch attempt at some sort of reconciliation on Monday, in an emergency summit of sorts in Brussels. Greece still has 12 days to make its monthly debt repayment of $1.8 billion to the IMF.

It is somewhat interesting that Tsipras, who is the leader of a nation that has been long-called "the Cradle of Western Democracy," would be embracing Putin, the antithesis of all-things democratic. To me, it is simply another bargaining chip. A desperate Tsipras, who has increasingly painted his nation into a corner, has managed to alienate and increasingly isolate himself and his nation from the rest of the European Community. Thus we see Putin enter stage left.

The Russian gambit is to peddle investment and loans for influence and political gain. The two nations are discussing a preliminary agreement to build a gas transmission extension of its Turkish Stream pipeline that will bring more Russian gas to Southern Europe over the next few years. This is a multibillion dollar project for Greece, which is starving for capital.

The last thing the U.S. wants to see from a geopolitical point of view is a growing alliance between Greece and Russia. That could present a strategic nightmare for the U.S. and NATO. A decisive shift in Greece's allegiances from the West to Russia could roll up NATO's eastern flank. At the same time, it would most likely end any chance of maintaining a united front with Europe in the context of continued economic sanctions against the Russians.

All of this posturing is keeping traders on edge going into the weekend. Rumors that Greek banks won’t open on Monday, that a deal is in the works between the ECB and Greece and any number of other stories are flying around Wall Street on an hourly basis. Readers, there is no way you can position yourself for what is to come. The outcome and the reaction of global markets are impossible to call.

What I can say is that if the worst happens and Greece gets booted out of the Euro, it will only have a short-term impact on markets. It would be (in my mind) a buying opportunity and not a reason to sell.

As for the rest of the world, China (as I warned readers last week), is correcting with the Shanghai "A" shares market down over 10 percent since early June. What's the potential downside from here? I'm guessing a total 20 percent correction at worst, which would leave the "A" share market at the 4,000 level (versus 4,478 today). Given Shanghai’s 100 percent plus gain over the last 12 months, that’s not something I’m too worried about.

The U.S. market once again dropped to the bottom end of the trading range. Pundits predicted even worst to come but stocks did a U-turn instead gaining 3.5 percent in three days. Once again, the Fed's FOMC meeting was the catalyst for this most recent spike higher. No never mind that neither Chairwoman Janet Yellen nor the Fed said anything new. My advice: kick back, stay invested and watch the fireworks next week. It should be amusing.

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: Don't Try to Trade This Market
By Bill Schmick On: 09:05AM / Saturday June 13, 2015

Nothing really changed this week. The S&P 500 Index is up about one point from last Friday's close. It makes little sense to try and trade this market unless you are nimble and spend eight hours a day making small gains and getting out before the end of the day.

We continue to trade in a tight range with markets held hostage by the on-going Greek tragedy. Brinkmanship among all parties concerned continues with the International Monetary Fund deciding last night to walk out on the talks. Clearly, patience is wearing thin among the IMF, the ECB and the EU.

Unfortunately, the markets are still hanging on every word that Germany, Greece and other organizations utter. Investors have no idea whether today's news will be good or bad. Given this kind of volatility, the best thing you can do is nothing.

The bond market is where the action is as well as with currency exchange rates. The U.S. 10-year Treasury note actually touched 2.5 percent earlier in the week before falling back. I suspect that rates will be going higher both here and abroad as investors begin to realize that global economy is starting to grow.

It appears the bloom is off the rose (for now) when it comes to investing in China. The markets there have been up and down for a couple weeks now. That doesn't mean that you should sell. If, instead, the averages over there continue to chop around, in a much-needed consolidation, I have patience. Far better that Chinese stocks meander sideways than decline by 10-20 percent.

Japan, on the other hand, continues to grind higher. The Nikkei now stands at 20,407. Economic data continues to encourage investors over there and I expect the Japanese averages to continue to advance. Today, however, a final vote in the House will determine if the fast-track TPP trade deal will be passed. At latest count, the votes for and against are razor-thin. Prime Minister Abe has staked his reputation on the passage of TPP. A rejection of the vote could cause the Nikkei to tumble over the short-term.

Over in Europe, the German market has plummeted 10 percent or more thanks to the Greek fiasco. At some point, I may become interested in Europe but not before the Greek issue is resolved. If Greece exits the EU and if the markets sell off as a result, I might be tempted to put my toe in that water over there. Given that Greece has until the end of June to come up with a deal, we have plenty of time.

As for the U.S. market, expect more of the same. This sideways action since January has been quite good for the markets. It allows the fundamental economic data to catch up to the price levels of the market.

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: Too Hot or Too Cold
By Bill Schmick On: 11:16PM / Saturday June 06, 2015

The stock market is rarely satisfied with lukewarm. Investors insist on boiling down complex variables to simple either/or choices. It doesn't always work.

Take Friday's non-farm payroll number. The country gained 280,000 jobs in May, the largest number since December. In addition, 32,000 more jobs were revised upward in last month's data. The unemployment rate ticked up to 5.5 percent from 5.4 percent, but that was probably due to college graduates seeking jobs.

Wage gains, something I have been focused on, jumped 8 cents to an annual rate of 2.3 percent.

That is an improvement, but still below the average wage gains of 3-4 percent one would like to see as the economy rebounds. My take is that wage gains are beginning to accelerate and that's good for consumer spending or saving and the real estate market.

The data provided a head fake to traders who, as recently as last week, were worried that the economy was not rebounding from the dismal 0.7 percent annual pace of GDP in the first quarter.

Just this week, Boston's Fed President Eric Rosengren said essentially the same thing. And the International Monetary Fund, in a report issued this week, recommended that the Fed not raise rates until at least 2016 due to their worries over a slowing U.S. economy.

As a result, the bond market has been on a roller coaster this week. Overseas, German bond prices moved up and down like a penny stock, taking most of Europe's sovereign debt markets with it. In response to the upheaval in this normally staid market, Mario Draghi, the head of the European Central Bank, warned investors that volatility was here to stay in their bond markets. Of course, events in Greece didn't help.

It was a week of "does she, or doesn't she" with Greece the damsel who just can't make up her mind and the EU, IMF and ECB hoping that the Greeks will ultimately see reason and get with the program. In the end, Greece missed another debt payment due on June 5. Instead, the bureaucrats found a loophole in the covenants that allows Greece to pay all debts due to the IMF this month in a one billion Euro payment at the end of the month.

That's called "kicking the can down the road," a common occurrence within these negotiations. I can only surmise that doing so is preferable to either a Greek exit from the Eurozone or a Greek capitulation to the EU's austerity program (that Greek voters have already rejected at the polls).

Usually, the kind of volatility in bonds is reserved for the stock markets. And yet, if you study how certain asset classes (bonds, stocks and commodities) behave at the top of a market, this volatility could be a further warning that bond prices are set to decline after a 30-year bull market. We, along with everyone else, have been waiting for just such an event for almost two years now. But we are all learning that "topping" out is a process that can take much longer than anyone expects.

Just remember that it is the summer. Markets can be manipulated more than usual. We could see a 3-5 percent pullback in the stock market, while bond prices fall over interest rate concerns.

Ignore this short-term jibber jabber. That's just noise. Focus on the fact that the economy is growing, labor is gaining and wages are increasing. Have faith in Main Street, which is starting  to recover.

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: Another Record High
By Bill Schmick On: 01:34PM / Saturday May 16, 2015

This off-again, on-again market continues to grind higher, if only by a few points, but it is the direction that counts. This week it was the S&P 500 Index's turn to chalk up another record gain. And so it goes.

If you recall last week, we were at the bottom of the trading range before the "algos" (algorithmic trading programs of high frequency traders) kicked in and took us up again. This time the cast of characters responsible for lifting the markets included a declining dollar, higher interest rates and higher oil prices.

Before you ask, no, none of those reasons make any sense, but they are not supposed to. It's simply a case of more noise in a market that is entering the summer period. It is the silly season where any lame-brained story might catch some attention and give traders an excuse to run the market up or down depending on the mood.

The fact that global interest rates rebounded from an extremely overbought condition, especially in places such as Europe, had some bond pundits predicting that interest rates in the U.S. were finally poised to start climbing. Sensational stories predicting the Fed has "lost control" of its ability to manage interest rates filled the airways and newsletters fueling further speculation in the bond pits.

The dollar's three-week decline (after a huge and unprecedented 12-month gain) was immediately interpreted as a sign that the U.S. economy is slowing and recession might be just around the corner.  My take is simply that the dollar is pulling back and consolidating after its massive gains.

Oil, of course, continues to be the excuse everyone uses when they can't come up with a reason for why the markets are doing what they are doing. Oil goes up and it's good for the energy patch. Oil goes down and it's good for the consumer, until it isn't. Gold, silver and basic materials jump in price (after 2-3 years of decline) and it supposedly says something about higher inflation expectations.

Contradictions abound among all of these stories. Oil is up on growing world economic demand, but the dollar is down because the same economies are slowing. Materials get a bid because inflation may be rising, while interest rates jump because global interest rates were too low. It is a market of extremes that simply can't abide periods where nothing much is happening.

The bottom line here, folks, is that the U.S. economy will continue to grow at a modest pace, while employment continues to gain. The rate of wage increases will also continue to make gains. That, in turn, will have a far more beneficial impact on economic growth than any temporary decline in energy prices.

At some point this year, the Fed will raise rates while the rest of the globe continues to keep their interest rates low. That differential will allow the dollar to resume its outperformance versus other currencies, but at a more moderate pace. As such, the investment environment here in the U.S. and around the world will remain benign.

Like this week, we can expect the U.S. markets to continue to grind higher, a few points at a time. However, while the gains (followed by losses) per week or month may not be that great, over time we could still see a 5 percent gain in the U.S. by the end of the summer, if this pattern continues. There's nothing wrong with that scenario, in my opinion.

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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