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@theMarket: Tail That Wagged the Dog
By Bill Schmick On: 01:18PM / Sunday January 18, 2015

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 On: 02:33PM / Saturday January 10, 2015

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.



     
@theMarket: What Will the New Year Bring?
By Bill Schmick On: 07:21AM / Saturday January 03, 2015

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 therefore 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 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 mush 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 ignore the prospects for China and Japan.

In my next column, I will get down to particles 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.



     
@theMarket: Santa Comes to Town
By Bill Schmick On: 11:56AM / Friday December 26, 2014

Pessimists are on vacation this week. It doesn't matter that the indexes are overbought. That markets are hitting new highs without a pause. It's Christmas and Hanukkah week. The Big Guy has come to town.

Of course, investors have had a little help from the Fed and the latest revision of U.S. third quarter GDP. It appears that the economy grew faster than economists expected. Would you believe 5 percent? That's one barn burner of a number even for me, an uber bull on the economy. It is the fastest the economy has grown in 11 years. It follows on the tail of a 4.6 percent rate in the second quarter.

Consumer spending on health care and business investment in infrastructure and computers were largely responsible for that growth. And just think, we  have yet to benefit from the continuing drop in gas prices, which are now about $2.33 a gallon on average and predicted to drop another 11 cents or so over this weekend.

Many economists think that growth will slow this, the last quarter of 2014, not a difficult bet to make, but I still think growth will continue to surprise all of us. Consumption is gaining ground and the consumer is finally starting to hit his stride. I think fourth quarter growth will be better than anyone imagines. That's why the Fed is prepared to raise interest rates next year. None of us want the economy to overheat, sparking an uptick in inflation.

My strategy so far this year has been to listen to the Fed. By hiking rates a little next year (while China, Japan and Europe lower theirs), the Federal Reserve could be in a "sweet spot." Any slowing due to our rate increase could be offset by lower rates (and higher growth) elsewhere in the world. It is one reason why I like the Chinese and Japanese markets. I would throw Europe into that mix, but I am not convinced that Europe's central bank has the green light from all the EU members to launch a U.S.-style quantitative easing.

As for the stock markets, it is clear that the Santa Claus rally has begun early. It traditionally occurs during the week between Christmas and New Year's Day. Explanations vary for exactly why this occurs. Some say it is end-of-year bonus money finding its way into stocks. Others argue that tax-selling ends during that week, while others just believe the "feel good" behavior of most investors during this period is responsible.

Some investors could also be getting a jump on what is called the "January Effect." The month of January is normally an up month for stocks. Given the strong economic data, lower fuel costs and anticipation of strong consumer spending during this holiday season, investors are anticipating many companies will "surprise on the upside” in the upcoming earnings season.

Be that as it may, I want to wish everyone an extremely joyous holiday season. As for me, readers should be aware that on Jan. 5 I am getting a total right knee replacement. The doctors say I should be out of a commission for a few weeks. I will endeavor to disregard their advice and continue to write as best I can. Wish me luck.

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: It's All In The Way You Say It
By Bill Schmick On: 01:17PM / Saturday December 20, 2014

"I know nothing in the world that has as much power as a word."  — Emily Dickinson

The Fed ended the stock market decline this week by simply changing a sentence or two. In the space of a few hours, global markets soared, creating billions of dollars in gains for investors worldwide. Don't ever doubt the power of words.

Rumor had it that on Wednesday, the Fed was going to remove "considerable time" from its guidance on when interest rates would rise. Investors worried that thanks to the gathering strength of the economy that FOMC members were becoming hawkish and might raise rates sooner than expected. Sure enough, the Fed removed "considerable" from their statement on the time period itself, but added that the Fed would be "patient" before raising rates. That's all it took to ignite a truly breath-taking rally in stocks.

"But, but, what about Russia and the slide in oil," sputtered a California client who was sure that the declining oil price was going to be the end of us all.

"The oil price," as Janet Yellen, the Fed chairwoman, said Thursday," is a transitory event."

For longer-term investors (anyone with more than a week's time horizon in this market) the decline in oil will at some point be over. Prices will rise once again as the world economies grow and demand more energy to fuel that growth.  I wrote last week that in the meantime, lower oil prices are great for our economy and all other oil-consuming nations. Japan, if you are interested, stands out as the greatest beneficiary of declining oil prices.

Until Wednesday's Fed meeting however, traders were using the oil price as an excuse to sell off the equity markets. That short-term maneuver only works until it doesn't. The Fed meeting blew that trade right out of the water and traders, happy to be short stocks, suddenly found themselves up a certain creek without a paddle. Since then short-covering has been the name of the game. And by the way, the oil price is still sliding, despite a 500-plus point move in the Dow over the last two days.

As for all the consternation concerning Russia, investors who read last week's column "Is the Russian bear back in its cave?" were not surprised at the ruble's decline this week, nor the spike in Russian interest rates to 17 percent. I have also noticed that several publications are coming around to my view that the oil price decline could have been engineered by the U.S. and Saudi Arabia in order to bring Putin to his knees, at least economically.

Given the action of the markets over the past two days, I would guess that we have put in a bottom for 2014. Next week traditionally has been a good one for the markets and I don't see any evidence that this year will be different. The bears could try once again to establish a link between a declining oil price and the stock market, but usually stocks only discount a maneuver like that once.

For me, I would buy any further dips in the market. This one amounted to about 5.4 percent, which is within the range of most of the pull-backs we have experienced so far this year.

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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