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@theMarket: Earnings on Deck
By Bill Schmick On: 02:32PM / Sunday April 12, 2015
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This week launched the beginning of first-quarter earnings results for American companies. Wall Street doesn't expect much. It is bracing for a disappointing season, especially from U.S. exporters. Has the market discounted that news already?

Analysts expect that overall earnings will decline from 3 to 6 percent this quarter versus the same time last year. However, I have explained to readers how analysts play the earnings game. Well in advance of reporting, analysts revise down their earnings estimates to the point that only really out-of-touch corporate managers fail to "beat” estimates. On average, about 75 percent of companies meet or beat these lowered expectations. In which case, the markets may not experience the down draft that investors are so worried about.

Mergers and acquisitions continue to prop up the stock market and helping to keep investor's attention focused on what company will benefit from the next multibillion dollar buy out. It is a great time for corporations to acquire public assets. For most major corporations, borrowing huge sums of money is effectively free at these low to non-existent interest rates. Combined with the billions Corporate America has squirreled away on their balance sheets, it is a smart move to shop for strategic acquisitions.

Given the lead time and expense of building home grown assets, it is far easier to buy someone else's. If you throw the strengthening dollar into that equation, overseas companies seem exceptionally well-priced from the perspective of company managements on this side of the pond.

While investors fret about earnings, "Fed Heads" continue to play a guessing game on when the Fed will raise rates. Honestly, does it really matter if it is in June or September or the end of the year? In addition, economists are revising down their estimates for U.S. GDP growth for the year. In summary, the markets seem to me to be busily building a new wall of worry and you know what happens to markets when they do that. It goes up.

One reader asked if I still believe the U.S. market is the place to be, given my enthusiasm this year for buying foreign markets. The short answer is yes. Granted, year-to-date the S&P 500 Index is only up 1.6 percent, while India has gained over 5 percent, China, Japan and Hong Kong are up 14 percent, and Germany is pushing 24 percent, ex-currency.

I believe off-shore will continue to outperform, but America should see at least 5-7 percent gains by the end of the year. Most of those gains will be back-loaded toward the third and fourth quarter. But let's put this in perspective. Most U.S. indexes are only a percentage point or two from all-time highs. We need to take a break. That is all that is happening here.

All investors vacillate between fear and greed. Our natural reaction to a temporary slow-down in our market is to immediately dump it and buy what's moving, so that the feel-good euphoria of making more and more money keeps our high going. That's when you get into trouble.

It is better, in my opinion, to diversify some of your assets overseas--remembering that those are risky markets. If you have been following my advice since the beginning of the year, you already have a 10-25 percent exposure to foreign stocks, depending on your risk tolerance. Sure, in hindsight, you should have bought more so you could have scored big in just three months. But "could a, would a, should a," is a useless exercise and has no place in investing. You are doing just fine right where you are.

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: Will the Second Quarter Be Like the First?
By Bill Schmick On: 08:47PM / Friday April 03, 2015
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By now you know that this year's first quarter was nothing to write home about. The benchmark S&P 500 Index managed to eke out a gain of just 0.4 percent for the quarter. The Dow posted a 0.3 percent loss, while the NASDAQ did gain 3.5 percent. Can we expect more of the same this quarter?

The short answer is yes. And that's not necessarily a bad thing. Investors have been conditioned to expect nothing but double digit gains in the stock market over the last few years. This "new normal," based on abnormally low interest rates, is coming to an end, at least in this country.

As I have written in the past, stock markets do not go straight up. Usually, we experience bouts of consolidation. Sometimes that means sharp sell-offs amounting to 10-20 percent and other times the consolidation is more benign. We may be in one of those times where markets digest previous gains by simply doing nothing for a few quarters. I would rather have that than a big sell-off any day.

But while most investors remain U.S.-centric, some foreign markets have done quite well. Back in January I made my investment case for China and Japan as well as Europe. At the time I believed (and still do) that these markets deserved your attention. That advice has paid off handsomely. China outperformed all other global markets. Japan, Asia's second best market, delivered an 8 percent return while Europe (ex-currency) gained double digits.  Do I believe these foreign markets have more room to run?

China's market is climbing a great wall of worry. Their economy is slowing with the latest consensus forecast at a 7 percent growth rate for 2015. That's still far better than the rosiest forecast for our own economy at 2.5-3 percent. Chinese investors are convinced that the central government will use a combination of monetary and fiscal policy to offset this slower growth. So far that bet has paid off.

Over in Japan, where a full-fledged quantitative easing program is in full bloom, investors are buying stocks. They anticipate that their financial markets will react in a similar fashion to what occurred here in the aftermath of our QE programs. Once again that bet is paying off. Ditto for Europeans markets that saw their own QE launch in January.

Here at home the endless debate on whether, when or how much our central bank will begin to raise interest rates is a contributing factor to the underperformance of the American stock market. Today's nonfarm payroll number is a case in point. Although the stock market is closed today (in observance of Good Friday), the bond, currency and futures markets indicate that on Monday the markets will probably be down.

The economy added just 126,000 jobs, while economists were looking for at least 247,000 openings. That is the weakest growth in employment since 2013. Previous months' employments gains were also revised downward. Cold weather in the Northeast, the California dock strike and job losses in the oil patch explains the disappointing job number.

After the news the dollar fell, as did interest rates on the benchmark U.S. 10-year Treasury indicating that at least some investors believe that the Federal Reserve may now extend the timetable before raising interest rates here at home. I don't think so.

The good news is that hourly wages rose 2.1 percent, and that, I believe, is far more important to the Fed than one nonfarm payroll data point that will be revised up or down in the weeks ahead. Bottom line, however, the markets will most likely be down early next week and then earnings season will begin. Hold onto your hats.

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 Fed Does It Again
By Bill Schmick On: 04:15PM / Friday March 20, 2015
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Coming into this week's Federal Open Market Committee meeting, investors thought they had a handle on what the central bankers planned to do about interest rates. Once again, the Fed threw us a curve.

The bet was that the word "patient," in regard to when the Fed might raise interest rates for the first time in nine years, would be removed from the language of the FOMC policy statement. That would signal, according to Fed watchers, that the first hike in interest rates would occur as early as June.

It was a scenario that would almost guarantee that the dollar would continue to gain ground against the world's currencies, while oil continued to fall. Short-term interest rates would rise in anticipation of that move. But what happened was not quite what investors expected.

Yes, the word "patient" was removed, but Janet Yellen, the Federal Reserve chairman, made it clear that the change in wording did not mean that the Fed was suddenly "impatient" to raise rates. Quite the contrary, Yellen made it quite clear through her words and new central bank forecasts, that the Fed was in no hurry to raise rates. And, once they did, the rate rises would be far smaller than most economists expected.

Investors were once again taught the lesson that has held true since 2009 — don't fight the Fed. By the close of the market on Wednesday, the Dow was up 227 points (it had been down 100 points just prior to the 2 p.m. release of the rate decision) while the dollar and interest rates plummeted. The greenback had its greatest decline against the Euro in six years, while the 10-year Treasury note fell below 2 percent. Oil skyrocketed, as did other commodities. It was a good day for those who have been following my advice to stay invested.

Since then, however, the financial markets have continued to experience a heightened level of volatility, only now the currency world has joined the bond and stock markets in their daily gyrations. Thursday the dollar regained over one percent of its fall and then promptly gave it back on Friday. In sympathy, the stock market has run up and down alternating between acting like "Chicken Little'' and then the "Road Runner" on any given day.

I can commiserate with the day traders and HFT computers that are caught between a rock and a hard place. The Fed, by opening the door to an interest rate hike, has introduced a level of uncertainty in the markets that had not been there last week. Clearly, they plan to raise interest rates at some point. However, no one knows when. Will it be in June, September, the end of the year, or maybe even next year? That will depend on the data. Short term players can't cope with that.

All you need to know is that the Fed plans to raise interest rates in the months to come, and when they do; it will be so gradual that most of us won't even notice. The Fed also put dollar bulls on alert that the blistering pace of gains will likely be tempered in the months ahead. The dollar will continue to strengthen, but likely at a more sedate pace. That should also mean that oil (since it is priced in dollars), should see a more moderate rate of decline as well. My target for a low in the oil price is around $40/BBL and it almost reached that number last week.

As I warned readers in December, volatility will be on the upswing this year. So far that forecast has been spot on. How do you deal with volatility, by ignoring it? Stay focused on the year and not the weeks or months ahead. That's how your portfolio will profit in 2015.

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: Pay Attention to Diverging Markets
By Bill Schmick On: 03:50PM / Saturday March 14, 2015
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It was a turbulent week for U.S. stocks as the strong dollar and worries over possible rising interest rates spooked investors. But not all markets followed our lead. This divergence could be the beginning of a trend that could benefit your portfolio.

Normally, the American stock market is the big dog that wags the tail in international markets. When U.S. averages decline, foreign markets fall with them and vice versa. "De-coupling" occurs when the opposite happens like it did this week.

While U.S. stocks declined, both the Chinese and Japanese stock markets gained. Other Asian markets also did well, especially South Korea, which cut a key interest rate this week. So far in 2015, Japan is a clear winner, gaining 8.4 percent year-to-date, while China has trailed with only a 3.5 percent gain. However, those gains look good compared to the S&P 500 Index, which is flat for the year.

Europe, thanks to the launch of their own quantitative stimulus program, is up 15 percent so far this year but in all these cases appearances can be deceiving. If an American investor had purchased either European or Japanese shares without hedging the currency, those gains would have been much less. In the case of Europe, where the Euro has declined by 13 percent, the U.S. investors' gain is about 2 percent, still better than the U.S., but not by much.

Recently, many equity strategists are coming around to my point of view. As most readers know, I've been bullish on Japan since June, 2011, when the Nikkei was trading around 8,900, compared to over 19,000 today. Readers also know that I have reiterated my positive stand on China, Japan and Europe several times over the last year and with good reason.

The worldwide trend by central banks to lower interest rates and stimulate their slow-growing economies is having a predictable positive effect on many foreign stock markets (as it did in the U.S. over the last five years). In contrast, our own Federal Reserve Bank has wound down our stimulus program and is preparing to raise interest rates now that the country is growing again. That has triggered a rise in the dollar and demand for U.S. Treasury bonds.

All of this sounds good and it is over the long-term, but short-term it causes problems here at home. Most large U.S. companies depend on foreign markets for a healthy share of their profits. The 23 percent rise in the dollar against a basket of currencies since last June has hurt profits considerably. So much so that analysts are predicting that 2015 could be the worst year for corporate profits since 2009 (when earnings fell 5.5 percent).

I am not expecting that sort of shortfall, but first quarter 2015 profits could decline by over 2 percent and the second quarter should be down as well. And adding to the export woes, the decline in oil prices is also having a negative impact on corporations in the energy sector.

Given this wall of worry, is it any wonder that our stock market should be trapped in a trading range? So far this year we have vacillated in a range of -3 percent to 3 percent and I expect that to continue until we have more clarity on all of the above concerns. Does this mean I've turned cautious on the U.S. market?

Not at all; American corporations have coped and even prospered in a strengthening dollar environment in the past. The stock market has also done quite well when interest rates have risen throughout our history, as long as rates do not rise too much. Lower energy prices have also turned out to be a great boon for economies worldwide. All that is required is a little patience while we wait for our economy to adjust to these conditions. And as we wait, a little money in certain foreign markets is not such a bad idea.

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: Home on the Range
By Bill Schmick On: 04:01PM / Saturday March 07, 2015
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New highs followed by some selling, then a little back and fill, before climbing to yet another new high. That's the environment we are in and it happens to be a great recipe for making money in the stock market.

The last few days are a great example of what I'm talking about. Last Friday, the Nasdaq finally breached the 5,000 level. Now there was nothing magical about that number. It's round and the media decided to use it as some sort of goal post for the technology index. As I predicted in recent columns, the Nasdaq scored that touchdown and then this week, promptly fell back 40-plus points. The other averages sold off in sympathy and here we sit in yet another trading range.

The media needs to manufacture a reason why markets move and sometimes those reasons can be full of contradictions. Friday's non-farm payroll data is a case in point. The employment gains surprised investors. The cold snap in the Northeast had many economists looking for weaker job growth. U.S. payrolls actually came in much higher at 295,000, versus a mean estimate of 235,000 jobs. One data point does not a trend make, but if you look at the three-month average of 288,000 job gains/month, the employment data is clearly rising.

That puts the unemployment rate at 5.5 percent, down from 5.7 percent, even though the month to month rise in wages is still fairly anemic. Nonetheless, those are good numbers and combined with the continued low price of energy, should convince most investors that this economy is doing just fine. Why, therefore, did the stock market sell off?

We are in one of those periods where traders have decided that good news is actually bad news. Stronger job growth, to them, means the Fed is going to raise rates sooner than later. Duh, hasn't the Fed already notified us that they plan to raise short-term rates sometime in mid-year? Whether that happens in June or September is immaterial, but traders insist on trading every data point as if it is meaningful. Don't you fall for it.

The point to focus on is that all of this trading to and fro is simply noise. Understand that we are now in a new trading range on the S&P 500 Index, somewhere between 2,085 and 2,115. And like previous trading ranges, this one represents a higher low and a higher high from the previous range. If you look back through the last 12 months, time and again, you could identify the same type of trading behavior. The moral of this story is that as long as the markets continue to exhibit this kind of behavior we are all in Fat City.

How long before the next move higher? I wish I knew. Sometimes trading ranges are short-lived, a week or two. At other times, they can last for months. After all, stocks go sideways better than 60 percent of the time, so patience is a real virtue when it comes to investing. Historically, March and April are up months in the stock market. Odds are this year will be no different. What you need to understand is that in this kind of stair-step market, you simply hunker down and wait for your rewards.

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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