Home About Archives RSS Feed

@theMarket: It's Still a Coin Toss

By Bill Schmick
iBerkshires Columnist

Despite all the algorithmic programs, high-powered computers, enormous capital and worldwide connections, what happens in the investment world sometimes comes down to a coin toss. The British vote next Thursday to stay or exit the European Community is shaping up to be one of those binary events.

Have you noticed that there are more and more of these kinds of events in the world?

Remember the U.S. government shutdown, the Greek Referendum, the TARP vote, the German bailout votes for Greece, the vote on Spanish austerity? These are just some of the either/or occasions that sent global markets up or down in double-digit moves.

If you listen to some of the big brokers, they are predicting as much as a 15 percent decline for the U.K. stock market (the FTSE 100) if a Brexit occurs. But if they stay, you could see as much as a 14 percent rise in the same index and an even larger rebound in the European markets. On the bright side of this contest, look at it this way: for once you have the same chance to be right (or wrong) on the outcome as the big guys.

By the way, remember my prediction that volatility was going to rise this summer? In less than two weeks the VIX, which is an index that measures volatility in the markets, has risen by 40 percent! Hang on to your seats, readers, because we still have until next Thursday before this soap opera plays out. However, while the world ignores everything else but the Brexit outcome,

I'm on to other things.

This week's FOMC meeting and Chairwoman Janet Yellen's press conference afterward really surprised me. Although the Fed always couches their words in financial speak, technical jargon and just plain poor English, in essence, the message I received was that further interest rate hikes are off the table at least for the foreseeable future.

Two weeks ago I predicted a June rate hike was a non-starter, but I still expected a hike sometime later, maybe July or September. While mumbling about global risks (Brexit) as a reason to delay any action, Yellen admitted that some of the economic forces that are holding back the economy and a rise in interest rates "may be long-lasting and secular."

Slower productivity growth, as well as the retiring Baby Boomers in this country and in other aging societies, who will spend less, and save more will drag down growth. Yellen said that these are "factors that are not going to be rapidly disappearing but will be part of the new normal."

These are arguments that former Treasury Secretary Larry Summers, who was in the running for Janet Yellen's job, have been arguing for some time. He believes industrial nations are caught in a swamp of secular stagnation where economic growth will be at best moderate.

If Summers, and now Yellen, are right in their assumptions (and both are a lot smarter than I), this change in outlook should have some predictable outcomes. For example, the U.S. dollar should trade in a range, or even fall at least until that time when a rise in U.S. interest rates is a real possibility. St. Louis Fed President Jim Bullard, a leading "hawk" on the Fed's board, said in a white paper today that low GDP growth (2 percent) and an even lower Fed funds rate will likely remain in place at least until to 2018.

It would seem to me, given past investor behavior, that this kind of environment will force more and more retiring Baby Boomers into the stock market in search of better yields and price appreciation. It augurs well for higher stock markets worldwide, since they will be the investment of last resort in an environment of secular stagnation.

However, the downside is that investors will need to temper their expectations of what they can expect from stocks. Single-digit returns will be the best we can get unless one wants to wander further afield to regions, countries and asset classes that may offer higher returns as well as risk. More on that later, but for now, if the UK does exit the EU, investors can expect a continuing high degree of turbulence within the markets.

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 Only Game in Town

By Bill Schmick
iBerkshires Columnist

Investors are scratching their heads in confusion. How can U.S. stocks, bonds, commodities and the dollar all go up at the same time? It flies in the face of historical relationships that have been around for years. Thank the central banks of the world for the present situation.

It all comes down to negative interest rates. This year, both European and Japanese central banks have instituted this tactic in an effort to jump-start their economies, weaken their currencies, and offer lending institutions a disincentive to hoarding cash, rather than lend it out.

So far, this strategy has had dismal results.

Foreign institutions have flocked to the American financial markets where in our bond market, for example, they can still get 1.6 percent on a 10-year U.S. Treasury Note, while in Germany or Japan, the same instrument is yielding below 0 percent. As a result, U.S. interest rates continue to drop and bond prices rise.

But that's not all. In the U.S. stock market the dividend yield on the S&P 500 Index is still 2.5 percent. To foreigners, that's a great deal and even bigger excuse to buy up American stocks.

At the same time, commodities, which are priced in U.S. dollars, are also attractive. Traders reason that if this whole negative interest rate thing ends up as a trigger for higher inflation, then what better place to be than in dollar-denominated commodities like gold, silver, etc. And so it goes.

The last two weeks in June is going to be important for global markets. Next Wednesday the Fed meets again to decide whether or not to hike interest rates. After last week's dismal employment gains, the betting is that the Fed will hold off until at least July or September (if then) before raising rates again.

A week later, on June 23 rd , the United Kingdom will decide to either remain within the European Union, or exit, going it alone. Those in favor of a "Brexit" point to Switzerland as an example of what could happen to the UK as an economically-independent country. The Swiss never became members of the EU. Their economy has been doing just fine and its currency, the Swiss Franc, is considered the safe-haven currency of Europe.

Readers should recall that the UK never accepted the Euro as their currency and has remained currency-independent for the last twenty years. Granted the tiny Swiss economy is not a fair comparison with the UK powerhouse, which is the second-largest member of the EU after Germany. As of the end of this week, the odds on a yes vote were 55 percent, while those who wanted to stay with the EU were only 45 percent of the populace. It is one reason the markets were down on Friday.

Sentiment among investors indicates that a "no exit" vote would be positive for markets, while the opposite would have a dire effect on both the UK and European markets. There could be a rush into gold, the dollar and even the U.S. stock market as a result.

In any case, I believe the U.S. markets have a chance of breaking through the old highs and making a minor new high this month. After that, we are probably due for a pullback because nothing goes straight up forever.

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: Summertime, But Nothing Seems Easy

By Bill Schmick
iBerkshires Columnist

After a couple of days of hand wringing, traders are now going with the notion that if the Fed raises rates in June or July, it may actually be good for the economy. Don't put too much stock in that, however, because herd sentiment can turn quickly with one simple statement from the Fed.

You have to be impressed with the market's performance. In the face of a potential interest rate hike in less than three weeks and a June decision on whether Great Britain will exit the Eurozone, the market continues to grind higher.

As we enter this three-day weekend, (three for us, but most of the Street stretches it to four), don't expect this Friday to be a "tell" on what will happen next week. Traders are clearly expecting interest rates and the dollar to rise. Just look at the price of gold, which has fallen over $80 an ounce in one week. Rising rates and a stronger dollar hurts the price of gold. It also provides some headwinds to a further rise in oil.

The energy market is consolidating after the price hit $50/bbl. this week. It has almost doubled since its low this year. Many traders are calling for a pullback after such a breathtaking advance. That seems a reasonable bet, but I don't see oil going lower than $40-45 a barrel. If you hold energy shares, I would keep them. If you own gold or gold miners, I would keep them, too, at least for now.

The one truth about financial markets today is that they no longer function the way they used to. In the past, if "A" happens, you could expect that "B" will happen simultaneously or with a little time lag. In the past, if both "A" and "B" occur, then "C" should happen next.

Unfortunately, that is not how the game is played anymore.

It seems that there is no connection between "A" and "B" in today's markets. If interest rates move up, you sell or short bonds, but that doesn't mean that you sell equities as well. Ever since the central banks of the world entered the financial markets in an effort to preserve them, long-held relationships have first frayed and are now in tatters.

Consider the last week or so as an example. No less than eight Federal Reserve Bank members have been stumping the country giving speeches indicating that it is time to hike interest rates. Yet, every one of them has hedged their bets. Using words such as "if the data warrants," or "depending on global conditions," investors remain perplexed as to the next move by the central bank.

The point is that even Fed members are still divided over when to implement their next move. While employment numbers would dictate a rate hike, the overall economic data is still contradictory, while inflation is only now approaching the Fed's target.

Janet Yellen spoke on Friday afternoon at Harvard University. Traders hung around, (instead of taking off early for the Memorial Day holiday), hoping that she would give additional clues on her thinking in the Q&A session after her speech. She reiterated that it "would be appropriate to raise rates sometime this year — if the data warranted."

Although the markets jump to an immediate conclusion that rates will therefore rise in June. I am not convinced. The Fed may wait and simply see how the economic data pans out before moving. I expect that over the next two weeks market participants will remain uneasy waiting for the results of the next FOMC meeting. In the meantime, expect bulls to mount an attempt at breaking the old highs. It remains to be seen whether they will be successful.

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: Traders Build a Wall of Worry

By Bill Schmick
iBerkshires Columnist

The markets are marking time. Earnings season is just about over. The lofty levels of the stock market survived those results largely because they were not quite as bad as expected. Now it is on to the next worry.

Pick your poison — uncertainty over this summer's political conventions, can oil prices sustain these price levels or how about the possibility of a Fed rate hike in June? No question, there is a wall of worry out there, but so far the markets have weathered everything the bears have thrown at them. That is quite impressive given that we have had a 13 percent gain from the lows and hovering just a percent or so below all-time highs.

We have been trading in a tight range on the S&P 500 between 2050 and 2080 for a week or two. Stocks overall are going up or down depending on that days company results. Now, we should see prices break to the downside or, more likely, to the upside unless something unexpected occurs.

For example, the dollar (also in a tight trading range) could climb higher. That would threaten oil prices as well as the recent commodity run. Usually, a stronger dollar has a negative correlation with commodities.

Then there is Trump versus Clinton with Bernie still in the race. Most clients I talk to are quite worried about the outcome of the elections. In addition, all of the candidates continue to bang the drum of unemployment and weak economy. People tend to believe what they hear on the television news, if it is repeated enough times. Although the evidence does not support these political claims, when has a politician ever worried about the facts?

Then there is the never-ending central bank production of "will they or won't they" that is playing to a sellout crowd. Never has there been so many who have worried so much over so small a rate hike. A new rumor or forecast over what the Fed will do next is always good for a 20-point move one way or the other.

Some readers have asked me if the year-long correlation between oil and stocks has been broken. That remains to be seen. As long as oil trades between $40-$45 a barrell, I think stock markets will focus on something else. However, if oil decides to move markedly lower, I am sure stocks will fall along with energy.

As I have written in the past, oil prices are notoriously hard to predict, but between now and mid-summer, demand for oil is usually stronger. So I suspect the risk of a waterfall decline in oil, if it were to occur, would likely be an August or September threat.

I am still worried, however, about a potential double-digit pullback in stocks sometime this summer. One scenario that could unfold might go something like this: the stock market climbs, surpassing the old highs. Even the bulls are surprised. That triggers a rush into the market. At that point, when most of the bears cover their shorts and talking heads are confidently predicting another 10 percent upside, we fail. The markets roll over as one of the fears outlined above comes true and down we go.

Could it happen that way? Sure it could. Stock markets can be extremely volatile during election campaigns. Add in the summer doldrums where there are fewer participants to lend sanity to the craziness of high frequency traders and you have a recipe for big market moves.

In any case, if this scenario plays out, I fully expect the stock market to recoup any losses and finish the year positive.

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 May Be That Time Again

By Bill Schmick
iBerkshires Columnist

For traders, the old adage to "Sell in May" is now upon us. Over the past 40-plus years this recommendation has worked over 70 percent of the time. Should you go with the statistics or ignore them?

As regular readers know, the S&P 500 Index has already reached my target of 2,100. We did so over two weeks ago and until yesterday the bulls have been trying to break over that line and get back to the historical highs around 2,134.

The perfect excuse to do so should have occurred on Wednesday when the central bank's Federal Open Market Committee announced their latest decision to keep rates where they are.

The wording of the news release was almost identical to last month's statement. Rather than roar, (as stocks usually do after dovish words like that) the markets, instead, could barely eke out a gain for the day.

"Hmmm."

Notice, too, that despite an almost 17 percent increase in the price of oil thus far in April, stocks have done nothing. What, you may ask, has happened to the stock/oil price correlation that has been with us since the beginning of the year?

Then there is the dollar, specifically dollar weakness, which has dropped below 94 on the U.S. Dollar Index. That has been a line in the sand support for the greenback against a basket of foreign currencies all year. One would think that would be good for the economy — cheaper exports, better corporate earnings — but the markets are a fickle lot. They decided this week a weaker dollar might reflect a weaker economy. The slide in the dollar really accelerated this week when the Bank of Japan disappointed investors by failing to provide even more stimulus to their economy.

"Hmmm, Hmmm."

Of course none of this seems to faze the commodity speculators who blithely bid up the price of precious metals, agricultural products, base metals, energy and the kitchen sink. What, you might ask, is driving commodity prices higher? One word — China. That's right, now that the Chinese government has made it more difficult for the multitude to speculate in their stock markets, they have turned their attention to the commodity markets.

At its peak, as an example, iron ore prices have risen 73 percent and rebar 62 percent in Shanghai since the beginning of the year. Inveterate gamblers, both retail and professional, are now doing the same thing to global commodity prices that they did in their stock market last year. China's securities regulators started cracking down on the country's commodities futures exchanges this week to prevent further speculation.

I warned readers in my column last week not to chase commodities. I repeat that warning now. Recall what happened to the Chinese stock market when regulators curbed speculation last year? Stocks fell 40 percent and took global markets down with them. Could that happen again in the commodities markets? Is the Pope Catholic?

"Hmm, Hmmm, Hmmm."

I could go on and mention how corporate earnings this quarter are really turning out as bad as people feared, although there have been some notable exceptions. Then there is the devastation that is occurring on the NASDAQ. Could that index be foretelling a pullback in the overall market?

The answer is yes but don't worry, it is not Armageddon. It is simply a much-needed correction in a stock market that has gained 13 percent in less than two months. Remember how I warned readers to examine their risk tolerance a few weeks back? Well, welcome to the new stock market, which is just chock-full of volatility and will remain so for the foreseeable future.

I think we will see an up and down market throughout the summer. Remember that we still have the presidential conventions to contend with in June and July. Don't get me started on that subject! But I digress.

This pullback could see the S&P 500 fall to 2,140 or so, as a first stop. Of course, since it is hard to make short-term predictions like this, it could fall even further to the 200-day moving average. That would put us back to 2,114 on the index. If so, that would be a healthy sign in a market that has been overbought for weeks.

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.

     
Page 1 of 40 1  2  3  4  5  6  7  8  9  10  11 ... 40  
News Headlines
North Adams Museum Hosts 'Old Peppersass' This Weekend
Main Street Hospitality Adds Business Development Director
MountainOne Bank Appoints Senior Operations Officer
Berkshire Food Festival Offers Up Tasty Fare on Sunday
Miss Hall’s Students Named Pickett Scholars
Laura Bush Tours Latest Restorations at The Mount
Pittsfield Woman Named 'Unsung Heroine'
BCC’s Swimming Pool to Open Daily Starting June 25
Cultural Pittsfield This Week: June 24-30
Drury Announces Fourth Quarter Honor Roll

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.

 

 

 



Categories:
@theMarket (203)
Independent Investor (282)
Archives:
June 2016 (6)
June 2015 (2)
May 2016 (5)
April 2016 (7)
March 2016 (8)
February 2016 (5)
January 2016 (5)
December 2015 (6)
November 2015 (6)
October 2015 (9)
September 2015 (7)
August 2015 (7)
July 2015 (6)
Tags:
Stimulus Markets Federal Reserve Election Jobs Commodities Housing Japan Banks Debt Selloff Euro Deficit Bailout Interest Rates Wall Street Retirement Europe Debt Ceiling Pullback Recession Stock Market Economy Taxes Currency Energy Oil Metals Stocks Congress Rally Fiscal Cliff Europe Crisis Greece
Popular Entries:
The Independent Investor: Don't Fight the Fed
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: QE II Supports the Markets
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
Recent Entries:
The Independent Investor: Pet Insurance & Why You Should Have It
@theMarket: It's Still a Coin Toss
The Independent Investor: The Brexit Primer
@theMarket: The Only Game in Town
The Independent Investor: How Does the Stock Market Perform in an Election Year?
The Independent Investor: One For The Little Guy
@theMarket: Summertime, But Nothing Seems Easy
The Independent Investor: How to Avoid the Pitfalls of Multi-Level Marketing
The Independent Investor: Let's Have a Jewelry Party
@theMarket: Traders Build a Wall of Worry