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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.



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@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.



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The Independent Investor: How to Teach Your Kid to Become the Next Warren Buffet
By Bill Schmick On: 03:41PM / Thursday April 02, 2015
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Children in America need to learn more about money. How to value it, save it, spend it and retire on it. The evidence thus far indicates that we have all been doing a poor job in educating our kids. Here are some suggestions to remedy that failing.

Let's start with the munchkins, pre-kindergarten through third grade, and the concept of cash. To those little people, credit card purchases mean nothing at all, but watching Dad, Mom (or a grandparent like me) plunk down some greenbacks for a treasured game, book or ice cream makes a lot of difference. Don't miss an opportunity to have your child watch you count out and put the coins in the parking meter or pay for a purchase when they are old enough.

A piggy bank that one can see through is also high on my priority list, especially one with four slots like the "Money Savvy Pig," which offers several different savings slots. If that doesn't work, simply find several plastic jars and apply different labels. One should be for saving, another for spending, and a last one for donations. As the child grows older, add an investment jar as well as a "matching jar."

As your children age, introduce them to money games. Games allow parents to teach without lecturing and create an atmosphere of fun and excitement around money. The Internet now offers plenty of such games at different age levels. At risk of dating myself, my first memorable learning experience with money evolved through my family's tradition of playing weekend "Monopoly" games, sometimes way past my bedtime. It was fun. My parents let me be the banker, which was a special reward, and those feel-good memories surrounding finance still remain vivid years later.

Use the money in those plastic jars or piggy bank to show your kids that stuff costs money. At some point, every child will want something special, maybe an action figure, crayon set, or something they have seen on television. Help them count out the amount from their piggy bank and go with them to the store as they physically hand over the money to the cashier.

Hopefully, they will want two items exceeding their savings, which allows you to teach them the opportunity cost of buying one item or the other, but not both.

In my last column on this subject ("Kids and Money"), we discussed the pros and cons of giving an allowance. I came down on the side of giving an allowance for efforts earned and not as simple cash stream because their friends get one. I don't even like the word "allowance" and would rather use words like commission, earnings, or some other word that equates effort for income.

Equally important when teaching the concept of earnings for effort is the idea of saving, rather than spending. Here one can incentivize your child to save by the concept of "matching."

For every dollar your child earns and saves, you can match that savings with money you can contribute just like your company's match in your 401(k) at work. The more the child saves, the more you match. But be aware that most children will need a goal in order to save. It most likely will be a high-priced item such as a bike, a trip, or something that will require a long-term plan and a reason to save.

As your children grow into their teens, help them find a job. Once they have one, make sure you help them open a checking and savings account. My first job, at 11 years old, was a daily paper route. I was sweeping up the local drug store after school a year later and was earning regular income well before I graduated from high school. For me, it was a requirement, and the money I saved went towards books, clothes and occasionally entertainment. In hindsight, I wouldn't have it any other way. Jobs, whether part or full time, teaches the teen that working is a great way of making money, and what teenager doesn't need money?

If you follow some or all of these suggestions, by the time your child enters college or technical school, they should be able to understand and appreciate the costs and opportunities when selecting a major, a profession or career. It may not guarantee that they will grow up as the next Mr. Buffet bit it certainly won't hurt.

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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@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.



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The Independent Investor: Financial Challenges Facing Single Parents
By Bill Schmick On: 08:01PM / Thursday March 19, 2015
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Over 13 million Americans struggle each day to be the best single parent they can. It can be a thankless job and one that requires an entire set of financial tools that couples rarely face. This column is dedicated to helping the single parent cope.

Twenty-five percent of children under the age of 18 in the U.S. are being raised without a Dad. That's not to say that there aren't plenty of single fathers bringing up children, but the facts are that the majority (80 percent) of single parents in this country are women. Nearly half of them live below the poverty line. Here's how you can avoid that fate.

The first change you must make is in developing a new attitude toward life and your finances. If your spouse had been handling the finances before you broke up, that responsibility is now squarely on your shoulders. Step one is to know how much you are spending. Create a budget. Record everything you spend each day for the next three months and then divide the total by three. That will give you an understanding of how much you are spending on average each month. With knowledge comes power.

Continue to do this for that first year and make sure to monitor your spending on everything. The next thing to do is establish an emergency fund that can be accessed easily. This pool of money is earmarked for unexpected expenses like home repairs, new tires, etc. You should keep a reserve of 3-6 months of expenses on hand for emergencies, or in case you lose your job.

If you are now or have been a stay-at-home spouse, you will probably need to consider a new career. That may require taking classes to earn a degree or attend a vocational school. Sometimes divorce courts allow for "rehabilitation maintenance," which can be negotiated in a marital settlement agreement requiring one spouse to pay for the other's training. This is especially so when one spouse initially worked and paid for the other spouse's law, medical, MBA or other degree. Now it's your turn.

For those of you who already have a good-paying job, retirement savings will now become critical to your future and that of your family. You need to save at least 15 percent of your salary each year and if you can afford it, much more.

You must also reevaluate all of your financial documents. Term life insurance is important in the event that something happens to you. It is the obvious way that your children can be cared for financially if you or your ex dies suddenly. Life insurance, for those who are in the throes of divorce right now, can be mandated in a divorce decree. I suggest you insist on it and make sure your ex does not allow it to lapse by law. The policy should be large enough to insure there are ample funds to provide a home, basis living needs, medical expenses and college tuition for all your children.

Make sure that all of your retirement accounts and other pools of money have the proper beneficiaries recorded. This includes any money your parents may intend to leave to your kids. Normally, your children should now be the legal beneficiaries of any inheritance. The last thing you want is to see your ex-spouse receive your assets or become the custodian of assets while your children come of age. And while you are at it, you might give some thought to who you would like to have as guardians of your children in case of your death if not your ex-spouse.

Single parenting is a hard job and the relationship you have with your ex can make it that much more difficult if it is mired in recrimination and hostility. What is done is done. Your future success demands that you acquire a new self-image, devoid of the past, that will allow you to treat your ex as a business partner for the sake of your children and your future self. The sooner you accept these facts, the sooner you and your children can start enjoying life again.

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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