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@theMarket: Republican Grinch Sinks Markets
By Bill Schmick On: 10:18AM / Sunday December 23, 2012
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Evidently disappointed that the world didn't end on Friday, the Republican-controlled House took matters into their own hands. Rejecting any compromise at all, the tea party members of the GOP rejected out of hand their own speaker's "Plan B" and then took off until after Christmas.
 
John Boehner, the Republican House speaker, who tried to convince his party to pass a bill raising taxes on those earning over $1 million failed miserably. He then threw the ball back to President Obama and the Democrats, knowing full well that without the Republican-controlled House no compromise can be achieved. The canceled House vote occurred Thursday night. World markets sank in stunned disbelief.
 
Disregarding the majority of American voters as well as the opinion polls against cutting spending, in my opinion, the Republican Party has chosen to dictate to the people what they think is best for you and me. By refusing to compromise, we now understand exactly who these GOP Congressmen represent.
 
Most, if not all of the House of Representatives earn more than enough to be classified as part of the top 2 percent of America's most wealthy citizens. Clearly, there is a high level of self-interest at work in their refusal to compromise. These same Republican tea party members are also beholden to a handful of right-wing billionaires who have financed their campaigns in 2010 and in 2012. The reality is that a small group of radicals have taken this country hostage. What can we do about it, unfortunately, very little, since this same group of dictators was re-elected to the House.
 
Investors who chose to vote for these people and those like them can only blame themselves for what comes next. They may think their party would protect them from a tax hike, but if the Fiscal Cliff isn't resolved before Jan. 1, their taxes will be raised automatically. And at the same time, if we go over the Fiscal Cliff, the markets will decline and the 2 percent (who have the most money invested in the markets) will take a second hit to their wealth. If ever there was a case of Republican voters shooting themselves in the foot, this is it.
 
Color me an optimist, however, because I still believe there is a chance that saner members of the government can prevail, despite the maniacs. There is a chance that what moderates are left in the Republican Party could join forces with the Democrats and still hammer out a compromise. It is a long shot but it could happen.
 
Failing that, we could go over the cliff temporarily and then reinstate the tax cuts for 98 percent of Americans, thereby avoiding another recession. That would also require the same kind of two-party coalitions. I doubt that Speaker Boehner is the man who could engineer that kind of deal on the Republican side. He is up for re-election as the House Speaker on Jan. 3 and at this point the outcome is highly uncertain. I say good riddance to ineptitude.
 
Over the last two years, less legislation was passed in the House and Senate than just about any time in this country's history. Consider that the negotiations to avoid this Fiscal Cliff could have started anytime in the last 12 months but both sides chose to wait until after the elections on Nov. 6. To date, our legislators have spent the last 50-plus days focusing on only this one issue. That is almost 15 percent of the year.
 
There are a multitude of issues facing this country. We cannot afford to spend 15 percent of each year on each issue. After the elections, I had some hope that both parties could meet, agree to disagree and yet compromise for the good of the country. It appears that I was wrong. The same obstructionists responsible for the past two years' dismal record are once again going to dictate to all the people for the next two years. Lucky us!
 
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: Pushing on a String
By Bill Schmick On: 04:41PM / Friday December 14, 2012
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There was a time when an announcement of further easing from the Federal Reserve would have sent the markets soaring. This week the Fed promised more monetary stimulation and the markets finished flat to down.

Even more puzzling was gold's reaction to the announcement. The Fed is planning to purchase $85 billion a month in mortgage-backed securities, effectively pumping even more money into the economy. That money, unlike its previous bond-buying program, which bought long Treasury bonds and sold short ones, will involve printing new money. That is normally considered inflationary and yet gold prices barely budged. The next morning gold promptly fell $20 an ounce.

In a historic move, the Fed also tied interest rates to the jobless rate, promising that until unemployment came down to a 6.5 percent rate, it would keep interest rates at a near-zero level. The market's response was a big "so what." Investors do not believe that these latest Fed actions will do anything to reduce the number of Americans out of work or increase the growth rate of the economy.

The economy has been functioning under a historically low interest rate environment for some time. These low rates have been effective in avoiding another recession and keeping unemployment from rising further. But maintaining the status quo is not enough. In order to add jobs, the economy has to grow faster and that's not happening.

Ben Bernanke, the chairman of the Federal Reserve, has often said the central bank can do only so much. In order to accomplish a high-growth, low-unemployment economy, he maintains fiscal stimulus is absolutely necessary in tandem with lower rates. I agree.

But the Fiscal Cliff is not about cutting taxes and higher spending. It's about avoiding tax increases and cutting spending. Those actions seem to be at odds with what the central bankers are saying. The Republicans continue to insist that spending is the problem and that President Obama and the Democrats want tax cuts but little in spending cuts.

Republican Speaker of the House John Boehner, on Thursday, continued to insist "that the right direction is cutting spending and reducing debt."

How dense can one be? Has Boehner and the tea party bothered to look at how well that recipe hast worked in Europe over the last two years? It has been a disaster. It was also a disaster in Latin America throughout the 1980s. It flies in the face of what our central bankers are saying as well.

Boehner argued that if you include President Obama's new proposals to increase spending in areas that could stimulate the economy, then there would be practically no spending cuts at all in his Fiscal Cliff deal. Well, hurrah for the president.

I had hoped that if President Obama was re-elected, we could avoid the worst. The Bush tax cuts would be extended and the GOP's insistence during the election campaign (and up to and including yesterday) that we needed deep spending cuts would be moderated. So far the jury is out on my bet.

You may disagree, but I firmly believe that more, not less fiscal spending is absolutely imperative to jump starting the economy in tandem with the central bank's monetary policies at the present time. I will worry about the deficit after the economy is growing at a healthy rate and unemployment drops. At that point, I believe the explosion in tax revenues from a growing, full-employment economy will take care of the deficit, the debt and the Republican's propensity to angst. Until then, don't sweat the deficit, stay long and bet on avoiding the Fiscal Cliff.

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: All Eyes Are Not on America
By Bill Schmick On: 04:27PM / Saturday December 08, 2012
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Our stock market has gone nowhere since Thanksgiving week but it would be a mistake to believe that all markets have been on hold since that time. You just may be missing an opportunity elsewhere while politicians fiddle here at home.
 
After gaining back about half of the 8 percent decline it suffered after the election, the S&P 500 Index is within a point or two of its close on Nov. 23. Each day the markets vacillate, gaining or losing a couple of points at the most. I believe this period of marking time will continue until there is some definite progress out of Washington.
 
In the meantime, you might want to look elsewhere. Asian markets, ex-Japan, for example outperformed just about everything else in November. Places like Hong Kong, Taiwan, India and even China are attracting new money. But it appears to be a stealthy flow of investment without the usual fanfare. That usually means it is still early in the game for investing.
 
Emerging markets, once the darling of the investment community, fell off their own cliff back in 2009. Unlike the American market, they have never recovered. The combination of recessions in their two main export markets—Europe and the U.S.—plus the global move out of risk assets overall (because of the financial crisis) left these markets out in the cold.
 
China, which most economists believe has been the largest engine of growth in the global economy, deliberately put the brakes on its economic growth, fearing a major uptick in their inflation rate. And as China slowed, so did the rest of Asia. Times have been hard over the last two to three years, with the Chinese stock market suffering a 40 percent decline. But some brave souls feel it might be time to re-examine the prospects in this area. I agree. Latin American markets, I noticed, outperformed all other emerging markets in October, although not in November. I have even seen signs of some bottom-fishing over in Europe, which is suffering its second recession in three years.
 
What makes these markets interesting, aside from their low valuations, may be a potential turn upward in world economic growth. Remember, stock markets usually discount events six to nine months in advance. Central banks all over the world continue to stimulate their economies. Here in America, if we can actually come to grips with our fiscal issues, we could see a pickup in economic growth. Next year could surprise us if (and that's a big if) the politicians cooperate and actually implement a pro-growth fiscal policy to complement the Fed's on-going stimulus efforts.
 
Europe may not recover in 2013 if our economy starts to pick up steam, but it may stabilize. Over in China, there has been a regime change. Xi Jinping is the new president while Li Keqiang will be the new premier. The leadership transition was smooth and investors expect that the new leaders will continue to implement structural reforms while possibly calling an end to their tight money policies. Given that the money flow into China funds has been positive for the last seven weeks, some global investors are betting on a turnaround.   
 
So as American investors and the media wring their hands at every hiccup in Washington, some of the aggressive money is investing in more fertile fields abroad. Emerging markets are risky and not for everyone, but if you have an appetite for taking on more risk then I suggest you follow suit.

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: Play it Again, Sam
By Bill Schmick On: 08:19AM / Saturday December 01, 2012
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It was a week of tension. Markets rose and fell on every word uttered by party leaders, who jockeyed for position and the national spotlight around the Fiscal Cliff. It was Washington at its worst. Get used to it because this deal is going to go down to the wire.

Remember last year's Greek debt negotiations? It was a game of he said, she said that dragged on for months. We are playing the same song once again only on this side of the pond. I guess the best that can be said for this American version is that if nothing happens before Jan. 1 we all think we know the outcome.

But unlike Greece, where the country either received a bail-out or went bankrupt, this U.S. event would not be as dramatic, at least at first. If for some reason the politicians miss the deadline, it would take several days and even weeks before we feel the tax bite. As for the spending cuts, those draconian measures will be enacted piecemeal and over several years. Why is this important?

Well, the stock markets are acting like January first is a do or die event. It's not. Politicians can continue to agree to disagree; delay a compromise and either extend the deadline or let the country fall off the cliff (really a ditch) temporarily. They would still have time to come up with a solution sometime in 2013 without much impact to the economy.

But that kind of scenario would sell fewer newspapers and reduce the ratings on business shows. Brokers would have less to talk about and retirees, rather than being pinned to their televisions, could actually go out and do something productive like exercise or read a good book.

If you are in that stressed-out category, remember this. How much did all that angst over Greece help you? In the end, Greece did get a bail-out, their market is up 25 percent since then and the U.S. market is up substantially as well. So relax, will you?

Warren Buffet may not be right about everything but one reason I believe he is so successful and still in the business is because he takes a long-term view. Sure, time has become compressed. Fortunes have been made and lost in years rather than decades and it has become fashionable to “trade” the markets. I am as guilty as the next person, but only to a point.

In the past, we've had to refuse clients because we didn't see eye to eye when it came to investment style. They insisted we sell every down move in the market before it occurred and jump back in "at the right time," which for them, was before the markets moved back up.

"If I could do that," I explained. "I wouldn’t need to work. I could simply sit home, trade my own account and make a couple billion dollars a year."

Here's my take. The anxiety over this Fiscal Cliff is overblown. Focus instead on the increasingly positive economic data in the United States. In addition, I expect the Fed may announce further stimulus moves in the coming month. The stock market, which is trading around 13 times earnings, is fairly valued given a modest growth scenario. We may be underestimating that growth and prospects for a better 2013 than most people expect. Buy the dips.

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: Stay the Course
By Bill Schmick On: 10:55AM / Sunday October 28, 2012
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This quarter's earnings season has not been kind to stocks. Corporate results continue to disappoint and forward guidance has been less than rosy. The stock markets have drifted lower as a result, providing us with a much-needed consolidation.

Unfortunately, stock markets need these periodic pullbacks. As I have written before, expect three to four such pullbacks per year of between 3-6 percent in the equity markets. It is the cost of doing business. Without them, financial markets would be just too dangerous for the average investor. And I have never met a person or firm that can trade those declines consistently and successfully, so don't try.

Now is the time, however, for a little hand holding. About now my phone begins to ring regularly with client calls. They always begin this way:

"Have you changed your mind about the markets?"

"No," I reply, waiting for the next question.

"So how much lower do you thing stocks can go?"

The real question behind that one is "How much more pain do you expect me to endure?" Clients are expressing what is called loss aversion, which is part of the Prospect Theory. This theory was coined by two Israeli psychologists Daniel Kahneman and Amos Tversky back in the '90s. They contend that people value gains and losses differently. Losses, they say, have more emotional impact than an equivalent amount of gains.

In my experience, they are absolutely right. Rarely, if ever, do I receive calls when the markets are roaring. On occasion I may receive a call from someone who is worried about how high the markets have climbed, but once again I believe the concern is more about the avoidance of loss (pain) than any giddiness based on how much the investor has made.

Now, pain has a profound effect on us humans. It can make us take irrational actions. If I think back to times in my life when I was in severe pain, all I wanted was for the pain to stop and I would do just about anything to feel better. And this statement is coming from a guy who has an extremely high tolerance for pain.

In the investment world, this aversion to losses has caused many a good man and woman to dump their holdings at the absolute worst time. Over and over again, I have seen this wholesale selling capitulation sometimes on the very same day that markets have hit their bottom.

Of course, we all know that we should never make any decisions based on emotions but we do it anyway. That's why we are who we are. I'm just asking readers and clients alike to try and be honest with their decision to buy, sell or hold. In my investment experience, the correct decision is to do the exact opposite that my emotions are telling me to do. If I can't do that, than most likely I should do nothing.

Bringing this home to today's markets, I would advise you to simply sit on your hands and do nothing. We are pulling back because third quarter earnings were a disappointment. But remember, those are earnings that have already occurred. They are not indicative of future earnings.

The elections are less than two weeks away and after that we confront the much-heralded "Fiscal Cliff." Since the markets dislike uncertainty, I would expect further volatility and declines until then. Rather than work yourself into a frenzy, just ignore the daily gyrations and keep your eye on the bigger picture. I expect the economy to strengthen, not weaken, from here and as such there are better times 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.




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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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