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@theMarket: Earnings Better Than Expected

By Bill SchmickiBerkshires Columnist
First-quarter earnings are coming in higher than expected while stock indexes hover just below historical highs. All that is necessary for further gains is a catalyst and that may be just around the corner.
 
This Sunday, French presidential elections will occur. As I wrote last week, it appears that the centrist candidate, Emmanuel Macron, has a widening lead over Marine Le Pen, the more radical right-leaning candidate. Why is that important to you?
 
It is all about the continued stability of the European Community and their currency, the Euro. Investors are concerned that if Le Pen should win, she might try to pull France out of the EU (think of the U.K. and Brexit). If Macron wins, the thinking is that he will assure a "business as usual" attitude among the French, which would be good for the European markets and therefore our own.
 
On the U.S. front, the House passage of a somewhat, garbled Repeal and Replace health care bill is also good news for the markets. The second attempt passed 217 to 213 on Thursday afternoon. It is not what is in the legislation as it currently stands. By the time the Senate gets through with their version; most of the crazy stuff will have been changed, amended or just thrown out.
 
House Republicans are risking their political future in ramming through this new legislation, which will potentially hurt a large block of the constituency that only recently voted them into office. In its current form, by the time mid-term elections occur in 2018, enough voters will have felt the full brunt of these changes in their pocket books. They will vote accordingly.
 
But to the stock market, the part of Repeal and Replace that is important is the tax savings that will occur (an estimated $1 trillion) by stripping away some of the Medicaid provisions that presently exist under Obamacare. This would free-up Congress to address tax reform, given that they will now have a nice chunk of change to start the process.
 
It might also breathe some life back into the Trump agenda. The new president's image (despite tweets to the contrary) has suffered from a perceived lack of accomplishments in his first 100 days. There have been several legislative set-backs from healthcare, to funding the "Great Wall," to barely passing a temporary measure to fund the government and then only to September.
 
President Trump needs a "win" and tax reform is something that is near and dear to Wall Street, as well as to businesses in general. Since the House failure to pass health-care legislation, the markets have been in limbo. What investors need is some visibility; some assurance that a Republican-led Senate, House and administration can accomplish more than a divided Congress could over the past eight years. So far the jury is still out.
 
Bill Schmick is registered as an investment adviser 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. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

 

     

The Independent Investor: Only The Rich Are Saving

By Bill SchmickiBerkshires Columnist
Last quarter, the  percent age of Americans' personal savings rate stood at 5.9  percent of their disposable income, according to the Bureau of Economic Analysis'. Given that number had fallen to as low as 1.9 percent in 2005, that's a large improvement. But who is saving and who is not is the real question to ask.
 
Our savings rate is clearly higher than it used to be relative to other countries. It is nowhere near the Chinese savings rate of 38 percent of 2014, for example, but it has improved to the point that we are now somewhere in the middle of the pack when looking at the 35 member countries of the Organization for Economic Cooperation and Development.
 
But before we break out the champagne in toasting our newly-thrifty nation, you might want to understand that it is most likely the top 10  percent  of households who are responsible for the lion's share of this improvement. Given that income inequality is at historically high levels in this country (comparable to what they were during the American Revolution), an argument could be made that the "haves" in this country are so rich that they can't spend it all.  And so they increase their savings rate.
 
We do know that as late as 2013, the bottom half of income earners saved little to no money. In 2015, a Pew Charitable Trust study indicated that 41 percent of households had less than $2,000 in savings and 25 percent of us had less than $400 on the side. After the financial crisis, there was some hopeful news for the common man on the credit card front. Debt had fallen every month from 2010 to 2015. However, it appears that is now reversing. At the end of last year, Americans had racked up $1 trillion in credit card debt, an all-time high.
 
The problem in America, according to many behavioral experts, is that we allow our lifestyles to dictate our savings rate, rather than the other way around. "Keeping up with the Joneses" is still alive and well throughout the country, as is the need to acquire the newest, most eye-catching devices or convenience.
 
To many of our citizens, our  country "owes" us a living while we have an inalienable right to spend as much money as it takes to make us happy. Bottom line: 21 percent of working Americans are saving nothing and just 28 percent of us are saving more than 10 percent of our incomes, according to Princeton, Survey Research Associates.
 
In survey after survey, 38 percent of consumers say that the main reason they don't save is because they have too many expenses. To be fair, some of their expenses may no longer be under their control. If you already had a lot of debt, for example, whether it is a home mortgage, college tuition, medical or credit card debt, a certain amount of expenses must be earmarked for these past liabilities. There may not be anything left to save. But it doesn't give us license to keep spending more.
 
Procrastination is the second biggest reason for not saving. Over 16 percent of Americans admit that they simply haven't gotten around to it. And the younger they are, the higher the number of non-savers.  Younger respondents also argue that they don't make enough money to save.
 
The good news may be that the unemployment rate is at record lows and wage growth is improving after years of stagnation. As a result, an outside observer might come to the conclusion that this should allow more people to save more, but this is America. 
 
The question to ask: will Americans save it or spend it? If modern history is any guide, I'm betting on the latter.
 
Bill Schmick is registered as an investment adviser 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. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

 

     
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