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@theMarket: Spain Rains on U.S. Parade
By Bill Schmick On: 02:19AM / Sunday April 08, 2012
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The release of the Federal Reserve's FOMC meeting notes on Tuesday was responsible for the initial sell-off in the markets this week. Then a Spanish bond auction on Wednesday was received poorly by bond investors. That spooked the U.S. stock market for a second day in a row. Things have snowballed from there.

I guess when it rains, it pours, at least when it comes to bad news in the stock markets. European Central Bank President Mario Draghi added to investor worries by expressing his concerns of future inflation and was therefore less than anxious to provide any more financial stimulus to the European crisis.

The justification for the recent European stock market rally has been investors' belief that central bankers stand ready to flood the markets with more and more money at the slightest whiff of additional problems. Draghi's remarks, coupled with the Spanish bond auction, did not play well among investors.

On this side of the pond, the Fed's meeting notes released on Tuesday afternoon indicated that unless unemployment and the economy take a sudden turn for the worse, investors should not count on further easing by our central bankers.

Oh me, oh my, lions and tigers and bears!

As I have reminded readers several times in the last month or two, this rally has been fueled by the conviction that the Fed will "soon" announce QE III. Tons of newsprint has been devoted to exactly when this will occur. The latest date pontificated by the most influential brokers is "no later than June." It is therefore mystifying that only two of the 12 FOMC board members support further easing at this time.

Those who have been following my advice have already raised cash, sold their most aggressive stock holdings and are therefore perfectly positioned to take advantage of this pull back.

"So how low can we go?"

It was the first question I received this week from readers.

The short answer is 5-8 percent. That would push the S&P 500 Index down to the 1,310-1,350 level. In the scheme of things that is not much of a drop given the 11 percent rise since the beginning of the year and 20 percent rise since October, although any loss is painful for investors. At that point, I think the market would more accurately reflect the present state of the economy and its prospects.

There is some discussion among economists, however, that the spate of good economic data we have been experiencing lately has been "front-end loaded." As a result of an abnormally warm winter and spring in two-thirds of the country, economic activity has been bunched into the early part of the year and we may see a slowdown as we enter the summer months.

I have maintained that the markets have been priced to perfection and that any bad news would have an inordinate impact. We will have to watch the economic data closely over the coming months for any clues to address those front end concerns. In the meantime, be prepared for some choppy action and potentially more downside this month in the markets.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles 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 (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.




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The Independent Investor: Retailers' Easter Baskets Full
By Bill Schmick On: 02:00PM / Saturday April 07, 2012
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"... He's got jellybeans for Tommy,
        Colored eggs for sister Sue,
There's an orchid for your Mommy
And an Easter bonnet, too."


"Peter Cottontail" by Steve Nelson & Jack Rollins

 This year's early spring could mean a little extra cash in retailers' Easter baskets. Despite gasoline prices approaching $4 a gallon, consumers are shopping for everything from hams to hydrangeas.

Overall revenues are expecting to increase by 11-14 percent. That would make three years in a row in which retail revenues have risen in the March/April period. The unseasonably warm weather we have been enjoying has helped chain store sales post their best weekly gains in more than 11 years. Easter also happens to have arrived 16 days early this year. The combination of the two developments could mean as much as $16.9 billion more this year, according to the National Retail Federation.

Easter is the 4th largest spending holiday in America after Christmas, back-to-school, and only slightly smaller than Valentine's Day. The average consumer is expected to spend $145.28 (up 10.9 percent from 2011) and 25 percent higher than the dark days of 2009. The average male shopper will outspend women, with shoppers in the 25-44 years age category spending the most.

Almost 19 percent of Americans will shop online this year while as many as 46 percent of shoppers will at least use their mobile devices to comparison shop and/or research product and retailer information. Yet, Americans are still looking for a deal. Over 63 percent of spenders are heading to discount stores as their first stop for Easter purchases, followed by department stores (42 percent) and specialty stores (25.4 percent)

My first stop will be at the supermarket, where I will pick up a free turkey or ham as a result of accumulating $300 in shopping points over the last two months. It is no surprise to me that food is the top category of spending for Easter and Passover with 87.7 percent of shoppers buying $5.11 billion in ham, lamb, turkey, and fish with all the trimmings. Ham prices have been higher than usual over the last two years, thanks to high feed costs. A typical ham is selling wholesale for 75 to 80 cents per pound this spring, well above the 55 cents per pound it has averaged for the previous five years.

Candy is also a big item. Easter comes in second after Halloween as the top candy selling event of the year, according to the National Confection Association. We will spend $2.346 billion to fill our children's Easter baskets this year, spending an average of $20.35 each for sweets. Flowers and greeting cards on the other hand, while experiencing healthy sales, are not as important during this holiday. Still, Hallmark Cards reports Americans will send $57 million greeting cards this season, which makes Easter the fifth highest holiday sales period for them.

More than 7,500 warm temperature records were set last month. The warmest March on record was set for Chicago, Oklahoma City, Milwaukee, Detroit, Kansas City, Nashville, Indianapolis and Tampa, while it was the second warmest month in the history of New York City and Philadelphia. The warm, dry weather in two-thirds of the country spurred additional sales in a host of product lines. Spending for lawn and garden supplies was up 39 percent in March over last year. My wife, Barbara, had a hard time buying a rake at our local Tractor Supply store because the sales clerk said they had been sold out weeks before.

Spring clothing sales are also benefiting from the demand for new Easter outfits, while young and old alike are shedding overcoats and scarves to hunt for that perfect pair of shorts or tank top.

All in all, Easter this year should be gangbusters. What retailers worry about now is whether the strong sales now are only pulling demand forward. Will the heavier spending carry over into the summer or will shoppers, having depleted their spending limit, simply put their hands back in their pockets until the fall? I suspect additional consumer spending will depend upon how strong the economy will be and how fast unemployment will fall during the next several months. In the meantime, I wish you my readers a Happy Easter and Passover.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles 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 (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.




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@theMarket: S&P 500 Enjoys Best Quarter Since 2009
By Bill Schmick On: 06:56PM / Friday March 30, 2012
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It was a quarter to write home about. All three indexes made substantial gains but the S&P 500 Index had a great quarter and its best start of the year since 1998. Will it continue?

In the short term the answer is a definite maybe. If you put a gun to my head, however, I would bet that sometime in the second quarter we will have a correction. In April, if history is any guide, we usually see the peak in stock market performance. As the month progresses, investors begin to "sell in May and go away."

Monday, the markets received its latest shot of adrenaline when Federal Reserve Chairman Ben Bernanke assured investors that the easy money we have become addicted to is still needed. That sent the S&P 500 to its best closing level in almost four years. Those gains were led by the same group of stocks that have defied gravity and have continued to make higher highs without thought to earnings, price or any other metric of valuation.

One particular darling of the market that beings with "A" (hint: one of these a day is supposed to keep the doctor away) has witnessed its market value increase by $172 billion in the last two month. That is equal to the entire value of a large, well-established health care and consumer products company with over a 100-year history. It now represents 4.4 percent of the S&P 500 Index and by itself is larger than the entire U.S. utilities industry.

"A" will have to sell $2.6 trillion of products and services over the next decade (amounting to 1.5 percent of U.S. GDP) to justify that valuation. That would mean that every person in this country would need to spend $750 a year on its products for the next 10 years. I remember a similar period in stock market history in which valuations got this high and we all know what happened to the dot-com party.

Another indicator, the number of net new 52-week highs of stocks on the S&P 500 is shrinking from 280 in the beginning of February to 63 today. That should elicit some concern since the same index moved up from 1,345 to 1,408 during that time period. Warning signs like this abound but remember that markets can remain irrational far longer than you or I can remain solvent.

My sentiment indicators are still flashing amber as bullishness remains at historically elevated levels. If one looks at psychology, as it applies to market cycles, it appears we are on the other side of euphoria which is the top of the bell curve of investor emotion. To the right of this euphoric top the markets back and fill. We are in the complacency stage right now where most investors and market pundits believe that all we need do is cool off a bit before the next rally. What's after that?

If the markets begin to decline anxiety sets in followed by denial, panic, capitulation and then anger. This week we had three down days in a row, which is about the most we have endured all year. Many traders were expecting the quarter to go out with a big bang as institutional buyers did some end of quarter "window dressing." The opposite occurred and instead we saw some profit taking in the high flyers.

Historically, bull markets have averaged 39 months in length. If you date this one as beginning in March 2009, then this bull is over three years old. That means by the end of the second quarter, you should be wary of a market top. In addition, during the last 21 election years between March 1 and Election Day, the maximum correction has been a loss of 9 percent.

None of this is new information because everyone is looking at the same data. The question is when you decide to pare back. The greater fool theory applies less and less these days. Those who hang around to the last moment often find themselves with no one willing to buy their high priced securities. Don't let that happen to you.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles 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 (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.



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The Independent Investor: Hire a Veteran
By Bill Schmick On: 06:21PM / Friday March 30, 2012
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Over 2.2 million of our men and women have served in Afghanistan and Iraq. Today 7.6 percent of them are looking for jobs. Hiring them should be a no-brainer for this country's employers.

Don't get me wrong, things have improved for returning Gulf War era veterans over the last two years. In 2010, their unemployment rate was 11.6 percent and spiked to 12.1 percent in 2012, according to the Bureau of Labor Statistics. Fortunately, the economy has improved since then and both the public and private sectors have pitched in to aid our returning vets in their job search.

However, more needs to be done. Although 1.9 million of these ex-soldiers hold private-sector jobs today, another 90,000 troops are expected to return from Afghanistan by 2014. The good news is that the economy seems to be healing and the jobless rate has come down to 8.5 percent Say what you want about the Obama administration, they are doing a good job at getting the word out that our veterans come first, in my opinion.

The president has launched a Veterans Job Corps and has offered tax breaks for companies that hire vets under his VOW to Hire Heroes Act. The White House's "Joining Forces" initiative, led by the first lady Michelle Obama and Dr. Jill Biden, is also telegraphing the nationwide message to "Hire a Vet, Hire a Vet."

In addition, the Department of Veterans Affairs is doing all it can to convince America's corporate world that veterans should be a prime ingredient of their work force.

The VA has put on job fairs to woo private and public-sector employers into interviewing more vets with some success. The VA's selling points, when pitching the strengths of veterans, are their self-discipline, problem-solving skills, decision-making under stressful circumstances and their attention to detail. It also helps that most veterans are team players. I happen to agree with all of the above.

Back in the day, (when I returned home from a stint in Vietnam) I needed and found a job as an apprentice machinist in my hometown of Philadelphia. It was a culture shock. A factory floor replaced the jungle canopy that was my home for almost two years. I knew nothing about cutting bars of steel into aircraft nuts and bolts, but I was willing to learn.

Granted, I was no longer making life and death decisions on a day-to-day basis as leader of my Marine unit, but it was a job and I was grateful to have one. After all, no one was shooting at me. To be honest, it was monotonous, boring, dirty work, but I stuck with it and did a commendable job (according to my boss) until it was time to start my college education. Believe me, vets know they have to start over and learn from the bottom.

Since all the focus seems to be on Gulf War soldiers, for those pre-9/11 veterans who may feel left out, The Veterans Retraining Assistance Program, which is part of the VOW to Hire Heroes Act, will begin offering 12 months of GI Bill benefits for older unemployed vets by this summer. Vets who qualify may be able to receive as much as $17,600 for education and training.

And don't believe all that malarkey about post-traumatic stress disorder. The Rand Corp.'s 2008 study indicated that almost one in five returning vets suffered from PTSD may be true but that still leaves over 80 percent of Gulf War vets without PTSD. I'm almost sure all front-line soldiers (regardless of their war era) suffered from some PTSD. I know I did when I returned from Vietnam. Remember, too, our homecoming was much different from today's treatment of returning soldiers. Call me lucky, but the trauma of war plus the ostracism I felt from Americans at home never interfered with my job performance and, over time, I got over it without medical assistance. Most vets do.

Today's exodus of soldiers after 10 years of war in the Middle East reminds me of a similar time in America's history. I wrote about it in a past column:

"When WW II ended in 1945, 16 million Americans (one out of eight) were serving their country in some capacity. With returning vets looking for work, many feared we were heading for massive unemployment and another Depression unless Washington did something about it. In 1944, the GI Bill of Rights was passed. It gave servicemen unemployment checks, low-interest housing, business loans and a free college education.

"Nearly 8 million vets took advantage of that benefit and in the process drove the U.S. illiteracy rate to 3 percent, the lowest level in American history. It also transformed our economy, creating a massive Technocracy, while introducing the age of information."

We may be on the verge of yet another such experience (if smaller) that could boost our future economic prospects simply by harnessing the power of these returning heroes today. I say we have nothing to lose and a whole lot to gain by hiring a vet.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles 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 (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.



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@theMarket: Markets Mark Time
By Bill Schmick On: 12:03PM / Saturday March 24, 2012
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Questions concerning China and its economic future kept the market's exuberance in check this week. Given that China is key to most global growth forecasts, any hint of a slowing of the Chinese economic engine is taken seriously. This week we received a bit of bad news.

Over the last seven years, Chinese government central planners have established a stated economic growth rate for China's economy of 8 percent. This week, Chinese Premier Wen Jiabao set a growth target for his nation's economy at 7.5 percent for 2012, which is half a percent lower than targeted.

At the same time, government forecasters in Australia indicated that iron ore exports may decline by as much as 8.5 percent this year. China was once again the culprit since it is a large consumer of Aussie iron ore. Iron ore is one of the main inputs in the production of steel. Also, Australian BHP Billiton, the world's biggest mining company, predicted that China's steel production is slowing as the country switches its focus from exports and massive building projects to the Chinese consumer and domestic consumption

Shaving one half of one percent off an economic forecast may not seem like a lot, but when the world's stock markets are priced to perfection, any ill wind that may blow quickly accelerates to gale force among market participants. The Chinese stock market nose-dived on the news. That market, which had experienced fabulous gains from 2003 through 2008, has languished and has largely been excluded from the rally in stocks that we have experienced since 2009.

To its credit, the U.S. stock market weathered the news quite well. It simply stalled the equity rally for this week. Although somewhat muted, sentiment is still at or close to highs that have traditionally signaled market corrections. In addition, The Chicago Board of Trade's Market Volatility Index, called the VIX, has hit lows that have not been seen in years. Volatility has been the watch word of the markets over the last two years. The price of the VIX today would indicate that investors are expecting smooth sailing into the future with no clouds upon the horizon.

The S&P 500 and NASDAQ Indexes are having their best quarters since the second and third quarters of 2009. Europe’s problems also appear to be behind us although lingering concerns over the financial shape of Portugal contributed to this week's nervousness. European exchanges had their worst week of the year with a decline of 4 percent overall. We will see if the U.S. market can decouple from the kind of profit-taking that is occurring across the Atlantic.

The recurring theme among everyone I talk to is when a pullback will occur. It was the topic of an entire evening's dinner conversation on a recent trip to Manhattan. Various members of the financial community gave their forecast. None present expected the markets to continue higher. That, my dear reader, is an important contrary indicator. I suspect that there are still a lot of investors, both retail and institutional, who are underinvested in equities and are just looking for a chance to put more money into the market.

Since there will always be those who will jump the gun, any minor decline continues to be met with a wave of buying from those still sitting on the sidelines. I expect that absence any more bad news, the markets will continue to experience shallow pullbacks followed by a slow grind higher. I feel fairly confident that somewhere out there a sell off is coming but exactly when is simply too hard to predict.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles 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 (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.




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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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