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@theMarket: U.S. Jobs Data Sink Markets

By Bill Schmick
iBerkshires Columnist

What's good for Main Street is not necessarily good for Wall Street, at least in the short-term. As traders fret over a new era of rising interest rates, American workers may finally be coming into their own.

The 5.1 percent unemployment rate, coupled with a 0.30 percent increase in wage growth has convinced stock traders that the Fed will raise rates this month. Over the past five years, investing in the financial markets was a one-way street. It didn't matter what the economy did, it was all about lower interest rates. The lower rates fell, the higher the market climbed. As the Fed prepares to reverse course and hike rates, investors are facing a brave new world and are nervous about that.

It will be a world where economics and its inevitable dislocations, will impact market valuations. Inflation will come back, as will wage growth, and productivity will start to matter again. As they have throughout history, interest rates will determine what investors are willing to pay for other financial assets. The end of massive central bank intervention will allow the American markets to function as they have in the past. Are we ready for that?

Yes, you may say, five years is long enough for all this government meddling. Of course, the flip side of that coin is that without the Fed's "put" on the market, we have to assume the risks of the marketplace. For me, personally, I'm fine with that. I cut my teeth in those kinds of markets and grew up in this business using all those historical metrics that have not worked very well since the Fed started intervening in the markets in 2009.

Plenty of people have explained the so-called reasons for the present turbulence in global financial markets. It's China, it's the Fed, or slowing global growth. Declining prices for oil and other commodities also make the list. All of the above may be true, but it strikes me that this is a correction that is looking for a reason. Sometimes there is just no "because ..." and I think this is one of those times.

Over the longer turn, history has taught us that what is good for our economy will also be good for our stock markets. Any discrepancies are usually short-term in nature. This is the crux of the matter. We all know that the typical investor's time horizon has grown shorter and shorter as a result of the internet, the media and our own expectations of what we expect from life. Most of us want it now and we become mightily distressed when that doesn't happen.

Why the lecture? In my opinion, all that is happening in the markets today is a sorting out of the potential risks we face in the near future. Are the markets correctly valued in a rising interest rate environment? How strong will the economy grow and how soon? Will the unemployment rate drop even further, maybe into the 4-plus  percent range. What will that mean? The "what-ifs" are endless, but that's what makes a market.

I suspect it will mean a return to the old ways of doing business. High-frequency trading, computer algorithms and the intensely short–term mentality in the narrow-minded corridors of Wall Street will have to change. As long as the Fed "had our back," traders could take all the risks they wanted. I'm betting that without that safety net, the casinolike element of the stock market will slowly subside. That will be a good thing for you and me.

I wrote last week that readers should expect continued volatility over the next several weeks. I remain convinced that we will re-test last Monday's lows (and possibly even break them). If we did, that would create a last burst of panic and lead to a final washout.

Don't try to trade this correction. Given the 200-point daily swings of the Dow, if the markets don't scare you out, they will wear you out. Instead, start practicing your long-term perspective. Just give the stock market time to digest this transition. Your portfolios are going to come back by the end of the year. Focus on what's really important over this holiday weekend.

The economy is finally picking up speed. Wage gains are accelerating and employment is close to full capacity.

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: Senior Housing Set to Soar

By Bill Schmick
iBerkshires Columnist

United States demographics indicate that the senior population in this country is growing at twice the national average. As more and more Baby Boomers retire in the years ahead the demand for senior housing is set to skyrocket.

Independent living facilities, where the elderly are still active and relatively healthy, are driving the growth in the overall retirement market. Occupancy rates have reached 91.3 percent and the overall growth rate in this sector is averaging about 6 percent a year. Since seniors will represent 20 percent of the U.S. population by 2030, according to the U.S. Census Bureau, this segment of the housing market will continue to grow.

The demand for these communities will continue to rise by the 500,000 people a year who will hit the age of 65 in the years to come.

Although the vast majority of Americans over 50 years of age still want to remain in their homes indefinitely, that may not be possible as health and other factors force them into alternative living styles. And the so-called nursing home business has been given a bad rap (and deservedly so), thanks to decades of accounting scandals, operational issues, excessive debt and poor, regimented living conditions. The good news is that this industry, that so many of us fear, is actually getting a facelift.

Surviving players and new entrants in the senior living industry have acquired a better understanding of what make seniors happy. They have adapted programs and amenities that are starting to attract the elderly. Back in the 1960s, when retirement communities were first built, big was beautiful and some developments numbered 25,000 homes or more. Today, planned developments range from 20-30 units to as large as 300-400 units, but rarely larger than that.   

The cookie-cutter approach has all but disappeared and in its place is a focused customizing strategy that transforms each new resident’s experience within the senior living community into something uniquely their own. There is also a renewed emphasis on home ownership rather than renting, since 80 percent of seniors, age 65 and older, are accustomed to being homeowners rather than tenants and they want to keep it that way.

The senior housing market is normally divided into several categories ranging from active adult communities, which are typically condos, co-ops or single-family homes with minimum or no services offered to those who are less active and may have more difficulty with routine housekeeping might prefer independent living facilities that supply everything from meals to organized group activities.

Seniors who find themselves needing personalized support services but do not require nursing home care might choose multifamily properties in an assisted living facility. Skilled nursing facilities and continuing care retirement communities provide hospitallike levels of care mixed with large numbers of independent living and assisted living units.

However, the days of long institutional hallways filled with drab rooms and silent residents watching visitors walk by are long gone. Instead, expect to see beautiful resort-style communities that offer residents exercise classes, fitness rooms and amenities and services that you might see at a luxury resort or on a cruise ship. Monday it may be cooking classes offered by an in-house chef. Tuesday could be golf pro lessons on the community links. Some communities have their own broadcast stations, social media sites or newspapers, with residents taking an active part in producing the news or entertainment.

As the population grows older it is also growing smarter. For the most part, seniors are more educated than ever before. They know what the future holds and are more willing to take control now. Moving into a beautiful senior living community at a younger age is making more and more sense to a growing segment of the elderly population.  I expect that trend to continue.

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: Are We There Yet?

By Bill Schmick
iBerkshires Columnist

This week we witnessed the first substantial correction in the stock market of the year. What matters most to investors now is whether we are at the end of the decline or the beginning of something worse.

We've seen the lows, in my opinion, but that doesn't mean we won't retest them. Normally, I would expect to see at least one re-test of the lowest level made by the S&P 500 Index before all is said and done. If so, there could be risk of as much as a 5 percent decline over the very short-term for the markets. That doesn't have to happen, but it may, so I want you to be prepared for the worse.

It was certainly a bad week to be out of the office visiting clients. However, being removed from the fray did give me a different perspective.  What struck me immediately was how panicked investors became at a sell-off that was entirely normal in its depth and duration. At its worst, the S&P 500 was down a little over 12 percent.  The next day it gained back almost 3 percent but that did not seem to matter.

I also noticed that volatility was higher than normal. That could be because many market participants in America and Europe were on vacation. The Dow dropped over 1,100 points on Monday morning before bouncing higher. That really spooked investors. What you may not know is that the Dow Jones Industrial Average has traded over 200 points (up or down) over the last six sessions. That has never happened before in the history of the stock market.

Finally, this correction has punctured several holes in Wall Street's belief that our trading systems are the best in the world and head and shoulders above those of other countries. Not only were there any number of problems in trading both stocks and exchange-traded funds this week, but even the end of day pricing of securities became a problem.

Some of the so-called "circuit breakers" that were originally created to assist the flow of securities trading during times like these actually hindered the flow of trading at times. The lack of bids for securities should also put to bed the myth that high frequency trading somehow improves the depth and breadth of the markets. The opposite occurred this week as computers and the desk jockeys that guide them all fled the market at the same time.

As the smoke begins to clear, what I see is a market that may have more similarities to foreign stock markets (like Shanghai) than we care to admit.  We Americans deride that market where two-thirds of investors are supposedly ignorant retail investors who trade in herds. That's exactly what I witnessed this week in our own markets.

How were the panicky calls to "get me out at any cost" mentality of so many U.S. investors different from those by the Chinese?  At least the Chinese markets appeared able to accommodate trading volumes far better than we could despite handling volumes that dwarf our own. You would think that more experienced, highly sophisticated investor types like us would understand that a 10 percent correction happens at least once a year in the stock market. Yet, I know several seasoned investors and money managers that were selling when they should have been buying.

As for the market, I expect the volatility will continue into September, although not at the rate of this week. You may have a chance to buy lower but that's a short-term call that is simply too difficult to predict. What seems clear to me is that we now stand a good chance of moving higher by the end of the year. I expect the markets to recover all its losses plus another 4-6 percent on top of that. That's not a bad return over the next four months.

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: The Marijuana Market

By Bill Schmick
iBerkshires Columnist

Only four states have legalized marijuana for recreational use so far. Another 23 have given the nod for using cannabis for medical usage. Today it is a $2.7 billion industry that is set to grow substantially in the years ahead if more states jump on the band wagon.

Whether legalization is a fad or a trend in this country will have to wait until the next election cycle in 2016. Legalizing the drug will most likely be on the ballot in several more states. Researchers from California-based The ArcView Group, a cannabis investment and research firm, predicts that 14 more states will legalize marijuana while two more will legalize medical marijuana next year. In addition, at least 10 more states are "considering" legalization, according to them.

Since the latest polls by Gallup indicate that only a slim majority (51 percent) of Americans favor legalizing marijuana, those projections may prove to be overly-optimistic. If they did materialize, that would place legal marijuana as the fastest growing industry in the United States. To date, only four states — Colorado, Washington, Alaska and Oregon — have developed a retail trade in legalized marijuana. D.C. has also legalized the drug, but sales are currently banned. Congressional Republicans have blocked the new law.

Remember, too, that the federal government still considers marijuana a dangerous drug (a Schedule 1 controlled substance like heroin or LSD). And clearly, there are a number of legislators that are bound and determined to keep it that way. As a result, if you are thinking of entering this business you should be aware of the drawbacks and political risks before ripping up the tomatoes and re-planting your back-yard with pot plants.

Since banks are federally regulated, very few of them are willing to loan newly minted pot entrepreneurs the seed money for a start-up (no pun intended). You can also forget credit card transactions as well. This is a purely cash business. Not only will you need your own startup capital, but without access to banking, you are going to need to pay your staff, your suppliers and even your taxes in cash.

There may be some longtime growers and users of marijuana out there that think they have an edge once pot is legal. That may prove to be an erroneous assumption. Legalization, like the end of Prohibition for alcohol, creates two opposing changes in growing and selling marijuana. It provides downward pressure on pot prices. The same ounce that sold for $300, may now only command $200. Second, the supply of marijuana suddenly expands considerably as new growers jump in.

In that kind of environment, quality of product becomes one of the critical factors in the sale and profitability of production. Competition is fierce. Those with the resources to grow their crop scientifically, using the best and latest bioscience, fertilizers and equipment will end up on top. All of that costs money and a lot of it.

In addition, you will need to brand, market and distribute your product. Handing off the "dime baggie" at your local park won't cut it. After all, you are trying to get on the ground floor of what you hope might be the next Wholefoods in the marijuana business. To do so, and do it profitably, is going to take a lot of business knowledge, retailing know-how and luck. Do you have what it takes?

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: Markets Are Supposed to Pullback

By Bill Schmick
iBerkshires Columnist

It was a sea of red for stocks this week. Global markets broke a seven-month trading range and the rest is history. Consider this week's decline a positive development. Here's why.

Over the last seven months, the S&P 500 Index has traded in a narrow range between a gain of 3.5 percent and a loss of minus-3.2 percent. That hasn't happened in almost 50 years. As markets go, this was a highly abnormal development. Something had to give and I have been writing for months that at some point we could expect a larger, more "normal" sell-off in the market. Well, now we are returning to normalcy. It isn't pleasant, because losses make us feel worse than gains make us feel good, but it is necessary if we want the market to move higher.

So why, you might ask, if I felt so sure that a decline was in the cards, didn't I recommend that you get out of the market? I might have done so, if I believed that we were facing some calamitous event that would send us down an additional 20 percent or so. I don't see that at all.

Instead, we are facing a long overdue decline that is more psychological than fundamentals. Since traders need an excuse to justify why they sold (when they should have been buying), the media trots out the most popular causes of decline. We have a short list that includes a tiny U.S. interest rate hike (that may or may not happen), falling oil prices (a boon to consumer spending), and a slowing global economy (something that we have known for months).

But before you panic, consider this: year-to-date the Dow is down 4.4 percent. NASDAQ is still up 3 percent and the S&P 500 is off by a paltry 1.13 percent. Readers might recall that there were many days back in 2011-2012 when the averages were off that much in one trading session. So why do you feel so uncomfortable right now?

It could be because the last seven months of watching the market go up and down in such a narrow range has frayed your nerves, like watching a tight-rope act, waiting and holding your breath to see if the acrobat will fall to his death. Yesterday he fell off the tightrope. Your mind may be telling you not to worry, while your emotions are making you feel that this sell-off is the beginning of the end. It is not.

As in past corrections, the markets have dropped swiftly. It is the escalator-up, elevator-down syndrome so prevalent in declining markets. The S&P 500 is presently a bit above the 2,000 level. We have a long, long way to go (1,921) before the decline in the S&P 500 would qualify as a correction. We would have to drop to 1,708 before I would say we were in a bear market.

This weekend, expect the headlines to be even more negative than usual. Ignore it. I'm expecting the S&P index will find support around 1,980, which is less than 30 points lower from here. That could happen as early as mid-week. Do you think you can live with that?

If you have new money to invest in this market, now would be the time to start buying. I know I am. If, on the other hand, you still had money in government bonds, it would be a great opportunity to sell them and move the proceeds into equity. Relax, stay invested and remember that these kind of textbook declines are the cost of doing business in the stock market, nothing more, nothing less.

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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