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@theMarket: The Trump Trade Bluff

By Bill Schmick
iBerkshires columnist
This week, our fearless leader upped the ante on the tariff tiff with China. It went like this: Trump announced his list. China announced theirs. And at the end of the week, the president sees them one better. Aside from the volatility, it is causing in the stock markets, not much besides headlines has been accomplished.
 
Are you seeing the pattern yet? Think back to Trump's schoolyard diplomacy with Kim Jong-un, the leader of North Korea. First, a furious exchange of tweets and name-calling between the two. That was followed by saber-rattling on both sides. More test missiles. Naval ships steaming toward the Peninsula. The media spent days explaining the "what ifs" while stocks went up and down. 
 
In the end, the two neighborhood bullies now appear willing to play nice and meet at the end of the month. I fully expect our president to come out of the meeting extolling "Fatty the Third" as his newest and dearest best friend.
 
Now compare that to the tariff turmoil. Tweets, counter tweets, threats, etc. are flying this way and that; but so far, it's all smoke and mirrors. Investors here in the U.S. are still reacting like puppets on a string, but elsewhere governments and stock markets are disengaging from these Trump tactics.
 
Take Thursday night's announcement. Trump ordered his trade rep, Robert Lighthizer, to "consider" an additional $100 billion in trade tariffs against China. By the time he does all that studying, a few months will have passed. In the meantime, things change and there is no guarantee that any recommendations will ever see the light of day.
 
However, like the puppets we have become, Thursday night's futures market for the Dow Jones Industrial Average fell by over 500 points. Corresponding drops in our other indexes also occurred. But here is where foreign investors parted ways with our traders. Japan's stock market traded up slightly at first and then dropped by a small amount at the end of the day. Some markets, such as Hong Kong and India, finished higher. By the time we opened for business on Friday morning, the losses in our own averages were pared back by more than half.
 
Like a dog whose bark is worse than its bite, global investors and governments are beginning to realize that what comes out of the Twitter-in-Chief's mouth (or his Twitter account) is neither policy nor necessarily even the truth. As such, investors would be well advised to ignore his pronouncements. Granted, that's hard to do because the president will go to great lengths to stay in the center of the spotlight, no matter what he needs to say or do to accomplish that goal.
 
Nonetheless, do not act on his statements. Next week, earnings season begins, and analysts expect good things from Corporate America. Wages continue to gain (2.7 percent on an annual basis), according to the latest non-farm payroll report, although the number of jobs gained (103,000) was 90,000 short of expectations.  From a macroeconomic point of view, things look good and are gaining momentum.
 
As for the markets, I expect volatility will continue. Right now, the S&P 500 Index is caught in a 100-point trading range and will probably not break out of it until the middle of April at the earliest. Cushioning the market somewhat, as I expected, is the tax cut. U.S. dividends increased in the first quarter to a record high. Corporate buy backs are also recording the same kind of gains, as most corporations reward their investors by passing along their tax savings, rather than investing them in jobs or capital spending (as the legislation's authors promised). That makes owning stocks a good bet for the future.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 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.

 

     

@theMarket: Will April Be Better for the Markets?

By Bill Schmick
iBerkshires columnist
It has been a tough month for stocks and February wasn't much better. Granted, it was a small price to pay for last year's great gains, but, as in life, all good things must come to an end. Will April bring more of the same for us or can we hope for something better?
 
Much depends on White House initiatives, "Spanky's" (the President's new nickname) tweets, and the world's response to the administration's trade war initiatives. None of the above is certain, and, as readers know by now, the markets hate uncertainty. 
 
This quarter, both the S&P 500 and the Dow Jones Indexes have seen a nine-quarter win streak come to an end. As of this week, the stock market has lost 40 percent of the gains it has enjoyed since Donald Trump's election victory. You could say "easy come, easy go," or you could be concerned that the other 40 percent could disappear just as fast. I am of the camp that those gains will stick around, largely because of the economy's underlying strength.
 
Could we see further downside? Technically, a case can be made for another 200-point decline in the S&P 500 Index to 2,462. It would first need to slice through support at 2,532. The evidence for that bear case is no stronger than that of the bull case. This week, we brushed, but didn't touch, the 200-day moving average, which is always a line in the sand for bulls and bears. Below it, we're in trouble, above it, green lights ahead. We have tested this level two times so far this year. Will a third time be the charm, and if so, for whom, the bulls or the bears?
 
Clearly, this year's winner thus far has been volatility. After months and months of declines, the VIX has risen and it has done so with a vengeance. Anyone (other than the professionals) attempting to trade the daily moves of the markets has ended up in a padded cell somewhere. The out-sized moves both up and down have been led by the technology sector. That's a bit of a problem for the market.
 
The technology sector, which has led the market's advance for the last five years, appears to have rolled over. The FANG stocks (everyone's go-to group of gainers) have run into regulatory trouble. Facebook's involvement with the surfacing Trump campaign scandal, involving Cambridge Analytica, has caused the whole group of social media stocks to fall under a cloud of suspicion.
 
Investors and traders alike, are concerned that world governments are on the verge of adopting new and more restrictive rules and regulations on these companies with far-reaching results. None of which will be positive for their stock prices. As a result, the NASDAQ, the tech-heavy index, has had its worst month since January 2016.
 
Certainly, there are good things that may be lurking just over the horizon. The North Korean situation is turning promising. Meetings between "Fatty the Third," (the popular name for Kim Jong Un among the Chinese citizenry) and our own "Spanky" Trump, as well as Prime Minster Abe of Japan and South Korea's President, Moon Jae-In, are encouraging. All these meetings are happening in April.
 
So far, the tariff talk from our trading partners has been conciliatory and their language deliberately low-key so as not to set off another tirade of tweets from our Tweeter-in-Chief. As I have written before, I do not believe that Trump will go over the deep end on a serious trade war unless provoked. The problem is that no one knows when and what will provoke him.  
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 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.
     

@theMarket: Trump's Trade Wars Sink Markets

By Bill Schmick
iBerkshires columnist
World markets declined again this week. Despite world condemnation, which included most of America's economists and corporations, Donald Trump unilaterally forged ahead in implementing his own brand of protectionism. Investors fear the consequences.
 
While tariffs on imported steel and aluminum are still being negotiated, the president has upped the ante and is now pursuing China. The United States has long accused China of stealing our intellectual property. The Chinese, of course, have denied that and so, for years the discussions went round and round — until now.
 
On Thursday, our president announced his intention to slap $60 billion of tariffs on 1,300 product lines of Chinese imports. As a result, all three averages experienced a major market sell-off. Investors and corporations alike fear China's response. The media is spewing out lists of companies that will get hurt the most by a Chinese trade war. One of the most vulnerable areas is America's breadbasket.
 
China imports a lot of food from us. We are, in fact, China's second-largest trading partner in the agricultural area. Investors are worried that China could hit that sector hard. That makes sense since that area of America is where Trump's base is strongest.
 
The Chinese are well-schooled in American politics. Remember the response of our European trading partners on steel and aluminum tariffs. They responded by threatening tariffs on export items important to Paul Ryan's and Mitch McConnell's' home states. But unlike steel and aluminum workers that together only amount to a few hundred thousand jobs, a Chinese tariff on soybeans, for example, could decimate our farming sector. What better way to retaliate against our country and attack Trump personally where it hurts — in the support of his base approaching the mid-term elections.
 
Republicans are already worried about keeping their majority in the House come November. Recent election contests have not gone well for Trump or the GOP. Political strategists believe that if the Democrats do re-take the House, they most certainly will begin impeachment proceedings against Trump.
 
It does not matter whether that effort will succeed, only that Trump will be so tied up (think Nixon) in defending himself from the Russian probe, sexual harassment lawsuits, etc. that all legislative progress (including his trade war) will halt for the remainder of his term. That would suit the Chinese just fine.
 
In addition, it is entirely possible that a Democratic-controlled Congress will rollback a sizable chunk of the tax reform act. Thus far, there is no evidence that the tax cut benefits anyone but the Republican's corporate campaign contributors and the wealthy. There has been no pick-up in investment nor jobs beyond what would have normally occurred.
 
Given that the tax cut is not popular with most Americans, (especially in states with an income tax), the stock market could be in for a shock in the second half of the year depending on who wins the House. These dynamics go a long way in explaining the volatility in the stock market.
 
For most of last year, Trump claimed credit for the market's advance, boasting that the averages were a clear signal of his approval rating in the country.  Of course, he ignored the fact that over half the population cannot afford to be in the stock market.  But this year he has been strangely silent when it comes to the market's decline.
 
As the White House becomes a revolving door where experience and knowledge are on the way out and "Yes" men are on the way in, investors are beginning to realize the potential downside of an amateur in the White House. 
 
I am still of the opinion that much of this tariff talk is simply Trump being Trump. Unfortunately, what may have worked well in a real estate deal, or naming a winner in a reality tv show, does not work all that well in the global arena.
 
"Breaking a few eggs" in bringing in a new casino or selling a building was all well and good, but using similar tactics on a global scale can generate very different consequences. Let's hope you and I do not end up in the frying pan. In the meantime, hang tough, stay invested, and grin and bear it.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 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.
     

@themarket: Trump's Tariff Talk Trashes Global Markets

By Bill Schmick
iBerkshires columnist
Stocks declined this week. This is a typical and largely expected reaction that should see the averages re-test the lows suffered in early February.  Investors should understand that this is no cause for alarm.
 
In past columns, I had warned investors that there may be another shoe to drop before the correction in the markets was truly completed. Typically, stocks make a low, which we did when the S&P 500 Index hitting the 200-day moving average (DMA) before rebounding. We subsequently regained about half that loss quickly. And now we are in the process of re-testing the lows. This is a classic stock market pattern, so don't fret.
 
Volatility reigns supreme right now as it should. The Dow, for example, rose or fell a minimum of 300 points in six out of the last seven sessions. Sickening declines, followed by nerve-rattling rises, have most investors on a roller coaster of emotions. If you can't take the ups and downs, my advice is to turn off the financial news flow and do something productive.
 
Investors might recall that the stock market exhibited similar behavior in 2016 when the averages declined 10 percent in January, regained their losses and then declined again in February. Those who panicked and sold made a terrible mistake, because all the stock indexes went on to move much higher in the ensuing years. 
 
Since markets always need an excuse to go down, this week the testimony of our new Federal Reserve chairman, Jerome Powell, gave traders a chance to do a little profit-taking. The new Fed chieftain, in his Humphrey Hawkins testimony before both houses of Congress, said nothing new or earth-shaking. The entire session was really a grandstanding play by Democrats to trash the tax cut and ask the new chairman questions that were entirely outside of his job description.
 
He did say that a fourth rate hike may be in the cards, if conditions warranted it. Fed officials have been saying that for months. The markets decided to hear it differently this time, however, and so, the markets sank. But it was Thursday afternoon's comments by the president that really triggered this latest waterfall decline in equities.
 
"The Donald," in his own unpredictable fashion, announced (during what was supposed to be a listening session of gripes by U.S. steel executives) his intention to raise tariffs on foreign steel and aluminum producers by as much as 25 percent early next week. His unexpected announcement caught both his staff, the Republican party and global investors by surprise.
 
"Trade War" has become the new battle cry overnight and Friday's reason to sell all stocks, no matter how low, because the world's markets are never, ever going to come back. Sounds silly, doesn't it, but if you listen to the news that's what you hear. Why are we so surprised?
 
Donald Trump had campaigned on this issue. After the election, he promised to do something about what he believed to be unfair trade practices by our trading partners. He backed out of TPP, threatens to do the same with NAFTA, and has promised relief for our steel and aluminum sectors, specifically. So now he has gone and done it. There is no doubt in my mind that our trading partners will retaliate at some point.
 
Contrary to the myth that the U.S. is the only country in the world to practice "fair" trade policies, we don't. We dump our products overseas to support our producers here at home just like China or the European Community does. We dump our agricultural products, such as wheat and soybeans, overseas and do so year after year to protect our farmers. Most of which are no longer the actors you see in commercials wearing overalls. The guys we protect are more like the Koch brothers or mega-cap, corporate conglomerates like Cargill.
 
In the real world, we protect our farmers and they protect their steel producers. It is the way the game is played. God forbid a politician should tell us the truth!  But tariffs are inflationary. Prices go up every time another tariff is enacted. If this tit for tat were to continue, and it might, commodity prices should start to move higher.
 
In the meantime, take a deep breath, accept that your portfolio will suffer losses, (because that's what is supposed to happen every now and then) and expect a rebound.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 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.
 

 

     

@theMarket: Interest Rates and Stock Market

By Bill Schmick
iBerkshires columnist
After years and years of historically low-interest rates both here and abroad, stock investors are suddenly paying attention to the day-to-day movements of the world's bond markets. They may be getting a little too obsessive for their own good. 
 
This week, the 10-year Treasury note and the equity averages moved hand in hand. As the yield on the U.S. Treasury moved higher, stocks moved lower. As the yield fell, stocks gained ground. This change in behavior is causing a great deal of needless volatility but I believe it is all part of the "normalization" process.
 
That is a term coined by investors to explain what happens when our central banks begin to back off the last ten years' worth of monetary stimulus and let the markets begin to dictate the level of interest rates. Now, historically, bond and stock holders have had a symbiotic relationship.
 
As interest rates rise, stock holders would take account of the rising yield on bonds and compare it to what they can get in the stock market. If they deem that bonds are a better deal than stocks, they sell equities and buy bonds. Usually, investors take into account the longevity of these investments -- one, five, seven, ten, twenty or thirty years, while what happens to yields on a day-to-day basis does not tend to move stocks. But these are not normal times.
 
The controversial but largely successful actions of the world's central banks to stave off a second global depression brought on by the U.S. financial crisis is now being unwound. Since there were no precedents for the Fed's massive market "save" over the past decade, there is no surety that reversing the process will work without tipping us into some unforeseen calamity.
 
Remember too, that we now have an entire generation of financial sector players from retail brokers to institutional proprietary traders that have never experienced a rising interest rate environment. It has been almost 45 years since interest rates topped out during the Jimmy Carter years. Since then, rates have fallen lower and lower until quite recently.
 
At the same time, the wide spread use of algorithms, computer-driven trading and the like has largely replaced human thought and behavior in over 70 percent of daily trading volume. These computers are driven by software programs created by extremely young and unseasoned "quants" that simply look at numbers. They instruct their machines to sell if "X" price falls or rises by a certain amount.
 
They have neither context nor history to adjust their programs for a rising interest rate environment, so they treat bonds just like they were stocks. These technicians are running around building "models" to trade these short-term blips in bond movements, while trying to figure out their impact on individual stocks and indexes. There is no doubt in my mind that they will succeed. The problem is that bonds are not stocks.
 
Unlike the majority of stocks today, bonds are meant to be held, sometimes, until they mature (which can be as much as 30 years). Daily price movements are simply "noise" in the grand scheme of things in the bond world.  But, today, young Turks act and trade like a 4-5 basis point move in bond yields will mean that the trillions of dollars invested in these instruments will be sold or bought in the next minute or so.
 
For you and me, what this development will provide is another reason why daily and weekly moves in the equity markets will have little to do with reality. The day's stock market results will simply be a reflection of a schoolyard full of little boys and girls playing with their toys. Some will make money doing it, while others will lose.
 
As for the markets, this week I expected them to pull back some. They did. During the last four days, stocks traded up and down in huge intra-day moves. On Tuesday alone, the Dow gained over three hundred points, dropped almost the same amount, before gaining half of it back. This kind of volatility tells me this consolidation period may not be over. We could still see a little more damage in the very short term, but overall, I am still convinced we are going higher and fairly soon.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 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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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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