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@theMarket: Nowhere Land

By Bill Schmick
iBerkshires Columnist

Most of the stock market went nowhere this year. With the exception of the NASDAQ, the rest of the market returned investors less than the average yield of a yearly CD.

It was a disappointing year, to put it mildly. Recall the months of tension as the markets gyrated between up 3 percent and down by about the same amount. Then August hit and the markets declined precipitously, with the Dow Jones Industrial Average collapsing 1,000 points in a matter of minutes. Sure, the markets recovered, but if you had tried to trade that downdraft, you would have lost even more money, because the markets turned on a dime in October with no warning and recouped all of its losses.

What's worse is that all the culprits that generated negative returns for stocks are still with us. The declining price of oil continues to ravage investors. You may wonder why declining energy prices should be such a negative for the stock market. Conventional wisdom says that if prices continue to decline, the chances of bankruptcies in the energy patch escalate and that is negative for stocks.

I may disagree, but at the same time you don't argue with the markets when they get obsessed over something. No matter how crazy or irrational, you have to go with the flow until the flow changes. Then there is investors' angst that the central bank will raise rates again and again despite the anemic 2.2 percent growth of the economy. If they do raise rates 3 or 4 times in 2016, investors fear that it will crater the economy.

Finally, global growth continues to be anemic with China's growth the main concern. As China's economy (the second largest in the world) struggles to find its footing, the country's demand for natural resources also slows. This has caused the price of all kinds of commodities to go into free fall. But we know all this.

As we look ahead, one more uncertainty will gradually increase in importance in 2016.

The U.S. presidential elections will become a larger influence on the market as November approaches. At this point, most investors have no idea what candidates will ultimately face off in the fall.

In a presidential election year, there is normally a down draft in the stock markets sometime before November. How deep the sell-off and how long it lasts depends on a great many variables. Not least of which is investor's perceptions of who will win and what they will do differently from the old administration. The more unorthodox or radical the political platforms of the candidates, the more concern (and volatility) will be generated in the stock markets.

So for this coming year, investors should expect more of the same: volatility, angst, crazy swings in commodity prices, daily interest rate predictions from the Fed Heads and volumes of meaningless noise from the financial media. The days when you could just sit back and clip coupons or just assume a steady climb in stocks are over. You need to manage your investments now or find someone who can, and by the way, have a Happy New Year.

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.

     

@theMarket: Santa Comes to Town

By Bill Schmick
iBerkshires Columnist

He certainly took his own sweet time getting here. Investors had just about giving up hope that the traditional Santa Claus Rally would occur this year. But despite gyrating energy prices, worries over the economy and the looming next earnings season, stocks are on the upswing.

Of course, I am writing this on the Wednesday before Christmas because even the most devoted columnists take off on the holidays. We could still fall back tomorrow, but the markets are only open for a half the day so I'm guessing we maintain this week's gains.

It would be nice if the market continued higher into next week. If so, my forecast of a single-digit gain this year might actually unfold. Let's stay optimistic, shall we and hope for the best. In the meantime, investors, Wall Street strategists and assorted pundits are becoming increasingly downcast concerning the prospects for next year.  

The litany of worries is growing. I already mentioned earnings, which begin shortly after the New Year. Forecasts are somewhat dismal with the usual cast of culprits responsible for the expected disappoint results. Oil, the strength of the U.S. dollar, forecasts for further interest rate hikes, growing default risk in the energy patch, weakness of world economies, led by China, these concerns are nothing new to us. They have kept a lid on stock market performance all year and it looks like they will continue to weight on the market in 2016.

About the best you can say is that these issues are well known and, for the most part, already discounted by the markets. That leaves some room for upside surprises. There is a good chance that Chinese officials will announce further stimulus measures to turnaround their economy early next month. Some companies are going to report better than expected results in January and many will do better than analysts predict. They always do.

Most Fed Heads do not expect another rate hike by the Fed before at least the end of March, if then. Oil prices still remain a wild card and while I do not think energy prices have bottomed, there is at least a 50-50 chance that we could get a "dead cat bounce" before energy resumes its slide. That too would cheer the market, at least in the short term.

It could explain this week's market come-back, which has been led by a rise in energy prices. Beaten down material stocks have also been in favor although there has been no triggering event that would justify such moves. Unfortunately, that calls into question the durability of this rally.

Nonetheless, let's all be grateful for any gains at all. Next week could see a continuation of this up move, in which case, the year could end in positive territory for all three averages.

Given that it is an optimistic time of year, I'm betting for more gains. In the meantime, put the markets on hold for the rest of the week and have yourself a merry little Christmas.

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.

     

@theMarket: Where Oil Goes, So Goes the Market

By Bill Schmick
iBerkshires Columnist

Stocks had a tough week. All averages are now negative for the year once again and will continue to go lower until oil finds a bottom or the market disconnects from energy prices. The problem with that scenario is that no one knows if and when that will occur.

The price of crude is down 14 percent since December 1 and 35 percent since May. Controversy rages over whether the precipitous decline in oil over the last year from $114 a barrel to $36 a barrel is a supply or demand imbalance. New technology in the form of hydraulic fracking has unearthed a huge new supply of natural gas and oil worldwide. So much so that consuming these new sources of energy will require decades. At the same time, slow economic growth worldwide, especially in emerging market economies, has dampened demand for energy.

Whether the cause of the decline is one or both, the results are the same. Since May, the world has been experiencing a 2 million barrel/day gap of oversupply. What is interesting is that gap remains the same to this day. It hasn't worsened, although the oil price has declined double-digit in the last eleven days. Why the discrepancy between the fundamental facts and the price level?

Blame it on Wall Street. Financial manipulation in the futures markets seems to be responsible for the 36 percent decline in prices we have experienced since May. Traders have been shorting energy futures contracts hand over fist at the Commodity Markets Future Exchange and that practice accelerated after last Friday's disappointing OPEC meeting.

One can debate the logic of selling stocks simply because oil has declined. Bears will argue that as the oil prices go lower, the chances go up that energy companies will not only suffer earnings declines and cut dividends, but "many" may actually go bankrupt. That could also impact the corporate bond market. No question that could happen.

We have already experienced disappointing earnings from the group and just recently some energy master limited partnerships have cut their dividends. More are expected.  But one must ask how much does the energy sector represent within the stock market? If we look at the benchmark index, the S&P 500, the energy weighting is currently 8 percent and yet its troubles have taken the whole market down in excess of 3 percent just this week.

This is clearly a case of the tail wagging the dog.

Yet, no matter how irrational the market's behavior, what you don't want to do is get in the path of a speeding train. I'm not advocating selling right here, but I also don't want to be buying anything until I see how this energy free-fall plays out. I can't tell whether the clearing price for oil is around this level or at $30 a barrel or even lower. Until that becomes clearer, remain on the sidelines.

In the coming week, we also have the final Federal Open Market Committee meeting of the year. The bond market is giving an interest rate hike at the meeting an 87 percent probability.

Although I believe the market has already discounted that event, the coming rate hike is not helping matters. Still, I think all these worries are short-term in nature.

Sometimes, for a variety of reasons, the market ignores the fundamentals and instead focuses on the animal spirits that sometimes run rampant in the markets. This is one of those times.

At some point in time, when an oil-Armageddon does not materialize, the market may simply focus on something else. If I were a betting man, I would say that we rally after next week's FOMC meeting into the New Year. At these levels, however, all we will gain back is a single digit gain for the year. I'll take it.

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.

     

@theMarket: Markets Climb Wall of Worry

By Bill Schmick
iBerkshires Columnist

It was a week of geopolitical risks and yet the markets managed to hold their own. True to form, investors were bound and determined that this would be a good week for stocks and it was.

Historically, markets do well on Thanksgiving week and this was no exception. Since the turn of the last century, stocks perform well (at least two thirds of the time) during this 3 1/2 day trading week and into the end of the first week of December. So far, this year has been no exception.

Given the headline risks, its performance was quite impressive. Investors had to contend with the shutdown of Brussels for most of the week as authorities ransacked the capital of Belgium in pursuit of suspected terrorists. At the same time, the rest of Europe was on high alert for terrorist attacks. In our own country, Thanksgiving, the largest travel period all year, has security folks worried. The Paris terrorist attacks have provoked concerns that the nation's many parades and other celebratory events could be prime targets for Jihad crazies.

On Tuesday, global investors woke up to the downing of a Russian plane over Turkish airspace and all that might portend. U.S. stocks took a nose dive on the news but by the end of the day there was quite a bit more green than red in the averages. That was another encouraging sign.

As Black Friday approaches, investors will also be wondering how the nation's retailers will fare. See my column "How black will this Black Friday be?" for details. My own belief is that stores will do OK, but no records will be set. Black Friday is not what it once was as many consumers have moved on from door busters and long lines on this holiday.

Overall, if one steps back and looks at the market's performance since August, the signs are encouraging. We had the long-awaited pullback in August-September; followed by a huge recovery in October into November, another minor sell-off, and we are now approaching the highs of the year. It seems to me, a classic stair-step climb that could translate into new highs in December. But first we must take out the most recent highs set in November, on the S&P 500 Index that would be 2,109 and on the Dow, 17,910.

Stocks will also remain volatile right up to the New Year. Several big events are scheduled for this coming month. We have the last FOMC meeting and a high probability of the first hike in interest rates on December 16th. We also have an OPEC meeting on December 2. That meeting has some guessing that Saudi Arabia may become a little more cooperative in supporting oil prices at this level.

We are also expecting a decision from the IMF concerning China's currency, the Yuan. China has been lobbying the organization for years to allow the yuan to become a reserve currency along with the dollar, yen, British pound, the Euro and Swiss Franc. If so, that would most likely be greeted favorably by the Chinese market and global markets as well. Then we have the European Central Bank's decision whether or not to add more stimuli to their economies.

All of the above could well be market-moving events and not necessarily all will be positive. Throw in the traditional Santa Claus rally somewhere along the way, and you have the makings for a rather turbulent sleigh ride. But I do digress. What is important is that you all have a wonderful holiday. Take a moment and remember all that you have to be grateful for. I know that I will. Happy Thanksgiving.

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.

     

@the Market: Buy the Dip

By Bill Schmick
iBerkshires Columnist

Markets sold off this week but not everywhere. While the U.S. and Europe suffered a bout of profit taking, parts of Asia did fine. Investors should expect more volatility on the home front next week.

The mood among investment advisors was somber, if not downright bearish, at the Schwab investment conference in Boston. Over the last week, hundreds of money managers, including yours truly, sat through educational and investment sessions given by some of the best minds on Wall Street. Why so glum?

Many were worried that global growth would continue to slow and drag our economy down with it. Then there were the Fed Heads, who changed their mind about a December rate hike for the umpteenth time. Now, the odds are better than 70 percent (up from 30 percent) that the Fed will raise rates next month.

Given the current level of the stock market, which is close to all-time highs, most investment advisers are better sellers than buyers. Contrarian that I am, I think that is a mistake. The Schwab equity strategy team, Liz Anne Sonders and Jeffrey Kleintop, tend to agree with my view. Kleintop, Schwab's global strategist, pointed out that world GDP next year was forecasted to grow by 5 percent, according to the OECD, IMF and World Bank. He is also expecting global economic data will continue to surprise us on the upside between now and the end of the year.

Sonders, Schwab's U.S. equity chief, believes here at home a recession is several years away. It's her opinion that our economy is getting very close to "escape velocity." That's a term used to describe the ability of our economy to grow on its own, independent of any help from the Federal Reserve Bank.  She also thinks the Fed will raise rates in December, barring any unanticipated slowdown in the economic data between now and then.

There are, however, some issues confronting the economy that indicate that it won't all be smooth sailing in the weeks and months ahead. Although we have gained 13 million jobs since the financial crisis, which is a good thing, the flip side is that small businesses are having trouble finding workers.

We are also grabbling with an earnings recession. Profits over the last two quarters have been down, versus last year's results, and that is expected to continue. The rising dollar, energy prices, and a slowdown in China are among the causes of these disappointments. Corporations have been able to mask this decline by buying back more of their shares on the open market. This has the effect of boosting their profit per share (simply because they have less shares outstanding) but even the most naïve investor is beginning to see through this ploy.

Clearly, the above issues bear watching, but are not enough to derail the bull market. The days of double-digit gains may be over but we can still see respectable single digit growth from stocks. It all adds up to more volatility in the stock market in the months ahead.

This week was part of the readjustment in thinking among investors that is necessary as the Fed prepares to hike rates. Remember, two thirds of the nation's money managers have never experienced a rate hike by the Federal Reserve Bank. Fortunately, I'm not one of them.

As I predicted last week, the markets need to consolidate after several weeks of gains. It is nothing to worry about; just the usual give and take within the markets. If you have a little cash to spare, this would be a good time to put it to work.

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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