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@theMarket: Danger Zone

By Bill Schmick
iBerkshires Columnist

"Highway to the danger zone
Gonna take you
Right into the danger zone"


Something new is happening to the stock market, it has actually had two negative days in a row. That doesn't mean much after weeks of gains, but it just may signal a temporary halt to the Trump Rally.

My short-term target in this Trump-inspired rally was achieved this week. The benchmark index, the S&P 500, not only reached 2,330 (my target) this week, but went beyond it. The S&P 500 kept on climbing, reaching an intra-day, record-setting high of 2,351.31 on both Wednesday and Thursday. The index has subsequently fallen back but not by much.

The Dow, NASDAQ, the small-cap Russell 2000 Index, plus a slew of other averages also reached record highs. Make no mistake, that's a good thing. Hence forth, any further gains will put us on a highway to what I call the danger zone.

Like the movie, "Top Gun," we can cruise into the danger zone (where most accidents occur), but as Goose and Maverick discovered, one wrong move can send us into a tailspin. Let me make something clear, however, when (not if) this tailspin occurs, your portfolio will come out of this intact and reach even higher highs over the coming months. That is the reason I have been counseling readers to expect a decline — but not try to play it.

In this Teflon market, little can dent theses gains. There were rumors, for example, that a $4 billion hedge fund was in trouble. The markets barely moved. Then there was Fed Chairwoman Janet Yellen's annual Humphrey Hawkins testimony before Congress. In the past, investors and traders would hang on to every word for clues of what the Fed would do next in the interest rate environment. Today, the Fed's spotlight has been stolen by the actions of our new president.

And speaking of our Top Gun, this week we witnessed some really crazy action coming out of Washington. True to form, "The Donald" in a press conference on Thursday performed another media-bashing episode that sent top network journalists screaming that the president has lost his mind. I found it amusing. Some of Trump's top cabinet choices backed out, another resigned, while the Democrats continued to erect as many barriers to progress that they can. Welcome to Washington.

On the foreign front, President Trump bashed Venezuela's leaders for facilitating drug running, met with Canada's and Israel's leaders, while telling Russians to give back Crimea to its people. None of these events moved the markets. Even the presence of a Russian spy ship, the SSV-175 Viktor Lenov, off our coast could do no more than produce a yawn from the high-frequency traders.

For the markets, it is all about waiting to see what "phenomenal" tax, economic and regulatory reforms will be forthcoming from the White House. To be fair, the Federal Reserve Bank still has a role to play in investors' psyches.  Bond traders are keeping a watchful eye on exactly when the Fed plans to raise interest rates again. Right now, March is off the table and June seems the month of highest probability for another quarter point rise in the Fed Funds rate.

I expect markets to do little until further economic news is released from Trump's team. The response from Congress will also be important. At any time, we could see a pullback because now we are in the danger zone.  But as I have written, it would be a dip that should be bought not sold. Stay invested.

Note: Several weeks of Mr. Schmick's columns in January & February disappeared into the ether on their way to iBerkshires. They are being back posted to the dates on which they should have appeared.

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. 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: Stock Markets at Historical Highs

By Bill Schmick
iBerkshires Columnist

The bears headed for cover this week as all three U.S. indexes made new, all-time highs. That's a good sign and augers well for even more upside ahead.

Credit goes to President Trump and his tweets once again. This time, his promises to address tax reform within the next few weeks had the Algos (algorithmic computer software traders) hitting the "buy" buttons on their machines.

Investors (if there is still such a thing) had been worried that Trump and the GOP would get bogged down in Obamacare repeal and immigration issues. If so, that would be a major distraction and might mean that tax reform and fiscal spending would be pushed back to next year or even later. The tweet seemed to put that story to bed, and the rest was history.

Good quarterly earnings have been supporting the over-all market.  Expectations have been for a 6 percent increase in corporate earnings, but that number proved low. Companies have been reporting better than that (7 percent-plus), but forward guidance has been better than expected. Whether it is Trump or the gathering strength of the economy, business executives are more optimistic about the U.S. economy and their fortunes than they have been in years.

Technically speaking, the Dow and the S&P 500 Indexes have established a new trading floor at 20,000 and 2,300. Readers may recall that I am looking at 2,330 as a short-term top in the S&P 500 Index, with the other indexes following suit. The downside, if it occurs, could be in the 5-7 percent range.

Be aware that tagging a short-term top or bottom is notoriously difficult, especially in today's topsy-turvey markets. There have been plenty of warning signs signaling a top, from high levels of positive investor sentiment, to the narrowing of breath within the markets. The problem with all indicators is that things can get even more extreme before a crack appears in the bull's camp.

I would not advise long-term investors to do anything if the markets do decline. It would be just too difficult to game the downside, especially when we have a tweet-happy president who is not above lobbing a bear-killing message tweet in the midst of a market decline. There just seems to be too much risk in not remaining invested.

Over the weekend, President Tump will be golfing in Florida with Prime Minster Shinzo Abe of Japan (after first meeting Abe in Washington, D.C. for talks). The Japanese market was up almost 2.5 percent on Friday in anticipation of the two leaders' first meeting.

There is a lot riding on what happens between the two men, since Japan provides the lion's share of manufacturing jobs within the U.S. and is America's fourth largest trading partner. Aside from the historical relationships between the two countries, everything from mutual defense to currency will be discussed. Let's hope there are no surprises, but anything can happen in this new age of Trump-O-Nomics.

Note: Several weeks of Mr. Schmick's columns in January & February disappeared into the ether on their way to iBerkshires. They are being back posted to the dates on which they should have appeared.

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. 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 Tweets Tweak Markets

By Bill Schmick
iBerkshires Columnist

Financial markets, under the new president, continue to react on an hour-by-hour basis to Donald Trump's latest electronic missives. That's no way to conduct business but it is what it is. At what point will traders begin to discount these tweets?

It will take some time, in my opinion, because there has been nothing quite like this in the history of the world. What makes it worse, as it turns out, some of the new president's statements have proven less than factual, while others have clarified the growing mountain of fake news that media outlets appear happy to broadcast. In the middle are the High Frequency Traders and the computer algorithm geeks who find themselves running from one end of the boat to the other as markets gyrate to the political tune of the day.

I have no sympathy for these boys. They have controlled well over 70 percent of the volume in stock markets for years. It was a game they controlled thoroughly. I suspect that may change because Trump's outbursts and actions are so unpredictable that programming computers to react to him is well-nigh impossible. Once enough money is lost in the attempt, traders will learn not to react to all these statements.

In the meantime, readers, we have the advantage. Although this week was chock full of volatility, those who remained invested did OK. Markets held their own moving marginally higher or lower versus last week's close. Part of the reason was better than expected non-farm payrolls, which came in at 227,000 jobs gained versus an expected 175,000.

Overall, U.S. job growth accelerated in January by 1.64 percent. That compares to a 1.5 percent rate in December, but what is even better, in my opinion, is that blue-collar wages jumped by 2.9 percent. That's one for the little guy! To be fair, former President Obama should get the credit for these good numbers, but Trump's blue-collar constituency will give the new president credit for the improvement. There may be some truth in that, since small business owners (who account for the lion's share of America's employment) have become decidedly more positive about the country's future under Trump.

For those who care, there was a lot to hate (or love) about the tweets of the new president this week. Health care (repeal of Obamacare), tax reform (Congress and Trump agree), Iran ("Put on notice"), Australia ("Dumb" refuges deal), Mexico ("Bad hombres") are but a few controversial areas he addressed.

The markets also had to contend with the social unrest brought about by last Friday's executive action on immigration. And let's not forget this week's Berkeley burnings on campus as well as several other university protests over everything Trump. Get used to it.

The most positive aspect of all of these protests and marches is that this nation is finally going to get some exercise. Do not expect this civil disobedience to wane anytime soon. As such, the volatility in the financial markets will continue. What is important, however, is that you do not get sucked into these emotional sell-offs.

You may feel good (or bad) that someone is expressing their outrage over the Trump presidency. You may even be involved in said-outrage but don't carry those feelings over to your retirement portfolios. Instead, try and focus on the economic facts of life. The economy appears to be improving and economists are predicting that 2017 should see a higher growth rate in GDP. Clearly, unemployment is falling, wages are gaining, and this quarter's earnings season is turning out to be better than expected. These are the variables that will determine your portfolio returns for 2017.

Your views on politics and social issues are your own. You may not like what's going on in this country, but as far as your stock market returns are concerned, you can cry all the way to the bank.

Note: Several weeks of Mr. Schmick's columns in January & February disappeared into the ether on their way to iBerkshires. They are being back posted to the dates on which they should have appeared.

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. 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: The Deals Begin

By Bill Schmick
iBerkshires Columnist

This week's ongoing controversy between Mexico and our new president over trade and the construction of "the wall” has investors concerned, confused and apprehensive. And still the markets gained ground.

I believe we are witnessing the opening gambits of President Trump's "Art of the Deal” as it applies to global economics and politics. It will take some getting used to on the part of investors and all Americans. So far the markets, at least, are going along with it.

We finally hit that elusive 20,000 mark on the Dow Jones Industrial Average. That's no big deal and has little importance to technical analysts. New record highs, on the other hand, which were achieved by all three averages this week, are important.

The S&P 500 Index is inching ever closer to my short-term target of 2,330. The high this week was only 30 points from that mark. Before you ask (because I know you will); there will most likely be a pullback once we hit my target. How much, let's say 3-5 percent.

If I know human nature, right now you are thinking; "if I am expecting a sell-off of that magnitude, why then don't I liquidate my positions, step to the sidelines and get back in at the bottom?”  Sounds easy enough but that's a fool's move for the following reasons: Number one: it might not occur. With Trump in the White House, anything can happen and probably will. We could receive some stupendous news on a new initiative that could send stocks skyrocketing.

Number two: if I sell, when do I get back in? I said a possible 3-5 percent decline. What if it is only 2 percent? Do I wait for more; do I buy back in only to see markets decline another 6 percent?  Do you see the dilemma?

I have fielded enough calls in the past by readers who sold everything because they believed the markets would go down. They were right but then stayed in cash, expecting even further downside. Instead, markets moved higher, much higher in some cases, and then the calls and e-mails began, pleading for guidance.

Do not try to be cute. This is what you must understand as stock investors: lasting declines are brought about by large fundamental changes, for example; war, skyrocketing interest rates, huge tax increases, financial crisis, unexpected declines in GDP, global trade wars, etc. Unless one of the above is in the offing, stock market declines are simply the cost of doing business in the equity market. Readers of my column should know that by now.

On a different topic, whether you want to discuss it or not, the emotionally-charged environment around Donald Trump can and will impact your investment portfolio unless you take care.

Last week, I was visiting clients in Manhattan, which explains the absence of my column. It was an interesting few days in the Big Apple, full of protests and the largest women's march in history. As you may imagine, inhabitants of New York City are not huge fans of our new president. In fact, many there fear the worst for the country and the economy over the next four years.

"Look what he is doing to Mexico," was their lament, "he is threatening a trade war and not just with them. He will ruin the economy and get us in a war with China."

As an investment adviser, I found myself in the peculiar and uncomfortable position of acting as an apologist for the new president. Donald Trump is far from perfect, but I do not believe he is the devil incarnate we all think he is, nor will his policies bring us to financial ruin. He will be a catalyst for change. Whether that change is for the good or the bad, remains to be seen. Until the facts are in, I will stay invested. In the meantime, part of my job is separating fact from fiction and emotion from investing. It is especially important when managing other people's money.

In a world where false information is treated like facts (even among the nation's leading media), where Twitter "tweets” seem to be the new lines of communication between nations and opposing parties paint extreme conclusions to every initiative, my clients (and you) need me more than ever. You may not always agree with me, and I receive mountains of hate mail to prove it, but I promise to do my best to tell you the truth as I see it, even if you don't like it.

Note: Several weeks of Mr. Schmick's columns in January & February disappeared into the ether on their way to iBerkshires. They are being back posted to the dates on which they should have appeared.

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. 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: Quarterly Earnings Will Dictate Market's Direction Next Week

By Bill Schmick
iBerkshires Columnist

Fourth-quarter earnings results for the nation's corporations kicked-off this week. Investors will focus on those numbers as they wait for the really big show at the end of next week.

Our president-to-be will be inaugurated next Friday with all the usual fanfare. Investors and the markets usually ignore these displays of pomp and ceremony, but not this time. Whether it is the mercurial nature of our new president, or the fact that a lot is riding on how successful he will be out of the gate, the stock market is hanging on every word (or tweet) he makes.

Consider his press conference this week. To many, he did not say enough about his corporate tax cutting or spending plans. Traders sold the market down in a hissy fit. The pharmaceutical and biotech sector sold off hard when Trump reiterated that drug companies would be called on the carpet for their pricing behavior.

Buyers, however, saw the market's weakness as an opportunity. As a result, the damage was contained and markets have since recovered. This, I believe, will be what we can expect from the markets in the coming week.  Trump's first hundred days, according to his transition team, are chocked full of initiatives, some, truly revolutionary. I don't see the markets taking a big fall unless it is clear that all of Trump's efforts will amount to naught.

In the meantime, earnings will drive the averages up (or down) depending on how robust the results actually are. Readers, by now, should know that the earnings game is a rigged casino where earnings estimates are deliberately low-balled so that companies can "beat" expectations. As such, the flurry of activity around results is purely trading-oriented and should be largely ignored. What most investors are expecting, however, is that after six quarters of declining earnings results, American companies are on the mend. If overall results do not buttress that belief, then the whole ‘growing economy' thesis could be in jeopardy.

In any event, bank stocks were first out of the gate and results were respectable, if not stellar. This is a case in point. The financial sector has gained almost 17% since the election. The gains were fueled by two factors: the Fed was finally going to start hiking interest rates, which is good for bank lending. Second: investors expect big changes in bank regulation, which would also help bank profits.

Although one day does not make a trend, the initial reaction to Friday's slew of banking results indicate that investors are pleased with the results, and especially with the more than rosy guidance most managers see in their company's future. I do believe that over the long-term, financial stocks are an interesting investment.

But rather than pin my hopes on any change in regulations, I believe the trend toward rising interest rates is what makes the financial sector attractive to me. Sure, I would like to see prices fall back a bit; but nonetheless, I believe that, like health care, the trend is your friend in this sector. If, at some point, Congress does alter banking regulations in a way that further benefits banks, well, that's just gravy.

We have now concluded four weeks of sideways consolidation. I consider this action part of the correction I have been writing about. We are simply digesting the gains made in November and December. Technically, 2,250 is support for the S&P 500 Index. A move below that could easily happen, but would only indicate additional downside to 2,230 or so. That is well within the range of acceptable downside, considering the gains we have made. Stay long for now.

Note: Several weeks of Mr. Schmick's columns in January & February disappeared into the ether on their way to iBerkshires. They are being back posted to the dates on which they should have appeared.

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. 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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