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@theMarket: Markets Will Drift Lower
By Bill Schmick On: 03:22PM / Friday August 30, 2013
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August was not a great month for stock markets. September could be equally disappointing. After months of higher highs, a consolidation phase should be expected but it is not the end of the world.

As expected, from the peak, we have pulled back about 4.5 percent in the S&P 500 Index in August. As consolidations go, this one has been exceptionally mild. What makes it so painful is that we have all gotten used to one record high after another. We don't like losing money, even if they are only paper losses. I am putting you on notice that my worst-case scenario would be to expect another 4 to 5 percent of downside from here. Why?

Although I look at a number of indicators, the market's technical indicators across the board have started to deteriorate. So much so that it will make future short-term attempts to re-capture the recent highs problematic. Yet, on the plus side, there are some signs that we could be closer to a bottom than the bears might think.

All month I have been looking for a day in which the number of stocks with down volume on the New York Stock Exchange exceeded those with up volume by more than 90 percent. These 90 Percent Down Days are quite rare. We have only seen five instances of this type of behavior in 2013. In every instance, these readings occurred near the lows (3-5 percent) of their respective pullbacks.

On Tuesday of this week we had a 92 Percent Down Day on the NYSE. However, the event had some shortcomings. Ideally, you want this kind of sell-off (capitulation) to occur after a dramatic decline. Instead, the markets had rallied to new recovery highs prior to Tuesday. It was also a news-induced event, which lessens its significance. The catalyst for the decline was reports that the U.S. and its allies are planning some kind of retaliatory strike against the Syrian regime for its alleged role in gassing its own citizens. So Syria, As a result, any rebound we may get over the next few days should not be believed.

I suspect that at the earliest, we will not be out of the woods until after the Federal Open Market Committee meets again on Sept. 18. In the meantime, the debate over whether the Fed will begin to curtail their stimulus program at that time will occupy the headlines and the market’s attentions. Back in July, I also warned readers that "we are entering that time of year when our dysfunctional political parties may once again roil the markets in an attempt to justify their miserable existence."

Over the next two months, be prepared for the politicians to resurrect all the battles of yesteryear: the debt limits, the deficit, the budget, Obama care, etc. This could be the excuse markets need to spend a month or two more consolidating the gains we have experienced since November of 2012. We could see another 4-5 percent downside in the meantime. That would be my worst case scenario. Overall, that's not much of a decline given the market's recent gains.

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: To Taper or Not to Taper?
By Bill Schmick On: 06:29AM / Saturday August 10, 2013
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Will the Fed taper? If so, when will they taper and by how much? No one knows and because the markets just abhor the unknown, it is why the stock market declined this week. Pay no attention to these histrionics.

The simple fact is that markets need to consolidate, especially in a bull market. Of course, that doesn't sell newspapers or keep you tuned into the television when you should be out enjoying the weather. It is August, people are on vacation, and those who are not are bored to tears. Fretting about will they or won't they passes the time and if you are nimble you might make a little money off the angst in short term trading.

Listen to me: markets discount the news once, not twice, and especially not three times. From May 22 through the end of June, the stock market discounted the Fed's announcement that they planned to taper their stimulus program if and when they felt it was appropriate. It doesn't matter whether they taper in September, by the end of the year or next year. It doesn't matter by how much. All that matters is they will and that the market declined by over 7 percent as a result.

The present pullback in the market is about hitting another record high, (last week the S&P 500 Index breached 1,700) and is now consolidating those gains. End of story. There's nothing more to it than that, so why don’t we all move in and stop rubber-necking.

Instead of fretting over what is happening in the U.S., readers should be paying more attention to Europe. If you haven't read last week's column "Europe is Recovering" access my blog www.Afewdollarsmore.com and have a read. In a nutshell, Europe's recession is coming to an end led by Germany, the powerhouse of the continent. That recovery after the longest recession in years will be similar to the U.S. experience. Unemployment will remain stubbornly high while the economy will grow but at a moderate base.

Values in Europe lag those in the U.S. stock market. In my opinion, those who invest now and are prepared to wait will see some hefty returns over the next few years. There are many who still doubt that an anemic recovery in Europe won't help stocks much, but they said the same thing about the U.S. market back in 2010 and look what happened here.

Over in Asia, Japan (another long-term favorite investment of mine) has been going through a period of consolidation that I expect should continue into the fall. Both the Nikkei Index as well as the Japanese currency have experienced huge moves since last November. A period of consolidation is almost a text book requirement before further advances (in the case of stocks) and declines (the yen) can be expected.

August is traditionally a disappointing month for U.S. investors. Stocks usually trade aimlessly in a listless fashion. My advice is to simply ignore the headlines and gyrations in the stock market this month. September will be time enough to take the measure of the markets for this coming fall.

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: What's Not to Like?
By Bill Schmick On: 03:52PM / Friday August 02, 2013
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This has to be the most-hated stock market rally in history. No one trusts Wall Street or the stock market and just about everyone is looking for an excuse to sell. There isn't a day that goes by without some lionized Wall Street sage predicting the top of the market. That's why it will continue to go up.

An informal survey of recent communications from clients and readers reflects that nervous attitude. Here is just one such missive.

"Dear Bill," began this client email I received on Monday, "interesting article in Barrons, predicting a bear market being imminent. I see this guy has a good track record. Thoughts?"

Over the last six months I have received dozens of similar queries. I won't start to worry until everyone throws in the towel and becomes bullish. In the meantime, enjoy the ride.

This week the Fed said all the right things. They reiterated their position that until the economy begins to grow at a satisfactory rate they will keep the money flowing and remain committed to their stimulus policies. The latest data shows an economy that is still growing at a sub-par rate while employment is improving modestly. Friday's employment number was a bit of a disappointment, gaining just 162,000 jobs, well below that magic 200,000 jobs a month number that we need to make a substantial dent in the nation's unemployment number.

This is absolutely the best news for our Goldilocks' market (if not for the economy and employment). As long as the porridge called data is neither too hot nor too cold, stocks will continue to climb on back of the Fed's easing policies.    

Technically, many indexes are reaching new, all-time highs. The S&P 500 Index cracked 1,700 for the first time in history this week with many technicians pointing to 1,750 as the next stop. Small cap indexes have been leading the markets higher and are now in uncharted territory. The transportation index, which many Dow theorists believe is critical to confirming new highs in the Dow, is on a tear and is itself at a new all-time high. What's not to love in these numbers?

Many investors tend to be a bit myopic in looking at the prospects of the U.S. market. Given that it is the largest stock market and economy in the world it is an understandable mistake. I urge readers, however, to pay attention to what is also happening in economies overseas. In recent columns, I have called your attention to the growth story now unfolding in Japan, but don't ignore the prospects for a European turnaround.

The world's central bank's stimulus policies are finally starting to boost the growth prospects of many nations. This will have a larger and larger impact on the global marketplace where one nation's growing economic health will bootstrap growth in other nations. The last time this happened in the 2003-2007 period, Chinese growth acted as a locomotive for the rest of the world.

We may be entering another such period, only a new engine could be based on the expanding economy of Japan, the European Union as well as the United States. In that kind of future economic environment investors want to take a longer term approach to the stock market. What’s not to like about that?

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: Political Posturing Ahead
By Bill Schmick On: 05:11PM / Friday July 26, 2013
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The markets have spent most of this year focusing on concrete things like the economy, jobs, the Fed's stimulus program and corporate earnings. However, we are entering that time of year when our dysfunctional political parties may once again roil the markets in an attempt to justify their miserable existence.

It is no accident that President Barack Obama took to the road this week with proposals for additional federal spending to boost the economy. After heaping all the blame on the Republican House for blocking his middle-class economic agenda, he introduced what appears to be a re-hash of old proposals that have been shot down repeatedly by the Republicans. What's the point?

The Democrats are hoping that playing the blame game, just prior to the legislative summer recess, will hurt Republicans returning to their districts, who (they hope) will be greeted by an outcry of anger and disgust by voters. I believe they are misreading the situation.

While it is true almost everyone is down on politicians, what most observers fail to realize is that both conservatives and liberals won't allow their representatives to compromise in order to advance a new economic or social agenda for the nation. "Moderate" has become a dirty word among this increasingly polarized society. Positions have hardened, rather than softened, and legislators who appear to have "caved-in" risk a short shelf life in Washington.

This year's budget battle has begun. Both Houses have approved their own version of a budget based on party lines that is $91 billion apart in terms of spending. If we don't have a budget by the end of September, the politicians will most likely do what they have done every year since Obama was elected, pass a temporary measure (or not) before the government shuts down on Oct. 1. Does any of this sound familiar?

Then there is the debt ceiling, where once again the U.S. Treasury will run out of funding between October and mid-November. The Obama administration says there will be no deals cut in order to get Congress' approval to raise the ceiling. On the other hand, thanks to the sequester, spending cuts that will automatically take effect again next year, the Republican-controlled Congress will be looking for even further cuts in entitlements programs such as Social Security and Medicare.

About the most anyone can hope for is that the markets have become so inured to this useless posturing, that they tune it out entirely. There is an old saying in the stock market that an event can only be discounted once. Anything more becomes a buying opportunity. In the past five years, the "Double Ds" of deficit and debt have been discounted several times and all of those sell-offs have turned out to be a wonderful buying opportunity. I suspect it may happen again.

In the meantime, the markets are performing handsomely. Each spurt higher has been followed by a healthy consolidation, which is exactly what you want in a bull market. Ignore the noise. Minor pull-backs should be expected. Investors are still way too cautious to spell an end to the upside.

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: Say It Isn't So
By Bill Schmick On: 04:37PM / Friday June 14, 2013
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So far June is playing out as expected. Stocks are see-sawing in a trading range that is driving day traders crazy. Hopefully, you are not one of them.

This week was almost a carbon copy of last week. For two weeks in a row the averages tested the 1,600 level on the S&P 500 Index and then bounced higher. That was also the level where technicians predicted the market would find support (at what is called the 50-day moving average).

Don't worry; I'm not going to get all technical on you. It is sufficient to note that buyers stepped in at the same level that they did last week. And that is understandable since there really is no reason to go much lower than that. I have been looking for a mild pullback in the 5-7 percent range and that is exactly what we are getting.

If you have been reading my columns, you know that the Fed has provided the excuse the markets needed for this decline. As such, all eyes will be focused this coming week on the central bank's FOMC meeting. Investors are hoping for some clue or hint among the meeting minutes to gauge whether the Fed's intention to taper their stimulus program has firmed or weakened.

Tell me you're not leaving
Say you changed your mind now
That I am only dreaming
That this is not goodbye
This is starting over
If you wanna know
I don't wanna let go
So say it isn't so."

— Gareth Gates


I believe the markets are misinterpreting the Fed's actions. Nonetheless, the fear that the Fed plans to decrease the level of stimulus, if only modestly, is having a damaging effect on interest rates. In addition, investors are now wondering if the Fed's commitment to keep interest rates low, at least until the unemployment rate declines to 6.5 percent, is in jeopardy as well.

All sorts of interest and dividend yielding securities from U.S. Treasury bonds to preferred stocks have seen a downdraft in prices as a result. In the housing market, mortgage refinancing has dried up as 30-year mortgage rates hit 4 percent.

This is not what the Fed expected, in my opinion. They have acknowledged that in the past their on-again, off-again quantitative easing programs caused an uneven recovery in the economy and volatility in the markets. For the Fed, the trick is to wean the markets off central bank stimulus without causing the same results. That is easier said than done.

To be fair, the Fed has already accomplished some truly stupendous results over the last few years. They have kept us out of another Depression and initiated an economic recovery, even if it is slower than we would have liked. Their stimulus efforts in the financial markets have succeeded in recouping all of our stock market losses and then some. The housing market, which triggered the financial crisis, is a much bigger problem. But even there we are seeing a rebound as a result of their efforts

What would help would be stronger economic growth. A few back-to-back quarters of plus 3 percent growth would re-focus investors away from Fed stimulus and back where it belongs on the free market economy. Unfortunately, this grand central bank experiment is like any experiment. There is a lot of guess work involved. If, for example, the Fed were to wait until after one or two strong quarters of growth to taper, there is a risk that inflation could spike. That would force the Fed to ratchet up interest rates and torpedo the economy altogether. If they act now, they risk slower growth or even a recession.

As for financial markets, it is understandable that the Fed wants to inject some uncertainty back into the markets. Uncertainty is a key ingredient in investing. If investors believe the Fed will always have their back in the form of more and more stimulus, then investing becomes a one way street. It can create a bubble in stock prices just as easily as it created a bubble in the housing markets over the last decade.

So as much as we would all like to hear the Fed say it isn't so, we need to be aware that at some point in the future they are going to take away the punch bowl.

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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