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The Independent Investor: Online Education Is Not a Panacea
By Bill Schmick On: 08:36PM / Thursday May 09, 2013
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Over the last decade, online enrollment in college classes has exploded. Many hope that it will ultimately help reduce the burgeoning future costs of a college education. The evidence, thus far, indicates that we have a long way to go.

At the outset, readers should understand that there are two initiatives that have yet to converge in online education. There are MOOCs (Massive Open Online Courses) offered for free by several universities and colleges, although in some cases the educational institution will issue a certificate or letter of completion (for a price).

These MOOC courses enroll hundreds of thousands of students in 150 or more countries worldwide. The courses are usually developed and taught by big-name educators and function as promotional tools for the teacher and their college or university. The students, in turn, benefit from the acquisition of new information, knowledge and skills, as well as making connections with fellow students from all over the world.

There are also online tuition courses offered by colleges and universities where students pay tuition comparable to what they pay for the traditional physical college class and receive college credit for successfully completing these courses. Back in 2002, only 34.5 pecent of colleges offered online courses; today that figure has grown to 62.4 percent. There are, however, some interesting dimensions to these classes and who enrolls in them, according to the online education company, Learning House.

In a July 2012 report, Learning House found that 80 percent of online students lived within 100 miles of the physical campus of their online educational institute and many lived even closer — within commuting distance and with good reason.

Studies have found that students still need the physical interaction of the classroom. Evidently, face time with the teacher remains an important element of the educational process. So students may enroll in one or two online courses because of a part-time job or other scheduling conflict, but they still take the majority of their classes on campus.

There are also some unexpected issues that have cropped up within the online classroom. Columbia University's College Research Center found that the attrition rate of students attending online courses is quite high. In some cases, especially in the highly popular MOOC courses, those students who failed to complete the courses approached 90 percent. Higher attrition rates also plague smaller classes as well.

Some studies indicate that online classes are better suited for highly motivated, highly skilled students; while those students who struggle or who have failed to master the basics like math and English, do poorly. Unfortunately, that accounts for a great number of today's students who are also having the hardest time affording college tuition.  

There is also some concern that only certain subjects, such as mathematics, computer science and engineering, can be effectively taught online. It may be more difficult to teach liberal sciences such as writing, communications or even lab work. There are also technology issues that can make the best course a nightmare to attend because of poor or inadequate video, document sharing, discussion boards, etc.

That does not mean that online education will not continue to grow. I believe it will and online learning will ultimately find its niche within the educational system. However, I see little evidence that it will alleviate climbing college tuition costs any time soon.

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 Independent Investor: Where Others Fear to Tread
By Bill Schmick On: 03:02PM / Thursday May 02, 2013
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In the wake of across-the-board government spending cuts, this month President Obama proposed a new R&D initiative aimed at mapping the brain. Critics immediately balked over the $100 million price tag, but those protests may be pennywise but pound foolish given some of the breakthroughs government has achieved in the past.

The BRAIN initiative (short for Brain Research Through Advancing Innovation Neurotechnologies) is designed to promote innovation and job growth while finding ways to treat and cure ailments such as Alzheimer's disease and brain damage from strokes. It will be funded by the National Institute of Health, the Defense Advanced Research Projects Agency and the National Science Foundation.

Like so many other government-sponsored projects, this one will also involve partnerships with universities and the private sector. The last such health-related project, the Human Genome Project, was established in 1990 and cost $3 billion. The returns from that project have been substantial.

"Every dollar spent on the Human Genome Project," said President Obama, "has returned $140 to our economy."

That's not a bad return. The health services sector is only one of many areas that have benefited from government investment. Computing technologies, for example, is an area where the government has played an active financial role in encouraging innovation and new ideas. Breakthroughs there have quickly found their way into the private sector.

 A report late last year by the National Research Council, a government advisory group, calculated that nearly $500 billion a year in revenues generated by 30 well-known corporations in digital communications, databases, computer architecture and artificial intelligence can be traced back to government seed money. That was a great investment for society overall. It's just one of countless examples of our taxpayer money at work in a free-market economy.

If you think that the present natural gas boom in this country is an example of free-market capitalism, think again. Over 30 years ago our government spent more than $100 million in seed money (and billions more in tax breaks) to research and develop the fracking techniques that have produced a renaissance in one of our most precious natural resources.  

The simple facts are that no corporation today could afford to spend money like that on an idea that may or may not provide a return to the bottom line. In 1975, the first federal test well in Wyoming produced nothing more than a lot of hot water. In this day and age, the CEO of a private company that produced that kind of result would probably lose his job. Most shareholders would simply not stand for that kind of risk and return proposition.

Politicians are still complaining about the billions we provide in federal energy subsidies to both fossil and renewable forms of energy, but I believe that investment is paying off in a truly big way. We are seeing a renaissance in our manufacturing base as a result of cheap energy resources. An increasing number of global companies are re-positioning their manufacturing base back to America, providing jobs and tax revenues. I'm quite certain that no one in the government or private sector could have imagined that spending $100 million in natural gas research 30 years ago could result in such big dividends today.

That's why I applaud the White House proposal for BRAIN research. Who knows what the payoff will be, but I believe government has a role and a duty to go where others fear to tread. History shows that research and development, despite the occasional $500 toilet seat, is still a proper and profitable use of taxpayer money.

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 Independent Investor: R2D2 and the Stock Market
By Bill Schmick On: 03:40PM / Thursday April 25, 2013
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Tuesday's "flash crash" precipitated by a fake tweet attributed to a major news organization is old news by now. No long-term investors got hurt in the debacle and by the end of the week it was business as usual in the nation's exchanges. That doesn't mean it won't happen again and again.

In just four minutes, $136 billion was erased from the S&P 500 Index, the main benchmark average of the stock market. The Dow lost 145 points at the same time. Both averages regained those losses over the next two minutes causing some traders to check whether the elevator ride was real or a computer glitch. It was neither.

Having a front-row seat to the now-notorious tweet from the hacked Associated Press account claiming that the White House had been bombed and the president injured, my first reaction was to check its authenticity. I guess human nature is a lot more cynical than computers because in the time required to determine the tweet had been a hoax, billions in securities had changed hands.

Although no one is completely sure exactly what happened, we do know that the brunt of the decline was caused once again by algorithmic trading programs, which are these proprietary software trading systems that are lightning fast and take advantage of minute disparities among stock prices. The newest wrinkle in these high-frequency platforms involves computer scanning for key words among various news agencies.

Computers are now programmed to search out words that may impact stock price movements. In this case, words such as White House, explosions, bombs and injuries could and did trigger a sell program among Wall Street's R2-D2s and C-3POs this week. Once the ball started rolling downhill, armies of computers began spewing out sell orders instantaneously. Once the truth was discovered, these same computers stampeded in the opposite direction. This is what most observers believed happened this week.

It wasn't the first time. In May 2010, the now famous "flash crash" occurred. It erased $862 billion from the market's value in less than 20 minutes. Last year, the same kind of computer glitch wiped $440 million off the books of one trading firm and sent it to the brink of bankruptcy.

Regulators have been working to safe guard the public from these on-going speed traps. Under what is called the "limit/up-limit/down system," trades in stock prices will gradually be limited to a certain percentage range above and below the average price of a stock over the last five minutes. It will act as a speed bump. It won't be perfect but could at least slow down the declines we have experienced from seconds and minutes to hours or more.

That may just be wishful thinking on my part. More and more of the trading in the stock market is done by these "algos," as they are now called. It has changed the nature of the stock market and has precipitated the demise of many day traders that are simply outgunned by these R2-D2s. What worries me most is that some day in the future these systems may accidentally short circuit in a big way and suddenly we are all looking down the barrel of a financial death star.

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 Independent Investor: Insider Trading Alive & Kicking on Capitol Hill
By Bill Schmick On: 07:12PM / Thursday April 18, 2013
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It happened while most of us were focused on paying our taxes. By unanimous consent, both the House and the Senate repealed a portion of the Stop Trading on Congressional Knowledge Act (The STOCK Act) in just 30 seconds with no debate or discussion. President Obama signed it into law on April 14 — shame on them.

I should have known it was too good to be true. Readers may recall my December 2011 column where I celebrated the passage of the STOCK Act, which made it illegal for congressmen and their staffs to profit from insider information just like the rest of us. It was one of the few actions of a do-nothing Congress (their approval rating at the time was just 9 percent) that I applauded as overdue and a step in the right direction.

It wasn't the first time I had written about the insider profits both senators and Congressmen had been making over the years. In my May 2011 column "Gordon Gekko Should Run for Congress" I explained:

"On average, the lower house members beat the market by about 6 percent a year while those of the higher chamber wrack up a 10 percent level of outperformance annually. Now, if you believe that's purely coincidental, well, I have a bridge I can sell you cheap."

Shortly before my second column on the subject, a "60 Minutes" report brought national attention to this scandal, highlighting profits made by political figures such as Democratic Senate Majority Leader Harry Reid. The public outrage was such that the STOCK Act passed both houses of congress quickly.

I complained at the time that the act was loaded with loopholes. For example, the rules apply to only information obtained by "pending legislation," however, tons of other kinds of insider information obtained from governmental sources such as a regulatory briefing would be allowed. Unlike existing public insider trading laws, which are deliberately broad and vague, the politicians' guidelines are quite specific and narrow.

The original law required extensive disclosure of financial holdings by congressional staffers and 28,000 senior executive branch employees. Our elected officials, including the president, are already required to disclose their financial activities. The disclosures were to be posted in an online database open to the public. This database was an important part of the law since it would allow public watchdogs to quickly identify profitable trading activity by thousands of staffers.

Prior to the STOCK Act, the financial positions of staffers was part of the public record but were not readily available, making scrutiny deliberately difficult. Information had to be requested on a name by name basis from individual agencies. The process was so time consuming and onerous that it effectively blocked the public from obtaining information buried in these records.

In the name of "national security," this new change within the law removes the requirement to create a searchable index of financial trading activity and ownership in an online database. As a result, it makes it extremely difficult, if not impossible, for researchers to monitor compliance with the law or even obtain records of these public employees. In effect, the law has been gutted.

If you are wondering why this modification was passed by unanimous consent in the middle of the night, a year after it was originally passed, consider this. The elections are over and the politicians figure you will forget all about this by the time 2014 rolls around. In addition, a unanimous vote does not require any specific legislator to be singled out by name in this most blatant act of self-dealing.

Oh, and by the way, guess who sponsored the legislative change — your friend and mine, Sen. Harry Reid. Enough said.

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 Independent Investor: Japan: The Rising Sun, Part II
By Bill Schmick On: 11:37PM / Thursday April 11, 2013
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The Japanese stock market is the single best performing market so far this year. That's saying something, since we all know that our own markets are hitting record highs on a daily basis. I'm betting this is just the dawn of a new age for this island nation.

Frankly, there is still a lot of skepticism that the Japanese have finally turned the corner. There have been so many false starts since their markets peaked in the late 1980s that the last three-plus decades have bred an enormous amount of cynicism from both the Japanese themselves as well as international investors.

On Wall Street there are only a handful of us left who remember the glory days of Japan. I first visited Japan in 1977 as a Fulbright Fellow. In those days the Japanese export miracle was in full throttle. Fueled by an invincible stranglehold on the world's exports markets, the country had transformed itself into the second largest nation in terms of Gross Domestic Product. There was even talk that at some point Japan would overtake the U.S. for the No. 1 spot in GDP.

It all came crashing down as a result of excess speculation, missteps in government and monetary policy followed by the rise of truly cost effective competition in the form of emerging markets. Japan's decline has been long and depressing. The country's troubles and the private and public sector's attempts to fix them have been held up as a textbook case of what not to do in economic policy. Fed Chairman Ben Bernanke actually did his doctorate thesis on that very subject.

We old Japan hands thought the country's woes could get no worse and then two years ago an earthquake and tsunami devastated the eastern part of Japan. The resulting meltdown of the Fukushima nuclear plant was the final blow. Credit agencies downgraded the country’s sovereign debt to negative, the market sank (the Nikkei was trading at 9,815) and the hit to the economy convinced most investors that Japan’s sun was setting, not rising.

I begged to differ. In June 2011 in my column "Japan: Is the Sun Beginning to Rise?" I argued:

To my way of thinking, here is an economy that is on the eve of a massive stimulus program, a declining currency (good for increasing exports), a corporate sector hell bent on increasing capacity and re-gaining global market share (think autos) and a population that is willing to finance the effort regardless of Moody's outlook on their bonds. In the eastern region, new housing (unlike the U.S.) is in great demand. And unlike our own financial institutions that refuse to lend despite low interest rates, Japan's banks will lend and lend to corporations and individuals in order to help the recovery effort.

What this indicates to me is that a V-shaped economic recovery in Japan is a strong possibility. If I'm right, the stock market is a screaming buy."

Granted it took some time for the country to reorganize, find its footing and develop an alternative direction. In November of last year, new Prime Minister Shinzo Abe was elected, promising a radical new approach (for Japan) to eradicate two decades of stagnation. This year the Japanese government, along with the central bank, has embarked on a huge stimulus program. Although comparable to the type of quantitative easing our own country has employed to lift us from recession, Japan's program is far greater given the size of their economy.

They are deliberately attempting to combat years of deflation by reigniting its opposite. A daunting task since it is far easier to manipulate inflation than deflation within a country. The process has begun. The value of the yen has plummeted, bond yields are rising and the stock market is taking off. Yes, the stock market is up some 13 percent so far this year, but we have to put that gain in perspective. The peak level for their market index, the Nikkei, occurred on December 29, 1989, at 38,957. Today the Nikkei is trading at 13,549.

In hindsight, it took the U.S. market four years to reach its present state of record highs from the bottom of the financial crisis. I attribute that gain to the efforts of our central bank's stimulus programs. In Japan, after 30 years of bottoming, the stock market is just beginning to respond to their central bank's quantitative easing. We still have a long, long way to go before the Nikkei approaches even the halfway mark when comparing record highs.

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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