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@theMarket: Santa Comes to Town
By Bill Schmick On: 11:56AM / Friday December 26, 2014
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Pessimists are on vacation this week. It doesn't matter that the indexes are overbought. That markets are hitting new highs without a pause. It's Christmas and Hanukkah week. The Big Guy has come to town.

Of course, investors have had a little help from the Fed and the latest revision of U.S. third quarter GDP. It appears that the economy grew faster than economists expected. Would you believe 5 percent? That's one barn burner of a number even for me, an uber bull on the economy. It is the fastest the economy has grown in 11 years. It follows on the tail of a 4.6 percent rate in the second quarter.

Consumer spending on health care and business investment in infrastructure and computers were largely responsible for that growth. And just think, we  have yet to benefit from the continuing drop in gas prices, which are now about $2.33 a gallon on average and predicted to drop another 11 cents or so over this weekend.

Many economists think that growth will slow this, the last quarter of 2014, not a difficult bet to make, but I still think growth will continue to surprise all of us. Consumption is gaining ground and the consumer is finally starting to hit his stride. I think fourth quarter growth will be better than anyone imagines. That's why the Fed is prepared to raise interest rates next year. None of us want the economy to overheat, sparking an uptick in inflation.

My strategy so far this year has been to listen to the Fed. By hiking rates a little next year (while China, Japan and Europe lower theirs), the Federal Reserve could be in a "sweet spot." Any slowing due to our rate increase could be offset by lower rates (and higher growth) elsewhere in the world. It is one reason why I like the Chinese and Japanese markets. I would throw Europe into that mix, but I am not convinced that Europe's central bank has the green light from all the EU members to launch a U.S.-style quantitative easing.

As for the stock markets, it is clear that the Santa Claus rally has begun early. It traditionally occurs during the week between Christmas and New Year's Day. Explanations vary for exactly why this occurs. Some say it is end-of-year bonus money finding its way into stocks. Others argue that tax-selling ends during that week, while others just believe the "feel good" behavior of most investors during this period is responsible.

Some investors could also be getting a jump on what is called the "January Effect." The month of January is normally an up month for stocks. Given the strong economic data, lower fuel costs and anticipation of strong consumer spending during this holiday season, investors are anticipating many companies will "surprise on the upside” in the upcoming earnings season.

Be that as it may, I want to wish everyone an extremely joyous holiday season. As for me, readers should be aware that on Jan. 5 I am getting a total right knee replacement. The doctors say I should be out of a commission for a few weeks. I will endeavor to disregard their advice and continue to write as best I can. Wish me luck.

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: It's All In The Way You Say It
By Bill Schmick On: 01:17PM / Saturday December 20, 2014
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"I know nothing in the world that has as much power as a word."  — Emily Dickinson

The Fed ended the stock market decline this week by simply changing a sentence or two. In the space of a few hours, global markets soared, creating billions of dollars in gains for investors worldwide. Don't ever doubt the power of words.

Rumor had it that on Wednesday, the Fed was going to remove "considerable time" from its guidance on when interest rates would rise. Investors worried that thanks to the gathering strength of the economy that FOMC members were becoming hawkish and might raise rates sooner than expected. Sure enough, the Fed removed "considerable" from their statement on the time period itself, but added that the Fed would be "patient" before raising rates. That's all it took to ignite a truly breath-taking rally in stocks.

"But, but, what about Russia and the slide in oil," sputtered a California client who was sure that the declining oil price was going to be the end of us all.

"The oil price," as Janet Yellen, the Fed chairwoman, said Thursday," is a transitory event."

For longer-term investors (anyone with more than a week's time horizon in this market) the decline in oil will at some point be over. Prices will rise once again as the world economies grow and demand more energy to fuel that growth.  I wrote last week that in the meantime, lower oil prices are great for our economy and all other oil-consuming nations. Japan, if you are interested, stands out as the greatest beneficiary of declining oil prices.

Until Wednesday's Fed meeting however, traders were using the oil price as an excuse to sell off the equity markets. That short-term maneuver only works until it doesn't. The Fed meeting blew that trade right out of the water and traders, happy to be short stocks, suddenly found themselves up a certain creek without a paddle. Since then short-covering has been the name of the game. And by the way, the oil price is still sliding, despite a 500-plus point move in the Dow over the last two days.

As for all the consternation concerning Russia, investors who read last week's column "Is the Russian bear back in its cave?" were not surprised at the ruble's decline this week, nor the spike in Russian interest rates to 17 percent. I have also noticed that several publications are coming around to my view that the oil price decline could have been engineered by the U.S. and Saudi Arabia in order to bring Putin to his knees, at least economically.

Given the action of the markets over the past two days, I would guess that we have put in a bottom for 2014. Next week traditionally has been a good one for the markets and I don't see any evidence that this year will be different. The bears could try once again to establish a link between a declining oil price and the stock market, but usually stocks only discount a maneuver like that once.

For me, I would buy any further dips in the market. This one amounted to about 5.4 percent, which is within the range of most of the pull-backs we have experienced so far this 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: It's All About Oil
By Bill Schmick On: 04:10PM / Friday December 12, 2014
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Just three weeks to go before the end of the year, and stock markets should be celebrating. Instead, equity markets have been down as traders become increasingly spooked by the decline in oil prices. Granted, financial markets sometimes get it wrong, but the present atmosphere of fear is one for the books.

Investors are afraid that oil prices could go even lower. The question to ask is how low is too low? Someone somewhere came up with the price of $60 a barrel as a "fair" price for oil. This week it broke that price level and markets in Europe and the U.S. sold off. What are investors thinking?

For starters, some believe the decline in oil prices is indicative of slowing world demand for energy. If true, then maybe the global economy is growing even slower than investors thought. In which case, stocks are too high, despite all the central bank stimulus.

Then there are the oil patch companies themselves. We all know the big-name global players that pay good dividends and are (were) considered salt of the earth investments. Some of these names are down 20-30 percent so far this year. Then, too, there are the drillers and junior drillers, those high-flyers that led the fracking and oil shale boom. Those stocks are getting decimated.

The hurting that these companies are experiencing right now also brings into question the health of their finances, specifically the money borrowed from banks to fund their exploration and development.  Extrapolating from the oil price, the logic becomes: oil down, stocks down (due to worries over company solvency), which then spills over to what banks could or could not be in trouble due to energy loans. And so it goes.

What readers should immediately notice is that, with the exception of a declining oil price, none of the above has happened and there is less than a slight chance that it will. Why?

Energy's share of the business sector of GDP in the U.S. is 5.9 percent. Not much, and certainly not enough to take GDP down with it. Especially when consumer spending is 67 percent of GDP and declining oil boosts that kind of spending.

In the stock market, energy has less than a 10 percent weighting in the S&P 500 Index. Right now the sector is taking the entire index down with it, but the numbers tell you that it is an over-reaction. What about those big mega-cap companies with solid dividends? Exxon's CEO said his company would be okay with $40 oil. As for the supply/demand equation, I believe the new technology-driven increase in the supply of various forms of energy, especially in the U.S., is what is driving the price of oil lower, not decreasing demand.

I'm not disputing that if energy prices continue to slide, and they could, that some companies in that sector, especially the small aggressive kind, will have financial trouble. But that has been true since wildcatters have been wildcatters. It doesn't mean that the whole market should be carried down with them.

If we step back and look at the markets from a dispassionate point of view, we simply see that from the October sell-off, stocks have gone straight up with hardly a pause. What we are seeing today is simply a much-needed pull back from the highs. In my opinion, this decline has pretty much run its course.

Over time, the benefits of cheaper oil worldwide will have a beneficial impact on all energy-consuming companies and their financial markets. Wall Street would like to see those benefits show up immediately, but that is not the way of the world. It takes time to derive the benefits of this kind of price decline and it won't happen overnight. For those with a longer term view, this decline is a great opportunity.

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 Are in Half Time
By Bill Schmick On: 09:49AM / Saturday November 15, 2014
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Stocks have had a wonderful run since mid-October's swoon. The S&P 500 Index is now up over 10 percent from its bottom. As we approach another record high, expect some backing and filling before moving higher. I wish I could say the same about the price of oil.

The price of oil is the main topic of conversation among traders and investors. Typically, as the price declines further, Wall Street energy bears vie for headlines by predicting even worse times ahead for energy. Technicians are now considering $40 a barrel as a real possibility and others are jumping on the band wagon as oil broke $75 a barrel on the downside this week.

Methinks the selling is overdone at least over the short-term. We are only a week away from the OPEC meeting and I expect some traders will cover their shorts until after the meeting. What we do know is that Saudi Arabia needs $85 barrel oil to balance their budget. But that Middle East nation is both wealthy and autocratic. It can afford to watch oil drop lower if they choose to. Besides, there may be other reasons in the wind for allowing oil to slide lower.

Excuse my penchant for Machiavellian plots, but it has occurred to me that the nation that is hurting the most from this price decline is Mother Russia. Globally, Russia is the No. 1 producer, followed by Saudi Arabia, while the U.S., at 9 million barrels a day in production, ranks third.  

Readers may have noticed that now that the weather has grown colder, surprise, surprise, events are heating up once again in Ukraine. Vladimir Putin, in my opinion, plans to annex even more territory in the east of that nation. If Europe protests or threatens to increase economic sanctions as a result, Putin could threaten both Ukraine and/or Europe with a cutback or even a cessation of energy exports. He has done it before and there is no reason to believe he won't do it again.

If I know that then surely others do as well. If I were the U.S. (and its ally, Saudi Arabia), lower oil prices would be a far more effective tool to slow or even stymie Putin's land-grabbing schemes than sanctions. At the same time it would give a real shot in the arm to American consumers, airlines, farmers, shippers and the transportation sector.

At some point, declining oil prices, coupled with the existing economic sanctions, could truly devastate the Russian economy and bring Russia to its knees. Right now, the Russian people love Putin and his misguided efforts to restore the Soviet empire. Will that adoration persist in the face of a deep recession or even a depression?

We blame Saudi Arabia for not acting to support energy prices. Pundits (including me) have claimed that it is their intent to slow U.S. shale and gas production, thereby hurting America's efforts in becoming energy-independent. Maybe so, but at the same time, it is hurting Russia far more than the U.S. and that's my point.

As for the markets, this last week has been largely a period of consolidation or sideways movement. Markets are overbought and need to work off the excesses, which is exactly what is happening. Remember, markets can adjust by either declining or sideways movement. All year long, we have seen a pattern of sideways rather than down so expect more of the same. Stay invested and enjoy the coming rally into the 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: All Clear
By Bill Schmick On: 04:09PM / Friday October 24, 2014
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If investors needed proof that the market's bottom is in, this week provided it. It was the best week of the year in stock market gains and it looks like we have more on the way.

That's not to say we couldn't have another pullback, but it won't be to the levels we saw nine days ago. The S&P 500's 200 DMA is around 1.905. That would be the logical limit to a decline if traders wanted to do a little profit-taking, but I don't see much downside beyond that.

One catalyst that is providing support for the market is another good earnings season. Although there have been a few spectacular misses by some big technology companies, by and large, companies have beat earnings estimates and provided positive guidance for the months ahead.

Negatives do remain. ISIS is not going anywhere soon and Ebola will continue to rear its ugly head as it did this week when a Manhattan physician contracted the disease. One can only wonder why a medical doctor, who had been working with infected patients in Africa, would "self-diagnose" rather than getting checked out immediately upon returning to the U.S.

But markets rarely discount an event more than once. So far we have had several potential Ebola cases in this country and the markets have already discounted the possibilities. In order for investors to really sell-off the markets, something new and far more serious must occur.

The same goes for ISIS. Yes, the terrorists have proven to be far more resilient and tough-minded, despite bombing runs by the U.S. and its allies. However, the opposition seems to have at least slowed their advance, which is enough for the markets.

As for the worry-mongers who follow the Fed, forget about them. In my opinion, the Federal Reserve Bank will overstay its welcome when it comes to keeping interest rates low until they are convinced that the labor market has truly recovered. And that brings us to the mid-term elections, which are less than two weeks away.

Most pollsters believe that the GOP will sweep both houses of Congress. All Republicans need to do, according to the consensus, is to continue slamming an already-unpopular president and stay away from the issues. As such, the stock market is going to celebrate their win by gaining ground. For whatever reason, markets initially go up when Republicans win elections, even though the historical data indicate that markets always do better under the Democratic Party.

Once elected, the GOP has two years to do something on the legislative front in order to carry the 2016 presidential elections. They cannot afford to do nothing and blame the Democrats, as they have done for the last eight years - if they want to win. So what can we expect?

At the very least, we should expect some kind of fiscal stimulus plan that will pick up where the Fed left off. Infrastructure spending, something this country desperately needs, in tandem with corporate tax cuts (always popular with their corporate supporters) might be a way of growing the economy and further reducing unemployment.

Most politicos would say that the Democrats would never go along with that and if they did, the president would veto any GOP-authored fiscal stimulus plan as a matter of course. I'm not so sure. As an unpopular, lame-duck president, Obama might consider a Republican-controlled Congress as an opportunity to save the reputation of his presidency. If he were to usher in a new era of compromise, even if that compromise were all his own, would he do it? We shall see but in the meantime, stay invested.

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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