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@theMarket: Right Back Into the Range
By Bill Schmick On: 01:39PM / Monday April 20, 2015
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The first week of earnings season is behind us. The results were not nearly as bad as investors feared. Some averages, such as the Russell small and mid-cap indexes, actually made new highs. However, all the indexes fell back into a trading range by the close on Friday.

As I suggested in my last column, on average 75 percent of companies actually beat earnings estimates. This quarter seems to be following the same pattern, at least so far. The money center banks reported pretty good numbers and even the worst of them got the benefit of the doubt from investors.

The really big moves came from the overseas markets. China, which has been a red-hot market all year, finally stumbled. After the Shanghai market closed on Thursday night (Friday, China time), the mainland regulatory authorities tightened margin rules. They also warned millions of individual investors (who have been the main players behind the stock boom) that they should not continue to borrow money or sell property to buy stocks. Some of these neophyte investors have no idea of what they are doing and yet they are buying and selling sometimes five or six times a day.

After the warning, the futures markets in Chinese stocks immediately plummeted over 6 percent, setting off a chain reaction throughout overseas markets. Aiding and abetting these China troubles, the economic woes of Greece continues to bedevil Europe.

As deadlines approach for various Greek debt payments to the IMF and the ECB, investors are worried that Greece will fail to make the deadlines. And if that happens, will European markets be facing a sudden and violent sell-off? Skittish investors decided not to wait for the outcome and instead sold European stocks on Friday by at least one percent or more.  Germany was down almost 4 percent for the week.

In the meantime, this weekend the International Monetary Fund and World Bank meet in Washington, D.C. for their annual spring meeting. I expect a stream of new forecasts essentially reducing global growth to around 3 percent for the year. There may also be some commentary concerning the impact of a stronger dollar upon various economies.

At the same time, expect commentary from politicians this weekend on trade. On Thursday, the Senate agreed on the wording of a deal aimed at giving President Obama "fast track" authority to negotiate a wide-ranging trade deal with 12 countries in the Asia Pacific (excluding China). The new Trans-Pacific Partnership (TPP) would go beyond the traditional trade deals that focus on cutting tariffs and quotas. In addition, it would hammer out new rules on intellectual property, services and competition between state-owned enterprises and private competitors.

Given that Japan is the largest economy in the proposed TPP after the U.S. (which also includes NAFTA members Mexico and Canada), a lot is riding on the passage of the deal for the Japanese. Prime Minster Shinzo Abe is hoping Congress and the White House can present him with a done deal by the time he visits America on April 26. If so, expect that market to rally in response.

As for the down draft in world markets on Friday, I'm not worried. Foreign markets needed a pull back, especially in Shanghai and Hong Kong, after a quarter of remarkable out performance. Problems in Greece have been triggering sell offs in European markets since 2011. Every one of them has been a buying opportunity. I don’t see this one as any different.

For those who missed putting some money to work overseas at the beginning of the year, this may be an opportunity to jump aboard. I strongly urge you to do so.

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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The Independent Investor: Brazil Not For the Faint of Heart
By Bill Schmick On: 01:35PM / Friday April 17, 2015
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Beset by scandals that could reach as high as the presidential office, suffering from an epic drought, low oil prices, high inflation, a declining currency and a negative economic growth rate, the world's seventh largest economy could be an interesting long-term investment but not for the faint of heart.

No question about it, Brazil is a basket case right now. Dilma Rousseff, the two-term Brazilian president and former head of the state-owned energy behemoth, Petrobras, is embroiled in scandal. So far she has managed to elude prosecutors, who are pursuing 28 different investigations involving 54 politicians. Present and former Petrobras executives, including heads of both Chambers of Congress, former ministers, an ex-president, as well as the top members of President Rousseff's ruling Worker's Party are all involved.

The multibillion dollar kickback scandal involved funneling money through Petrobras and into the pockets of politicians and the election coffers of the Worker's Party from 2003-2010, (when Rousseff was president of the company). She maintains no knowledge of the scheme, however, three out of four Brazilians think she is lying and 44% of the population disapproves of her administration.  Business and consumer confidence are touching historic lows while the Brazilian currency, called the Real, has depreciated 40 percent against the dollar.

Brazil is also suffering from a wide-spread and lingering drought that is hurting their vast agricultural export sector (3.5 percent of GDP and employs 15 percent of the labor force). It gets worse. The country's main source of energy is derived from hydroelectric plants, which depends solely upon water to drive their industrial sector (23 percent of GDP). As a commodity-rich country, the decline of that sector over the last few years has crippled growth. Yet, government spending continued to climb while much-needed and long-postponed structural reform of the country's rigid labor laws continued to be ignored.

As a result, economists forecast that debt as a percentage of GDP will end the year at 65.2%, while the economy will see a 1.5 percent decline in GDP growth. Inflation could reach as high as 7.5 percent. In the face of all this terrible news, why am I recommending buying?

Brazil's stock market has always had a boom or bust element to it. My first visit to Brazil was during the "Lost Decade" of the '80s when the condition of most Latin American countries resembled those of present-day Greece. Needless to say, Brazil's stock market was a total bust. The Bovespa, (Brazil's major index) reached a low in December of 1989.

By the early 1990s, however, thanks to a massive debt-for-equity swap by its bank creditors, the country's investment prospects greatly improved. During the 1990s, the market experienced sizable gains for investors, as well as major losses. Another market low was registered in 2002. At that time (unlike today) investors feared the country would default on their debt, which was far worse. Foreign reserves were also much lower, inflation was higher and the pressure on the Real was greater.

Worst of all, Lula de Silva, a radically liberal candidate of the Worker's Party, was elected president. That horrified the country's financial markets, who believed he would lead the country into a socialistic ruin. "Lula" did the opposite. He took severe measures, with the aid of the central bank, to control inflation, while imposing market-friendly policies and structural reforms. As a result, the Bovespa registered a 250 percent gain from 2003-2004. In the next eight years the stock market was up 1,705 percent versus a 57 percent increase in the S&P 500 Index. At that point the financial crisis drove the market down and it has never really recovered.

Today, I sense that investors' fear may be approaching the level that prevailed back in 2002. And yet, the economic conditions in Brazil are far better today. Some say the commodity cycle has bottomed and so have oil prices. If so, that would be a big shot in the arm for Brazil.

I do know that the U.S. is the country's second largest trading partner and the strong dollar benefits Brazil's exports. The political scandals may topple the president, in which case there is a distinct possibility that a new administration would implement "Lula"-like reforms to jump-start the economy and restore both business and consumer confidence. As for the drought, who knows when the weather will change?

Will all of this happen overnight? Not likely, but for those long-term investors that have the risk-tolerance and patience to wait, Brazil seems like an interesting place to nibble.

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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@theMarket: Earnings on Deck
By Bill Schmick On: 02:32PM / Sunday April 12, 2015
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This week launched the beginning of first-quarter earnings results for American companies. Wall Street doesn't expect much. It is bracing for a disappointing season, especially from U.S. exporters. Has the market discounted that news already?

Analysts expect that overall earnings will decline from 3 to 6 percent this quarter versus the same time last year. However, I have explained to readers how analysts play the earnings game. Well in advance of reporting, analysts revise down their earnings estimates to the point that only really out-of-touch corporate managers fail to "beat” estimates. On average, about 75 percent of companies meet or beat these lowered expectations. In which case, the markets may not experience the down draft that investors are so worried about.

Mergers and acquisitions continue to prop up the stock market and helping to keep investor's attention focused on what company will benefit from the next multibillion dollar buy out. It is a great time for corporations to acquire public assets. For most major corporations, borrowing huge sums of money is effectively free at these low to non-existent interest rates. Combined with the billions Corporate America has squirreled away on their balance sheets, it is a smart move to shop for strategic acquisitions.

Given the lead time and expense of building home grown assets, it is far easier to buy someone else's. If you throw the strengthening dollar into that equation, overseas companies seem exceptionally well-priced from the perspective of company managements on this side of the pond.

While investors fret about earnings, "Fed Heads" continue to play a guessing game on when the Fed will raise rates. Honestly, does it really matter if it is in June or September or the end of the year? In addition, economists are revising down their estimates for U.S. GDP growth for the year. In summary, the markets seem to me to be busily building a new wall of worry and you know what happens to markets when they do that. It goes up.

One reader asked if I still believe the U.S. market is the place to be, given my enthusiasm this year for buying foreign markets. The short answer is yes. Granted, year-to-date the S&P 500 Index is only up 1.6 percent, while India has gained over 5 percent, China, Japan and Hong Kong are up 14 percent, and Germany is pushing 24 percent, ex-currency.

I believe off-shore will continue to outperform, but America should see at least 5-7 percent gains by the end of the year. Most of those gains will be back-loaded toward the third and fourth quarter. But let's put this in perspective. Most U.S. indexes are only a percentage point or two from all-time highs. We need to take a break. That is all that is happening here.

All investors vacillate between fear and greed. Our natural reaction to a temporary slow-down in our market is to immediately dump it and buy what's moving, so that the feel-good euphoria of making more and more money keeps our high going. That's when you get into trouble.

It is better, in my opinion, to diversify some of your assets overseas--remembering that those are risky markets. If you have been following my advice since the beginning of the year, you already have a 10-25 percent exposure to foreign stocks, depending on your risk tolerance. Sure, in hindsight, you should have bought more so you could have scored big in just three months. But "could a, would a, should a," is a useless exercise and has no place in investing. You are doing just fine right where you are.

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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@theMarket: Will the Second Quarter Be Like the First?
By Bill Schmick On: 08:47PM / Friday April 03, 2015
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By now you know that this year's first quarter was nothing to write home about. The benchmark S&P 500 Index managed to eke out a gain of just 0.4 percent for the quarter. The Dow posted a 0.3 percent loss, while the NASDAQ did gain 3.5 percent. Can we expect more of the same this quarter?

The short answer is yes. And that's not necessarily a bad thing. Investors have been conditioned to expect nothing but double digit gains in the stock market over the last few years. This "new normal," based on abnormally low interest rates, is coming to an end, at least in this country.

As I have written in the past, stock markets do not go straight up. Usually, we experience bouts of consolidation. Sometimes that means sharp sell-offs amounting to 10-20 percent and other times the consolidation is more benign. We may be in one of those times where markets digest previous gains by simply doing nothing for a few quarters. I would rather have that than a big sell-off any day.

But while most investors remain U.S.-centric, some foreign markets have done quite well. Back in January I made my investment case for China and Japan as well as Europe. At the time I believed (and still do) that these markets deserved your attention. That advice has paid off handsomely. China outperformed all other global markets. Japan, Asia's second best market, delivered an 8 percent return while Europe (ex-currency) gained double digits.  Do I believe these foreign markets have more room to run?

China's market is climbing a great wall of worry. Their economy is slowing with the latest consensus forecast at a 7 percent growth rate for 2015. That's still far better than the rosiest forecast for our own economy at 2.5-3 percent. Chinese investors are convinced that the central government will use a combination of monetary and fiscal policy to offset this slower growth. So far that bet has paid off.

Over in Japan, where a full-fledged quantitative easing program is in full bloom, investors are buying stocks. They anticipate that their financial markets will react in a similar fashion to what occurred here in the aftermath of our QE programs. Once again that bet is paying off. Ditto for Europeans markets that saw their own QE launch in January.

Here at home the endless debate on whether, when or how much our central bank will begin to raise interest rates is a contributing factor to the underperformance of the American stock market. Today's nonfarm payroll number is a case in point. Although the stock market is closed today (in observance of Good Friday), the bond, currency and futures markets indicate that on Monday the markets will probably be down.

The economy added just 126,000 jobs, while economists were looking for at least 247,000 openings. That is the weakest growth in employment since 2013. Previous months' employments gains were also revised downward. Cold weather in the Northeast, the California dock strike and job losses in the oil patch explains the disappointing job number.

After the news the dollar fell, as did interest rates on the benchmark U.S. 10-year Treasury indicating that at least some investors believe that the Federal Reserve may now extend the timetable before raising interest rates here at home. I don't think so.

The good news is that hourly wages rose 2.1 percent, and that, I believe, is far more important to the Fed than one nonfarm payroll data point that will be revised up or down in the weeks ahead. Bottom line, however, the markets will most likely be down early next week and then earnings season will begin. Hold onto your hats.

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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The Independent Investor: How to Teach Your Kid to Become the Next Warren Buffet
By Bill Schmick On: 03:41PM / Thursday April 02, 2015
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Children in America need to learn more about money. How to value it, save it, spend it and retire on it. The evidence thus far indicates that we have all been doing a poor job in educating our kids. Here are some suggestions to remedy that failing.

Let's start with the munchkins, pre-kindergarten through third grade, and the concept of cash. To those little people, credit card purchases mean nothing at all, but watching Dad, Mom (or a grandparent like me) plunk down some greenbacks for a treasured game, book or ice cream makes a lot of difference. Don't miss an opportunity to have your child watch you count out and put the coins in the parking meter or pay for a purchase when they are old enough.

A piggy bank that one can see through is also high on my priority list, especially one with four slots like the "Money Savvy Pig," which offers several different savings slots. If that doesn't work, simply find several plastic jars and apply different labels. One should be for saving, another for spending, and a last one for donations. As the child grows older, add an investment jar as well as a "matching jar."

As your children age, introduce them to money games. Games allow parents to teach without lecturing and create an atmosphere of fun and excitement around money. The Internet now offers plenty of such games at different age levels. At risk of dating myself, my first memorable learning experience with money evolved through my family's tradition of playing weekend "Monopoly" games, sometimes way past my bedtime. It was fun. My parents let me be the banker, which was a special reward, and those feel-good memories surrounding finance still remain vivid years later.

Use the money in those plastic jars or piggy bank to show your kids that stuff costs money. At some point, every child will want something special, maybe an action figure, crayon set, or something they have seen on television. Help them count out the amount from their piggy bank and go with them to the store as they physically hand over the money to the cashier.

Hopefully, they will want two items exceeding their savings, which allows you to teach them the opportunity cost of buying one item or the other, but not both.

In my last column on this subject ("Kids and Money"), we discussed the pros and cons of giving an allowance. I came down on the side of giving an allowance for efforts earned and not as simple cash stream because their friends get one. I don't even like the word "allowance" and would rather use words like commission, earnings, or some other word that equates effort for income.

Equally important when teaching the concept of earnings for effort is the idea of saving, rather than spending. Here one can incentivize your child to save by the concept of "matching."

For every dollar your child earns and saves, you can match that savings with money you can contribute just like your company's match in your 401(k) at work. The more the child saves, the more you match. But be aware that most children will need a goal in order to save. It most likely will be a high-priced item such as a bike, a trip, or something that will require a long-term plan and a reason to save.

As your children grow into their teens, help them find a job. Once they have one, make sure you help them open a checking and savings account. My first job, at 11 years old, was a daily paper route. I was sweeping up the local drug store after school a year later and was earning regular income well before I graduated from high school. For me, it was a requirement, and the money I saved went towards books, clothes and occasionally entertainment. In hindsight, I wouldn't have it any other way. Jobs, whether part or full time, teaches the teen that working is a great way of making money, and what teenager doesn't need money?

If you follow some or all of these suggestions, by the time your child enters college or technical school, they should be able to understand and appreciate the costs and opportunities when selecting a major, a profession or career. It may not guarantee that they will grow up as the next Mr. Buffet bit it certainly won't hurt.

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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Final Jocelyn LeClair 5K Set for Sunday
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BHS Opens Walk In Treatment Center At Pittsfield Price Chopper
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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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