Investors were greeted on Friday with two nasty surprises. Both occurred in February. Chinese exports dropped by 20.7 percent, while in the U.S., the nation added a dismal 20,000 jobs. As you might expect, the stock market did not take the news well.

 

What really spooked traders was how far apart these numbers were to expectations. Over here, we were expecting 180,000 jobs to be added to the payroll number. In China, where the economy had been expected to weaken, exports had been forecasted to decline by 6 percent, versus the prior year.

 

Before the ink had dried on the jobs data, the administration was already sending their point man on the economy, Larry Kudlow, the director of the National Economic Council, on television to assure Wall Street that the February data was "fluky" and should be ignored.

 

As for China, investors there took the Shanghai Composite down by 4.4 percent overnight. Japan dropped half of that (minus-2 percent), even after the government said its economy grew by 1.9 percent in the fourth quarter of last year. It also didn't help that the European Central Bank lowered its forecasts Thursday for growth in the Eurozone and announced more stimulus measures to support the economy.

 

Over the last two weeks, I have been warning readers to expect a pullback in the markets, nothing too serious, but maybe a 3-5 percent decline. If I were to take a guess, we could see the S&P 500 Index hit 2,700 or so, before we mellow out. From there, it depends on how low those crazy algo trading machines decide to take us. Where is John Connor when you need him?

 

By now you should expect these consolidations especially after watching the indices free fall in the last quarter of 2018 and then climb by almost 20 percent from their December lows.

 

There has also been a growing skepticism over the China/U.S. trade deal. Despite my own skepticism, investors were happy to drink the White House "Kool-Aid" on the timing of a breakthrough announcement. It was first thought the deal would be announced three weeks ago. It was then pushed back after the Chinese team of negotiators returned to Beijing with nothing done. Last week, negotiations were "moving along very nicely," according to the president.

 

On Thursday, The New York Times reported that negotiators were still trying to lock down details and that Chinese officials "were wary about the final terms" because of Trump's penchant for making last-minute changes over the heads of his negotiators. But, of course, they would say that.

 

On Friday, Trump, when asked about the deal on the South Lawn, sounded a little less certain. He predicted "a very big spike" in the stock market "as soon as these trade deals are done, if they get done, and we're working with China. We'll see what happens."

 

Whether we actually do see a spike in the stock market (and for how long) depends on what happens next. Readers might recall that I believed that much of any potential upside for stocks based on a breakthrough trade deal was already discounted by market participants. When announced, it would likely be a "sell on the news" event.

 

If, on the other hand, the markets continue to pullback here by several percent, and then a really good deal is announced (as opposed to something which simply saves face), then the president might be right. So how do you play it? Simple: do nothing, stay invested, and strap in. The ride should be bumpy.

 

About a month ago, the national debt topped $22 trillion for the first time. What's more, it only took a year to tack on another $1 trillion. Unless we do something soon, we could see those kinds of yearly borrowing double within the next decade.

 

Let's define U.S. debt as the sum of all outstanding debt owed by the federal government. Two-thirds of this debt is held by you and me. It is called public debt, while one-third is held by various inter-governmental departments and agencies such as Social Security and other trust funds.

 

We have the distinction of being the world's largest debtor, although the European Union is a close second. We now have more debt on our books than we produce in goods and services in a year. If you and I were in the same boat (and most of us are), we might have a problem repaying that debt in the future. If interest rates begin to rise, we might need to cut back on our spending just to make the monthly payments. As you might imagine, your debt and the government's have a lot in common. 

 

 Using the nation's debt practices as our model, we find that more and more Americans are accumulating debt. And, what's more, we are dying with that debt on our books. About 73 percent of Americans who die have unpaid debt that totals much more than their funeral expenses, according to Experian PLC, a large credit card reporting bureau; the average amount of that debt is about $62,000. 

 

As you might expect, unpaid mortgages account for 37 percent of those liabilities, followed by student loans (in many cases), while credit card debt is relatively small (after personal and auto loans). But if you ask the typical American if they believe they will be in debt their entire lives, only 30 percent would answer in the affirmative.

 

And like the nation, there are common threads between the causes of our personal debt and that of the nation. Most of us borrow when we have nowhere else to go in order to make ends meet. God forbid we stop spending. In the case of the nation, we borrow when the economy gets into trouble and keep borrowing until things are good again.

 

Historically, the largest percentage increase in our debt occurred under President Franklin Delano Roosevelt back in the 1930s and '40s to combat the Great Depression and the onset of World War II. It was President Obama who ran up the largest deficit dollar-wise in our history (in order to deal with the Financial Crisis). His predecessor, George W. Bush, came in second. Bush's spending can also be attributed to the Financial Crisis since it was his administration that spawned and presided over that calamity.

 

A second cause of our government indebtedness has been our borrowing from the Social Security Trust Fund. The politicians have been using the revenue from that fund to spend more and more for decades. To them, it has functioned as an interest-free loan, although at some point (2035) that situation is going to reverse, and those borrowings will have to be paid back to retirees.

 

Personally, many of us do the same thing with our credit cards. Many of us look at it as free money, although our borrowings are by no means interest-free, which ultimately ends up in so many of us going bankrupt.

 

America also has its equivalent credit lenders. China and Japan, for example, have been happy to lend to us, so we can keep buying their exports year after year. And like credit card companies, they will be receiving more and more interest in return for their loans to us. And like consumers, at some point, we could end up never paying off more than the monthly payments. Where will that stop? Unlike us, the federal government can always vote to raise the debt ceiling and borrow more and more, while if we borrow too much our credit is curtailed.

 

None of this should be news to readers. You hear about the out-of-control national debt all the time. But If you are anything like me, when economists throw around numbers like one and two trillion dollars, I lose interest. I simply can't wrap my head around figures that large.

 

As such, is it any wonder that there is a growing movement of ultra-liberal legislators who argue that we can continue to borrow as a nation like this, no matter how high the debt goes? It's "all-good," they say, as long as we can continue meeting our monthly payments, while keeping economic growth moderately strong and inflation low. Unfortunately, that is a pipe dream, in my opinion, and in my next column, I will tell you why.

 

February delivered good gains for the markets. All the main averages were up, continuing January's climb toward the old highs. This week, momentum stalled a bit, indicating that investors need more good news to continue buying.

 

A China trade agreement (or lack thereof) still takes center stage. Despite the Washington, D.C., circus surrounding the testimony of Michael Cohen, the president's chief "fixer" for over a decade, traders largely ignored the hype.

 

At the same time (no accident in the scheduling), President Donald Trump hoped to take the spotlight off Cohen and back on him by meeting with Kim Jung-un in Hanoi for a second summit. Unfortunately, that meeting was such a bust that Trump left early without any progress at all. One wonders if the whole trip was just a publicity stunt to draw attention away from the Cohen testimony before Congress. Traders ignored that event as well.

 

What really kept the lid on the market was U.S. Trade representative John Lighthizer's comments before the House Ways and Means Committee on Wednesday. "Let me be clear," Lighthizer said, "Much still needs to be done both before an agreement is reached and, more importantly, after it is reached, if one is reached."

 

The trade rep went on to say that China needed to do more than just buy more of our trade goods, citing all the other concerns such as technology transfers and intellectual property theft.

 

None of the above should be new to my readers, since it is something I have been talking about for months. However, this dose of reality flies in the face of all the hype and hope that propelled the market averages to where they are today. And it has not been only our market that was bid up by the tweets and off-hand comments of the president in the last few weeks.

 

China saw its equity market gain 5 percent overnight earlier in the week, after gaining almost as much last week. Since then, the Shanghai averages have come back down to earth. They have given up a good amount of those gains. Here in the U.S., the averages are still hanging in there and finished the week up modestly.

 

Almost like clockwork, Larry Kudlow, the president's chief economic advisor, tried to talk the markets and the trade-deal prospects back up on Thursday morning. He has done this good cop/bad cop routine before and after comments by Lighthizer. After an initial flurry of algo-driven buys, the rally petered out. However, on Friday, after investors digested a better than expected 2018 fourth quarter GDP number of 2.6 percent, the markets were encouraged and finished up for the week.

 

But it remains the job of the maestro to reassure the markets if we hope to break out of this tight trading range on the S&P 500 Index. At this point, Trump and Trump alone can dispense the hope and Beetle Juice necessary to keep the markets climbing. It is no secret that the averages are overbought, extended, and due for a pullback of sorts. The "pain trade" this week was to short the markets anticipating that decline, which did not occur. As we enter a new month, there is an even chance that, instead of a decline, we continue this sideways action or, (if there is a breakthrough on trade), the potential to move even higher.

 

Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 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.

In the 2019 fiscal budget, the Department of Veterans Affairs received more than $200 billion in spending. That's a 6 percent increase over last year and counts as the largest amount ever received by the VA. The money will go a long way in implementing an array of much-needed reforms.

 

There will be $400 million earmarked for preventing opioid abuse. As you might imagine, veterans are a high-risk group since opioids are used extensively in treating wartime casualties.

 

An additional $1.1 billion will jump-start the overhaul of the VA's electronic health records, while $1.75 billion will go to implementing the VA Mission Act. That money will revamp and re-write the veteran's community care programs, which allows for an entire array of new health care choices for the veteran. This will boost the vet's ability to access private health care at taxpayers' expenses.

 

On the education front, the Veterans Benefits and Transition Act will help to right some past wrongs inflicted on Post-9/11 GI bill users. Last year, there was a series of technology glitches at the Department of Veterans Affairs that resulted in delayed and inaccurate payments for many thousands of vets attending college.

 

In many cases, the government was not paying the tuition costs, or if they were, the payments were delayed. GI students were being hit from all sides. Schools were charging them late fees, preventing them from access to campus facilities, or were not allowing them to register for their next semester.

 

As vets scrambled to pay the tuition shortfalls, money for mortgage and rents were in short supply causing even more late fees to accrue.  Some schools were urging veterans to take out loans to cover future tuition costs. It was a mess. The new act puts an end to these practices and demands that schools cease and desist if they want to continue to enroll students who are using the GI Bill.

 

As for the late payments the vets incurred, the new Forever GI Bill Housing Payment Fulfillment Act is holding the VA accountable for fixing these past payment snafus. The act creates a team of experts to oversee these reimbursements and report back to Congress on their progress every 90 days.

 

There are many more initiatives, from helping homeless vets to finding jobs to transitioning returning soldiers into civilian life, but you get the point. As for me personally, until recently, I stayed well clear of the VA. The harrowing stories I read and heard about the bureaucracy, slovenly and overcrowded facilities and atrocious health-care services kept me far away from seeking their help.

 

However, times are changing and so has my attitude of late. There is some talk of actually turning over the health care of veterans to the private sector if things don't improve within the VA. I decided to experiment and visit my local VA medical center for a physical.

 

I was blown away by the level of competence and professionalism I encountered. From the doctor who examined me, Dr. John Hickey at the Pittsfield Outpatient Clinic, to the nurse who took my blood pressure, to the receptionist, and everyone in between, the service and care was equivalent to, if not better than anything I have experienced in the private sector.

 

My appointments were sent via phone and messaging. My health records are securely stored, new information is automatically updated in their electronic systems and my next appointment scheduled and recorded. And it is not just the VA Medical Center. My local VA representative returns phone calls within a day and answers emails within hours. In my opinion, there is a new "can do" attitude from top to bottom in the VA. 

 

So, it is time to give credit where credit is due. Helping the veterans was one of the president's campaign promises. Bravo, Mr. President for a job well done. Keep up the good work.

 

The stock market is once again approaching historical highs. Unemployment is at multi-year lows. Interest rates and inflation, if not at record lows, are close to it. The president claims we are enjoying the strongest economy in our nation's history. Is that true?

 

The short answer, according to a recent study by Bloomberg, would be no, not even close. They went back over the course of the last 43 years and measured the nation's economy under three Democratic and four Republican presidents. They found that in all but one case both the economic and financial performance of the U.S. was better than it is now.

 

Bloomberg used 14 different gauges to measure a wide range of economic activity.

 

Everything, from manufacturing jobs to the value of the greenback versus other currencies, was included. All the traditional variables such as GDP, unemployment, wages productivity, etc., were also analyzed.

 

It turns out that the economy under the last seven presidents saw the greatest improvement under President Bill Clinton between 1993 to 2001. Ranking No. 2 was Barack Obama. President Obama, readers may recall, took office in 2009 during the worst recession since the 1930s. By the time he departed in 2017, he handed Donald Trump an economy that saw the second-best performance of all seven presidents.

 

Ronald Reagan only ranked No. 3, followed by George H.W. Bush, Jimmy Carter then George W. Bush (who presided over the largest financial crisis in 80 years). President Trump settles in at the No. 6 place, not quite as bad as George W., but clearly lagging Jimmy Carter.

 

Even though it is early days, with a little less than two years left in his presidency, Trump's economy is below average in 12 of the 14 measures. He can claim the lowest unemployment rate since the 1960s, however, and the strongest growth in manufacturing jobs since 1997.

 

From a politically partisan point of view, Trump's sixth-place score would leave you wondering why he claims he is responsible for "the strongest economy in the history of our nation." But this has happened before. Just about every president claims credit for a good economy. They might as well, since bad economies are always blamed on them as well no matter the facts. And the fact is that presidents have little to do with the state of the economy.

 

All economies run in cycles. Recessions occur from a variety of factors both here and abroad. Central bank policies have much more to do with how the economy fairs at any given time than the election of a president. Presidents will always be one small piece of the public policy picture. And public policy is only a tiny piece of the forces that buffer, change, and mold today's complex economies.

 

The internet boom that coincided with the Clinton years had its origins decades before Clinton was ever elected. The Financial Crisis of the Bush era can be partially traced to President Clinton's jettisoning of the Glass-Steagall Act. Oil booms and busts, geopolitical turmoil and so much more are a result of policies by ours and other governments dating back to as early as World War II.

 

Why should a president get blamed (or take credit) for where the economy is at a certain stage when the seeds of growth or decline were planted long before he took office? Nonetheless, when 2020 rolls around, the same old myths will resurface, and voters will once again vote a president in or out based on what the economy is doing at that moment. That's the world we live in.