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Independent Investor: Don't Worry, Be Happy

By Bill Schmick
iBerkshires Columnist

It is official: the happiest country in the world is Norway, with Denmark the runner-up, according to the World Happiness Report. What lessons can we learn from this survey and what, if anything, should we do as a nation to join their ranks?

Where, you might ask, do we here in the U.S. rank? The answer would be No. 14, down from No. 3 in 2007. The least happy inhabitants on Earth appear to be in Africa while the average Chinese person is no happier than he was 25 years ago, despite the country's much-lauded economic miracle.

How do a pair of tiny countries stay so happy for so long?  It sure isn't the weather, where it is so cold that summers require overcoats and the days can last so long that they keep tourists complaining about lack of sleep. Or is it?

Clearly, the people there have a lot of money. Norway, for example, is the sixth wealthiest country in the world. They can thank the North Sea's oil discoveries 40 years ago for that. Denmark also has a high GDP per capita, but so do we, and yet we placed far lower. One answer is what these people actually do with their money.

These countries make it a priority to give their citizens economic security. Take health care, for example. While our government is in the throes of reducing the number of Americans who will be insured through health-care, in Norwegian society citizens pay a maximum of $300 a year for doctors, hospitals, and other medical services. After that, the government pays for everything for that year. In addition, they get other benefits such as all children's medical expenses are paid for by the government, including childbirth and five weeks paid vacation.

Think of it, as our Baby Boomers worry over how they will pay for their future medical bills, people there feel a great deal of security about their medical future. And it doesn't end there. Everyone receives a pension at 67 and education is free through the university level. In exchange, Norwegians pay higher taxes than we do. Is the trade-off worth it? Well, if happiness is a measure of worth, the results seem to indicate it is.

In our country, at least on the East and West Coasts, winters are relatively mild compared to Scandinavia. And yet, so many of us fight depression over the winter months. How is it that people in Scandinavia, where it snows all the time, can maintain their good spirits? One reason may be that bad weather forces people to band together and to support each other against the elements.

Here in the Berkshires, for example, many of us can't wait for the next snow storm because we ski, snow shoe, tube, or all of the above, before the last snowflake falls. Norwegians, like we in the Shire, have a positive attitude toward negative weather. Norwegians have a saying that "there is no such thing as bad weather, only bad clothing." Tell me about it!

My wife's family is from Norway. For years, she has been bugging me to make a visit and meet her extended family. They are like other Norwegians. They have tons of community spirit developed by staying in one place, living their lives, passing down their family homes to their kids and so on.

Unlike the two of us, who have moved maybe six times in 17 years, Norwegians describe themselves as "place bound" and are proud of it. The good news is that I will get a first-hand experience of Norway in August, when we will spend two weeks meeting and greeting her family. I will have more to say upon my return. In the meantime, however, it appears that happiness has more to do with community than money. That, my dear reader, should be taken to heart. America today is all about us versus them; our right, versus their wrongs. If there was ever a prescription for unhappiness, all we need do is look at ourselves as a nation for the reasons why.

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. 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.
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@theMarket: Fed Rate Hike Sets Stage For More

By Bill Schmick
iBerkshires Columnist

This week the Federal Reserve hiked interest rates again. That's two times in as many quarters. Back in the day, the markets would have swooned. This week they did the opposite. What gives?

The short answer is investors believe both the economy and inflation are beginning to accelerate, so the Fed has every right to reduce the gas and ease its foot off the monetary pedal. There is, after all, no need to keep interest rates at historically low levels at this point.

That's good news, after buoying both the economy and the financial markets through several years of anemic growth and worries over deflation. It is one explanation for why the stock market has climbed to record highs. Another would be that with Donald Trump in the White House and Republicans a majority in Congress, most investors believe only good things are ahead of us on the economic front.

So tell me something I didn't know. Well, for starters these interest rate rises (with more to come) signal a new economic era in this country and possibly the world. After a race to the bottom in bond yields worldwide, our central bank has now reversed course. It is only a matter of time, I believe, before the rest of the world's central bankers follow suit.

Historically, rising interest rates have provided headwinds for the stock markets. Looking back, about the best that can be said was that stocks do OK for the first two years in a rising rate environment, as long as interest rates rise gradually and each rise is moderate. Call it the "goldilocks" version of the economy where higher rates are offset by greater growth and moderate inflation.

Over time, even that scenario usually comes unglued as economies begin to overheat; inflation climbs and bankers need to become even more hawkish to subdue these animal spirits. Normally, the result of this rate rising is a recession, sometimes mild, sometimes not, depending on how well a central bank can predict the economic future.

At this point, you may realize that managing an economy as large as ours (no never mind managing all the world's economies) is definitely an art and not a science. In times past, central bankers have gotten it very wrong (and sometimes right), but not without a lot of luck thrown in for good measure.

Why the lesson on rising rates? Because from here on out the main risk to the economy and the stock market is not Donald Trump. It is interest rates. Thanks to the Fed, we avoided another Great Depression eight years ago. Since then, with no help from the Federal government, they have single-handedly steered the economy back to a recovery. There is no reason to doubt their abilities.

But Janet Yellen would be the first to admit that she and her board of governors are not infallible. They are feeling their way through this process of normalization. That's financial-speak for disengaging from an overly heavy hand on the economic throttle. It is a process of turning over some of the responsibilities for economic growth to both the free markets and, hopefully, a more responsive government.

So far the markets approve of the way the Fed has handled the first two rate hikes. But it is early days. We have at least two more such hikes waiting in the wings this year. The risk is that there may be more, or that the size of each hike grows. Let's hope that they get it right.

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. 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.
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The Independent Investor: Trump's Budget

By Bill Schmick
iBerkshires Columnist

It was late, "skinny," and guaranteed to send Washington lawmakers up a wall.  President Trump's first crack at a budget, released on Thursday, makes drastic cuts to many sacrosanct departments and programs while boosting spending in others.

If you haven't strapped in quite yet, now is the time to do so. The president's 53-page budget (less than half of his predecessor's lean, 134 pages) makes dramatic cuts to departments such as the Environmental Protection Agency (minus-31 percent) and the State Department (minus-28 percent), while increasing defense spending by $54 billion.

Areas that would also be hit hard were foreign aid, grants to multilateral development agencies such as the World Bank and United Nation's climate change initiatives. Clearly, "America First" was front and center in making these decisions. Here at home, renewable energy research and carbon dioxide emissions reductions would also be jettisoned, if the president gets his way.

The Agricultural Department, a bastion of American protectionism, was cut by 21 percent. It would see loans and grants for wastewater slashed, headcount reduced, and a program that gives U.S. farmers tax credits by donating crops for overseas food aid would disappear.

Nineteen organizations that count on federal funds for support such as public broadcasting and the arts would cease completely. Home heating subsidies, clean-water projects and some job training would also go by the wayside. The Housing Department's community development grants, along with 20 Education Department programs, including some funding programs for before and after-school programs, felt the ax. Anti-poverty programs were targeted as well.

In contrast, defense spending will be boosted by $54 billion, money for veterans would increase 6 percent and the White House is asking for a $1.5 billion down payment for the building of Trump's "Great Wall." In many ways, Trump's budget looks like a typical GOP blueprint but there are some differences.

For example, Trump wants to strip infrastructure funding from federal agencies, largely the purview of the Department of Transportation (highways, bridges and airports) and the Army Corp of Engineers, which takes care of the nation's inland waterways. Congress controls where that money is spent. We are all aware that historically, a large part of government spending programs is simply an exercise in legal bribery.

Each congressman and senator gets their "taste," depending on how powerful they are and how good they are horse-trading in the cloak room. Bridges to nowhere, choice contracts to favored construction companies — the litany of kickbacks, waste, and cost overruns go hand-in-hand with what we know as government spending.

Here comes Trump. By taking the purse strings away from Congress, he intends on keeping control of how much gets spent on what (and who benefits). Trump is throwing down the gauntlet to the business-as-usual crowd of Washington politicians on both sides of the aisle.

The ink isn't even dry and already the politicians of both parties are "outraged," "concerned," or "doubtful" in commenting about the White House budget proposals. In truth, presidential budgets are simply a "wish list" and should be taken as such. However, once again, the new president is hell bent on fulfilling his campaign promises.

I would expect Republicans will support the president's budget in theory but when it gets down to the nitty gritty, they, like the Democrats, will make sure that business remains "as usual" unless the new president can out-Trump them.

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. 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.
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@theMarket: Mushy Markets in March

By Bill Schmick
iBerkshires Columnist
Investors took a break this week from the ongoing Trump rally, even as the pace of change in Washington seems to be accelerating. Both the financial downside and political upside should be positive for your investment portfolio overtime.
 
The minor consolidation I have been expecting in the stock market began this week. The averages have pulled back a little, but the S&P 500 Index, for example, has lost less than one percent from its all-time highs. That's not exactly the end of the world ...
 
I see a meandering two steps back, one step forward, kind of market with the downside risk somewhere between 2,300 and 2,330 on the S&P 500 Index. That would equate to about a 4 percent move. As pullbacks go, that would be minor and necessary given the stupendous gains we've seen since November. 
 
Some readers, mostly Trump-haters,(and there are a lot of them in this neck of the woods) have asked why I am so positive on the markets right now. It's simple: hope is a powerful motivator for stock market investors. So far, that hope has been justified. 
 
The repeal of Obamacare was one of the new president's major campaign pledges. This week, Congress began work on repealing and replacing the Affordable Care Act (see yesterday's column "America's Road Toward Universal Health Care.")
 
Not bad, for a president who has only been in office for 49 days.
 
His trillion-dollar infrastructure project campaign pledge was this week's focus in the Oval Office. Work is also progressing on federal cost-cutting, while regulation after regulation is coming under scrutiny from cabinet members/businessmen who, by their very nature, hate waste and inefficiency. 
 
Bottom line, this guy is not only doing what he promised to do in the campaign, but he appears to be doing it with a single-minded purpose. So those who can be at least neutral about this president, (a hard place to be in this divided and polarized nation) he gets an "A" for effort.
 
Friday's non-farm payroll report, the first employment data that can be attributed to the Trump administration, came in much better than expected — 227,000 jobs versus an expected 175,000 gains. It appears that more than just stock market investors are hoping for a better environment. American small-business owners, who are responsible for the lion's share of U.S. employment, are among those who hope for a better business climate under Trump.
 
The question will be whether that employment number will convince the central bank to raise short-term interest rates next week. Although the headline numbers look great, the Fed usually looks at details such as whether wages also rose. They didn't. The economy, meantime, is still not growing at an accelerated pace. The Atlanta Fed actually reduced its first quarter GDP growth rate from 1.3 percent to 1.2 percent this week.
 
The Fed Funds Futures market is telling us that bond traders are nearly certain that a rate hike will occur on March 15. I believe that at least part of the reason markets have turned mushy this week is in reaction to this event. Rising interest rates, no matter how small, concern investors greatly. I believe that rising interest rates, not Trump, are the main obstacle to further gains in the stock market this year.
 
But as long as central bank policy remains moderate, with small rate hikes, spaced widely apart, the stock market can adjust and continue to climb. If, however, the Fed becomes more aggressive, for whatever the reason, then all bets are off.  
 
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. 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.
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The Independent Investor: America's Road Toward Universal Health Care

By Bill Schmick
iBerkshires Columnist

The GOP's plan to repeal and replace the Affordable Care Act was introduced this week.  As one might expect, the Republican Party's long-awaited plan was met with a firestorm of protests from just about every conceivable lobbying group. That's exactly what one should expect, given that there is so much at stake.

Headlines throughout the week warned that if the plan were passed in its present form, health-care premiums could rise by 30 percent or more. Seniors could pay far more for coverage under the new plan, while between 6 million and 10 million people would lose their health insurance coverage altogether. The poor would get short shrift, while the wealthy would benefit most.

The new plan dubbed "The American Health Care Act," (if all goes as planned) will be rolled out in three phases under a budgetary process that would allow Republicans to pass the bill through a simple majority in the Senate. The problem is that although Republicans are unanimous on the need to repeal the Affordable Care Act (ACA), the party is divided in how to replace it.

Readers might recall that after the landslide Republican victory in the general election, many Americans were worried that Obamacare would be abolished altogether. The doomsday crowd is convinced that the country's health care insurance coverage will go back to the way things were prior to the ACA. I argue that it is too late for that.

Regardless of what you may think of President Obama, he and the Democratic Party set this nation on a new course. It will, in my opinion, result in universal health-care coverage for all.

"But look at what the GOP is proposing," argue the critics.

My answer is that it is early days and the legislation in its present form will not survive. The Senate (including many moderate Republicans) recognizes that there are deep flaws in Speaker Ryan's plan. But some changes are necessary; otherwise the present program will simply sink further into disrepair.

Please remember, however, that even Barak Obama, in rolling out the Affordable Care Act, conceded that the legislation was not perfect. He fully expected revisions and amendments to the original act. Unfortunately, thanks to a partisan Congress, those amendments never took place. Instead, the opposition simply demanded a repeal of Obamacare, but a funny thing happened on the way to the forum. Uninsured Americans actually saw the benefit of government-sponsored health care, regardless of its imperfections.

Remember, too, that in its present form, the House bill hands over huge benefits to those with the highest income (the one percent) at the expense of the very people who voted for our new president — older blue-collar whites. At least half of Trump's constituency came from white voters without college degrees and the House bill hurts them in multiple ways.

Under Obamacare, in 20 of the 30 states Trump won, non-college whites gained more than any other group. The number of uninsured noncollege white folk fell by 39 percent. Older whites, above the age of 45, provided 56 percent of Trump's vote. This group will be especially hard-hit if House Republicans get their way. They won't.

Four Republican Senators have already gone on record opposing the House bill's Medicaid provisions.  Now that the ball is in their court, I believe Republican lawmakers will soon discover (if they haven't already) that replacing the plan will not be that easy.

And whatever the plan that is finally passed in Washington, D.C., it too will be changed and amended for years to come. Similar to the evolution of Social Security from 1934 into the 1960s, the American version of universal health care will be a process of trial and error until we get it right. And make no mistake, we will get it right. All it requires is patience.

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. 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.

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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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