As traders and institutions put to bed the first quarter, several concerns loom large in the weeks ahead. How things play out over that time period will have important implications for the averages, given that they are not far from their all-time, historical highs.
What will the Fed do in May? Will Washington pursue tax cuts and if so, will there be opposition? What will first quarter earnings look like and how will markets react to all of the above? Let's look in my crystal ball, shall we?
Wall Street analysts expect corporate earnings to be higher by as much as 10-11 percent. That would be a big change from the recent past, where dismal guidance and feeble results have been the name of the game. If the numbers match or beat expectations, that could be good for stocks.
Next up, the central bank, what are its intentions between now and June? The betting is that there is little chance that the Fed will raise rates again between now and then. If so, chalk up another positive for the markets.
Then there is the Washington wild card where all sorts of things could go right or wrong, depending on a fractured Republican party and a mercurial administration. Last week's debacle, centered on the belly flop that was the House's attempt to "repeal and replace" Obamacare has set people thinking and worrying about the future.
I'm thinking that we may still need a few more days/weeks of consolidation before markets begin to climb. We have already brushed my first downside target for the S&P 500 Index at 2,323. Many times markets will re-test the lows before traders are satisfied that "the bottom is in," so don't be surprised if that occurs. As I have written before, this congestion is a good thing.
It's about time some sanity returned to the markets. Investors were way too optimistic about the extent and timing of Donald Trump's campaign promises. By the price action, one would have expected that all the things Trump promised would be delivered in his first 100 days. No never mind that he never said that, or event hinted that would occur.
Remember, however, that the short-term swings in the stock market are no longer controlled by human "thinkers and doers." While the "thinkers" appear gone forever, the "doers" are still around — in the form of superfast computers and algorithmic software programs. These robots account for over seventy percent of the daily volume spewing out thousands of buy and sell orders at the simple mention of a word or topic.
"Trump tweets health-care reform" or "House fails to pass" is all that is necessary to tack on (or off) a percentage or more of value in any stock, index or market, anywhere in the world. In the last quarter, an avalanche of such comments kept the robots spewing out orders, the majority of which were buys. No never mind that little in substance was accomplished during that period.
Part of the problem lies with the president's method of communicating with the public. Neither Wall Street nor Main Street is familiar with this sort of governance. In the past, when the leader of the largest most powerful nation on earth, said something publically, it was taken as gospel. The assumption was that mountains of research, discussions and thought crafted every word and punctuation mark of a President's words.
As such, we could all rely on those words as sacrosanct. It was the way policy could be telegraphed not only to American citizens but to the world at large. In the case of investors, it sometimes signaled a change in direction that could be acted upon with the surety that, good or bad, that whatever the change, it was here to stay.
That is not how things are done under this president. Yet, few seem to recognize this. In my opinion, President Trump's tweets should be taken for what they are: simple "High Fives," messages meant to keep us in the loop, more hopes and dreams, than signed and sealed policy statements. It will also take time for our newbie president and a Congress that hasn't been in the majority since 2007, to figure that out as well. At some point, but not necessarily at the same time, traders and investors will hopefully stop reacting to tweets and wait instead for more substantive actions before pulling the trigger. Time and patience are the key words here.
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.
Times are changing. Over 12 million Americans now "live in sin," as my parents would say, and their numbers are increasing every year. As long as they remain together, everything is copacetic, but what happens when they break up?
Thanks to the economy, demographics, and life-style choices, young couples today are living together and having children despite their unmarried status. In my own family, my niece is pregnant, unmarried, and has no intentions of tying the knot. Although her partner is the love of her life, they have decided (for now) to keep it that way.
And in today's economy, there may be a lot of good reasons not to get married. Number one among them may be affordability. In my example, both parties are young and work in a drugstore, stocking shelves and clerking. They live with his mother because they can't afford to get a place of their own. You might ask why in the world they have decided to bring a child into the world under these economic circumstances, but that's none of my business and more and more young people see nothing wrong with it.
It could be that like most unmarried couples they are going through what I call a "test-drive" period to feel more emotionally and financially secure before making a more permanent commitment. That happens all the time. However, there are other reasons why getting married is no longer the first choice.
As earnings and education levels among men and women are flattening out, there is no longer a crying need by some women to get married just to make ends meet. It was a traditional cultural bias that no longer has relevance. Many of these educated couples are making good money but still hesitate to marry.
Statistics don't lie and the most recent data suggest these trends are growing. Nearly two-thirds of women, ranging from the ages of 15 to 44 years old, have reported in a Centers for Disease Control (CDC) study that they have experienced periods of cohabitation. That is a 41 percent increase since 2002.
And the more education a woman receives, the more likely she will have lived with a domestic partner. Last year, the Wall Street Journal found that 58 percent of women with four years of college have lived with a domestic partner at some point. It also appears that 39 percent of cohabitating adults have children. Some already had kids, while 25 percent of these couples gave birth while in unmarried relationships, according to the U.S. Census Bureau. That's double the rate reported in the early 2000s.
But it is not just young folks that are choosing to live this way. Older Americans are opting for unmarried relationships at a faster rate than younger people. And these Baby Boomers have no intention of tying the knot. Retirement homes, for example, are evidently hot beds of "illicit" relationships.
There are plenty of financial reasons why seniors may not want to get married. Oldsters who have been married before have financial complications and could risk the loss of certain benefits by getting remarried. Pension's benefits, social security, health insurance and alimony come to mind. Then there is the inheritance you are leaving to the kids and/or grandchildren. For many, who have already spent time and money on estate planning, simply don't want to make any changes and don't feel they need to as an unmarried couple. Then there are the kids, themselves.
A lot of adult children have a hard time accepting Mom or Dad's new relationship. Fears that their parent will be taken advantage of, ("is my inheritance threatened?") or left heartbroken is enough to cause arguments and tensions. As a result, many seniors won't remarry and just don't tell their children about these relationships.
That can cause yet another potential headache down the road.
In my next column, we will discuss the financial pitfalls of these new relationships. No one wants to contemplate a break-up, but they do occur, and when they do, neither party has a legal leg to stand on. It is worse if children are involved. They are ways, however, that both partners can be protected, so stay tuned for Part II.
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.
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.
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.
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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