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The Independent Investor: Workers Get to Save More in 2015
By Bill Schmick On: 01:48PM / Friday October 31, 2014
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The IRS has given us all a New Year's gift. As of Jan. 1, the tax-deferred contributions on a variety of employee-sponsored, retirement savings plans have been increased, but not for IRAs.

Readers may already be familiar with the traditional 401(k) plan. It was established as an alternative to the nation's pension plans that are fast disappearing. Most companies offer 401(k)s to their employees (or 403(b)s if working for the state or a non-profit) as a fringe benefit. These plans allow employees to contribute as much as $17,500 a year plus an additional $5,500 catchup if you are over 50. The contributions come right off the top of your W-2 wages so there are considerable tax savings in contributing toward your retirement. In addition, some companies will match your contributions up to a certain percentage. Starting in 2015, your traditional 401(k) and 403(b) maximum contributions will be increased by $500 for those in both age groups.

The maximum IRA contributions will remain the same. However, there will now be new limits on their tax-deductibility. If you are single and make more than $71,000 a year (or married with a combined income of more than $118,000) and have a workplace retirement plan, traditional IRA contributions are no longer deductible. As for the Roth IRA, couples who make more than $193,000 and individuals who earn over $131,000 will no longer be eligible to contribute to a Roth.

The government will also offer a new retirement account, called the myRA. These new retirement savings accounts are targeted to middle and lower-income Americans who make less than $129,000 for individuals or $191,000 for married couples. The myRA is like a Roth IRA, which means contributions, although not tax-deductible, can be withdrawn without triggering an additional tax once the account is five years old and the account owner is over 59 1/2 years old.

How it differs is that the myRA will be invested in a new retirement savings bond backed by the U.S. Treasury that is guaranteed not to lose value and will be free of fees. Individuals can continue to contribute to this account for up to 30 years or until the value exceeds $30,000. At that point it will be transferred to a private-sector retirement account.

Deposits are made through payroll deductions and a myRA can be opened with as little as $25. After that, one needs to commit to a direct deposit of $5 or more every payday. What if you quit?  Don't worry, these accounts can be moved without penalties to your new job.

Those who arguably benefit the most from the 2015 changes are small business owners who contribute to Solo 401(k) Plans. These plans were designed specifically for self-employed entrepreneurs or small business owners with no employees. These self-directed plans try to maximize contributions and at the same time be less complex and expensive to maintain than conventional 401(k) plans.

Solos can be opened at your local bank or credit union. They will enjoy the same 2015 increases in contributions that traditional plans receive and contributions can be made either pre-tax or after-tax (Roth). They also have a profit-sharing element that allows your business to make a 20-25 percent profit sharing contribution up to a combined maximum of $53,000 in 2015 (or $59,000, if you are over 50).

Of course all of this news is great for those of us who can afford to contribute the maximum to our 401(k) plans. To be fair, the myRA does address the widening gap between the haves and have-nots in this country but $5 per paycheck is still an enormous amount for someone making $15,000 a year. The problem is that once again our legislators, who are part of the one percent, fail to understand that very few in America can contribute the maximum to their retirement plans and still eat. 

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: 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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The Independent Investor: The Elephant in the Room
By Bill Schmick On: 03:27PM / Thursday October 23, 2014
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Mid-term elections are less than two weeks away. Issues, for the most part, have fallen by the wayside as pure politics runs amuck. No wonder voter turnout is traditionally so poor in this midterm madness.

Republicans are running against an unpopular president and are expected to sweep both houses of Congress. All they have to do is keep the focus on President Obama while mobilizing their die-hard base.  That strategy appears to be highly effective so why worry about mundane things like issues? After all, if voters don't care, why should they?

Both parties' campaigns are now dictated by whatever voters are worrying about on a day-by-day basis.  The fear of an ebola pandemic plays well, while the ISIS terrorists are always good for a sound bite or two. The minimum wage, the Affordable Care Act, the economy; these are all given short shrift while the most pressing challenge of this generation barely receives a mention. I'm talking about income inequality.

Despite gaining over 2 million new jobs in the last year or two, income inequality has widened in the United States and is, in fact, accelerating. Our country now finishes dead last in income inequality when compared to all developed nations. The U.S. actually trails Mexico, Chile and Turkey (all emerging markets) when it comes to an equitable distribution of wealth among our citizens.

As this disgraceful and dangerous wealth gap widens, shouldn't we be looking to our lawmakers in these mid-term elections to address this problem? Unfortunately, that's like asking the fox to guard the henhouse.

The average wealth of a congressman is now above $750,000. In the Senate, it's even higher, at $2.6 million. That wealth is distributed among both parties. John Kerry, for example is worth $231 million, while Diane Feinstein, claims $69 million in assets and Frank Lautenberg is worth $85 million to name a few. Clearly our representatives are part of the problem.

The failure to address income inequality in this country is not confined to one or the other parties. Democrats are just as anxious to ignore the problem as are Republicans. It may surprise you that income inequality is actually higher in Democratic-controlled districts than in Republican ones. In the 35 districts with the highest income inequality in the country, Democrats represent 32 of those districts.

These 35 districts share some similar traits. They contain small, enormously wealthy elites surrounded by impoverished neighbors. Most are situated within urban areas such as Washington, Boston, New York, Chicago and Philadelphia. Here are some examples.

Income inequality in New York's 10th District, represented by Jerrold Nadler, a Democrat, is about equal to Haiti. Nancy Pelosi's California District 12 ranks on par with Bolivia. John Boehner's Ohio District has the same income inequality as Nigeria and Paul Ryan's Minnesota District 6 is as bad as Burundi's.

It gets worse. Our elected representatives have actually exacerbated the income inequality problem over the last 20 years. Two decades of federal spending and expanding regulation by both parties have spawned a growing elite class of federal contractors, lobbyists and lawyers in the D.C. area. Over $100 billion has been funneled into this area since 1989. Is it any wonder that 10 of the capital's surrounding counties in Virginia and Maryland place in the top 20 counties nationwide in household income? Manassas Park City, Craig County, and Bath County, all in Virginia, placed within the top 10 counties nationwide that ranked among the highest in income inequality in the nation.

At this point, about 15 cents of every dollar of the federal procurement budget stays in the DC area. That amounted to $80 billion out of $536 billion in 2010. Think of the monumental transfer of wealth that is occurring from 98 percent of taxpayers to fewer than 2 percent of the U.S. population. Those in the top 5 percent of income in our nation's hometown make 54 times the money that the bottom 20 percent receives.

All of this is being conveniently ignored by those campaigning for your vote. So when you pull that lever in November, remember these are the people you will be voting for - regardless of political party.

As the rich get richer, your share in the nation's wealth and income is falling lower and lower. Do not be swayed by the fear mongers. Ask yourself if voting for these clowns is in your best self-interest and that of America's generations to come. I sincerely doubt it.

If you want to keep up abreast of my most up-to-date articles follow me @afewdollarsmore or on Facebook at billsafewdollarsmore.

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: So far, So Good
By Bill Schmick On: 03:35PM / Saturday October 18, 2014
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This week's behavior in the stock market went according to plan. We broke through several technical supports, reached a fairly critical level, and then bounced back. However, October isn't over and the probability that we experience more downside remains high. Here's my take on the week ahead.

Readers who read my column last week were prepared for the S&P 500 Index to break its 200-day moving average at 1,905. I expected prices to overshoot on the downside and they did The S&P 500 Index dropped further to an intraday low of 1,820 on Tuesday. That was thirty points lower than my best guess. But before the end of the day on Wednesday, the markets rebounded to close above my 1,850 target level. On Thursday, sellers tried again, but could only push the average down to 1,835 before rebounding once again. The Index ended the day at just about the same level of 1,862.

I advised readers last week that I expect the S&P 500 to continue this consolidation process, moving slightly above and then below that 200 DMA in the days ahead. So far things are going according to plan

So, what does that say about the markets and this correction?  It says to me that this decline, although much-needed, is not about anything fundamental. Sure, Europe is struggling and Ebola cases are springing up in the United States but those are simply weak excuses for a market that simply needed a correction and now we have it.

Lesson 1: do not panic.
Lesson 2: do not sell.
Lesson 3: buy when the blood is running in the streets, and we had some of that on Wednesday and Thursday. How can I tell?

One of my best indications came when I tried to log on to one of my brokerage accounts on Wednesday morning.  The market opened down 40 points on the S&P and over 300 points on the Dow. I could not get quotes on the site and the online trading response was extremely sluggish. That usually happens when the number of people trying to sell stocks overwhelms the system. That told me there was panic in the air, which is a great time to buy stocks — so I did. The same thing happened the next day as the markets hit lows for the day once again. So I went shopping. Remember, I'm the kind of guy that buys straw hats in the winter and snow blowers in the summer.

I also look for 90 percent down days when investors overwhelmingly rush for the exits. We had those too this week. I recognize that most investors find it difficult to buy when the markets are falling. It is a scary thing to do, but it almost always pays off.

As the headline says, "so far so good" but now what?

I suspect we need to re-test the lows just to be sure they will hold. That means we could get back down to the 1,820 level or maybe 1,800, since it is a round number and prices seem to gravitate to those marker buoys. Could we break 1,800? Of course we could, but only by 20 or 30 points and even then it would probably happen on an intraday basis like the lows of this week.

Friday's rebound was a good sign. But the fact that investors were hoping the Fed will come to our rescue simply because we had a down week in the market is ludicrous. Listen people, you can't continue to make gains in equities if you don't have pull backs like this. The S&P 500 has only lost almost 10 percent from the highs before rebounding on Friday. That's the way things are supposed to happen. We haven't had a 10 percent pullback since 2011.  It is great news if you care about the stock market in the months and years to come. This kind of sell-off clears the decks for further gains ahead.

There are some real values out there. Airline stocks have been pummeled because of the Ebola crisis. Panicked investors have dumped them en masse assuming that the entire industry will be shut down and no one will fly ever again. Poppycock! Oil companies have been trounced because bears are saying that global demand for oil is so weak and the dollar so strong that 30% declines in those stocks are justified. Are you kidding me?

There is no way I can guarantee you that my scenario will turn out as I expect. Remember, this is an art, not a science, but so far, so good. Take my advice, this too shall pass and there are good things right around the corner. Next week I'll discuss some of those good things and what I expect after mid-term elections, so stay tuned.  

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: OPEC's Oil Ploy
By Bill Schmick On: 01:29PM / Friday October 17, 2014
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Over the last four months, Americans have received an early Christmas present. The price of oil has dropped precipitously, benefiting both corporations as well as the consumer. But that could be a two-edged sword for this nation.

Brent crude, the global oil benchmark in the futures market, has declined 23 percent since its June price of $115 per barrel. Today it is trading below $83 per barrel, providing an enormous windfall in cost savings for all of us. The retail price of gasoline has dropped 15 percent during the same time period to a national average of $3.17 a gallon. Every one-cent decline in gas prices equals about a $1 billion drop in energy spending, according to economists. So we have all just received what amounts to a tax cut that has gone directly into our pockets.     

That's the good news. The bad news is that many of the same economists believe the reason prices have fallen so quickly is the deteriorating state of the global economy. Slower growth equals less demand for oil, all things being equal. As such we find ourselves with an oversupply of oil.

Now usually, OPEC, which controls the lion's share of oil production worldwide, would begin to throttle down the amount of oil produced per day. There would be meetings and all the disparate members of this energy cartel would decide what cut backs are necessary in order to prop up energy prices. This time around no such agreement is contemplated.

Instead, Saudi Arabia, the energy colossus, has been quietly telling the oil market that they would be quite comfortable with even lower prices for an extended period of time. Behind the scenes, they have said that $80 a barrel for a year or two would be just fine with them even though that level of pricing would hurt all OPEC members, and some more than others. Venezuela, for example, is in such bad shape that oil at that level would probably force the country into bankruptcy.

So what, you might ask, is the reason for this change in strategy? OPEC recognizes that a new competitor is emerging in the form of United States energy independence. Readers may be surprised to learn that the U.S. has emerged as the No. 1 oil producer in the world, even as it maintains the same spot in energy consumption. We can thank new technology, such as oil and gas fracking, for the turnabout in our energy prospects.

OPEC competitors would like to slow the rate of production here at home, thereby reducing our competitive edge. The best way to do that is by lowering prices. As prices drop certain sources of energy such as fracking and tar sands become less economical in comparison. Industry experts figure that a drop to $75 a barrel in oil would begin to curtail drillers and producers from developing additional fracking wells. The fracking industry has become much more cost sensitive since the early days of 2003. There has been so much capital sunk into the cost of expanding this output that any price change in oil impacts the bottom line much faster.

Investors are well aware of that risk, which explains why many energy stocks have dropped 25-30 percent over the last month. By keeping prices low for a year or two, OPEC could effectively gut much of the growth in energy production here at home. I suspect that is their game plan going forward.

There are other negative implications if OPEC succeeds in their plan. The U.S. oil and gas sector has added over 400,000 jobs since 2003. Some estimate that another 1 million to 2 million jobs have been created in construction, manufacturing and transportation to support our drive for energy independence. As a result, although the cost savings in energy consumption might contribute a 0.03 percent gain to GDP growth, the hit to Americas as a result of a decline in the energy sector could be far greater.     

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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