Home About Archives RSS Feed

@theMarket: The Dog That Wags the Tail

Bill Schmick

It is becoming clearer by the day that the U.S. is no longer the Big Dog in financial markets. Ten years ago what happened overseas would have little if any impact on U.S. markets. Today most traders won't make a move without first checking overseas markets.

Last week, I warned that we were in for at least a 5 percent correction and so far we've pulled back 4.4 percent on the S&P 500 Index. I expect continued choppiness through the holiday shortened week with a bias to the downside. There is a possibility that the markets could overshoot and register as much as 6-7 percent drop. I would buy that dip if it occurs.

This correction is a great example of how things have changed. It was countries such as China, Korea and Ireland, not America, which have dictated the turns in our markets.

Over the last two weeks (coinciding with the downturn in U.S. markets), the Chinese government had announced new efforts to slow its nation's growth. China fears that its economy is overheating. Inflation is already running at 10 percent and its citizens are actually hoarding all kinds of stuff from foods to gold to lumps of coal. The real estate market is also out of control and continues to rise each month despite the government's best efforts to slow its ascent. The government has threatened to raise interest rates, tighten monetary policy and take even more draconian methods such as selling commodities on the open market by the shiploads if necessary.

South Korea raised rates twice in two weeks for the same reason. Since April, (when we experienced a serious market pullback) a number of other foreign countries from Australia to Thailand have done the same thing in an effort to reign in their economies.

Markets here have declined in response to these moves because we have now become dependent on these countries for everything from supporting our deficit spending (by buying U.S. Treasury bonds) to the toilet seats in our bathrooms. Many Americans worry that we have traded our economic future for the short-term comforts of cheaper goods, living beyond our means and the "not in my back yard" attitude towards industrial expansion.

"The U.S. is rapidly becoming just another Third World power," laments a 90-year-old retired investor who I make a practice of calling every month or so.

No, he's not a client, but I find his perspective refreshing and his comments pregnant with wisdom and experience. Normally, you don't hear that kind of comment from someone whose family practically built Pittsfield; who was a hero of World War II, and who came home to become one of the county's pillars of industry.

He enumerated all the obvious failings: corrupt politicians, the disappearance of industry, the stratification of classes, our failure to compete educationally and the rampant greed among our captains of industry.

"Take a company I won't name that left this area, shipped off jobs and industry to places like Mexico just to get their share price up," he explained. "It practically wiped out this place, and for what? The price is lower now than when they left."

Hopefully, my friend is proven wrong and this turns out to be just a rough patch that we here in America are going through. I for one have been hoping that the financial crisis of the last two years would be a wake-up call for all of us from the White House on down. So far the jury is out, but Thanksgiving is coming and despite all of our issues, we here in this country have a lot to be thankful for.

Speaking of which, if you know of any families around the county who might need a helping hand during this holiday season, we here at Berkshire Money Management, 392 Merrill Road, Pittsfield, will be giving away 150 turkeys and $20 gift certificates to Wohrle's Foods beginning Monday, Nov. 22, between noon and 4 (as long a supplies last). It's our way of giving back to a community that makes us feel welcome and wanted.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles 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 e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

Write a comment - 0 Comments       Tags: correction, inflation, China, overseas markets      

The Independent Investor: General Motors — Back to the Future

Bill Schmick

No, I know; you did send me back to the future. But I'm back — I'm back from the future.     — Marty McFly

It will be the largest public offering in U.S. history. A total of $23.1 billion was raised, including $4.35 billion in preferred stock. That was no small accomplishment, given the recent sell-off in world markets. General Motors is back.

What a difference two years make. Over that time, I had written several columns at first advocating letting GM go bankrupt (which it ultimately did). It was either that or a merger, if they could find an auto company that was willing to step up to the plate and buy it. There were no takers. When the government announced its last resort of a $49.5 billion bail out last year, I had mixed feelings.

After the huge bank bailouts, I wasn't happy about rescuing GM. I believed that the auto company deserved its fate. Its management had guided the company downhill ever since the mid-90s with the help of the labor unions. It was their arrogant "we know best" attitude in the face of obvious changes in the global automotive marketplace (such as the move toward smaller, more fuel-efficient cars) that really bothered me.

On the other hand, I also knew that we didn't need another avalanche of layoffs in the face of an unemployment rate that was climbing at 400,000 lost jobs per month. And GM employees were only the tip of the iceberg when it came to lost jobs. The ripple effect on auto suppliers would have to be added to the GM jobs. Then there were the dealerships across the nation. Car dealers provide enormous benefits to just about every local community in America in the form of jobs, taxes and charitable giving, while providing increased shopping traffic to the community they reside in.

By the time I took account of the enormous blowback GM and Chrysler's demise would cause, I reluctantly agreed that the bailout was better than the alternative although my stance was not very popular among readers.

In September 2009, in "Why Americans Should Become Detroit's Long-Term Investors," I wrote the following about the billions in taxpayer money we were investing:

Now, as we like to say in the money-management business, the past is no guarantee of future performance, yet there is a chance if we have a little patience here we too could walk away with a big return. Besides, what do we the taxpayers have to lose? Sure, I know there will be some that say the government has no business becoming the major shareholder in American auto companies and should exit this investment at the earliest possible time. Some will even say it is un-American if we don't. I say it's a little too late for those attitudes. The horse is already out of the barn. So go ahead and call me a socialist. I say we took a huge risk when no one else would, and we deserve a commensurate return on this investment.

Now that presumes I have some faith in the future of the American auto industry, and I do. All I have read concerning the on-going restructuring taking place in research and development, in manufacturing processes, and management structures indicate to me that the Big Three are getting their act together. Ford is clearly on the right path and so are GM and Chrysler. After all, none of them have lost their main competitive edge—American labor and ingenuity. I'll bet on that. So let's hang in there. I believe a little patience will pay off for all of us down the road.

So far GM has returned $9.5 billion of that loan. With this offering, another $13 billion will flow back to the government, leaving taxpayer ownership at roughly 26 percent, down from 61 percent. It is a shame that the government does not have the patience to hold on to its shares because, over time, I think taxpayers could have made a substantial profit.

I guess removing the "government motors" stigma from the company outweighed the profit motive. Over the next few years, the government will continue to sell down its position in the same manner that they are now reducing their ownership of Citibank (at a profit). It looks like most of our investment will be recouped and at a far faster than I imagined.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles 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 e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

 

Write a comment - 1 Comment       Tags: GM, bailout      

@theMarket: Corrections Are Good for the Soul

Bill Schmick

It was long overdue. For weeks, the stock market has registered overbought conditions and still it forged ahead. Investors had driven the averages back to yearly highs and only then did the rally run out of steam. Now it's time to step aside and watch.

"Is this the start of something big or should I just stay put?" asked a retired client from Pittsfield who has recouped much of his 2008 loses over the last year.

"Stay put," I said, "because this pullback will be short and unless you are a day trader, too volatile to do more than add to existing positions."

I'm thinking we could see the stock markets drop as much as 5 percent, which from here isn't such a big deal. Take the S&P 500 Index, for example. This week it hit an intraday high of 1,227 (almost 10 points higher than its peak in April). A 5 percent decline from that level would put the average at 1,165, a mere 30 points down from here. That's not worth getting excited about.

As a rule of thumb, I believe that 5 percent to 10 percent corrections in the stock market are the "price of doing business" or the risk one must accept in equity investing. These kinds of corrections occur 2-3 times a year on average. And it is not just equities that are falling.

Commodities are also declining. As I look at the present spot price of gold, the precious metal is off over $40 an ounce while silver is down $1.50 an ounce and oil has plummeted over $3 a barrel — in just one day. Commodities tend to have extremely sharp, if short, corrections that tend to wilt most amateur investors' resolve to stay invested. It appears that once again those who have chased energy, precious metals and agricultural commodities are suffering big reversals this week. Rather than buy this weakness, they tend to sell in panic.

For those with bullish convictions, this pullback is a buying opportunity, not only in commodities but stocks in general. This coming week should provide further opportunities to establish new positions. Some of the areas I favor for additional investment are emerging markets, real estate such as REITs, commodities, commodity companies and selected technology.

As for the culprits that triggered the pullback, most of the negative events have something to do with governments. The on-again-off-again saga of the European debt crisis has reignited fresh worries over Ireland's struggle to rescue its financial system. It has led investors to re-examine Europe's financial situation in general.

At the same time, China is rumored to be hiking interest rates in an attempt to slow their economy. That would spell bad news for everyone since China has become the new locomotive of global growth. Over in Korea, where the G20 adjourned without agreeing on how to curb the growing currency war, left investors worried and disappointed over the fate of the U.S. dollar.

All of the above are serious issues but they have been with us throughout the year. China has raised rates before and emerging market growth is still quite healthy. The problems of Europe's smaller economies will continue to plague the Euro and the European Community for the next few years, but has not stopped their stock markets from enjoying substantial gains over the last six months.

The financial world is fully aware of every nuance of the currency debate. The dollar has declined since late August, sending stocks and commodities ever upward. None of this is new. Consider this pullback a healthy correction and that's all you need to know.

All these reasons for the sell-off will still be with us a month from now when the averages have regained their upward ascent, so don't put too much stock in today's headlines. They are fleeting at best. Focus instead on the opportunities this sell-off will present.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles 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 e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

Write a comment - 0 Comments       Tags: corrections, stocks, metals, China, commodities      

Veteran Takes Deserved Day Off

Staff Reports

Yes, that really is our finanical columnist Bill Schmick in Vietnam 42 years ago. Bill, who served four years as a Marine, took Veterans Day off. Thanks, Bill, to you and all veterans.

Write a comment - 0 Comments       Tags: veterans      

The Independent Investor: Sour Grapes

Bill Schmick

As the G20 conference gets under way today in Korea, I expect the currency war will escalate now that the U.S. Federal Reserve has launched the second round of quantitative easing. As the dollar continues to decline, our trading partners are getting back a little of their own and they don't like it.

Over the last week or so, the Fed's QE II announcement has been greeted by a chorus of howls from all over the world. Germany's finance minister called U.S. policies "clueless" while Chinese officials quickly added their own criticism.

"As long as the world exercises no restraint in issuing global currencies such as the dollar, then the occurrence of another crisis is inevitable," stated Xia Bin, an adviser to China's central bank.

Brazil's finance minster, Guido Mantega, went further when he said, "Everybody wants the U.S. economy to recover, but it does no good at all to just throw dollars from a helicopter."

Those are just a few choice criticisms but there were many more from nations throughout the world accusing the U.S. of everything from currency manipulation to exporting inflation. They may be right but that doesn't mean we are wrong.

For decades, the U.S. has been running a major trade deficit with our international trading partners. All these countries that are squawking about QE II have been major beneficiaries of a monumental trading imbalance with the U.S. both now and in the past. In Latin America, for example, Brazil, among others, has benefited mightily by keeping its own currency artificially low and exporting huge quantities to the U.S. China is another master of currency manipulation and has followed a weak currency/high export policy for years. Germany is also enjoying booming exports, trade surpluses, low debt and an unemployment is expected to fall to 1990s levels thanks to a weak euro.

So after carrying the weight of the rest of the world's exports for years, the U.S. is fighting back and well it should. It is our nation and not any of the above countries, which is suffering a high unemployment rate, a slow growth recovery, huge trade deficits and a record debt load. We are simply following the same prescription both Japan and Europe followed after WWII, which Latin America followed after their Lost Decade of the 1980s. China's economic miracle is founded and continues to grow along these same economic principles.

Now that America has decided to play the same game, cries of "foul" echo across the world. It is true that America's actions will cause problems for economies around the world. Right now it makes a lot of economic sense for foreigners to borrow in dollars where interest rates are at rock bottom and then invest that money in building plants and equipment back home where interest rates and local currencies are higher. Of course, their governments already hold huge dollar reserves in the form of U.S. Treasury bonds. Foreign central banks fear that all this additional dollar borrowing may cause inflation in their own countries.

You might ask how critics can take the moral high ground and point a finger when for years they have been doing the same thing to us and acting as if America was their own private export market. Nations, however, are not individuals; which brings to mind a quote of Thomas Jefferson, one of our founding fathers:

"Money, not morality, is the principle commerce of civilized nations."

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles 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 e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

Write a comment - 0 Comments       Tags: currency, trade, deficit, G20      
Page 122 of 126... 117  118  119  120  121  122  123  124  125  126  

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Adams Hiring Consultant for Administrator Search
Adams Preliminary Property Valuations Available
Lanesborough Again Seeking Interest of Private Ambulance Service
Resolution Endorsing Gun Range Goes to North Adams City Council
Mount Greylock Committee Hears Concerns About Disparities at Elementary Schools
Berkshire YMCA Honoring Those 'Changing Lives After 55'
Biz Briefs: Humane Society Opening Second Catwalk Boutique
PHS Graduates Honored For Scoring Well On AP Exams
Cheshire Seeks Grant Funds to Extend Wells Road Sidewalk
North Adams Historical Commission Wants Funds to Preserve Gatehouse

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.

 

 

 



Categories:
@theMarket (268)
Independent Investor (366)
Archives:
September 2018 (2)
August 2018 (9)
July 2018 (2)
June 2018 (8)
May 2018 (8)
April 2018 (7)
March 2018 (6)
February 2018 (7)
January 2018 (7)
December 2017 (8)
November 2017 (5)
October 2017 (5)
Tags:
Crisis Debt Recession Greece Oil Interest Rates Currency Stock Market Stimulus Retirement Japan Europe Jobs Metals Markets Rally Taxes Banks Selloff Federal Reserve Fiscal Cliff Election Wall Street Euro Europe Pullback Debt Ceiling Housing Energy Stocks Deficit Congress Economy Commodities Bailout
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
@theMarket: Record Highs and More to Come?
The Independent Investor: Dogs and Their Cars
@theMarket: September's stock market
The Independent Investor: How Prepared Are You to Sell Your Company?
@theMarket: Record Highs Coming Up?
The Independent Investor: Should You Bury Yourself?
The Independent Investor: Turmoil in Turkey
@theMarket: Will Stocks Break Out or Break Down?
The Independent Investor: Should You Pay Down Your Mortgage?
@theMarket: Stocks Set for a Volatile August