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The Independent Investor: Is Wall Street Responsible for Climate Change?
By Bill Schmick On: 10:57PM / Friday September 26, 2014
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Monday's Wall Street sit-in by a few hundred radicals would lead us to believe that Wall Street is responsible for the present changes in the world's climate. Maybe so, but remember this, what Wall Street has done, it can also undo.

Readers know that I am no apologist for big business, the financial community or Wall Street. As for climate change, I am clearly on the side of those 300,000-plus people who participated in the People's Climate March on Sunday. The earth is in jeopardy today thanks to carbon emissions generated by fossil fuels.

The simplistic approach, preferred by this "Flood Wall Street" crowd, condemns Corporate America, Capitalism in general, and oil companies, specifically, for the global dilemma we face. The solution, they offer, is to do away with these entities with the assumption that once that is accomplished, the world shall once again be green and free. If only things were so easy.

Historically, I can understand why they blame all things business. You see, it takes a long time for climate to change, according to the scientific community. As such, we could blame the Robber Barons of the 19th century for today's ills.

After all, without a Rockefeller or Morgan(and Wall Street to fund them), there would be no oil and gas industry, nor railroads to transport these products. Of course, we probably wouldn't have computers or medical technology or a host of other things that makes up today's society either.

We could go back further still in our search for a scapegoat to the Dawn of Industrialization, but then we would have to bring Europe into the equation, specifically Great Britain where it all started. Remember, too, that it was foreign nations, not Wall Street, capitalism or America, that first developed and exploited the globe's natural resources. The world's populations ravaged the earth while mining for coal, tin, gold and dozens of other metals for centuries.

How many forests were cut down worldwide before the New World was even discovered in order to clear the way for population expansion and farming? We wring our hands in anguish today over the downing of trees in the Amazon and other locales but conveniently forget how we have all abused the environment to get us where we are today.

Some say that we need to radically change our priorities. Walk rather than drive, forsake flying and stop mining altogether. Give up fossil fuels even if it would drive the world into a global depression. Radical times, they argue, call for radical solutions.

So who wants to go first, you?

For most of us, those kinds of remedies are beyond the pale, but does that mean that we should simply continue as we are? Of course not, but let's not shoot ourselves in the foot by getting rid of the very engine of change we need to turn around this situation. The forces that got us into this mess are the ones that will get us out of it. Evidence abounds.

It is Wall Street and capitalism that is making it possible for any number of carbon-reducing technologies to flourish. Who funded and is developing the world's first, second and third electric car companies? Where are solar companies getting their backing?

Read my lips: it is private capital that will convert this generation of fossil burning vehicles into one powered by electricity and other clean technologies. Wind farms, rooftop solar panels, organic farming, solar powered utility plants, pollution controls, scrubbers, in fact, just about everything we will need to clean up the environment is either funded by or made by companies that are listed on Wall Street or soon will be.

Yes, world governments have a role in providing the incentives for companies to take a chance on new technologies. But all the governments in the world do not have the money, knowledge or technology to effect climate change. That's the job of the private sector. And as long as there is a profit to be made in cleaning up the environment, Wall Street will be happy to oblige.

So let's use it.

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: Waiting on the Fed
By Bill Schmick On: 10:36AM / Saturday September 13, 2014
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It should be clear to you by now that in the United States the Federal Reserve Bank is calling the shots in our financial markets. To a lesser extent this phenomena is happening all over the world. As such, the markets did little this week because the Fed doesn't meet again until Tuesday.

The S&P 500 Index has simply been trading in a tight range between 1,970 and 2,000. Although stocks are marking time, there has been some movement elsewhere in the financial spectrum. Take the dollar for example. The greenback is on a tear against most other currencies, but specifically the Yen and the Euro. As the dollar has strengthened gold, silver and oil have plummeted.

This is both good and bad news. The dollar's gains make our exports more expensive and imports cheaper. Since most commodities are priced in dollars, as the U.S. currency climbs, commodities become more expensive. Traders, always looking for a profitable arbitrage, sell gold or oil and buy dollars.

The decline in energy prices, however, gives an important boost to consumers, who buy an average of 400 gallons of fuel a year or more. A 40 cents decline at the pump translates into well over $120 in savings for everyone who drives. It is like getting a multibillion dollar tax cut that goes right into our pockets.

So what is behind this gain in the dollar?

Some say it is because of all of the geopolitical risk in the world today. ISIS, Ukraine, Russia, even Scottish secession are making the safe haven dollar an attractive alternative. Others argue it is not so much that the dollar is gaining ground but that the Euro and yen are getting weaker. That is due to the policies that are being implemented by their central banks.

It is true that Japan has been actively promoting a weaker currency, as they continue their own massive QE program. I have written at length on their efforts to break a double decade worth of stagflation. The job is not done, in my opinion. I expect that although the program is supposed to sunset in 2015, the Japanese central bank will extend its efforts beyond that date.

Over in Europe, as I wrote last week, the ECB has also announced further easing of interest rates and their own bond buying form of quantitative easing. More actions will be implemented if called for, according to their officials.

The result of this European and Japanese stimulus was to drive down their currencies as interest rates fall. Given that our own Fed is ending our QE program in October, investors are betting interest rates in the U.S. and the dollar offer a better deal going forward than elsewhere.

There is another more speculative element in the dollar's rise. As readers know, thanks to the Fed's overwhelming influence on the markets, a cottage industry of Fed Guessers has sprung up among the financial weeds. These pundits make a living trying to outguess the next central bank move. They parse every word, comma and period of the monthly Federal Open Market Committee (FOMC) statements trying to discern a change in stance.

This week, in anticipation of Tuesday's FOMC, the guess is that with the economy exhibiting gathering signs of strength, the Fed will be forced to move earlier in raising interest rates. Right now that move is not expected to happen until sometime in 2015. No one knows, but in a slow market where stocks are waiting for the Fed's next move, traders will believe just about anything.

As for me, I am ignoring all of these pundits. I do believe the U.S. dollar is on a long-term trajectory higher as are interest rates. That is a natural thing to happen when a country's economy is improving. The Fed says rates will remain low until 2015, and maybe after that. That's all I need to know. Stay invested and ignore the noise.

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 United States of Scotland?
By Bill Schmick On: 05:38PM / Thursday September 11, 2014
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Will the ghost of William Wallace finally see the British thrown out of his country once and for all? If the latest polls on the outcome of the Sept. 18th referendum on Scottish Independence are any indication, Scots are in a dead heat over the political and economic future of their country.

Last weekend, for the first time, polls showed that the majority of voters in Scotland were leaning toward independence. Since then new polls show the public vacillating between yes and no on a daily basis. The news has shocked the world and galvanized the three major British political parties to implement a no-holds-barred program of damage control.

UK Prime Minister David Cameron, Liberal Democrat leader Nick Clegg and opposition Labour Party chief Ed Millbank dropped whatever they were doing and headed for the Highlands on Wednesday. The British leaders are pulling out all the stops in trying to convince Scottish voters to stay with the Union. Even Harry Potter has been enlisted or at least his author, JK Rowling, is backing the Union, which has been in effect for 307 years.

On the financial front, the polls caught "The City" (England's Wall Street) by surprise. For months, European financial institutions had been discounting the referendum as a non-event, just another opportunity for those dour Northern people, who talk funny, to blow off a little electoral steam. No one seriously considered that Scotland would actually embrace independence.

For most of the week both the British pound and the UK stock markets have been declining. And they should, because if Scotland does decide to fly the coop, there will be severe economic consequences for all parties concerned.  No less a presence than billionaire fund manager George Soros has weighed in warning Scotland that now would be the worst possible time to leave the United Kingdom.

A group of big global bank experts also joined the fray arguing that Scottish independence could threaten the UK's economic recovery, weaken the sterling by as much as 5 percent against the dollar, throw Scotland into a deep recession, and wipe billions off the value of big Scottish corporations.

Those for independence argue the positives outweigh the negatives. Exports would grow. North Sea oil revenues, they also contend, would be Scotland's and worth billions, even if energy production from those deep, cold waters is peaking out. Scotland would be able to tax its citizens and determine how that money would be spent. Investments, jobs and future productivity would be for Scotland's benefit alone, not simply as part of a greater United Kingdom budget plan.

Of course, the Scotts would have to come up with a new currency. U.K. politicians have already said they would be against the use of their own currency in the event Scotland went its own way. The Euro would be out of the question, since Scotland would first have to petition and wait for membership in the European Union before using that currency.

Scotland now represents just under 10 percent of Britain's GDP. Independence would pose a potentially lethal blow to the UK's fragile recovery. The loss of billions of dollars in oil revenues alone would throw the country into a much larger deficit.  It would also jeopardize the Labour Party's chances of winning the next election. At present, Labour leads in the polls for parliamentary elections that are scheduled for next year. Of 59 Scottish seats in Parliament, Labour holds 41 of them. Independence would at best reduce the race to a tie between Labour and the reigning Conservative Party of David Cameron.  

The Scots are sitting in the catbird seat. As it is, the politicians have promised the Scots more autonomy on everything from social to economic issues including income tax, housing and transportation. The people of William Wallace might demand even more and receive it. By next Thursday's vote, it could be that the canny Scots, without raising a sword, could come away with independence in everything but name. And for you of Scots birth — "Alba gu bràth."

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: Europe Follows the U.S. lead
By Bill Schmick On: 05:23PM / Thursday September 04, 2014
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The European Central Bank has lagged behind both the U.S. and Japanese counterparts in their efforts to stimulate the economies of the European Union. Today, they attempted to address that fault before Europe sinks into a recession.

Both bond and stock market investors have been anticipating additional stimulus for several weeks. ECB President Mario Draghi did not disappoint. He said the bank would begin purchasing asset-backed securities and covered bonds, which are investments based on loans to corporations and residential mortgages. The hope is that others will now also jump on board and buy them too.

If that occurs, then European banks would have the courage to make more such loans knowing that the central bank and others would be there to buy them. The thinking is that if it worked in the U.S., it should probably work in Europe.

The ECB also cut its benchmark interest rate to just 0.05 percent and the deposit rate (what European banks pay to keep their money in the ECB) to minus 0.2 percent.They stopped short, however, of actually buying government debt, at least for now.

The ECB reduced its forecast for economic growth this year to just 0.9 percent while lowering its inflation expectations to 0.6 percent. Some economists think that is still too optimistic. As of August, the EU’s inflation rate was 0.3 percent, far below the targeted rate of just under 2 percent.

The ECB has only one job and that is to manage inflation. A slide in inflation (0 or below) can be just as bad as an inflation rate rise. Deflation, rather than inflation, appears to be the greatest fear of officials in the EU. In a deflationary economy, it becomes much more difficult for governments, businesses and consumers to service their debt payments. Investment falls and so does spending. This downward spiral becomes extremely difficult to break.

Japan is a textbook case of what happens to a country caught in this kind of cycle. For over 20 years, Japan has suffered from low to negative growth, falling exports, declining wages and jobs and negative interest rates.  It has taken massive amounts of monetary stimulus, combined with government spending to break out of this cycle and the jury is still out on whether they will succeed.

The European Community, however, is a union of competing interests and it is difficult to arrive at a consensus among 18 members. It is one reason why the ECB has lagged behind its brethren banks around the world in supporting its economies. Although the ECB has conducted a low-interest rate policy, it has stopped short of more aggressive programs such as employing their balance sheet to buy vast amounts of debt in the financial markets. However, today it appears European officials have reached a moment of truth. Cutting interest rates alone has not been able to turn around the situation so even the foot draggers among the EU have finally agreed to more drastic measures.

Most observers would agree that Germany has been the loudest voice in opposing any bond buying actions by the ECB. However, today's actions set the stage for even more stimulus in the months ahead. Let's hope it works.

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: What's Up With Bonds?
By Bill Schmick On: 07:31AM / Saturday August 30, 2014
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At the beginning of the year, Wall Street was certain that interest rates were on their way up. Investors dumped all kinds of bonds anticipating that prices would plummet. Bond prices did the upset. Go figure.

The reversal caught just about everyone by surprise (including me). The thinking behind the bond call was straightforward. The Fed announced it was winding down its stimulus program. It also planned to begin raising interest rates sometime in 2015. Bond players, as they usually do, were expected to anticipate that move and begin to sell U.S. Treasury bonds this year. It all made total sense from an investment perspective. It was the end of a 30-year bull market in bonds so investors were advised to sell.

What few had foreseen in the first half was a slide in the European economy and a rise in geopolitical risk. Those conditions have effectively trumped any move by the Fed. Here's why.

Consider that America and its sovereign debt have long been considered a safe haven in time of global risk like today. So as ISIS makes inroads in the Middle East and Putin thumps his chest in Europe, it stands to reason that global investors would buy U.S. bonds but there is more at work here than that.

Bond investors do not operate in a vacuum, especially when it comes to sovereign debt. They compare (price shop) the perceived safety of one country and what its debt is yielding against other countries and buy the best deal. This week, Euro zone yields on sovereign debt have fallen out of bed due to slowing economic conditions. The bet is that things are getting so bad that their central bank will have to take further easing actions in the weeks ahead.

So let's say I'm a global bond investor. The 30-year U.S. Treasury bond is yielding a shade above 3 percent while the German 30-year is yielding 1.7 percent and the Japanese 40-year bond is offered at 1.8 percent. Why would I buy the German or Japanese paper when I could get more return in the U.S., which, by the way, is also a safer investment in a faster growing economy? Even at the present low rate of interest, American sovereign debt is a much better deal than offshore sovereigns.

It also explains why we are seeing both the U.S. stock and bond markets moving in the same direction. As interest rates drop and yields get lower and lower, the return from the stock market looks better and better versus what one can get in the bond market. Clearly, lower interest rates are bad for savers but great for stocks and equity investors.  I know that I wouldn't be willing to settle for a 3 percent return over 30 years in a bond when I can get twice that in stocks, but some risk-adverse investors certainly would.

In this kind of environment, fears of what our own Fed may or may not do a year from now is definitely on the back burner. As we close out the last days of summer this Labor Day weekend, the stock markets are once again hitting new highs. Fewer and fewer strategists are looking for pull-backs of any magnitude. All seems right with our markets while the rest of the globe seems to be falling apart. Too much complacency, probably, but it is what it is.

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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