As disappointed global stock markets plummet in response to the Federal Reserve's latest stimulus initiative, few investors are paying attention to what may be the Fed's real intention behind this new plan: mortgage refinancing.

For the longest time, I have been convinced that the housing market holds the key to economic growth (or lack of it) in the U.S. As such, I have been hoping against hope that one or more of a long line of presidential candidates would actually have the courage and intellect to recognize and address our main problem.

Instead, I hear how "we need to get America back to work" or "we need to roll back all these regulations that are preventing businesses from investing." While all of those jingoistic slogans sound good, none of them address the main issue: how to deal with the trillions of dollars in underwater mortgages and the people who hold them.

The Fed, through QE II, attempted to push interest rates low enough so that borrowers could stave off foreclosure by refinancing their mortgages. The problem is that lenders insist that the market value of homes to be refinanced must be no lower than 25 percent of the mortgage they carry. That's a real "Catch-22" for most borrowers, thanks to the decline in housing values over the last three years.

Their houses are now worth a lot less than that. So mortgageholders are in a bind. They can't sell their property because they won't get back enough to pay off the loan. They can't refinance because the house is worth less than the mortgage and they can't afford the monthly mortgage payments. As the situation drags on, more and more Americans slip into bankruptcy or walk away from their home/mortgage leaving and already weakened financial system to pick up the pieces.

Right now this is just my guess of what the Obama administration may be planning. Over the past week a number of governmental trial balloons have been floated in the media concerning refinancing of up to $1 trillion of mortgage loans on easier terms. It won't be a giveaway, if it occurs, in the sense that to qualify for re-financing, you must be current on your mortgage payments and the loans must have been guaranteed by Fannie Mae, Freddie Mac or the FHA. How would it work?

Homeowners who qualify would get a new 30-year loan at say 4 percent and payoff 100 percent of the old mortgage (presumably carrying a much higher rate of interest). This is called prepaying your loan in the mortgage business. Your bank receives the proceeds and pays off the old loan to Fannie and Freddie. These two government mortgage entities would receive these billions in prepaid mortgages and dispense them to the ultimate mortgage holders in the mortgage-backed securities market.

Now, guess who holds the lion's share of mortgage backed securities in this country? You guessed it, the Fed.

That still leaves Fannie and Freddie with a problem. They need to refinance all these new 30-year, 4 percent mortgages. They are also assuming a lot of risk since lending now, when interest rates are at historical lows, is a dicey business. Who will buy them and how can they protect these new mortgage loans from future losses when interest rates begin to rise? The answer was revealed in Wednesday's Fed announcement.

The Federal Reserve announced that it intends to drive long-term interest rates lower by purchasing long term U.S. Treasury bonds. The Fed said it will also juggle its $2.65 trillion securities holdings by using its enormous cash flow to buy more mortgage debt. In other words, since it will be on the receiving end of all these billions in prepaid mortgage money, it will just turn around and use that cash to buy up billions in these new refinanced mortgages. At the same time, by driving long rates lower through their purchase of long dated Treasury bonds, they effectively remove the risk of rates rising anytime in the near future. The Fed becomes both buyer and seller of this entire refinancing operation.

The beauty of this move, in my opinion, is that the White House will be able to launch a new refinancing program/stimulus plan without going through Congress for approval. Nor will it add to the deficit, since all of these transactions will be run through the Federal Reserve. The Republicans may have gotten wind of this, thus the letter to the Federal Reserve Board just prior to their meeting, warning the Fed members not to do anything further to stimulate the economy.

Well, boys, the Fed just blew you off and you can't do a thing about it.

Is this all a hair-brained scheme of mine born of too much work and too little vacation? Time will tell. But if I'm right, I would expect an announcement fairly soon. I have to hand it to the Obama administration if it is true and they can pull this off. The scope of refinancing they are planning will put $2,000 or more a year into borrower's pockets, which will amount to a huge stimulus program that bypasses Congress and goes straight to the people. I hope I'm right.

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 (toll free) or e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.

Over the last few months, the stock market has traded in a range that has confounded both bulls and bears alike. Now, we are fast approaching the top of the range once again. Will the averages disappoint once again or are we on the verge of a break out?

We turned to our old friend John Roque, technical strategist at WJB Capital Group, for some insight. Many readers know John either through these columns or because of his many appearances on CNBC and other media outlets.

"The S&P 500 Index has serious resistance at 1,220-1,227 and then 1,250," he says, "Meanwhile, support levels are 1,150, 1,100 and 1,050. However, 950 is not out of the question."

He points to the Dow Jones Industrial Average's 1965-1982 trading range as a period similar to that of today.

"After a turn down from the top of the range, the Dow would revisit the bottom of the range. The only question is what's the bottom of the range?"

When Roque looks at the technical action of the S&P today, he feels a certain sense of déjà vu. The technical action closely resembles two recent downturns in this decade: the decline that started in 2001 (the Dot-Com boom and bust) and the decline that began in 2008-2009.

"The only thing missing from this setup right now is a turndown in the S&P's 12-month moving average. But I think it will happen because the index's rate of advance has almost stopped."

Underneath this week's advance in the averages, Roque was not impressed with the market's internals. Some of the variables he looks at like the market's breadth (the number of stocks that are advancing in price versus those that are declining) are forming a negative divergence among New York Stock Exchange common stocks. The S&P's 500 stocks are also experiencing weakening breath.

"And when net new highs are also in negative territory, I get cautious. The markets have broken their trend lines and momentum is rolling over, which are two major concerns as well," he explained.

In this kind of environment, stability is in high demand. Two sectors where he sees upward momentum are in consumer stables and utilities. Both groups are outperforming the market but Roque points out that usually happens when markets experience steep declines.

Roque's technical view is a bit sobering, especially in the face of this week's euphoria over the coordinated effort by central banks worldwide to bolster lending to European banks (see my column "Deja Vu"). Remember, too, that investors are expecting some major new initiative to be announced by the Federal Reserve this coming Wednesday. Whether the Fed will meet expectations is anyone's bet, but the fact that traders have bid markets higher in anticipation should come as no surprise.

Traders have used recent events — the debt ceiling, the Fed's Aug. 26 meeting in Jackson Hole, European summits, etc. — to manipulate markets prior to these announcements. So far the evidence has not been encouraging. After each one of these events the markets has traded lower after two or three days.

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 (toll free) or e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.

The markets are climbing in celebration that the central banks of the world are combining and coordinating their immense financial power to bolster Europe's struggling banks. The message the ECB is trying to telegraph to investors is that Europe is not going to allow a Lehman Brothers-type disaster occur within their community. Why then am I so worried?

After all, over the past week, our markets have soared as European leaders have assured the financial markets that Greece will not default, that the country will not be kicked out of the EU, and that Greece will be able to pay their bills on time. If the chancellor of Germany says its true than it must be so, right? Certainly no one can argue with the market's verdict. Investors scrambled to buy European banks with some French and German banks climbing anywhere from 10 percent to 22 percent within minutes of the news.

Something about the news, however, doesn't seem quite right to me. How can I square this bailout initiative with comments by France's Finance Minster Francois Baroin who on the same day insisted French banks are solid and do not need to be recapitalized, despite being heavily exposed to Greece's debts. Baroin said on French radio that the banks aren't having difficulties accessing liquidity. Yet, the Wall Street Journal and credit agency Moody’s downgrade of French banks on Wednesday, contradicts these statements.

There was something else about Thursday's ECB statement that struck a disconcerting note within my memory. I went back to the financial crisis of 2008 and found what I was looking for. But before reading further, I ask readers to go back to the top of the page and read the quote from CNNMoney again. Now read the quote below. Notice the dates.

Sounds quite similar to this week's news, doesn't it? My problem is that while both Europe's leaders and our own U.S. Treasury Secretary Timothy Geithner are telling us "don't worry, be happy" it appears the opposite is occurring behind the scenes. Central banks are tripping over themselves to avoid  ... what? I recall in our own country during 2008, the powers to be were saying the same thing about our financial system, just before Bear Sterns, Lehman Brothers and AIG imploded.

So what happened to the stock markets during the October 2008 announcement? The S&P 500 Index climbed from 899 on Oct. 10, 2008, to 1,003 on Monday Oct 13, 2008, an almost 11 percent gain. Two weeks later the index stood at 848 for a 15 percent loss. Now, granted, this is not 2008-2009, although the financial problems within Europe could tip over into a full-blown crisis if allowed to continue.

As for the U.S., 2011 has its own peculiar set of challenges. The economic data continues to weaken and the past data is being steadily revised downward. Employment seems to have skidded to a halt and we may actually begin to see the jobless rate rise in the months ahead. As a result, companies are beginning to guide revenue and earnings expectations lower as well.

Of course the markets are ignoring all that bad news because investors are convinced that the Federal Reserve will announce some fabulous plan to turn all of this around on Aug. 20. But, in the meantime this investor will continue to stay defensive and watch Europe closely.

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 (toll free) or e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.

Trading in the stock market right now is akin to having your pocket picked by a blind man whose pocket you just picked a moment ago. In other words, get to the sidelines if you aren't already there.

Gapping up and then down to the tune of 1 or 2 percent a day is not my idea of an investable market. And just about every day this week we have witnessed this sort of schizophrenic behavior. Those, for example, who may have been feeling pretty good about catching the market just right last week, have watched all their gains disappear.

This week the game was to sell the market down early Sunday night into Monday morning, then buy the lows, rally back up until Fed Chairman Ben Bernanke spoke on the economy on Wednesday, take profits after that, then rally back, in anticipation of President Obama's speech on Thursday night. But since no one really thinks the president will have much of a chance getting another stimulus plan through Congress, traders went short the market before the speech. Friday, of course, was a big down day.

Don't think you can outwit the pros in this game because most of the action is occurring prior to the U.S. market opening. By the time you get to put an order in to buy a stock or ETF, you are already chasing the price. And who do you think is selling this security to you? You guessed it, the prop trading desk that purchased it early in the morning in Europe or Asia. As the markets become even more volatile, traders are increasingly focusing on buying before the U.S. open, selling in the opening hour of U.S. trade, buying back when Europe closes at midday, and selling or buying again around 2:30-3 p.m. 

I've watched in amusement as the talking heads on television change their minds about the market on a daily basis, based on whatever the averages are doing on a given day. First they are bullish, then bearish. They like the financials and then they don't. Wouldn't it be nice if they just back off and admit they haven't a clue about what is going on? At least that would be truthful and honest.

In markets like this, where the fundamentals are practically impossible to discern, most traders rely on technical analysis. Buy at support, sell at resistance — seems easy — but in today's markets that concept has taken on an entirely new meaning. It is possible, thanks to computers, algorithms and software programs to identify technical levels to buy and sell on a daily, hourly or even minute-by-minute basis.

Make no mistake; you can make a lot of money doing that if you are on the right side of the market. The problem is most individual investors are completely outgunned, with none of the technology the big guys have to guide them in this exercise. You can lose a lot of money in a market like this. That is why I have advised all my readers to move to the sidelines and wait this out.

"But how long will this go on?" exclaimed one frustrated client.

The glib answer is as long as it takes. September and October are normally the worst months of the year for stocks, and so far that has turned out to be true. Europe and its problems are still very much in the forefront of investors' attention. Sadly, the news from across the pond continues to be discouraging. There are even public comments from some of the EU countries that Greece should be forced to exit the Euro. That is something that only two months ago no European leader would dare to say.

Over here, things are not much better. If we aren't already in a recession, we are within a hair's breadth of a long-feared double dip. Much will depend on what comes out of Washington and so far the news is not encouraging. Obama's $447 billion stimulus plan announced Thursday night was simply more of the same policies that have already proven to have no lasting impact on economic growth or unemployment.

Whether or not the GOP will go along with part of this plan remains to be seen. But the market has already given its verdict — it's not nearly enough — which leaves the Federal Reserve and its upcoming meeting on Sept. 20 to save the day. I'm stunned at how much weight the market is giving to this meeting.

Are we setting ourselves up for an even bigger fall? Will there be a QE III and if so will it actually do any good? I wish I knew, but at least I'm honest enough to admit that I don't know. And when I don't know I move to the sidelines, comprende?

Who said finance is boring?

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 (toll free) or e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.

Picture an entire fleet of brand new Nimitz-class aircraft carriers, chock-full of the latest stealth aircraft that money can buy, then double it. That's about the size of the dollar and cents differences one finds in trying to estimate the costs of 9/11. Just how large is the range?

Present estimates range from $1 trillion to $5 trillion. Why such a wide estimate? It depends on what you are counting. Some costs are straightforward. All seven of the World Trade Center site buildings were destroyed. That's a fact. The price tag ultimately came to $4.55 billion; the amount of the insurance payout. The yet to be completed Freedom Tower on the World Trade center site will cost another $6 billion by the time it opens in 2013. Add in another $5 billion for the deaths and health issues of first responders, those heroes who stood up and were counted when our country needed them most.

The economic cost to New York City was roughly $52 billion. If you add in the losses in tourism, not only in New York but the rest of the country, the figure climbs by another $163 billion. It is probably more since it was only in the last year that tourism in America climbed to post 9/11 levels. Next, throw in $39 billion in property-related and business interruption insurance claims around Ground Zero. Finally, we should count the $1 billion loss to U.S. aviation when all aircraft were grounded for three days in the aftermath of the attack.

At this point, further losses attributed to the 9/11 attack depend on what assumptions you are making and your agenda. For example, the cost of the Homeland Security sector has doubled to $540 billion since 9/11. That's not counting what state and local governments have spent on expensive technology and security systems in local airports, bus stations, etc. Would those expenditures have happened anyway if 9/11 never happened? It depends on who you talk to.

But the real big numbers depend on whether or not we should count the costs of two wars as part of the 9/11 attacks. The price tag so far is about $1.73 trillion including large jumps in military and aid spending in both theaters of war. Would our involvement in either country have occurred without the attacks on the World Trade Center?

If you are a hawk and believe that Bush should have invaded Iraq, regardless of provocation, then you probably won't want to include Iraq and its aftermath. Our involvement in Afghanistan is a bit iffier. Were we pursuing our war on terrorism in Afghanistan prior to 9/11 or were we solely focused on destroying the perpetrators of 9/11 — al-Qaeda and Osama Bin Laden?

If you believe that both wars are the direct result of the attack, then you must include future military costs which are estimated at another $1.38 trillion. Over 50,000 Americans have been wounded in those wars and many of them will need medical care and disability insurance for 40 years into the future. They will also be entitled to free or heavily subsidized health care for the rest of their lives, and deservedly so. Remember, too, that even if we pull out of both wars this year, the spending won't stop until at least 2020. You can add in another $441 billion to wind down these wars.

So let's say you are in the "9/11 caused two wars" camp. Since we have financed both wars with debt, we would need to include both interest paid to date and future interest on that debt. The price tag for that comes to $983 billion. But all these numbers may turn out to be far too conservative. In a recent study by Brown University's Watson Institute for International Studies, the authors argue that when all is said and done just the two wars alone will end up costing as much as $4.4 trillion.

Clearly no amount of money is going to bring back my friends at Cantor Fitzgerald who died in the Twin Towers, nor my wife's childhood best friend, Brian Ahearn, a FDNY lieutenant, who also lost his life and left behind a loving family that fateful morning. Yet, the next time you decry our burgeoning deficit and our out of control spending, you might remember what some of it was used for. 

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 (toll free) or e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.