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The Independent Investor: The Business of Guns
By Bill Schmick On: 07:05PM / Friday December 21, 2012
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The firearm industry has a lot going for it. It is responsible for a piece of this country's economic recovery including job growth as well as providing a hefty contribution to the tax base. It also sold the weapons that recently cut down 26 people, including 20 children, in a Connecticut elementary school. 
 
Gun manufacturers employ roughly 200,000 Americans in well-paid jobs. They contribute about $31 billion to the economy and $4.5 billion in federal and state taxes. There were 50,812 retail gun shops in America and gun sales were at a historical record high as of last month. Without them, this country's 13 million hunters (present company included) would be reduced to throwing rocks at this season's white tail deer herds.
 
In addition, we have the mega-trillion dollar global aerospace and defense industry. When we think of that sector, we usually talk about aircraft carriers, the next generation of fighter planes and things like tanks, armored personnel carriers and such. Yet, there is a thriving business in manufacturing assault rifles and military hand guns that continue to turn up in civilian society.
 
I live in the Berkshires. It is a rural community, similar to other areas in Maine, New Hampshire, New York, Connecticut and Vermont where most of my readers live. I am a deer hunter (although I haven't hunted since I got Titus, my 4-year-old Lab). I still own two high-powered hunting rifles and a turkey shotgun. Every weekend in Hillsdale, over the last month, I would dun my old orange hunting jacket when I walk Titus because I know hunters are in the woods. I am not afraid because hunters are a responsible, safety-conscious lot. It is a way of life and I appreciate the sport.
 
An acquaintance of mine, on the other hand, is a retired IT programmer, who lives in Delaware. He is not a hunter and yet he owns dozens of rifles and handguns. Most weekends you will find him on a special rifle range, along with several off-duty state troopers, pulverizing old trucks and cars for fun. They fire every type of assault rifle imaginable. It is his hobby. They are a big business for gun shops and shows but there are far fewer gun enthusiasts like my brother than there are hunters in America.
 
In my opinion, the guns this retired IT guy collects are quite different from those I have in my gun cases. The difference: his weapons were manufactured by some nation's defense industry for the express purpose of killing human beings. Mine were designed and manufactured to hunt wild animals, specifically deer. I was relieved back in 1994 when the sale of the assault rifle was banned in America, but the ban expired during the Bush era. It was never reinstated and since then sales have exploded.
 
The political clout of the National Rifle Association (NRA) in league with the Republican Party is largely responsible for this present state of affairs. The NRA spent $9 million trying to defeat President Obama and other Democrats during this last campaign to no avail. But after last week's horrible tragedy in Sandy Hook, even the NRA sounds like it is willing to re-think its blanket support of all guns for anyone.
 
My own opinion is that the hunters of America hold the key to getting these kids- killing firearms off the streets. We hunters, of all people, know the difference between the guns that are necessary for sport and those used for some neo-Nazi target practice in the back woods. 
 
If you are a hunter and are reading this, do yourself and your sport a big favor and let your voices be heard. Assault weapons have no business in our sport or on the streets of America.
 
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: Pushing on a String
By Bill Schmick On: 04:41PM / Friday December 14, 2012
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There was a time when an announcement of further easing from the Federal Reserve would have sent the markets soaring. This week the Fed promised more monetary stimulation and the markets finished flat to down.

Even more puzzling was gold's reaction to the announcement. The Fed is planning to purchase $85 billion a month in mortgage-backed securities, effectively pumping even more money into the economy. That money, unlike its previous bond-buying program, which bought long Treasury bonds and sold short ones, will involve printing new money. That is normally considered inflationary and yet gold prices barely budged. The next morning gold promptly fell $20 an ounce.

In a historic move, the Fed also tied interest rates to the jobless rate, promising that until unemployment came down to a 6.5 percent rate, it would keep interest rates at a near-zero level. The market's response was a big "so what." Investors do not believe that these latest Fed actions will do anything to reduce the number of Americans out of work or increase the growth rate of the economy.

The economy has been functioning under a historically low interest rate environment for some time. These low rates have been effective in avoiding another recession and keeping unemployment from rising further. But maintaining the status quo is not enough. In order to add jobs, the economy has to grow faster and that's not happening.

Ben Bernanke, the chairman of the Federal Reserve, has often said the central bank can do only so much. In order to accomplish a high-growth, low-unemployment economy, he maintains fiscal stimulus is absolutely necessary in tandem with lower rates. I agree.

But the Fiscal Cliff is not about cutting taxes and higher spending. It's about avoiding tax increases and cutting spending. Those actions seem to be at odds with what the central bankers are saying. The Republicans continue to insist that spending is the problem and that President Obama and the Democrats want tax cuts but little in spending cuts.

Republican Speaker of the House John Boehner, on Thursday, continued to insist "that the right direction is cutting spending and reducing debt."

How dense can one be? Has Boehner and the tea party bothered to look at how well that recipe hast worked in Europe over the last two years? It has been a disaster. It was also a disaster in Latin America throughout the 1980s. It flies in the face of what our central bankers are saying as well.

Boehner argued that if you include President Obama's new proposals to increase spending in areas that could stimulate the economy, then there would be practically no spending cuts at all in his Fiscal Cliff deal. Well, hurrah for the president.

I had hoped that if President Obama was re-elected, we could avoid the worst. The Bush tax cuts would be extended and the GOP's insistence during the election campaign (and up to and including yesterday) that we needed deep spending cuts would be moderated. So far the jury is out on my bet.

You may disagree, but I firmly believe that more, not less fiscal spending is absolutely imperative to jump starting the economy in tandem with the central bank's monetary policies at the present time. I will worry about the deficit after the economy is growing at a healthy rate and unemployment drops. At that point, I believe the explosion in tax revenues from a growing, full-employment economy will take care of the deficit, the debt and the Republican's propensity to angst. Until then, don't sweat the deficit, stay long and bet on avoiding the Fiscal Cliff.

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: Cheap Doesn't Cut It Anymore
By Bill Schmick On: 03:38PM / Thursday December 13, 2012
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In this brave new world of ours, it is no longer enough to simply offer the lowest cost product. Product innovation is now critical to a company's success. U.S. companies are discovering it is becoming harder to innovate when their manufacturing plants are half a world away.

Just look at the competition in hand-held devices, medical technology, and a plethora of other high-tech products, the highest sales go to the innovators with the most dependable products. But innovation doesn't stop there. Increasingly, even basic manufacturing products from wing nuts to autos are experiencing a transformation. Corporate teams of designers, engineers and workers on the assembly line find themselves collaborating like never before to produce a smaller, sleeker and more energy-efficient mouse trap, just like they did in the days of Henry Ford.

In order to do that, many companies are realizing that they need their manufacturing processes and factories closer to home. That realization is fueling an "insourcing" of jobs and manufacturing back to America. That's good news for the future of this country and its workforce.

Readers may recall my column, "Made in America Returns" back in June of this year. In that article, I attributed the renaissance in American manufacturing to lower energy and transportation costs here at home as well as the narrowing of labor costs between American workers and those unskilled workers of China and other emerging economies.

But that is not the entire story. A recent article in The Atlantic by Charles Fishman, titled "The Insourcing Boom," caught my eye. He chronicled the recent experiences of General Electric in transforming its defunct Appliance Park, Ky., manufacturing headquarters into today's cutting-edge producer of basic products like water heaters, refrigerators and dishwashers.

As a resident of Pittsfield, anything "GE" is of interest to me and my clients. Back in the day, Pittsfield was the headquarters of this red, white and blue manufacturing juggernaut. That is until Jack Welch, its former CEO, got it into his mind to ship most of our manufacturing jobs off to China and other cheap labor centers 30-some years ago. The same thing happened to Appliance Park. Both towns were devastated. Pittsfield is only now beginning to recover.

Appliance Park, on the other hand, is actually undergoing a revival of its original purpose, manufacturing American-made appliances, thanks to some recent discoveries by present GE management and its current CEO Jeffrey Immelt. After failing to sell the facility in 2008, management resolved to "make it work" at the huge six-factory complex. It soon realized that they could make highly efficient, higher-quality appliances here at home at a lower cost than could be produced elsewhere.

The key, as more and more companies are beginning to understand, to creating truly innovative products, regardless of their nature, at a reasonable price, is having all the pieces of the product creation puzzle in the same place. Over the past few decades that principle was lost and forgotten as U.S. companies rushed overseas to take advantage of cheap labor. In today's marketplace, however, cost is taking a back seat over quality and innovation; something more and more consumers are demanding and willing to pay for.

Input from those in the manufacturing process is becoming integral to engineering and designing a better, more competitive product. You can’t do that when your widget is being made on a Chinese or Indian factory floor in a different time zone, by workers who can't speak English. Although this trend should benefit our own workers, the question to ask is:

Is our workforce prepared for that challenge and opportunity?  In my next column we will address the issue of skilled workers, or the lack thereof, in America.

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 Eyes Are Not on America
By Bill Schmick On: 04:27PM / Saturday December 08, 2012
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Our stock market has gone nowhere since Thanksgiving week but it would be a mistake to believe that all markets have been on hold since that time. You just may be missing an opportunity elsewhere while politicians fiddle here at home.
 
After gaining back about half of the 8 percent decline it suffered after the election, the S&P 500 Index is within a point or two of its close on Nov. 23. Each day the markets vacillate, gaining or losing a couple of points at the most. I believe this period of marking time will continue until there is some definite progress out of Washington.
 
In the meantime, you might want to look elsewhere. Asian markets, ex-Japan, for example outperformed just about everything else in November. Places like Hong Kong, Taiwan, India and even China are attracting new money. But it appears to be a stealthy flow of investment without the usual fanfare. That usually means it is still early in the game for investing.
 
Emerging markets, once the darling of the investment community, fell off their own cliff back in 2009. Unlike the American market, they have never recovered. The combination of recessions in their two main export markets—Europe and the U.S.—plus the global move out of risk assets overall (because of the financial crisis) left these markets out in the cold.
 
China, which most economists believe has been the largest engine of growth in the global economy, deliberately put the brakes on its economic growth, fearing a major uptick in their inflation rate. And as China slowed, so did the rest of Asia. Times have been hard over the last two to three years, with the Chinese stock market suffering a 40 percent decline. But some brave souls feel it might be time to re-examine the prospects in this area. I agree. Latin American markets, I noticed, outperformed all other emerging markets in October, although not in November. I have even seen signs of some bottom-fishing over in Europe, which is suffering its second recession in three years.
 
What makes these markets interesting, aside from their low valuations, may be a potential turn upward in world economic growth. Remember, stock markets usually discount events six to nine months in advance. Central banks all over the world continue to stimulate their economies. Here in America, if we can actually come to grips with our fiscal issues, we could see a pickup in economic growth. Next year could surprise us if (and that's a big if) the politicians cooperate and actually implement a pro-growth fiscal policy to complement the Fed's on-going stimulus efforts.
 
Europe may not recover in 2013 if our economy starts to pick up steam, but it may stabilize. Over in China, there has been a regime change. Xi Jinping is the new president while Li Keqiang will be the new premier. The leadership transition was smooth and investors expect that the new leaders will continue to implement structural reforms while possibly calling an end to their tight money policies. Given that the money flow into China funds has been positive for the last seven weeks, some global investors are betting on a turnaround.   
 
So as American investors and the media wring their hands at every hiccup in Washington, some of the aggressive money is investing in more fertile fields abroad. Emerging markets are risky and not for everyone, but if you have an appetite for taking on more risk then I suggest you follow suit.

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: U.S. Debt — Another Cliff Note
By Bill Schmick On: 04:00PM / Thursday December 06, 2012
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While politicians bicker over the "Fiscal Cliff," the government continues to borrow about $4 billion a day. The statutory ceiling on U.S. Treasury borrowing is $16.4 trillion and we will hit that number by year-end. Then what?

If Congress refuses to raise the borrowing limit, we can expect the government to run out of options to avoid a default sometime by the end of February 2013. If we default, even technically, the credit agencies are ready to downgrade our debt once again. You may remember the drama and hysterics that last year's debt limit crisis invoked.

For months, pundits predicted dire consequences if the rating of our sovereign debt was downgraded by the big three credit agencies. Foreign holders of our debt would abandon us, they said. Interest rates on all sorts of debt would skyrocket. There would be a stock and bond market crash. Standard and Poor's did actually cut our debt rating from AAA to AA-plus. Contrary to the predictions of these Cassandras, bond prices actually went higher and rates lower; so much for the vaunted power of our credit agencies.  

Readers may recall why that downgrade happened. Last year was the first time in history in which Congress turned what had been a pro forma vote to raise the debt ceiling into a hostage-taking crisis. In exchange for their approval, congressional Republicans demanded huge spending cuts. One can fault the president for going along with that game, instead of simply raising the debt ceiling on his own and dealing with the consequences.

But President Obama has made it clear that last year was a one-time event. He is insisting, as part of the Fiscal Cliff negotiations, that Congress relinquish its control over the debt ceiling. He is right, in my opinion. Using the nation's borrowing ability for political gain is unacceptable.

The 2011 debt ceiling farce also marked a turning point in a number of areas. It was the seminal event that reversed this country's priority from job creation and economic growth to austerity. It also resulted in the down grading of our nation's debt by a credit agency. It is also worth noting that S&P's downgrade decision was politically motivated.

The credit agency, in its explanation for its negative rating change, explained that based on the 2011 debt negotiations, that the U.S. government's ability to manage fiscal policy was "less stable, less effective, and less predictable."

In one of those paradoxes of history, going over the fiscal cliff would actually avert any further downgrade to our debt status. The expiring Bush tax cuts and automatic spending cuts across the board would do quite a bit to alleviate the stated default-related concerns of the credit rating agencies. The tax cuts would generate around $4 trillion in new revenues over the next decade. That is almost the exact amount most credit agencies are looking for in deficit reduction in order for our fiscal house to be out of danger.

Of course, going over the cliff and staying there will present the nation with another set of economic problems. Both sides agree that the combination of tax increases and spending cuts of that magnitude will both raise unemployment and slow the growth of the economy. It could actually tip us back into recession. One would think the risk of default for any nation would climb as a result.

Back in September, Egan-Jones, a smaller credit rating agency, downgraded American debt from AA to AA-minus, citing Federal Reserve plans to stimulate the economy (QEIII). They argued the plan would reduce the value of the dollar, do little to stimulate the economy and artificially raise the price of oil and other commodities. That would, in turn, hurt U.S. businesses and the consumer. They indicated that the risk of inflation, rather than the risk of default, was the justification for its downgrade.

In which case, if we do fail to come to a compromise, fall off the cliff and, as a result, experience a decline in economic growth and inflation, will the credit agencies actually revise their ratings upward? It would appear they would have to since the basis of their downgrades was politics and lack of fiscal austerity (S&P's reason) and inflation (Egan-Jones' argument). We will have to wait and see how this same group that missed the entire subprime debacle handles this one.

 

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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