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The Independent Investor: Online Education Is Not a Panacea
By Bill Schmick On: 08:36PM / Thursday May 09, 2013
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Over the last decade, online enrollment in college classes has exploded. Many hope that it will ultimately help reduce the burgeoning future costs of a college education. The evidence, thus far, indicates that we have a long way to go.

At the outset, readers should understand that there are two initiatives that have yet to converge in online education. There are MOOCs (Massive Open Online Courses) offered for free by several universities and colleges, although in some cases the educational institution will issue a certificate or letter of completion (for a price).

These MOOC courses enroll hundreds of thousands of students in 150 or more countries worldwide. The courses are usually developed and taught by big-name educators and function as promotional tools for the teacher and their college or university. The students, in turn, benefit from the acquisition of new information, knowledge and skills, as well as making connections with fellow students from all over the world.

There are also online tuition courses offered by colleges and universities where students pay tuition comparable to what they pay for the traditional physical college class and receive college credit for successfully completing these courses. Back in 2002, only 34.5 pecent of colleges offered online courses; today that figure has grown to 62.4 percent. There are, however, some interesting dimensions to these classes and who enrolls in them, according to the online education company, Learning House.

In a July 2012 report, Learning House found that 80 percent of online students lived within 100 miles of the physical campus of their online educational institute and many lived even closer — within commuting distance and with good reason.

Studies have found that students still need the physical interaction of the classroom. Evidently, face time with the teacher remains an important element of the educational process. So students may enroll in one or two online courses because of a part-time job or other scheduling conflict, but they still take the majority of their classes on campus.

There are also some unexpected issues that have cropped up within the online classroom. Columbia University's College Research Center found that the attrition rate of students attending online courses is quite high. In some cases, especially in the highly popular MOOC courses, those students who failed to complete the courses approached 90 percent. Higher attrition rates also plague smaller classes as well.

Some studies indicate that online classes are better suited for highly motivated, highly skilled students; while those students who struggle or who have failed to master the basics like math and English, do poorly. Unfortunately, that accounts for a great number of today's students who are also having the hardest time affording college tuition.  

There is also some concern that only certain subjects, such as mathematics, computer science and engineering, can be effectively taught online. It may be more difficult to teach liberal sciences such as writing, communications or even lab work. There are also technology issues that can make the best course a nightmare to attend because of poor or inadequate video, document sharing, discussion boards, etc.

That does not mean that online education will not continue to grow. I believe it will and online learning will ultimately find its niche within the educational system. However, I see little evidence that it will alleviate climbing college tuition costs any time soon.

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: The Goldilocks Market
By Bill Schmick On: 04:55PM / Friday May 03, 2013
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The S&P 500 Index made record highs this week. It is catching up with the Dow, which has been making new highs now for over a month. Yet many investors do not believe this rally. Some are still sitting on the sidelines waiting and praying for a pullback that has not occurred.

There is an old saying that the market will do what is most inconvenient for the greatest number of people. Right now this slow grind higher seems to be causing more irritation and angst than anyone could imagine among many investors. Those who are in and experiencing double-digit gains so far this year still worry about how high the markets have come and whether or not they should bail.

"I don't get it," complained one such client, "The data is checkered at best. The unemployment rate is too high, but the market seems to ignore all of it and just keeps climbing."

"It is a Goldilocks market," I explained. "As long as the economic data is neither too hot nor too cold, the markets will continue to rise."

It really doesn't matter that much whether earnings are good or bad or that the economic date is contradictory. It is all about the Fed and it's on-going stimulus. Weak numbers mean that the Fed will continue easing. This week's Fed announcements, following their two day policy meeting, only encouraged investors further.

Investors chose to read positive implications into the Fed's statement that they might "increase or reduce" the size of its monthly $85 billion purchase of bonds. It will depend on the rate of unemployment and inflation. Since inflation has dropped below the Fed's target of 2 percent annually, there is clearly a green light to increase bond buying if they want.

As for unemployment, not only is the rate way above its target (6 percent versus today's 7.5 percent rate), but the numbers are up one week and down the next. So given the state of both inflation and unemployment, the markets are betting that the Fed is at least going to maintain their buying. And if the numbers come in weaker than expected, there is a good chance they will increase their purchases. Thus, bad news is good news.

The good news, like Friday's unemployment numbers of 165,000 new jobs (140,000 were expected) or the greater than expected rebound in national housing prices, was tempered by negative news on other fronts. March factory orders declined by 4 percent (3 percent expected) and non-manufacturing ISM data, which measures the nation's services industry, was also a disappointment. That data presents a mixed picture at best. Taken together, the numbers hold out the hope for even more easing while at the same time remove the possibility of an end to further stimulus anytime in the near future.

Like I said, the national porridge is neither too hot nor too cold. It is just the way investors and the market like it. So where are the three bears in this story?

One bear could be that the economic data becomes so bad that investors fear even the Fed can't prevent a recession. The Fed (and I) has made it clear that "fiscal policy is restraining economic growth." That's Fed speak for the wrong-headed, ill-advised policies that our Congress insists on enacting, such as the sequester cuts. There is a possibility that our elected officials could engineer our next recession.

Another bear could appear if the economic data indicated much higher growth ahead then the Fed expects. That would force the central bank to reduce its bond buying. That seems a remote possibility given Congress' penchant for doing nothing, unless it involves increased fiscal austerity.

The third bear could be a "Black Swan" type of event. North Korea, Iran, Syria or some other geopolitical event could also cause markets to swoon. We saw how fast the stock market declined in the aftermath of the Boston Marathon massacre. Something like that could trigger a rush for the doors. That third bear is always present and one reason I advise all but the most aggressive clients to keep some of their portfolio in defensive securities.

So Goldilocks is alive and well today but unlike the fair maiden, it is always smart to remain somewhat cautious when investing in markets. After all, you never know who may be lurking under those covers in your bed.

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: Where Others Fear to Tread
By Bill Schmick On: 03:02PM / Thursday May 02, 2013
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In the wake of across-the-board government spending cuts, this month President Obama proposed a new R&D initiative aimed at mapping the brain. Critics immediately balked over the $100 million price tag, but those protests may be pennywise but pound foolish given some of the breakthroughs government has achieved in the past.

The BRAIN initiative (short for Brain Research Through Advancing Innovation Neurotechnologies) is designed to promote innovation and job growth while finding ways to treat and cure ailments such as Alzheimer's disease and brain damage from strokes. It will be funded by the National Institute of Health, the Defense Advanced Research Projects Agency and the National Science Foundation.

Like so many other government-sponsored projects, this one will also involve partnerships with universities and the private sector. The last such health-related project, the Human Genome Project, was established in 1990 and cost $3 billion. The returns from that project have been substantial.

"Every dollar spent on the Human Genome Project," said President Obama, "has returned $140 to our economy."

That's not a bad return. The health services sector is only one of many areas that have benefited from government investment. Computing technologies, for example, is an area where the government has played an active financial role in encouraging innovation and new ideas. Breakthroughs there have quickly found their way into the private sector.

 A report late last year by the National Research Council, a government advisory group, calculated that nearly $500 billion a year in revenues generated by 30 well-known corporations in digital communications, databases, computer architecture and artificial intelligence can be traced back to government seed money. That was a great investment for society overall. It's just one of countless examples of our taxpayer money at work in a free-market economy.

If you think that the present natural gas boom in this country is an example of free-market capitalism, think again. Over 30 years ago our government spent more than $100 million in seed money (and billions more in tax breaks) to research and develop the fracking techniques that have produced a renaissance in one of our most precious natural resources.  

The simple facts are that no corporation today could afford to spend money like that on an idea that may or may not provide a return to the bottom line. In 1975, the first federal test well in Wyoming produced nothing more than a lot of hot water. In this day and age, the CEO of a private company that produced that kind of result would probably lose his job. Most shareholders would simply not stand for that kind of risk and return proposition.

Politicians are still complaining about the billions we provide in federal energy subsidies to both fossil and renewable forms of energy, but I believe that investment is paying off in a truly big way. We are seeing a renaissance in our manufacturing base as a result of cheap energy resources. An increasing number of global companies are re-positioning their manufacturing base back to America, providing jobs and tax revenues. I'm quite certain that no one in the government or private sector could have imagined that spending $100 million in natural gas research 30 years ago could result in such big dividends today.

That's why I applaud the White House proposal for BRAIN research. Who knows what the payoff will be, but I believe government has a role and a duty to go where others fear to tread. History shows that research and development, despite the occasional $500 toilet seat, is still a proper and profitable use of taxpayer money.

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: Five for Five
By Bill Schmick On: 06:38PM / Friday April 26, 2013
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It was another good week for the averages with all three indexes chalking up five days of gains in a row. Friday, however, was a mild disappointment thanks to the latest GDP data.

Economists were looking for a first quarter gain of 3 percent in GDP. Instead, the nation's gross domestic product came in at 2.5 percent, but it was still a good number compared to last quarter's 0.4 percent growth. The stock markets, however, have proven that they care less about growth and more about how much and how long the Fed's monetary easing will continue.

In this goldilocks market, good economic data is good news for stocks but also are disappointing economic numbers. I know that sounds crazy, but there is certain logic to this madness.

The Federal Reserve has promised to continue stimulating the economy until the unemployment rate drops by another percentage point or two. In order to achieve that target, the economy must continue to grow and grow at an increasing rate. So, according to the typical investor's logic, disappointing data simply means that the Fed will need to keep pumping money into the economy, which is good for stocks. Of course, if the numbers turn really sour and GDP drops precipitously then all bets are off. But 2.5 percent growth is not too hot or too cold and just enough to insure that the money keeps flowing into the stock markets.

All week Europe has rallied as well. There is a building consensus over there that economies both big and small need further stimulus and possibly an interest rate cut by the European Central Bank. "Austerity," both here and abroad, appears to be becoming a bad word for all but a few die-hard right-wing economists and their followers who we will call "Austerians."

Clearly austerity has not worked in Europe, has not worked in this country, and has not worked in Japan. As a result, what we are seeing is across-the-board movement toward further easing. I, among others, have been arguing for this since 2009.

Of course, those opposed have insisted that unless governments reduced their deficits and restored confidence, simply spending more would only increase debt loads (which are already at record highs). And once countries crossed a theoretical debt-to-GDP threshold, (thought to be 90 percent) they would experience a permanent slowdown in growth as well as hyperinflation.

This argument has raged on for five years with the austerity gang here in America gaining the upper hand this year. Thanks to the Sequester, we are now experiencing the impact of across-the-board cuts at a time when our economy needs spending, not cuts. Oh, and by the way, that theoretical line in the sand that the Austerians insist would sink the economy (based on an academic paper on the subject), was found to contain a mathematical error. Once the error was corrected, the 90 percent debt-to-GDP statistic went up in smoke.

Now, simply because the facts do not square with the Austerians' argument does not mean that they will cease and desist. There is too much at stake to quit now. After all, an entire wing of the Republican Party has been born again (and elected) under this theme. They will stubbornly insist on being right in the face of economic reality until we stop listening to them. In the meantime, despite our debt load and free-spending ways the stock market continues to go higher and higher. Imagine that.

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: R2D2 and the Stock Market
By Bill Schmick On: 03:40PM / Thursday April 25, 2013
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Tuesday's "flash crash" precipitated by a fake tweet attributed to a major news organization is old news by now. No long-term investors got hurt in the debacle and by the end of the week it was business as usual in the nation's exchanges. That doesn't mean it won't happen again and again.

In just four minutes, $136 billion was erased from the S&P 500 Index, the main benchmark average of the stock market. The Dow lost 145 points at the same time. Both averages regained those losses over the next two minutes causing some traders to check whether the elevator ride was real or a computer glitch. It was neither.

Having a front-row seat to the now-notorious tweet from the hacked Associated Press account claiming that the White House had been bombed and the president injured, my first reaction was to check its authenticity. I guess human nature is a lot more cynical than computers because in the time required to determine the tweet had been a hoax, billions in securities had changed hands.

Although no one is completely sure exactly what happened, we do know that the brunt of the decline was caused once again by algorithmic trading programs, which are these proprietary software trading systems that are lightning fast and take advantage of minute disparities among stock prices. The newest wrinkle in these high-frequency platforms involves computer scanning for key words among various news agencies.

Computers are now programmed to search out words that may impact stock price movements. In this case, words such as White House, explosions, bombs and injuries could and did trigger a sell program among Wall Street's R2-D2s and C-3POs this week. Once the ball started rolling downhill, armies of computers began spewing out sell orders instantaneously. Once the truth was discovered, these same computers stampeded in the opposite direction. This is what most observers believed happened this week.

It wasn't the first time. In May 2010, the now famous "flash crash" occurred. It erased $862 billion from the market's value in less than 20 minutes. Last year, the same kind of computer glitch wiped $440 million off the books of one trading firm and sent it to the brink of bankruptcy.

Regulators have been working to safe guard the public from these on-going speed traps. Under what is called the "limit/up-limit/down system," trades in stock prices will gradually be limited to a certain percentage range above and below the average price of a stock over the last five minutes. It will act as a speed bump. It won't be perfect but could at least slow down the declines we have experienced from seconds and minutes to hours or more.

That may just be wishful thinking on my part. More and more of the trading in the stock market is done by these "algos," as they are now called. It has changed the nature of the stock market and has precipitated the demise of many day traders that are simply outgunned by these R2-D2s. What worries me most is that some day in the future these systems may accidentally short circuit in a big way and suddenly we are all looking down the barrel of a financial death star.

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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