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@theMarket: Another Record High
By Bill Schmick On: 01:34PM / Saturday May 16, 2015

This off-again, on-again market continues to grind higher, if only by a few points, but it is the direction that counts. This week it was the S&P 500 Index's turn to chalk up another record gain. And so it goes.

If you recall last week, we were at the bottom of the trading range before the "algos" (algorithmic trading programs of high frequency traders) kicked in and took us up again. This time the cast of characters responsible for lifting the markets included a declining dollar, higher interest rates and higher oil prices.

Before you ask, no, none of those reasons make any sense, but they are not supposed to. It's simply a case of more noise in a market that is entering the summer period. It is the silly season where any lame-brained story might catch some attention and give traders an excuse to run the market up or down depending on the mood.

The fact that global interest rates rebounded from an extremely overbought condition, especially in places such as Europe, had some bond pundits predicting that interest rates in the U.S. were finally poised to start climbing. Sensational stories predicting the Fed has "lost control" of its ability to manage interest rates filled the airways and newsletters fueling further speculation in the bond pits.

The dollar's three-week decline (after a huge and unprecedented 12-month gain) was immediately interpreted as a sign that the U.S. economy is slowing and recession might be just around the corner.  My take is simply that the dollar is pulling back and consolidating after its massive gains.

Oil, of course, continues to be the excuse everyone uses when they can't come up with a reason for why the markets are doing what they are doing. Oil goes up and it's good for the energy patch. Oil goes down and it's good for the consumer, until it isn't. Gold, silver and basic materials jump in price (after 2-3 years of decline) and it supposedly says something about higher inflation expectations.

Contradictions abound among all of these stories. Oil is up on growing world economic demand, but the dollar is down because the same economies are slowing. Materials get a bid because inflation may be rising, while interest rates jump because global interest rates were too low. It is a market of extremes that simply can't abide periods where nothing much is happening.

The bottom line here, folks, is that the U.S. economy will continue to grow at a modest pace, while employment continues to gain. The rate of wage increases will also continue to make gains. That, in turn, will have a far more beneficial impact on economic growth than any temporary decline in energy prices.

At some point this year, the Fed will raise rates while the rest of the globe continues to keep their interest rates low. That differential will allow the dollar to resume its outperformance versus other currencies, but at a more moderate pace. As such, the investment environment here in the U.S. and around the world will remain benign.

Like this week, we can expect the U.S. markets to continue to grind higher, a few points at a time. However, while the gains (followed by losses) per week or month may not be that great, over time we could still see a 5 percent gain in the U.S. by the end of the summer, if this pattern continues. There's nothing wrong with that scenario, in my opinion.

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: Millennials & Money
By Bill Schmick On: 02:54PM / Friday May 15, 2015

Recent studies indicate our nation's youth are not investing in the stock markets. That's nothing new. It takes a rare individual under the age of 30 to have the wisdom to invest at a young age. For those who do, their future could be golden.

A recent survey by Banknote.com, a personal finance company, found that just 26 percent of individuals under the age of 30 are investing in stocks. That number hits home when we compare it to the 58 percent of people between the ages of 50 and 64, who do invest in the stock market.

Part of this lack of interest in stocks can be attributed to young people's attitude toward aging, retirement and death. When I was that age, I was invincible. Like me, at that age, the young believe they have all the time in the world to save. The younger you are the more difficult it is to identify with the concept of someday becoming too old to work.

But those attitudes account for only some of the reasons that under 30s shy away from investing, according to the survey. It appears that a lack of money and investment knowledge are also two important barriers to investing within this age group. Scarcity of funds in this day and age is understandable.

Between the financial crisis, income inequality, and the high cost of education, many young people cannot afford a place of their own, let alone the money to save and invest. Putting away even $100/month when you are unemployed or underemployed is a daunting challenge.

Their lack of investment knowledge simply underscores my contention that neither parents nor schools are teaching our children the importance of saving and investing (see my columns on "Kids and Money," Parts I & II).  Millennials are simply not equipped with the practical knowledge they need to make investment decisions once they are earning a paycheck.

It is a shame, because the absolute best time to begin saving is in your 20s. The most valuable asset these potential investors own is time. Another powerful tool at their disposal is compounding growth. Just how powerful is it?

Consider this: it will usually require just 10 years (using a 7 percent nominal rate of return) for an investment account to double. Just imagine what one dollar invested at the age of 20 would be worth by the time retirement time rolls around 45 years later. Many young people make the mistake of thinking that when they are 40 and making the big bucks they will make up for lost time when it comes to retirement savings. Wrong! The $100 a month saved when you are 25 is worth much more than the same amount saved at 40 years of age because compounding rewards early contributions much more than later contributions.

Let's say your annual income is $30,000 a year and you decide to save 10 percent of your estimated after-tax income ($2,160). In 25 years those contributions will grow to $288,001 using a 12 percent annual return, which is the long-term return of the U.S. stock market. If you put that money into a pre-tax IRA, that amount would be exponentially larger.

Unfortunately, few Millennials will heed this advice and fewer still read my columns. So, do your kid a favor and pass this column on to him or her. They will thank you for it later.

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: Avian Flu Scrambles the Egg Business
By Bill Schmick On: 10:49PM / Thursday May 07, 2015

By now, most Americans are familiar with the avian flu but its impact on your pocketbook may not be as well known. Here is what we know so far.

Egg producers have been walloped. Nearly 6 percent of America's "layer" hens have been destroyed. That's a lot of chicken, given that last year there were 362 million of those birds in the U.S., which produced 100 billion eggs. What's that going to mean to supermarket shoppers?

Look for at least 15 cents increases in the cost per dozen eggs at the wholesale level, by the time they get to the retail consumer. We still do not know how bad the impact will be on turkey prices but we do know that, like eggs, the turkey population has also been pummeled. About 1.5 percent of the turkey population, which numbers 238 million birds, has been culled due to this flu. How much, if any, this devastation will impact your Thanksgiving dinner this year depends on how wide and deep this H5 strain of avian influenza will spread.

To date, the U.S. Department of Agriculture (USDA) has confirmed 122 cases of the H5 strain that can kill a bird within 48 hours. Nearly 24 million chickens and turkeys from over 14 states have been affected since December. That's a lot more than the previous avian flu outbreak in the 1980s when 17 million birds died or were culled.

Scientists believe migratory waterfowl are spreading the disease as they trek northward in their seasonal migrations. So far no human cases of the strain have been discovered and the USDA does not believe that the flu has entered the food supply, or at least not yet. Unfortunately, the flu is still spreading. Iowa and Minnesota reported more cases this week, including two huge egg operations that combined produce an estimated 4 million hens.

The spreading disease is beginning to have an impact on industry. The first 233 layoffs occurred at Hormel Food's Jennie-O Turkey subsidiary, while some countries (China and Mexico) have already imposed bans on poultry imports. Those were "dark meat" markets where leg quarters are the predominant exports. With exports markets blocked, processors have been flooded with an excess of these poultry products and nowhere to sell them.

Broiler chickens, the largest slice of the $48 billion annual poultry market, have gone largely unscathed. These are chickens raised for meat. Given that this product is dedicated to human consumption, today's industrial bio-security systems are state-of-the-art. Farmers and corporations have learned their lessons and spent millions in construction in response to previous outbreaks of the flu and other diseases. Yet some scientists worry that the disease may be able to penetrate these defenses, if, say, a farm worker accidentally tracks in the disease on the bottom of his shoe or boot.

The USDA has been working on a vaccine that could protect our national poultry flocks from these bird flu strains while the Center for Disease control is working on a possible human vaccine at the same time, so far without success. In the meantime, this week the government approved an additional $330 million in emergency funding to help contain what has turned out to be the worst outbreak of avian flu in our history.

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: Does Another Trade Pact Make Sense?
By Bill Schmick On: 03:30PM / Thursday April 30, 2015

As Japanese Prime Minister Shinzo Abe's visit to the United States winds down, politicians in both houses of Congress need to decide whether the proposed Trans-Pacific, 12-nation trade pact makes economic sense. It does and we should jump on it.

Through the years I have been in favor of more trade, rather than less. At the same time, I recognize that trade agreements, by their nature, means that in every country some sectors win and some lose. If you can produce something better than I and at a lower price, why shouldn't I take advantage of that?

Yet, there is always vocal opposition from those who perceive their position will be threatened. Those who stand to gain usually keep a low profile (while behind the scenes lobbying furiously for passage). This pact is shaping up to be no different.

Most economists and trade experts believe that Japan stands to gain the most from this Trans-Pacific Partnership (TPP). For them (and us), there are two controversial sticking points. We want Japan to dismantle its long history of protecting domestic auto dealers from U.S. imports. In exchange, Japan would like America to remove our barriers to car and auto parts imports from their country.

Japanese negotiators argue that American auto manufacturers have simply failed to design cars that appeal to Japanese consumers. Smaller, eco-friendly vehicles sell well in Japan. American autos, they claim, pollute more and are too large for Japan's narrow streets and highways. American manufacturers' claim those are simply excuses with no real merit.

That may be true, however, European automakers do not appear to have the same issues. Fourteen European manufacturers, led by Germany's Volkswagen, scored a record number of new car registrations over the last two years. The Japan Automobile Import Association found that 66 percent of these foreign imports qualified for a Japanese tax reduction for eco-friendly cars, while not one American auto import qualified for the same tax break. In addition, the Europeans are expanding the number of sale outlets they maintain in Japan, while U.S. importers have reduced their number.

That may be so, but if we look at the overall numbers, European autos account for less than 5 percent of total car sales in Japan, while we languish at a low 0.03 percent market share. In comparison, Toyota alone commands a 14.6 percent market share in the U.S. Honda holds an 8.2 percent share, while Nissan accounts for 9.4 percent. Clearly, this trade relationship is wildly lop-sided and has been for decades.

Agriculture is another area where Japan needs to let down the barriers for its own good. The Japanese only generate about 44 percent of their daily caloric intake from domestic farming production. This is largely due to an antiquated system that prevents corporate agricultural development. The Japanese farming lobby is hell-bent on preserving the individual farmer, no matter what the cost to the consumer or the country.

Prime Minister Abe understands this (as has many of his predecessors). The difference is that he is doing something about it. He has been chipping away at these barriers in order to spur economic growth. A TPP deal would allow more American beef and pork imports into the country. That works for him. Facing competition from abroad, domestic farmers would hopefully respond to the challenge by embracing economies of scale and opening up this closed community to corporate expertise.  

The TPP could be a good deal for all involved. Protectionism is not the answer, in my opinion. That just allows inept and uneconomical practices to continue unimpeded. Predictably, some Democrats oppose the pact, fearing it will cost the country job losses in the auto sector. Republicans on the other hand, especially from rural farming states, are pushing the deal for obvious reasons. I find that trade deals like this are good for the consumer, whatever the country, even if, in the short-term, some workers could get hurt.

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: Buy on the News
By Bill Schmick On: 02:42PM / Saturday April 25, 2015

The worst of earnings season is behind us and it isn't nearly as bad as investors feared. Led by the tech sector, market averages are once again near their highs and appear to be on their way to even higher highs. Halleluiah.

If you recall that last week at this time, world markets looked to be at death's door and the recovery in five days has been encouraging. It is not only the U.S. market that has seen a strong recovery. The highly volatile Chinese market, after experiencing close to a 5 percent sell off in two days, rebounded nicely, erasing all losses and then some. The same can be said for Hong Kong and Japan. And now Taiwan is getting into the mix with more than a 3 percent gain in two days.

The S&P 500 Index tested its all-time intraday highs yesterday brushing 2,120, before falling back at the close. But it was NASDAQ that made history. The tech, biotech and social media index broke out of a 15-year trading range, blowing through its former high of 5,048 and ending the day at 5,056. That's not bad, given that overall company results are mired in the worst earnings season in recent memory.

Remember, however, that these earnings announcements are a scam. At this point almost 80 percent of company earnings results have "beaten" Wall Street estimates, which have been revised down so many times that even the worst of the worst results appear to at least "match" analyst's predictions.

Sifting through these results, what stands out to me are the consistent revenue misses that have been reported by so many multi-national companies. The strong dollar is to blame and company CEOs have said so. What's even more unsettling is that most managers expect this trend to continue into the second quarter of the year.

It is one of the reasons why I believe that U.S. markets, while grinding higher, will remain somewhat lackluster (compared to some overseas markets) through the summer. And lackluster is a relative term. Readers should not forget that our markets are still hitting new highs despite uncertainty over the dollar, earnings and checkered economic data.

In a convoluted twist of psychology, the rising oil price has also been good for the stock market. In a classic case of what's good for Wall Street is not good for Main Street, oil prices have been on a tear ever since they hit at low of $42 per barrel. (my target was $40 barrel, close but no cigar). The rising price alleviates concerns that the oil patch and the banks that lend to them may be facing serious financial difficulties.

As for overseas markets, the Greek Tragedy plays on in theatres, although half the seats our empty. American investors seem to be ignoring the daily "he said, she said" war of words between European finance ministers. I expect that both sides will wait until the eleventh hour, which is still a month away, (when Greece's money runs out of money again), before reaching an accommodation.

I said "accommodation" rather than solution because I am convinced that the EU will simply kick the can down the road once again. Until then, I expect European markets will continue to gain and lose (sometimes a percent or two a day) as the deadline draws near.

In the Far East, I am relieved to see that markets are consolidating a bit after a strong three days at the beginning of the week. That's encouraging. I would prefer to see more of the same, rather than these roller coaster periods of huge gains followed by 4-5 percent corrections, especially in China and Hong Kong.  

I expect the Japanese Nikkei, which recently broke out from strong resistance at the 20,000 level, will continue to climb. The fast track trade agreement between the U.S. and 12 Asian countries, including Japan, should provide impetus for further gains as will Prime Minister Abe's historic appearance before both houses of Congress this Wednesday. My advice is to keep the faith, stay invested and enjoy the ride.

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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