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@theMarket: Republican Grinch Sinks Markets
By Bill Schmick On: 10:18AM / Sunday December 23, 2012

 

Evidently disappointed that the world didn't end on Friday, the Republican-controlled House took matters into their own hands. Rejecting any compromise at all, the tea party members of the GOP rejected out of hand their own speaker's "Plan B" and then took off until after Christmas.
 
John Boehner, the Republican House speaker, who tried to convince his party to pass a bill raising taxes on those earning over $1 million failed miserably. He then threw the ball back to President Obama and the Democrats, knowing full well that without the Republican-controlled House no compromise can be achieved. The canceled House vote occurred Thursday night. World markets sank in stunned disbelief.
 
Disregarding the majority of American voters as well as the opinion polls against cutting spending, in my opinion, the Republican Party has chosen to dictate to the people what they think is best for you and me. By refusing to compromise, we now understand exactly who these GOP Congressmen represent.
 
Most, if not all of the House of Representatives earn more than enough to be classified as part of the top 2 percent of America's most wealthy citizens. Clearly, there is a high level of self-interest at work in their refusal to compromise. These same Republican tea party members are also beholden to a handful of right-wing billionaires who have financed their campaigns in 2010 and in 2012. The reality is that a small group of radicals have taken this country hostage. What can we do about it, unfortunately, very little, since this same group of dictators was re-elected to the House.
 
Investors who chose to vote for these people and those like them can only blame themselves for what comes next. They may think their party would protect them from a tax hike, but if the Fiscal Cliff isn't resolved before Jan. 1, their taxes will be raised automatically. And at the same time, if we go over the Fiscal Cliff, the markets will decline and the 2 percent (who have the most money invested in the markets) will take a second hit to their wealth. If ever there was a case of Republican voters shooting themselves in the foot, this is it.
 
Color me an optimist, however, because I still believe there is a chance that saner members of the government can prevail, despite the maniacs. There is a chance that what moderates are left in the Republican Party could join forces with the Democrats and still hammer out a compromise. It is a long shot but it could happen.
 
Failing that, we could go over the cliff temporarily and then reinstate the tax cuts for 98 percent of Americans, thereby avoiding another recession. That would also require the same kind of two-party coalitions. I doubt that Speaker Boehner is the man who could engineer that kind of deal on the Republican side. He is up for re-election as the House Speaker on Jan. 3 and at this point the outcome is highly uncertain. I say good riddance to ineptitude.
 
Over the last two years, less legislation was passed in the House and Senate than just about any time in this country's history. Consider that the negotiations to avoid this Fiscal Cliff could have started anytime in the last 12 months but both sides chose to wait until after the elections on Nov. 6. To date, our legislators have spent the last 50-plus days focusing on only this one issue. That is almost 15 percent of the year.
 
There are a multitude of issues facing this country. We cannot afford to spend 15 percent of each year on each issue. After the elections, I had some hope that both parties could meet, agree to disagree and yet compromise for the good of the country. It appears that I was wrong. The same obstructionists responsible for the past two years' dismal record are once again going to dictate to all the people for the next two years. Lucky us!
 
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 Business of Guns
By Bill Schmick On: 07:05PM / Friday December 21, 2012

 

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



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

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

 

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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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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