It was long overdue. For weeks, the stock market has registered overbought conditions and still it forged ahead. Investors had driven the averages back to yearly highs and only then did the rally run out of steam. Now it's time to step aside and watch.

"Is this the start of something big or should I just stay put?" asked a retired client from Pittsfield who has recouped much of his 2008 loses over the last year.

"Stay put," I said, "because this pullback will be short and unless you are a day trader, too volatile to do more than add to existing positions."

I'm thinking we could see the stock markets drop as much as 5 percent, which from here isn't such a big deal. Take the S&P 500 Index, for example. This week it hit an intraday high of 1,227 (almost 10 points higher than its peak in April). A 5 percent decline from that level would put the average at 1,165, a mere 30 points down from here. That's not worth getting excited about.

As a rule of thumb, I believe that 5 percent to 10 percent corrections in the stock market are the "price of doing business" or the risk one must accept in equity investing. These kinds of corrections occur 2-3 times a year on average. And it is not just equities that are falling.

Commodities are also declining. As I look at the present spot price of gold, the precious metal is off over $40 an ounce while silver is down $1.50 an ounce and oil has plummeted over $3 a barrel — in just one day. Commodities tend to have extremely sharp, if short, corrections that tend to wilt most amateur investors' resolve to stay invested. It appears that once again those who have chased energy, precious metals and agricultural commodities are suffering big reversals this week. Rather than buy this weakness, they tend to sell in panic.

For those with bullish convictions, this pullback is a buying opportunity, not only in commodities but stocks in general. This coming week should provide further opportunities to establish new positions. Some of the areas I favor for additional investment are emerging markets, real estate such as REITs, commodities, commodity companies and selected technology.

As for the culprits that triggered the pullback, most of the negative events have something to do with governments. The on-again-off-again saga of the European debt crisis has reignited fresh worries over Ireland's struggle to rescue its financial system. It has led investors to re-examine Europe's financial situation in general.

At the same time, China is rumored to be hiking interest rates in an attempt to slow their economy. That would spell bad news for everyone since China has become the new locomotive of global growth. Over in Korea, where the G20 adjourned without agreeing on how to curb the growing currency war, left investors worried and disappointed over the fate of the U.S. dollar.

All of the above are serious issues but they have been with us throughout the year. China has raised rates before and emerging market growth is still quite healthy. The problems of Europe's smaller economies will continue to plague the Euro and the European Community for the next few years, but has not stopped their stock markets from enjoying substantial gains over the last six months.

The financial world is fully aware of every nuance of the currency debate. The dollar has declined since late August, sending stocks and commodities ever upward. None of this is new. Consider this pullback a healthy correction and that's all you need to know.

All these reasons for the sell-off will still be with us a month from now when the averages have regained their upward ascent, so don't put too much stock in today's headlines. They are fleeting at best. Focus instead on the opportunities this sell-off will present.

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 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

Yes, that really is our finanical columnist Bill Schmick in Vietnam 42 years ago. Bill, who served four years as a Marine, took Veterans Day off. Thanks, Bill, to you and all veterans.

As the G20 conference gets under way today in Korea, I expect the currency war will escalate now that the U.S. Federal Reserve has launched the second round of quantitative easing. As the dollar continues to decline, our trading partners are getting back a little of their own and they don't like it.

Over the last week or so, the Fed's QE II announcement has been greeted by a chorus of howls from all over the world. Germany's finance minister called U.S. policies "clueless" while Chinese officials quickly added their own criticism.

"As long as the world exercises no restraint in issuing global currencies such as the dollar, then the occurrence of another crisis is inevitable," stated Xia Bin, an adviser to China's central bank.

Brazil's finance minster, Guido Mantega, went further when he said, "Everybody wants the U.S. economy to recover, but it does no good at all to just throw dollars from a helicopter."

Those are just a few choice criticisms but there were many more from nations throughout the world accusing the U.S. of everything from currency manipulation to exporting inflation. They may be right but that doesn't mean we are wrong.

For decades, the U.S. has been running a major trade deficit with our international trading partners. All these countries that are squawking about QE II have been major beneficiaries of a monumental trading imbalance with the U.S. both now and in the past. In Latin America, for example, Brazil, among others, has benefited mightily by keeping its own currency artificially low and exporting huge quantities to the U.S. China is another master of currency manipulation and has followed a weak currency/high export policy for years. Germany is also enjoying booming exports, trade surpluses, low debt and an unemployment is expected to fall to 1990s levels thanks to a weak euro.

So after carrying the weight of the rest of the world's exports for years, the U.S. is fighting back and well it should. It is our nation and not any of the above countries, which is suffering a high unemployment rate, a slow growth recovery, huge trade deficits and a record debt load. We are simply following the same prescription both Japan and Europe followed after WWII, which Latin America followed after their Lost Decade of the 1980s. China's economic miracle is founded and continues to grow along these same economic principles.

Now that America has decided to play the same game, cries of "foul" echo across the world. It is true that America's actions will cause problems for economies around the world. Right now it makes a lot of economic sense for foreigners to borrow in dollars where interest rates are at rock bottom and then invest that money in building plants and equipment back home where interest rates and local currencies are higher. Of course, their governments already hold huge dollar reserves in the form of U.S. Treasury bonds. Foreign central banks fear that all this additional dollar borrowing may cause inflation in their own countries.

You might ask how critics can take the moral high ground and point a finger when for years they have been doing the same thing to us and acting as if America was their own private export market. Nations, however, are not individuals; which brings to mind a quote of Thomas Jefferson, one of our founding fathers:

"Money, not morality, is the principle commerce of civilized nations."

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 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

The above headline may be a bold statement, especially when the averages are already at levels that surpass this year's stock-market highs. But the actions and words of the Federal Reserve Bank this week convinces me that stocks have substantial upside ahead of them.

As I predicted, this week was a big one for investors and the country. The mid-term election results and the resulting legislative gridlock in Washington most pundits expect leaves the Fed as our only hope in reviving the economy and reducing unemployment. (see yesterday's column "Don't Fight the Fed.")

The $600 billion in additional quantitative easing (QE II) and Chairman Ben Bernanke's Op-Ed piece in the Washington Post makes obvious that not only is the Fed targeting stronger growth in the economy but also higher prices in the stock market.

It is the first time in my career that a Fed chairman has explicitly targeted stocks as a tool to increase consumer spending, grow the economy and reduce unemployment.

Imagine my surprise when a day later, the central bank of Japan stated the very same thing but went a step further by also targeting real estate prices in its country.

This takes government support of the economy to an entirely new level in my opinion. During the financial crisis and its aftermath, the government (the Fed, U.S. Treasury and both the Bush and Obama administrations) has on several occasions provided a back stop to the markets. They took actions to save corporations, provided support for declining securities such as mortgage-backed securities, even money markets, and promised to support or bail out the U.S. financial markets with all the power at their disposal. It was one of the main reasons back in early 2009 that I turned bullish on the stock markets. I was betting on the government because they have much deeper pockets then the private sector and if they failed to fulfill their promise we were all doomed anyway.

This week's comments from Bernanke have taken that implicit promise of "support" a big step further. If I read this right, Bernanke is saying that consumers and corporations are still worried about the economy and their own finances. Higher stocks, according to Bernanke, will restore confidence as Americans see their savings rebound. That confidence could lead to additional spending, which would mean more growth in the economy and ultimately lower unemployment. Therefore, insuring that stock prices go higher would accomplish the Fed's mandate of lower unemployment.

Now that does not mean the Fed is simply going to jack up the market in one big melt-up. There will still be corrections. The market is overdue for one right now but over the longer term, at least the next few quarters, I think the fix is in. So if you have been sitting in Treasury bonds or cash waiting for the inevitable second collapse in stocks you may have to wait several more years. In the meantime, you could miss out on a substantial rally in equities.

I also think that we will finally see a dip in the unemployment rate over the next few months. The stimulus money that was spent during the run-up to the elections has generated additional jobs and those jobs are beginning to show up in the data. In addition, I expect U.S. productivity will begin to falter as the economy perks up. So from where I sit, the next few quarters look pretty good for the stock market.

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 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

Now that QE II is in the bag, expect QE III, QE IV and maybe even a QE V, if that's what it takes to restore economic growth and reduce the unemployment rate to under 7 percent in this country. After the mid-term election results, I believe the Federal Reserve is all that stands between us and a stagnant, deflationary economy. I would not bet against them in this endeavor.

Most of Wall Street is expecting fiscal gridlock in Washington now that the GOP has re-taken the House but is still the minority in the Senate. That will mean little if any new initiatives to either grow the economy or drive down unemployment have much chance of passing. One exception may be a compromise on the Bush tax cuts.

If both sides can muster enough cooperation to cut a deal in extending the tax cuts before the end of the year (when they are set to expire) then we may escape an economic knockout punch of monumental proportions. Outside of that, there is not much that we should expect from the government over the next two years.

That means that only the Federal Reserve Bank, led by Chairman Ben Bernanke and his band of 12 governors, are left to wage the good fight against the forces arrayed against our economy. Their mandate, to promote low, stable inflation and a high level of employment, gives them enough latitude to do just about whatever they feel necessary to jump start the economy. It appears they are doing just that.

QE II not only says the Fed is serious about that mission but signals an intention, in my opinion, that if this one doesn't work, another one will already be in the pipeline, followed by another, and another. That is entirely believable since the Fed can and will continue to print money (U.S. dollars) until the cows come home in an effort to grow the economy, which is the only way they can reduce unemployment.

In an Op-Ed piece in the Washington Post on Thursday, Bernanke defended the Fed's second quantitative easing and stated several things that you should read as Gospel:

"... the heavy costs of unemployment include intense strains on family finances, more foreclosures and loss of job skills."

"... inflation is running somewhat below 2 percent."

"... higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.”

"... Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."

Bernanke said next to nothing about the dollar since he did not want to give the impression that the U.S. was deliberately driving the dollar lower (although that is exactly what QE II will do). If you don't believe that just take a peek at the decline in the greenback lately. As I have said in the past, the dollar will continue to weaken as the Fed prints more and more money. A lower dollar will boost commodity prices such as gold, silver, energy, materials and agricultural food items. So ignore the naysayers who say commodity prices have run their course.

As far as the Fed is concerned, pumping more money into the economy is OK, at least for now, since the inflation rate is "a bit lower than the rate most Fed policymakers see as being consistent with healthy economic growth in the long run."

But the most important message investors should take away from his Op-Ed is his extraordinary comment concerning higher stock prices. Evidently the Fed believes higher stock prices should be part and parcel of its attempt to grow the economy. The reasoning makes sense when you consider that consumers are the linchpin of this economy. Given that our two main pillars of wealth, our tax-differed retirement savings and our homes, have taken a huge hit since 2008, any improvement in one or both of these assets should help improve our confidence and therefore our spending. That message is clear in the bullet points above.

The Fed is clearly telegraphing to investors that they want a higher stock market, and like unemployment and the economy, they will do what it takes to accomplish that goal. This message is behind the jump in the stock market this week. My advice to you is don't fight the Fed. Buy stocks.

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 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.