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@theMarket: Has Santa Claus Come & Gone?

By Bill Schmick
iBerkshires Columnist

The rally continued in the stock market as investors abandoned bonds and bought stocks hand over fist. Many think the best is yet to come, since the traditional end-of-year Santa Claus rally is still ahead of us.

However, between now and then, we have the Federal Open Market Committee meeting next Wednesday. The bond market is betting on the following: that the Fed Funds rate is raised by one quarter of one percent, and the FOMC meeting minutes indicate that the Fed may raise rates two more times in 2017. Anything more than that would be hawkish and most likely cause the stock market to correct. That happened last year and cut short the Santa rally.

If the Fed's actions, on the other hand, are in-line with expectations (or even more dovish) the chances are stocks will continue to rally and so will bonds. Although most investors focus almost entirely on the stock market, which has soared since the election, few realize the devastation that is occurring in the bond market.

I have continually warned bond holders that someday they would face Armageddon. It seems to be happening now. During the past three weeks, investors sold over $2.7 trillion worth of bonds. Almost a like amount of money has found its way into the stock market. But I suspect bonds are due for a relief rally fairly soon.

Aside from the upcoming Fed event, one must also look at the nature of the Santa Claus rally. Usually, investors sell stocks during the first two weeks of the month. It's called "tax-loss selling" where investors establish capital losses to offset gains that they may have booked during the year. This usually depresses stock prices across the board. After the selling abates, investors then buy back stocks during the last two weeks and into January of the following year.

This year, however, that has not occurred and with a good reason. Investors expect that under the Trump administration, the capital gains tax will be lowered giving them an incentive to hold on to their stocks until 2017. Given that behavior, stocks might be getting bid up now only to see disappointment in the last two weeks of the year.

The S&P 500 Index has already exceeded my target for the year (2,240). It is now 10 points higher at 2,250, which is a nice round number. There are some traders who believe that we can climb even higher. Some say the Dow could reach 20,000 (another round number) before the end of the year. Certainly, since we are only a few hundred points from that mark, there is nothing stopping investors from chasing stocks higher.

To me that's pure gravy.  I had been expecting a mid-single digit return for the market and year-to-date we have gained a little over 6 percent. Close enough for government work. So what to do between now and the end of the year?

Sit tight and enjoy the fireworks. In the very short term anything can happen.  If we don't have a pullback in December, chances are we will have one in January, but not to worry. I expect that the stocks will continue to have an upward bias at least through the first 100 days of Trump's reign.
 

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 inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

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@theMarket: Day Traders Rule the Markets

By Bill Schmick
iBerkshires Columnist

What a week of volatility! The Dow was up or down 100 points or more every day while the other averages were equally as volatile. Brace yourself, because October should be just as crazy.

Pick your poison: the presidential debate, fears of a global banking crisis, a spike in oil — all of them provided a field day for short-term traders. Of course to profit, one must have known who would win the debate, that OPEC would come to a tentative agreement to cut production, and that the largest bank in Germany would experience even more financial difficulties.

I wrote last week that politics would impact the markets this month. The first presidential debate saw the market drop double-digits on Monday, only to recoup its losses on Tuesday, as the market determined that Clinton had won the debate. How they determined that was less important than the money that was made believing it.

OPEC also met this week in Geneva. The betting was that the members would not (or could not) come to an agreement. Traders expected that the oil price would crater once the meeting ended in disappointment — wrong! Oil shot up in price over 5 percent as OPEC members agreed to work out a production cut among its membership before their next meeting in November.

The news caught quite a few day traders and proprietary trading desks of big financial concerns flat-footed. As the smoke cleared, stocks rose even higher following the gains in oil.

Just a few hours later, Bloomberg News reported that several nervous hedge funds were pulling their money out of Deutsche Bank, Europe's largest financial institution. The bank's stock price has been dropping steadily, (down over 50 percent) on concerns that Europe's negative interest rates were decimating the bank's business.

Suddenly, memories of the collapse of Lehman Brothers, which precipitated the 2008 Financial Crisis, roiled the markets. All three U.S. indexes dropped in a panic led by financial stocks.

By Friday, some common sense returned to the markets. The economic and subsequent financial crisis of 2010-2013 shook Europe to its core. In response, the EU and the ECB established a series of safe guards among its banks to prevent a repeat of this kind of crisis.

As a result, even if Germany's largest lender is truly in dire straits, there are certain financial requirements that every European bank must adhere to. In this case, Deutsche bank has about $264 billion in liquidity reserves. The bank also has enough liquid reserves to cover 120 percent of the bank’s obligations for the next 30 days, no matter how severe the stress.

There have also been wild rumors of a bank bailout, plus a half-dozen more stories that cannot be substantiated. They do, however, make for some lucrative trading opportunities by high frequency traders. Don't get sucked into this drama.

My own opinion is that financial stocks around the world were already selling at bargain-basement valuations. This scare makes them even more attractive, if you are willing to hold them long enough. Remember, too, it is also the last week of the month and the last day of the quarter, when a lot of funny business usually occurs (it's called window-dressing).

October is upon us and the next election debate is on Oct. 9, when the vice presidential candidates meet. Batten down the hatches and prepare for the worst. That way, when things go better than expected, you will be pleasantly surprised. As for me, I will be temporarily out of commission for the next few weeks. I am getting a left-knee replacement, but should be back in action before the election. In the meantime, do nothing until you hear from me.

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 inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

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The Independent Investor: Dementia & Your portfolio

By Bill Schmick
iBerkshires Columnist

As more Baby Boomers reach retirement age, few elderly investors are willing to discuss a growing risk to their portfolio. The onset of diminished mental capacity can cause huge losses in your life savings. Many only realize the problem in hindsight. Don't let that happen to you.

The facts are concerning. For example, one in nine people, age 65 or older, suffer from some form of dementia. That skyrockets to one in two people over the age of 85. What's worse, there are at least 18 different diseases that bring on dementia. Alzheimer's disease is only the most prevalent of causes. No one can predict who will get this disease, but we do know that the older we get the higher the risk.

If you have been reading my columns on estate planning, you know by now that a visit to an estate planning attorney is in order.  It is true that most investors with significant assets have already made wills, set up trusts and in other ways made plans to protect their money after death. In many cases, they have also set up a power of attorney to manage their affairs in the event of illness or when they can no longer manage their money themselves.

The problem with all of the above is that none of it safeguards you against an early onset of dementia. Only you can detect it, but even then, your mind can be telling you something different and usually does. It is a serious problem, since one out of seven us have it and may not know it. For investors, especially self-directed investors, this can result in disastrous investment decisions.

But what about your loved ones, won't they know? Unfortunately, unless you have actually lived through this process with a relative or friend, chances are they won't recognize what is occurring unless you tell them. I have had clients who have managed to conceal how poorly they are functioning from those they live with while continuing to make increasingly poor investment decisions as their brains atrophy.

My experiences with my own mother have taught me just how insidious this process can be. Our family assumed that dementia could be identified by the amount of things my Mom forgot, but we were wrong. There are many ways dementia can manifest itself and loss of memory is only one of them. In vascular dementia, for example, where the victim experiences a series of micro-strokes, other more important issues start to impact the brain. Loss of judgment, impulse control and emotional imbalance are several other conditions that can crop up even before memory loss.

All of the above can have a devastating impact on your portfolio. In some cases, an investor with early onset dementia can experience excessive fear or rage. Although prudent all their life, some investors will begin to take on excessive risk with their portfolios. Others will panic at the first down period in the markets and sell everything. Some lose their hard-won skepticism and will trust perfect strangers with easy-money con games.

Unfortunately, most loved ones realize that something is wrong only after the fact. It is far easier to suspect dementia when someone cannot find their way home. But it is far more difficult to identify within the financial world, especially if you have been making investment decisions on your own for many years.

How can you protect yourself from this risk? First, monitor your own investment behavior. If you detect that there have been recent shifts (either more greed or fear) in how you approach the markets - be on guard. Make sure you talk to your loved ones concerning these changes and ask them to keep an eye on your behavior. If they admit that they do see a change, don't get angry, get help. Go to your doctor and admit your fears. Better to lose a little pride than half of your life-savings.

On a different note, I will be missing in action over the next few weeks, getting my left knee replaced. Look for me again in November.

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 inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

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@theMarket: The Same Old Song

By Bill Schmick
iBerkshires Columnist

Investors have been waiting all year for that elusive interest rate hike promised by our central bank. September proved to be another false start. Once again, markets rallied on the news, the dollar fell, and investors were happy. So what's new?

As we have written so many times in the past, investors and markets are fixated on a Fed rate hike. Now everyone's attention is on December. Janet Yellen, the Fed chieftain, indicated that she could see at least one rate hike this year — if the data warrants it. The problem is the economic numbers are, at best, inconclusive.

Even the central bank, in this last go-around at the FOMC, lowered its forecast for the future, long-term, growth rate of the U.S. economy. Back in 2011, it forecast a 2.5 percent growth rate. Then lowered it to 2 percent in June and now sees no more than 1.8 percent. That sure doesn't sound like we are going in the right direction.

Furthermore, the Fed's inflation target, which is slightly above 2 percent, has been stuck below that number for years and it does not appear that it will climb anytime soon. You might ask if inflation is contained and economic growth is slowing, why in the world would the Fed raise rates.

The only bright stop seems to be the employment gains we have experienced in the last few years. Even in that area, there has been some dissatisfaction with the quality of jobs the economy has been generating. The number of workers who are either underemployed or have given up looking for a job altogether skew the statistics. The only reason I can see for the Fed to raise rates is to answer Wall Street's demand for a return to "normalization."

That's financial speak for getting the Fed out of the financial markets. Free marketers want the Fed to return to the days when they were not trying to support stocks, bonds, and even commodities as well as overseas markets. I truly doubt the Fed was ever that hands-off when it came to control, but they have been more heavy-handed in their approach to the markets since 2009 and with good cause.

As I have written many times before, the unprecedented lack of any kind of fiscal stimulus out of Washington has resulted in the failure of the U.S. economy to gain any momentum. The Fed knows that and the market knows that. But we all choose to blame the Fed instead.

In the meantime, we are dancing to the same old song. Fed members say "maybe" and the market swoons, followed by no rate cut and the market rallies. Equities remain the only game in town. It's simple: the S&P 500 Index is yielding 3 percent while the ten-year U.S. Treasury note is giving you less than 2 percent. Investors will go where they get the most return.

It also means that volatility will continue. It is why I am advising you to hang in there and ignore the ups and downs. A week ago (before the Fed decision), the markets were prepared for further downside. Today, we are once again approaching the highs of the year — until we hear from the next hawkish Fed member. But remember, a rate hike will be data dependent. It doesn't matter what one or another Fed member might think, so try and ignore the chatter.

Monday night we will also be treated to the first presidential debate. I am sure that will impact the markets, unless the event is a washout for both sides. Since we are approaching the final lap in that race, the polls will be monitored daily. If Clinton's lead over Trump narrows as a result, expect a tantrum from the market. And so it goes.

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 Impact of One Bad Apple

By Bill Schmick
iBerkshires Columnist

For years, the mantra of Corporate America has been that they are drowning in government rules and regulations. Small business has echoed that refrain, as has Wall Street. The problem is that these same entities continually shoot themselves in the foot.

Over the last two weeks, thanks to Wells Fargo in the banking sector, and Mylan Labs in pharmaceuticals, Corporate America has once again reminded us of that business just can't be trusted. In the case of Wells Fargo, over 2 million fictitious customer accounts were opened over several years in order to meet sales goals.

Critics say Mylan Labs' 500 percent increase (since 2007) in the cost of a device called EpiPen that treats severe allergic reactions is simply another case of rampant greed within the drug industry. They are not alone. Gilead Sciences and Valeant Pharmaceuticals have both been caught instituting similar price hikes on some of their drugs. And who can forget Martin Shkreli, the former head of Turing pharmaceuticals, who jacked up the price of a life-saving drug, Daraprim, from $13.50 to $750 per tablet (while giving the finger to all of us on tape).

Not only has the public reacted with anger over these incidents, but it has kept the idea alive that existing rules and regulations are justified. What's worse is that many politicians will use these events to pile even more restrictions on the nation's corporations.

Hell hath no fury compared to a politician with a meaty issue in an election year. Senators from both parties jostled for air time on Tuesday during a hearing over Wells Fargo's indiscretions. To say that Wells' chief executive officer was trashed up one side and down the other would be an understatement.

CEO John Stumpf, once the "pretty boy" of the financial industry, due to his company's relatively clean bill of health during the financial crisis, was vilified for going easy on the bank's leadership while firing thousands of lower-level workers. Legislatures used terms like "gutless leadership", "fraud" and "out of touch" executives to decry management's response to the scandal.

Next week, it is Mylan Lab's turn to testify before the House Oversight and Government Reform Committee. Heather Bresch, the CEO of the massive pharmaceutical company, will be on the hot seat. Politicians running for re-election will be vying for the microphone. Expect to hear how she and her company are guilty of price gouging among other charges.

While the hearings and their aftermath might provide entertaining reading, the consequences of these cases of corporate greed may have far-reaching effects on all of our industries.  There is a great deal of truth in the complaints of many businessmen, especially small businessmen, that Federal, state and local regulations are making it almost impossible to run a profitable business, but at the same time, one bad apple after another pops up justifying the chains that bind the entire cart.

After the 2009 financial crisis, a flood of new regulations and reforms swamped the banking industry. The Dodd-Frank Wall Street Reform and Consumer Protection Act were signed into law in 2010. Among other things, it created yet another agency: the Consumer Financial Protection Bureau.

The Federal Reserve was given more power as were a slew of other governmental agencies. Lending practices, reserve requirements, trading restrictions and countless more new regulations were foisted on the banking industry. The idea behind this avalanche of rules and regulations were to ensure that "never again" will Americans be subjected to these "too big to fail" bailouts.

Hillary Clinton has already promised to deal with these outrageous pricing issues in the drug sector. As such, does anyone want to guess the chances of reducing regulations on either the pharmaceutical or banking industry? As long as industry continues to shoot itself in the foot, what else can one expect?

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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