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The Independent Investor: Potholes Take Center Stage
By Bill Schmick On: 03:21PM / Friday May 16, 2014
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Can you count the number of potholes you hit or narrowly avoid every day? Do they make your blood boil, teeth clench and trigger a choice euphemism or two during your commute? Unless the Highway Trust Fund (HTF) receives a $302 billion injection of funds this year, it could get a lot worse.

And I'm not just talking about potholes. More than one in nine bridges in this country is structurally deficient. At least 66,405 (11 percent of the total) are in sad shape and these are not out-of-the-way covered bridges that are rarely used. Americans have taken over 260 million trips over these derelict spans. They are simply accidents waiting to happen, like the one last month in Mount Vernon, Wash., or the I-35W collapse in Minneapolis that killed 13 people back in 2007.

President Obama is pleading with Congress to work with him in developing an infrastructure plan that would fund a four-year transportation program. It will not solve our infrastructure problems, but it will help. So far there has been little appetite by legislatures to embrace the concept. If they fail to act, the highway fund will run out of money by August or September.

Historically, the nation's transportation infrastructure has been financed by a gas tax of 18.4 cents established in 1993. In hindsight, that has been woefully deficient in keeping pace with the number of vehicles that use our roads today. The problem is that raising the gas tax or requiring corporations to pay more for infrastructure (an Obama suggestion) will probably not fly in an election year. So, instead, Congress will do what it always does, kick the can down the road by coming up with a stop-gap funding scheme.

If you have ever had the opportunity of driving on the Autobahn, you might ask how the Germans have managed to keep their highways in fabulous condition while keeping maintenance required down to a bare minimum. The answer, my dear reader, lies in the American past.

Back in 1919, a little known War Department publicity stunt organized a 72-vehicle convoy that journeyed across America. It required two months to make the trip. The roads west of the Mississippi were so bad that the convoy averaged a mere 6 mph for the 3,200 mile excursion. Along for the ride, was a young lieutenant colonel named Dwight Eisenhower. It affected him profoundly.

Forty years later, as the 34th president of the U.S., Eisenhower was finally in a position to do something about our road system. Starting in the 1950s, the Interstate Highway System was founded and developed 42,795 miles of roads across the nation. Once again, America showed the world what we could do when we put our mind to it. The goal was to get them down as quickly as possible.

The problem was that these roads were never built to last.

Of course, this sudden network of nationwide roads allowed the American family to enjoy cheap vacations, see the country and make the weekend drive an American pastime. Combined with fuel-efficiency gains, the ownership of cars exploded in this country.

That was bad enough, but what the planners did not count on was the massive shift by American industry from transporting goods via railroad to shipping them via the nation's brand-new highway system. Roads that were of substandard construction (although good enough to withstand the damage of 2,000-pound cars) were suddenly assaulted by convoys of commercial trucks. These rigs, weighing 80,000 pounds or more, do 40 times the damage (the mathematical equivalent) of the lighter weight cars due to a truck's weight distribution.

When roads are not properly sealed, water (ice, snow, etc.) leaks underneath the asphalt and settles in the base of the road, which is mostly compacted dirt here in the U.S. Big trucks constantly drive over these moisture spots driving the water downward causing air pockets that form over time the great American pothole.

The Germans know this, as does every engineer in the world. So some foreign engineers and governments choose instead to build extremely thick roads with solid foundations designed to prevent moisture from penetrating the underside of their structures. So why don't we do this? Because it costs more.

Obviously, in a country that groans and moans over the on-going cost of infrastructure maintenance, building better roads at higher costs is a non-starter. If we ban large trucks from our highway and bridge systems, then our roads would stand up a lot better than they do now.

Good luck trying to implement that change.

Given that corporate America uses our transportation system to help turn a profit, (rather than simply commute to work or see Mom on Mother's Day, as taxpayers do), would it not be reasonable to ask them to foot a larger percentage of the cost of maintenance? Reasonable, but probably political suicide for any elected official. I guess we will just have to settle for potholes.

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: A Shift in Leadership
By Bill Schmick On: 02:28PM / Monday May 12, 2014
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Throw out the new, embrace the old, not something you see often on Wall Street. But as technology stocks and other high flyers continue to get trounced, utilities and other oldies but goodies are doing quite well.

When looking at the gyrations of the stock market indexes every day, it appears stocks are simply gaining one day and giving it all back the next. It would be easy to miss the sea change occurring right before our eyes.

Most readers are aware that the biotech sector, along with most new age technology areas, like 3D printing or cloud stocks, has been in the throes of a severe sell-off for over two months. If you review their technical charts, as I have, just about all of them look like death warmed over. Obviously, growth stocks are out and value is in. Those who have bucked that trend and attempted to pick the bottom in these groups have gotten their head handed to them.

However, utility, consumer durable, energy and other old economy sectors have risen as investors took profits in new age equities and invested the proceeds in these "low beta" stocks. Unfortunately for the overall market, that trend is not a good sign. It says that more and more investors are becoming cautious the closer we get to record highs.

One may have noticed, for example, that as the technology-heavy NASDAQ index, along with both the small and mid-cap Russell Indexes, have been declining steadily, the Dow hit record highs last week. The S&P 500 Index has also flirted with record highs and even now, after a so-so week, it is only 30 points from all-time highs.

If you look under the hood, you will find the explanation. Only one security of the top 12 most heavily-weighted stocks (all low-beta, defensive names) in the S&P 500 is exhibiting weakness. Over on the Dow Jones Industrial Average, most stocks that make up that average pay dividends and are also thought to be more defensive than the overall market. In essence, big money investors, especially professional players who have to be invested in equities, are hiding in these defensive areas. They are hoping that if the markets roll over, these stocks will get hurt less than the overall market.

Unfortunately, historical data tells us that even these stocks will ultimately succumb to selling pressure. It just takes a bit longer before the large, big cap value names follow the other indexes lower. The S&P is now in its 10th week of this process, which is the longest it has exhibited this behavior since 1994. The intra-day volatility is also increasing. Consider just one example. On Friday the NASDAQ rallied 0.80 percent in the first half hour of trading and then declined 0.50 percent before 10:45 a.m. The other averages are also experiencing these kinds of wild swings. Not good.

As for quarterly earnings, 736 US companies reported this week, and they have averaged a decline of 2.09 percent on their report days. The average stock that beat EPS estimates has gone up a mere 0.18 percent on its report day. But the average stock that has missed EPS this week has fallen 5.33 percent on its report day. Not good.

Given everything that is occurring in the stock market, I remain cautious and expect further volatility with a higher risk of downside in the weeks ahead.

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: Inequality in the Housing Market
By Bill Schmick On: 11:09PM / Thursday May 08, 2014
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You, you said that they — What'd you say just a minute ago? They had to wait and save their money before they even thought of a decent home. Wait? Wait for what?! Until their children grow up and leave them? Until they're so old and broken-down that — You know how long it takes a workin' man to save five thousand dollars? Just remember this, Mr. Potter, that this rabble you're talking about, they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?

— George Bailey, "It's a Wonderful Life"

The most expensive home ever sold in America occurred over the weekend in "The Hamptons," Long Island's playground for the one percent. Just a week before that a Greenwich, Conn., estate sold for $120 million. At the same time, the percentage of America's first-time home buyers is at its lowest level since 2008. What does that say about homeownership in the United States?

American income inequality is taking on an even uglier caste as it impacts the real estate market. The recovery in housing over the past two years has been highly unusual. This time around, it has been led largely by institutional investors, hedge funds, private equity firms and wealthy individuals. These astute investors, flush with the cash they had made in the recovery of the financial markets, took advantage of the 35 percent decline in housing prices and the new rental demand of 5 million foreclosed homeowners who were forced to find a new place to live.

These entities spent more than $20 billion to buy up over 200,000 homes which they rented or resold (flipped) as the housing market climbed. All-cash sales have become so prevalent that in the first quarter of 2014 almost 43 percent of all residential property sales were transacted in this way. That's up from 38 percent in the previous quarter.

At this point the big money has been made and the institutions are winding down their purchases. Wealthy individuals, second-home buyers and the occasional owner-occupant buyer, who have the cash, are entering the market. Thanks to the Fed's tapering, mortgage rates have climbed, while stricter credit standards following the crash have shut out the rest of us from any hope of tapping the mortgage market.

As the American middle-class disappears, so too will homeownership at an accelerating pace and what's worse, there is little hope for the future. Consider, for example, those young, first-time homebuyers. Rest assured that "the kids are not OK."

Struggling with high college debt, low-paying jobs (if any) and high monthly rents, the younger generation has little chance of cobbling together the money needed for the 10-20 percent down payment required to purchase a home, even if they could get a bank loan. The reality is that the only borrowers most banks will lend to are those who don't really need to borrow in the first place.

Sure, prices have appreciated and in several locales, mainly along the nation's east and west coasts, sales of $1 million homes have spiked 7.8 percent over the past year. But at the same time, there has been a 7.5 percent drop in overall home buying during that same period.

One wonders who these new, all-cash buyers are going to sell these properties to in the years to come. By definition, there is only one percent of the population that can afford to buy or borrow. How many jumbo loans can banks make before borrowing dries up? Evidently, U.S. lenders are seeing the handwriting on the wall and are cutting jobs in their mortgage lending divisions in advance of further downside.

Clearly, the housing market is stalling and even Janet Yellen, the chairwoman of the Federal Reserve Bank, worries that "the flattening out in housing activity could prove more protracted than currently expected, rather than resuming its earlier pace of recovery."

As my readers know, almost all of the country's income gains from 2009 to 2012 flowed to the top one percent of earners. It is becoming clear that the same thing has happened in the real estate market. That leaves 99 percent of us who will either remain property-less or who will live in our present abode for the foreseeable future. Unfortunately for America, as housing falls prey to the growing trend of income inequality in this country, the future prospects for all of us continue to dim, especially among our young.

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: Headlines Can Be Deceiving
By Bill Schmick On: 10:57AM / Saturday May 03, 2014
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It was a great April non-farm payrolls labor report. The headlines read that job growth in the Unites States increased at its fastest pace in over two years, while the unemployment rate fell to a five-year low.

Taking a peek beneath the headlines, however, all is not as it seems.

The report indicated that 288,000 jobs were created last month, dropping the jobless rate to 6.3 percent. That was above economists' expectation of a gain of 210,000 jobs. However, the number of workers looking for jobs declined by 806,000. Therefore, they are no longer counted in the employment statistics. Bottom line: a lot of Americans have given up hope in finding a job for good.

A breakdown of jobs was also more than a little disturbing. The most important age groups for jobs in America are those workers aged 25-54. They represent the bulk of our labor force as well as the most productive of all U.S. workers. The total number of their jobs fell from 95.36 million to 95.151 million - a drop of more than 200,000 jobs.

Employment for our younger workers also took a hit. Teenagers (16-19 years old) lost 24,000 jobs while those in the 20-24 age groups lost another 26,000. So who did gain those jobs?

Funny enough, it was workers, aged 55-69, who gained 174,000 jobs. Government was also hiring, and both construction and manufacturing saw employment gains.

Clearly, the economy stalled in the first quarter, as a result of a bad winter and had a deeper impact than first thought on unemployment. We will know exactly how bad when the government releases the next revision of first-quarter GDP growth. The last data point was growth of 0.1 percent. We might actually see negative growth for the quarter when all is said and done. However, I believe that the slowdown is behind us and that future quarters should see accelerating growth.

It is one of the reasons I believe that any pullback in the stock market will be contained over the next few months. The fundamentals of the economy will provide support for this market. Granted, we still need some kind of sell-off in the double-digit category to remove some of the excesses that have crept into overall valuations.

The markets also need time for economic growth to catch-up to market expectations. That process began in the beginning of the year. The sideways chop we have been living with since then is part of that process. A further decline that would last through most of the summer would be ideal. Who knows, maybe this century's madman, Vladimir Putin, may be the catalyst for such a fall.

I know that the majority of professionals are now expecting a sizeable pullback and being in the majority always makes me uncomfortable, but it doesn't make me wrong. I still expect the markets to grind higher, pushing stocks to record highs over the short-term. The Dow made its first record high of the year this week. The S&P 500 Index should breach 1,900 shortly. That's not saying much, since it is less than 20 points away from that level right now.

We could also see a bit of short covering once we make a new high. It could propel the S&P 500 a little further but after that, I am not expecting much. My most bullish case for the markets in the short-term is slightly higher highs with more sideways volatile action as May progresses. I am sure that on-going events in Ukraine will be supplying the volatility while day traders will continue to boost the markets higher until they don't.

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: When Should You File for Social Security Benefits?
By Bill Schmick On: 02:43PM / Thursday May 01, 2014
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Many of us yearn for the day we can retire and live the good life. However, too many Americans plan to retire at age 62 simply because that is when they become eligible to collect Social Security. That might not be a good idea in the majority of cases.

The Social Security system was intended to be easily accessible, but like so many of our government organizations, it has become a nightmare of complexity. Rather than try and understand the system, many simply retire at 62 and lose out on valuable benefits because they retired too early.

Recently, thanks to the bankruptcy of one regional hospital and another local company's early retirement incentive offers, I have been fielding a lot of questions on the subject.

For most people, it makes more financial sense to wait until you reach full retirement age (FRA) which is 66 (for those who were born between 1943 and 1954). This is especially so in low-interest rate environments like the one we have now. The simple reason is that for every year you delay filing, your monthly benefit will increase between 6 and 8 percent. That is far higher than the present rate of interest, so you are getting paid to wait.

Life is too short to wait, say some, especially if death comes at an early age. You can't predict when you will die, but if you are healthy and longevity is a trait that runs in your family, chances are you will increase your lifetime benefits by waiting. Single women will benefit more than single men simply because women tend to live an average of five years longer than men.

Married couples stand to benefit more than singles by waiting as well. As a 62-year-old spouse, you can choose to either file for Social Security based on your own earnings (if you are working) or on a spousal benefit, based on your spouse's income. However, to receive the spousal benefit your partner must have already retired. The spousal benefit is up to 50 percent of the earner's benefit. If you both wait until FRA or later you will both collect higher benefits.

As a couple, there are all sorts of strategies that could work for you. The lower-earning spouse, for example, could take benefits as early as age 62 while the higher-earning spouse waits until age 70 to file. You will need to crunch the numbers (or have a financial planner do it) to discover what's best for you.

Remember, too, that if you file for Social Security benefits before your FRA and continue to work you need to be aware of how much you earn. If your earnings exceed a certain limit, some of your benefits will be withheld until you reach your FRA. As an example, if you file at age 62, $1 in benefits will be withheld for every $2 you earn above $15,120. If you make more than $40,080, then the government withholds $1 for every $3 you earn above the limit.

If you are a two-earner couple, you have to think about your tax situation. Up to 85 percent of your Social Security income could be taxed if your modified adjusted gross income reaches a certain level. You may be in the unenviable situation where one spouse retires only to see her hard-earned benefits taxed away by the higher income bracket of the spouse.

In certain situations you may have no choice but to file at 62. You may lose your job and you don’t have enough savings to cover the bare necessities, then you may need that Social Security income just to live. For most, early retirement is really just an emotional urge to get out of a bad or boring situation as early as possible. If so, think again. You may have spent the good part of your life at that company and working a few years more won't kill you, but it may make the difference between a great retirement and one that you might regret.

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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News Headlines
Pittsfield Schools Review Teacher Evaluation Process
'North Adams' Added to Harriman-West Airport Name
Tri-District Search Committee Advises Interim Superintendent
BMC Awarded $3M for Health Care Center in North Adams
Pittsfield Expecting Heavy Usage at Renovated Common
Williamstown Students Celebrate Power of Words
Former Senator Bill Bradley Shares Insights at Williams
Cheshire Town Cleanup Deemed Success
North Adams License Commission OKs Transfer to V&V
Pittsfield Granted $4.5 Million To Finish North Street Reconstruction
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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