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The Independent Investor: Income Inequality on a Global Scale
By Bill Schmick On: 05:42PM / Thursday January 23, 2014
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Income inequality has suddenly become a hot topic. Think tanks worldwide are releasing studies on the issue. In this country, the president has made it a political issue in the mid-term elections. This week in Davos, the World Economic Forum will take up the gauntlet as well. It's about time.

Two years ago, readers may recall my four-part series on the growing inequality here at home and throughout the world. You were shocked to learn that America ranks last among all developed countries in income equality. As a nation, our income inequality is about equal to that of the Third World sandwiched between Uruguay and Cote d'Ivoire. States such as Massachusetts ranks about equal with Mexico, Connecticut with Venezuela, New York with Costa Rico and New Hampshire with Cambodia.

This week Oxfam, a non-profit confederation of 17 organizations in 90 countries, released a study that indicates that 85 of the richest people in the world own as much as the poorest 50 percent of humanity. Think of it, a double-decker busload of one percenters control $1.7 trillion, equivalent to the combined wealth of 3.5 billion people. Seventy percent of the world's population lives in a country where inequality has increased over the past 30 years.

In the United States, the gap between the have and have not's has grown at a faster pace than in any other developed country. The top 1 percent captured 95 percent of all the post-recession growth since 2009, while 90 percent of us became poorer, Oxfam's report mirrors several other studies including a University of California, Berkeley study, the Pew Research Center's findings and the IMF. The results are essentially the same.

At the tiny Swiss town of Davos, 2,500 participants from almost 100 countries will be flying in on their private jets and limousines. In years past, attendees were largely billionaire tycoons, business executives, the rich and famous, in essence a genteel gathering of the world's one percent. Supposedly, this year, they will be joined by some of the rabble. Representatives from international non-profit organizations, members of civil society and spiritual leaders, academia and the media have been invited.

This will allow for a larger cross-section of political, cultural and societal views but, excuse my cynicism; it is still essentially a rich man's club. As such, how serious will its members address income inequality when it is they who have profited the most from the trend? Granted, the fox may express its concern and sympathy over events in the hen house, but do we really think he will stop eating the hens?

In our own country, politicians on both sides of the aisle are honing their stump speeches. The Republicans will be preaching how free markets are the answer to income inequality while conveniently ignoring the failure of 30 years of "trickle down" economics. The Democrats will argue that the nation needs more social programs and even greater redistribution of income in order to level the playing field. Of course, they will dodge the fact that three decades of government-sponsored social initiatives have failed to even slow the growth rate of inequality in this nation. Could it have something to do with the fact that the average elected official in this country is a millionaire and thus part of the 1 percent?

Riddle me this reader, what happens to societies when inequality reaches a critical mass? The think tanks use words like "explosive," "serious damage" and "instability" in explaining the outcome. They are all code words for revolution, armed conflict and massive upheaval. Usually, a leader appears to lead the revolt, maybe a Robespierre or a Hitler or someone worse.

It surprises me why more people fail to see the connection between the growing income inequality and recent global uprisings in the Middle East, Asia and other places. I'm hoping this recent concern is more than a passing fad or a sop for the masses because the stakes are high, ladies and gentleman, and getting higher every day.

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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Independent Investor: The Internet Will Change
By Bill Schmick On: 04:21PM / Thursday January 16, 2014
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"Net Neutrality" is the official name for an open Internet. It means that all Internet providers are to be treated the same regardless of whether you are a mom and pop company or a global behemoth. This week's federal appeals court ruling pulled the plug on that concept.

The judges ruled that the Federal Communication Commission's anti-discrimination rules were beyond the scope of its authority when it came to the Internet. Congress gave the FCC authority to regulate common carriers, such as telecommunication companies, years ago. The FCC has always ruled that telephone networks cannot discriminate against consumers.

However, back in the Bush administration, the FCC was pressured by phone and cable lobbyists to categorize Internet service providers differently. They are considered information services, which we now discover exempts them from common carrier rules. In hindsight, that was a big mistake.

For consumers the fallout could be huge. Fee-free services that we now take for granted may not work as well as before. Internet service providers could now charge fees for the privilege of "service in the fast lane" while the rest of us find we have been consigned to the tortoise lane.

If you're a company that really needs a large amount of bandwidth to provide your services to the consumer in a timely fashion, fees will be going up. Think of companies such as Netflix, Amazon Prime, YouTube, Facebook and others that may have to pay more to ISPs in order to ensure that their content remains accessible to their customers. We all know what that means — higher costs will be passed on to us in the form of higher charges for the same service.

Higher fees could also mean less innovation. Much of today's new ideas are Internet-related, simply because anyone with a good idea can try it out with little to no cost on the Internet. There will be fewer garage startups by Internet and Web-enabled entrepreneurs. Small companies will find it harder to launch new services or compete with existing players that have the resources to pay and keep new players out.

But this is not only about the cost of your next viewing of "House of Cards" or "Orange is the New Black." The Internet has become society's great equalizer. Anyone, regardless of background, income, or race can access the Web for any number of reasons from education to entertainment. As ISPs begin to resemble cable companies, those who can pay will receive a far different level of service from those that can’t.

Society in general will suffer as yet another great divide will be created. Those who can pay will have access and those who don't will see further stratification of society based on incomes and demographics. From the great equalizer, the Internet could become the great divider over time.

There is still hope, however. Net neutrality could still survive. There is nothing in the court's ruling that prevents the FCC from reversing their Bush-era decision. They could simply change the definition and treat the Internet providers as part of the telecommunications industry. Of course, that would put them at logger heads with a very powerful lobbying army and a number of politicians who are being paid to represent the interest of the ISPs.

That's where you come in. You could always call your elected official and express your 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: Make a Financial Resolution This Year
By Bill Schmick On: 10:23AM / Friday January 03, 2014
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As most of us resolve to lose weight, quit smoking or in some other way change our lives this year, don't forget to re-evaluate where you stand financially. There are some simple steps you can take that will reshape your fortunes for years to come.

Most people don't know where they stand financially. Many can't tell you how much they spend or make, what their tax bracket is or how much they have saved. My advice is to create a budget as well as a statement of net worth.

It is not that complicated. Just track your spending for a month, separating essential from non-essential expenses. Next keep track of whatever income comes in. Subtract one from the other and you now have a cash flow. Now you can figure out what you spend and what you make a year simply by multiplying by 12 months.

Now comes the important part. If you spend more than you earn, as most of us do, you will at least know how much debt you are accumulating each year. There is no way anyone can get out from under a heavy debt burden unless they know how much debt they have in the first place. A first step in reducing that debt would be to cut back on those non-essential spending items.

On the other hand, some of us may find that we earn more than we spend each month but somehow the money just disappears. Usually, it is found among those same non-essential items that you don’t need but buy anyway. This is money that you should be saving toward retirement. You should be saving 10-15 percent of your pre-tax income each year, starting in your 20s, and add 10 percent more for every decade you don't.

Personal net worth is also a good thing to know. Once again, sit down and add up everything you own and how much it is worth. Next, figure out what you owe: mortgages, car payments, medical bills, school loans, etc. Subtract one from the other and you now have your net worth.

Armed with this new budget and net worth information, you can now create some goals and objectives. Are you spending too much? If so, create a spending reduction goal each month through the end of the year. Establish a debt-reduction goal for the year and make sure you are on track each month to achieve it.

If you can save, establish a goal for how much you will put away this year, and keep to it. At first it may only be an emergency fund, which in a pinch; would cover 3-6 months of expenses. After that, you might want to think about saving toward retirement through one of the many tax-deferred savings plans available.

These are simple steps that cost nothing but time and effort. The trick is to stick with the process. So often, New Year's resolutions last about as long as it takes to write them down. This year don't let that happen to you.

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: Japan Embraces Bushido
By Bill Schmick On: 07:31PM / Thursday December 26, 2013
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It was a word rarely spoken in postwar Japan. Bushido, or the "Way of the Warrior," evoked too many embarrassing and shameful memories culminating in the horror of Hiroshima and Nagasaki. But times have changed.

On Dec. 26, Prime Minister Shinzo Abe did the unthinkable. Defying the Koreas, China and the U.S., he visited the Yasukuni war shrine. It is where the memories of 2.4 million Japanese dead from three wars are remembered. His 30-minute visit sparked outrage from Japan's neighbors who view the shrine as a symbol of Japan's imperial military past.

Last Tuesday, the Japanese government confirmed my thesis presented to readers six months ago. On Tuesday, it announced a significant increase in its defense spending over the next five years amounting to 24.6 trillion yen ($237 billion). That's an increase over the current plan and, in my opinion, the defense budget will be increased again and again as time goes by.

They will use the money to acquire surveillance drones, 28 American F-35A fighter jets, 17 Osprey aircraft, five naval destroyers, six submarines plus amphibious vehicles. That's not all. Japan's existing Self-Defense Forces will be beefed up with a new amphibious unit (similar to the U.S. Marine Corp) whose job would be to re-take islands captured by the enemy.

Abe also announced the establishment of a U.S.-style National Security Council and gained support for changing the country's constitution, specifically Article 9, which prevents Japan from "collective self-defense" (coming to the aid of its allies).

Clearly, Japan is rebuilding its defense capability. This sea change will have long-term repercussions for the Japanese economy and the balance of geopolitical power in Southeast Asia. It also adds to U.S. security while reducing our costs as we begin to share the role of the world's policeman.

In my last column back in August, "Japan's New Frontier," I argued that this island nation was on the eve of re-inventing itself. I predicted that as part of an economic renaissance, Prime Minster Abe and his cabinet was preparing to expand its defense capabilities. Re-armament, in my opinion, would address several issues simultaneously.

An expanding defense industry would provide a large number of highly skilled, highly paid jobs for the country's workforce. It would also be an easy avenue for the government to provide spending and additional stimulus to the economy. It would answer the U.S. government's on-going request that Japan shoulder more responsibility in policing their side of the globe, specifically Southeast Asia. And finally, the return of the samurai in the form of a stronger army, navy and air force would provide a strong detriment against encroachment from China, North Korea and, someday, possibly a more aggressive Russia under Putin.

Recent events have played into the hands of Abe in martialing support in his quest toward bushido. China's arbitrary declaration of an exclusive "air-defense identification zone," covering the disputed Senkaku Islands recently lent credence to Abe's argument that Japan must be willing and able to protect its own territory or else others would take it from them.

This argument reverberates in other parts of Asia. Vietnam and the Philippines have their own disputes with China over territory. It is no accident that Japan, using last month's typhoon damage in the Philippines, dispatched troops, ships and generous amounts of aid while China did next to nothing. It was the largest deployment of Japanese forces since 1945.

Most readers are aware that I have been bullish on Japan, its economy and stock market for the last two years. Everything I see convinces me that my investment stance is correct.

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: What the Fed Taper Means For You
By Bill Schmick On: 05:10PM / Thursday December 19, 2013
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This week the Federal Reserve Bank announced the beginning of the end of its years-long support of the financial markets. Granted, $10 billion per month of reduced purchases is a baby first step, but over the next year, the Fed is hoping they can reduce its bond buying altogether.

For the overwhelming majority of Americans, the fact that the central bank has begun to taper its $85 billion a month of bond purchases is good news. It reflects their view (and mine) that both employment and the economy overall are gathering momentum.

In Wednesday's policy statement, the Federal Open Market Committee took great pains to promise that they would keep short-term interest low until after the unemployment rate dropped below 6.5 percent. They said nothing about longer-term interest rates. We can expect to see medium and long-term interest rates (but not short-term) continue to climb for the foreseeable future.

That means that the return you can get in a money market fund or certificates of deposits of one year or less will remain abnormally low.

If you have been vacillating on whether to take out a15 or 30 year mortgage now, or wait for lower rates, don't wait any longer — commit. On the other hand, if you have been hoping against hope that the price of that long-term U.S. Treasury bond or municipal bond you hold is going to regain its former premium price level — forget about it.

You, who remain unemployed and about to give up, don't. Corporations and small businesses will take their cue from the Fed. If the Fed sees growth, and they do, corporations will begin to add to capacity. That means more jobs. As time goes by, those of you who are not satisfied with your job, for whatever the reason, good news is around the corner. More job openings, at better salaries, with more opportunities usually accompany economic growth, so get your resume ready.

Stock market investors also benefit. Market participants can deal with the good and the bad, but uncertainty is a stock market killer. For most of this year, investors have been waiting and worrying about the impact of the Fed's taper. It is true that quantitative easing was an experiment born of necessity. During the financial crisis, the Fed had no choice but to step in to avoid a melt-down of the entire financial system.

The experiment continued as the Fed then tried to use monetary stimulus to grow the economy and stem unemployment. No one knew what would happen or if they would succeed.

Would the end of stimulus trigger a collapse in the financial markets? Would the Fed get it right, tapering at the same rate as the economy grew? Would interest rates spike and stock markets swoon?

These were all legitimate concerns and now we appear to be getting some answers. True, it is still early days and tapering has just begun, but so far so good. It appears that the Fed just might pull off the greatest experiment in modern financial history and benefit us all to boot.

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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