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@theMarket: The Same Old Song
By Bill Schmick On: 05:18PM / Friday September 27, 2013
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The stock market has been down all week. Investors have been so busy biting their nails over the debt ceiling and the budget debates that they have had no time to buy this dip. The question is should they?

The S&P 500 has fallen about 33 points since last week, or roughly 1.8 percent. I blame our elected clowns. As the clock runs out and a Tuesday shutdown of the government grows ever closer, weak-kneed investors are bailing. Yet a government shutdown is small potatoes compared to the risk of not raising the debt ceiling.

In yesterday's column "Play It Again (Uncle) Sam," I explained that government shutdowns have occurred 17 times since the seventies. The longest was a three-week stretch during the Clinton years and none of them had done any lasting harm to the economy, the government or to the stock market. The debt ceiling debate may be a horse of a different color.

There could be some real harm done to all of the above if Congress were to allow the debt ceiling to expire in the middle of October. Although the U.S. Treasury might be able to still pay its bills for another week or so, default would certainly be a direct result of this congressional insanity.

It is ludicrous to believe that this tea party-inspired game of chicken has actually gotten this far. A default would cost this country at least as much as the entire 2013 federal deficit in higher interest rates and lost economic activity. How, therefore, does the Republican Party achieve its goal of reducing our debt and balancing our nation's budget by doubling the size of both overnight?

It is informative to look back just two years ago to the summer of 2011 to see how the GOP's first stab at blackmail proved out. At that time the debt ceiling debacle was narrowly averted by both parties agreeing to the Budget Control Act. But a few days later the Standard and Poor's Credit Rating Agency downgraded our national debt because of our dysfunctional political process and its legislators. The Dow dropped 635 points in one day (5.6 percent) while during the summer fiasco, the S&P 500 Index lost 16.5 percent.

The Budget Control Act ushered in the sequestration mechanism of automatic spending cuts when neither party could agree on tax and spending measures to reduce the deficit. Those spending cuts were enacted at the beginning of this year. As a result, employment gains have slowed and the growth rate of the economy reduced in 2013. Go Republicans!

However, notice something interesting about the market's reaction today to these same set of circumstances. The stock market has declined less than 2 percent versus the 16.5 percent sell–off in 2011. Interest rates, rather than spiking on the threat of a default, have actually declined from close to 3 percent on the 10-year Treasury note to 2.61 percent today.

The message here is to focus on price, not hyperbole. The media would have you believe that the world is coming to an end once again. The tea party, desperately trying to gain support before their primary elections, are playing us all. Investors aren't buying it. Too often in the past, we have sold out in fear of what these politicians would do only to discover that they are all paper tigers. Don't fall for it this time. Buy the dip.

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: From Russia with Love
By Bill Schmick On: 06:05PM / Friday September 13, 2013
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Stocks rallied this week as news that the world may have found a way to resolve the looming confrontation between the U.S. and Syria. If so, investors can thank Russia for the solution and a much-needed deal that might actually extend into a brokered peace.

Last week, I suggested that readers should not worry too much. I had my doubts over whether we would see any 'rocket's red glare' over Damascus. Given the overwhelming lack of support by the American public and adverse world opinion for a pre-emptive Syrian strike, I was sure that neither Congress nor the president would pull the trigger.

Now that Russia has offered to broker a deal involving the destruction of the Syrian regime's 1,000-ton stockpile of poison gas, the world gets to have its cake and eat it, too. What's not to love about that? Although the media is arguing that President Obama has handled this international incident poorly, I'm not so sure. If Obama can pull off ridding the world of yet another potential danger without firing a shot, I say kudos to him.

However, I am not pleased with reports coming out of Japan's Nikkei Shin Bun last night that President Obama is leaning toward making Larry Summers our next Federal Reserve Chairman over Janet Yellen, the vice chairwoman of the Board of Governors of the Federal Reserve Bank. Summers, in my opinion, is just another of a long line of politicians that have moved between the private and public sectors peddling their influence in exchange for money and position..

The head of our central bank needs to look beyond his or her next meal ticket and focus instead on doing the best possible job for all of the country, not simply Wall Street. I believe Janet Yellen would be such a person. The White House has denied that a decision has been made, but that doesn't mean it won't be Summers. Obama, as a lame-duck president, can do what he wants. I'm hoping he makes the right choice, rather than the political one.

Next week, the Fed meets and most economists and investors believe that the much-mentioned taper will begin at that time. Depending on whatever announcement is made, the stock and bond markets could see quite a bit of short-term volatility. Pay no attention to it.

All you need to know is if the economy gains pace and unemployment does not, then the Fed is going to taper and, at some point, end its efforts at quantitative easing altogether. That will be good for the stock market and bad for the bond market. If, on the other hand, the Fed does not taper it means the economy is rolling over and unemployment will remain the same. That will not be good for the stock market longer-term.

My best guess is that the Fed will announce some minor pull-back in monetary stimulus. For example, they could decrease their $85 billion in monthly purchases of U.S. Treasury bonds and mortgage-backed securities by $10-15 billion or so. Since this year's deficit is not nearly as high as expected, the need by the U.S. Treasury to issue bonds has been reduced. The Fed could simply pull back their Treasury bond purchases while leaving the mortgage-backed security purchase plan the same. That would not be the end of the world no matter what the pundits may say.

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 Market: Expect Another Volatile Week
By Bill Schmick On: 08:45PM / Friday September 06, 2013
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The stakes are rising. On Friday, Vladimir Putin seemed to suggest that an attack on its ally, Syria, would provoke a response from Russia. President Obama stubbornly maintained that we will still take military action against Syria, who he accuses of breaking international law by gassing innocent people. Historically, financial markets don't take well to the threat of war between super powers.

Some might conclude that Russia is simply calling Obama's bluff by answering one attempt at sabre rattling with another, but investors normally would rather sell first and wait to see if a shooting war develops. In order to navigate the markets these days one needs to be a political analyst, military historian and fortune teller all at the same time.

Well, please come into my parlor, and we will see what my crystal ball says.

On one side, according to the U.S. government, there is some evidence that the Syrian regime did gas its own people. However, the United Nations, Russia, China and the majority of world opinion (including that of our allies) are disputing that and have made it clear that there is no justification for a military response from the U.S.

President Obama, suspecting that a military response might be a hard sell to the American public (less than 30 percent of Americans are in favor of a strike), handed the decision over to Congress last weekend. Both the House and Senate want more details and plan to vote on the issue next week. As a result, I believe that the stock and bond markets, worldwide, will be held hostage to that vote.

You can bet that markets will gyrate up and down based on every comment out of Congress and the White House. Overseas, Russia's Putin, ever the poker player, will be throwing in another chip or two in an effort to increase the stakes of the game. We could see naval or air alerts, even troop movements by Russia in support of its Syrian ally.

In the end, America will have to ask itself if it's worth it. In the face of a United Nations that refuses to uphold the laws it was created to defend, should we? How will a perceived loss of face and resolve impact Iranian or North Korean ambitions? Is gassing 1,000 Syrian civilians equal to gassing millions of Jews in World War II?

I believe that unless the polls change dramatically over the next few days, Americans have already given their answer and the politicians will vote accordingly. I'm guessing that President Obama, although stubborn, is also pragmatic. He will acquiesce to a congress "no go" vote and back down.

In which case, investors will have worried for nothing. At that point, we will be on the eve of the Fed's decision to taper (or not) on Sept. 18. What a wall of worry! Given all of the above, I am impressed by the resiliency of the markets thus far. We are above the S&P 500 Index's 50-day moving average and are less than 3 percent off record highs, despite Syrian worries. I warned readers last week that we are still not out of the woods quite yet. It appears that there are at least two or three good weeks to go before we can see a clearing on the other side. Take heart and stay invested.

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: Markets Will Drift Lower
By Bill Schmick On: 03:22PM / Friday August 30, 2013
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August was not a great month for stock markets. September could be equally disappointing. After months of higher highs, a consolidation phase should be expected but it is not the end of the world.

As expected, from the peak, we have pulled back about 4.5 percent in the S&P 500 Index in August. As consolidations go, this one has been exceptionally mild. What makes it so painful is that we have all gotten used to one record high after another. We don't like losing money, even if they are only paper losses. I am putting you on notice that my worst-case scenario would be to expect another 4 to 5 percent of downside from here. Why?

Although I look at a number of indicators, the market's technical indicators across the board have started to deteriorate. So much so that it will make future short-term attempts to re-capture the recent highs problematic. Yet, on the plus side, there are some signs that we could be closer to a bottom than the bears might think.

All month I have been looking for a day in which the number of stocks with down volume on the New York Stock Exchange exceeded those with up volume by more than 90 percent. These 90 Percent Down Days are quite rare. We have only seen five instances of this type of behavior in 2013. In every instance, these readings occurred near the lows (3-5 percent) of their respective pullbacks.

On Tuesday of this week we had a 92 Percent Down Day on the NYSE. However, the event had some shortcomings. Ideally, you want this kind of sell-off (capitulation) to occur after a dramatic decline. Instead, the markets had rallied to new recovery highs prior to Tuesday. It was also a news-induced event, which lessens its significance. The catalyst for the decline was reports that the U.S. and its allies are planning some kind of retaliatory strike against the Syrian regime for its alleged role in gassing its own citizens. So Syria, As a result, any rebound we may get over the next few days should not be believed.

I suspect that at the earliest, we will not be out of the woods until after the Federal Open Market Committee meets again on Sept. 18. In the meantime, the debate over whether the Fed will begin to curtail their stimulus program at that time will occupy the headlines and the market’s attentions. Back in July, I also warned readers that "we are entering that time of year when our dysfunctional political parties may once again roil the markets in an attempt to justify their miserable existence."

Over the next two months, be prepared for the politicians to resurrect all the battles of yesteryear: the debt limits, the deficit, the budget, Obama care, etc. This could be the excuse markets need to spend a month or two more consolidating the gains we have experienced since November of 2012. We could see another 4-5 percent downside in the meantime. That would be my worst case scenario. Overall, that's not much of a decline given the market's recent gains.

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: To Taper or Not to Taper?
By Bill Schmick On: 06:29AM / Saturday August 10, 2013
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Will the Fed taper? If so, when will they taper and by how much? No one knows and because the markets just abhor the unknown, it is why the stock market declined this week. Pay no attention to these histrionics.

The simple fact is that markets need to consolidate, especially in a bull market. Of course, that doesn't sell newspapers or keep you tuned into the television when you should be out enjoying the weather. It is August, people are on vacation, and those who are not are bored to tears. Fretting about will they or won't they passes the time and if you are nimble you might make a little money off the angst in short term trading.

Listen to me: markets discount the news once, not twice, and especially not three times. From May 22 through the end of June, the stock market discounted the Fed's announcement that they planned to taper their stimulus program if and when they felt it was appropriate. It doesn't matter whether they taper in September, by the end of the year or next year. It doesn't matter by how much. All that matters is they will and that the market declined by over 7 percent as a result.

The present pullback in the market is about hitting another record high, (last week the S&P 500 Index breached 1,700) and is now consolidating those gains. End of story. There's nothing more to it than that, so why don’t we all move in and stop rubber-necking.

Instead of fretting over what is happening in the U.S., readers should be paying more attention to Europe. If you haven't read last week's column "Europe is Recovering" access my blog www.Afewdollarsmore.com and have a read. In a nutshell, Europe's recession is coming to an end led by Germany, the powerhouse of the continent. That recovery after the longest recession in years will be similar to the U.S. experience. Unemployment will remain stubbornly high while the economy will grow but at a moderate base.

Values in Europe lag those in the U.S. stock market. In my opinion, those who invest now and are prepared to wait will see some hefty returns over the next few years. There are many who still doubt that an anemic recovery in Europe won't help stocks much, but they said the same thing about the U.S. market back in 2010 and look what happened here.

Over in Asia, Japan (another long-term favorite investment of mine) has been going through a period of consolidation that I expect should continue into the fall. Both the Nikkei Index as well as the Japanese currency have experienced huge moves since last November. A period of consolidation is almost a text book requirement before further advances (in the case of stocks) and declines (the yen) can be expected.

August is traditionally a disappointing month for U.S. investors. Stocks usually trade aimlessly in a listless fashion. My advice is to simply ignore the headlines and gyrations in the stock market this month. September will be time enough to take the measure of the markets for this coming fall.

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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