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@theMarket: S&P 500 Enjoys Best Quarter Since 2009
It was a quarter to write home about. All three indexes made substantial gains but the S&P 500 Index had a great quarter and its best start of the year since 1998. Will it continue?In the short term the answer is a definite maybe. If you put a gun to my head, however, I would bet that sometime in the second quarter we will have a correction. In April, if history is any guide, we usually see the peak in stock market performance. As the month progresses, investors begin to "sell in May and go away."
Monday, the markets received its latest shot of adrenaline when Federal Reserve Chairman Ben Bernanke assured investors that the easy money we have become addicted to is still needed. That sent the S&P 500 to its best closing level in almost four years. Those gains were led by the same group of stocks that have defied gravity and have continued to make higher highs without thought to earnings, price or any other metric of valuation.
One particular darling of the market that beings with "A" (hint: one of these a day is supposed to keep the doctor away) has witnessed its market value increase by $172 billion in the last two month. That is equal to the entire value of a large, well-established health care and consumer products company with over a 100-year history. It now represents 4.4 percent of the S&P 500 Index and by itself is larger than the entire U.S. utilities industry.
"A" will have to sell $2.6 trillion of products and services over the next decade (amounting to 1.5 percent of U.S. GDP) to justify that valuation. That would mean that every person in this country would need to spend $750 a year on its products for the next 10 years. I remember a similar period in stock market history in which valuations got this high and we all know what happened to the dot-com party.
Another indicator, the number of net new 52-week highs of stocks on the S&P 500 is shrinking from 280 in the beginning of February to 63 today. That should elicit some concern since the same index moved up from 1,345 to 1,408 during that time period. Warning signs like this abound but remember that markets can remain irrational far longer than you or I can remain solvent.
My sentiment indicators are still flashing amber as bullishness remains at historically elevated levels. If one looks at psychology, as it applies to market cycles, it appears we are on the other side of euphoria which is the top of the bell curve of investor emotion. To the right of this euphoric top the markets back and fill. We are in the complacency stage right now where most investors and market pundits believe that all we need do is cool off a bit before the next rally. What's after that?
If the markets begin to decline anxiety sets in followed by denial, panic, capitulation and then anger. This week we had three down days in a row, which is about the most we have endured all year. Many traders were expecting the quarter to go out with a big bang as institutional buyers did some end of quarter "window dressing." The opposite occurred and instead we saw some profit taking in the high flyers.
Historically, bull markets have averaged 39 months in length. If you date this one as beginning in March 2009, then this bull is over three years old. That means by the end of the second quarter, you should be wary of a market top. In addition, during the last 21 election years between March 1 and Election Day, the maximum correction has been a loss of 9 percent.
None of this is new information because everyone is looking at the same data. The question is when you decide to pare back. The greater fool theory applies less and less these days. Those who hang around to the last moment often find themselves with no one willing to buy their high priced securities. Don't let that happen to you.
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 (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
The Independent Investor: Hire a Veteran
Over 2.2 million of our men and women have served in Afghanistan and Iraq. Today 7.6 percent of them are looking for jobs. Hiring them should be a no-brainer for this country's employers.Don't get me wrong, things have improved for returning Gulf War era veterans over the last two years. In 2010, their unemployment rate was 11.6 percent and spiked to 12.1 percent in 2012, according to the Bureau of Labor Statistics. Fortunately, the economy has improved since then and both the public and private sectors have pitched in to aid our returning vets in their job search.
However, more needs to be done. Although 1.9 million of these ex-soldiers hold private-sector jobs today, another 90,000 troops are expected to return from Afghanistan by 2014. The good news is that the economy seems to be healing and the jobless rate has come down to 8.5 percent Say what you want about the Obama administration, they are doing a good job at getting the word out that our veterans come first, in my opinion.
The president has launched a Veterans Job Corps and has offered tax breaks for companies that hire vets under his VOW to Hire Heroes Act. The White House's "Joining Forces" initiative, led by the first lady Michelle Obama and Dr. Jill Biden, is also telegraphing the nationwide message to "Hire a Vet, Hire a Vet."
In addition, the Department of Veterans Affairs is doing all it can to convince America's corporate world that veterans should be a prime ingredient of their work force.
The VA has put on job fairs to woo private and public-sector employers into interviewing more vets with some success. The VA's selling points, when pitching the strengths of veterans, are their self-discipline, problem-solving skills, decision-making under stressful circumstances and their attention to detail. It also helps that most veterans are team players. I happen to agree with all of the above.
Back in the day, (when I returned home from a stint in Vietnam) I needed and found a job as an apprentice machinist in my hometown of Philadelphia. It was a culture shock. A factory floor replaced the jungle canopy that was my home for almost two years. I knew nothing about cutting bars of steel into aircraft nuts and bolts, but I was willing to learn.
Granted, I was no longer making life and death decisions on a day-to-day basis as leader of my Marine unit, but it was a job and I was grateful to have one. After all, no one was shooting at me. To be honest, it was monotonous, boring, dirty work, but I stuck with it and did a commendable job (according to my boss) until it was time to start my college education. Believe me, vets know they have to start over and learn from the bottom.
Since all the focus seems to be on Gulf War soldiers, for those pre-9/11 veterans who may feel left out, The Veterans Retraining Assistance Program, which is part of the VOW to Hire Heroes Act, will begin offering 12 months of GI Bill benefits for older unemployed vets by this summer. Vets who qualify may be able to receive as much as $17,600 for education and training.
And don't believe all that malarkey about post-traumatic stress disorder. The Rand Corp.'s 2008 study indicated that almost one in five returning vets suffered from PTSD may be true but that still leaves over 80 percent of Gulf War vets without PTSD. I'm almost sure all front-line soldiers (regardless of their war era) suffered from some PTSD. I know I did when I returned from Vietnam. Remember, too, our homecoming was much different from today's treatment of returning soldiers. Call me lucky, but the trauma of war plus the ostracism I felt from Americans at home never interfered with my job performance and, over time, I got over it without medical assistance. Most vets do.
Today's exodus of soldiers after 10 years of war in the Middle East reminds me of a similar time in America's history. I wrote about it in a past column:
"When WW II ended in 1945, 16 million Americans (one out of eight) were serving their country in some capacity. With returning vets looking for work, many feared we were heading for massive unemployment and another Depression unless Washington did something about it. In 1944, the GI Bill of Rights was passed. It gave servicemen unemployment checks, low-interest housing, business loans and a free college education.
"Nearly 8 million vets took advantage of that benefit and in the process drove the U.S. illiteracy rate to 3 percent, the lowest level in American history. It also transformed our economy, creating a massive Technocracy, while introducing the age of information."
We may be on the verge of yet another such experience (if smaller) that could boost our future economic prospects simply by harnessing the power of these returning heroes today. I say we have nothing to lose and a whole lot to gain by hiring a vet.
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 (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
@theMarket: Markets Mark Time
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Over the last seven years, Chinese government central planners have established a stated economic growth rate for China's economy of 8 percent. This week, Chinese Premier Wen Jiabao set a growth target for his nation's economy at 7.5 percent for 2012, which is half a percent lower than targeted.
At the same time, government forecasters in Australia indicated that iron ore exports may decline by as much as 8.5 percent this year. China was once again the culprit since it is a large consumer of Aussie iron ore. Iron ore is one of the main inputs in the production of steel. Also, Australian BHP Billiton, the world's biggest mining company, predicted that China's steel production is slowing as the country switches its focus from exports and massive building projects to the Chinese consumer and domestic consumption
Shaving one half of one percent off an economic forecast may not seem like a lot, but when the world's stock markets are priced to perfection, any ill wind that may blow quickly accelerates to gale force among market participants. The Chinese stock market nose-dived on the news. That market, which had experienced fabulous gains from 2003 through 2008, has languished and has largely been excluded from the rally in stocks that we have experienced since 2009.
To its credit, the U.S. stock market weathered the news quite well. It simply stalled the equity rally for this week. Although somewhat muted, sentiment is still at or close to highs that have traditionally signaled market corrections. In addition, The Chicago Board of Trade's Market Volatility Index, called the VIX, has hit lows that have not been seen in years. Volatility has been the watch word of the markets over the last two years. The price of the VIX today would indicate that investors are expecting smooth sailing into the future with no clouds upon the horizon.
The S&P 500 and NASDAQ Indexes are having their best quarters since the second and third quarters of 2009. Europe’s problems also appear to be behind us although lingering concerns over the financial shape of Portugal contributed to this week's nervousness. European exchanges had their worst week of the year with a decline of 4 percent overall. We will see if the U.S. market can decouple from the kind of profit-taking that is occurring across the Atlantic.
The recurring theme among everyone I talk to is when a pullback will occur. It was the topic of an entire evening's dinner conversation on a recent trip to Manhattan. Various members of the financial community gave their forecast. None present expected the markets to continue higher. That, my dear reader, is an important contrary indicator. I suspect that there are still a lot of investors, both retail and institutional, who are underinvested in equities and are just looking for a chance to put more money into the market.
Since there will always be those who will jump the gun, any minor decline continues to be met with a wave of buying from those still sitting on the sidelines. I expect that absence any more bad news, the markets will continue to experience shallow pullbacks followed by a slow grind higher. I feel fairly confident that somewhere out there a sell off is coming but exactly when is simply too hard to predict.
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 (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
The Independent Investor: Stubble and Scruff
Facial hair is back in a big way among men. That is nothing new, but the time, effort and expense of looking so scruffy might surprise you.Back in the day, you were either clean shaven or grew a beard. During the Hippie Era, it was all long hair and beards, which sent many a barber to the poor house. Hair length gradually shortened, beards and moustaches were trimmed and barbers breathed a sigh of relief. Over a decade ago, American men grew older and fatter. To add insult to injury, their hair started to thin as well. The fashion industry quickly came to the rescue and convinced the nation that bald was beautiful.
I, for one, embraced the idea and quickly learned to shave my own head. For me, an avid jock, no hair was both convenient and saved a trip to the barber. However, maintaining that clean shaven pate is no easy job and many men sought out the barbershop to maintain the new style. But the fashion industry was not done with the masculine ego. Enter the man's man.
First, let me confess my ignorance. In my naivety, I had long assumed that the facial hair that had sprouted up among male actors in a variety of television and movie roles was simply the result of not shaving for a day or two. How wrong could I be? These new facial-hair styles demand a lot of time, effort and expense and have spawned a plethora of trimmers, shavers and masks to give the customer just the right look,
Today, facial hair is part of what the fashionistas call the Retrosexual Revolution. It is an era in which men are looking back to the styles, values and pastimes of traditional masculinity, albeit with a heightened discernment about brands, aesthetics and lifestyle. Sort of "Mad Men" with a dash of political correctness.
This new flannel-clad urban woodsman (for those who can afford it) will normally sport a carefully clipped or trimmed five o'clock shadow across his jowls while displaying his single-malt scotch collection or his fixed-gear touring bike. The image appears to resound mightily among American males.
As a result, more men than ever before are visiting the barbershop. Last year, there were more than 235,000 barbers in over 100,000 shops in the United States. That is the highest in recent memory and is predicted to jump again this year according to the National Association of Barbers Boards of America.
Sales of beard and stubble trimmers (as they are now called) advanced 14 percent in 2010, 17 percent last year and should top that again in 2012. And stubble trimmers aren't cheap. A top-of–the-line stubble model will set you back $60, about twice as much as your old-fashioned beard trimmer. Grooming companies such as Conair, Phillips Norelco and Wahl have taken special care to deal with facial hair at close range and have succeeded in segmenting the market.
Now, if you have the desire, you can get just the right length of stubble each day by picking up the stubble trimmer. But if instead you like a slightly longer look called Scruff (the George Clooney look) you can buy another trimmer that will convince one and all that you could grow a full beard if you wanted to, but choose not to. Full beards require a heavy-duty trimmer while goatees, moustaches and sideburns all require different trimmers. Of course, if that is not enough, one can always go "feral" and grow your beard until you look like Heidi's grandfather.
Yet self-barbering takes effort, practice and often less than satisfactory results. Many men have opted instead to visit their neighborhood barbershop breathing new life into the staid and sometimes stuffy local hair emporium. Unisex is out. Barbers have reinvented their industry by offering customers what they want, the way they want it. The top 10 barbershops in the U.S. all have one thing in common — ambience. Masculinity, tradition, and a variety of services is what distinguish barbershops today from those of my childhood.
Barber schools grew at a 29 percent rate last year and becoming a barber has appeared on several new career lists. Opening a barbershop has also become a "hot startup" area given that the barriers to entry are low, startup costs are reasonable and competition tame.
A simple survey of barbershops in the Northeast confirmed that "business is good" as Patty, a barber at The Clip Joint Barbers in Portsmouth, N.H., said.
Bob McGiffert, who owns Bob's Barber Shop in Greenport, N.Y., also agreed that haircuts were doing well, although he "doesn't see much traffic in stubble and such."
In Rutland, Vt., Steve, a barber since 1988, works at Henry's, an establishment celebrating 57 years in business. He is seeing a "lot more goatees" in his business lately. "It just adds to the product line."
And finally Nancy Donovan, who has been cutting hair for over a decade at Ken's Barber Shop in Great Barrington, is seeing a lot of facial-hair trim requests, especially in the summer.
"We have a lot of city people that vacation here in the summertime," she said, "and we get all sorts of requests."
She says she has done everything from shaving heads, to regular haircuts to even cutting a "B" for Boston on one customer's head after the World Series over the last few years.
As for the barbering business, she enjoys her line of work and would recommend that anyone wanting a great career should look into becoming a barber. Take that George Clooney!
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 (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
The Independent Investor: Clients Last? Welcome to Wall Street
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| Sam Rogers, head of trading: "And you're selling something that you 'know' has no value." John Tuld, CEO: "We are selling to willing buyers at the current market price." John Tuld: "So that we may survive." — "Margin Call"
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If you ever wondered where you stand on Wall Street, the op-ed piece in Wednesday's New York Times is a must read. The fallout from the words of a 12-year veteran of one of the world's most prestigious investment firm is resonating around the world.
It is not necessary for me to identify either the firm or the writer, since just about everyone now knows who I am talking about it. Yesterday, my inbox was deluged with readers who forwarded me the piece. Most readers are aware that I have a huge beef with the ethics on Wall Street and what I see as the "customer comes last" attitude that is prevalent within that sector.
As has happened in the past, I'm sure that after this column runs I will receive a flurry of hate mail from those in the financial community, who believe I am attacking them personally. I'm not. Most individuals in this business are decent folks who do care about their clients –when they are allowed.
Unfortunately, they work for firms that cannot put the interests of their clients first or even in the top ten of their business objectives. These firms are just too big, too short-term and too focused on next year's bonuses to afford the luxury of putting their clients first.
Now, I know for the most part I am preaching to the choir at this moment. As the facts have come out about just how duplicitous these companies and their managements have been in creating, exacerbating and finally being rewarded for the financial crisis they engineered. Is it any wonder that very few Americans trust Wall Street?
Despite financial legislation and promises of a new ethic by those caught with their hand in the cookie jar, it is very much business as usual on Wall Street. It cannot be otherwise. When I first got into the business in the early 1980s, the big names on the Street were largely partnerships with long-term relationships with their clients. It was a world where trust among your clients was your most valuable asset.
The shift from private to public companies, the end of fixed commissions, the dawn of proprietary trading (firms trading their own capital), the escalation of risk and with it much greater rewards, altered the ethics of finance. These new masters of the financial universe embraced greed and abandoned the old ways. As a result, they saw their total pay skyrocket 70 percent above average paychecks in all other industries in the last decade.
Big became not only beautiful but mandatory in this new high stakes area. The bigger you are, the more muscle you can throw around, not only with your competitors but with your customers as well. Clients become numbers to be crunched. Today, these firms are so big that they truly are "too big to fail." And because they are, they are largely immune from retribution or legislation.
I say we should salute this middle-management executive and his op-ed piece. He most likely will face legal and monetary retribution from his ex-firm. You see, almost everyone on Wall Street must sign both a non-compete contract as well as agree not to say anything disparaging about their firm upon departure (whether voluntary or not).
If you violate these agreements, the company will and does come after you with the full weight of their legal departments. It is one of the reasons that so few ex-employees actually "tell all" when they quit. Although this guy's opinion will amount to no more than a cry in the darkness, he should be commended and remembered for his courage and honesty.
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 (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
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