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@theMarket: Summertime, But Nothing Seems Easy

By Bill SchmickiBerkshires Columnist

After a couple of days of hand wringing, traders are now going with the notion that if the Fed raises rates in June or July, it may actually be good for the economy. Don't put too much stock in that, however, because herd sentiment can turn quickly with one simple statement from the Fed.

You have to be impressed with the market's performance. In the face of a potential interest rate hike in less than three weeks and a June decision on whether Great Britain will exit the Eurozone, the market continues to grind higher.

As we enter this three-day weekend, (three for us, but most of the Street stretches it to four), don't expect this Friday to be a "tell" on what will happen next week. Traders are clearly expecting interest rates and the dollar to rise. Just look at the price of gold, which has fallen over $80 an ounce in one week. Rising rates and a stronger dollar hurts the price of gold. It also provides some headwinds to a further rise in oil.

The energy market is consolidating after the price hit $50/bbl. this week. It has almost doubled since its low this year. Many traders are calling for a pullback after such a breathtaking advance. That seems a reasonable bet, but I don't see oil going lower than $40-45 a barrel. If you hold energy shares, I would keep them. If you own gold or gold miners, I would keep them, too, at least for now.

The one truth about financial markets today is that they no longer function the way they used to. In the past, if "A" happens, you could expect that "B" will happen simultaneously or with a little time lag. In the past, if both "A" and "B" occur, then "C" should happen next.

Unfortunately, that is not how the game is played anymore.

It seems that there is no connection between "A" and "B" in today's markets. If interest rates move up, you sell or short bonds, but that doesn't mean that you sell equities as well. Ever since the central banks of the world entered the financial markets in an effort to preserve them, long-held relationships have first frayed and are now in tatters.

Consider the last week or so as an example. No less than eight Federal Reserve Bank members have been stumping the country giving speeches indicating that it is time to hike interest rates. Yet, every one of them has hedged their bets. Using words such as "if the data warrants," or "depending on global conditions," investors remain perplexed as to the next move by the central bank.

The point is that even Fed members are still divided over when to implement their next move. While employment numbers would dictate a rate hike, the overall economic data is still contradictory, while inflation is only now approaching the Fed's target.

Janet Yellen spoke on Friday afternoon at Harvard University. Traders hung around, (instead of taking off early for the Memorial Day holiday), hoping that she would give additional clues on her thinking in the Q&A session after her speech. She reiterated that it "would be appropriate to raise rates sometime this year — if the data warranted."

Although the markets jump to an immediate conclusion that rates will therefore rise in June. I am not convinced. The Fed may wait and simply see how the economic data pans out before moving. I expect that over the next two weeks market participants will remain uneasy waiting for the results of the next FOMC meeting. In the meantime, expect bulls to mount an attempt at breaking the old highs. It remains to be seen whether they will be successful.

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.

     

The Independent Investor: How to Avoid the Pitfalls of Multi-Level Marketing

By Bill SchmickiBerkshires Columnist

So you want to be your own boss, make lots of money and do it all from the comfort of your home? It is the siren song of direct sales that has recruited legions of Americans through the years. Some make it, most do not. Here are some tips to help you in your new adventure.

Whether you want to sell jewelry, vitamins, candles, cosmetics or home products, a healthy dose of skepticism should be applied to the promises these companies make on their websites. Many reports, including those filed with the Federal Trade Commission, warn that almost 99 percent of multilevel marketing (MLM) distributors lose money. In addition, the dropout rate is upwards of 60-70 percent per year. Those are daunting statistics. Consider them well before jumping on board an MLM.

Critics argue that this style of personal retailing is a thing of the past. Retailing directly to friends and family on a one-on-one basis requires people to change their buying habits. The future wave of selling is largely internet based where convenience, price and a myriad of choices are just a keyboard away. Remember too that despite the existence of MLM companies since the Eighties; their combined market share of retail sales in the U.S. is under 1 percent.

Over the years, quite a few of these companies have gone bankrupt. In addition, disgruntled ex-recruits have waged a good many lawsuits against several of these MLM businesses. The chief complaint: that they are simply pyramid schemes or just out-and-out scams. Lawsuits allege these companies promise you the world, but only after you buy your way to success through increasing product purchases. In the end, they conclude, many victims are left with nothing to show for their efforts but a mountain of debt.

Unfortunately, accusations of deceptive marketing against these firms are hard to prove.

The legality of the MLM sector is largely based on a 1979 ruling on one company. There seems to be a lack of government legislation and oversight by state and Federal authorities, nor are they subject to the same rigorous regulations as a franchise might be. Given that many state anti-pyramid statutes are vague or weak, it could take many years and a lot of money to prove guilt.

Most supposed victims have failed to receive any satisfaction in the courts.

Armed with those facts, if you still want to embark on a career (part time or otherwise) in individual selling, there are some obvious questions you should ask before joining an MLM.

Where is this company's focus? Is it on recruiting rather than selling? If so, it is an immediate warning sign.

Are you given any training by the company? Do they provide you with actual business techniques to increase product sales? Do they offer any support, or is it all about convincing new recruits to join?

How much product inventory are you required to buy? Watch out for "fast track" purchasing deals or buying expensive business packages to pay for "extra training."

High-pressure sales pitches by your company rep should also be a warning sign. You should never have to make a decision "right now" in order to get a great deal or a special price.

Most legitimate companies allow you to discuss their proposals with family or take a few days to decide if their proposition makes sense to you.

Finally, as in most things, if it seems too good to be true, than it probably is. If you are promised outsized rewards for little effort than buyer beware. Are the products truly as good as they promise and if so, ask for proof. If you are promised back-up and support, once again ask for details.

A good dose of healthy skepticism should keep you out of trouble. Not all MLM companies are scams. Just do your homework because who knows, you may actually make a little money and have fun while you are doing it.

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.

     

The Independent Investor: Let's Have a Jewelry Party

By Bill SchmickiBerkshires Columnist

Contrary to all the present and future trends in retailing, multilevel marketing (MLM) is still alive and well in this country. Exactly what is MLM and why are so many Americans enamored with hitting up their friends and relatives in an effort to succeed at personal retailing?

MLM is a marketing strategy in which the sales force is compensated not only for what they sell but for the sales of other people they recruit. These new recruits in the chain are referred to as the participant's "downline" and, if done right, can provide multiple streams of compensation.

Most readers are familiar with these companies. Amway, Avon and Mary Kay come to mind, as does Herbalife, a company most recently accused of being nothing more than a pyramid scheme. Many of these companies have been around since the late sixties and have never accounted for more than 1 percent of retail sales in the United States. And yet, every day hundreds, if not thousands, of new recruits are happy to shell out money, time and effort in order to win the golden ring of promise so aptly portrayed in MLM advertising.

A look at just one jewelry website gives one a flavor of the sales pitch. Not only will you create lasting friendships, make your own hours and get rewarded every step of the way, promises the company, but "a consultant holding just 1 average party a week, earns $850/month," while "a leader holding two parties a week with a team of three consultants will earn about $3,000/month,"

For someone sitting at home as a house spouse or looking to make some part-time money, these offers can be irresistible.

"I wanted to make some extra money," said one newly-minted saleswoman/social worker, who also happens to have a master's degree in psychotherapy and a private practice in the same field. "It is part time, a different kind of work and it's fun, besides I don't have to go back to school or retrain to sell jewelry."

She has only been doing it for a month and has already made $1,000 plus $700 in free jewelry. All she was required to invest was $139 for a starter kit of forms, brochures and jewelry. So far she has held four parties. The guests have been all her family and friends in the area, which is typically how new salespeople get started. But what happens when she runs out of people she knows?

"I haven't really thought that far ahead," she confesses. "I'm a little obsessed with it all. I'm having fun with it, but really haven't thought about how things will turn out down the road. I guess I could move out of my region if I wanted more clients."

Barbara, my wife and president of Berkshire Money Management, has attended four of these events and hosted one of them. Twelve of her friends showed up and bought over $1,500 in merchandise. She received $500 in free jewelry for hosting the event.

"It's really an excuse to get together with my women friends and have fun. I guess I've spent $100 per party so far, but for most of us who have attended there will come a time where we won't buy any more. For example, I am committed to attending four more parties but at most I plan to buy only one piece."

Granted, these are only anecdotal incidents, but clearly both buyers and sellers seem to be enjoying the process. It is these attractions which make the MLM business so enticing to so many. In my next column, we will look at the pitfalls to avoid if you are thinking of entering personal retailing on your own.

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.

     

@theMarket: Traders Build a Wall of Worry

By Bill SchmickiBerkshires Columnist

The markets are marking time. Earnings season is just about over. The lofty levels of the stock market survived those results largely because they were not quite as bad as expected. Now it is on to the next worry.

Pick your poison — uncertainty over this summer's political conventions, can oil prices sustain these price levels or how about the possibility of a Fed rate hike in June? No question, there is a wall of worry out there, but so far the markets have weathered everything the bears have thrown at them. That is quite impressive given that we have had a 13 percent gain from the lows and hovering just a percent or so below all-time highs.

We have been trading in a tight range on the S&P 500 between 2050 and 2080 for a week or two. Stocks overall are going up or down depending on that days company results. Now, we should see prices break to the downside or, more likely, to the upside unless something unexpected occurs.

For example, the dollar (also in a tight trading range) could climb higher. That would threaten oil prices as well as the recent commodity run. Usually, a stronger dollar has a negative correlation with commodities.

Then there is Trump versus Clinton with Bernie still in the race. Most clients I talk to are quite worried about the outcome of the elections. In addition, all of the candidates continue to bang the drum of unemployment and weak economy. People tend to believe what they hear on the television news, if it is repeated enough times. Although the evidence does not support these political claims, when has a politician ever worried about the facts?

Then there is the never-ending central bank production of "will they or won't they" that is playing to a sellout crowd. Never has there been so many who have worried so much over so small a rate hike. A new rumor or forecast over what the Fed will do next is always good for a 20-point move one way or the other.

Some readers have asked me if the year-long correlation between oil and stocks has been broken. That remains to be seen. As long as oil trades between $40-$45 a barrell, I think stock markets will focus on something else. However, if oil decides to move markedly lower, I am sure stocks will fall along with energy.

As I have written in the past, oil prices are notoriously hard to predict, but between now and mid-summer, demand for oil is usually stronger. So I suspect the risk of a waterfall decline in oil, if it were to occur, would likely be an August or September threat.

I am still worried, however, about a potential double-digit pullback in stocks sometime this summer. One scenario that could unfold might go something like this: the stock market climbs, surpassing the old highs. Even the bulls are surprised. That triggers a rush into the market. At that point, when most of the bears cover their shorts and talking heads are confidently predicting another 10 percent upside, we fail. The markets roll over as one of the fears outlined above comes true and down we go.

Could it happen that way? Sure it could. Stock markets can be extremely volatile during election campaigns. Add in the summer doldrums where there are fewer participants to lend sanity to the craziness of high frequency traders and you have a recipe for big market moves.

In any case, if this scenario plays out, I fully expect the stock market to recoup any losses and finish the year positive.

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.

     

The Independent Investor: Giving Up Control in the Event You Need To

By Bill SchmickiBerkshires Columnist

The more successful you are, the more difficulty you face in wrestling with one inescapable fact. In preparing to pass the torch to your heirs, you need to give them the power to decide what happens to you and your estate in the event you can't.

That's not an easy thing to get your arms around if you have been the go-to guy or gal that the family depends on when life's hard knocks come visiting. How do you entrust your own health and wealth to others? Even if you love them to death, are they really capable of taking care of you in your time of need?

No question, it is a problem that you need to deal with and resolve before that family meeting I have been writing about in this series. Specifically, there are three documents you must create and complete: a durable power of attorney (DPOA), a living will and a health-care proxy.

Let's begin with the DPOA.

This document allows someone to act on your behalf or allows you to act on someone else's behalf, such as your parents. That means you can sign checks for them and other legal documents like tax returns, etc. Bottom line: the DPOA allows someone to control your money, so you better be sure whoever you pick is trustworthy, responsible and knows something about managing money. It is best to name one person and have another as a back-up just in case.

In addition, it is important that you or your parents have a durable power of attorney for each other. I had a client who failed to do so and created for his wife endless problems. She could not change investments for him in his tax-deferred accounts when the markets took a dive, nor could she draw money from his checking account to pay bills.

A living will is different than a will, which I covered in a prior column. While a will explains to your heirs who gets what, the living will is all about advance directives. These are legal directions you want followed in the event you require serious medical care. Your living will would address questions such as the kind of medical treatment you want (or don't want), which person can make medical decisions for you when you can't, or how comfortable you want to be and what, if anything, you want your loved ones to know.

For those interested, you can actually purchase a copy of something called "Five Wishes" from Aging with Dignity based in Florida for a nominal sum. It addresses all of the above concerns and can act as a legal document as long as it is witnessed and notarized. Take a look at it on the Internet.

The second advance directive is familiar to many of us — the health care proxy, also called a health-care power of attorney. The person who holds this power is equally as important as whoever you trust with your DPOA. The health care proxy holder has the responsibility of making certain that the doctors and medical staff carry out your wishes specified in your living will.

In the event of a life and death decision, it is this person who has the authority to make that call. Your child may not be the best person for this job. I know my wife had that responsibility when her father became ill and it is not a pleasant task. You may want to select a close friend instead and never select more than one person.

I realize that this has not been the most uplifting of columns. The sober subject matter can certainly be a downer, but it is necessary. It will be a big elephant in the room when your family meeting gets started. You may even want to pass this column along to your prospective heirs before discussing you or your parents' thinking on these subjects. The point is to begin the conversations now rather than wait until it may be too late.

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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