Home About Archives RSS Feed

@theMarket: Better Days Ahead

Bill Schmick

After this week you should have either an upset stomach, stress headache or both. Human beings do not do well in markets that climb up and down by over a percent on a daily basis. Unfortunately, as this market bottoms, we may expect more of the same.

On the plus side, the Greek Prime Minister George Papandreou received a parliamentary vote of confidence this week. Yet, facing investors this week is a vote on the passage of the austerity plan that the European Community demands in exchange for bailout money.

Economic data continues to disappoint with the latest unemployment figures coming in more than expected. Wherever you look, gloom and doom pervades the minds and hearts of investors. On Wednesday, Fed chief Ben Bernanke didn't help by reducing the Fed's estimate for GDP growth in the second quarter from 3.1-3.3 percent to 2.7-2.9 percent. Even a 5 percent decline in oil was viewed as negative and simply another proof that the economy is faltering.

Most investors missed the point of Thursday's release of 60 million barrels of crude from the world's strategic oil supply. Pundits complained that it was too little to impact demand since it amounted to less than a day's supply of global demand. Others argued it was an act of desperation by an administration that has run out of ideas to stimulate the economy.

It was none of the above, in my opinion. Readers may recall that a few weeks ago prices of most commodities peaked after the CME raised margin requirements for everything from energy to silver. Speculators, who had bid commodity prices up to astronomical levels, abandoned the market in droves causing prices to decline to their present levels.

Most energy experts believe that the fundamental price where supply and demand for oil are in balance is closer to $85 in barrel. But notice oil, until this week it was still trading at $100 a barrel and above, (although down from its recent peak of $112 a barrel). Clearly, there were still a lot of speculators in the market, who could go either way. It was a tipping point where there was at least a 50/50 chance that traders might try and take the price higher once more.

To me, the International Energy Agency exhibited perfect timing. With a relatively small amount of released oil, they managed to drop the price of crude by $5 a barrel and send the speculators running for the hills. It has also added another element of risk since nervous traders will now have to be looking over their shoulder in case the IEA does it again.

As for the wall of worries that beset the market, all this pessimism is part of the normal process one expects as the averages descend to a level where buyers once again appear. Today we are probably within 1-2 percent of that area, if we are not already there. To me, the math is simple: a possible 50-point decline in the weeks ahead on the S&P 500 Index versus 150-200 points of upside. The risk/reward ratio tells me to not only hold the course but to buy on weakness.

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 e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

0 Comments
Tags: silver, oil, commodities, Greece      

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Man Found in Pittsfield State Forest Shot to Death
Vaccine Collaborative Schedules Booster Clinic Dec. 18
Sister City Panoramas Installed at North Adams City Hall
Pittsfield Health Board to Make Action Plan for Cell Tower
Williams Women's Hockey Wins in OT
Mount Holyoke Women Pull Away Late at MCLA
State Police Investigating Death of Individual Found in Pittsfield State Forest
Aluminum Sulfate Spill Closed Route 7 at Vermont Border for 4 Hours
Open House Set Dec. 10 at New Wahconah High
Greenagers Youth Crew to Assess County Bridges and Culverts
 
 


Categories:
@theMarket (391)
Independent Investor (451)
Retired Investor (69)
Archives:
December 2021 (2)
December 2020 (4)
November 2021 (7)
October 2021 (8)
September 2021 (9)
August 2021 (6)
July 2021 (8)
June 2021 (6)
May 2021 (6)
April 2021 (9)
March 2021 (8)
February 2021 (8)
January 2021 (5)
Tags:
Stock Market Deficit Euro Housing Energy Election Europe Taxes Interest Rates Wall Street Economy Selloff Stimulus Commodities Banks Japan Debt Ceiling Federal Reserve Europe Rally Debt Crisis Fiscal Cliff Greece Metals Pullback Jobs Recession Retirement Congress Markets Oil Bailout Currency Stocks
Popular Entries:
The Retired Investor: The Hawks Return
@theMarket: Markets Get Smacked
The Retired Investor: Thanksgiving Post-Pandemic
The Independent Investor: And Now For That Deficit
The Independent Investor: Don't Fight the Fed
@theMarket: Let the Good Times Roll
@theMarket: The Bottom Is In
@theMarket: Greece — How To Default Without Defaulting
@theMarket: Ben Does It Again
@theMarket: 707 Days
Recent Entries:
@theMarket: Markets Get Smacked
The Retired Investor: The Hawks Return
The Retired Investor: Thanksgiving Post-Pandemic
@theMarket: Market's Week of Indecision
The Retired Investor: The Teacher Shortage
@theMarket: Annual Inflation Hits 30-year Highs
The Retired Investor: SALT Away?
The Retired Investor: Vicious Cycle Between Energy & Food Prices
@theMarket: Markets Get a Green Light
@theMarket: Good Earnings Support Markets