The Retired Investor: Bill & Barbara on Their Retirement Journey
Bill Schmick has been writing two columns a week, most weeks, and they have been appearing on iBerkshires for nine years now. Readers may have noticed that his longtime "The Independent Investor" column has now transformed into the "The Retired Investor." Bill will still be writing his columns but he and his wife, Barbara, have retired from Berkshire Money Management. Below is their letter to BMM on their retirement that we are posting as this week's "The Retired Investor."
Our thoughtful boss, Allen Harris, has asked us to write this letter to tell you all, in our own words, why we are leaving the firm. So, here goes.
Change has its own way of shaping our future. If you had asked me several months ago if I planned to do anything different, either personally, or career-wise over the coming decade, I would have answered with a resounding "no." And then the Pandemic of 2020 came along.
It has forced me, at the not-so-young age of 72, to re-evaluate my priorities. Topping my list is my goal of making the next 30 years of my life the best. Working in an office, exposed to the COVID-19 virus on a daily basis, may not be the best way to accomplish that. In the end my health concerns outweighed the joy and satisfaction of working for Berkshire Money Management.
Someone once said that "loss is another word for change" and today I understand the meaning of those words. Leaving Berkshire Money Management will be for me like leaving my family. So it needs to be done in stages. While I will no longer work for BMM, I will continue to work with the company. I will continue to bring new clients into this firm that I believe in. I will continue to write my columns, which you will continue to receive weekly and I will still be available to any and all of you whenever you need my advice.
In addition, I have been working on a book. I have done my best to share what I have learned over 40-plus years about investment and retirement. Hopefully, it will help you navigate your own financial future in ways you may not have realized. It is just about done, and we want to make it available to all the clients of BMM, as well as those we hope will become clients.
And since I won't be coming to the office (unless requested), I will have more time available for new pursuits. In case you haven't noticed, one consequence of this pandemic has been the increased use and reliance on video communication. Zoom, GoToMeeting, Facetime, and the like, have finally become accepted in this new age of isolation. Even oldsters like me have been forced to learn and access this electronic means of communication.
As a result, I am planning a foray into streaming video over the next month or so. I will be offering my columns, daily market wraps, and various retirement topics through various social media sources such as Face book, LinkedIn, Twitter, etc. in addition to the print media. I just hope my streaming debut will be as popular as my columns.
John Lennon once said, "Life is what happens to you when you're busy making other plans." I suspect life in the days and months ahead may be difficult for all of us. That's why I will still be here for you. What kind of person would I be to abandon you now, my readers, friends, and clients when you may need me the most? We have come too far together for that.
So, yes, I will no longer be an employee, but I will still be a devoted consultant to Berkshire Money Management. I won't have an office, or a title, but I don't need one. All I need is you, and that won't change. Stay safe and keep in touch: firstname.lastname@example.org.
Saying goodbye to the Berkshire Money Management (BMM) family is difficult! We moved to Pittsfield because of BMM and have shared many happy and some sad times together for 11 years.
Our chocolate lab, Titus, grew up at BMM. Many of you who have visited the office have been greeted by his wagging tail and deep brown eyes. When I joined the firm, he was just a puppy. Part of my offer letter from Allen was that I could bring Titus to the office. Who could resist?
I remember that first year, Bill and I shared a narrow section of the hallway when the office was located at 1450 East Street in Pittsfield. Then, we moved to Merrill Road and finally the amazing Crane Model Farm! It has been quite a journey. I've grown to love and admire Allen and his wife, Stacey, and the amazing things they have done for the team and for Berkshire County.
Time passed, and as I turned 60, I realized retirement was much closer than I thought. My mind began to shift. "What's next?" I found myself wondering. As Bill was working with older clients, and coaching them in their retirement, it also became a real conversation for both of us. I knew one thing: I couldn't simply retire and do nothing. The answer became obvious soon enough.
I have been doing photography as a hobby and side job since my days in Manhattan. It is my passion and always has been. The voice inside of me started quietly, but soon became louder, and more insistent. What if I could create my own photography business? Could I? But I didn't take it seriously, because I really liked my job and the people at BMM. I just couldn't imagine leaving!
But last year my mother died, which had a profound effect on me and my attitude towards life and aging. My priorities started to change. That voice grew louder —"life is too short," it yelled — but I still didn't listen. Then, the pandemic hit. At our age, we opted to work from home during the "great pause," even though financial services were considered an essential service.
I had more quiet time, time to think, and the voice grew even louder. I could no longer ignore it. I decided I needed to leave my safe, secure, corporate job and find out what is next for me in my life.
So, I took a giant leap into the unknown! Allen and I had a long talk. He had noticed I was becoming more and more distracted in the last year or so. He understood. It was so very hard to say goodbye to him, but I know he will always be in my life as a good friend and that makes me happy. In fact, I will be working with BMM from time to time as an independent contractor, so I don't have to really say goodbye after all! I can continue to be part of the "coolest place to work in Berkshire County!"
And, I am happy to announce Berkshire Visions: Photography by Barbara Schmick, will be open for business!
Titus wants to remind you that you can teach an old dog new tricks. The two of us are proof of his advice! He will miss all of his friends at Berkshire Money Management, as will we.
Barbara & Bill Schmick
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@theMarket: COVID Case Concerns Cramp Market Gains
The disparity between rising nationwide virus cases and a rising stock market finally took its toll on investors this week. While damage was sustained to the averages, it was far from a bloodbath. A few more days of the same back and fill would not be a surprise.
Stocks lost ground under the sheer weight of skyrocketing infections throughout those states that have heeded Donald Trump's directions to ignore medical advice and re-open their economies. Valuing election victory over lives has cost us all a great deal and it is not over. I expect that without a national policy, or strategy to guide us, today's regional "hot spots" will migrate. Carriers from one state, city, or town will spread the virus to others in a succession of infections that will prolong the pandemic and deaths.
As a result, we should also expect to see the economic data in the weeks ahead begin to reflect the case counts we are reading today. If so, you might be anticipating that the stock market will sell off, maybe even re-test the March lows. If you sold in a panic back when, (as many did) and missed the 53 percent move higher in the S&P 500 Index since then, I suspect that is what you are hoping for. Don't hold your breath.
Here is what you are missing. The stock market is not marching to the tune of the COVID-19 Top Thirty. Sure, on a day-to-day headline basis, markets could move up or down (like they did this week) as the case count worsens, or a new vaccine possibility is announced. But the stock market gains amassed thus far have been the work of monetary and fiscal stimulus.
The worse the infective fires get — the cases, the deaths, the weakening data — the more stimulus the government will pour on the flames. A new stimulus package, which may now be expected to total $1 trillion, could easily double, or triple, if things get out of hand. If stocks drop too fast, or too far, I fully expect the Federal Reserve Bank and the U.S. Treasury to step in and support the stock markets, as they are doing now in the bond markets.
Armageddon can only occur if no one does anything. In an election year that won't happen, in my opinion. Speaking of elections, Joe Biden launched his own version of Donald Trump's America First program. Biden's U.S.-centered plan would see government spend $700 billion in American-made materials and products over four years. Another $300 billion would go to U.S.-based research and development involving electric cars, artificial intelligence, and other cutting-edge technologies.
While he also promised to raise the corporate tax to 28 percent, Wall Street and big business were expecting that anyway, given that the Trump corporate tax cuts of 2018 did not produce the desired results. Overall, investors seemed to take on board that a Biden victory, while possibly disruptive to further gains in the stock market, would not necessarily spell the end of business, nor usher in an era of socialism/communism as the president would have us believe.
Earnings season begins next week with the money-center banks reporting in mid-week. While results are backward-looking, and therefore already discounted by the markets, investors will be listening for guidance from the CEOs and CFOs as to whether the economy is beginning to roll over again (the bear's case), or that the economy is still gaining momentum. Either way, expect volatility.
As for where I see the markets going, my bet is that we could see the S&P 500 Index tack on another 100 points before the end of July. At that point, let's reassess.
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The Retired Investor: Next Bailout Should Address Job Creation
As the COVID-19 virus rages across the nation, Americans are hoping for more assistance from the government on a variety of fronts. So far this month, their hopes have been met with a resounding silence from the White House, although members of Congress are trying to come up with answers that both parties can agree upon. I have a couple of suggestions.
The first round of fiscal and monetary stimulus did a good job in addressing the huge spike in unemployment the country has suffered. While the CARES Act at $2.2 trillion provided $500 billion to distressed industries, almost $350 billion in loans to small businesses and $4100 billion to hospitals, it was the $200 billion in additional unemployment benefits and $300 billion in stimulus checks to individuals that got the most attention.
The PPE, the additional $600 a month in unemployment benefits (which is set to sunset soon), the direct payments to taxpayers, plus the Fed's actions in the credit market, did wonders in alleviating the worst impact of the country's economic shut down.
The challenge we face this time around is twofold, in my opinion. We need to continue to help those who have been out of a job, as well as the thousands of workers who are now being laid off as the virus cases delay business re-openings in over half the country. We also need to incentivize those businesses that are struggling to remain open to rehire workers in this period of uncertainty and do more to help small businesses that are facing bankruptcy.
Exactly how to do that in an election year, when neither Congress nor the White House can agree on anything, is a tall order. As in so many things lately, the failed leadership in Washington leads me to look elsewhere for suggestions.
This week the United Kingdom's finance minister, Rishi Sunak, announced, as part of a mini-budget, some novel ideas to save jobs, help Britain's youth find work, and bolster the nation's restaurants. Some of those measures might work here as well.
The UK government, in response to the pandemic, is already paying up to 80 percent of salaries for about nine million workers under their own furlough scheme. That program will begin to wind down by August. But in preparation for the end of that plan, the government is offering more than $1,000 to firms who take on workers, including all those who had been laid off due to the pandemic. They are also spending an additional $2 billion-plus to subsidize the hiring of 16- to 24-year-olds.
Green grants for households and public sector buildings (including hospitals), to make them more energy efficient, are also in the works. As an added incentive, the tax on home purchases will be waived for those thinking of purchasing a home under $500,000.
Restaurants, both here and abroad, are suffering mightily from the virus. The government, in an effort to encourage consumers to go out and buy a restaurant meal, are giving consumers a $12 discount per meal through the month of August.
Most economists on Wall Street think it is a foregone conclusion that a second stimulus package is not only needed, but will pass no later than August. In an election year, both parties want to look like they are helping those in need.
At the same time, the recent surge in virus cases, and the delays in reopening the economy that COVID-19 is causing, makes a second package vital to the future health of the nation. Remember too, that the planned end of enhanced unemployment benefits at the end of this month could cause a drastic increase in delinquencies in consumer-sensitive, financial areas such as mortgage, auto, and commercial loans.
I would expect, therefore, that both the unemployment benefits and another direct payment to certain Americans under a certain income level will be part of CARES Act II. This time, however, I expect the additional unemployment benefits could be reduced, while some kind of going-back-to-work bonus, awarded over a specific time period, might be part of the plan.
If this is coupled with a UK-style payout to the hiring firm, it could tip the scales and stem further job losses. In the small business area, the extension of the PPE program is needed at a minimum, with intense focus and more funds funneled to small and tiny Mom and Pop enterprises. We could expand the UK's restaurant discount idea to all of our service industries. This could easily be accomplished by simply eliminating sales tax on all goods and services for a certain time period.
In any case, I am sure that we could all come up with ideas that might work in getting the economy going again. If you have one, send it to me, and I will do my best to print as many as possible.
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@theMarket: Markets Celebrate Fourth of July
The continuing gain in jobs cheered equity markets on Thursday, just before the holiday weekend. Given the surge in virus cases in more than half of the United States at the same time, some investors were dumbfounded. They just don't get it.
The nation added 4.8 million jobs in June, which was better than expected. It was the second month in a row that the employment data surprised investors by beating expectations. Remember, however, that this data is backward looking. The bounce back in the economy as a result of re-opening businesses resulted in these upside labor surprises. Readers should expect those employment gains to moderate next month for some obvious reasons.
Topping the list is the massive upsurge in virus cases in those states that chose politics over lives. The pandemic has slowed many state plans to re-open their economies and will impact future growth as well as further employment. I suspect this three-day weekend will damage the American comeback even further, unless the nation actually listens to the advice of medical experts.
In the meantime, I've spent most of the week explaining to clients and readers why I have maintained my bullish stance throughout the last several months. It comes down to my view on the future of the economy and the stock market. There are three main schools of thought on how the economy will weather this pandemic.
There are those who believe a "V" shaped recovery is in the offing. These are mostly politicians and investors with their eye on November's elections. Then there are those who think we will see a "U" shaped gradual pickup that will take longer to accomplish. Finally, there is a group who believe we will see a "W" type recovery, where the big decline in March is followed by a sharp recovery (like what we are experiencing now), only to fall back again before finally rising out of the chaos.
If you look at all three cases, what do you see? In every case, the direction of the right side of each of these letters is going up. From my perspective, that is all you need to know. Will the restoration of jobs and the economy require six months, 12 months, or even 18 months? No one really knows, because no one can game the virus without a vaccine. Whether the economy takes a longer or shorter time period to get there, it will still recover, and so will your investments.
There are several promising vaccines in the works worldwide. In some cases, such as one Chinese version (that is already being administered to their army), the chances of success should be known sooner than later. Several drug companies are expected to provide further information on their vaccines in the fall. A successful drug would be a gamechanger, not only here in the U.S. but for the economies worldwide. In which case, the "V" might be the preferred choice.
Thanks to the massive stimulus provided by the government, the last quarter in the stock market was one of the best since 1998. And the stimulus is expected to continue fueling further gains in the financial markets. While I still expect markets to have their ups and downs, hang in there, because better days are coming if we all use our common sense.
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The Retired Investor: Big Banks & Big Brother
It is an interesting time for bank stocks. In the aftermath of two federal regulatory actions last week, the money-center banks are becoming more public than private institutions.
First the good news. Federal banking regulators announced that they are relaxing provisions of the Volcker Rule, which was an important part of the Dodd-Frank Act of 2010. Readers might recall that act was passed in the aftermath of the financial crisis. It was meant to prevent another "too big to fail" scenario within the nation's banking system.
A key provision of the act prevented banks from using their own funds to invest in risky assets such as derivatives, options, private equity, and hedge funds. Those rules have been essentially relaxed, allowing large banks a wider latitude in what they can invest in. Margin requirements (at least in some areas) such as in swap trades, have also been eased.
The long and short of it is that banks have been allowed to once again travel the road of riskier investments. The lowering of margin requirements will also free up $40 billion in capital that banks can now use in proprietary trading. This turn of events might be troubling to those of us who remember the worst crisis since the Great Depression in this country.
But what Big Brother giveth, he can also take away. Last Thursday, the Federal Reserve Bank released the results of its annual stress test of the 34 largest banks in the U.S. Stress tests are another regulatory change that was implemented by the federal government as a result of the financial crisis. They are meant to ensure that the United States banking system can withstand shocks to its capital base.
The COVID-19 pandemic and its impact was the focal point of the regulatory authorities test this year. All 34 banks passed the minimum capital requirements necessary under these circumstances, although in the worst-case scenario regulators said "several would approach minimum capital levels."
That's the good news. The bad news was the Fed also ordered the banks to limit shareholder payouts and suspend repurchases of their stocks during the third quarter. Dividend distributions will be limited to the levels banks paid out in the second quarter.
While the news initially surprised investors, banking stocks have gained ground since the announcements. That should not surprise you, given the steady encroachment by the Federal Reserve Bank and the U.S. Treasury into the private sector since the beginning of the pandemic. The fact that banks have increasingly operated under the thumb of government has been going on for the last decade. It is one explanation for why the sector as a whole has consistently underperformed other areas of the stock market.
One might question where and when will this creeping nationalization of the private sector economy come to an end. The Fed is already purchasing bonds from companies such as Verizon on the open market as well as bond funds and exchange traded funds. Will stocks be next?
Today, the government announced a $700 million loan to a major trucking company, YRC Worldwide Inc., in exchange for an equity stake of 29.6 percent. In the name of the great pandemic, as companies become increasingly distressed, I believe more and more of the economy will come under the control of the government. The question to ask is then what?
As I have maintained, I fear we are fast transforming from a quasi-capitalistic economy into something that resembles Europe's economic socialism, or even China's centralized economy. It appears we have no say in the matter. Is it that our free market system has become an antiquated idea and has no place in today's global economy? That is for you to decide.
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