The funny thing about declining stock markets is that when they last more than a couple of weeks, talk of recession starts to percolate among investors. It is no different this time.  

I have written before that the stock market has erroneously called six of the last 13 declines as recessions, meaning that weak stock prices do not necessarily herald a weak economy. There have been instances in the past where a prolonged decline over a year or so has contributed to a recession but even then the data is not conclusive.

There is no evidence thus far that the U.S. economy is rolling over. Economic data continues to be spotty, which is consistent with a moderately growing economy. Unfortunately, how that data is interpreted depends on the mood of the investors. When sentiment is extremely bearish (as it is now), every disappointing data point becomes fuel for those predicting a recession.

When markets are up, investors take a "cup half-full" approach and focus instead on the positive statistics. There is no question that our present growth rate (when compared to past recoveries) is below par, running at a moderate 2.25 percent rate. Historically, we should have expected a year or two of 3.5 to 4 percent growth by this time — five-plus years into this recovery cycle. But those expectations have not been met.

There are several explanations for why this economy has had such a mediocre recovery.

Some argue (including the Federal Reserve Bank) that although the Fed did all in its power to stave off depression and grow the economy, without help from the government in the form of fiscal stimulus, they were fighting with one hand behind their back. History and noted economist Paul Krugman would agree with that explanation; also recall that for at least the last six years, Congress has been cutting spending, not increasing it.

Then there is the demographic argument, which says that the Baby Boomers are retiring and therefore both productivity and economic growth are slowing as a result. In exchange, younger workers, who are less skilled and some say less productive, are not qualified to fill these vacant, high-paying skilled jobs. As a result, there are more minimum-wage workers earning far less than their parents. These new workers, so the theory goes, simply do not have the wallet-power to propel the economy to a higher growth rate. Since consumer spending is such a large part of our economy (over 70 percent), they have a point.

There is also the argument that 2008-2009 was no ordinary recession but rather a credit recession similar to the Great Depression of the 1930s. As such, the economy requires a much longer period to get back its mojo. Recall that the Depression required 10 years and World War II to recover fully.

Others argue that the end of monetary stimulus and the Fed's actions to tighten interest rates will cause a moderate economy to weaken and ultimately fall into recession. They point to the previous quantitative easing efforts that worked only until the Fed discontinued their use.

Each time the economy weakened (as did the stock market), and this time won't be any different. Time will tell if they are correct, but so far the evidence does not bear out their concerns.

There are several other arguments, including a hard landing in China that will drag the rest of the world's economies with it, but none of this appears to be showing up in the data.

Instead, we are roughly at full employment with further job gains expected. The world economy continues to grow, again moderately, but growing nonetheless, as is the United States economy.

What might change my mind is the one variable that has signaled a recession 100 percent of the time — an inverted yield curve in interest rates.

Normally, interest rates are higher the further out you get in the bond world. A 30-year bond has more risk (and therefore a higher reward in terms of interest rate) than a 10, 5 or one-year security.

Recessions have always been preannounced when short-term interest rates climb higher than long-term rates. There is no evidence of that. And until we see it (if we do), I would advise you to ignore all this noise about a possible recession.

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.

Since the beginning of January, many investors have sold their holdings in the stock market and are sitting on the sidelines in cash. Is it too late to sell, or would selling out be a wise move?

Well over $7 billion was sold from U.S. stock funds thus far in January. In December, $48 billion exited stock funds. In hindsight, anyone who sold at the end of last year would presumably be sitting pretty, but that's not the case at all.

There's an old saying "I'd rather be out of the market wishing I were in, than in the market wishing I were out." Those are words that surely resonate with most investors right now. And as the financial markets worldwide continue to oscillate up and down a percent or more each day, more "long-term" investors are finding themselves on the threshold of selling everything.

This is not a new phenomenon. In 2011, 2012 and even in 2013, I have had many discussions with clients and readers who were convinced that "this time" the sell-off would be equal to the carnage we experienced back in 2008-2009. And every one of those so-called investors who sold out not only incurred real losses (usually at, or close to the bottom of the markets). They then sat for weeks or even months in cash, only to finally put their money back in the market 10, 15 or even 20 percent higher from where they sold.

The truth is, going to cash is much harder than it looks. The big issue you have is that you have to be right twice. Take today's market; we have already declined almost 15 percent from the historical highs of the market made back in May. If you instead measure the decline thus far this year, the total is almost 10 percent. One could argue that most of the declines are already behind us.

So you need to ask yourself, why you are selling. If you are getting out because of a panic reaction to a declining market, then the chances are pretty high that you have made your first and worst mistake. The second part of your decision is when you decide to get back in. If there is high volatility in the markets (like now), that decision is compounded.

Markets have been rising and falling 1-3 percent daily. Let's take a hypothetical investor who sold last week when the S&P 500 Index hit an intraday low of 1812. The index then bounced all the way up to 1,907 in three days. You obviously made a mistake in selling, so what happens now?

Typically, you won't buy back in after the market just gained 100 points. Instead, you say to yourself that I'll wait until there is a pullback and then I'll buy. The market does just that, but does not go back to the lows where you originally sold. What to do? The typical investor will wait, caught between fear and greed, with no disciplined approach to getting back in. They tend to wait and wait until the markets climb so high that emotion takes over once again. Mistake number two.

Unless you are an astute investor, who knows something the rest of us doesn't, it is way too late to sell this market. The risk reward ratio is completely against you. If you want to reduce risk in your portfolio, wait until the markets come back and then adjust your investments more conservatively until you can live with the ups and downs of the markets. Until then, hang in there.

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.

It had to happen at some point. The averages declined almost every day for three weeks in a row, so a relief rally should be expected. The question is will it continue?

Unfortunately, that depends on the price level of oil. The bounce in stock prices that began on Wednesday was directly related to the bounce in oil. Oil has gained over 10 percent in just two days. Traders believe we still have not seen a bottom however. No one knows when and at what price oil will finally bottom. Until it does, stocks will be held hostage to the energy market.

No one knows when and at what price oil will bottom. Until it does, stocks will be held hostage to the energy market.

In the meantime, everyone has a theory for why the global markets have had such a tumultuous three weeks of declines. Some are saying that the markets are predicting a future event, most likely a global recession. And that it is simply not showing up yet in the economic data. The problem I have with that line of thinking is that the stock market has not been an accurate indicator of recessions (predicting the last nine out of five recessions as an example).

China is another worry. Investors fear that the Chinese government will continue to devalue their currency, the Yuan, causing a currency war while somehow slowing the growth of their economy even further. No question that the Chinese economy has slowed and is presently growing at "only" 6.8 percent, but from a much larger base.

Then there are the Fed heads who are blaming the decline on our Federal Reserve Bank, as if a quarter-point rise in the Fed Funds rate could remotely impact the strength of our economy let alone that of the global marketplace.

Since none of these arguments make the least bit of economic sense, in my opinion, I have to believe that what we are going through is a technical correction. As such, there is no use in trying to come up with the reason for this sell off.  Markets, on occasion, need to pull back to a level where buyers once again appear. At some price level investors will perceive that there is real value once again and then the correction will be over. Have we reached that level?

It's hard to say. I have written that we have been overdue for a 20 percent correction. The last one was in 2011. If we measure this pullback from the highs of last December, we have declined about 13 percent on the S&P 500 Index. On Wednesday, for a brief moment, that index touched 1812. That was eight points below the support I talked about in my last column. It rallied from that level and we are still climbing as of this writing.

However, neither the NASDAQ nor the Dow Jones has yet to hit their August/September lows. That can be taken two ways. Either there is more downside to come or the bulls will argue that the other averages have not confirmed the lows of the S&P 500 (a positive divergence). My opinion is that we most likely have more downside before all is said and done, but from what level?

That depends on oil as well as stocks. The S&P 500 Index should at least reclaim the 1,900 level, if not higher. After that, depending on the data, I am guessing we re-test the lows of this week before I can sound an all clear in both markets. I am guessing we re-test the lows of this week. Don't even consider selling anything at this level. This is a time to be buying not selling because I fully expect markets to recoup all of their losses in the months ahead.

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 markets have gone straight down for almost two weeks. The media is becoming more and more pessimistic as the averages plummet. Doom and gloom permeates the investor population. This usually means that opportunity is just around the corner.

In my own world, the telephone has been ringing off the hook and my inbox is full of panicky emails. So this column is for all those clients, readers and prospective clients out there who are wondering what the heck is going on.

First you must take a look at the emotions you are feeling. Fear, anxiety, even panic are just some of the emotions I have identified in my communications with investors. Most of you reading this column, however, have experienced far worse declines than this through the last few years. Remember the 20 percent decline in 2011? How about the 16 percent decline in 2010?

If those pullbacks seem hazy to you or if you have forgotten them already, then that should be a lesson to you in how fleeting these market corrections can be. Sure, while they are occurring, the paper losses can be painful, but remember they are not real losses unless you sell them.

It is hard to ignore the headlines though. The Wall Street Journal (among others) leads with this front page headline today "Stocks take Beating as Alarm Grows." Makes you want to sell everything, right? Ask yourself this question: if that headline read "your house is taking a beating as alarm grows" would you sell? Of course not, you say, my house is a long-term investment.

Well isn't your retirement account also a long-term investment? If your time horizon is three, five, 10 or even 20 years from now, why would you want to sell now? Of course, if you thought the bull market was over and that we were heading into a multi-year decline in the stock market that would make sense. But where is the evidence that a scenario like that is facing us?

"But the stock market was flat last year," argued one investor. "What makes you think this year will be any better?"

Well, since 1970 there have been six "flat" years for the S&P 500 (-2 percent to 2 percent) and following those years, the index returned between 11-34 percent. In which case, this year should end with a positive gain, even though it has started out badly.

If one looks at pessimism in today's market, it is clear that the gloom is positively dripping off the walls. John Templeton once said that "bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria." Is anyone out there felling euphoric right now?

Some scientists say that human beings are really not wired for stock market investing. They say your brain is wired best to respond to short-term stimuli, especially when your brain perceives danger of any kind. Therefore, your natural reaction to a market plunge is to flee to the sidelines. Recognize that and fight against it. Investing requires a multi-faceted, long-term approach. Unfortunately, the brain is weakest in discerning long-term patterns or focusing on many patterns at once.

My advice is don't fall prey to the herd instinct. The markets may go lower from here before cooler heads prevail. But they will prevail. Just believe as I do, that this too shall pass.

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.

For years, investors bought into the China story. Growth rates twice as fast as the rest of the world, fueled by sky-rocketing exports made competitive by billions of hard-working, low-wage employees grateful to have a job. What happened?

Times have changed. Back in the late 1970s when China first opened its fledgling economy to foreign investment, manufacturing became the chief driver of economic growth, which led to increased exports, more foreign investment and double digit growth rates. The powerful Communist government controlled the process through its sponsorship of state-owned enterprises. These mammoth companies became the symbols of a new "Chinese Authoritarian Capitalism."  

As such, they played a pivotal role in channeling that foreign money and the goods it produced through the economy. Along the way, these companies were listed both on the Chinese stock market as well as abroad. They became the investments of choice and were included in all the most liquid and popular mutual funds and exchange traded funds. As time wore on, these companies borrowed more, hired more and purchased more and more.

Corruption, mismanagement and scandal began to pop up among the managements of these companies. At the same time, as the worldwide financial crisis unfolded, the Chinese economy started to falter.

Unfortunately, at about the same time, China's leaders decided that it was time to transition the economy from its reliance on manufacturing and exports to a new growth model more dependent on consumer services and other forms of consumption. The move made economic sense.

China, through opening its economy, had engineered the birth of an enormous and growing middle class. These new consumers, so the reasoning goes, are both willing and able to support such an economic shift. As China's old economy began to slump and its reliance on areas such as banks, energy, industrials and materials decreased, other sectors such as technology, alternative energy, education, media and entertainment exploded.

However attempting such a monumental feat in short order had consequences. China's economic growth rate continued to fall.  Partially a victim of overall slowing global growth, as well as the predictable disruption of transitioning their massive economy from exports to consumption, the country saw its growth rate cut in half over the last few years. Of course, not many realize that China's economy had expanded 100 percent from what it was ten years ago. As such, a 6-7 percent growth rate today, on 10 times the amount of GDP, is still far greater than any other country in the world.

While all of this played out within the country, foreign investors were pretty much excluded from investing in the new growth areas. Most of the existing investment vehicles are made up of "old China" companies that are closing down, losing money or both, while new China stocks are off-limits to most foreigners.

Investors today need to understand these changes, which go beyond a simple old/new division. The Chinese middle class, for example, is becoming increasingly health conscious and focused on quality. And because the government is cracking down on the rampant corruption among corporate executives, especially in the state-owned enterprises, luxury goods and "gift-giving" providers are also seeing a decline in business.

Here in the U.S., there are a few ways of playing the growing portion of the Chinese economy. There are a handful of "new" China stocks available, as well as a couple of mutual funds and exchange traded funds (ETFs). If you are interested in discussing this further, give me a call or shoot me an email. Saying this, investing in China is not for the faint of heart under the best of circumstances. It requires work and a strong stomach for volatility.

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.