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The Independent Investor: Business Roundtable's Change of Heart

By Bill Schmick
iBerkshires columnist
Now that the media is on to more interesting topics, the August announcement by the Business Roundtable deserves further examination. Afterall, it is not every day that a group of the nation's most powerful chief executives redefines the goals of American corporations.
 
The maximization of shareholders' profits, above all else, has been the motto of the Business Roundtable (BRT) since the 1980s. Critics claim that this attitude has led to all kinds of negative consequences for society overall. The environment, the individual worker, suppliers (think underage Bangladesh garment workers), consumers and local communities have been needlessly harmed by this myopic view of a corporation's purpose.
 
It is probably no accident that the modern age of inequality coincided with the establishment of this guiding corporate principal. Boosting their return of capital and generating as much profit as possible was "good for business," as was shipping American jobs overseas to cheaper labor markets like China.
 
The membership of the BRT is made up of the CEOs of America's 192 largest companies. They are paid to be smart, to be far-ranging thinkers who can be expected to steer their companies through future challenges. As such, all of them are keenly aware that the nation is in the throes of a heated debate over exactly what are the responsibilities of corporations now that they are considered equal citizens under the law.
 
Should Walmart, for example, take the lead and cut back their gun sales, since no one in Washington has the courage (or ability to create a compromise) that would lead to a solution in curbing the almost-daily massacre of innocents throughout the nation? Should CEOs and other managements voluntarily cut back their compensation, which has grown by almost 1,000 percent since 1978, versus the 12 percent worker compensation, during the same time period?
 
The rise of the millennial workforce makes taking corporate workers for granted no longer an option, nor is paying women less than men for the same job. More and more younger employees want their companies to stand for something other than profit. And in this age of historically low unemployment, it is getting harder and harder to recruit young talent (especially in the tech world) if the greenback is the only thing that companies offer.
 
In national politics, both Republicans and Democrats are increasingly targeting the business community as the cause of many of society's ills. A line of Democratic candidates is demanding that businesses start acting like good social citizens or be penalized for ignoring the needs of said society. Both parties are attacking the medical and health sector on everything from drug pricing to the escalating costs of health services and insurance.
 
As the incidence of data hacks intensifies and impacts millions of Americans, companies in the financial, retail, and other industries are under fire for failing to protect consumers from data theft. The rise of social media leaves every company vulnerable to damaging social campaigns on issues as diverse as chemical poisoning to greenhouse gas emissions. They can create public relations firestorms that cannot be controlled or managed.
 
The move by the BRT was a wise move, in my opinion. For the most part, it was an exercise in catching-up to some individual members who have already taken the initiative to make far-reaching investments in employees, communities and the broader society.
 
It does not mean, however, that shareholder value will now only be an equal consideration with another stakeholder's interests. It only acknowledges that shareholder value is no longer their sole business. In a country where capitalism has morphed into a system that favors corporations over individuals, and the rich over the poor, this is simply a first tiny step in recognizing that reality.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  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 inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

 

     

The Independent Investor: The Rising Costs of Hurricanes

By Bill Schmick
iBerkshires columnist
Over the last few decades, hurricanes have wreaked havoc on this country. Hurricanes have caused the most deaths, the greatest damage, and cost the most money of any weather or climate-related disasters in U.S. history. Some say we're just getting started when it comes to the intensity and frequency of these super storms.
 
The frequency of hurricanes (like just about any other subject you can think of in this country these days) can be a political football depending on who you talk to. Environmentalists blame a warmer climate and rising sea levels, caused by greenhouse gas emissions, for the rise in super storms. If you are in the Trump camp, the tendency is to deny that there is such a thing as global warming, let alone increased hurricane intensity. As such, I will steer clear of causes and simply state the facts.
 
The expected costs of damage from hurricane winds and storm-related flooding is expected to total $54 billion this year. Breaking down that figure, we have $34 billion in losses to U.S. households, $9 billion to commercial businesses, and $12 billion to the public sector. These figures are derived directly from the Republican-controlled Congressional Budget Office (CBO).
 
The expected annual losses would amount to roughly 0.3 percent of the country's current gross domestic product. The CBO's estimate is somewhat understated, since it does not include losses to assets that the federal government would not fully repair as well as losses to parts of the private sector other than commercial businesses. Damage in areas such as the industrial, agricultural and energy sectors could increase the losses substantially. 
 
Since 1980, the United States has endured 40 hurricanes that have been tagged as billion-dollar disasters with cumulative damage being an estimated $862 billion, according to National Oceanic and Atmospheric Administration. Hurricanes Harvey, Maria and Irma, all occurred in (2017), accounted for 31 percent of the total damage, making it the most expensive season out of the last 38.
 
One big reason that hurricane costs are rising has nothing to do with the environment. Americans have had an increasing love affair with living along the U.S. coastline where hurricane-strength winds and floods cause the most damage. From 1980 to 2017, the population density of our shoreline has more than doubled. Gulf and East Coast shoreline counties, for example, increased by 160 people per square mile, compared to just 26 per square mile in the remainder of the mainland over the same period.  
 
As Dorian, the first potential hurricane of the season takes aim at the Florida coastline this weekend, the CBO has offered some suggestions to reduce the future losses to the country, if anyone in Washington were to actually read the report.  Limiting greenhouse gas emissions, they believe, would reduce projected increases in sea levels and could lessen the severity of these storms. Of course, under the present administration, greenhouse gas emissions have taken a great leap forward as the president, who discounts their impact on the environment, relaxes all sorts of rules and regulations on emissions.
 
The CBO also suggests expanding the federal role in risk reduction efforts such as better analysis of flood-prone areas and spending more on pre-disaster activities that would reduce damage in the face of future storms.
 
Instead, as hurricane season bears down on us, President Trump just took $155 million of sorely needed funds from the Federal Emergency Management Agency's Disaster Relief Fund to pay for 6,800 beds in his immigrant "detention relief space" (a type of concentration camp for illegal immigrants). Since most of the East Coast is not part of the Trump camp, any damage to these mostly-blue states is none of his concern.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  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 inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

 

     

The Independent Investor: Will We race to the Bottom?

By Bill Schmick
iBerkshires columnist
Financial markets are in turmoil. President Trump's trade war is escalating, and with it, fears that both China and the U.S. will employ a new weapon, currency devaluation, to win the war. Is that a wise move?
 
The last time the country devalued the dollar outright was on Dec. 18, 1971, when President Nixon took the country off the gold standard. Since then, there have been times when various administrations have nudged the dollar down, but most American presidents have maintained a strong-dollar policy.
 
However, over the course of the last two years, President Trump has increasingly complained that the United States is at an unfair advantage versus other countries that are deliberately devaluing their currencies in order to increase their exports. As most readers understand, the cheaper your currency, the cheaper the price of your exports.
 
This week, however, the question of currency manipulation moved front and center. In response to the president's decision to place a 10 percent tariff on an additional $300 billion of Chinese exports on Sept. 1, China ordered its companies not to purchase any additional food stuffs from the U.S. The government also allowed its currency, the renminbi, to drop below the seven to one U.S. dollar valuation, the lower end of the official exchange rate range.
 
The Chinese currency does not trade freely but is instead managed by the government. Its value is allowed to trade within a range with the 7-to-1 level being the lower end of that band. 
 
Up until this week, the Chinese government had been attempting to stabilize their currency despite the accusations from the administration. Outside economists as well as the IMF, believe at this level the Chinese currency accurately reflects the fundamentals of their economy.
 
But when have facts and figures ever influenced the Trump administration? On Monday, under orders of the president, the U.S. Treasury designated China a "currency manipulator."
 
Financial markets, at first, swooned, fearing that the trade war was about to get far more serious. Investors fear that by naming China a currency manipulator, President Trump can now open the door to a currency war and justify some kind of devaluation of the dollar. It is a move that his trade adviser, Peter Navarro, has been urging on the president as recently as two weeks ago. Trump dismissed his proposals at the time, but said later, according to the Wall Street Journal, that it was still an option.
 
A currency war is one where one country devalues or weakens their currency, which leads the impacted country to do the same. It may also evoke a similar response by other nations (think the EU), which could set off a domino effect and a race to the bottom as countries continually devalue their currencies. The end result would not be pretty for anyone, since there are no winners in a currency crisis.
 
A dollar devaluation would, in the short-term, increase U.S. exports and decrease imports. It would also help Trump's most important supporters in the Great Plains, the South and Midwest that make up the farm belt, coal and energy sectors. A weaker dollar would also make it easier to pay down our public debt that has skyrocketed under the Trump administration.
 
Of course, all of the above comes to naught if others also join the currency war. For the world overall, it would most likely mean stagnation and possibly the match that could ignite inflation that has long been slumbering under the surface.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  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 inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

 

     

The Independent Investor: Brexit: The Never-Ending Story

By Bill Schmick
iBerkshires columnist
Back in 2018, the government of the United Kingdom and the European Union reached an agreement on exactly how the British exit (Brexit) would occur. Since then, despite countless meetings, discussions and votes, the UK Parliament has failed to approve that process. The new date for an exit is Oct. 31. Will this really be the end of the story?
 
The October extension was really a compromise negotiated by former Prime Minister Theresa May of Britain's Conservative Party. Some European countries were offering a much longer delay for as much as one year.  However, Emmanuel Macron, the French President, insisted on a much shorter time period. 
 
Macron and some other European leaders are worried that the toxic atmosphere within Britain, which has been building ever since the exit vote back in 2016, could spill over and infect sentiment within the populations of other European countries. The longer these exit negotiations go on, the more likely other European countries might be persuaded to follow the UK's lead and announce their own exit plans.
 
To further complicate matters, Boris Johnson, an outspoken critic of the negotiations (and a leading pro-exit populist), took over as prime minster from May for Britain's Conservative Party this month. One of his first promises was to accomplish the exit with "no ifs, ands, or buts."
 
Johnson has vowed to leave the EU by Oct. 31, regardless of whether or not a deal with the EU can be inked. In addition, he and his cabinet have demanded a change in the terms of the negotiated deal, which have surfaced before, and were rejected repeatedly by the EU.
 
Many Brexit watchers believe Jonson's tactics are simply a ploy to bring a no-deal Brexit plan to a vote in Parliament where it would be rejected. That's a safe bet, since the majority of MPs (Members of Parliament) are adamantly opposed to a no-deal departure. At that point, Johnson could then call for new elections, positioning himself as the self-styled champion of Brexit. 
 
If Johnson's threat was to be taken seriously and the UK actually exited the EU on Halloween, the impact could be devastating. All the arrangements, pacts, treaties and trade agreements with the EU would come to an abrupt end. Everything from the free movement of people to policing and security would be called into question. Food, drink, data, finance, aviation, even the supplies of medicine as well as countless other day-to-day items would need to be re-examined.
 
There would be need for a great deal more government spending and planning immediately to deal with the short falls in all these areas if the exit were to occur over the next three months. Some of this preparation has already begun, but there is far more spending and planning required than time to implement it.
 
And even if a large and vocal segment of the population simply wants to "get it over with," regardless of whether or not a deal can be negotiated, that does not end the problem. In the immediate aftermath of a no-deal exit, the UK would be able to continue trading with the EU under the terms of an existing default agreement governed by the World Trade Organization (WTO).
 
Under the default agreement, tariffs on such things as agricultural goods would be able to continue for a limited time, but the UK would still need to negotiate a permanent deal with the EU. That would involve all the same issues that the UK Parliament is already facing (and failing to pass). The issue would be that a no-deal exit would require decisions on all of the above to be made quickly; something parliament and the country overall has proven to be incapable of doing. Given all of this, I believe the October deadline will come and go so the Brexit story will continue and continue and continue.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  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 inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
     

The Independent Investor: Make Vietnam Great Again?

By Bill Schmick
iBerkshires columnist
Funny things happen when our government starts tinkering with the economy in a big way. Unpredictable results, unintended consequences, and confusion often result. U.S. tariffs on China is a case in point.
 
Now to hear it from the White House, slapping tariffs on imports from China is going to change the entire equation of how companies do business. As it becomes more expensive to import from China, Donald Trump promised that other foreign countries were going to flock to the U.S. creating more jobs, more tax revenues, and generally become a big part of "making the U.S. great again."
 
So far, the president is half right. Over 50 multinational companies have announced plans to shift production out of China as a result of the 25 percent tariffs placed on $200 billion of Chinese imports. That trend is expected to accelerate if (and when) the U.S. levies even higher tariffs on China, since President Trump is threatening to add duties on another $325 billion of Chinese goods.
 
American computer makers such as Dell and HP plan to move as much as 30 percent of their computer notebook production out of China. Apple is assessing a similar move with 15-30 percent of their Chinese production. However, none of those companies intend to bring that capacity back to America. Vietnam, India, Thailand, and other Southeast Asian countries are the intended new centers of this manufacturing.
 
And it is not just non-Chinese companies that are re-thinking their production strategies. Several Chinese companies are also hedging their bets and shifting their businesses elsewhere, most notably to Vietnam. The Chinese government, in response, is doing all they can to retain and attract companies to their shores. Last month, the Chinese said they would ease restrictions on foreign investment in seven sectors, including the energy area. The financial sector is also an area that the government plans to open up to foreign investment.
 
Since Vietnam shares a border with China, it has benefited the most from the trade war. It is fast becoming a center for many manufacturers of electrical and electronic equipment.  Two of the world's technology behemoths, Korea's Samsung Electronics and Japan's Kyocera, are making printers, smartphones and a variety of other technology products in the country.
 
The rush to establish new supply chains has been so huge, that it has boosted the GDP of Vietnam last year by almost 8 percent. The country's trade surplus with the U.S. has exceeded $20 billion since 2014,.and last year, it hit the highest level of surplus (almost $40 billion) in several decades.
 
Vietnam's windfall has not escaped the ire of the Trump Administration. The president has called the country "the single worst abuser of everybody" when it comes to unfair trade. The U.S. Treasury has recently added Vietnam to its watchlist of countries it is monitoring for possible currency manipulation. It is also looking into claims that Chinese exporters are routing their exports through Vietnam, then re-labeling their products with fake "made in Vietnam" labels to avoid the U.S. tariffs.
 
Vietnam is simply an example of what can happen when governments micro-manage trade and the economy. Our actions have succeeded in making Vietnam great again, something that doesn't sit well with me, a Vietnam Vet.
 
In response, sure, we can plug the leak in the dike by placing tariffs on Vietnamese imports, but then what? Diverting trade away from Vietnam won't mean more jobs or benefits for America. The tariff trade will simply be re-routed to other countries that can make them for less and have the skilled workers to do the job.  Nonetheless, for those without a handle on how global economics and trade truly work, slapping tariffs on countries plays well with Main Street and that's what the president is counting on.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  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 inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 

 

     
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Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article 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 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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