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@theMarket: Markets Mark Time
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Over the last seven years, Chinese government central planners have established a stated economic growth rate for China's economy of 8 percent. This week, Chinese Premier Wen Jiabao set a growth target for his nation's economy at 7.5 percent for 2012, which is half a percent lower than targeted.
At the same time, government forecasters in Australia indicated that iron ore exports may decline by as much as 8.5 percent this year. China was once again the culprit since it is a large consumer of Aussie iron ore. Iron ore is one of the main inputs in the production of steel. Also, Australian BHP Billiton, the world's biggest mining company, predicted that China's steel production is slowing as the country switches its focus from exports and massive building projects to the Chinese consumer and domestic consumption
Shaving one half of one percent off an economic forecast may not seem like a lot, but when the world's stock markets are priced to perfection, any ill wind that may blow quickly accelerates to gale force among market participants. The Chinese stock market nose-dived on the news. That market, which had experienced fabulous gains from 2003 through 2008, has languished and has largely been excluded from the rally in stocks that we have experienced since 2009.
To its credit, the U.S. stock market weathered the news quite well. It simply stalled the equity rally for this week. Although somewhat muted, sentiment is still at or close to highs that have traditionally signaled market corrections. In addition, The Chicago Board of Trade's Market Volatility Index, called the VIX, has hit lows that have not been seen in years. Volatility has been the watch word of the markets over the last two years. The price of the VIX today would indicate that investors are expecting smooth sailing into the future with no clouds upon the horizon.
The S&P 500 and NASDAQ Indexes are having their best quarters since the second and third quarters of 2009. Europe’s problems also appear to be behind us although lingering concerns over the financial shape of Portugal contributed to this week's nervousness. European exchanges had their worst week of the year with a decline of 4 percent overall. We will see if the U.S. market can decouple from the kind of profit-taking that is occurring across the Atlantic.
The recurring theme among everyone I talk to is when a pullback will occur. It was the topic of an entire evening's dinner conversation on a recent trip to Manhattan. Various members of the financial community gave their forecast. None present expected the markets to continue higher. That, my dear reader, is an important contrary indicator. I suspect that there are still a lot of investors, both retail and institutional, who are underinvested in equities and are just looking for a chance to put more money into the market.
Since there will always be those who will jump the gun, any minor decline continues to be met with a wave of buying from those still sitting on the sidelines. I expect that absence any more bad news, the markets will continue to experience shallow pullbacks followed by a slow grind higher. I feel fairly confident that somewhere out there a sell off is coming but exactly when is simply too hard to predict.
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 email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
The Independent Investor: Stubble and Scruff
Facial hair is back in a big way among men. That is nothing new, but the time, effort and expense of looking so scruffy might surprise you.Back in the day, you were either clean shaven or grew a beard. During the Hippie Era, it was all long hair and beards, which sent many a barber to the poor house. Hair length gradually shortened, beards and moustaches were trimmed and barbers breathed a sigh of relief. Over a decade ago, American men grew older and fatter. To add insult to injury, their hair started to thin as well. The fashion industry quickly came to the rescue and convinced the nation that bald was beautiful.
I, for one, embraced the idea and quickly learned to shave my own head. For me, an avid jock, no hair was both convenient and saved a trip to the barber. However, maintaining that clean shaven pate is no easy job and many men sought out the barbershop to maintain the new style. But the fashion industry was not done with the masculine ego. Enter the man's man.
First, let me confess my ignorance. In my naivety, I had long assumed that the facial hair that had sprouted up among male actors in a variety of television and movie roles was simply the result of not shaving for a day or two. How wrong could I be? These new facial-hair styles demand a lot of time, effort and expense and have spawned a plethora of trimmers, shavers and masks to give the customer just the right look,
Today, facial hair is part of what the fashionistas call the Retrosexual Revolution. It is an era in which men are looking back to the styles, values and pastimes of traditional masculinity, albeit with a heightened discernment about brands, aesthetics and lifestyle. Sort of "Mad Men" with a dash of political correctness.
This new flannel-clad urban woodsman (for those who can afford it) will normally sport a carefully clipped or trimmed five o'clock shadow across his jowls while displaying his single-malt scotch collection or his fixed-gear touring bike. The image appears to resound mightily among American males.
As a result, more men than ever before are visiting the barbershop. Last year, there were more than 235,000 barbers in over 100,000 shops in the United States. That is the highest in recent memory and is predicted to jump again this year according to the National Association of Barbers Boards of America.
Sales of beard and stubble trimmers (as they are now called) advanced 14 percent in 2010, 17 percent last year and should top that again in 2012. And stubble trimmers aren't cheap. A top-of–the-line stubble model will set you back $60, about twice as much as your old-fashioned beard trimmer. Grooming companies such as Conair, Phillips Norelco and Wahl have taken special care to deal with facial hair at close range and have succeeded in segmenting the market.
Now, if you have the desire, you can get just the right length of stubble each day by picking up the stubble trimmer. But if instead you like a slightly longer look called Scruff (the George Clooney look) you can buy another trimmer that will convince one and all that you could grow a full beard if you wanted to, but choose not to. Full beards require a heavy-duty trimmer while goatees, moustaches and sideburns all require different trimmers. Of course, if that is not enough, one can always go "feral" and grow your beard until you look like Heidi's grandfather.
Yet self-barbering takes effort, practice and often less than satisfactory results. Many men have opted instead to visit their neighborhood barbershop breathing new life into the staid and sometimes stuffy local hair emporium. Unisex is out. Barbers have reinvented their industry by offering customers what they want, the way they want it. The top 10 barbershops in the U.S. all have one thing in common — ambience. Masculinity, tradition, and a variety of services is what distinguish barbershops today from those of my childhood.
Barber schools grew at a 29 percent rate last year and becoming a barber has appeared on several new career lists. Opening a barbershop has also become a "hot startup" area given that the barriers to entry are low, startup costs are reasonable and competition tame.
A simple survey of barbershops in the Northeast confirmed that "business is good" as Patty, a barber at The Clip Joint Barbers in Portsmouth, N.H., said.
Bob McGiffert, who owns Bob's Barber Shop in Greenport, N.Y., also agreed that haircuts were doing well, although he "doesn't see much traffic in stubble and such."
In Rutland, Vt., Steve, a barber since 1988, works at Henry's, an establishment celebrating 57 years in business. He is seeing a "lot more goatees" in his business lately. "It just adds to the product line."
And finally Nancy Donovan, who has been cutting hair for over a decade at Ken's Barber Shop in Great Barrington, is seeing a lot of facial-hair trim requests, especially in the summer.
"We have a lot of city people that vacation here in the summertime," she said, "and we get all sorts of requests."
She says she has done everything from shaving heads, to regular haircuts to even cutting a "B" for Boston on one customer's head after the World Series over the last few years.
As for the barbering business, she enjoys her line of work and would recommend that anyone wanting a great career should look into becoming a barber. Take that George Clooney!
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 email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
The Independent Investor: Clients Last? Welcome to Wall Street
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| Sam Rogers, head of trading: "And you're selling something that you 'know' has no value." John Tuld, CEO: "We are selling to willing buyers at the current market price." John Tuld: "So that we may survive." — "Margin Call"
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If you ever wondered where you stand on Wall Street, the op-ed piece in Wednesday's New York Times is a must read. The fallout from the words of a 12-year veteran of one of the world's most prestigious investment firm is resonating around the world.
It is not necessary for me to identify either the firm or the writer, since just about everyone now knows who I am talking about it. Yesterday, my inbox was deluged with readers who forwarded me the piece. Most readers are aware that I have a huge beef with the ethics on Wall Street and what I see as the "customer comes last" attitude that is prevalent within that sector.
As has happened in the past, I'm sure that after this column runs I will receive a flurry of hate mail from those in the financial community, who believe I am attacking them personally. I'm not. Most individuals in this business are decent folks who do care about their clients –when they are allowed.
Unfortunately, they work for firms that cannot put the interests of their clients first or even in the top ten of their business objectives. These firms are just too big, too short-term and too focused on next year's bonuses to afford the luxury of putting their clients first.
Now, I know for the most part I am preaching to the choir at this moment. As the facts have come out about just how duplicitous these companies and their managements have been in creating, exacerbating and finally being rewarded for the financial crisis they engineered. Is it any wonder that very few Americans trust Wall Street?
Despite financial legislation and promises of a new ethic by those caught with their hand in the cookie jar, it is very much business as usual on Wall Street. It cannot be otherwise. When I first got into the business in the early 1980s, the big names on the Street were largely partnerships with long-term relationships with their clients. It was a world where trust among your clients was your most valuable asset.
The shift from private to public companies, the end of fixed commissions, the dawn of proprietary trading (firms trading their own capital), the escalation of risk and with it much greater rewards, altered the ethics of finance. These new masters of the financial universe embraced greed and abandoned the old ways. As a result, they saw their total pay skyrocket 70 percent above average paychecks in all other industries in the last decade.
Big became not only beautiful but mandatory in this new high stakes area. The bigger you are, the more muscle you can throw around, not only with your competitors but with your customers as well. Clients become numbers to be crunched. Today, these firms are so big that they truly are "too big to fail." And because they are, they are largely immune from retribution or legislation.
I say we should salute this middle-management executive and his op-ed piece. He most likely will face legal and monetary retribution from his ex-firm. You see, almost everyone on Wall Street must sign both a non-compete contract as well as agree not to say anything disparaging about their firm upon departure (whether voluntary or not).
If you violate these agreements, the company will and does come after you with the full weight of their legal departments. It is one of the reasons that so few ex-employees actually "tell all" when they quit. Although this guy's opinion will amount to no more than a cry in the darkness, he should be commended and remembered for his courage and honesty.
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 email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
@theMarket: Patience Is A Virtue
"So was that the pullback you were looking for?""Let's say it was the beginning of one," I answered.
"So how much longer am I supposed to wait? I've got tons of cash and it's not earning me anything."
Sometimes the hardest thing in the world is to do nothing. This appears to be one of those times. Yes, we did pull back over 1 percent earlier in the week in all three averages but the downside was short lived and the markets regained all they had lost by the end of the week. We can thank world governments for that performance.
The EU and its central bank successfully concluded the renegotiation of Greek debt. Just over 80 percent of Greek bond holders "volunteered" to exchange their old bonds for new ones that are worth less than half the value. For all intents and purposes this amounts to a massive bond default by the Greek government, but that's not how it is playing out.
When governments are involved, what normally would have become a default becomes something else. In this case it becomes a "restructuring" and not an embarrassing default. The markets rallied, bidding up European stock markets at the news. They ignored comments from the head of the European Central bank who said that further interest rate cuts and other stimulus measures are at an end. At the same time, the fact that Europe is also entering a recession seemed to be unimportant.
In the U.S., the Federal Reserve added to the cheer by planting a story in The Wall Street Journal. The gist of the article was that the Fed is considering a new kind of bond purchase that would boost the economy further but would be designed to reduce the inflationary impact of such purchases. The economic term for this is "sterilization" and just the mention of additional easing had investors buying back stocks. As I explained last week, the entire move up in the markets since October has been based on central banks flooding world markets with more and more money. This is like offering investors a huge punchbowl with all you can drink right now. Nothing else matters right now and like those who indulge too often and too much there will be a price to be paid down the road.
As I pointed out to a client this week, the markets did recover on all this good news but are still at about the same level they were when I suggested lightening up on your most aggressive equity holdings. Actually, the Dow Jones Industrial Average was around 13,000 at the time and it is now trading lower than that.
The S&P 500 Index and NASDAQ are where they were on March 1. Gold and silver have been losing trades for the last few weeks as well. But don't get me wrong; I'm not bearish, just cautious in the short term. I expect a choppy market at best and in that kind of environment it pays to wait it out.
Many investors believe the sidelines are an unacceptable position in today's markets. Granted, sitting in cash at money market rates yielding next to nothing is akin to watching grass grow in the middle of winter. The point I would make is that sitting in cash is not about making money. It is about not losing money and that can be a smart move sometimes.
I have no crystal ball that tells me this period of caution will only last a week or two or drag on for a longer period of time. I'm guessing it will be shorter than longer so I'm willing to keep the cash and forego investing it in bonds or something else that provides a greater yield. Part of that decision is based on tax considerations and trading costs. However, those may not be important considerations to you. I can only council patience; the rest is up to you.
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 email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
The Independent Investor: Child Labor: An American Tradition
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The words "child labor" evokes visions in our minds of wretched children working in filthy factories or dangerous coal mines with little to eat and even less compensation. The universally accepted definition of child labor is the "employment of children in regular and sustained labor." Most countries ban that kind of child labor, but what about other forms of labor?
I had my first paper route at 11 years old. By the following year I was also delivering Sunday papers, waking up at 4 a.m. and working until noon. By my 14th birthday, I was working at Duff's, my neighborhood drug store in Philadelphia, serving soda and making change for the neighborhood after school. During the summers, I worked even harder: cutting lawns, bagging in supermarkets and even hauling hot roofing tar up two stories on occasion. I always had money, was rarely bored, made OK grades in school and received a fabulous education that I could have never obtained in school.
In the U.S., you can legally get a job at 14 as long as you work no more than three hours a day (18 hours a week during the school year or past 7 p.m.). Youths of any age can deliver newspapers, perform in radio, television, movie or theatrical productions; and baby sit or perform other minor duties around a private home. In the agricultural sector, kids can work as young as 12 years old during non-school periods. But by the age of 16, America's youth can work without restrictions or parent's consent.
In this country, there is a long tradition of kids like me, dating back to the last century. The jobs of our youth often teach us skills that are with us our whole lives. Some of the things I learned were simple things like filling out applications and more complicated skills like interviewing, working responsibly and how to get along with co-workers and, of course, the boss. Since my father started his underage work life in the coal mines near Altoona, Pa., (until he was trapped in a cave-in), my early working career seemed comparatively easy.
My daughter, Jackie, followed in the family footsteps, first as a snowboard instructor at 13 years old (almost 14). She was the snowboard director by the age of 17, managing almost 50 instructors on the weekends at a local ski slope. She credits her early work experience for giving her confidence and independence, an MVP status among her high school peers and a developed sense of responsibility that continues to this day as a new mother and as an executive at a international public relations company.
Like me, her work life kept her on the straight and narrow in school, away from parties, drugs and poor grades. She also learned the meaning of money and had enough income to pay for her own auto insurance when she learned to drive.
Now, granted, this is all anecdotal evidence. Research indicates that those teenagers who work more than 10 to 15 hours a week do receive lower grades. Many also sacrifice extracurricular activities and friendships they would have otherwise made if they weren't working as hard.
Some teens, their pockets flush with cash, have the means to experiment with drugs and alcohol, which many obtain from older co-workers. Finally, there are many cases where overworked teens spend a lot less time with their families, eating and exercising less than those kids without onerous work schedules.
Many teens' first jobs are in the retail sector such as fast food outlets, restaurants and grocery stores. Often these entry-level jobs are routine, boring and lack positive interaction with adults. It can be tough on a young person, and that's where you can add value as a parent. Encouragement, a sympathetic ear and a little compassion can go along way to help your child through that first rough year or so.
I also advise you to monitor your child's progress. Don't simply take "OK" as an answer for how work is going. And if you don't like the thought of after-school work for your teenager, summer employment is an excellent alternative.
If for some reason your kid doesn't need to earn money, there are always non-profit alternatives to choose from, like selling Girl Scout cookies or fundraising for the Boy Scouts of America or any number of charitable organizations desperate for additional help.
The point is that child labor, American-style, is a major positive in my opinion as long as it is accomplished within the guidelines above.
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 email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
