@theMarket: The Deals Begin

This week's ongoing controversy between Mexico and our new president over trade and the construction of "the wall” has investors concerned, confused and apprehensive. And still the markets gained ground.

I believe we are witnessing the opening gambits of President Trump's "Art of the Deal” as it applies to global economics and politics. It will take some getting used to on the part of investors and all Americans. So far the markets, at least, are going along with it.

We finally hit that elusive 20,000 mark on the Dow Jones Industrial Average. That's no big deal and has little importance to technical analysts. New record highs, on the other hand, which were achieved by all three averages this week, are important.

The S&P 500 Index is inching ever closer to my short-term target of 2,330. The high this week was only 30 points from that mark. Before you ask (because I know you will); there will most likely be a pullback once we hit my target. How much, let's say 3-5 percent.

If I know human nature, right now you are thinking; "if I am expecting a sell-off of that magnitude, why then don't I liquidate my positions, step to the sidelines and get back in at the bottom?”  Sounds easy enough but that's a fool's move for the following reasons: Number one: it might not occur. With Trump in the White House, anything can happen and probably will. We could receive some stupendous news on a new initiative that could send stocks skyrocketing.

Number two: if I sell, when do I get back in? I said a possible 3-5 percent decline. What if it is only 2 percent? Do I wait for more; do I buy back in only to see markets decline another 6 percent?  Do you see the dilemma?

I have fielded enough calls in the past by readers who sold everything because they believed the markets would go down. They were right but then stayed in cash, expecting even further downside. Instead, markets moved higher, much higher in some cases, and then the calls and e-mails began, pleading for guidance.

Do not try to be cute. This is what you must understand as stock investors: lasting declines are brought about by large fundamental changes, for example; war, skyrocketing interest rates, huge tax increases, financial crisis, unexpected declines in GDP, global trade wars, etc. Unless one of the above is in the offing, stock market declines are simply the cost of doing business in the equity market. Readers of my column should know that by now.

On a different topic, whether you want to discuss it or not, the emotionally-charged environment around Donald Trump can and will impact your investment portfolio unless you take care.

Last week, I was visiting clients in Manhattan, which explains the absence of my column. It was an interesting few days in the Big Apple, full of protests and the largest women's march in history. As you may imagine, inhabitants of New York City are not huge fans of our new president. In fact, many there fear the worst for the country and the economy over the next four years.

"Look what he is doing to Mexico," was their lament, "he is threatening a trade war and not just with them. He will ruin the economy and get us in a war with China."

As an investment adviser, I found myself in the peculiar and uncomfortable position of acting as an apologist for the new president. Donald Trump is far from perfect, but I do not believe he is the devil incarnate we all think he is, nor will his policies bring us to financial ruin. He will be a catalyst for change. Whether that change is for the good or the bad, remains to be seen. Until the facts are in, I will stay invested. In the meantime, part of my job is separating fact from fiction and emotion from investing. It is especially important when managing other people's money.

In a world where false information is treated like facts (even among the nation's leading media), where Twitter "tweets” seem to be the new lines of communication between nations and opposing parties paint extreme conclusions to every initiative, my clients (and you) need me more than ever. You may not always agree with me, and I receive mountains of hate mail to prove it, but I promise to do my best to tell you the truth as I see it, even if you don't like it.

Note: Several weeks of Mr. Schmick's columns in January & February disappeared into the ether on their way to iBerkshires. They are being back posted to the dates on which they should have appeared.

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. 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.

@theMarket: Quarterly Earnings Will Dictate Market's Direction Next Week

Fourth-quarter earnings results for the nation's corporations kicked-off this week. Investors will focus on those numbers as they wait for the really big show at the end of next week.

Our president-to-be will be inaugurated next Friday with all the usual fanfare. Investors and the markets usually ignore these displays of pomp and ceremony, but not this time. Whether it is the mercurial nature of our new president, or the fact that a lot is riding on how successful he will be out of the gate, the stock market is hanging on every word (or tweet) he makes.

Consider his press conference this week. To many, he did not say enough about his corporate tax cutting or spending plans. Traders sold the market down in a hissy fit. The pharmaceutical and biotech sector sold off hard when Trump reiterated that drug companies would be called on the carpet for their pricing behavior.

Buyers, however, saw the market's weakness as an opportunity. As a result, the damage was contained and markets have since recovered. This, I believe, will be what we can expect from the markets in the coming week.  Trump's first hundred days, according to his transition team, are chocked full of initiatives, some, truly revolutionary. I don't see the markets taking a big fall unless it is clear that all of Trump's efforts will amount to naught.

In the meantime, earnings will drive the averages up (or down) depending on how robust the results actually are. Readers, by now, should know that the earnings game is a rigged casino where earnings estimates are deliberately low-balled so that companies can "beat" expectations. As such, the flurry of activity around results is purely trading-oriented and should be largely ignored. What most investors are expecting, however, is that after six quarters of declining earnings results, American companies are on the mend. If overall results do not buttress that belief, then the whole ‘growing economy' thesis could be in jeopardy.

In any event, bank stocks were first out of the gate and results were respectable, if not stellar. This is a case in point. The financial sector has gained almost 17% since the election. The gains were fueled by two factors: the Fed was finally going to start hiking interest rates, which is good for bank lending. Second: investors expect big changes in bank regulation, which would also help bank profits.

Although one day does not make a trend, the initial reaction to Friday's slew of banking results indicate that investors are pleased with the results, and especially with the more than rosy guidance most managers see in their company's future. I do believe that over the long-term, financial stocks are an interesting investment.

But rather than pin my hopes on any change in regulations, I believe the trend toward rising interest rates is what makes the financial sector attractive to me. Sure, I would like to see prices fall back a bit; but nonetheless, I believe that, like health care, the trend is your friend in this sector. If, at some point, Congress does alter banking regulations in a way that further benefits banks, well, that's just gravy.

We have now concluded four weeks of sideways consolidation. I consider this action part of the correction I have been writing about. We are simply digesting the gains made in November and December. Technically, 2,250 is support for the S&P 500 Index. A move below that could easily happen, but would only indicate additional downside to 2,230 or so. That is well within the range of acceptable downside, considering the gains we have made. Stay long for now.

Note: Several weeks of Mr. Schmick's columns in January & February disappeared into the ether on their way to iBerkshires. They are being back posted to the dates on which they should have appeared.

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. 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.

@theMarket: Markets in Good Shape for Now

As the equity markets continue to consolidate around record highs, investors wait for the presidential hand-off on Jan. 20. This could turn out to be the best thing that could happen for the bulls.

Remember readers, there are two kinds of corrections; the kind we have been experiencing for the last three weeks, and the nasty kind that no one really wants to go through. The longer we back and fill, the greater the chances that the next move will be higher.

The caveat, of course, is that investors' expectations will be satisfied, once Donald Trump and Congress get down to work. That could be a big if. So far the only thing the press, the politicians and Donald Trump appear to be engaged in is a discussion on whether or not the Russians tried to hack the DNC and/or RNC. No one has said they got away with it.

Come on people, why are we wasting time on this subject? Ask yourselves how many times the United States government has actively or surreptitiously interfered with another country's election results? My God, American legislatures and presidents have actively condoned all sorts of black ops, bribery and election rigging in other countries for as long as I have been alive. In return, every other country does the same thing with varying success. It is what countries do.

The repeal of Obamacare was the other, more substantial, topic of conversation this week. Note, I use the word conversation, as opposed to any action or concrete proposal, from those who want to trash the Affordable Care Act. As I have written in the past, I expect some of the good parts of that bill to remain in effect. Early indications are that GOP legislators feel the same way.

The initial legislation was never meant to be the end-all or the final version of America's stab at universal health care. The problem was no one in Congress, after the first two years of the Obama reign, was willing to do anything to improve the original legislation. Now, the Republicans are willing to do something. I say it is about time.

Do I really care what name they call it, or if it is done via the public or private sectors?  As long as the GOP makes health insurance more affordable for Americans, I say go for it. Protect our kids and oldsters, while including more and more people into a safety net of health coverage and I'm fine with it. From an investing point of view, the health care sector is one area that I see value right now.

Big Pharma and biotech have been sold off by investors fearing the worst from politicians. Both Clinton and Trump promised to somehow get a handle on drug prices if they were elected. And now, thanks to the attack on Obamacare, the whole health care system could be up for grabs. No wonder investors have shunned those areas. They may be right. But I'm willing to take a chance that, regardless of outcomes, our health care sector will flourish in the future.

This is coming from a 68-year-old investor who has seen the inside of hospitals four times in two years. My knee replacements alone cost upwards of $100,000 and I'm only one patient in a booming business.  Anyone want to bet on how many more times I will be visiting doctors, nurses, or taking prescription meds before I join those ghost riders in the sky? Demographics dictate that more and more Americans will be accessing health care in the years ahead. Bet on it, because the trend is your friend, regardless of whatever tinkering the politicians may do.  

I am starting out this year as a buyer of stocks, especially on dips. It is too early to say whether my bullishness is going to last longer than, say, the first half of the year. There are just too many headwinds--interest rate hikes, stronger dollar, Trump and the Congress--for me to predict anything more than a comic book ending to 2017. All or any of the above could squash the market like a bug, but those issues will take time to work out. In the meantime, there is hope, and an investor base that so far views the cup as half-full. Let's ride that sentiment.

Note: Several weeks of Mr. Schmick's columns in January & February disappeared into the ether on their way to iBerkshires. They are being back posted to the dates on which they should have appeared.

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. 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.

@theMarket: Stocks Bump & Grind Toward Christmas

No surprise that stocks took a break this week. Profit-taking from the election rally has been the main theme over the last few days for investors and could continue through the New Year.

As traders desert their desks for holiday shopping (present company included), volumes have petered out as world markets experience a consolidation. Remember readers that markets can correct in two ways: a sharp sell-off or this kind of sideways movement.

Frankly, give me a good old consolidation anytime. They may be boring, but sharp declines, especially around the holidays, makes for unhappy investors and can ruin the office Christmas party. I am actually relieved that we have had the Santa rally a little earlier this year.

Over the last two weeks I warned investors not to chase the Trump rally. Greed has given way to common sense and another week or two of consolidation might relieve a large part of what I see as "overbought" conditions.

This week, U.S. investors did receive some good news. The economy actually grew by 3.5 percent, which was the fastest rate of growth in over two years. The third-quarter results were fueled by strong consumer spending, higher food exports, and a revival of investment spending.

Of course, the Obama Administration will get no credit for the facts that unemployment is at historical low levels, GDP growth is finally revving up and wage growth is starting to climb.

The new administration will take credit for this revival in investor's minds. The same thing happened in reverse when President Obama took office eight years ago.

George W. Bush left the Democrats with an economy in shambles, a financial crisis that rivaled the crash of 1929, and ultimately an unemployment rate north of 10 percent. Naturally, investors blamed the new guy for the old guy's mistakes. Well, nothing is fair in politics.

The reason I am bringing this up, however, is to ask the question -- how much of the "Trump rally"  should be attributed to the Donald's election and how much is simply a reflection of a turn in the economy that has been going on for the past few months?

Why, you might ask, is this important? Most pundits are crediting last month's market gains to Trump's elections. What if the gains were simply a celebration of a new-found strength in the nation's economy? It would make the levels in the stock market reasonable, especially if investors expect more good news in the future.

Of course, the future is a lot less predictable now than it has been in the past. We still have no idea how many of the president-elect's initiatives are going to bear fruit. In the meantime, the markets are being supported by the existing strength in the economy and a new-found "animal spirit" based on Trump's campaign promises.

But there are a lot of questions in my mind concerning some of those promises. Let's take the tax cuts that just about everyone is convinced are just around the corner. Tax cuts to investors, by definition are positive. But will corporations benefit from a 15 percent tax rate or a 20 percent rate? The difference is substantial, and exactly what will the fine print mean for various sectors?

What sectors will gain the most or will every corporation benefit equally? Will capital gains taxes be cut as well, and if so, by how much? Throw questions about the estate tax, individual income taxes and changes in both corporate and individual tax deductions (like mortgage deductions) into the mix and you may have some unexpected surprises. No one knows.

Then there is all this talk about a huge infrastructure program. Metals and mining stocks as well as cement, copper, steel, and God knows what else have doubled or tripled in the expectation that all these materials companies will benefit from trillions of dollars in government spending. Re-building the nation's highways, hospitals, schools, bridges, airports, electrical grids, etc., were certainly part of Trump's campaign promises, but the timing and method of spending is open to question.

Trump has said in a post-election New York Times interview that infrastructure spending won't be a core part of the first few years of his administration. He also admitted that a New Deal-type program would not sit well with the traditional Republican ethos. That's not to say he won't fulfill his commitment, but it might be so far in the future than the present prices of material stocks justify.

What we do know is that the new president will be unorthodox in his approach to many of the nation's problems. He may very well cut corporate tax rates and at the same time take steps to eliminate corporate cronyism. He may get his infrastructure plan, but convince the private sector to foot the bill, instead of government. He has already showed his penchant for deal making via Twitter.

The point is that the best may lie ahead of us, but attempting to discount the future without the facts is dangerous at best. Fortunately, the growing strength of our economy has less to do with Trump, I believe, and more to do with the policies of the past, especially those of the Federal Reserve Bank. To me, the future looks promising under a new set of Trump initiatives and should be reflected in higher levels in the stock market going forward. I would use any pullbacks in the months ahead as buying opportunities.

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 inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

@theMarket: Has Santa Claus Come & Gone?

The rally continued in the stock market as investors abandoned bonds and bought stocks hand over fist. Many think the best is yet to come, since the traditional end-of-year Santa Claus rally is still ahead of us.

However, between now and then, we have the Federal Open Market Committee meeting next Wednesday. The bond market is betting on the following: that the Fed Funds rate is raised by one quarter of one percent, and the FOMC meeting minutes indicate that the Fed may raise rates two more times in 2017. Anything more than that would be hawkish and most likely cause the stock market to correct. That happened last year and cut short the Santa rally.

If the Fed's actions, on the other hand, are in-line with expectations (or even more dovish) the chances are stocks will continue to rally and so will bonds. Although most investors focus almost entirely on the stock market, which has soared since the election, few realize the devastation that is occurring in the bond market.

I have continually warned bond holders that someday they would face Armageddon. It seems to be happening now. During the past three weeks, investors sold over $2.7 trillion worth of bonds. Almost a like amount of money has found its way into the stock market. But I suspect bonds are due for a relief rally fairly soon.

Aside from the upcoming Fed event, one must also look at the nature of the Santa Claus rally. Usually, investors sell stocks during the first two weeks of the month. It's called "tax-loss selling" where investors establish capital losses to offset gains that they may have booked during the year. This usually depresses stock prices across the board. After the selling abates, investors then buy back stocks during the last two weeks and into January of the following year.

This year, however, that has not occurred and with a good reason. Investors expect that under the Trump administration, the capital gains tax will be lowered giving them an incentive to hold on to their stocks until 2017. Given that behavior, stocks might be getting bid up now only to see disappointment in the last two weeks of the year.

The S&P 500 Index has already exceeded my target for the year (2,240). It is now 10 points higher at 2,250, which is a nice round number. There are some traders who believe that we can climb even higher. Some say the Dow could reach 20,000 (another round number) before the end of the year. Certainly, since we are only a few hundred points from that mark, there is nothing stopping investors from chasing stocks higher.

To me that's pure gravy.  I had been expecting a mid-single digit return for the market and year-to-date we have gained a little over 6 percent. Close enough for government work. So what to do between now and the end of the year?

Sit tight and enjoy the fireworks. In the very short term anything can happen.  If we don't have a pullback in December, chances are we will have one in January, but not to worry. I expect that the stocks will continue to have an upward bias at least through the first 100 days of Trump's reign.
 

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 inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.