@theMarket: Month-End Musings

While the summer months are usually the slowest season on Wall Street, July has proven to be anything but. As we enter the month of August, can we expect the same?

Whether we focus on overseas markets or review our own, it is clear that volatility remained and will remain elevated. Overseas markets in Asia took it on the chin, while the United States was trapped in a trading range that will continue in the month ahead. The good news is that this range appears to have an upward bias, so we can expect some minor new highs as time passes.

For the month, the S&P 500 Index managed to stay above water with a 2.2 percent gain bringing the year's total to an unsatisfying 2.4 percent. Large cap stocks beat small cap stocks, which are down 1.7 percent (but still up 2.2 percent for the year). China, on the other hand, one of my favorite overseas investments, saw its largest monthly loss in six years with the Shanghai market down 14.3 percent. European shares (another recent recommendation) gained 4 percent for the month after plunging earlier as the Greece bailout debacle roiled those markets. The U.S. dollar rose 2 percent but most traders expect the greenback to continue to consolidate in a trading range after experiencing big gains last year.

The commodities markets were where the largest declines occurred in July. Oil dropped 15 percent. Precious metals also declined, led by gold, which was down 7 percent. King copper (off 9 percent) led other base metals and materials lower. The agricultural commodity sector also felt the heat with wheat dropping by 18 percent, corn by 10 percent and soybeans 9 percent.

Investors blame the commodity decline on a perceived slowing of the world's economies led by China. Although the macroeconomic evidence is murky at best, most traders would rather sell first and find out the truth later.

"Is this a buying opportunity," asked one California client recently?

 "Not yet," I answered, and here's why.

While I suspect the commodity space is experiencing the kind of wholesale massacre one looks for when the end of a cycle is in sight that does not mean it is time to buy.

To me, commodities are an asset class that experiences boom and bust periods that sometimes will last for several years or more. The latest boom was a decade long and could now be followed by declines that can last an equal amount of time, depending upon the global economy, the inflation rate and industry specific factors like new and more efficient methods of mining, growing etc. For the most part, commodity prices also tend to under and over shoot their fundamental value and that's what makes investing in them somewhat speculative.

Let's take gold as an example. Gold began its latest run back in 2002. It climbed from $279/ounce to above $1,900/ounce by 2012. That 10-year run has been followed by a decline to its present price of around $1,090 today. I have been looking for a further decline to under $1,000/ounce. Assuming that's the bottom for this precious metal, that does not necessarily mean you should buy gold or any other commodity at that point.

Many commodities will usually take several years after that to "base," once they have made a low. During that further consolidation period, any investments you might make will be dead money. Dead money means your investments go nowhere. In the case of commodities, since none of them pay dividends or interest, the opportunity cost of buying and holding them could be severe. Better to wait until the beginning of the next bull market before committing money to this asset class. That could be another two years from now. I'll let you know.

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.

@theMarket: O Ye of Little Faith

What a difference two weeks make. Back then, if one took the warnings/advice of the media and much of Wall Street, we were facing financial Armageddon. Today, the markets are flirting with new highs. What lessons can we learn from that?

Number one: the media's first and foremost objective is to sell advertising, if that means scaring its target markets into staying tuned (or reading the next page) then so be it. And I'm not just talking about the fringe elements. Greece, China and Puerto Rico led the list of doomsday stories that littered the headlines of some of the top news organizations both here and abroad.

That's where Wall Street comes in. Reporters need sources and like politicians, many financial soothsayers thrive on publicity. They are more than happy to pontificate on "what ifs," which somehow become facts when translated into news stories.

Despite the fact that Greece represents less than 2 percent of Europe's GDP (Gross Domestic Product), the "Herd" intimated, hinted, or predicted (depending on who you were listening to) that the contagion effect of leaving the Euro would drag us all down into Hades. Greek Prime Minster Alexis Tsipras and his Syriza party was counting on just such a reaction from financial markets when he engineered his "No" referendum two weekends ago.

When the end of the world did not materialize, Greece did an abrupt about face and rushed back to the negotiation table. Since then, Greece has passed an austerity program and is now in the process of receiving much-needed bailout money. Greek banks and financial markets are planning to re-open this coming week.

In my last column, I advised readers that any fallout from the Greek debacle either here or abroad should be viewed as a buying opportunity. It was. World markets experienced a sharp but brief pullback. Since then various European markets have risen almost 10 percent, not counting the currency movements.

On our side of the pond, the financial mishaps in Puerto Rico, a U.S. territory, also spooked investors. Even the doomsayers had a hard time linking events in Greece to what was happening in Puerto Rico, but they tried. Some would have had us believe that what was happening in P.R. "might" happen in other municipalities like Chicago. Since then Puerto Rico has come up with a plan to restructure its debt, but that news never reached page one.

Finally, we have the Chinese stock market. Readers might recall that I was expecting a 20 percent decline or more in that market given its spectacular performance over the last 12 months. That prediction turned out to be more than accurate, since at its low the mainland Chinese markets were down over 30 percent.

Predictions that this market, which is relatively closed to foreign investment, would somehow provide a Black Swan event that would engulf our market and send the world into a financial meltdown was ludicrous. But, in an atmosphere of fear and worry, it was taken at face value by a panicked investing public. That decline was and is also a buying opportunity, although I suspect few have taken advantage of it.

Where does that leave us? The U.S. markets are at, in the case of NASDAQ, or nearing historical highs. So far this quarter's earnings have come in better than expected (surprise, surprise). The Fed is still making noises about hiking interest rates an infinitesimal amount before the end of the year. Greece has averted another calamity but the drama is far from over. I expect more Chinese government support to bolster their stock market.

We can expect 2-3 pullbacks or more in the stock market of between 3-9 percent every year. We just had one. As I have advised readers all year —stay invested and ignore the background noise.

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.

@theMarket: Global Markets Weather a Wild Week

After weeks of trading in a narrow range, world markets broke to the downside. The culprit was once again Greece. Now investors must wait until this Sunday to discover if there is more selling ahead.

Last weekend's move by Prime Minister Alexis Tsipras of Greece to call a voter referendum in the middle of last-minute negotiations with its creditors effectively destroyed what chance there had been for a reasonable solution to that country's debt crisis.

European negotiators from the European Union, the European Central Bank and the International Monetary Fund (commonly known as the Troika) stormed away from the bargaining table. They withdrew further financial support from Greece, which, in turn, forced the Greek government to close their banks and stock market, ration the amount of money Greek citizens could withdraw from ATMs as well as delay pensioner's payments.

When world markets opened on Monday, Asian markets were clobbered first with declines ranging from 2-5 percent. European markets followed suit with Italy, Spain and Portugal down over 5 percent. The larger markets, such as Germany, fell almost as much. By the time American markets opened, it was a foregone conclusion that the rest of Monday would be rough. By the time the smoke cleared, the S&P 500 Index, the Dow and NASDAQ were all down over 2 percent.

The moderate gains that U.S. markets had compiled year to date have disappeared. The averages are flat to only slightly up for the year as a result. Technically, we are quite near the S&P 500 Index's 200 day moving average (200 DMA), an important level.

I said last week that a 5-6 percent decline could happen at any time. So far this sell-off has barely registered minus-3 percent. That is nothing to fret over.

Europe, on the other hand, has already experienced a 10 percent correction (after a 22 percent gain in the first quarter). The continent could fall further depending on what happens Sunday. The situation in Greece is now in the voter's hands.

The broad strokes of the referendum appear to give the people of Greece the choice of voting "no" on the Troika's demands for increased austerity in exchange for further bailout money. Clearly, Tsipras (in a bid to stay in power) is squirming out of making that decision, even though he was elected to do just that. He is urging voters to reject more austerity, hoping to then use that verdict to extract more concessions from the Troika.

A "yes" vote would imply that voters would accept further belt-tightening measures as part of any creditor agreement. Whether Tsipras could survive such a vote is unclear. Wall Street seems convinced that the outcome will automatically set Greece on a path to either staying or exiting the Euro and the European Union.

Certainly, the European powers, led by Germany, are adamant that the referendum would and should be a decision on whether Greece remains in the Euro or returns to the Drachma. Unfortunately, they do not control the referendum nor how the questions will be phased. But given that the EU is both a political and an economic union, I believe neither side is going to get what they want. In which case, the drama will continue.

But I am certain that the decline in European stocks is a buying opportunity for aggressive investors. Europe will survive this mess, in my opinion, and prosper despite it. Like China, which is still in the throes of its own correction, European equities are not for the faint of heart. Remember too that with the purchase of European stocks (unlike China) comes the additional risk of getting the currency right. Will the Euro go up or down and over what time frame? I believe that over the long term the Euro will continue to decline but over the next six months, who can say?

Bottom line: if you decide to put your toe in the water over there make sure you do so knowing all the risks. Above all, keep your exposure toe-sized and no larger.

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 Market: Second Quarter Earnings on Deck

Next week we get to do it all over again. The second quarter ends in three days and investors will begin to focus on company results once again. The first quarter was nothing to write home about and the second quarter may be more of the same.

The final revision of first quarter GDP resulted in a contraction of minus-0.02 percent, which was less than the minus-0.07 percent decline that was originally reported. The culprits: bad weather, the West Coast port disruptions, a decline in energy spending and a strong dollar. Over the second quarter some of these negatives should begin to dissipate.

Weather has taken care of itself. The ports are back to business, although the logjam that was created by the labor strike could linger on and spill over into some companies' results. Energy spending is still down with little hope for an uptick until oil prices improve. After reaching a bottom in the low $40s, oil has traded in a tight range around $60 a barrel for weeks.

The dollar has halted its ascent and has also been trading in a tight range against most other currencies over the last several months. That may have allowed multinational companies to hedge their exports at more reasonable levels. However, the dollar has not really declined much from its 12-month highs. That could mean there could still be currency related earnings declines.

Wall Street analysts had originally been predicting earnings would decline by 4.7 percent last quarter, but when all was said and done earnings actually registered a 0.30 percent growth rate while the total revenue decline was minus-2.9 percent. At the end of March, analysts were still expecting that second quarter earnings would decline by minus-2.2 percent. So far 77 companies have issued negative guidance for the quarter, while only 29 have issued positive forecasts.

The earnings season won't get into full swing until the second week of July, but given the lack of other things (except Greece) to fret about, investors may pay undue attention to the results. As I have mentioned before, I'm not looking for many upside earnings surprises this quarter. Earnings will be ho hum for the most part and as a result will continue to cap any potential gains in the stock market here in the U.S. I expect we will see much better news in the third and fourth quarters, however.

Where does that leave us — in a continued trading range that could take us into August or even September. We could see a 5-6 percent pullback at some point, especially if the Fed does decide to raise rates in the fall.  If so, I would expect any sell-off to be temporary at best and an opportunity to buy the dip. In the meantime, I still see better prospects overseas.

China is in the midst of a much-needed pullback in its A shares market. We are only 100 or so points from a full 20 percent correction in that market in just two weeks. As I have warned readers several times, Shanghai is one of those wild and wooly markets that should not be more than 5-10 percent of anyone's portfolios.

But it is almost always a good idea to buy "when the blood is running in the streets," as Baron Rothschild once said. It doesn't get any bloodier than this in Shanghai for those with a brave heart and nerves of steel. No one ever calls the bottom, but buying a little at a time as a market declines is the way I do it.

As for Europe, investors are exhausted over the wrangling between Greece and its creditors. I believe that any negative fallout from Greece has already been largely discounted by the markets.  Stay invested, stay calm and use any declines, especially overseas, as a buying opportunity.

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.

@theMarket: From Russia With love

The newest wrinkle in the Greek debt crisis occurred this week when Greek officials met with Vladimir Putin to discuss a gas pipeline extension as well as the possibility of lending the cash-strapped nation additional funds.

Deliberate leaks to the press during negotiations, accusations that Europe is blackmailing Greece and constant grandstanding by Geek Prime Minister Alexis Tsipras has not only turned off EU, IMF and ECB negotiators, but has created a growing chorus of those who just want an end to the farce. There will be another last-ditch attempt at some sort of reconciliation on Monday, in an emergency summit of sorts in Brussels. Greece still has 12 days to make its monthly debt repayment of $1.8 billion to the IMF.

It is somewhat interesting that Tsipras, who is the leader of a nation that has been long-called "the Cradle of Western Democracy," would be embracing Putin, the antithesis of all-things democratic. To me, it is simply another bargaining chip. A desperate Tsipras, who has increasingly painted his nation into a corner, has managed to alienate and increasingly isolate himself and his nation from the rest of the European Community. Thus we see Putin enter stage left.

The Russian gambit is to peddle investment and loans for influence and political gain. The two nations are discussing a preliminary agreement to build a gas transmission extension of its Turkish Stream pipeline that will bring more Russian gas to Southern Europe over the next few years. This is a multibillion dollar project for Greece, which is starving for capital.

The last thing the U.S. wants to see from a geopolitical point of view is a growing alliance between Greece and Russia. That could present a strategic nightmare for the U.S. and NATO. A decisive shift in Greece's allegiances from the West to Russia could roll up NATO's eastern flank. At the same time, it would most likely end any chance of maintaining a united front with Europe in the context of continued economic sanctions against the Russians.

All of this posturing is keeping traders on edge going into the weekend. Rumors that Greek banks won’t open on Monday, that a deal is in the works between the ECB and Greece and any number of other stories are flying around Wall Street on an hourly basis. Readers, there is no way you can position yourself for what is to come. The outcome and the reaction of global markets are impossible to call.

What I can say is that if the worst happens and Greece gets booted out of the Euro, it will only have a short-term impact on markets. It would be (in my mind) a buying opportunity and not a reason to sell.

As for the rest of the world, China (as I warned readers last week), is correcting with the Shanghai "A" shares market down over 10 percent since early June. What's the potential downside from here? I'm guessing a total 20 percent correction at worst, which would leave the "A" share market at the 4,000 level (versus 4,478 today). Given Shanghai’s 100 percent plus gain over the last 12 months, that’s not something I’m too worried about.

The U.S. market once again dropped to the bottom end of the trading range. Pundits predicted even worst to come but stocks did a U-turn instead gaining 3.5 percent in three days. Once again, the Fed's FOMC meeting was the catalyst for this most recent spike higher. No never mind that neither Chairwoman Janet Yellen nor the Fed said anything new. My advice: kick back, stay invested and watch the fireworks next week. It should be amusing.

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.