You may have heard of the newest wrinkle among central bankers. It's called "NIRP," which stands for negative interest rate policy. Several countries have already implemented this policy and are hoping their actions will stem the tide of deflation and low economic growth.

Although NIRP by its nature seems complicated, it really isn't. All you need know is that just about every bank in the world is required to keep a percentage of its customer's bank deposits in reserve in case their depositors want their money bank.  In our country, banks are required to keep 10 percent of those funds "in reserve" at the 12 Federal Reserve banks around the country. Now you know where the Fed gets its name.

Usually, banks get paid an interest rate by the Fed for keeping that money on the side rather than lending it out or speculating on pork bellies or buying derivatives on mortgages like they did back in the days of the financial crisis. In this country, the Fed pays 0.50 percent on excess reserves (the required 10 percent of deposits plus whatever other excess money the banks might have).

It might not sound like much, but when a money center bank has $100 billion to $300 billion in excess reserves, a half point interest can be worth a billion dollars a year or more.

Ever since the financial crisis, banks worldwide have chosen not to lend. Some of that reason is fear that borrowers won't pay back their loans (think housing crisis). A mountain of new regulations since the crisis has also put a crimp in the lending business, making it more difficult and costly to lend. Those who could borrow (like big, multinational corporations) are already flush with cash and don't need the money. So the banks choose to park their excess reserves at the Fed and earn easy money with no risk.

It is a phenomenon that plagues economies worldwide. In an effort to convince the banks to lend, several countries have opted to institute a negative interest rate policy. The European Central Bank was the first major institution to adopt NIRP. They are now charging banks to hold their money overnight. Presently banks are paying the ECB 0.40 percent. Japan, whose economy is still struggling despite its quantitative easing program, followed suit and implemented their own NIRP a month.

In theory, interest rates below zero should reduce borrowing costs for companies and households, driving up demand for loans. But if credit-worthy companies don't need to borrow and banks won't lend to those whose credit is questionable, this theory begins to fray.

At the same time, if banks decide to pass on this new negative interest rate cost to me their depositor, why should I keep my money in their checking account?

So the banks are caught between a rock and a hard place. They either eat the costs themselves or pass them on and take the risk that I withdraw my cash and put it under the mattress.

NIRP can also trigger a currency war. Negative rates may persuade global investors to move their cash from Europe or Japan, as an example, to the U.S. That would weaken the yen and the euro and strengthen the greenback. It would make our exports more expensive while driving down the coast of imports into America. Overseas in Europe and Japan, the exact opposite would occur. Their imports would be more expensive, while their exports would become more competitive. That's good for them but bad for us.

The "Donald," along with just about every other presidential candidate, is already threatening a trade war on this basis.

Some say NIRP is an act of desperation by central bankers who are running out of tools to prop up their economies. Our own Fed has said the idea has not been discounted and the idea is "in discussion." Clearly, Janet Yellen and the Fed members want to see if the textbook theory pans out.

Investors have already seen some baffling results of NIRP. The yen and euro have strengthened rather than weakened, which is contrary to economic expectations.  Although it is early days, banks overseas have chosen to absorb the negative interest rates rather than pass them on to consumers. That is hurting profit margins. There is no evidence to date that overseas banks are taking their excess reserves and buying more government bonds or highly rated commercial paper or lending more money out.

All of the above would spur economic growth. Until there is further evidence, I expect that the U.S. will simply watch and wait.

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.

Just when you thought it couldn't get any better, the Federal Reserve Bank gave investors everything they wanted this week. As a result, the indexes racked up their fifth week of gains in a row. Could there be six?

A combination of events has unfolded over the last few weeks that have driven the markets higher. A potential bottom in oil and its subsequent rise to over $40 a barrel has provided support as well as fuel for stock gains. Given my belief that "where oil goes, so goes the market," it should be no surprise that the stock markets have now regained all the losses suffered in 2016. Oil, by the way, is also at around the same price it was at the beginning of the year.

This week after the Federal Open Market Committee Meeting (FOMC), the U.S. central bank announced that they would keep interest rates the same. They also lowered their guidance on the number of times they anticipated raising the Fed Funds rate this year from four to possibly twice. Traders read those comments as bullish for stocks.

Readers may recall last week's column where I pointed out that the indexes had reached a critical level. In order to advance, the stock markets had to break through their 200 Day Moving Average. They did. The S&P 500 Index decisively moved above 2,019 and the Dow breached its 200 DMA as well. Since then stocks have methodically gained ground.

By now it should be clear to you that none of the bearish predictions that panicked investors over the first two months of the year have come true. As the markets go higher, the very same talking heads that were predicting markets would go much lower are now changing those forecasts. Most of this noise occurs within the financial media. You do yourself no favors by paying attention to it. The dribble you receive from television shows or emails from hucksters who are regularly predicting the end of the world is the worst kind of information.

Stocks will continue higher for now, although pullbacks will certainly occur with regularity. As a potential target, I would guess that we have a good shot at regaining 2,100 on the S&P 500 Index.  We may even touch the old highs (S&P 2,134) or close to it. But that does not mean that all is smooth sailing for the remainder of the year.

Do not be surprised if the averages decline again sometime this spring or summer as election fears spook investors and traders alike. In hindsight, I believe this year will be remembered as one of the most volatile in recent history. As such, you should carefully review your risk tolerance.

The last five years of positive (and outsized) gains that the stock market has delivered may have lulled you into a dangerous level of complacency. Historically, stock investing has not been for the faint of heart. This year has simply provided a reminder of that fact. In many cases, you may have fallen prey to "risk creep" or the tendency to become more and more aggressive in your investment choices as stocks climbed higher. It is time to revisit that attitude and those investments.

As I have written in the past, this is not your father's stock market. Central bank policies worldwide have created an entirely new playing field. It is a game whose rules and results are both hard to predict and may have consequences that no one imagines right now.

A brief look at today's currencies, for example, illustrates that point. Central bankers have engineered interest rates and quantitative easing in an effort to grow their economies and goose exports. But these same policies seem to have had the opposite impact. Negative interest rates in Europe and Japan have actually led to stronger currencies while our own policies appear to have softened the dollar's strength. None of this was in the game plan and yet it is happening right now.

Gold seems to be a beneficiary of these actions. Speculators, unsure of why and what will happen to currencies next, are flocking to precious metals as a way to protect their money or at least hedge their currency risk. As such, gold has proven to be one of the best performing assets thus far in 2016.

However, that does not mean it will continue outperforming. At any time, new central bank policies might cause this profitable trade to unwind. The potential for a sever downdraft in prices is high. Investors need to be able to weather 1-2 percent changes in price on a daily basis. Can you stomach that kind of volatility?

Over in the oil patch, price gyrations are even more pronounced. Sure, this week we have seen oil gain anywhere from one to 5 percent on a daily basis. Next week, if some oil minister somewhere shoots off his mouth, we could just as easily see declines of that magnitude. The point is that there is no way of knowing what happens next. Therefore, you need to own a portfolio that you can live with in this kind of environment.

We all wrestle with fear and greed. A more defensive portfolio will almost automatically guarantee you a lesser rate of return, at least on the days and months that stocks go up. It is a different story when markets go down. You need to strike a compromise, a balance per se, between what you are willing to lose in opportunity (upside) versus the costs of sustaining double-digit losses (if only on paper) for days or months on end.  I suggest you do that now and if you have questions email or call me.

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 Establishment — Economists, politicians of both parties, Wall Street and Corporate America — are horrified. One of the linchpins of capitalism has suddenly come under attack. The growing anger over free trade is threatening more than 30 years of trade deals with the rest of the world. It was a disaster waiting to happen and we have only ourselves to blame.

Theoretically, free trade benefits everyone. These benefits include comparative advantage, which allows companies that can produce certain goods and services cheaply and efficiently. This will provide consumers with lower priced goods, increase exports globally, allow economies of scale among industries and nations and create a greater choice of goods for everyone worldwide. So what's the problem?

If you ask proponents of free trade about these benefits, they are quick to point out while free trade creates jobs, those getting these new jobs are different from those who lose them. In addition, there will always be winners and losers in trade deals. Unfortunately, those who lose feel the loss almost immediately and the losses are quite specific. Identifying those who win, on the other hand, usually takes far longer and the benefits are diffuse and sometimes quite nebulous.  

As such, free trade is a contentious issue in just about every presidential election in the last 30 years. The passage of the North Atlantic Free Trade Agreement (NAFTA) back in the early Nineties was controversial, to say the least. Today, older Americans in the "rust belt" (in states like Ohio and Indiana) are convinced that NAFTA decimated the working class in their region and manufacturing in general in this country.

They have a point. It is true that in 1980, for example, a full 20 percent of Americans worked in manufacturing and now that figure has shrunk to only one American in 12 holding a manufacturing job. Whether those jobs were lost by NAFTA and other trade deals or because technological innovation reduced the need for a human labor force is the subject of unending debates. I suspect that a lot of both variables were at work in our manufacturing sector.

Clearly, over three million manufacturing jobs were lost to China, thanks to China's inclusion into the World Trade Organization in 2001. Their membership required the U.S. to lower tariffs on Chinese goods and manufacturing in America has never been the same. Is it any wonder, therefore, that both Bernie Sanders and Donald Trump in their opposition to trade agreements of the past are seen as champions of the people?

Jobs, wages, and economic insecurity, amid the highest income inequality in the nation since its founding, are issues that have been brewing in this country for years. Voters simply need a rallying cry and someone to voice it. Trump, Sanders and free trade were accidents waiting to happen.

For years, politicians of both parties promised help but delivered the opposite. Both President Obama and Hillary Clinton promised eight years ago to withdraw from NAFTA in order to force Mexico to renegotiate the agreement. Clinton also promised a "time-out" on any new trade agreements. Yet, Obama went on to not only break his promise on NAFTA, but then pushed to win approval of three Bush-era free trade deals. He then negotiated the Trans-Pacific Partnership (TPP), the biggest trade deal in American history.

Clinton, as President Obama's secretary of state, conveniently forgot her NAFTA pledge as well while supporting the administration's TPP deal — up until recently. Thanks to Sanders' and Trump's opposition to past free trade deals, Clinton has made an about face as she tries to convince Rust-Belt voters that she too is against the Trans-Pacific Partnership. Republicans, for their part, have initiated the majority of free trade deals in modern history and have ideologically used free trade as one of the pillars of GOP-style capitalism.

Unfortunately, for the Establishment candidates, the electorate has wised up to their "promise them anything, but deliver them nothing" approach to politics. The voters are intimately aware that free trade deals have benefited Corporate America (with fatter profit margins and lower wages), Wall Street (by investing in these same companies) and Capitol Hill, which benefits even more from the hefty contributions to campaign chests and jobs by grateful constituents once they leave office.

Labor and small business have suffered the most. This is not surprising, given the demise of labor unions in this country. Labor has never been offered a seat at the table in these trade deals, nor will they, as long as the Establishment holds power. Is it any wonder that labor in this country casts a jaundiced eye toward free trade? Why should they believe those who promise future benefits that after three decades of trade deals have still not materialized for these victims of "free trade?"

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.

Stocks spent the last week consolidating. It was a necessary exercise, since stocks were overbought. Now that condition is behind us, and markets climbed higher by the end of this week. We are now at an important level. Call it a moment of truth that will indicate to investors whether the correction is over.

Up until now, the majority of traders have considered the 11 percent rally we have enjoyed in the S&P 500 Index since February nothing more than a bear market rally. But breaking above the 200 Day Moving Average (200 DMA) would make this an entirely new ballgame.

As I have written in the past, the 200 DMA is a technical level. It is simply a security's average closing price over the last 200 days. In the case of an index, like the S&P, it is the average closing price of the 500 stocks that comprise that index.  

It is probably the most important and cleanest indicator that analysts use to determine whether stocks are in a bear, versus a bull market. This indicator has kept investors on the right side of a trade for decades. For those who follow it, as long as the stock market stays below the 200 DMA, then investors should remain cautious. Once above that level, markets are considered to be back in a bull market.

The 200 DMA for the S&P 500 Index is 2019 and the Dow's 200 DMA is 17,153. As of this writing, we are already above that level on the Dow and very close to it on the S&P. We need the markets to decisively break above those levels and stay there.

The impetus for Friday's major gains in the averages came as Mario Draghi, the head of Europe's central bank, announced additional efforts to foster growth within the European economy. Draghi announced further interest rates cuts. Europe, like Japan, is now in a negative interest rate environment and is stimulating their economy with massive amounts of quantitative easing.

As in the past, whenever central banks announce additional monetary stimulus, stock markets have been conditioned to rise in a knee-jerk fashion. In this case, European markets are higher by 3 percent or more in Germany and France, while U.S. markets are up over 1 percent.

Markets have also been helped by the continuation of oils' price rise. Crude is fast approaching $40 a barrel from a low of $26 a barrel just a few short weeks ago. As I predicted, the agreement to freeze production by some of the larger oil producers, as well as production declines by a number of global energy producers has kept the energy rally going.

Next week the U.S. Fed meets, as does the Bank of Japan. Investors may see diverging actions by both entities. Japan seeks to further their monetary stimulus and, at the same time, weaken their currency. Here in America, the Fed will be considering raising rates again at some point this year. Fed Heads are debating whether Janet Yellen, the head of our central bank, will lean towards another rate hike as early as April or wait until June.

Investors should buckle their seat belts because central bank decisions have a tendency to move markets in a big way.

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.

If you think the human factor is rapidly disappearing from the workplace, you may be surprised to know that Skynet has arrived and even C-3PO and R2-D2 are being left behind.

Nowhere is this change more apparent than in the nation's banking system.   

Automation, robots and artificial intelligence is on the rise. At the forefront of this change is the nation's banking system. One of the reasons I know this is because my sister, Cassie, is in the banking industry. No, she is not in the corner office or hanging out in the executive suites.

Since 1965, she has worked as a teller and other front office jobs in her bank's branch offices.

She knows the business from soup to nuts and regularly interfaces with her bank's retail

"Fortunately, I'm fairly senior, otherwise, I would have been phased out a long, long time ago," she says, "Tellers and practically any other jobs performed by humans today will be phased out in this business."

What is driving this change is the opportunity for the nation's banking system to reduce costs and at the same time (hopefully) improve the customer experience. Although robots and automation have long been a factor in the nation's factories and even in areas such as space exploration and other dangerous or difficult environments, the promise of more advances in intelligent robots and artificial intelligence has not kept pace with expectations — until recently.

Breakthroughs in information processing and digital sensors, among other technologies, have vastly improved the capabilities and future potential of intelligent robots. That's not to say that you can expect robots in human form greeting you at your local bank door anytime soon.

The frontline benefits thus far have been in automating processes where human error is high due to high volumes of repetitive transactions.

Speed, accuracy and the efficient handling of large volumes in areas like the processing of thousands of checks and ATM transactions on a daily basis is where robots and automation comes into its own. As time goes by, experts say that banking jobs that could be most susceptible to this wave of change are tellers, loan officers, mortgage brokers, insurance claims and underwriters as well as claims adjusters, bookkeepers, tax preparers and accounting clerks.

"Knowing bank culture as I do," says my sister, "makes me believe that some functions, like loaning money to customers, for example, will remain in the human domain."

That may be so but replacing humans with robots, even in the front office has already started. At the flagship center of one of the Japan's largest banks, a customer service humanoid robot was introduced in April. The robot, developed by a French company, speaks 19 languages, employs various gestures, and analyzes facial expressions and behavior. It can and does deliver appropriate responses to typical client questions that a human receptionist would field.

In the U.S., two robots were introduced to local branches of Sterling Bank & Trust in the Los Angeles area. They are test models undergoing "training" as greeters. They also amuse customers by dancing, showing off some martial art moves and handing out banker's business cards to the delight of the bank's customers. In areas such as wealth management, investors can already opt to invest in robo-portfolios where software programs devise and invest money for reduced fees.

For Generation X and Millennials, who already do much of their banking via computer or mobile device, the age of robots may seem a logical and overdue development. For those of us who are still balancing our check books by hand, however, the era of robots in banking may be a bit of a jolt.

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.