On Friday, the European Union announced a new $157 billion bailout plan for Greece. The scope of the plan went much further than most investors expected. It promised to finance all countries that need bailouts for as long as it takes for them to recover. There's more.

I refer to the new plan as the "Full Monty" (see my column "Europe Goes the Full Monty") because it is the first time in the 18-month long crisis that European leaders were willing to draft a comprehensive approach to the financial crisis among the PIGS (Portugal, Ireland, Greece and Spain).  The plan will be proactive in heading off any further financial contagion among its members while fencing in those that already are in trouble (Portugal, Ireland and Greece).

The deal does allow for a "selective default" in Greece, where some but not all of its debt will be written off or renegotiated at lower terms and lengthened maturities. The plan does not go as far as I might have wished but in the real world of European politics it appears the best that they could do. In my opinion, the crisis appears, if not over, to be at least contained for now.

That crisis is one of two large clouds that have been hanging over the markets for months. The other bailout issue is in our own backyard. And, as I suspected, our elected representatives are stretching out the tension as long as they can. Both sides are glorying in their extra media attention, using their 10-15 seconds of sound-bite glory to appear concerned, tough and "on your side" (while raising as much additional campaign funds as possible for next year's elections).

Here are a summary of client questions and my answers this week on this on-going travesty:

"Will the debt ceiling be raised by the August 2 deadline?”

I'm betting yes, but that still leaves 11 days of volatility in the bond and stock markets.

"What will happen after the deadline, if the ceiling isn't raised?"

As I wrote last week, the markets will decline in the short term, presenting a buying opportunity for anyone brave enough to venture into equities.

"Will the Gang of Six deficit-reduction plan be passed?"

I suspect some version of that plan will be passed but the question is when. The Republicans want to prevent any legislation that might improve the economy or reduce unemployment until after next year's elections. They hope voter frustration over the economy will propel their party's candidates into office and defeat a re-election bid by President Obama.

Unfortunately, the nation's financial credit agencies are not cooperating with the GOP timetable. They have made it clear that without a serious, comprehensive deficit–cutting plan in the ballpark of $4 trillion or more, they will cut the U.S. debt rating. I suspect we will be on "credit watch" until a deficit reduction deal is passed, which means that we will be assaulted by this back-and-forth bickering for some time to come.

"If and when the deficit plan is passed, can we go back to whatever normal is?”

That depends. I believe that cutting spending and raising taxes in an economy that is struggling to gain momentum exposes this recovery to extreme danger. Cutting spending too deeply while raising taxes too much (and shrinking the money supply) is exactly what nipped a fledgling recovery in the bud and sent the U.S. economy into a depression in the '30s. Ask yourself this question: do you feel confident that a bunch of madmen in Washington have the ability to strike just the right balance in order to grow the economy while reducing the deficit?

But let me worry about that. It will take weeks, if not months, for such a compromise to be worked out. In the meantime, this last storm cloud appears to be moving to the edge of the horizon for now. I expect some real progress on a compromise next week.

The economy may be inching along, but corporate profits are booming. This earnings season so far is seeing the vast majority of companies beat earnings and increase guidance. This debt crisis is repressing what should be a buoyant stock market. Like a coiled spring, stocks are just waiting to bounce higher. If and when the debt ceiling is passed, that will happen.

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 e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.

A new rescue plan for Greece is being hammered out in Brussels today, Thursday. Although the details are yet to be released, it appears that the European Community is finally going for an overall plan that will do more than just Band-Aid over the debt crisis of southern Europe.

Greece, of course, is the bad boy of that continent but Ireland, Portugal and even larger economies like Spain and Italy are being added to the list of troubled nations. Up until now, the EU has grudgingly provided bailout money in exchange for economic austerity measures that have only driven these countries into deeper recessions and increased social discontent.

The new aid package to be announced will be a departure from this bankrupt strategy. Instead, the EU will tackle the root cause of the issue and reduce the overwhelming debt burdens of Greece, Portugal and Ireland. It will allow the EU's rescue fund, called the European Financial Stability Facility (EFSF), not only to buy that debt but also reissue new debt (loans) at much lower interest rates. It could also extend the maturities on new loans to these countries from an average of 7.5 years to 15 years or more.

The EFSF will also be able to aid troubled banks by lending money to various euro-zone governments (who will then bail out their banks) pre-emptively. No longer will governments have to wait for the crisis to hit before doing something about it. The EFSF will also be able to buy and sell sovereign debt of any of these countries on the open market in cooperation with the European Central Bank. That should discourage rampant speculation in these instruments, which has exasperated the crisis.

These moves, which were all rejected by Germany up until now, will form the basis of the equivalent of a Marshal Plan for Europe. I believe it is the best plan yet to address the financial contagion that has been pulling down one country after another within the EU. By reducing existing debt to manageable proportions and giving the beleaguered nations breathing room to repay it over many more years, the burden becomes more manageable. No longer will Greece, Portugal and Ireland have to slash spending and raise taxes while scrambling to find a way to pay back the loans and grow their economies all at the same time.

I had maintained that it was impossible to accomplish that feat. Readers may recall that over the last year I have been writing (and hoping) that the EU would see the light. This program, while not exactly the route I would have taken, is far more comprehensive than their past plans of simply kicking the can down the road.

An important change, and one that the European Central Bank had been resisting, is the possibility of allowing a "selective" default occur in Greek government debt. How that would happen is still not clear but it might include a bond-exchange program, a write-down of some of the debt or a buy back by the EFSF of a portion, say 20 percent, of heavily discounted Greek bonds.

The markets have been wrestling with just how such a default would impact Europe's banks, which hold billions of Euros in the sovereign debt obligations of the PIGS (Portugal, Ireland, Greece and Spain). Will a "selective" default of some Greek debt trigger the credit agencies to move toward a more negative stance on EU banks? If today’s prices of European bank stocks are any indication, the markets believe that there is a plan to avoid the credit agency's wrath.

All we know at this time is that private institutions in the financial sector will be given a number of alternative methods on how to assist in financing Greece's debt now and in the future. Some of the ways this can be accomplished are debt exchanges, roll overs and/or buy backs of existing debt.

I am sure that the details will need to be ironed out and, as usually happens with a plan this large, it will be a work in progress with lots of trial and error. What is important is that Europe's leaders have finally come to understand that the theatre we have been watching for almost two years needed drastic changes. The solution to the Greek financial crisis demanded that the actors revisit the stage with a new act. This week they have responded with an economic Fully Monty. I say, Bravo!  

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 e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.

This week the scales finally tipped. The phones began to ring and each call was roughly the same.

"What are the chances the debt ceiling won't be raised?"

"What happens if the politicians can't make a deal?"

"What will happen to my investments if the worst case scenario happens?"

Since the calls were coming in from Maine, Vermont, New York, Connecticut, Massachusetts and elsewhere, I'm sure you are all worried about the same thing. If, despite the odds, the debt ceiling is not raised by Aug. 2, 2011, the United States of America plunges into at least a technical bankruptcy. What will happen to the markets? The short answer is nothing good.

This is not an abstract issue. The dollar, as well as global stock and bond markets, would decline. The price of gold and possibly silver would jump but very few other asset classes would be immune from the carnage. The wave of selling would reverberate around the world because everyone is involved in America's bond market. The duration of this financial rout would probably be short lived, a day or three, maybe even a week, before our political "leaders" in Washington came to their senses. Personally, I believe that it would be a classic buying opportunity and one probably not seen since the week after 9/11.

A recent poll by CNBC indicated that 64 percent of viewers are blaming the Republicans for the present impasses in the debt ceiling talks. As for me, I blame us, the voters — Democrats, Republicans (especially the tea party) and independents for the present dilemma. I wrote "leaders" in quotes because the present fiasco has convinced me that there are no leaders left in Washington, D.C.

But why should that surprise you? The present blame game that is substituting for compromise among the congressmen and senators is a joke if one looks at the track record of these supposed leaders. President Barack Obama continuously reminds us that the problems started during the Bush administration. But he was elected to the Senate in 2005, just as the real excesses of mortgage-backed securities was getting under way. Joe Biden was a senator from 1972 until running for vice president in 2009. Where were they when we needed leadership and an effort to end the rampant speculation that was occurring on Wall Street?

Rep. Barney Frank was the chairman of the House Finance Committee before and during the financial crisis as was committee members Orin Hatch, John Kerry, Chuck Schumer and even Ron Paul. All these august officials were asleep at the switch despite receiving a wealth of information daily on the nation's financial system.

Rep. Rosa De Laura has been around since 1990 and sits on the House subcommittee on Labor, Health and Human Services. Steny Hoyer has been in the House since 1986 and was House majority leader from 2007-2011 and House minority whip from 2003-2007. Nancy Pelosi was the speaker of the House since 2007 and is now House minority leader; that about sums up the background of today's starting line-up on the Democratic side.

Republicans, on the other hand, beginning with our past president, presided over the financial crisis from 2000-2008. During that period, Eric Cantor, Paul Ryan, John Boehner, Mitch McConnell and many more of today's "responsible" budget-cutting GOP leaders knew and did nothing but watch as the financial system spun out of control. They too have conveniently forgotten their past lack of leadership and are busily blaming the opposing party for their own shortcomings.

Today we are looking to these same men and women to compromise, to work together and fix the economy, balance our finances, raise the debt ceiling and solve the nation's unemployment problem. We elected them, despite the knowledge that these very same people have been found wanting in the past. Why should we expect them to be any better today?

So let the chips fall where they may. I expect that until we have a deal the markets will continue their schizophrenic behavior. The best thing you can do is hunker down and wait for this storm to blow past.  

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 e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.

While the investing world is distracted by the U.S. debt ceiling crisis and the on-going drama of Italy and Greece, I've noticed that a small but increasing stream of money is finding its way back into some emerging markets.  

Last year, I advised investors to lighten up on emerging markets. That proved to be the right call. The Chinese market is now below the levels last seen in late 2009. India and Brazil have lagged world markets as has Russia. But usually you want to begin to invest in these markets before their stock markets turn. Today, I think it may be the right time to start nibbling in the area. Here's why.

The increase in commodity prices was a major negative for many emerging markets, notably China, India and Brazil. Their factories are voracious users of energy, such as oil and coal and a host of base metals and agricultural food stuff. When prices of these inputs go up, combined with a fast growing economy, inflation follows quickly.

Many emerging market governments have had to contend with this problem by tightening credit and raising interest rates over the last two years. When commodity prices come down, as they have done over the past four months, it relieves some of the inflationary pressure and allows governments to loosen monetary policy a bit. That reversal of fortunes is happening at the moment.

China, the big dog of emerging markets, has raised interest rates five times this year. Last week, they raised them again but indicated that it may well be the last hike this year. The Chinese central bank has not changed its rigid stance toward fighting inflation quite yet, but it expects to see some lessening in the inflation rate this month. Investors have worried that all this the belt-tightening in China (and other countries) would lead to a "hard landing" for the economy, but the country reported steady growth for the second quarter coming in at 9.5 percent, only slightly lower than the first quarter's 9.7 percent growth rate.

But things have changed in the investing landscape among emerging markets. Gone are the days when one could simply buy a fund that is exposed to all emerging markets and hope to prosper. Brazil and other Latin countries, for example, are tied to the prices of the commodities they produce, so what may be good for China, may be bad for Brazil.

India, like China, has an inflation problem but seems to have a better handle on controlling inflation and imports more natural resources than it exports. Some other Southeast Asian countries such as Vietnam, Indonesia, Malaysia, Singapore and Taiwan have their own set of economic variables, although many of them still depend on China's continued growth for their own prosperity.

Korea, on the other hand, may not even be an emerging market any longer in my opinion. Latin American countries like Mexico, Peru, Chile and Argentina join Brazil in combating high inflation brought on by the very thing that is responsible for their growth, natural resources.

About the best that can be said is that as emerging markets develop, each country's particular set of circumstances can provide both an opportunity and a challenge. Gone are the easy-money days of simply buying them all and watching your portfolio go up and up as it had in the period of 2002-2007. Now it takes some homework and a bit of luck.

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 e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.

Up until Friday's disappointing unemployment numbers, the stock market appeared ready to regain the year's high all in one week. However, the ugly news that the nation hired a meager 18,000 of our unemployed dashed investor's hopes that the economy might be gaining strength in the second half.

Equities plummeted across the board, as did commodities, while Treasury bonds and gold provided safe havens for worried investors. The Republicans were quick to call a news conference highlighting the Obama administration's failure to create jobs while providing platitudes on how to get America back to work. Unfortunately, neither party has come up with anything close to effective in combating unemployment here at home.

Unfortunately, much of what ails our country's work force has little to do with the here and now. For years, unskilled jobs in environmentally unfriendly industrial and manufacturing industries have been exported overseas. At the same time the construction sector, which had absorbed so much of the unskilled labor pool, is in the doldrums.

Both the government and private sectors have exhorted America's future workers to stay in school, go to college or technical school and obtain skills that would be salable in the new service/technical economy of the country. Instead, the dropout rate has increased while our educational system has continued to decline. Older workers, for the most part, have also refused to either go back to school or acquire new skills.

Now, before we get all jumpy about one month's unemployment numbers remember that the standard deviation (the accuracy) of any one job number is plus/minus 100,000 jobs. That’s right, this week’s number may be off by as much as 86,000 and we won’t know the true figure for months!

But the string of disappointing employment numbers recently has quite a bit to do with layoffs in the public sector. Recall that there was a big spike in the unemployment rate a few months back when U.S. census workers were terminated. Now we are experiencing a new wave of municipal layoffs. Federal aid to states has declined drastically. At the same time, almost every state finds itself in debt with the need to balance their budgets. So unemployment is being fueled by layoffs among state workers with the biggest hit in the health and education areas.

What concerns me most about that is the demand by the Republicans (Tea Party) to cut spending drastically right now. Has anyone given thought to how that is going to impact unemployment and growth in the next six months? For some reason I can't fathom, the GOP believes as long as taxes remain the same everything will be fine. That math doesn't add up.

What I hope comes out of Sunday's negotiations between the leaders of the two parties is a plan to cut the deficit over the long term while continuing to stimulate the economy in the short term. You might argue that I can't have both. But what if we all agreed to cuts in entitlements such as Medicare/Medicaid and higher taxes but wait a year or two, say 2013, before putting that plan into action? At the same time, continue tax breaks this year for both corporations and individuals.

That would give the economy the breathing room to gather strength while giving all of us a heads-up on what's coming around the corner. A deal like that would give the markets confidence that Washington is doing something about the deficit while removing another stress factor (the debt ceiling) from the markets. As for the markets, I remain bullish. After a 6 percent move up in one week, a 1 or 2 percent decline would be a normal reaction.

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 e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.