Patience is a virtue that many investors find difficult to master, present company included. However, this time it appears to have paid off. The tight trading range that held the market captive over the last few weeks has finally been broken. Unfortunately it was to the downside.

This week, especially Thursday, a major sell-off occurred across all asset classes — equities, gold, silver, crude — with economically sensitive stocks leading the decline. It is a key indicator, for me and suggests that the flush-out, selling climax or whatever you want to call it is beginning.

The ostensible reasons for this rout were numerous: a sudden and surprising trade deficit in, of all places, China, a downgrading of Spanish debt by another credit agency, a jump in U.S. jobless claims and of course, some further bad news from the Middle East. This time the concern is riots in the eastern part of Saudi Arabia.

On Friday, all these troubles took a back seat to a devastating earthquake/tsunami that struck Japan spawning another tsunami that raced across the Pacific toward Hawaii and the West Coast of the U.S. mainland. Suffice it to say that the markets remain volatile. I'm hoping for a conclusion sometime this coming week and if not, we will all need to practice the "P" word.

Investors were jumping into U.S. Treasuries and the U.S. dollar in a bid for safety. At the same time, Bill Gross, the head of Pimco, the largest bond house in the world, said he has sold all but the very shortest of his Treasury bond holdings in his largest fund. In explaining the sale, he said:

"When a trillion and a half dollars worth of annualized purchasing power disappears," Gross said, referring to the end of the Fed's QE 2 operations, "I simply question as to who will buy them and at what yield."

When Bill speaks, the bond world listens and so should you.

However, this is not the time to panic. Although it may well feel like an irresponsible action to take, I say gird your loins, start purchasing equities and if you are still in Treasuries (after my numerous pleas to sell), this is an opportune time to unload.

"How deep of a pullback are you looking for?" asked a reader from Great Barrington on Friday.

Well let's look at the technicals.

The S&P 500 Index has a lot of support around 1,265-1,270, failing that, the next level would be 1,225. So from around1, 300, we are talking about no more than a 5 percent correction. As I have often said, equity investors should expect corrections of up to 10 percent at regular intervals in the stock market. It is simply the cost of doing business and if you can't take that kind of volatility you don't belong in the stock markets, period.

Silver, on the other hand, has hit my price target of $36-$37 an ounce. Since I'm fairly disciplined when it come to trading commodities, I have cashed in about half of my chips, although I remain long gold for now. It just seems to me that a 300 percent gain in silver calls for some profit taking. I hope you agree.

That does not mean I will abandon the metal entirely. I believe silver will consolidate as metals often do for several weeks or possibly months before moving higher. In the long term, I believe silver has further upside as do most metals. For longer-term investors I suggest you take your lumps in the short-term. As for me, I will wait until it pulls back to a more reasonable level before becoming interested once again.

Oil, however, as I have reiterated, has more than reached my price target of $100 a barrel. My strategy for investors in that area had been to first reduce exposure to energy stocks, followed by a reduction in oil itself. It doesn't bother me that the talking heads are betting that oil goes higher. If they want to risk their money on an extra $10 worth of upside, let them. I think the easy money has been made (from $35/bbl. to $100 a barrel) and that's what I try to achieve — low risk, high return trades.

Hang in there readers, there are better days ahead.

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 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

Tax time is drawing closer and as it does, the annual barrage of questions concerning investments, portfolios, dividends and capital gains distributions are keeping financial advisors and accountants quite busy.

"One of the most frustrating issues to me," writes a Long Island investor, I'll call Joey G., "are the mutual fund capital gain distributions."

As a large holder of mutual funds, every year, between November and December, Joey is hit with substantial taxable capital gain distributions from the mutual funds he owns.

"I have no idea how much they are going to be or when they are going to be distributed until it's too late, so there's no way I can plan for them tax-wise."

Joey G. is not alone in voicing this complaint. For readers who are not familiar with mutual funds capital gains distributions, it works like this:

During the year, mutual fund manager try to buy stocks low and sell those same stocks at higher prices, generating capital gains, the more successful the manager the higher the capital gains.

That's the good news.

The bad news is that the fund manager then passes on all these taxable gains to the holder of the fund, in this case Joey G., Depending upon the size of your holdings; this tax bill can be many thousands of dollars. To some this may seem to be a high-class problem since the higher the capital gains distributions, the more expected appreciation in the price of the fund but not always.

There are years such as 2008, when, as the market declined, fund mangers sold stocks they had held for a long time. Those sales generated huge capital gain distributions for their investors. At the same time, because the markets were declining, investors sold out of mutual funds in great numbers sending the price of mutual funds to multi-year lows.

"Not only did I have to pay a huge tax bill that year," laments Joey G., "but the very same mutual funds that gave me this tax bill were now selling at deep discounts to my purchase price."

For those who are tired of these capital gains issues, I would suggest looking at exchange-traded funds or ETFs. Since they are index funds, once their indexes are created, they rarely change (no need to buy or sell) so there are relatively few, if any, capital gains distributions.

On occasion there may be a gain (or loss) generated but only if the underlying index the ETF tracks changes in composition. For example, if you purchased the SPDR S&P 500 (SPY), that ETF tracks the performance of the S&P 500 Index. If at some point the S&P were to replace one or more stocks in the index, the ETF manager of SPY would also do the same. In that case, there could be a gain or loss (and a distribution) in the ETF. Those kinds of changes occur infrequently.

There are exceptions to this rule; however, since not all exchange-traded funds are created equal. There are some "black box" ETFs that are actively managed. Their marketing managers claim that because of their internal strategies, their ETF can out perform whatever index they represent. Sticking with the S&P 500 example, the actively-managed ETF might only select a sub-set of the index, or buy and sell various stocks within the index, in an effort to provide outperformance. The results of these black box beauties are checkered at best. To me, these hybrids rarely fulfill their promise while their expense ratios are higher than plain vanilla ETFs and there can be capital gain distributions as well.

Since more than 75 percent of mutual fund managers fail to outperform the indexes anyway, ETFs make sense on the performance side as well. They are cheaper to own, the tax advantages are clear and the next time you compare an ETF to a mutual fund remember that the mutual fund performance does not include the taxable consequences of capital gain distributions.

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 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

There are different kinds of corrections in the stock market. None of them are pleasant to endure. This particular pullback appears to be one of the least painful. It is called a time correction.

Most investors are familiar with what I call the "gap down," when markets drop 1-2-3 percent or more in a few days. We had a lot of those babies back in 2008-2009. Then there are the "slow bleed" sell-offs, where the markets drop a smaller amount but maintain a steady grind downward, punctuated by one or two feeble up days. So far this time correction, now in its second month, appears to be locked in a fairly tight trading range on the S&P 500, between 1,340 on the upside and 1,275 on the bottom.

A time correction can provide exactly the same outcome as its more dramatic (and debilitating) cousins. Remember why corrections occur in the first place. At a certain price level, sellers believe the risk of holding stocks is too high given the perceived investment climate. There are several reasons that the bears want to sell: Libya, higher oil prices, the simultaneous fear of both inflation and slower growth, and stocks are extended and overbought. Sellers believe that the level of the S&P 500 is an attractive price in which to take some profits.

Then there are the buyers who believe the oil price will retreat as Middle East tensions dissipate over time. These bulls see the U.S. economy growing, unemployment falling and the Fed's QE 2 continuing to provide support for the stock market. The bulls are looking for deals and are not willing to pay anymore than 1,300 or so for stocks as represented by the S& P 500 Index level.

As new developments (negative or positive) come to the forefront, the buyers or sellers will react on any given day by pushing the averages up or down. What is important here is that over time (if the news remains the same) all the sellers who wish to sell will finally do so, leaving only buyers. At the same time the overextended, overbought condition of a great many stocks will have run its course leaving them in a condition to resume an uptrend.

Could stocks break through this range either up or down?

Of course they can and often do. In bull trends, such as the one we are in right now, it usually signals a selling climax. I don’t advise holding out for some climatic sell-off in order to buy this dip but rather accumulate equities as we trade closer to 1,300 and avoid chasing stocks on the upside unless some definitive solution to the Libyan problem suddenly materializes.

I personally believe that either Gaddafi will melt away, like the Wicked Witch of the East, or flee to Venezuela to his buddy Hugo, the Wizard of Venezuela. Oil prices will decline and the markets, now refreshed by this pause, will take you and me on a rapid and exhilarating ride higher. 

In the meantime, patience would be a virtue that I would cultivate during these somewhat volatile times. If that doesn't work, just stop eyeballing your portfolio every few hours and do something productive instead, like e-mailing me your investment questions.

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 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

A few months ago in my market column, I warned investors that emerging markets overall were pulling back and additional downside was probable. Thanks to the problems in the Middle East and elsewhere, that forecast has been fulfilled. Now what?

At the time, I advised that any further downside could prove to be a buying opportunity. The lower the stock markets of places like China, India and Brazil decline, the more tempted I am to begin to nibble at stocks and other securities in these countries.

In the second week of February, investors pulled $5.45 billion from emerging market funds and invested it into developed nations such as the U.S., Europe and Japan. That was the largest inflow of money into those regions in 30 months. Since the beginning of the year, worried investors have withdrawn 20 percent of the $95 billion that was invested in the region in 2010. China alone has lost more than $1 billion of outflows since the beginning of January.

The stock markets of these countries have taken it on the chin this year as a result. Emerging markets have suffered an overall decline of 3.8 percent year-to-date, while stock markets in the U.S., for example, are up close to 6 percent. The one big exception has been Russia, one of the four BRIC countries that also include Brazil, China and India.

Thanks to Russia's vast oil and other natural resources, that country is considered a hedge against future inflation. Investors are also betting that, after years of abusing foreign investors, the Putin-controlled government is getting serious about treating all investors equally. Time will tell if Russia is blowing smoke or truly has turned over a new leaf. In the meantime, however, its equity market has more than kept pace with the U.S., gaining 11.3 percent, while India is down 12.6 percent and Brazil is off 4.4 percent year-to-date.

As readers may recall, the chief reasons for the emerging market sell-off is climbing inflation rates which has been met by tightening monetary policies by central banks in just about all the "hot" countries. Brazil, for example raised rates yet again last night in an effort to slow the economy and reign in inflation. These actions have been the impetus to trigger corrections in all these markets after two very good years for equity investors. Indonesia, for example, was up 46 percent last year so a 5.1 percent pullback so far this year is small potatoes, in my opinion.

The recent upheavals in Egypt, Tunisia and the ongoing strife in Libya have unfortunately lengthened the shadow that has darkened the prospects for emerging markets in 2011. Higher oil prices may also keep a lid on the economic prospects for some countries that have not been blessed with energy reserves.

As a contrarian, I like to buy securities when "the blood is running in the streets" as Baron Rothschild once described this style of investing at the bottom. As of yet, I don't see that bottom. Keep your powder dry for a few more weeks (or maybe months) but keep an eye on these markets. Their long-term economic prospects are extremely attractive. Their present attempts by their governments to reign in inflation just bolsters the investment case for this group of countries whose governments and economies are finally coming of age.

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 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

At long last, we are having a pullback in global financial markets. Most investors would agree that it is long overdue. But now that we are in the midst of it, the bears are out in full force. Ignore them.

"Libya Rebels Tighten Noose" read Friday's headlines in the Wall Street Journal. The national media is devoting huge blocks of time and resources to cover unfolding developments in a country that supplies less than 2 percent of the world's oil. And yet both retail investors and seasoned professionals have been dumping stocks in panic this week. Who says markets are efficient? Honestly, these events may provide the drama and justification for the sell-off, but for me I care only for the outcome.

Yesterday oil hit $103 a barrel. For over a year, my interim price target on oil has been $100 a barrel. I promptly advised readers to take profits (see "Oil hits my price target"). If you missed it, you can read the entire story on my blog at www.afewdollarsmore.com.

The reasoning behind this sale is threefold: 1) contrary to the talking heads on television, I do not believe that these Middle Eastern rebellions will jeopardize global oil supplies and 2) I also expect that Saudi Arabia can and will easily make up any shortfall due to Libya's suspension of oil exports. Right now that shortfall is roughly 700,000 barrels a day.

Finally, U.S. economic growth is moderate at best. On Friday, for example, GDP for the fourth quarter of 2010 was revised down to 2.8 percent following a 2.6 percent rate in last year's third quarter. Those are less than half the growth rate the U.S. normally experiences in prior recoveries. Those numbers do not justify oil prices at existing levels. Today, oil is trading around $97 a barrel. I expect that we will trade in a $5 to $6 a barrel range until there is some resolution in Libya, and then prices should fall back.

Many investors were also surprised at the U.S. dollar's behavior during this latest crisis. The dollar has historically been perceived as a "safe" investment when other securities are not. In the past, its value has risen in uncertain times — but not this time.

Instead, gold and silver spiked higher as investors worldwide preferred precious metals rather than the dollar as a place to hide until this crisis passes. Gold and silver still have room to run and neither has reached my price target.   

Some market analysts argue that because this crisis is about oil, and not financials, the dollar provided little security since higher oil prices would clobber our economy. Economists claim that $100-a-barrel oil will knock a full percentage point off U.S. GDP. They point out that the currencies of Canada, Switzerland and Norway did move higher, however. Two out of these three countries are oil exporters and all are more energy efficient and have higher interest rates than the U.S.

I'm not sure I buy that explanation in its entirety. I have written before that we are in a transition period in which the U.S. dollar is losing its preemptive place among the world's currencies. In my opinion, it may still lay claim to being "first among equals" but over time the dollar will join with a basket of other currencies in providing a new global foreign exchange benchmark. This may simply be another sign that investor's behavior is changing.

As for this pull back, we have already dropped 3 percent or so on the S&P 500 Index. My forecast was for a 3 to 5 percent decline, so maybe we have seen the worst of it, or we might still have a few more days next week before it is over. Either way, buy the dip.

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 1-888-232-6072 (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

This article was supposed to run Saturday morning but was accidently scheduled for a later posting date. We apologize for any inconvenience.