Sometimes, investors are so focused on the trees that they miss the forest entirely. Take the U.S. dollar, for example. It has been declining at an alarming rate, yet no one seems to care.

 

Today, investors are occupied by a number of trees — earnings, stock prices, dividends, earnings results — that a weakening currency is almost an afterthought. Unfortunately, if the dollar continues to weaken, it could radically change your investment choices.

 

 Most readers, in general, believe a strong dollar reflects a strong economy. The fact that it makes our exports more expensive, and imports cheaper, is also true. A strong dollar, in the past, has also been a safe haven for overseas investors, who normally rush to buy the greenback when calamity threatens their own country.

 

There is also a relationship between the dollar, other currencies, and interest rates. If one country's sovereign debt is yielding more (or less) than another country's debt, then, all else being equal, investors will seek out and purchase the higher-yielding currency. That has been the case here in the U.S., where our higher yields have kept foreigners purchasing dollars in order to buy our bonds for the last several years.

 

The pandemic has changed that. The efforts by our Federal Reserve Bank to support the economy (by flooding the financial markets with money) has drastically reduced the difference in yield between America, Japan, and Europe. In addition, our deficit, as a result of all the tax cuts and spending throughout the Trump Administration, is starting to alarm investors around the globe. There is a fear that the Fed will need to print much more money (debase the currency) in order to fund the U.S. budget and deal with the enormous debt load we face.  

 

At the same time, all that stimulus money had led some investors to believe that inflation is a much more likely bet in the future. That is a problem, since inflation destroys the purchasing power of a currency. As prices of goods and services rise, it takes more and more dollars to purchase them. It is, for example, why gold and other precious metals, along with base metals like copper, have begun to increase in price this year.

 

There are also doubts growing about how "safe" the dollar really is. The fact that the country is in disarray and deeply divided has not been lost on both our allies and foes. It is common knowledge, except in some parts of this country, that the Trump administration not only failed miserably in dealing with the pandemic, but has taken the tactic of claiming that the pandemic is overblown and not to be taken seriously. For the first time in recent history, foreign countries are barring Americans from entering their countries.

 

Many on Wall Street see the dollar declining further. I believe they are correct. If it does, there are some obvious beneficiaries that investors may want to examine. I have already mentioned commodities, like gold, silver, platinum, and copper, that normally rise in price as the dollar declines. Many emerging market economies are also based on their abundant natural resources. They too would benefit greatly from a falling dollar. 

 

Oil normally would benefit as well, but I believe the price of oil will be held back by the pandemic in the months ahead. The demand for oil is correlated with mobility. Mobility worldwide, in the form of driving, flying, shipping, etc., has declined drastically due to the pandemic. In order for the oil price to rise, I believe, we need to beat the coronavirus first with a cure, or at least an effective vaccine. That may not be available until next year at the earliest.

 

Investors are caught in a tug of war. On one side are the growing cases of COVID-19 throughout the country. On the other, the expectations that a virus cure, or at least a vaccine, is just around the corner. The market remains in the middle.

 

That's all you need to know to understand what happened to stocks this week. Two different announcements concerning vaccine progress had traders bid up stocks. The daily toll of deaths and cases, the slowing of the re-opening process, and the controversy over the coming school plans, all had a dampening effect on markets as well.

 

 The quarterly corporate earnings season is also upon us. Management's guidance on how they see their businesses recovering, if at all, are being followed closely by one and all. If we combine that with whatever new China bashing the president can come up with, you have a perfect storm of concerns. And what have I said about Walls of Worries? At the least, these cross currents should keep traders jumping.

 

Aside from the daily ups and downs of the market, there are some shifts underneath the overall averages that you may have missed. For example, the large cap technology sector, represented by the NASDAQ 100 Index, has seen the lion's share of gains since the March lows. Sure, many sectors have rebounded, but none can compare to the performance of the NASDAQ (17 percent-plus) thus far in 2020. Why?

 

Bulls reason that in a recession, large cap tech companies are "defensive." Businesses, as well as individuals, can't do without the products these companies offer, regardless of economic conditions. It also helps that these same companies are in fantastic financial shape with huge amounts of cash on their balance sheets. They are labeled "growth" and "defensive" companies.

 

But "value" stocks, those that depend on the economy for their growth and survival, have largely been left in the dust this year. Financials, industrials, energy, materials, transportation, retail, et al, have underperformed. That's because there will be no real economic recovery without a medical solution to the pandemic. A successful vaccine is the key. It could unlock the door to a "catch-up" trade in these value sectors.

 

If one looks at the valuation between value and growth, even the most ardent tech bulls acknowledge that the tech sector's valuations are in the stratosphere. Add to this that most of the gains since March are in a small number of stocks (like the FANG names). This does not fill me with confidence. 

 

The good news this week, however, was announcements that at least two vaccines in Phase One studies look promising.  The markets rose on the news but it was the value sectors which led, while technology underperformed. That is a good sign.

 

The week wouldn't be over without a comment on politics, since the investors and the nation are expecting another $1 trillion or more stimulus package within the next two weeks. The bail-out may happen, but given the election-year politics and the chasm between the two parties, August seems to be a better bet than July. 

 

At the same time, leaders of the European Community are meeting this weekend to further their own trillion dollar-plus efforts to stimulate their economies. I expect agreement on that effort will also be delayed. Investors will most likely be disappointed by those delays, both here and abroad. As such, I expect markets to remain choppy throughout the remainder of the month, but with the trend still higher. Last week, I wrote that I was looking for another 100 points on the S&P 500 Index. We are half way there. 

 

Bill Schmick has been writing two columns a week, most weeks, and they have been appearing on iBerkshires for nine years now. Readers may have noticed that his longtime "The Independent Investor" column has now transformed into the "The Retired Investor." Bill will still be writing his columns but he and his wife, Barbara, have retired from Berkshire Money Management. Below is their letter to BMM on their retirement that we are posting as this week's "The Retired Investor."

 

Dear friends,

 

Our thoughtful boss, Allen Harris, has asked us to write this letter to tell you all, in our own words, why we are leaving the firm. So, here goes.

 

Bill's perspective:

 

Change has its own way of shaping our future. If you had asked me several months ago if I planned to do anything different, either personally, or career-wise over the coming decade, I would have answered with a resounding "no." And then the Pandemic of 2020 came along.

 

It has forced me, at the not-so-young age of 72, to re-evaluate my priorities. Topping my list is my goal of making the next 30 years of my life the best. Working in an office, exposed to the COVID-19 virus on a daily basis, may not be the best way to accomplish that. In the end my health concerns outweighed the joy and satisfaction of working for Berkshire Money Management.

 

Someone once said that "loss is another word for change" and today I understand the meaning of those words. Leaving Berkshire Money Management will be for me like leaving my family. So it needs to be done in stages. While I will no longer work for BMM, I will continue to work with the company. I will continue to bring new clients into this firm that I believe in. I will continue to write my columns, which you will continue to receive weekly and I will still be available to any and all of you whenever you need my advice.

 

In addition, I have been working on a book. I have done my best to share what I have learned over 40-plus years about investment and retirement. Hopefully, it will help you navigate your own financial future in ways you may not have realized. It is just about done, and we want to make it available to all the clients of BMM, as well as those we hope will become clients.

 

And since I won't be coming to the office (unless requested), I will have more time available for new pursuits. In case you haven't noticed, one consequence of this pandemic has been the increased use and reliance on video communication. Zoom, GoToMeeting, Facetime, and the like, have finally become accepted in this new age of isolation. Even oldsters like me have been forced to learn and access this electronic means of communication.

 

As a result, I am planning a foray into streaming video over the next month or so. I will be offering my columns, daily market wraps, and various retirement topics through various social media sources such as Face book, LinkedIn, Twitter, etc. in addition to the print media. I just hope my streaming debut will be as popular as my columns.

 

John Lennon once said, "Life is what happens to you when you're busy making other plans." I suspect life in the days and months ahead may be difficult for all of us. That's why I will still be here for you. What kind of person would I be to abandon you now, my readers, friends, and clients when you may need me the most? We have come too far together for that.

 

So, yes, I will no longer be an employee, but I will still be a devoted consultant to Berkshire Money Management. I won't have an office, or a title, but I don't need one. All I need is you, and that won't change. Stay safe and keep in touch: billiams1948@gmail.com.

 

Barbara's journey:

 

Saying goodbye to the Berkshire Money Management (BMM) family is difficult! We moved to Pittsfield because of BMM and have shared many happy and some sad times together for 11 years.

 

Our chocolate lab, Titus, grew up at BMM. Many of you who have visited the office have been greeted by his wagging tail and deep brown eyes. When I joined the firm, he was just a puppy. Part of my offer letter from Allen was that I could bring Titus to the office. Who could resist?

 

I remember that first year, Bill and I shared a narrow section of the hallway when the office was located at 1450 East Street in Pittsfield. Then, we moved to Merrill Road and finally the amazing Crane Model Farm! It has been quite a journey. I've grown to love and admire Allen and his wife, Stacey, and the amazing things they have done for the team and for Berkshire County.

 

Time passed, and as I turned 60, I realized retirement was much closer than I thought. My mind began to shift. "What's next?" I found myself wondering. As Bill was working with older clients, and coaching them in their retirement, it also became a real conversation for both of us. I knew one thing: I couldn't simply retire and do nothing. The answer became obvious soon enough.

 

I have been doing photography as a hobby and side job since my days in Manhattan. It is my passion and always has been. The voice inside of me started quietly, but soon became louder, and more insistent. What if I could create my own photography business? Could I? But I didn't take it seriously, because I really liked my job and the people at BMM. I just couldn't imagine leaving!

 

But last year my mother died, which had a profound effect on me and my attitude towards life and aging. My priorities started to change. That voice grew louder —"life is too short," it yelled — but I still didn't listen. Then, the pandemic hit. At our age, we opted to work from home during the "great pause," even though financial services were considered an essential service.

 

I had more quiet time, time to think, and the voice grew even louder. I could no longer ignore it. I decided I needed to leave my safe, secure, corporate job and find out what is next for me in my life.

 

So, I took a giant leap into the unknown! Allen and I had a long talk. He had noticed I was becoming more and more distracted in the last year or so. He understood. It was so very hard to say goodbye to him, but I know he will always be in my life as a good friend and that makes me happy. In fact, I will be working with BMM from time to time as an independent contractor, so I don't have to really say goodbye after all! I can continue to be part of the "coolest place to work in Berkshire County!"

 

And, I am happy to announce Berkshire Visions: Photography by Barbara Schmick, will be open for business!

 

Titus wants to remind you that you can teach an old dog new tricks. The two of us are proof of his advice! He will miss all of his friends at Berkshire Money Management, as will we.

 

Love,

Barbara & Bill Schmick

 

 

The disparity between rising nationwide virus cases and a rising stock market finally took its toll on investors this week. While damage was sustained to the averages, it was far from a bloodbath. A few more days of the same back and fill would not be a surprise.

 

Stocks lost ground under the sheer weight of skyrocketing infections throughout those states that have heeded Donald Trump's directions to ignore medical advice and re-open their economies. Valuing election victory over lives has cost us all a great deal and it is not over. I expect that without a national policy, or strategy to guide us, today's regional "hot spots" will migrate. Carriers from one state, city, or town will spread the virus to others in a succession of infections that will prolong the pandemic and deaths.

 

As a result, we should also expect to see the economic data in the weeks ahead begin to reflect the case counts we are reading today. If so, you might be anticipating that the stock market will sell off, maybe even re-test the March lows. If you sold in a panic back when, (as many did) and missed the 53 percent move higher in the S&P 500 Index since then, I suspect that is what you are hoping for. Don't hold your breath. 

 

Here is what you are missing. The stock market is not marching to the tune of the COVID-19 Top Thirty. Sure, on a day-to-day headline basis, markets could move up or down (like they did this week) as the case count worsens, or a new vaccine possibility is announced. But the stock market gains amassed thus far have been the work of monetary and fiscal stimulus.

 

The worse the infective fires get — the cases, the deaths, the weakening data — the more stimulus the government will pour on the flames. A new stimulus package, which may now be expected to total $1 trillion, could easily double, or triple, if things get out of hand. If stocks drop too fast, or too far, I fully expect the Federal Reserve Bank and the U.S. Treasury to step in and support the stock markets, as they are doing now in the bond markets.

 

Armageddon can only occur if no one does anything. In an election year that won't happen, in my opinion. Speaking of elections, Joe Biden launched his own version of Donald Trump's America First program. Biden's U.S.-centered plan would see government spend $700 billion in American-made materials and products over four years. Another $300 billion would go to U.S.-based research and development involving electric cars, artificial intelligence, and other cutting-edge technologies.   

 

While he also promised to raise the corporate tax to 28 percent, Wall Street and big business were expecting that anyway, given that the Trump corporate tax cuts of 2018 did not produce the desired results. Overall, investors seemed to take on board that a Biden victory, while possibly disruptive to further gains in the stock market, would not necessarily spell the end of business, nor usher in an era of socialism/communism as the president would have us believe.

 

Earnings season begins next week with the money-center banks reporting in mid-week. While results are backward-looking, and therefore already discounted by the markets, investors will be listening for guidance from the CEOs and CFOs as to whether the economy is beginning to roll over again (the bear's case), or that the economy is still gaining momentum. Either way, expect volatility.

 

As for where I see the markets going, my bet is that we could see the S&P 500 Index tack on another 100 points before the end of July. At that point, let's reassess. 

 

As the COVID-19 virus rages across the nation, Americans are hoping for more assistance from the government on a variety of fronts. So far this month, their hopes have been met with a resounding silence from the White House, although members of Congress are trying to come up with answers that both parties can agree upon. I have a couple of suggestions. 

 

The first round of fiscal and monetary stimulus did a good job in addressing the huge spike in unemployment the country has suffered. While the CARES Act at $2.2 trillion provided $500 billion to distressed industries, almost $350 billion in loans to small businesses and $4100 billion to hospitals, it was the $200 billion in additional unemployment benefits and $300 billion in stimulus checks to individuals that got the most attention. 

 

The PPE, the additional $600 a month in unemployment benefits (which is set to sunset soon), the direct payments to taxpayers, plus the Fed's actions in the credit market, did wonders in alleviating the worst impact of the country's economic shut down. 

 

The challenge we face this time around is twofold, in my opinion. We need to continue to help those who have been out of a job, as well as the thousands of workers who are now being laid off as the virus cases delay business re-openings in over half the country. We also need to incentivize those businesses that are struggling to remain open to rehire workers in this period of uncertainty and do more to help small businesses that are facing bankruptcy. 

 

Exactly how to do that in an election year, when neither Congress nor the White House can agree on anything, is a tall order. As in so many things lately, the failed leadership in Washington leads me to look elsewhere for suggestions. 

 

This week the United Kingdom's finance minister, Rishi Sunak, announced, as part of a mini-budget, some novel ideas to save jobs, help Britain's youth find work, and bolster the nation's restaurants. Some of those measures might work here as well.

 

The UK government, in response to the pandemic, is already paying up to 80 percent of salaries for about nine million workers under their own furlough scheme. That program will begin to wind down by August. But in preparation for the end of that plan, the government is offering more than $1,000 to firms who take on workers, including all those who had been laid off due to the pandemic. They are also spending an additional $2 billion-plus to subsidize the hiring of 16- to 24-year-olds.

 

Green grants for households and public sector buildings (including hospitals), to make them more energy efficient, are also in the works. As an added incentive, the tax on home purchases will be waived for those thinking of purchasing a home under $500,000.

 

Restaurants, both here and abroad, are suffering mightily from the virus. The government, in an effort to encourage consumers to go out and buy a restaurant meal, are giving consumers a $12 discount per meal through the month of August.

 

Most economists on Wall Street think it is a foregone conclusion that a second stimulus package is not only needed, but will pass no later than August. In an election year, both parties want to look like they are helping those in need. 

 

At the same time, the recent surge in virus cases, and the delays in reopening the economy that COVID-19 is causing, makes a second package vital to the future health of the nation. Remember too, that the planned end of enhanced unemployment benefits at the end of this month could cause a drastic increase in delinquencies in consumer-sensitive, financial areas such as mortgage, auto, and commercial loans.

 

I would expect, therefore, that both the unemployment benefits and another direct payment to certain Americans under a certain income level will be part of CARES Act II. This time, however, I expect the additional unemployment benefits could be reduced, while some kind of going-back-to-work bonus, awarded over a specific time period, might be part of the plan. 

 

If this is coupled with a UK-style payout to the hiring firm, it could tip the scales and stem further job losses. In the small business area, the extension of the PPE program is needed at a minimum, with intense focus and more funds funneled to small and tiny Mom and Pop enterprises. We could expand the UK's restaurant discount idea to all of our service industries. This could easily be accomplished by simply eliminating sales tax on all goods and services for a certain time period. 

 

In any case, I am sure that we could all come up with ideas that might work in getting the economy going again. If you have one, send it to me, and I will do my best to print as many as possible.

 

Bill Schmick is now the 'Retired Investor.' After working in the financial services business for more than 40 years, Bill is paring back and focusing exclusively on writing about the financial markets, the needs of retired investors like himself, and how to make your last 30 years of your life your absolute best. You can reach him at billiams1948@gmail.com or leave a message at 413-347-2401.