It has been over a year since investors experienced the kind of sell-off that has beset the global stock markets this week. As of Thursday, most indexes have lost 10 percent or more. The jury is split on whether we are at the bottom or have more to go.

Most of the losses have occurred quickly, in around 8-9 days, which although painful, could be a blessing in disguise. Sharp, short corrections, in my opinion, are much better than corrections that drag on for months losing a little each day.

Of course, these large declines often trigger strong emotional reactions among investors but decisions based on panic rarely prove to be the right ones in hindsight. So I thought I would provide a little perspective on why the markets are selling off and whether or not you want to join the ranks of sellers.

Over the last few months, the macroeconomic data began to weaken. At first, economists explained that it was caused by bad weather, then the Japan earthquake, but as the numbers continued to come in at a less-than-expected rates investors grew increasingly nervous. Then last week, while all eyes were focused on the debt ceiling crisis, the Commerce Department announced that second quarter GDP came up short — 1.3 percent versus 1.7 percent expected. Even worse, the first quarter was revised downward to just 0.04 percent, a shockingly dismal performance.

That number, combined with an unemployment rate above 9 percent, plus continued uncertainty within the poorer countries of the EU, was enough to tip the scales. The trading range that the markets have been locked in since the end of April was finally resolved to the downside. Since then, we have broken several technical supports and are hovering just above a big one at 1,225 on the S&P 500 Index. If it breaks down and through this level, the chances of additional losses are quite high.

Sounds like doomsday, doesn't it? Well, the same thing happened last year for the same reasons. The economy was slowing, unemployment rising, Europe was in trouble and the markets dropped 16 percent from April 2010 through August. It was then that the Federal Reserve Bank announced the possibility of QE II. The markets reversed, exploded upward and investors never looked back.

Since March 2009 we have had seven such "dips." Each pullback was considered a buying opportunity and those investors that did so have been mightily rewarded. No one knows if this will be No. 8 or if we are going to continue lower. At some level, stock prices will become just too cheap for value buyers to remain on the sidelines. Some say we are at that level now.   

My advice is to decide how much you are willing to lose and when you reach that limit sell and move to the sidelines. For some investors that can mean 5 percent (you should already be out), others will accept 10 percent, while some might be willing to sustain even more. Once your limit is reached don't hesitate. Be prepared emotionally for the possibility that the markets could turn around a day after you sell out. Accept that if it happens, and don't beat yourself up for not staying the course.

For those of you who have bond investments, keep them since bonds and gold are benefiting from the stock selloff.

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.

All week the markets have hung on every word coming out of Washington. Nothing else has mattered: not earnings, not Europe's problems, not even the second coming of Christ could have distracted investors. Now that both political parties have achieved what they wanted, let's please stop the monkey business before it's too late.

Credit Suisse, a global broker/investment banker, said on Thursday that in the unlikely event that the U.S. defaults on its debt, the economy could contract by 5 percent and the stock market could lose one third of its value. Although I believe that is an extreme view, the entire mess over the debt ceiling is causing hesitation and delay among the nation's business sector.

Companies have put all sorts of decisions on hold until the crisis is resolved. That includes hiring and investment decisions that directly impact the employment rate and our economic growth. The timing couldn't be worse. The economy is just starting to recover from a soft patch caused by the slowdown in Japan's economy. In addition, our unemployment rate has recently notched up to 9.2 percent. We can't afford these shenanigans.

However, the increase in our debt ceiling is only one of an emerging two-part problem in our economy. Credit agencies are warning that unless we do something to reduce spending and the deficit, our credit rating may be reduced. Now that wouldn't be the end of the world for America, after all, Japan's credit rating was reduced early this year with little consequence. But it certainly wouldn't help the pace of our recovery nor improve the jobless rate.

As we go down to the wire, it appears that if there is to be a deal on raising the debt limit, then both parties will need to agree to disagree and postpone a big deficit-cutting plan until after Aug. 3. There is simply not enough time to hammer out a compromise in the time allotted. There will be a price to pay for a deal of that sort. The markets and the country's corporations will continue to hesitate until a deal is struck that will satisfy the credit agencies.

A compromise budget-cutting plan that cuts $2 trillion or so from the deficit over 10 years will not cut the mustard. The agencies are on record as wanting at least double that amount in order to stave off a credit reduction. The Democrats, led by President Obama, wanted a "Grand Plan" that would answer the demands of the credit agencies and put to rest the deficit politically as an election issue.

The Republicans want the opposite. They see the economy, the deficit and unemployment as the three most likely opportunities to unseat the Democrats next year. By foot dragging now, they can keep the controversy alive and hopefully capitalize on an anemic and aging recovery while continuing to ask "Where are the jobs?" If in the process either the country defaults or our credit rating is reduced they are betting Obama will be blamed for that along with the economy.

They are counting on voters to forget by election time who did what to whom in this debt controversy. I suspect their gamble will pay off.

After all, how many voters remember that the TARP Plan (just one example) was approved before Obama took office? Did you know that the huge deficit we are saddled with actually occurred during the Bush administration? Between his tax cuts and the initiation of two wars, President Bush, with the aid of today's Republican leadership, not only spent the surplus garnered under the Clinton years but wracked up $8.813 trillion in additional new debt.

The Democrats under Obama have added $1.136 trillion in the form of economic stimulus and tax cuts. Economists argue that without that spending our country would have remained in recession or possibly fallen into a depression. In addition, Obama will spend $152 billion on health-care reform and $278 billion on defense. The vast majority of the money spent on these policy initiatives won't even be spent until years in the future, if at all.

As an independent voter, I am less inclined to listen to either parties' rhetoric and instead focus on the facts. The facts are that the financial crisis, the deficit and the subsequent rise in the unemployment rate are the legacy of the Bush administration. I can applaud the GOP for belatedly realizing that they have been on a spending spree for the last decade, but don't blame others for your party's failings.

Sure, if you choose, you can blame Obama and his team for failing to generate a quick recovery, but enough already with this myth that he is the root cause of today's problems in America. As Americans, we deserve more from Washington. 

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.

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.