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What will the New Year bring?

crystal-ball-875370-sIt was a good year for the stock market. The S&P 500 Index was up in excess of 12.5% with the other averages putting in a good performance as well. Naturally, investors are hoping for another year of stellar returns. Is that a reasonable expectation? read more…

What’s happening to the movies?

Have you noticed that American movies seem to be long on bullets and increasingly short on words? That despite flop after flop at the box office, the same movies are coming out with sequels? Get used to it because, increasingly, American viewers are a distinct minority when it comes to the box office. read more…

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Cheap doesn’t cut it anymore

In this brave new world of ours, it is no longer enough to simply offer the lowest cost product. Product innovation is now critical to a company’s success. U.S. companies are discovering it is becoming harder to innovate when their manufacturing plants are half a world away. read more…

All Eyes are not on America

Our stock market has gone nowhere since Thanksgiving week but it would be a mistake to believe that all markets have been on hold since that time. You just may be missing an opportunity elsewhere while politicians fiddle here at home.

After gaining back about half of the 8% decline it suffered after the election, the S&P 500 Index is within a point or two of its close on November 23. Each day the markets vacillate gaining or losing a couple of points at the most. I believe this period of marking time will continue until there is some definite progress out of Washington.

In the meantime, you might want to look elsewhere. Asian markets, ex-Japan, for example out-performed just about everything else in November. Countries like Hong Kong, Taiwan, India and even China are attracting new money. But it appears to be a stealthy flow of investment without the usual fanfare. That usually means it is still early in the game for investing.

 Emerging markets, once the darling of the investment community, fell off their own cliff back in 2009. Unlike the American market, they have never recovered. The combination of recessions in their two main export markets—Europe and the U.S.—plus the global move out of risk assets overall (because of the financial crisis) left these markets out in the cold.

China, which most economists believe has been the largest engine of growth in the global economy, deliberately put the brakes on its economic growth, fearing a major uptick in their inflation rate. And as China slowed, so did the rest of Asia. Times have been hard over the last 2-3 years, with the Chinese stock market suffering a 40% decline. But some brave souls feel it might be time to re-examine the prospects in this area. I agree. Latin American markets, I noticed, outperformed all other emerging markets in October, although not in November. I have even seen signs of some bottom-fishing over in Europe, which is suffering its second recession in three years.

What makes these markets interesting, aside from their low valuations, may be a potential turn upward in world economic growth. Remember, stock markets usually discount events 6-9 months in advance. Central banks all over the world continue to stimulate their economies. Here in America, if we can actually come to grips with our fiscal issues, we could see a pick-up in economic growth. Next year could surprise us if (and that’s a big if) the politicians cooperate and actually implement a pro-growth fiscal policy to complement the Fed’s on-going stimulus efforts.

Europe may not recover in 2013 if our economy starts to pick up steam, but it may stabilize. Over in China, there has been a regime change. Xi Jinping is the new president while Li Keqiang will be the new premier. The leadership transition was smooth and investors expect that the new leaders will continue to implement structural reforms while possibly calling an end to their tight money policies. Given that the money flow into China funds has been positive for the last seven weeks, some global investors are betting on a turnaround.    

So as American investors and the media wring their hands at every hiccup in Washington, some of the aggressive money is investing in more fertile fields abroad. Emerging markets are risky and not for everyone, but if you have an appetite for taking on more risk then I suggest you follow suit.

U.S. Debt, Another Cliff Note

While politicians bicker over the Fiscal Cliff, the government continues to borrow about $4 billion a day. The statutory ceiling on U.S. Treasury borrowing is $16.4 trillion and we will hit that number by year-end. Then what? read more…

Play it Again, Sam

 

It was a week of tension. Markets rose and fell on every word uttered by party leaders, who jockeyed for position and the national spotlight around the Fiscal Cliff.  It was Washington at its worst. Get used to it because this deal is going to go down to the wire. read more…

Fiscal Cliff or Shallow Ditch?

 

“And you tell me
Over and over and over again, my friend
Ah, you don’t believe
We’re on the eve
of destruction.”

Barry Mcquire,”Eve of Destruction”
[ Lyrics from:

Panic has once again descended upon Wall Street. This time investors are gnashing their teeth over whether our political parties will be able to strike a tax and spending deal before January 1st. If not, so the story goes, we will plunge, like Lemmings, over the so-called Fiscal Cliff never to return. Why am I not impressed?

 We have had a number of these dramatic binary events over the last few years. They always make great theatre, but none have turned out nearly as bad as the media predicted. If you had panicked and sold on their advice you would be much poorer today.  This particular cliff-hanger reminds me of another end-of-the-year event that was predicted to cause horror and dismemberment among the world’s institutions, Y2K.

 The Year 2000 was a problem for both digital (computer-related) and non-digital documentation and data storage situations which resulted from the practice of abbreviating a four-digit year to two digits. Would the world’s computers be able to recognize and accommodate a year that began with “2” instead of “1”?

At the time, we were assaulted for months with stories that spelled out what could, would or should happen if the world was not prepared for this digital disaster. But predicting the end of the world is a zero-sum gain. If someone gets it right, (and no one has thus far) there won’t be anyone left around to brag about it. As for Y2K, it turned out to be, in the words of Shakespeare “Much Ado about Nothing.”

In this case, investors; who have known about the Fiscal Cliff for months, are assuming what happened before will happen again. Readers may recall that last year both Republicans and Democrats could not agree on how to address our growing deficit. The Republicans used the nation’s debt limit, which was fast approaching a ceiling, as a bargaining chip to force a series of spending cuts on the White House and Senate. Both sides refused to back down. At the eleventh hour it was agreed to kick the can down the road until after the elections by temporarily raising the debt ceiling in exchange for implementing a series of tax hikes and spending cuts that would be implemented automatically at the beginning of 2013.

If there is no compromise, pundits and even the President have predicted that the combination of tax rises and spending cuts will drive us back into a recession, the gains in employment will evaporate and the United States will quickly join Europe in vying for the worse economy of 2013. No one wins. Everyone loses.

What’s wrong with that picture?

Well, for starters, everyone knows it and politicians hate to lose. Americans have also conveniently forgotten that the parties did compromise last year. They agreed to disagree, but still raised the debt ceiling at the height of partisan politics. Today, less than two weeks after the elections, President Obama was re-elected with a mandate to lead but also to compromise. That seems clear when you look at the results in Congress. Republicans were re-elected and maintain their majority in the House while the Democrats control the Senate. It seems to me that voters want compromise from all their elected officials and both parties know it. Last year there was no such message; in fact, if anything, both sides felt it was their way or the highway and still they compromised.

So far, both sides have said they are willing to do just that. In politics (as in real life) you go into negotiations with your strongest suite. Otherwise, you have nothing to give in exchange for another card.  I believe there is a new willingness in Washington to compromise but, for Americans, it will have to be one of those “show me” moments. As such, patience and a cool head are required until then. 

We only have 14 or 15 working days on Capitol Hill in order to get a deal done before this “Eve of Destruction.” Just about everyone assumes both sides will not budge and negotiations have not even started.

In the meantime, there is an old saying on Wall Stree: “Don’t fight the tape.” It means that regardless of whether the direction of the market is right or wrong, don’t fight the flow. Right now, panic prevails, the markets are in a waterfall decline and investors are all going down like lemmings together. Don’t get caught up in this crowd psychology. In my opinion, sentiment and the markets will reverse as soon as it becomes apparent that this black chasm in front of us is simply one more shallow ditch.

 

 

 

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About Bill

Bill Schmick was born in a blue-collar neighborhood of Philadelphia, just a few blocks north of “Rocky Balboa” territory where most of his Catholic schoolmates grew up to be either cops or criminals. He narrowly escaped both professions by volunteering to fight in Vietnam as a U.S. Marine... Read More

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