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The Retired Investor: Pandemic Has Been Good to Pet Industry

By Bill SchmickiBerkshires columnist
Bill and Titus.
Sales are increasing wherever you look in the pet sector. Toys, beds, grooming products, leashes, day care, you name it; the pet industry is experiencing double-digit increases in revenue. Better yet, there are few signs that consumer spending in this area will slow down anytime soon.
 
As readers are aware, the retail sector has been one of the hardest hit as a result of the coronavirus pandemic. The pet care industry is an exception to that rule. In the past, I have written extensively about how recession-proof the pet industry can be.  In both the 2001 and 2008 recessions, pet care sales grew between 5-7 percent. Consumer spending on pets has grown 36 percent in the past 10 years (ending in 2017). Edge by Ascebtial, a market research firm, is expecting the overall industry to reach $281 billion in sales over the next three years.
 
The pandemic is only accelerating this growth. COVID-19 has made owning a pet that much more important to Americans, in my opinion. In the time of plague, I have found that aside from my wife and family, there is no greater comfort than the emotional attachment a pet offers. As it turns out, I am not alone. The initial stay-at-home, lock-down period in this country triggered many to seek the companionship of some kind of pet, usually a cat or dog. 
 
Adoption and fostering rates soared, in some cases, by more than 100-200 percent nationally, according to Pethealth Inc.  In New York City, application rates actually reached an unbelievable 1,000 percent. 
 
What many pet owners discovered was that one of the benefits of working from home was that it allowed them much more time to care for a pet properly (as opposed to locking them up in a cage/crate all day). Plus, let's face it, there is nothing better than to get off a high-pressured, Zoom call with a client, or a domineering boss, only to receive a big lick, an offered toy, or the release of walking one's dog in the woods or park. 
 
Naturally, these new-found members of the family sparked a wave of demand for pet-care products. Online sales of companies such as Amazon or Chewy exploded, while internet-based pet services of all kinds saw an enormous uptick. Sales of dog food lead the charge. The U.S. pet food market is predicted to grow to be a $13.3 billion market by 2023. In a recent example, Nestle, the Swiss-based food conglomerate, just reported nine-month earnings this week. It identified their Purina PetCare business as the number one leader in growth worldwide this year.
 
The pet industry is also working to identify and adapt to the latest industry trends to maintain their good fortunes. Proactive, healthy ingredients in pet food is a massive trend in the industry. Back in the day, when Titus, our chocolate Lab, was a puppy, I bought 50-pound bags of Purina dog chow on sale for $25 at Tractor Supply. Today, we are on automatic re-order of 26-pound bags of a protein-dense, grain-free, dry food for $63.67 every month from Chewy, plus we throw in a 12-can case of canned food for $48.28 (also nutritional). You do the math. Is it any wonder companies such as Chewy's have seen their stock price go through the roof?
 
Whether its vet bills, pet insurance, doggy day care, or pet grooming, the cost of owning that pet just continues to go up, but it doesn't stop us. More than half of all Americans own a pet and that was before the pandemic. 
 
There are also trends that are less than healthy. For example, over half of all U.S. pets are obese, due to overeating and inactivity. But that is still lower than two-thirds of their owners, who are either overweight or obese. COVID-19 may have an impact on that trend as well. 
 
More Americans, stir-crazy from sitting at home with little to do, are actually getting off the couch. They are putting on their sneakers, or hiking boots and exercising outdoors. Better yet, they are taking their pets with them.  
 
As a pet owner and outdoor enthusiast, I have long argued that pets, especially dogs, need exercise and stimulation, as do their owners. Letting our pets out to do their business in the backyard does not qualify on either count. So, it warms my heart to see so many pets walking alongside their owners enjoying the great outdoors, despite, or maybe because of, the pandemic.
 
Bill's forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
 
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by OPI. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     

@theMarket: Markets Are in a Tug of War

By Bill SchmickiBerkshires columnist
The number of COVID-19 cases and deaths are surging way beyond those cases earlier in the year. That could indicate tough going for the economy over the next two quarters. On the other hand, two highly effective coronavirus vaccines have been announced, but won't be widely distributed until next year. In the middle sits the stock market investors.
 
We know that financial markets are discounting mechanisms, meaning that investors usually buy or sell stocks based on what may happen in six to nine months from now. At that time, so the story goes, at least two vaccines will be readily available to most of the public. One may be ready for limited distribution before the end of the year if all goes well. That should cause the economy to rebound and unemployment should decline. That is a bullish case for equities, so investors would normally anticipate that and buy now.
 
However, in the near term, the next three-four months, thanks to this second coronavirus surge, the economy is expected to slow, and unemployment to rise. The expectation that little to no fiscal stimulus is forthcoming from our divided government adds to investor worries. The impact on the economy in the short-term could be severe as a result. It is fairly certain, according to most economists, that the reason the economy bounced back as quickly as it did from the first nationwide shut-down was the quick response by the government to  monetary and fiscal stimulus.
 
As of this week, there are no plans for a countrywide shutdown. Instead, individual states, cities, towns, etc. are closing some things down and leaving others open (schools versus bars and restaurants for example). Most businesses are simply ignoring all of it, while trying to convince workers that everything is all right when it isn't.  
 
As a result, the coronavirus case numbers are increasing exponentially. Worse, there appears to be no way to prevent it. Next week, a large segment of the population is already making plans to visit the family for Thanksgiving week, despite medical advice to the contrary. The way we are headed, I expect that the caseload in hospitals should continue to mount. Friends, families and neighbors will continue to die and, at some point, a partial or total shut-down of the economy could occur out of necessity.
 
If so, this time around I expect there won't be an immediate stimulus response from the government. That could do lasting damage to the economy and prolong the time required to recover. Despite pleading from the Federal Reserve Bank and just about every economist in the nation, both the president and Congress are not listening. Both parties are far too engrossed in debating who won the election (or who will win the Senate in January) to worry about another couple hundred thousand deaths, let alone jobs and the economy. It is the America we live in.
 
Normally, the week leading up to a national holiday such as Thanksgiving, is positive for stocks. This year, the averages will likely be tugged in two directions — the bearish, daily rise in COVID-19 cases versus more good news on the vaccine front. It doesn't take a rocket scientist to predict the bad news should get worse, which leaves the markets dependent on more vaccine news to remain buoyant. 
 
Bill's forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
 
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by OPI. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     

The Retired Investor: The Rise of RCEP

By Bill SchmickiBerkshires columnist
The Regional Comprehensive Economics Partnership (RCEP) is a trade pact that could change the global trade equation over the next decade. It is an example of multilateralism and free trade that could leave the United States in the dust. 
 
The 15 nations that comprise RCEP represent about one third of the world' s population (2.2 billion people), and 29 percent of global gross domestic product. The partnership is made up of 10 Southeast Asian countries, as well as South Korea, China, Japan, Australia, and New Zealand. The RCEP is officially the world's largest trading bloc.
 
What makes this trade deal noteworthy, apart from its size, is the inclusion of China. In the past, China, while signing numerous bilateral trade agreements, has refrained from joining a multilateral trade pact — until now. Getting there required eight years of negotiations. The deal could have been even larger, if India, which had been part of the negotiations, had signed. 
 
Since the agreement is expected to eliminate tariffs on a wide range of imports throughout the next 20 years, India was worried that lower tariffs could hurt some of their more inefficient producers. Nonetheless, RCEP members are extending an open invitation to India in the event that it changes its mind.
 
Most of the member countries already have free-trade agreements with each other. What makes RCEP unique is that it defines new rules of origin on imported products among members. Before this deal, if a product happened to have parts made by a country that was outside of a free-trade agreement between two countries, then those parts would likely be subject to tariffs. Imagine, for example, if a Chinese-made automobile exported to Indonesia had several parts manufactured from countries that were not part of a free-trade agreement between China and Indonesia. Indonesia would be able to levy tariffs on all those non-exempt parts, which can get really complicated. The RCEP eliminates that issue.
 
If you are an RCEP member, as long as the product parts are made by another RCEP-member nation, the product will receive the same tariff treatment. The hidden benefit here is that now the RCEP trade bloc will be incentivized to look within their trade group for suppliers. 
 
The Peterson Institute for International Economics believes the trade pact could generate as much as $186 billion yearly over the next decade and tack on 0.2 percent in growth to the GDP of each member state. Some economists believe that the North Asian countries — China, Japan, and South Korea — could benefit the most from RCEP. However, it will take some time before all the member states ratify the agreement. In some countries that suffer from anti-free trade or anti-China sentiment, ratification of the pact may take time.
 
The agreement is bigger than both the U.S. North Atlantic trade agreement with Mexico and Canada, as well as the European Union's trade pact. In contrast, for the last four years the U.S., under the direction of our president, has largely retreated from inking large multinational trade deals. In fact, we have done just the opposite by raising tariffs, while pursuing a policy of isolationism. I am not sure that a new president, regardless of party, could alter this trade trend. I don't know what it would take to convince a divided American populace that there will be far-reaching consequences of our actions.
 
America's withdrawal from free trade has left a void, which other nations (especially China) are all too happy to fill. We pulled out of the Trans-Pacific Partnership (TPP), for example, which was an even broader agreement than the RCEP, largely because of what the nation perceived was China's growing influence in the Asia-Pacific region. We continue to isolate when even our trading partners like the European Union understand that, in a world ravaged by the coronavirus, new trade agreements (not less) are vitally important to economic recovery. 
 
But the U.S. seems intent on fighting the pandemic battle alone, while scrambling for ways to rebuild the economy amid a crumbling national infrastructure, without going into more debt. In a nation divided, where more than half the country cannot even agree on the winner of a presidential election (let alone the presence of COVID-19 among us), do we really have the resources necessary to go it alone on the world trade front?  
 
Bill's forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
 
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by OPI. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
 
     

@theMarket: Vaccine Hopes Send Stocks Higher

By Bill SchmickiBerkshires columnist
The first real hope at ending the global coronavirus pandemic was announced on Monday. Drug company partners, Pfizer and BioNTech, announced their COVID-19 vaccine, which exceeded expectations. The news sent world stock markets screaming higher.
 
Later in the week, some profit-taking developed, but overall the news was met with relief and cautious excitement. Most investors expected the Pfizer drug would be, at best, 60-70 percent effective, so when the company announced it was more than 90 percent effective in preventing COVID-19, stocks soared.
 
While this was great news, there are a few drawbacks to the vaccine. For starters, Pfizer can manufacture only a limited quantity of the vaccine next year. Analysts are using a guesstimate of 1.3 billion doses. If that sounds like a lot, it is, but much of that supply (80 percent) is already spoken for by the U.S., Canada, Japan, the E.U. and the U.K. Second, in order to work, you need two doses. The most optimistic assessment is that no more than 12 million vaccine treatments could be available by the first quarter of next year.
 
The other issue with the vaccine is that it needs to be maintained, stored, and transported at really low temperatures — minus-176 degrees Fahrenheit. To give you an idea of what that means, your typical American freezer runs at about zero degrees Fahrenheit. As such, in order to be effective, the vaccine requires a super-cold freezer, which is unavailable in most hospitals, clinics, and doctor's offices and that's in a developed world country. Low and middle-income nations (think emerging markets) would not be able to take advantage of this vaccine easily, even if it were available to them in 2021.
 
Some of the market's euphoria wore off as the facts became known, but it was interesting to watch what market sectors did well, and what didn't, as the week progressed. Cyclical areas of the market and value plays did the best on Monday and Tuesday. Small-cap stocks and financials also led the indexes higher. Interest rates on long-term bonds rose, while gold and silver plummeted. Technology shares, long the market leaders, also sat this one out.
 
This all made some sense. A successfully-administered vaccine would ultimately put an end to the pandemic. In turn, global economies would begin to rise. Those sectors that had been hurt the worst by the coronavirus would benefit the most, while the "defensive plays" — stay-at-home stocks and technology shares — would no longer be the only game in town.
 
Higher economic growth would also mean greater inflation risk, so bond holders would want a somewhat higher rate of interest to compensate for that possibility. Higher rates are good for financials, so bank stocks gained.
 
As is usually the case, once investor excitement dissipated a bit, profit-taking set in during the latter part of the week. Traders snapped up some oversold tech shares, while taking profits in some airlines, cruise lines, and the like. The question is what happens next?
 
As readers are aware, I have been warning for months to expect a pandemic "dark winter" in the U.S. and some other parts of the world. In November so far, more than one million new cases of COVID-19 have been confirmed throughout the U.S. It will likely get worse. Should lock-downs nationwide occur, or more likely, selected closings on a state-by-state basis, which is happening as I write this, it could hurt investor sentiment, as well as economic growth and employment.  That may keep a lid on the averages in the short term.
 
As a contrarian, the recent surge in optimism in the AAII Investor sentiment Survey is also somewhat troubling. Bullish sentiment improved by 17.9 percent last week. That brings the number of bulls to 55.8 percent. That is a seven-month high, while the number of bears declined to 24.9 percent. Those numbers make me cautious in the short run.
 
As for politics, in the face of the worst surge in coronavirus cases and deaths thus far, there is silence from the White House. I won't comment other than to say that the markets have already given their verdict, and nothing that has transpired this week has changed that narrative. Market catalysts that could drive the markets higher would be additional good news on additional vaccines, which is expected, and some progress on a stimulus package to help the nation through the next few months. I expect one or maybe both to happen, although a stimulus breakthrough is a long-shot. Until then, expect some volatility.
 
I still believe we continue higher through the end of the year. For now, let's pencil in a possible S&P 500 Index target of 3,800.
 
Bill's forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
 
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by OPI. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     

The Retired Investor: Small-Town America Is in Vogue

By Bill SchmickiBerkshires columnist
The on-going coronavirus pandemic has boosted consumer demand for small-town real estate. Whether that trend will continue with a vaccine on the horizon is anyone's guess. 
 
In the meantime, it could be a godsend for those looking to retire and possibly downsize during this period. The obvious driver in this trend change has been the safety factor. The devastating carnage that occurred in the nation's large cities during the first surge of the coronavirus convinced many families to pull up stakes and find dwellings as far from the mayhem (and people) as possible.
 
Home listings in small towns jumped more than 100 percent this spring, according to Redfin, while viewings of rural county properties increased by 76 percent. But relative safety was only one of the draws. The ability to work remotely had opened up possibilities to re-evaluate and rethink lifestyles. That became especially appealing for those who had faced long daily commutes and extended work hours. The pandemic also curtailed, or even shut down, many of the reasons consumers enjoyed the urban centers in the first place, such as restaurants, bars and other leisure activities.
 
From a financial point of view, low mortgages rates (thanks to the Federal Reserve Bank's monetary stimulus) have made borrowing mortgage money more affordable. Property prices are also much more reasonable when compared to housing in places such as New York City, Boston, or San Francisco. Buyers also benefit from lower taxes generally.
 
In many cases, a young family's plans to move out of the big city in a couple of years was simply hastened by the pandemic. Others found that the coronavirus was the excuse they needed to move closer to aging parents or find a place that offered a guesthouse for other family members. 
 
And these days, where most leisure activities involve the great outdoors, the appeal of living somewhere rural is an added draw. 
 
For many, small towns are a good choice. At some point, (when things return to normal), most work-at-home employees plan to go to the office a few times a week.  As such, a convenient transportation system is a priority. Many small towns offer train, bus, and even airport services nearby. My own small town (well city), Pittsfield, offers all three, plus a wealth of other services for new home buyers.
 
As someone who has lived in the back-country, take it from me, when it snows commutes become a nightmare. I also found that without good internet service working from home is practically impossible. Something I discovered too late when I moved to the "boonies."  
 
The pandemic has even made school choices easier for many moving parents and their kids. Many children are still attending virtual schooling and they don't get to socialize with their friends, except through the computer. As such, a move to somewhere else may not be as life-changing to many children as it could have been under more familiar circumstances. 
 
All of this is good news for the segment of the population who are retired or planning to retire. For many aging Americans, that four-bedroom house of forty-some years with the big backyard and front lawn has long since emptied out. The children are gone. The driveway is too long to plow and even the garden is taking more effort than it used to. 
 
For those thinking of downsizing, the timing couldn't be better. 
 
Bill's forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
 
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by OPI. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     
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