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The Retired Investor: Non-Fungible Tokens Come of Age
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Non-fungible tokens (NFTs) have been around since 2014, but I'll bet you haven't heard of them until this year. As part of the crypto craze, these NFTs are commanding millions of dollars in spending and expanding into everything from original art to tacos.
NFTs are digital assets. For those like me, who are old enough to be grandparents, and may still read the newspapers, the concept of a digital asset may not be all that intuitive. "Non-fungible" means that it is a unique asset that can't be replaced with something else.
NFTs are bought and sold online (usually with a cryptocurrency), and stored and encoded in the same way. The difference is that cryptocurrencies, such as Bitcoin, are fungible and can be traded, or replaced, with another bitcoin. These digital assets can include everything from original art, videos, and music, as well as collectables like electronic sports cards, in-game articles, and whatever else sellers believe will have value to the spending public.
Most NFTs are bought, sold and supported by the Ethereum blockchain. Ethereum, for those who don't know, is both a cryptocurrency, like Bitcoin or Dogecoin, but also offers a sophisticated, state-of-the-art blockchain that stores extra information needed for all sorts of digital transactions including the processing and handling of NFTs.
Ethereum is not the only game in town, however. There is a growing list of competitors that have also entered the market. They function as a marketplace where NFTs can be stored, displayed, traded, and in some cases, created. These marketplaces are to NFTs what Amazon or eBay are to goods. So how do you access them?
You need to have a crypto wallet. If you already buy or sell cryptocurrencies, you probably already have one. But it must be compatible (and prefunded) with a blockchain that supports the NFT you want to buy. NFTs are usually purchased for a fixed price, or through an auction like on eBay.
The purchase includes a built-in authentication, which serves as proof of ownership. Each original object has its own digital signature that makes it impossible to be traded or exchanged for something that may look similar, but isn't. Therefore, the buyer can never be stuck with a fake copy of something like a digital Mona Lisa.
Today, although there are many types of marketplaces, universal and art-oriented platforms are the most popular. There are also nice niche players that specialize in things like collectible cards, virtual real estate, and in-game articles.
Some items have sold for substantial sums like a tweet from Jack Dorsey, the founder of Twitter, that sold for almost $3 million. Big business is also starting to dabble in this market. A number of Fortune 500 companies are jumping into NFTs as part of their marketing strategies. Visa, for example, paid $150,000 for "CryptoPunk," which is just one of thousands of NFT digital avatars up for sale. Nike has patented a method to verify sneakers' authenticity using an NFT system called CryptoKicks. Marvel, the home of so many superheroes, launched its own NFTs, as did Wayne Gretsky.
Then there is "Beeple," a digital artist, whose real name is Mike Winkleman, who rocketed to fame when Christie's, the art auction house, announced it was selling a digital work by him. The auction attracted 125 bidders and sold for $69 million. That was $15 million more than Monet's painting "Nympheas," which sold for $14 million in 2014. A video by the same artist brought in $6.6 million.
The clip art of a rock just sold for 400 ether, that's about $1.3 million. The transaction marks the latest sale of EtherRock, a brand of crypto collectables. EtherRock is a JPEG of a cartoon rock, built and sold on the Ethereum blockchain. There are only a hundred available, which I'm guessing is part of the attraction.
What makes a cartoon rock (not even a real rock) valuable? Its scarcity value. In a world where there is an infinite supply of most digital creations, NFTs stand out because they are generally, one-of-a-kind, original artwork. Of course, like any product there is an implied assumption that there is a demand for the object on sale.
Owners of NFTs are taking the chance that no matter how many times you might be able to download a copy of their original, it isn't the same as owning the Real McCoy. Frankly, you won't see me lining up to buy a virtual rock anytime soon. To me, it serves no purpose I can see beyond its ability to be bought and sold. I guess it could give you a sense of pride and maybe bragging rights in being the owner of one of only 100 such rocks, although I doubt I would want to brag about that.
Don't be too quick to dismiss NFTs as just another craze, however. For the starving artist, for example, it is an avenue (without middlemen) where they can sell their works direct to the public and make a living. I believe that in the years ahead, crypto and other electronic currencies, blockchains and the like will replace existing exchange systems as well as transaction settlements.
As the world continues its journey into a digital reality, NFTs could grow and become an accepted part of that brave new world. As we have replaced the ubiquitous oversized travel photo books on our coffee tables, the slide show of our vacations, and even our family photo albums with digital memories, is it so hard to believe that there will be a market for NFTs?
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His 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.
@theMarket: Taper Talk Tanks Stocks
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The July minutes of the last FOMC meeting were released Wednesday. In the announcement, Fed officials expressed their willingness to start reducing asset purchases before the end of the year. In response, traders dumped stocks. Was that the right move?
Stock jockeys seem to believe that by reducing monetary stimulus by even a smidgeon, all will be lost in the stock market. I find that hard to believe. The Fed is purchasing $120 billion a month in bonds. If they reduce that amount by $10-$20 billion, that still leaves a lot of central bank firepower.
A much better explanation for the losses this week could be that it is a slow week, and a seasonally treacherous time of the year in the equity markets. Traders can move stocks up and down easily on little volume, racking up big losses (and gains) from unsuspecting investors.
Add into that mix, a host of unknowns ranging from the latest surge in the Delta variant of the coronavirus, events in Afghanistan and China, plus the upcoming battle over the debt ceiling, and you have a genuine witches' brew of misinformation, fear, and worry. Oh, and did I happen to mention that all this is occurring at the very top of the markets?
Let's begin with the Fed's statements. Nothing, absolutely nothing, in the minutes was new information. I have been writing about this upcoming taper for weeks. Everyone knows it is coming by now. It is only a question of how much the Fed plans to taper and when.
The fall of Afghanistan and the rise of the Taliban may hurt American pride, and possibly damage our credibility among allies and our enemies, but that's about it. Talk of increased terrorist activity as a result is a bit much, and no reason to sell stocks, unless you own an Afghanistan country fund (of which there are none). But again, it was a slow week in the markets.
The ongoing decline in American-held Chinese stocks is a horse of a different color, however. A month ago, I warned readers that Chinese stocks traded in the U.S. and abroad would face a massive re-rating as a result of the actions of the Chinese government. Many Chinese stocks have declined by 50 percent or more since my column.
I have watched as investors bought every dip (just like they have done in the U.S.), thinking they were buying quality stocks at a bargain, only to see prices fall even further. Investors need to understand that the Chinese government is a communist and not a capitalist system. They could care less how much you lose on their way to achieving their political and socialistic goals over the next five years and beyond. Chinese equities may have a dead cat bounce soon, but the risk is still real, and will continue to pressure these stocks.
Another threat I have been taking seriously is the ongoing COVID Delta variant. My concern, aside from the health risk to everyone, is the Delta variant's potential impact on the global economy. We are starting to see additional supply line bottlenecks forming throughout the world, causing a scarcity of parts and products. Consumer sentiment is also retreating. Retail sales, however, still seem to be okay but have cooled somewhat in the last week, according to Bank of America's debt and credit card spending data.
This week, medical experts revealed that the efficacy of the vaccinations we have already received may be becoming less effective in preventing coronavirus infection as time goes by. U.S. health officials on Wednesday announced plans to dispense Covid-19 booster shots to some Americans starting in September 2021 (for those with certain underlying health conditions). Bottom line: we are still at the mercy of this pandemic, and until a large percentage of these anti-science citizens in mostly southern states get with the vaccination program, we will never get out from under.
The Afghanistan mess does muddy the waters somewhat, at least as far as the timing of the debt ceiling debate. Congress still needs to debate and pass the $3.5 trillion budget proposal through the reconciliation process as well.
I have been surprised by how well the markets have been handling all of these challenges. Markets snapped back on Friday somewhat, however, we will need to wait until next week's outcome of the Fed's Jackson Hole Symposium before signaling an all-clear in the short-term.
The small-cap, Russell 2000 Index and the Dow Transportation Index have already declined a good 9 percent over the last few weeks. I suspect that somewhere down the road, the main averages will follow them down but thus far, unlike the Chinese stock market, it has paid to buy every dip. Stay invested.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His 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.
The Retired Investor: Corporate Activism Comes of Age
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For decades, corporations stuck to their knitting, while letting Washington and the voters decide how to deal with social and political issues. But times are changing as companies become bigger and more powerful.
Corporations are speaking out on issues from LGBTQ rights to gun control. To some politicians, managements and their boards are throwing their weight around in ways that make elected officials uncomfortable. At first, I dismissed much of their actions as simply rhetoric, or just good public relations, but more companies are speaking out frequently on many issues.
Take the gun control issue. U.S. politicians on both sides of the aisle have failed to pass legislation that would reign in the slaughter of our citizens (especially our children) for decades. In response, some companies such as Salesforce, Shopify, Amazon, Walmart, and eBay, have taken matters into their own hands. Several companies have simply banned sales of firearms on their platforms, or have refused to supply e-commerce software to gun sellers. Their actions have all but stopped online sales of firearms in the U.S.
Other issues such as abortion, LGBTQ, and voting rights have also been taken up by a wide spectrum of corporations. Film studios have boycotted the state of Georgia, for example, over abortion rights, while Bank of America and PayPal forced North Carolina to roll back a bathroom bill that discriminated against transgender people.
Most of the big social media companies such as Facebook, Twitter, and Google, are actively attempting to limit misleading or false information, as well as hate speech, on their platforms. To their credit, the backlash from some politicians and individuals has not deterred them from pursuing those goals — and they are succeeding.
And while the country continues to debate and argue over the need to require vaccinations, corporations are not waiting around for Washington to make up their minds on that either. Proof of vaccinations started with retail shops and restaurants, which are on the frontline of potential contagion from the latest surge of the coronavirus Delta variant cases. Since then, the number of employers who are posting jobs requiring proof of vaccination is steadily increasing. The number of job postings on Indeed.com, an online employment website, for example, requiring vaccinations as a job condition, has increased by 90 percent over the last month. Google, Netflix, Disney, Morgan Stanley and Facebook are just some of the big companies involved in this trend.
You might also remember President Biden's effort to raise the minimum wage to $15 an hour as part of the $1.9 trillion COVID relief package. It was shot down back in February by the Senate parliamentarian, who would not include it as part of the reconciliation budget process. Republicans refused to back it, claiming that it would hamper small businesses in various parts of the country. Fast forward to today. Corporations, both large and small, took matters into their own hands. As of June 2021, almost 80 percent of U.S. workers are now making more than $15 an hour, according to a Washington Post newspaper survey.
Corporations have always had a fair amount of influence and power in this country, but it has usually been exercised in cloakrooms and behind the scenes. Now, however, companies face a groundswell of pressure from a socially aware public (as well as their own employees) to right perceived wrongs.
A big change has occurred within certain elements of our society. The vast majority of millennials, Gen Xers, and baby boomers believe that companies they buy from should be investing and supporting causes they care about. And if not, boycotting a company or brand, they have learned, is far more effective than writing a letter to your congressperson.
National politics are at an impasse with neither party willing to compromise on issues as diverse (or deadly) as climate change, health, or even raising the debt ceiling. Clearly, part of this new corporate direction is meant to fill a power vacuum in Washington. Critics argue that affecting policy changes through unelected corporate leaders is troubling at best.
It is. But at the same time, with public confidence in our leaders and institutions at an all-time low, the consumer (voter) evidently feels more confident in corporations and the brands they identify with to get things done than they do in some politician they rarely if ever see.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His 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.
@theMarket: Stocks Grind Higher
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The major indices have been working higher over the last few weeks, while rotation among sectors continues unabated. The higher markets climb, the more investors begin to question how long the bull market can sustain its upward trajectory.
"Thin" would be the way I would describe the movement upward in the S&P 500 Index. The same term could be used for the slight downward drift in the NASDAQ and technology stocks in general this week. It is August, after all, and volumes dry up as many on Wall Street take vacations.
Technically, we are trading in the middle of a monthly range in many sectors. A cursory view of some of the sectors reveals that semiconductors and FANG stocks are weakening, transportation, materials, and industrials are gaining, and retail and small caps are basically flat. Large cap stocks, in general, are outperforming all others.
Commodities like oil and precious metals have been taken out to the woodshed over the last week. The main trigger for this downdraft has been the strengthening U.S. dollar as well as rising yields in the bond market.
Remember, the greenback is a safe haven when times are uncertain. The explosion in the number of Coronavirus Delta variant cases worldwide has foreign investors flocking to the dollar. A strong dollar hurts commodities, since they are priced in U.S. dollars and therefore makes the price of commodities more expensive.
Friday's (Aug. 13, 2021) U.S. consumer sentiment data didn't help the mood. Sentiment plunged to the lowest level in almost a decade as Americans grew more concerned about the surge in Coronavirus and its potential impact on the economy.
Good news on the infrastructure front helped counter some of those concerns. The materials and industrial sector got a lift, although the passage of the $1 trillion plan was already baked in to stock prices for the most part. Next up, we can look for the debate over the $3.5 trillion, anti-poverty, climate plan, which is expected to be a Democrat-only initiative. That initiative includes tax increases for the wealthy and for corporations. It will need to go through a special process called reconciliation as part of a budget resolution.
Republicans have already dissed the plan, protesting that it will add to the inflation rate (doubtful), and increase costs to the American family (specifically, those who make more than $450,000 annually). But there is no guarantee that the progressive and moderate/conservative wings of the Democratic Party will come to an agreement on this initiative.
Touted as the largest expansion of the nation's safety net since the "Great Society" of the 1960s, the proposal will require compromise on both sides of the Democratic Party. Some question whether it can be done. I suspect that President Biden is up to the task. He is the first President in decades to forge a bi-partisan infrastructure program with a deeply divided Congress.
Over in the bond market, traders have been pushing yields higher in advance of the Jackson Hole Economic Symposium scheduled for Aug. 26-28, 2021. Every year, investors eagerly await the speech of the Federal Reserve Bank Chairman hoping to pick up clues as to the Fed's next policy move. They should know by now that this is an international symposium of central bank leaders. It is not a Federal Open Market Committee meeting. The FOMC meeting is the appropriate place to announce and discuss U.S. policy. That will happen in September 2021 and will likely include some more information on when Fed bond buying may begin to taper.
Some question whether the taper will occur at all as long as we continue to face the onslaught of the Delta variant. Overseas, the pandemic is continuing to delay and cause new bottlenecks in the global supply chain. China, for example, just shut down the world's third largest shipping port due to a coronavirus quarantine.
As for the markets, I still believe we can eke out another 100 points or so in the S&P 500 Index, although we are heading into the worst seasonal period of the year for stocks. As has been the case all year, the market's fate is intricately dependent on the progress, or lack thereof, of the coronavirus.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His 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.
The Retired Investor: Back-to-School Season
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It is not an easy decision. On one hand, consumers want to go out and shop for their children's upcoming school year. But at the same time, they are concerned that if they do, they might catch the coronavirus. There is no easy answer.
This 2021-2022 school year was supposed to usher in a new beginning. As such, retailers are still expecting sales of clothes, school supplies, and college dorm décor items to increase by 5.5 percent from last years' depressed COVID-levels. Even so, that still won't match 2019's 6.7 percent increase, but it is getting close, or was until the Delta variant arrived.
I thought that parents have the extra cash to spend, given the rounds of government stimulus checks, enhanced unemployment benefits, and the child-tax credits that have been arriving in the mail over the last few months. The question will be whether those parents go out and splurge during the back-to-school season (mid-July through early September), or hold back.
If they splurge, then apparel will likely lead the list of items most in demand, and understandably so. Last year, during the great shut-in, you could wear the same sweat pants and T-shirts all week long and no one would be the wiser. But today, more families are hoping to go out, impress classmates, or start going back to the office, and if that is the case they want to look good.
Retailers are hoping that the desire to look fresh and fashionable will convince consumers to venture out, and browse the malls and department stores once again. It is those brick-and-mortar stores that suffered the "ground zero" economic impact (along with restaurants) during last year's closing of the economy.
However, weighing against these expectations is the upsurge of the Delta variant Coronavirus mutation. As the number of cases rise, more consumers are beginning to throttle back their plans to visit stores. Shoppers are once again growing wary of dressing rooms, public bathrooms, and the food courts. New shoes, dresses, and denim purchases might not be worth the risk of infection, at least for the time being.
That would be a blow to the shopping season. In just one area, industry experts were expecting back-to-school spending for children in grades up to K-12 to reach $32.5 billion, which would average about $612 per student. But the Delta strain of Covid-19 is not the only risk facing retailers.
Labor shortages are a problem throughout the economy. The scarcity of sales clerks and cashiers, for example, could translate into long check-out lines, especially for those who worriy about safe-spacing within confined spaces. To make matters worse, there may also be a lack of popular merchandise due to supply-chain bottlenecks.
The novel coronavirus Delta case surge throughout Asia has caused shipping bottlenecks. COVID-19 cases have created labor shortages in the main export ports, and in the apparel trade. That could be a problem for U.S. retailers. Just a few countries in Asia supply most of the apparel consumed by the U.S. fashion industry. China, Vietnam, India, and Bangladesh account for more than 40 percent of U.S. apparel imports.
It is still too early to predict whether consumers' desire to outfit their kids and themselves will win over the continued presence of the coronavirus. The verdict, like so many outcomes today, will depend on how bad the health issue becomes in the next few weeks.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His 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.
