While it would appear that President Donald Trump left the London NATO Summit this week empty-handed, the truth is he has already achieved what several presidents before him could not. Unfortunately, it is a shallow victory at best.

 

Just a week ago, in preparation for President Trump's visit, the North Atlantic Treaty Organization announced a change in the funding of its budget. It agreed to reduce the United States' contribution to the alliance (now 22 percent) and redistribute the costs to other members. As a result, the U.S. and Germany will now pay the same amount. Each will contribute 16 percent of NATO's central budget.

 

The problem is that NATO's central budget, which only amounts to $2.5 billion annually, is just a drop in the bucket when thinking about the ongoing defense of Europe. The alliance was formed after World War II as a means to counter the Soviet Union's growing domination in Europe and the rest of the world.

 

The idea of a collective defense — "One for all and all for one" — was a good one at the time. The assumption was that each nation member would see to its own defense spending, while contributing to the direct budget of NATO, which was miniscule in comparison.

 

Over the decades since its founding, it became apparent that, with the exception of the United States, most of the 29 members of the alliance were not spending nearly enough on their own defense readiness. The issue came to a head by 2014 when the members agreed that they would increase their own defense spending to 2 percent of their Gross Domestic Product (GDP) no later than 2024. 

 

Therein lies the beef, since only nine members have reached that goal so far. In the meantime, the U.S. spends 3.4 percent of GDP on defense, which amounts to roughly 69 percent of overall defense spending among the NATO alliance. This year alone, the U.S. will spend $693 billion. That makes the amount members spend on the NATO budget mere peanuts in the grand scheme of things.

 

The 2014 agreement, however, is really a "paper tiger," since there is no penalty if a member fails to reach the 2 percent target. To be fair, most NATO members did increase defense spending this year, which makes it five years in a row. However, that was not nearly enough in President Trump's opinion.

 

"ALL NATO NATIONS must meet their 2 percent commitment, and that must ultimately go to 4 percent," was the tweeted message dictated to NATO by our commander-in-chief. That might be easier said than done, in my opinion. This week, the president has threatened additional tariffs on European imports if NATO members do not comply.

 

To be fair, our European allies are democracies and cannot simply up their defense spending without the agreement of their voters. At the same time, most Europeans have far less appetite for defense spending in general than Americans.

 

In addition, given Trump's overwhelming lack of popularity within European nations, it would be practically impossible for EU leaders to convince their citizens to increase defense spending based simply on Trump's demands. In fact, it is likely the opposite would occur.

 

That leaves one obvious avenue left to force a solution — threatened U.S. departure from NATO. The ramifications of such a move on Trump's part would go far beyond economics. I am sure that possibility is the stuff of nightmares that may keep our military establishment up at night. Many politicians on both sides of the aisle might also have a problem with such a move. And yet, I would not put it past this president to venture down that road, if only as a negotiating ploy to get some of what he wants.

 

Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

Ready, get set, go! That's what the nation's retailers are hoping you will do, preferably before your Thanksgiving dinner has barely been digested. Black Friday has become Black Week, while holiday shopping now officially includes the entire months of November and December.

 

In 2019, retail sales nationwide are expected to increase by 3.8-4.2 percent from last year, according to the National Retail Federation (NRF). That would amount to a total of between $727 billion to $730 billion being rung up in the nation's cash registers. That's not a bad haul when you realize the average holiday sales increase over the last five years was 3.7 percent.

 

Those numbers are even more encouraging when you realize that this year, there are six less shopping days until Christmas and Hanukkah. Driving theses sales is a healthy consumer, which is important, since consumer spending is still the primary engine of America's economy.

 

Consumers are in good shape financially, thanks to low unemployment, higher wages, and a record high stock market. It is a heady brew that gives shoppers an extra jolt of good cheer and could translate into more generous gifts for friends and loved ones.

 

The NRF predicts that the average Americans plans to spend $1,047.83 this year, which is up 4 percent from last year's $1,007.24. Breaking those numbers down into three groups: the average Joe/Jane will spend $658.56 on gifts for family, friends and coworkers. Holiday purchases such as food, greeting cards and decorations will total $227.26 more and other non-gift purchases for themselves and their families will add an additional $162.02 to the total.

 

While gift splurging is up, the costs of Thanksgiving dinner will drop for the third year in a row. You can thank Thomas the Turkey for that. The cost of a 16-pound turkey is down 3 percent to $21.71, on average, nationwide. It is estimated by the American Farm Bureau Federation that the whole meal could average less than $5 per guest, if you stick to the basics like stuffing, sweet potatoes, rolls, peas, pumpkin pie, etc.

 

Thanksgiving Day will still register as the worst driving day of the year, but for the second year in a row, my wife and I have smartened up. We are taking the train roundtrip to New York City and spending just enough time with our loved ones to stuff our faces and maybe lose another chess game to my 7-year-old grandson.

 

We don't know yet what impact President Trump's tariffs will have on spending and prices, and we probably won't know until Dec. 15. That is the date when the next round of tariffs on Chinese imports is slated to take effect. Apparel, footwear, electronics and more will be subject to these new duties and it could dampen consumer enthusiasm just as holiday shopping swings into full gear.

 

So far, the message I keep getting is to "shop early." I'm not sure if this is just another gimmick to get me out and about spending money, or if retailers are warning me that if I procrastinate, the special gift I'm looking for will be either sold out or cost a heck of a lot more because of the tariffs. Either way, one thing is clear, Black Friday has now morphed into "Black Week" and it is in full swing right now.

 

In any case, no shopping for me on this Turkey Day. As you read this, I will be ensconced among family members and friends, passing the gravy boat, and wishing all of you, my readers, a Happy and Thankful Thanksgiving.

 

As the Dec. 15 deadline approaches, investors aren't sure whether the next tranche of tariffs on Chinese imports will be raised, lowered, or delayed. Given the importance of this event, markets are once again stuck betwixt and between.

 

If this sounds like a broken record on the China trade deal, you would be right. We have been here so many times before that just about everyone in the worldwide financial community is sick of it. Nonetheless, hope springs eternal, or so it would seem, because, many investors still have faith that there will be a breakthrough sometime in the next three weeks.

 

A senior executive of the U.S. Chamber of Commerce, Myron Brilliant, who is head of international affairs for the chamber, isn't holding out much hope. The Chinese, he believes, are adamant that all tariffs must be rolled back before a deal can be struck, while the U.S. is just as insistent that won't happen. At this point, President Trump is now threatening to increase tariffs again if the Chinese won't relent.

 

In addition, it's a bad time for making trade deal decisions. The president is not a happy camper at the moment and everyone in and out of the White House knows by now that emotions play a large part of his decision-making processes. The two-week long televised hearings on the impeachment inquiry, the almost-certainty that the House will vote for impeachment, and the likelihood that this circus will continue into the New Year (before it is defeated by the Republican-controlled Senate) is not, in my opinion, going to lighten his mood.

 

And yet the war of words continues. Friday, President Xi Jinping of China, while greeting some international visitors, including Henry Kissinger, in Beijing, said he wants to come to a phase one agreement as long as the deal is on the basis of mutual respect and equality. The markets immediately moved higher after three days of losses. 

 

While that cheered markets for a short time, the facts are that Xi has been saying the same thing for weeks.  Note the words "respect," which is short for "stop bashing us, our companies, and our handling of the Hong Kong riots, Mr. President."  "Equality" to the Chinese means "the U.S. must rollback its tariffs in exchange for a phase one deal." To me, there is nothing new here, just the same old song with a slightly different beat than last week.

 

As I wrote last in my last column, I have been expecting some congestion in the markets. The China trade charade is simply the excuse. We are overbought and extended, so a little pullback would be a good thing. This week the profit-taking has been minuscule, with the S&P 500 Index down less than 1 percent from the highs. That doesn't mean it won't correct further, but if the majority of market participants are expecting stocks to go one way, the chances are they will go the other way.

 

Let's give things another week or two to shake out before we start looking for that traditional end-of-year rally. Some might say that Santa Claus has already come to Wall Street, filling our stockings with capital gains from all these double-digit returns this year. With the Fed on hold, the economy still growing (even though the rate of growth is slowing), and most analysts and economists optimistic about next year, you could see further gains in the weeks ahead, unless Trump becomes the Grinch that stole Christmas.

 

Diamonds for most Americans evoke visions of luxury and romance and are almost always the traditional go-to precious stone for engagement rings. The good news is that no matter how strapped for cash you are, you could probably afford one right now.

 

Chances are, I don't have to sell you on diamonds, since most Americans are in love with this precious gem and always have been. Diamonds make men into heroes, while nothing says to a woman ‘"I am deeply loved" than a sparkling stone that required millions of years to make.

 

Americans account for 50 percent of all diamond sales worldwide. Sales grew 4.5 percent (to $36 billion) last year. The good news for you this holiday season is that diamond prices have consistently declined since 2011. In fact, the wholesale price of a diamond right now is close to its 2002 level. Can you say that about any other product?

 

But remember that not all diamonds are the same. The four Cs — color, clarity, cut and carat weight — will still determine the price you are going to pay. A dealer will tell you that there are diamonds and then there are "diamonds." The kind you see on Madison Avenue in the plate-glass windows of Bulgari or Cartier are still wildly expensive, but most of us could never afford those stones anyway. No, we shop at the discount stores or local jewelers, and there you will find great prices on most polished stones.

 

There are reasons for this. While demand for diamonds has been increasing, there is and has been an increasing glut of supply in the polished stones market, especially in smaller gems, worldwide. Companies, and in some cases, countries, have benefited from modern methods of production. This has made mining these stones easier, faster, and cheaper. Competition among companies in the sector for market share has also exploded. An attitude of "produce at any price" has permeated the industry, resulting in everyone getting hurt.

 

Companies such as De Beers, a unit of Anglo-American Corp., which is considered the premier diamond company in the world, at one time could dictate not only the price of its diamonds, but the amount of stones each of its distributors must buy. No longer.

 

Those distributors who cut, polish and trade the rough diamonds have been squeezed the most. They are in the middle, between the mines and the end buyers, the retail jewelry chains. These chain stores, aware that there is a mountain of these gems available, have reduced the inventory they are willing to hold at any one time. In addition, not only have they held the line on price, but have actively negotiated prices downward as the glut grows worse. 

 

As a result, the middleman's profits have evaporated. Banks have stopped offering lines of credit to them. The situation has gotten so bad that distributors have simply refused to buy any more diamonds from the mines. And just when the industry thought it couldn't get any worse, lab-grown diamond popularity has emerged.

 

Ever since the movie "Blood Diamonds" dramatically revealed the downside of diamond mining (child labor, pollution, etc.), more and more millennials are opting to buy the more politically correct alternative to earth-mined diamonds. It also helps that they are cheaper than their earth-bound cousins. So far, sales account for only 2 percent of the diamond market but it is growing quickly.

 

The technology is such that most lab gems are on the smaller size (1.5 to 3 carats) and are in the E-F color range with VS quality. And no, you may never see them displayed in Tiffany's, but then again, as technology improves and consumer preferences continue to change, you just might. All of which just presents yet another hurdle for the people who mine, polish and sell "a girl's best friend."

 

And while I do not revel in an industry's misfortunes, it does present an opportunity for you, the reader. Sure, you may find that buying that diamond still sets you back a bit more than you were originally willing to spend, but take it from me, she/he is worth it. The returns on your investment are going to last you a long, long time. And Black Friday is just around the corner!

 

It has been one of those weeks where just about every day the stock market opened lower. But by the end of the day, one or more of the three main averages would rebound and close higher, usually close to, or at a minor new high. I expect it should continue.

 

And as stocks grind higher, more and more equity players are calling for a minor 2-3 percent pullback. Is that something that we should even care about? My answer would be no. 

 

We are in a news-driven market. Most investors only seem to care about the latest news on a China trade deal; that said, being out of the market appears to be riskier than being in it.

 

Many believe we are only one tweet away from a 5 percent upside move in the markets. Of course, we could also experience a 5 percent downdraft just as quickly, if things fall apart with China at this stage. Remember, too, that Chinese officials have also learned how to play the tweet game.

 

The president no longer has a monopoly on fake news. For every outlandish claim coming from the White House on a China deal, the Chinese media responds with fake news of their own. As a result, I imagine those algorithmic trading shops and their headline-driven, software computer models are having a hard time keeping up.

 

Of course, no one seems to care that this Phase One agreement was supposed to be a done deal a month ago. Either our deal-making president, par excellence, has been hood-winked once again by the Chinese in the negotiations, or the president is deliberately manipulating the truth to suite his own purposes. Given the president's long history of self-vaunted integrity, that might be hard to believe, but readers can make up their own mind on that point.

 

Given that we don't know if or even when this joke of a deal will be signed, all the markets can do is hope for better news in the weeks ahead. In the meantime, investor sentiment is being supported by the central bank Chairman, Jerome Powell.

 

Powell assured markets this week that the economy seemed to him to be in a good place, neither too hot nor too cold. Once again, he ignored remarks by the the president, who voiced continued disgust at Chairman Powell's refusal to obey his wishes and lower interest rates even further.

 

There are also some issues that have yet to be addressed. One that has received a reprieve is the budget negotiations. Set to expire on November 21, Congressional leaders have agreed to extend the budget negations for another month, until December 20th. The president, evidently chastened by last year's horrendous holiday government shutdown, has indicated he would sign a spending bill as long as it allowed for construction of his Wall.

 

The media's main event this week, the impeachment hearings, have been met with a great big yawn on Wall Street. The thinking among investors is that whatever the results, the chances that a vote to impeach would pass the Senate is just too small to calculate.

 

In a similar vein, the socialist rhetoric of some Democratic candidates, such as Elizabeth Warren and Bernie Sanders, is just hot air, since investors are still convinced that (barring something dreadful that happens to the economy) Donald Trump will win in 2020.

 

Granted, prevailing opinion can change in a heartbeat, but for now, that is how the wind is blowing. The stock market appears to be in good shape. These "tactical" calls for a pullback would suit me just fine, if it were to occur.  A minor dip in the markets would be just the excuse I would need to advise adding more equity to portfolios.