If you are one of those eleventh-hour holiday Christmas tree shoppers, you may be out of luck this year. Fresh balsam furs and other varieties of the traditional Yule symbol are hard to find.

 

Blame the pandemic on the scarcity, but at the same time, celebrate the fact that more families than ever before are getting together this holiday season.  And decorating that tree could be an intensely personal experience for the whole family.

 

My wife, Barbara, and I actually set up our tree on Thanksgiving weekend. Given our ages, we chose to forgo turkey day with our loved ones, who reside in Manhattan, and tried to fill that emotional hole with something else. We found that rather than being one of those chores on our holiday "to-do" list, this year we took our time, and yes, savored the tree decoration experience together. I must confess it also helped us relieve a bit of those COVID holiday blues.

 

Most Christmas tree grower associations are reporting that retailers are doing a brisk business throughout the nation as consumers spend more of their dollars on experiences, rather than gift products. Last year, Americans purchased more than 26 million live trees, worth about $2 billion, according to the National Christmas Tree Association, based in Colorado. The association represents about 75 percent of the U.S. Christmas tree supply. That number was lower than 2018, largely due to an increase in demand for artificial trees.

 

Price may have something to do with that, since live trees seem to get more expensive every year. This year, with all the home improvement household spending, the median price for real trees is expected to be up by 7 percent to around $81 a tree. That is a 7 percent increase over last year and 23 percent higher than 2018. For many, that is a steep price to pay for picking pine needles out of the rug over the next three months.

 

Still, I guess for a millennial family who can make a day of it, the price is worth it. This year, many more city and suburban dwellers have piled into their cars, make the trip to their favorite tree farm somewhere out in the "wilderness," and selected the family tree together. I am sure you have seen countless of these holiday trophies, netted, and firmly tied to the roof of the car, making their way back home to be plopped into a tree stand in the living or entertainment room. 

 

This year, the National Retail Federation believes the majority of consumers are more interested in holiday decorations and other seasonal items because of the pandemic. Lights for the tree and to decorate the outside of the home are also in demand, as are wreaths and garland. Pandemic-themed ornaments such as Santa Claus wearing a facemask, or ornaments with inscriptions of "Merry Christmas 2020" are especially popular.

 

The decoration demand was so great that retailers such as Walmart, Costco Wholesale, and At Home Group Inc., which are known for selling holiday items, were caught off balance. Many retailers under-ordered due to the shutdown earlier in the year. As a result, many stores have ended up with bare shelves in the holiday decorations and ornaments section this year since last-minute resupplies are difficult to come by.

 

This year, thanks to the coronavirus, the holidays will be different. Most of us know that. But no matter the size of your tree, or how many ornaments are upon it, or how many presents you received, if you have been lucky enough to avoid being infected — count your blessings. That should be more than enough to make this holiday season your best. 

 

Happy Holidays and Merry Christmas.

 

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.

Earlier this year, the price of West Texas Intermediate crude oil slumped into negative territory for the first time in history. Oil traded at a negative $37.63. Today, that same barrel of oil is changing hands at $47.48. What changed?

 

More than any other sector, the coronavirus has had a devastating impact on the global oil and gas industry. Declining consumer demand in the first quarter of the year in combination with high levels of energy production threatened to exceed worldwide oil storage capacity. OPEC plus, the oil cartel, took action on April 12 by cutting oil production by 9.7 million barrels per day, but by then it was too late. By April 20-22, you couldn't give away a barrel of oil and prices responded in kind.

 

By the end of the first quarter, more than 40 U.S. oil producers collectively wrote down $48 billion worth of assets, which was the largest quarterly adjustment since 2015. The losses were so bad that many investors sold banking stocks, concerned that several banks with energy loans outstanding might go under as a result. None of that happened, largely due to the quick action by our central bank's guaranteed loan program, and a huge slug of government fiscal spending.

 

Fast forward to today, where the revival in energy prices is somewhat remarkable given the present surge of COVID-19 cases. In my opinion, the oil price increase is all about the expected return to our pre-pandemic way of life. The hope is that as the coronavirus vaccines do their job, we will see an increase in worldwide demand for transportation, which is the principal driver of oil prices. 

 

The re-opening of the global economy will lead to higher consumption of diesel and natural gas as industrial businesses ramp up to full production. There should also be an upsurge in demand for refined energy products that are used in just about every industry.

 

In the short-term, I believe the continued price rise in oil will be dependent on what OPEC plus decides to do with production. As of last week, the cartel and its outside members agreed to gradually increase oil production by no more than 500,000/bbl. per day starting from January 2021. Here in the U.S. (where we are considered to be the world's main marginal producer) both our small and large oil companies have curtailed production and plugged wells.

 

There are other reasons that demand for oil may outpace supply. Unlike some industries, you can't just turn on the spigot and produce more oil and gas. There is a lead time involved in the process. A result of the economic downturn, nearly every oil company has had to cut investment spending this year. That meant a reduction in the development of proven reserves, which in the short-term doesn't matter much, but if demand picks up it could become a supply issue next year.

 

Companies upstream from these producers, the drilling and exploration contactors, as well as oil service companies, have been cutting back as well to stay solvent. Currently, oilfield activity is down 5 percent, the lowest in a decade. To reverse direction, this industry requires time. And a lot of it. All of the above could create an on-going imbalance in supply and demand leading to further price hikes.

 

In addition, the trend towards renewable energy sources has finally caught the attention of the largest oil corporations. Both politically, as well as from a long-term profit motive, alternative energy is attracting more investment. It is siphoning off the cash that had originally been ear-marked for traditional energy production. That trend seems to be firmly in place. Government incentives to do even more investing in the future may well reduce the investment spending necessary to increase the supply of oil and gas. This could all result in a perfect storm of higher oil prices next year.

 

Looking at the stock market, while energy stocks in general have enjoyed double-digit price rises over the last month, the energy sector overall is still down 32.9 percent so far this year, compared to the S&P 500 Index gain of 15.3 percent. My bet is that energy equities continue to close the gap in performance through 2021 as the price of oil climbs.

 

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.

After a three-year hiatus, cryptocurrencies have returned and are attracting the attention of investors. Will this time be any different?

 

Readers may recall the Bitcoin craze that sent the largest digital currency to an all-time high of $20,000 in 2017 and spawned numerous copy-cat cryptos like Ethereum and Litecoin.

 

You may also remember that all of them came crashing back to earth and ignominy where they have languished, unloved, until this year.

 

This week, Bitcoin hit a new three-year record of $19, 857. If that is news to you, there is a reason for that. After the last buying frenzy and subsequent crash, the financial media has taken a more cautious approach in touting cryptocurrencies. Until recently, Bitcoin has barely been mentioned in the press.

 

Another big difference is the number of new Bitcoin. More and more companies, many of them traditional financial institutions, are taking an interest in using and trading Bitcoin, and other digital currencies such as Ethereum and Litecoin. JPMorgan Chase & Co., as well as several other Wall Street firms, have expressed more than a passing interest in owning and trading these currencies.

 

In addition, more and more firms are accepting Bitcoin as payment. As of mid-year 2020, more than 160 companies allow their customers to pay with Bitcoin, including such heavy hitters as PayPal, Microsoft, AT&T, and Shopify. And it is no longer just the retail investor and "hot money" guys who are buying and selling crypto. A growing number of institutional investors are dipping their toes into the arena in search of better returns. Simply parking their spare cash in a money market fund (where it earns next to nothing) is not an option for many.

 

In one recent famous incident, a public company in business intelligence, MicroStrategy Inc., announced in July a new strategy in which it would invest its substantial excess cash into various assets instead of low-yielding money market funds. They chose Bitcoin as one of those alternative assets.

 

At last count, the company held 38,250 Bitcoin with an aggregate cost basis of $425 million. It is worth more than $730 million today. As a result, many traders have used the company's stock as a proxy to play Bitcoin. The share price has often tracked the price of Bitcoin rather than the fortunes of the company's main business. Other investors are identifying listed companies with any exposure to cryptocurrencies. In some cases, traders are bidding up their stock prices by more than 100 percent.

 

The same thing happened on the last go-around with cryptos. So why is this time any different? Aside from the big bets that respected investors like Paul Tudor Jones and Stan Druckenmiller and other institutional players are making, the overall environment has changed.

 

Most risky assets are already at record highs. Low interest rates provide little to no return and, according to the Fed, will remain that way for the foreseeable future. Then there is the U.S. dollar, which is dropping like a rock, making lower lows almost very day. 

 

Does that mean cryptocurrencies are somehow a better bet than they were three years ago? No. I expect the volatility that easily cut Bitcoin in half in a matter of weeks could happen again tomorrow. The digital currency markets, while maturing, are nowhere near stable, and won't be for a long, long time. It is not a market for the faint of heart. Over Thanksgiving and into Black Friday, for example, Bitcoin dropped more than 10 percent in 36 hours. It bounced back by Monday, but you catch my drift.

 

As for me, I have added cryptocurrencies to investments I will now follow daily, because I do believe that this asset class will become more meaningful over time. If you are itching to purchase, my advice is to wait for a pullback, which should come somewhere between $20,000-$25,000 Bitcoin. I would except a 20-30 percent decline, so wait for it!

 

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.

 

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?