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The Retired Investor: A sovereign wealth fund could help solve America’s financial issues
Critics dismiss a federal sovereign wealth fund as a 'solution looking for a problem'. We can't afford one, they say, we are already in too much debt. The real solution is to cut spending and raise taxes.
How has that solution been working for you? My argument is that buying stakes in our companies, especially in strategic areas, by a U.S. government fund will only improve our financial position. Not only within our own country, but also in our ability to compete globally.
Investments in areas like artificial intelligence could generate far more cash and profits in the future than we could imagine. Those profits could be used to pay down our debt, reduce deficits, and fund the country's needs in areas like healthcare, alternative energy, clean energy initiatives, and social programs.
Unlike some advocates who argue that the government should hold a large stake (20 percent or more) in companies, I believe this would be excessive and would impede companies' ability to operate efficiently in competitive markets. Japan, for example, limits its holdings in that country's equity markets to no more than 7-8 percent.
What will it take to convince Congress and the public to establish such a fund? Unfortunately, I suspect it will most likely occur during a financial crisis. Crisis, what crisis, you are probably thinking. The markets have shown they are just too resilient for that to occur. That was my attitude until last month.
That is when I heard Former Treasury Secretary Henry Paulson, who navigated us through the Great Financial Crisis of 2008, warn of a potential "doom loop" in the bond market. He worries that demand for U.S. government debt could collapse soon.
This, he said, could trigger a cycle of lower bond prices, higher yields, and rising inflation. There is more than an element of truth to that since our government's Treasury market underpins everything from mortgage rates to corporate borrowing to equity prices. He urged policymakers to prepare an emergency plan and have it ready when demand for U.S. government debt falters.
While his comments did not elicit much comment from the media, his warning, by no means, should be taken as just 'off the cuff' remarks. In my experience, Paulson, like any ex-Treasury chief, doesn't just start spouting off about a debt crisis unless it's vetted. To me, it was a clear trial balloon well-crafted by the Fed and the U.S. Treasury. The 'when' of such an event is difficult. If his doom loop is correct, sometime next year might be a good guess.
In the meantime, I believe legislation to establish a federal sovereign wealth fund will be passed with bipartisan support. It will be part of this "on the shelf" emergency response plan that Paulson urged the administration to work out now.
A crisis, as he suggested, would leave the Federal Reserve as the lone buyer of our treasuries. Realistically, that would mean the government could be forced to "print" money in one form or another. That would trigger a fresh round of inflation, eroding valuations across most asset classes, including equity.
This could cause a large (30%+) decline in the stock market. That most certainly creates a crisis. If so, it would be an ideal time for a newly established federal U.S. sovereign wealth fund to enter the market. The fund could establish substantial positions in a wide range of companies at bargain-basement prices. Not only would that be ideal from a price perspective, but it would also establish a floor under the stock market. That would shift investor psychology from 'the Fed has our back' to 'the fund has our back.'
Readers may dismiss my observations as little more than a pie-in-the-sky daydream (or nightmare), especially given a stock market at record highs. However, this administration has taken great pains to offer added incentives to more Americans to enter the equity and bond markets via tax-deferred retirement accounts. Some argue this may only be a prelude to dismantling Social Security. They may be right.
However, if that were true, as the number of Americans involved in the financial markets broadens through retirement accounts, there is an added incentive by the government to ensure that, in the event of another financial crisis, retirement savers do not lose their shirts. What better way than through the support of a sovereign wealth fund that has our back?
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.
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: Rotation Takes Center Stage as Markets Consolidate
Traders took profits in the red-hot technology sector. That money has been flowing into areas like healthcare, housing, and industrials. That's a good thing since it keeps the downside somewhat in check.
Professional money managers always stress that a proper portfolio should be well-diversified, so that no one individual sector can overwhelm your long-term performance. Under that strategic investment case, as one sector gets extended (like technology has), money flows out of high-priced stocks and migrates into other areas that are cheaper but still have good prospects.
Most readers know that the MAG 7 stocks have an enormous weighting in the S&P 500 Index. This has been going on for a long time, and the result has been that many U.S. funds have some exposure to this handful of stocks. It's called concentration risk. Right now, for various reasons, these stocks are out of favor.
There are two ways this can work itself out. A bout of profit-taking can take the equity indexes down all at once, causing a sharp decline, or the money leaving tech can find its way into other sectors and stocks. That's called rotation.
In addition, within the technology sector, the AI trade has not only led the area higher but, in many cases, has pushed valuations to stratospheric levels. When an entire sector is dependent on the earnings announcement of a handful of stocks, or this week just one, Micron Technology, the risk is somewhere in the stratosphere.
In this case, Micron, an AI memory play, topped earnings expectations for the quarter, sending the stock price up more than 15 percent. For the bulls, Micron seemed to dispel worries that the AI infrastructure investment case was faltering. The company told investors that revenues were expected to climb by 346 percent year over year and earnings after adjustments were $25.11 per share, versus the Street's expectations of $20.60.
That gave investors a reason to stampede the averages higher, with the Nasdaq posting a more than 2 percent gain on Thursday's opening. It didn't last long. Traders took the opportunity to sell down even more of the highflyers. To me, when markets sell off on good news, you should pay attention.
In any case, markets managed to hang in there. They did so because the flow of money out of tech rolled into healthcare, banks, industrials, and other sectors. Markets were also supported by the continued decline in the oil price. Oil fell below $70 a barrel. At one point, as investors decided to turn the page on Trump's War. It seems clear that Trump's War will have significant downsides for the U.S. and the world at large.
Despite Trump's denials, both Oman and Iran plan to charge as much as $40 billion per year to travel through the Straits of Hormuz. That will hurt Europe more than the U.S., since it imports a lot of Middle Eastern oil through the Straits. Thanks to Trump's short-sighted war, Iran has realized they have a far greater weapon in their hands than simply nuclear reactors — control of the Straits. They now control, at their whim, a global economic lever that can hold the nations of the world hostage.
As for the U.S., when you cut through the BS, it seems clear that the Trump administration is willing to pay billions of dollars to the Iranians, free up billions more in frozen Iranian assets, and that's just to get them to agree to a ceasefire. There has been no regime change other than to solidify the position of the anti-American Revolutionary Guard and install a hardline cleric of the same family as supreme leader. As for their nuclear ambitions, so far, nothing concrete has been agreed upon. Yes, the tiny Iranian navy, and even smaller air force and missile defense, have been decimated, but at what cost? Failure would be a generous term to describe this war.
On a macroeconomic level, however, the damage has been done, according to the latest Personal Consumer Expenditures (PCE) data for May. The PCE hit a three-year high, rising 4.1 percent up versus the 3.8 percent increase in April. Given that the PCE is the Fed's preferred inflation index, investors know that the data dashes any hope for a rate cut. It also keeps the possibility of a rate hike very much in the forefront.
I believe the prospect of immediate interest rate hikes is remote at best, as I expect inflation to slow over the next several months. The May data did not capture the ceasefire, the reopening of the Straits, nor the subsequent drop in oil prices. The recent decline in oil prices from $112/bbl. to $69 /bbl. just adds further confidence to my slower inflation forecast.
As such, the prospect of a slowing but still growing economy seems quite good. I do not expect interest rates to go higher in the near term either, which appears to offer a pretty good scenario for stocks going forward. That does not mean up, up, and away.
The period before mid-term elections is usually volatile, and this one appears no different. Equity valuations near record highs, profit-taking in tech, the summer doldrums, and an unhappy populace are not conducive to another near-term equity run-up.
Over the last two weeks, I have been warning readers that a period of consolidation was in the cards. The July-August period seemed an ideal time for this to occur. I guess some traders are getting ahead of the pack by selling this week.
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.
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: U.S. Sovereign Wealth Fund a Good Idea?
What do Bernie Sanders and Donald Trump have in common? Yes, they are both octogenarians, but even more important, they want to establish a sovereign wealth fund in the U.S. They may differ in their approach, but it is an idea whose day has come.
The number of sovereign wealth funds worldwide now exceeds 100. These state-owned investment funds are professionally managed and intended to provide their countries and citizens with an investment pool that delivers long-term financial returns, enhances national wealth, and fosters fiscal stability.
The largest such fund in the world is the Norwegian Government Pension Fund with assets of over $2.11 trillion. The Chinese rank second and third, with the SAFE Investment Company ($1.95 trillion) and the China Investment Corp ($1.56 trillion). The Arab nations make up most of the remaining entries on the top ten list.
It may surprise readers that, while there is no Federal fund, Alaska, New Mexico, North Dakota, Texas, and Wyoming do have state-sponsored investment funds. Several Native American and Alaskan Native tribes also manage similar funds.
In February 2025, the president issued an executive order directing the Treasury and Commerce departments to develop a plan for creating a U.S. sovereign wealth fund. They did, but the White House didn't like some of the particulars. In addition, like so many of the administration's initiatives, Congress must also approve such a plan. It has also established a commission to study the matter.
In the meantime, Trump has taken 10 percent stakes in a variety of companies, including Intel and IBM. OpenAI's Sam Altman, the CEO of the AI startup that is planning to go public this year, has been talking to the administration about a government stake in his company. Altman suggested he could donate equity in his company to seed a potential wealth fund.
On June 1, Sanders announced he planned to introduce legislation establishing the American AI Sovereign Wealth Fund Act. The act would impose a 50 percent tax on OpenAI, Anthropic, and other AI giants, payable in stock. In this way, the public would be given a direct stake in AI and its leading companies. This is not too far from the thoughts and discussions Trump has been having with AI sector managements for more than a year.
In this era of populism, where demonstrations against the threat of job loss due to AI are becoming more frequent, a government-owned wealth fund would give the people a direct role not only in determining the future of this technology but also in giving more than the very rich an opportunity to benefit from the trillions of dollars being spent on developing AI.
The key reasons cited for why the U.S. has yet to establish such a fund center revolve around the country's current poor fiscal health. The government has been running huge budget deficits that are increasing every year. In comparison, most sovereign wealth funds are typically established by countries that generate budget surpluses from natural resources or other revenue streams.
In the U.S., with a national debt of more than $37 trillion, where would the money come from to establish such a fund? Critics argue that instead of a fund, the government should focus on managing its existing debt and reducing budget deficits. In addition, the prospect of cronyism and mismanagement is a great concern.
In my opinion, the critics have it wrong. Next week, I will argue why a federal sovereign wealth fund could be essential especially in a time of financial crisis if it should occur.
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.
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: Oil's Decline Boosts Stocks
The price of oil is now trading at only $10 a barrel above its pre-war level. A new Federal Reserve chief zeros in on combating inflation, and investors celebrated by pushing stocks toward all-time highs.
The 14-point agreement between Iran and the U.S. to a 60-day ceasefire and the opening of the Straits of Hormuz sent oil prices plummeting below $75 barrel and prices at the pump below $4 a gallon. Traders are betting that the Straits stay open and that the reopening will be swift.
And yet, overnight on Friday, hours after the supposed agreement was announced, Israel and Hezbollah were already in renewed fighting in southern Lebanon. Talks between the U.S. and Iran were called off on Friday. Iran insisted the fighting must stop before talks can take place. Evidently another ceasefire was announced shortly after the talks were canceled.
I won't waste much space on this fragile deal struck between the two sides. Let's just say it is a long, long way from Trump's April threat that "a whole civilization will die tonight." Readers can judge for themselves whether Trump's War is an inept and embarrassing mistake or the "victory" the president claims.
What else could one expect? Trump's posturing over the deal adheres to his long-held strategy of attack, deny, and then claim victory over and over again. It seems to me, after reading the agreement, that tiny Iran did get the better bargain overall. Their ability to call off talks whenever they want shows strength not weakness in the negotiations.
The good news is that the 60-day reprieve avoids the July deadline. That was when oil inventories were projected to be scraping the bottom of the barrel, possibly sending oil prices skyrocketing.
The Fed met this week as well. It was Kevin Warsh's debut as the chairman of this august body. His message was short but not so sweet. He argued the market's entire approach to interpreting the Fed's messaging needs to undergo a rapid sea change. He said the central bank has been over-explaining, over-signaling, and overly focused on fine-tuning the economy. Instead of a dovish message about future monetary policy easing, the Trump appointee sounded quite hawkish. Nine out of 18 of the bank's top officials believed at least one interest rate increase would be appropriate this year.
Inflation, he said, was the focus right now. He reiterated the central bank's long-held target of keeping inflation below 2 percent. The fact that the Fed has not achieved that target after five years of trying would need to be addressed. The markets took that to mean interest rate hikes were coming. The only question is when.
Yet, as I see it, inflation will come down over the next few months, driven by sharply lower prices for oil, agricultural products, and other commodities. That I believe will alleviate the present fears that a period of tighter monetary policy is right around the corner.
Switching gears to the markets, at the end of the first week of trading for the largest IPO in history, SpaceX has done well for investors who paid the $135 offering price. To be sure, the initial public offering was only a small slice of the company, about 5 percent compared to a typical IPO that will offer anywhere from 10 percent to 20 percent of its shares in the initial offering. The resulting float is small, but bankers felt it necessary to keep the risk of market disruption at a minimum. Given its overall valuation of roughly $2 trillion, that strategy made sense.
Confounding the nay-sayers, the price of the sock soared this week, hitting a high of $213 before some of the inevitable profit-taking set in. Those who chased the stock are getting hurt. The last I looked, the stock had fallen to a low of $172.11 before rebounding to $185 on Thursday.
Last Friday, the day of its debut, SpaceX set records for the largest single-day net retail buying of a large-cap U.S. stock since 2018. It accounted for 56 percent of all retail net buying on Friday, according to Vanda, an independent data and research firm.
In addition, at least 40 actively managed Exchange Traded Funds are now holding the stock in their portfolios. The company's shares are expected to be added to the Nasdaq 100 index as of July 6, meaning that all passive ETFs and index funds that track the index will have to buy the stock. After that, sometime in September or maybe December, it will be included in the Russell 1000.
In a similar fashion to last week, the volatility of price movements among the major indexes continues. Technology, specifically anything connected to semiconductors, is in a FOMO mania. Aside from tech, industrials, materials, real estate, and financials have broadened out.
It appears we are in a blow-off phase for stocks overall as they celebrate the expected opening of the Straits and the flow of additional oil. It is possible we could recapture the record highs before the end of the month.
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.
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: Higher Immigration Means Fewer Jobs For Americans, Or Does It?
Last Tuesday, the House narrowly voted to award $70 billion to federal agencies responsible for immigration enforcement. That was the second multibillion-dollar infusion of cash to the Department of Homeland Security in a year. Will that money be well spent?
Over the years, I can't count the number of times I have heard the phrase "immigrants take jobs from U.S.-born people." The assumption behind this belief is that jobs are scarce and immigrants will take whatever employment is available at lower wages. This idea has been around since at least the 1880s. The Institute for Policy Research at Northwestern University, among other economic research centers, begs to differ.
Recently, in a research paper entitled "U.S. Immigration: Rhetoric and Reality," academia attempted to address this idea as it stands today. The authors studied immigrants as both employees and entrepreneurs over a five-year period from 2005 to 2010. Their conclusion was that immigrants are far more likely to start companies, and they create more jobs than they take. Their work found that immigrants improved the economic outcomes for native-born workers!
Over the years, various studies have found that many immigrants are likely to start their own businesses. Today, on a national basis, immigrants make up 23.6 percent of all entrepreneurs. They make up 18 percent of business owners with employees, according to GovFacts, a non-partisan company that gathers government information.
More than 40 percent of Fortune 500 companies — including Google, Tesla, and Pfizer — were founded by first or second-generation immigrants. Jensen Huang, the co-founder of America's most important company, Nvidia, was born in Taiwan and moved to America at age 9. Today, that would not be possible.
The truth is that immigrants play a larger role in driving American innovation than many Americans care to admit. Immigrants represent 16 percent of all U.S.-based inventors and are responsible for 23 percent of all patents filed in the nation. Do yourself a favor and read Huang's background.
Hopefully, the information above might help to dispel the notion that this decline in immigration simply means finding a nanny or housekeeper is more difficult than it was in the past. The hit to American productivity from this immigration slowdown is much deeper than that, and its impact could stretch far longer than a single administration.
Another research organization, The Yale Budget Lab, found in a study entitled "Lower Immigration Means Lower Productivity Growth" that "even a temporary immigration slowdown would leave as many as 4.6 million fewer working-age people than it would otherwise have had by 2033." They believe that the gap will persist for decades.
By 2052, economy-wide productivity could be lower by between 0.25 percent and 0.44 percent (currently at a 0.8 percent annual rate) due to a decline in new business creation. It could even be lower depending on how long Americans insist on the current immigration policies.
I ask myself how many AI breakthroughs will occur in other countries by those who have been denied entrance into the U.S.? Who will replace a generation of Baby Boomers like me with the skills and experience that we represent? The country is already feeling the gap caused by our retirement. The melting pot is practically empty, readers, and there are fewer and fewer people to fill it.
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.
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.
