Scott Bessant at Treasury, threats of day-one tariffs on trading partners, and calls for another end-of-year rally buoyed markets. It is a seasonally bullish time for the equity markets with Christmas around the corner.

 

By now, you have probably heard that hedge fund manager Bessant will take the reins at the U.S. Treasury in January. Markets cheered that news. Most market participants believe Bessant is the man best suited for that post. Investors hope he will be market-friendly and a voice of moderation in the new Trump administration.

 

But before Bessant or anyone else gets carried away with the idea that Trump has lost that loving feeling he has for tariff diplomacy, think again. The president-to-be fired a broadside at China, Mexico, and Canada on Monday threatening 25 percent on all products from Mexico and Canada as one of his first executive orders. That is a big deal since exports to the U.S. account for 27 percent of Mexico's economy and 21 percent of Canada's.

 

And just for good measure, he will slap an additional 10 percent tariff on Chinese goods above any additional tariffs he puts in place. I found it interesting that he seemed to go easy on America's number one bashing boy, Xi Jinping, in his broadside. There are rumors that negotiations over tariffs and other issues are already underway with China. If so, I suspect it would be at the urging of  Trump's unofficial everything buddy, Elon Musk. 

 

Musk's EV company, Tesla, has its largest and most productive factory in China and would lose big time if relations go any further south between the two countries.

 

As for Mexico and Canada, Trump's threats were not just about economics. He is promising new tariffs on both nations unless they curb the flow of illegal drugs into the U.S., especially fentanyl. China is the main producer of fentanyl, while America's closest trading partners, Canada and Mexico, have become major conduits for the distribution of this drug into the U.S. He also insists that illegal immigrants are turned back before crossing our borders.

 

Two days later, after a conversation with the new Mexican President, Claudio Sheinbaum Pardo, which Trump described as a "very productive conversation," the problem was solved. "She has agreed to stop Migration through Mexico, and in the United States, effectively closing our Southern border," wrote Trump in a social media post. They also discussed illegal drugs as well. We await the response from Canada.

 

If these announcements evoke a certain amount of deja vu among readers, get used to it. In the Trump 1.0 version, the markets were treated to a daily diet of new tariffs, restrictions, exemptions, threats, bluster, temper tantrums, etc. Trump 2.0 should be even more entertaining. Trump will be Trump, that's for sure.

 

This latest tariff announcement had Wall Street, the media, as well as economists throughout the globe, immediately singing from their same old song sheet: higher inflation and slower growth. The first reaction to the news was a drop of more than 2.3 percent by the Mexican peso against the dollar. The Canadian dollar dropped by 1.4 percent. Since Trump's election, the peso year-to-date has fallen more than 4 percent and the Canadian dollar almost 3 percent. How does that goose inflation? It doesn't.

 

Think about it. If a country's currency adjusts downward to offset a tariff increase (as most of the world's currencies are attempting to do this year against the dollar), there are no meaningful inflation consequences at the macroeconomic level. If the price of a Mexican imported T-shirt at Walmart drops 10 percent because the peso is cheaper against the dollar, a 10 percent tariff on that T-shirt ends up at the same price to holders of dollars.

 

Of course, I am describing a perfect economic world. Real-life tariffs, currency devaluations, and their impact on imported goods and products could spell inflation in some areas and deflation in others.

 

Tariff threats are one of the main reasons why the U.S. dollar keeps rising. It is part and parcel of what happens on the economic front in an era of populism. Tariffs make other countries poorer and ours richer. It is how to make America great again, or at least wealthier, through a beggar-thy-neighbor mercantilist approach. 

 

The problem, however, is that over the last eight years, many of our trading partners have also been swept up in populist movements. Foreign voters have created their versions of MAGA and will not take our new government's threats lying down. Tariffs levied by us will immediately be met by tariffs by them.

 

There is no right and wrong in Trump's approach, especially when you consider the number of deaths (75,000 deaths per year) due to fentanyl in the nation. Our drug policies to date have failed to stem the rise of this drug addiction or convince foreign exporters to find another market for their product.

 

The same could be said for stemming the flow of illegal immigrants. Democrats, Republicans, and independents alike have decided that illegal immigration is one of their top grievances. As such, this populist generation says that doing something is a far sight better than wringing hands while hoping that the bankrupt policies of the past will somehow begin to magically work. For better or worse, we as a nation are past that.

 

Hitting countries where it hurts (in their pocketbooks) is not a new approach. It is quite old. History will tell you it was the economic name of the game in Western Europe from the 16th to the 18th centuries. It is called mercantilism. Mercantilist policies included tariffs, subsidies, import quotas, and restrictions on foreign labor. They were designed to accumulate wealth, protect domestic industries, maintain employment, and bolster state power. At the time, it increased conflict among nations. Sound familiar?

 

As for the markets, most participants were unfazed by the tariff threats. During Trump's first term, those statements would send markets into a swoon. But stocks stayed firm and traders focused on other things. After the first four years, we have been there and done that.

 

We enter December at record highs. We could see a minor decline over the next week or two. It would be just profit-taking and a chance to buy the dip.  At that point I expect the year-end rally to take over into January.

 

As the cost to attend several Ivy League colleges approaches $90,000 per year, applications to obtain a college degree below the Mason-Dixon line have skyrocketed.

 

But let's not focus on the most expensive schools like Princeton and Harvard. The average tuition price across all the Ivy League colleges is almost $65,000 annually. Many Southern colleges charge substantially less with pricing ranging from $30,000 to $49,999 per year.

 

However, college costs go beyond the tuition and fees charged at schools. The costs are increased by several additional factors such as living expenses, graduate outcomes, and financial aid.

 

In these areas, southern schools also win since southern states offer a lower cost of living and housing costs in particular. Financial aid is a great leveler among colleges. The top elite schools have no-loan policies that allow some students to attend for free. Federal financial aid for those who can qualify brings down the cost per year to an average of $22,968, according to the U.S. Department of Education, in an Ivy League school. Of course, the same financial aid applies to all colleges and can drastically reduce the cost of a Southern college.

 

As for graduate outcomes, Ivy Leaguers generally still have higher average salaries and employment rates compared to their Southern brethren overall. However, it depends on the individual college and its programs and the student's chosen career path.

 

Times are changing, however. A Forbes magazine survey this year found that employers were less likely to hire Ivy League graduates than they were five years ago, while only 7 percent said they were more likely to. The survey also found that 42 percent of managers are more likely to hire public university graduates. Managers questioned were three times as likely to believe that public universities have improved in preparing students for jobs.

 

How much of the present hiring mood of managers has to do with last year's student protests over the war in Gaza at many Northeast colleges remains to be seen. Many student applicants have been turned off by the political polarization of campuses over abortion, diversity, and antisemitic activities. Southern schools seem to have a better track record on free speech, according to the Foundation for Individual Rights and Expression, with 25 of the top schools in the South and six of the worst institutions in the Northeast.

 

Thanks to the great migration southward by Americans and corporations over the last decade, many smaller cities in the south are looking for college-educated, entry-level job candidates. Cities such as Atlanta, North Carolina's Charlotte and Raleigh, and Austin, Texas, offer good salaries and benefits plus affordability on housing and living expenses.

 

In a happy, if rare, meeting of the minds between parents and their college-bound children, high school students have long been advocates of attending southern schools. Teens on social media rave about the warm weather, football Saturdays, lively campuses, and school spirit they have found on southern campuses.

 

Over the past two decades, there has been an 84 percent increase in the number of kids in the Northeast who have flocked to colleges such as Duke, Tulane, Emory, and Vanderbilt, according to the Wall Street Journal. The University of Alabama saw three times the number of applications received by Harvard University over that same time.

 

There is some good news for some Northeast colleges. Forbes recently named 20 colleges — 10 private and 10 public schools — as their "new Ivies." The average tuition at the 10 most affordable new Ivies is $42,233. Some of these schools are in the Northeast, although not many.

 

Overall, the facts are that college tuition in Ivy League colleges is not going down anytime soon. The number of applicants to top schools continues to surge regardless of the new interest in all things Southern. If anything, over time Southern schools will probably close the gap with the Northern competitors. For parents, a college education will still be an investment wherever your child chooses to go.

 

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.

Last week, traders made profits from the Trump trade. This week they reversed their positions. I expect further upside into the Thanksgiving holiday.

 

The market's performance was even more impressive considering the disappointing earnings from the number one AI player, Nvidia. The semiconductor giant reported stellar third-quarter earnings this week, but they were just not good enough to keep the stock's upside price momentum going.

 

Company management said supply chain issues reduced the growth rate in sales to the slowest in seven quarters. All that means, in my opinion, is that revenue will be boosted down the road when the bottlenecks are resolved. But in this market, no one is willing to wait around for that. The damage to the stock price was minor.

 

However, Alphabet did tumble more than 6 percent after the Department of Justice (DOJ) moved to break up its vast technological empire. The DOJ asked a judge to force Google to sell off its Chrome browser. Short-term traders dumped the stock.

 

To me, the chances that anything will come of this action anytime soon is just about zero. There is even a question of whether the incoming administration will pursue the case at all. Yet, it continues to sell off. This is the world of short-term equity markets that we live in. Long-term investors can profit from some of these trader temper tantrums.

 

The biggest story in financial markets this week has been the steady climb in Bitcoin and everything crypto. Last week I mentioned that Bitcoin should see $100,000 in short order. Early Friday morning it topped $99,452. Bitcoin has turned out to be the Trump Trade.

 

A prominent crypto lawyer is evaluating potential candidates to succeed Gary Gensler as Chair of the U.S. Securities and Exchange Commission. This added fuel to the fires that have lighted up all things crypto. Gensler, who has been the main impediment to the further development of the cryptocurrency market,  announced he will be resigning on January 20th even though his tenure runs through 2026,

 

 Two of the strongest candidates, Brian Brooks and Paul Atkins, are leading crypto advocates. Appointing the right candidate could convince many more economic actors that the time has come to get involved in this area.

 

Gold has also reversed from a near 10 percent pullback since the election results although other metals have not fared as well. The Biden Administration's pivot in allowing Ukraine to use US missiles in Russia has caused a surge in geopolitical risk and a rush into gold as a safe-haven asset. Russian President Vladimir Putin has long said that using long-range, Army Tactical Missiles (AT-ACMS) would represent the crossing of a red line.

 

Traders have also begun to have second thoughts about the chances for further interest rate cuts by the Fed. The odds are no better than 50/50 at this point that the Fed will cut rates again in their December meeting. Worries that inflation may worsen under the new administration have convinced the bond market and possibly some members of the Federal Open Market Committee that holding off for the moment on rate cuts may be the wise move.

 

I have been warning readers that I expect the Consumer Price Index to show further gains in inflation this quarter. That turned out to be true in the last month, and I suspect we will see the same again in the next report.

 

 Momentum, rotation, and volatility; there was something for everyone over the last few days. I expect that to continue. Technology is no longer the only game in town and this week's top gainers — energy, crypto, gold, industrials, and financials — are proof in the pudding.

 

Markets are stretched but have been in that condition for a while now. Thanksgiving week is usually a good time for equities, so we could see stocks grind higher until the beginning of December. At that point, a pull-back wouldn't surprise me. Happy Thanksgiving to one and all.

 

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 several years of price increases, consumers have come to expect that the typical Turkey Day dinner will cost more this year. Depending on how astute a shopper you are, you could get away with paying less this year.

 

Some items on your dinner agenda may be more expensive than in 2023 but others may have dropped in price. The price may also depend on where you shop and whether you insist on buying only name brands or are willing to buy store brands instead.

 

Every year since the COVID pandemic, grocery store prices and costs have been going up with the largest contributors to the cost being transportation, labor, and climate change. In 2020 (plus-3.5 percent), 2022 (plus-9.9 percent), and 2023 (5.8 percent) food prices rose and continue to go up. Overall, food prices are expected to increase by 2.3 percent in 2024.

 

And while the trend of rising prices still has not changed, what has changed is the consumer's willingness to pay higher and higher prices. To rein in food costs, shoppers are buying cheaper store brands over the last few years instead of name-brand food items.

 

You have probably noticed how store brands now have as much a share of shelf space as name-brand items. The trend has been a boon for supermarkets and the brightest light in the grocery food and nonfood business. Last year sales of store brands rose to $152 billion from $142.4 billion a year earlier, a 6.7 percent increase. The share of grocery shelves for store brands versus national brands rose to 26 percent from 25 percent last year. That is a historical record.

 

What does that have to do with the price of turkey? Plenty. A Thanksgiving dinner for 10, including turkey, stuffing, salad, cranberries, dinner rolls, and pumpkin pie would cost you $90 if using only name-brand labels. That is down 0.5 percent from last year. But if you only bought store-brand products, the total cost for the same dinner would be $73.

 

However, like everything, there is a catch. Store brands have done so well over the recent past, that grocers have started increasing prices. The Wells Fargo Agri-Food Institute which tracks prices of Thanksgiving dinner staples, discovered that the gap between the cost of a full meal using generic brands and one prepared with national brands is narrowing. In several categories, the report found that name brands are less expensive or almost the same.

 

Fresh turkey prices, for example, are largely unchanged since last year, but name-brand birds (that still account for three out of four turkeys sold), fell in price by 2 percent since 2023. Store-brand turkeys, although still cheaper, have increased in price by almost 5 percent over the same time.

 

And yet name-brand stuffing is up 9 percent, compared to only 3 percent for store-brand versions. Name-brand cranberries fell by 3 percent, while store brands rose by 6 percent. In every category of the typical Thanksgiving dinner, there were substantial price differences between the two brands. That means shoppers need to compare prices closely.

 

In further good news for consumers, price wars have developed among grocers and others providing turkey dinner deals. Walmart, for example, is offering a 29-item dinner for eight for $55. Target has one that feeds four people for $20, while Aldi has a dinner for $47. Around here, one grocery chain offers a meal similar to Walmart's at twice the price. Most of these promotions are substantially less than last year's price tag.

 

My dog, Atreyu, and I love the holiday season. I just finished cooking my second 99 cents/pound turkey of the season. My wife, Barbara, only likes the drumsticks and wings, so I eat some of the white meat, freeze the rest, save the carcasses, and make turkey soup. The rest becomes healthy dog food for Atreyu.

 

Go ahead and laugh but consider this. The price range for a pound of popular healthy dog food at Walmart ranges from $1.92/pound to $5.67/pound.  Turkey is healthy and the cheapest protein around. It is on sale during the holidays for dogs and humans. The promotions are kicking in at this point. I intend to buy another turkey this week  (only 49 cents/pound) plus a large ham/shank at 79 pounds (pea and bean soup) and maybe a big spiral sliced ham (at 99 cents/pound). Bon appetit! 

 

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.

A 5 percent gain in nine days on the benchmark S&P 500 Index was met by profit-taking. Traders booked gains in Trump trades as some had second thoughts about continued upside. Who can blame them?

 

The conviction by many that happy days are here again (or will be by next year) sent markets through the roof in a frenzy of FOMO-generated trades. Technology took a back seat for a change as small-cap stocks soared on the belief that tariffs would force consumers to buy made-in-America products from American companies.

 

Smaller capitalization companies are distinctly American and are listed on the Russell 2,000 Index. Traders know that a good 40 percent of these companies make no money and bought them anyway. Hope springs eternal when it comes to the future economic prospects of the economy under a second Trump administration.

 

Semiconductors stocks which have led the markets higher for a long time did not participate. Poor earnings guidance from several big companies, plus fears that tariffs and China bashing could reduce prospects even further, triggered a wave of selling. Even Nvidia, the poster child of AI, felt some of this cold downside draft.

 

That may change next week, however, when the company is scheduled to report earnings.   Most analysts believe it will be another stellar quarter for this semiconductor darling. It had better deliver or things could get ugly in Stockville.

 

The precious metal and commodity areas have also seen a wave of selling as both the US dollar and interest rate yields have climbed just about every day since the election. That combination of higher rates and the dollar has historically acted like kryptonite to gold and silver.  You might say a strong dollar is the result of Trump's election, and you would be correct, but it may not be for the reason you think.

 

As I wrote last week, foreign countries are devaluing their currencies against the dollar as fast as possible. They are doing so in anticipation of across-the-board tariffs that Trump has promised to levy on their exports into the U.S. They do so to lessen the impact of this policy on their exports.

 

The cheaper their currency, the cheaper their imports will cost American buyers. So, when tariffs are tacked onto these rock-bottom prices, it will simply mean prices return to where they were before his election. No harm no foul.

 

Bond prices are falling, and yields are climbing higher as the dollar strengthens. Two reasons come to mind. Trump's stated policies (tariffs, immigration, spending) will be inflationary. Second, economic growth may be stronger as well. That combination of higher growth and inflation will typically mean that bond buyers demand more returns to stay with bonds when they could get higher returns in the stock market.

 

Both the Consumer Price Index and the Producer Price Index came in slightly hotter than the consensus estimates for last month. Readers may recall that was my forecast given a few weeks ago. I believe the next data points in December could also show higher inflation. It may be the reason Fed Chair Jerome Powell said Thursday that the central bank saw no need to hurry to cut rates further.

 

Of all the great gains among asset classes since the election, Bitcoin has been the big winner, in my opinion. It is the gold standard of the now dominant generation, the Millennials. As an alternative to the dollar and the political/economic system of their parents, it is the preferred currency of populism. As a first stop in its climb to new heights, my target is $98,700, which is not unique. Wall Street overall is forecasting $100,000 for bitcoin by the end of the year. It could go higher, and probably will if you believe in cryptocurrency and are willing to wait for further developments sometime next year. Bitcoin has come of age, as have its owners.

 

I noticed that there is a small but growing army of crypto bulls who are upping their price targets over the next two quarters. This always happens in parabolic moves like this.  What I have learned over the years is if you are making money rapidly and it seems so easy (as it does right now in crypto) that is the time to be most on guard for an abrupt reversal  If that happens, just remember that you could easily see $83,000-$80,000 on a pullback in the blink of an eye.

 

My advice is to beware what may be false narratives. The stories that are being spun about the impact of future policies on certain industries and sectors should be taken with an ocean full of salt. On Friday, for example, health-care stocks were decimated because Robert F. Kennedy Jr., who holds unorthodox views on healthcare, was appointed to head the Department of Health and Human Services. Earlier in the week, defense stocks were sold because of fears that the newly created Department of Government Efficiency will hurt the profitability of government contractors. Do not get caught up in this frenzy both good and bad.

 

As for the overall market, I counseled that election results could fuel both upside and downside. In other words — high volatility. We have experienced the upside and now we get to experience a little of the opposite. Over the next two weeks, we could see further declines. If so, I would put money to work on dips. 

 

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.