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The Retired Investor: Where Have All the Christmas Trees Gone?

By Bill SchmickiBerkshires columnist
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.

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.

 

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The Retired Investor: Oil's Comeback

By Bill SchmickiBerkshires columnist
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.

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.

 

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@theMarket: Same Old Stimulus Song

By Bill SchmickiBerkshires columnist
Investors should know better by now. Stimulus talks have been going on since July 2020, but politicians in the capital appear to be stuck on the same old issues. Unfortunately, the deadline for a 2020 compromise bill is less than three weeks away.
 
It is anyone's guess whether the nation's economic and pandemic plight will win over partisan politics. It hasn't so far. The financial markets are not taking kindly to failure at this point. The all-time highs we have been enjoying for the last two weeks have been built on investors' near certainty that at least $900 billion in new Federal stimulus money would be forthcoming shortly.
 
Those funds were supposed to help bridge the gap in both human suffering and economic growth between now and the time the coronavirus vaccines will be readily available throughout the nation. Normally, when such an important binary event is in the offing, we would expect an 11th-hour deal to be struck. Should this time be any different?
 
In addition, there is another piece of legislation that also needs to be passed. The one-week Federal budget extension is also in play and without it the nation would experience another government shutdown. Delay allows both parties to garner all the media coverage possible. It is the consummate blame game and political theatre at its best (or worst). But what if a stimulus deal doesn't happen? Or the government does shut down?
 
In all likelihood, the stock market will decline, but any sell-off would probably be limited. I give a government shutdown a low probability, but a new stimulus bill could be a toss-up. I suspect more aid is being held hostage at this point by Georgia's run-off senatorial elections on Jan. 5. Both parties are attempting to influence voters' preference before the elections. The stimulus bill appears to be the trump card and will happen if one side or the other feels its passage gives them a winning hand. What happens after the elections could also be important for the stock market.
 
If the Democrats win (and thus take command of both houses of Congress), most equity strategists are expecting a knee-jerk decline, as Wall Street starts to discount a potential increase in corporate taxes (as Biden has promised during his election campaign). 
 
That tax risk might be partially off-set by expectations that the Democrats will want to spend a whole lot more in stimulus than under a Republican-controlled Senate. If the GOP wins the Senate race in Georgia, Wall Street believes tax increases and a large stimulus package are probably both off the table. If that sounds too neat and tidy, it probably is. 
 
My own take is that neither party will have a functional majority in the Senate, and maybe even in the House, no matter who wins in Georgia. As a result, I am not expecting anything "big" to get done on either taxes or stimulus. In the meantime, any downside volatility created by all this political noise would give investors the opportunity to buy stocks at lower prices. Why buy? As I have explained many times in the past, the key to the economy and further gains in the stock market have always hinged on beating the coronavirus.
 
It is simple really; while all of this political drama plays out, the new COVID-19 vaccines should continue to be distributed. More businesses should re-open as a result, and the economy should right itself on its own over time. As it does, the stock market should begin to discount an even stronger rate of economic growth in 2021. If so, we will be off to the races. 
 
That gives you the broad-brush strokes of what I am expecting in the financial markets over the course of next year. There will most likely be potholes along the way. The vaccine distribution, for example, will probably not go as smoothly as most expect. We are already getting reports of some serious side effects from some patients after receiving the second dose of Pfizer's vaccine. 
 
If the two parties somehow re-learn the art of compromise (something that I believe has been the secret of America's strength and success since its founding), then we should expect even higher gains in next year's U.S. market. If not, I advise looking elsewhere for better performance.
 
Bill's 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.

 

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The Retired Investor: Markets Ignore China Sanctions

By Bill SchmickiBerkshires columnist
During the past few weeks of this presidency, both the Trump administration and Congress have levied additional sanctions against the People's Republic of China. Financial markets and U.S. corporations have largely ignored those efforts; here's why.
 
Investors have learned over the past four years that tough talk on trade tariffs, blacklisting and other threats were largely ineffectual in curtailing the world's second largest economy. The facts are that U.S. tariffs on Chinese goods have been a failure. Our trade deficit with China is higher now than it was before the trade wars.
 
China's trade gap with the U.S. was 43 percent bigger in September, for example, than when Donald Trump took office. The surplus overall is 18.86 percent higher than a year ago and the trade gap between the two nations is on track to exceed $600 billion by the end of this year. That would be the highest since 2008.
 
The only difference investors could see in all this expended energy is that U.S. corporations (and consumers) have had to pay more for some imported Chinese goods. Aside from that, our farmers lost billions of dollars and had to be compensated by additional tax dollars for losing market share to Brazil and other nations in certain agricultural products like soybeans.
 
Last week, on the financial front, the delisting of Chinese companies under the House passage of the Holding Foreign Companies Accountable Act, looks good on paper, but not so much once you read the fine print.  The act would require U.S. regulators to review the audit books of all U.S.-listed Chinese companies. If they refuse or fail to come into compliance under U.S. acceptable accounting standards, they will face delisting.
 
Conveniently, the bill's authors failed to mention that U.S.-listed Chinese companies are already audited by the largest U.S. accounting firms. The "Big Four" accounting firms (PWC, Deloitte, Ernst & Young, and KPMG) apply the same standards in auditing these Chinese companies as they do in auditing companies in the U.S. and Europe, as well as their clients around the rest of the world.
 
In addition, the Securities and Exchange Commission (SEC), which is charged with enforcing the act, has already made quite a bit of progress in developing a workable framework that would solve these issues. The SEC proposes having Chinese companies listed in the U.S. audited and reviewed by firms located in jurisdiction that are accessible to U.S. regulators.
 
The China Securities Regulatory Commission (CSRC) appears to have no problem with that solution or the act. The CSRC already assumes that Chinese companies listed on U.S. stock exchanges follow U.S. laws and regulations for financial reporting and information disclosure. From Chinas' point of view, anything that can help regulate and identify the few bad apples among thousands of listed Chinese companies is a welcome addition to their own regulatory efforts.
 
For Wall Street, the delisting threat may, at most, create some minor short-term sentiment that could pressure Chinese stocks, but there is simply too much at stake to see a wholesale delisting of Chinese stocks. There is almost $2 trillion of U.S. money invested in Chinese equities today. Companies such as Alibaba, Baidu and JD.com have become as familiar to Americans as IBM and delisting the lot would throw the financial markets into chaos.
 
The U.S. strategy of blacklisting certain other Chinese companies such as telecom giant, Huawei, plus dozens of other companies, has done as much harm as good to the U.S. and its corporations. Our semiconductor sector, for example, has experienced severe supply dislocations and costly business interruptions because of the Huawei crackdown.  
 
Dozens of other firms that the Commerce Department has added to its "entity list" have caused unexpected repercussions as well. Many of these Chinese firms are accused of either helping to spy on China's minority population, the Uighurs, or of having ties to China's military. Many of them are customers of our own technology and cloud-based computing firms. Some U.S firms may have had joint ventures with these companies or garnered a substantial portion of business from these companies.
 
From my perspective, the incoming Biden Administration gives the U.S. a chance to re-examine the direction our country has taken in answering the "threat of China." If Director of National Intelligence John Ratcliffe was right when he said last week that "the People's Republic of China poses the greatest threat to America today," then we better up our game in ways that may not make great headlines, but instead protect our interests far more effectively than they have in the past.
 
Bill's 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.

 

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@theMarket: Markets Bet on Stimulus Sweepstakes

By Bill SchmickiBerkshires columnist
The first week of December saw all three major averages climb to minor new highs. The trigger was more good news on the delivery timetable of the coronavirus vaccines. The expected speedy distribution of the first batch of wonder drugs encouraged investors, even while the number of COVID-19 deaths and cases nationwide continued to skyrocket.
 
In addition, a new dose of hopeium has infected investors on the stimulus front. The Democrats $2.2 trillion proposal has gone nowhere since July, thanks to the Republican-controlled Senate. The Democrats then reduced their price tag in an effort to forge a compromise before the election, but the Republicans refused to spend more than their initial $500 billion offer.
 
The House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer, have dropped their offer once again this week. It now matches a new bipartisan proposal of $900 billion that could forge a compromise bill during the next two weeks. Friday's November non-farm payroll report may have clinched the deal.
 
Job gains were much worse than expected with U.S. employers adding 245,000 jobs versus 465,000 jobs that were anticipated. December's data could see the job gains disappear altogether. That might jeopardize the outcome of the January 5th run-off senate elections in red state Georgia for Republicans.  
 
I see politics at play. Senate Majority Leader Mitch McConnell, while suddenly finding "fiscal responsibility" after four years of unbridled deficit spending, has been steadfast in his refusal to compromise on his $500 billion stimulus package. This is despite the pleas of the vast majority of governors, and state legislatures from both parties, for help from the federal government. Before the elections, even our lame-duck president had pleaded with the Senate to pass at least a $2 trillion stimulus package to no avail.
 
The Democrats' new willingness to compromise further can be credited to President-elect Biden, who indicated to his party leaders that some relief for the nation is better than no relief. This week's labor report places McConnell between a rock and a hard place. If he goes along with too much stimulus, he will risk the ire of conservative voters in Georgia. On the other hand, too little stimulus, and he will galvanize more Democrats to come out and vote in an already tight race.
 
The betting at present is that a deal will get done but investors have been burnt several times before in this stimulus sweepstakes. Regardless of the bickering, the clock is ticking, the COVID-19 deaths are mounting, and the cold weather has arrived. But I suspect the markets will continue to ignore the gathering storm clouds unless a real darkness descends, and investors get spooked.   
 
As most American investors continue to focus on the U.S. stock market, a number of other equity markets are notching up some great gains. Emerging markets, which are typically resource-heavy nations, are enjoying both the benefit of a declining dollar, as well as price increases in natural resources.
 
My attention is also focused on equities in Southeast Asian nations such as Japan, South Korea, Taiwan, and Vietnam. Indonesia and Thailand may be next year's story. These economies are recovering quickly, thanks to a concerted effort to combat the spread of the coronavirus. Even China, despite the continued bashing from the U.S., is pulling ahead of us on most fronts and enjoying the benefits. I expect that next year we will see those markets continue to do well, and in some cases, outperform the U.S. stock market.
 
On the home front, investor sentiment continues to be frothy. The technical charts and other variables I look at indicate a building of overbought conditions as well. In the short-term, the certainty of a stimulus deal could be worth another 100 points or so on the S&P 500 Index before we get another pullback. What could cause a decline? The coronavirus numbers might finally freak out even the most bullish of traders or it could be some other excuse. If so, it won't be a devastating sell-off (more like 3-5 percent), but it could arrive just in time for the winter holidays.   
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In the meantime, I expect the cyclical and natural resource trades to continue, while technology takes a back seat. I would also look to add some precious metals to my portfolio during these next few weeks, if gold, silver, palladium, and platinum continue to fall. And for those speculators with a stomach for risk, Bitcoin also looks interesting to me on a pullback.
 
Bill's 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.

 

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