Numerous studies have predicted that climate change will be the death knoll of skiing. That may be true, but year after year, ski resorts large and small seem to eke out one difficult season after another. And not every year has been a disaster.

 

No one is denying that the weather is changing, and winters are getting warmer. This week, which kicks off the 2023-2024 ski season, for example, most of the country is experiencing warm weather, disappointing skiers and resorts alike in the Midwest and New England.  And yet, during the 2022-2023 ski season, there had been mammoth snowfalls in some areas of the country. Climate change can do that, dumping extraordinary amounts of precipitation in some places while causing drought in others.

 

Record snowfall totals at western ski areas, for example, contributed to the number of skier visits, while overall average snowfall at ski areas across the country totaled 224 inches. That was a 30 percent increase above the 10-year average, which contributed to an increase of six days for the season, above the average of 116 days. 

 

New England winters, where I live, have been warming faster than the national average. Over the past 50 years, the temperatures have increased by 4.5 degrees and as the weather gets warmer, nature is producing less snow. For the entirety of New England, January 2023 was the warmest it has been since record-keeping began in 1895. New Hampshire had its third warmest winter on record.

 

As such, snowmaking has become the saving grace for the ski industry. Ski resorts have become increasingly reliant on snowmaking to combat climate change. Today, more than 90 percent of resorts depend on some system of artificial snow production.

 

Some may be surprised to know that investment by the ski industry hit a record high last year at $812.4 million and is expected to be even higher this season. The lion's share of spending was on upgrading lifts, but snowmaking has also taken an increasing share of expenditures. Climate change has made that a vital area for continued improvement. Overall, resorts reinvested $26 per skier visit back into their operations last year.

 

As the winter temperatures get warmer, companies are coming up with technology to counter the temperature changes. Back in the day, making snow required temperatures around 14 to 10 degrees below freezing. Today, new snow-making machines can make snow with temperatures as high as 80 degrees — if you are willing to spend the money to do so. Improvements in snow guns, for example, can make copious amounts of snow much faster, and at higher temperatures. Unfortunately, snowmaking is an energy-expensive process, especially in compressing the air needed to spread the artificial snow.

 

Most local utilities limit the amount of energy resorts can consume. However, both hardware and software breakthroughs have allowed energy cost-savings and efficiencies in the snowmaking systems that encompass everything from hydrants to fan snowmakers, and computer systems that can automate and analyze the entire process. 

 

One of the challenges many resorts face is drought in many regions. The amount of water needed to make snow doesn't change. Areas that are experiencing decreases in their water supplies due to climate change or resort expansion are scrambling to come up with ways to conserve and/or increase their water supply. 

 

Last season (2022-2023), the $50 billion U.S. ski industry saw an estimated 65.4 million skiers and snowboard riders hit the slopes. That was a jump of almost 5 million skier visits from the previous season, according to the National Ski Areas Association.  Factors that boosted industry performance were heavy snowfall in ski areas on the Pacific Southwest and the Rockies. The number of working ski areas also increased a bit from 473 to 481.

 

In 2024, the arrival of the El Nino cycle is set to bring a warm dry winter to this part of the world. The impact of climate change colliding with the El Nino event has a 54 percent chance of being one of the top five events since 1950, according to the U.S. National Oceanic and Atmospheric Administration. Mild and wet with a cooler drier end to winter, is the NOAA prediction. However, The Old Farmer's Almanac is predicting a banner ski season for 2024. 

 

No matter what forecast proves accurate, snowmaking will continue to be the difference between a good and a bad year for the ski industry overall.

 

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.

It has been a heck of a year for equities. Most investors should see double-digit gains when they open their January reports. Is the best yet to come?

 

Officially, the Santa Claus rally comprises the last five trading days in December, plus the first two trading days in January. If that tradition holds, we should see further gains from here. However, many worry that Santa came early and all we face into the new year is a downside.

 

They have reason to worry. We are already quite extended. Bullish sentiment is over the top. Bond yields have dropped so low in such a short period that many traders are looking for a rebound in yields. In addition, there seems to be an attempt by Fed officials to discourage investors from expecting the central bank to start cutting interest rates in March of next year.

 

Ever since the FOMC December meeting's pivot to a more dovish stance, yields have fallen dramatically, while stocks roared higher. The "higher for longer" message they have been spouting for months about interest rates, has been replaced by "too far, too fast" when assessing the gains in financial markets over the last few weeks.

 

In the latter half of this week, we did see some profit-taking, which was to be expected. After all, by Tuesday's finish, the Dow had registered its fifth record close in a row. Most indexes were up nine or ten consecutive days in a row. The record rally had pushed the S&P 500 Index within reach of its all-time high made in January 2022.

 

It is getting to the point that investors were expecting only up days and so were somewhat shocked by Wednesday's late-day sell-off. In the last hour and a half of trade, the markets took a sudden turn lower for no apparent reason.

 

The averages were all suddenly in free-fall with no news or event that could explain the decline. The Dow dropped more than 475 points, while the S&P 500 and NASDAQ declined more than 1.5 percent each. The small-cap Russel 2,000 lost the most at 1.89 percent. What happened?

 

Those readers who read my column last week — "Zero-Date Options Boost Market Risks" — have a leg up on how and why this sudden downdraft occurred. If you haven't read it, I urge you to do so.

 

ODTE is an acronym for zero-days-to-expiration options. An enormous amount of volume in the options market (over 60 percent) is in these one-day option bets on the direction of the market indexes. The ODTE market, in my opinion, has been transformed from a viable hedging strategy for professionals to something more akin to gambling on a horse race or buying a lottery ticket for many retail traders. The risk is enormous and given the right circumstances could impact financial markets drastically.

 

This week, we saw the risk involved when just a few bearish ODTE contracts triggered a mad rush for the exits. An army of option day traders (40 percent of ODTE traders are retail speculators), fearing a possible market sell-off, moved to one side of the boat at the same time. That created a cascading selling event that only stopped when the day was done, OTDE options expired, and the market closed. Overnight, without the pressure of bearish ODTE contracts, futures rebounded. By Thursday's opening, those same ODTE traders scrambled into bullish options bets once again.

 

As we head into the week between Christmas and New Year, most market participants will be taking off to celebrate the holidays. As a result, trading will be light and volumes quite low, which can set the stage for unexpected, and at times, wild gyrations in the markets. The OTDE options market can exacerbate that behavior.

 

There is a part of me that hopes we do see some further pullback in the days ahead. It would relieve some of the overbought conditions in the market. That would set us up next week for a further leg higher in markets, and possibly new highs into January. 

 

I urge investors to enjoy the gains because I fear this party will be coming to an end somewhere around the middle of January. At that point, expect to batten down the hatches, but more on that forecast next week. In the meantime, happy holidays to all and to all a good 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.

It is the season to be jolly, but don't let your busy schedule interfere with some "must-do" planning for this year and next. At the top of your financial list should be reviewing your tax-deferred accounts.

 

First things first. If you are required to take a minimum required distribution from your IRA or 401(k) by the end of the year, you are running out of time. The new rules state that if you are 73 years of age in 2023 you are required to take a mandatory MRD before January 2024. This requirement includes both pretax and Roth 401(k) accounts, and most IRAs.

 

If you skip your yearly RMD or don't withdraw enough, there is a 25 percent penalty on the amount you should have withdrawn. You can reduce that penalty to 10 percent if the RMD is corrected within two years, according to the IRS.

 

By now, you may know that the Internal Revenue Service has increased the amount of money you can contribute to a qualified IRA plan for 2024. The standard tax-deductible contribution limit for next year has risen from $6,500 per taxpayer (49 years and younger) to $7,500. If you are 50 years or older, the IRS will allow you to make a catch-up contribution. The amount has been increased from $7,500 in 2023 to $8,000 in 2024.

 

Contribution limits apply to all your IRA accounts in total as an individual taxpayer. So, if you decided to split your contributions between your two Roths and a traditional IRA, that is fine with the IRS, if the total contributions are within the limit. If you are married, that means that you both have the right to contribute the same equal amounts. That means you can double the limit in your combined accounts. However, remember that the contributions apply to only earned income. Income from investments, dividends, or excess student loan money does not qualify.

 

Once you reach the age of 73, you can no longer contribute to a traditional IRA. However, for a Roth IRA, you can continue to make contributions at any age. As a rule, you will have until Tax Day to make IRA contributions for the 2023 year. That means you can still contribute toward your 2023 tax year limit of $6,000 and the catch-up limit (depending upon age) until April 15, 2024. After Jan. 1, 2024, you can also make contributions toward your 2024 tax year limit until Tax Day, 2025.

 

There are limits on who can contribute to tax-deferred accounts depending on your income level. The IRS phases out some of the tax advantages of an IRA for wealthier savers. As you earn more money, the government decides that you need less help saving for retirement. Jeff Bezos or Elon Musk, for example, do not need as much help as you or I in saving for retirement. However, if either men or their spouses are enrolled in an employer retirement plan, such as a 401(k), they can make the full IRA contribution regardless of income.

 

Those interested in the cut-off income levels, partial phase-outs, and single versus couples' income, can get all that information easily at the IRS website. 

 

As far as employee contribution plans, those who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plans, have seen their contribution limit raised to $23,000, up from $22,500. The catch-up limit for 50 years and older in 2024 will remain the same ($7,500), For those contributors, the overall contribution limit is now $30,500. However, the IRA catch-up limit was amended under the SECURE 2.0 Act of 2022 to include an annual cost-of-living adjustment but remains at $1,000 for 2024.

 

If I were you, I would take the time this weekend to review where you are as far as your 2023 tax-deferred contributions and what you plan to do in 2024. You still have time to make changes and if married please, please talk it over with your spouse.

 

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.

The chairman of the Federal Reserve Bank signaled this week that the Fed's monetary tightening policy may be coming to an end. Investors reacted by lifting the main averages higher, building on a more than 10 percent rally since October.

 

The "Powell-ful Rally," is how some pundits explained the spike higher in the averages after Wednesday's FOMC meeting. The S&P 500 Index, already in an overbought condition, rallied 1.5 percent. Thursday and Friday, traders consolidated those gains by taking some minor profits.

 

While most of the Fed's policy statements remained the same, investors did see and hear enough to believe that the Fed is unlikely to hike interest rates further. The Federal Open Market Committee members did indicate they are expecting the inflation rate will continue to cool. At the same time, they did not expect a sharp rise in unemployment, although unemployment could rise in 2024 to more than 4 percent.

 

Even more important to investors, after reading the Fed's forecasts for next year (called the dot plot), the likelihood of at least three rate cuts next year is now on the table. Their forecast for the Personal Consumption Expenditures, (PCE), the Fed's main inflation gauge, is expected to drop from 3.2 percent this year to 2.4 percent in 2024. That is a big decline.

 

But what caught my attention was this statement by Powell during the Q&A session: "You ask about real rates…," he said, "And indeed, if you look at the projections, I think the expectation would be that the real rate is declining, as we move forward."

 

What is the real rate of interest? The definition is simple. The real rate of interest equals the Fed Funds interest rate minus the inflation rate (real rate=Fed funds rate-inflation). What happens if inflation gets softer, as the Fed projects, but the central bank doesn't cut interest rates, the real rate of interest would go up. The only way the real rate declines is if the Fed begins to cut interest rates fairly soon.

 

That was all the markets needed to launch higher. I would describe the rush into equities this week as panic buying. The knee-jerk fear of missing out on further gains has stretched the indices upward to the breaking point. However, it seems that the catch-up areas that I have recommended (precious metals, small caps, materials, industrials, and financials) are now taking center stage while the Magnificent Seven are lagging somewhat. I still think technology is a great place to be but the juice in this end-of-year rally is my catch-up trades.

 

The markets have gone almost straight up over the last two weeks, which has not given side-lined investors a chance to get in and buy the dips. However, we may see some downside in the coming week as we almost always get after a big run higher.

 

The question on many readers' minds is how far this rally can go. After all, The Twelve Days of Christmas are not even here, and yet we already have three rate cuts, two turtle doves, and… I will let readers fill in the rest.

 

I am sticking to my targets. As I wrote back in November, "I expect we will make new highs and continue to climb to as much as 3,800 or beyond on the S&P 500 Index. As such, I would use any pullbacks to add to positions both in technology as well as industrials, and the catch-up areas I highlighted."

 

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.

If you still think that fundamental variables such as earnings results, price/earnings ratios, and future sales prospects determine where the equity markets are going, you are living in Lala land. Today, the flows into the options markets determine the future direction of stocks and indexes. At the pinnacle of this market trend lies the zero-date option.

 

But before we get into that subject, I think an option primer is in order.  For those who don't know, options give traders the right to buy or sell a particular stock or index at a specific price by a stated date. Leverage is involved, since one contract allows you to control 100 shares of a stock at a fraction of the price one would normally need to buy a similar number of shares. Instead of committing $13,500 to buy 100 shares of Alphabet, for example, the buyer of the option can control the gains (or losses) of that block of stock for a few hundred dollars. But you don't get to keep this option contract forever. The length of time a contract is in force varies. Some contracts go out for several years, but the more common options are in terms of months, weeks, and now, days.

 

The longer the contract, the more one pays. This premium is in addition to the price of risk or volatility the seller demands, granting you the contract since some stocks and indexes are riskier than others. In the old days, if I placed a bullish bet on the price of a stock that I expected would go up in price over the next few months, I could make several times my money. If on the other hand, the stock went down or simply did nothing, I would lose all my investment. In short, I am betting the price goes up (a call contract) or a bet that the stock will decline (a put contract).

 

Over the last 50 years, options trading has grown in influence until today it rivals the stock market in importance. Some say options have become the tail that wags the dog. While the popularity of options has increased, the trend toward shortening the length of time of option contracts has also grown. But it wasn't until COVID-19 that traders’ appetites for taking large risks came to the forefront. The sharp decline of the stock market over a short period during the initial phase of the pandemic set the stage. The government's response, which triggered a huge spike upward in financial markets, brought in an entirely new generation of market participants.

 

An influx of retail, stay-at-home traders sparked a desire for big risks and big returns. It was the era of meme stocks, of supply chain shocks, inflation, Fed interest rate increases, and AI. Over the last three years, all of these developments made trading 'events' such as macroeconomic data or Fed meetings a popular blood sport. Enter the idea of ODTE. 

 

ODTE is an acronym for zero-days-to-expiration options. Professional proprietary traders that normally hold billions of dollars in equities needed to hedge their risk around one day economic events such as a data release or monetary policy meeting. Traders used ODTE options to protect their stock positions against adverse moves in the overall markets.

 

An announcement by the Fed to hike interest rates could send the stock market down 2 percent in one day. A bad inflation number could do the same thing. This week's date release of the Consumer Price Index on Tuesday, the Producer Price Index, and the Fed's FOMC meeting on Wednesday would be examples of these one-off events.

 

Over time, that strategy worked so well that more and more traders decided that what worked for one-day events could work every day for everything from stocks to bonds to indexes and even commodities. Institutional investors, including hedge funds and asset managers, moved into certain indexes like the SPX (S&P 500 Index futures). As a result, ODTE accounted for more than 43 percent of SPX's daily volume in the first half of the year, according to the CBOE. After the FOMC meeting on Wednesday, for example, $3 trillion worth of the SPX traded in a few hours.

 

It didn't take long before retail traders followed the big boys into this ODTE arena. As a result, by the end of October 2023, the market share of option contracts expiring in less than five days was 59 percent, according to SpotGamma, which monitors and publishes metrics of the options market.

Buy-and-hold strategies, despite their long-term track record of success, have become passé among many millennials. Betting on whether the price of a stock will go up or down before the close of each day has nothing to do with investing. It creates an atmosphere where all stocks become meme stocks. It is the reason why some companies that announce dismal earnings in the morning and drop 15 percent at the open can be up by 5 percent by the end of the day.

 

Some critics claim that ODTE options cause needless volatility in the markets and among stocks. Overall, if daily volumes are evenly balanced between those who are buying and those who are selling these options then the impact on the overall market is somewhat benign. It is when everyone decides to move to one side of the boat at one time that problems could occur. JP Morgan earlier this year argued that under certain circumstances ODTE options could turn a 5 percent intraday market decline into a 25 percent rout.

 

Regardless of the risks, more and more brokers are jumping into this market attracted by the order flow and fees it offers. As such, it appears that the chances of volatility accidents should rise over time. One thing is for sure, the days when one could feel confident that investing in quality companies would be reflected in the price of their stocks is disappearing. 

 

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.