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The Independent Investor: Business of Santa Claus

By Bill Schmick
iBerkshires columnist
As we approach that most joyous of holidays, the image of Santa Claus greets us in every nook and cranny. From television commercials to internet greeting cards, "Jolly Old St. Nick" is a ubiquitous figure. What you probably didn't know is without American business there probably wouldn't be the Santa Claus of today.
 
Santa and business go back a long way, but before you ask, the answer is no, Coca-Cola did not invent Santa Claus, although they will celebrate their 100-year anniversary in 2020. This modern-day, cherry-cheeked, fat elf of a figure has been best buds with the owners of many U.S. enterprises. Montgomery Ward, Macy's, F.W. Woolworth, General Electric and dozens, if not hundreds, of other businesses have made Santa the elf he is today.
 
Back in the day, "Sinterklaas," the Dutch name for a monk named Saint Nicholas, was the stuff of legends. His kindness and compassion were his claim to fame among the Christian faithful, and through the centuries he became known as the protector of children. His myth emigrated to America from Europe in the early 1800s.
 
Christmas at that time was a great big drunken party over here, especially in New York. Remember, it was the beginning of the Industrial Revolution, and the differences among the social classes in the U.S. was as large as it is today. Bands of tough, working-class young men, rowdy and often-times angry, would roam the city blocks, going from home to home, demanding
handouts from the rich. Often, these gangs would "wassail" (sing) bawdy tales at the top of their lungs in the process.
 
History credits a number of figures, from John Pintard of the New York Historical Society, to Washington Irving, to Clement Clarke Moore, who took it upon themselves to "tame" Christmas for the American masses. "A History of New York," published in 1809 by Irving introduced a more benevolent St. Nick, while the 1822 poem, "A Visit from St. Nicholas" ("Twas the Night before Christmas") by Moore attempted to hone in on the exact time and date of the modern-day legend we call Christmas.
 
The American version of Christmas continued to expand through penny press publications and women's home magazines. These publications were an early version of both marketing and advertising. The notion of Christmas trees, for example, can be traced back to Godey's Lady's Book that featured Queen Victoria and the royal family gathered around one such tree.
 
In 1841, a Philadelphia store created the first Christmas blimp of sorts (a life-sized model of Santa) as a marketing effort to draw kids and their parents into their store. In 1862, Macy's introduced the first "live" Santa. An army of Santas soon followed, creating an entirely new business in America. But Santa still lacked the vigor of today. He was most often depicted as a small, elf-like figure, grim and serious (sort of like the Grinch with a red suit and a white beard).
 
It took the marketing efforts of Coca-Cola to transform Claus into the Santa of today. He was first featured in Coke's advertising in 1920, and within a decade became a staple of their holiday advertising. The company hired an illustrator, Haddon Sundblom, to create a more "wholesome" image of the big guy that would sell in America. It worked so well that just about everyone adopted Coke's version of Santa Claus.
 
But Santa isn't the only figure that business created. Rudolph the Red-Nosed Reindeer was a marketing effort by the department store, Montgomery Ward. They used one of their own copywriters, Robert May, to write a children's book that the department store could give out to the children of their customers. Millions were given out in the first year, and many millions more have been published since then. In 1949, May's brother-in-law wrote a song, based on the book, that is now part of holiday history.
 
So, the next time you want to complain about all the bad things that big business does to this country, take heed. There are some things they do well. If it wasn't for business, Christmas in America — gift-giving, Christmas trees, ornaments, dinner, caroling, holiday cards and all that family love — would probably not exist.
 
And on that note, "Merry Christmas to all, and to all a good night!"
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 
     

The Independent Investor: False Promises Hit Farmers, Manufacturers

By Bill Schmick
iBerkshires columnist
The very people who were supposed to benefit from making America great again have become victims of the man who promised them so much but has delivered so little.
 
While the Rust Belt states of Michigan, Wisconsin, Indiana, Illinois, Ohio and Pennsylvania teeter on the edge of recession, those in the agricultural sector (also Wisconsin, as well as Georgia, Nebraska and Kansas) are already facing an increasing number of bankruptcies. These are the swing states that carried Donald Trump to a win three years ago. They are now feeling the brunt of his trade, tariff, and wholesale rejection of climate change.
 
Farm bankruptcies through September 2019 are up 24 percent versus last year. Suicide rates are rising among small farmers, and many towns that are dependent on the farming community are fast becoming ghost towns. Even Trump's own Agricultural Secretary, Sonny Purdue, said he wasn't sure that the family dairy farm could survive in the future. At least he has the courage to tell the truth.
 
Americans, especially those who live in urban/suburban areas of the country, have this mythical myopia when it comes to the nation's agricultural sector. Most think that the small family farm is what feeds us, and what surplus exist are sold overseas as exports. I am here to tell you that all of that claptrap no longer exists and hasn't for decades.
 
Global competition, Federal government policy, and big business has changed the fabric of the farming sector.  Back in the 1970s, Federal farm policy sent an unmistakable message to the nation's farmers to either get bigger or get out of agriculture. A decade later, we witnessed a quarter-million farm foreclosures. Overproduction, a grain embargo against the then-USSR, and high debt decimated the industry. Today, 80 percent of American farmland is owned by "Big Ag."
 
In the last two years things have gotten immeasurably worse. Trump's tariffs on China elicited a predictable response. Chinese tariffs were levied on U.S. agricultural imports like soybeans and corn. Since then, the Trump administration has given the industry $28 billion in financial assistance of which at least 80 percent of that is going to big conglomerates, not the small farmer.
 
At the same time, thanks to climate change, the last six years have produced increasingly unstable weather patterns resulting in floods, droughts and debilitating crop failures. The administration's continued denial of these huge risks to our food production have been ignored. In fact, recent policies, in my opinion, have actually made our climate far worse.
 
Given the facts of farm production in this country and throughout the world, the small farmer of old is heading into extinction. In its place have risen boutique farms that are producing crops and food stuffs for a large population of consumers who buy direct and live close by. There are no or limited exports from these establishments.
 
A similar trend is occurring in the nation's manufacturing sector. Countries such as Australia, China, South Korea, Argentina and Mexico produce steel, aluminum, cement and a host of other manufacturing products of the same quality (but at lower prices) than the U.S. can produce. This is not a new phenomenon, but Trump's trade wars have made it infinitely worse for our manufacturing workers. And no one is talking about government assistance to this sector.
 
Tariffs may have prevented the manufacturing sector from total extinction, but they haven't fixed what is wrong with the sector either, nor can they. It is the same story with farm subsidies. They won't and can't fix what is ailing the family farm. The tariff argument is an old one: we need these industries for our national defense in the event of war. While that argument does carry weight, it does little to help our manufacturing and farming sectors, which continues to face global overproduction of just about every product they make.
 
As in farming, some would like to think that Trump's policies will not only save but reverse the decline in manufacturing. That is as realistic as thinking of today's workers as burly-armed men and women (as in WW II posters), when the reality is that today's manufacturing workers are far more likely to be sitting behind a computer screen than toiling with sledge and hammer beside a belching furnace.
 
 Sometimes, the cruelest thing one can do is give a person (or in this case, an industry) false hope. Trump, it appears, has done just that. Most people realize you can't turn back the clock, no matter how hard you try. It is at the root of what Donald Trump promised and failed to deliver. The America he wants is an America that no longer exists, if it ever did.
 
The America I live in is always changing, growing morphing into something new and different. Sure, it has its problems, and even the nature of these challenges' changes over time, but by and large, I wouldn't want to live anywhere else.  Would you?
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 

 

     

The Independent Investor: Truth About NATO & Defense Spending

By Bill Schmick
iBerkshires columnist
While it would appear that President Donald Trump left the London NATO Summit this week empty-handed, the truth is he has already achieved what several presidents before him could not. Unfortunately, it is a shallow victory at best.
 
Just a week ago, in preparation for President Trump's visit, the North Atlantic Treaty Organization announced a change in the funding of its budget. It agreed to reduce the United States' contribution to the alliance (now 22 percent) and redistribute the costs to other members. As a result, the U.S. and Germany will now pay the same amount. Each will contribute 16 percent of NATO's central budget.
 
The problem is that NATO's central budget, which only amounts to $2.5 billion annually, is just a drop in the bucket when thinking about the ongoing defense of Europe. The alliance was formed after World War II as a means to counter the Soviet Union's growing domination in Europe and the rest of the world.
 
The idea of a collective defense — "One for all and all for one" — was a good one at the time. The assumption was that each nation member would see to its own defense spending, while contributing to the direct budget of NATO, which was miniscule in comparison.
 
Over the decades since its founding, it became apparent that, with the exception of the United States, most of the 29 members of the alliance were not spending nearly enough on their own defense readiness. The issue came to a head by 2014 when the members agreed that they would increase their own defense spending to 2 percent of their Gross Domestic Product (GDP) no later than 2024. 
 
Therein lies the beef, since only nine members have reached that goal so far. In the meantime, the U.S. spends 3.4 percent of GDP on defense, which amounts to roughly 69 percent of overall defense spending among the NATO alliance. This year alone, the U.S. will spend $693 billion. That makes the amount members spend on the NATO budget mere peanuts in the grand scheme of things.
 
The 2014 agreement, however, is really a "paper tiger," since there is no penalty if a member fails to reach the 2 percent target. To be fair, most NATO members did increase defense spending this year, which makes it five years in a row. However, that was not nearly enough in President Trump's opinion.
 
"ALL NATO NATIONS must meet their 2 percent commitment, and that must ultimately go to 4 percent," was the tweeted message dictated to NATO by our commander-in-chief. That might be easier said than done, in my opinion. This week, the president has threatened additional tariffs on European imports if NATO members do not comply.
 
To be fair, our European allies are democracies and cannot simply up their defense spending without the agreement of their voters. At the same time, most Europeans have far less appetite for defense spending in general than Americans.
 
In addition, given Trump's overwhelming lack of popularity within European nations, it would be practically impossible for EU leaders to convince their citizens to increase defense spending based simply on Trump's demands. In fact, it is likely the opposite would occur.
 
That leaves one obvious avenue left to force a solution — threatened U.S. departure from NATO. The ramifications of such a move on Trump's part would go far beyond economics. I am sure that possibility is the stuff of nightmares that may keep our military establishment up at night. Many politicians on both sides of the aisle might also have a problem with such a move. And yet, I would not put it past this president to venture down that road, if only as a negotiating ploy to get some of what he wants.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
     

The Independent Investor: Will Santa Satisfy Retailers?

By Bill Schmick
iBerkshires columnist
Ready, get set, go! That's what the nation's retailers are hoping you will do, preferably before your Thanksgiving dinner has barely been digested. Black Friday has become Black Week, while holiday shopping now officially includes the entire months of November and December.
 
In 2019, retail sales nationwide are expected to increase by 3.8-4.2 percent from last year, according to the National Retail Federation (NRF). That would amount to a total of between $727 billion to $730 billion being rung up in the nation's cash registers. That's not a bad haul when you realize the average holiday sales increase over the last five years was 3.7 percent.
 
Those numbers are even more encouraging when you realize that this year, there are six less shopping days until Christmas and Hanukkah. Driving theses sales is a healthy consumer, which is important, since consumer spending is still the primary engine of America's economy.
 
Consumers are in good shape financially, thanks to low unemployment, higher wages, and a record high stock market. It is a heady brew that gives shoppers an extra jolt of good cheer and could translate into more generous gifts for friends and loved ones.
 
The NRF predicts that the average Americans plans to spend $1,047.83 this year, which is up 4 percent from last year's $1,007.24. Breaking those numbers down into three groups: the average Joe/Jane will spend $658.56 on gifts for family, friends and coworkers. Holiday purchases such as food, greeting cards and decorations will total $227.26 more and other non-gift purchases for themselves and their families will add an additional $162.02 to the total.
 
While gift splurging is up, the costs of Thanksgiving dinner will drop for the third year in a row. You can thank Thomas the Turkey for that. The cost of a 16-pound turkey is down 3 percent to $21.71, on average, nationwide. It is estimated by the American Farm Bureau Federation that the whole meal could average less than $5 per guest, if you stick to the basics like stuffing, sweet potatoes, rolls, peas, pumpkin pie, etc.
 
Thanksgiving Day will still register as the worst driving day of the year, but for the second year in a row, my wife and I have smartened up. We are taking the train roundtrip to New York City and spending just enough time with our loved ones to stuff our faces and maybe lose another chess game to my 7-year-old grandson.
 
We don't know yet what impact President Trump's tariffs will have on spending and prices, and we probably won't know until Dec. 15. That is the date when the next round of tariffs on Chinese imports is slated to take effect. Apparel, footwear, electronics and more will be subject to these new duties and it could dampen consumer enthusiasm just as holiday shopping swings into full gear.
 
So far, the message I keep getting is to "shop early." I'm not sure if this is just another gimmick to get me out and about spending money, or if retailers are warning me that if I procrastinate, the special gift I'm looking for will be either sold out or cost a heck of a lot more because of the tariffs. Either way, one thing is clear, Black Friday has now morphed into "Black Week" and it is in full swing right now.
 
In any case, no shopping for me on this Turkey Day. As you read this, I will be ensconced among family members and friends, passing the gravy boat, and wishing all of you, my readers, a Happy and Thankful Thanksgiving.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 

 

     

The Independent Investor: Diamonds Should Be at Top of Christmas List

By Bill Schmick
iBerkshires columnist
Diamonds for most Americans evoke visions of luxury and romance and are almost always the traditional go-to precious stone for engagement rings. The good news is that no matter how strapped for cash you are, you could probably afford one right now.
 
Chances are, I don't have to sell you on diamonds, since most Americans are in love with this precious gem and always have been. Diamonds make men into heroes, while nothing says to a woman ‘"I am deeply loved" than a sparkling stone that required millions of years to make.
 
Americans account for 50 percent of all diamond sales worldwide. Sales grew 4.5 percent (to $36 billion) last year. The good news for you this holiday season is that diamond prices have consistently declined since 2011. In fact, the wholesale price of a diamond right now is close to its 2002 level. Can you say that about any other product?
 
But remember that not all diamonds are the same. The four Cs — color, clarity, cut and carat weight — will still determine the price you are going to pay. A dealer will tell you that there are diamonds and then there are "diamonds." The kind you see on Madison Avenue in the plate-glass windows of Bulgari or Cartier are still wildly expensive, but most of us could never afford those stones anyway. No, we shop at the discount stores or local jewelers, and there you will find great prices on most polished stones.
 
There are reasons for this. While demand for diamonds has been increasing, there is and has been an increasing glut of supply in the polished stones market, especially in smaller gems, worldwide. Companies, and in some cases, countries, have benefited from modern methods of production. This has made mining these stones easier, faster, and cheaper. Competition among companies in the sector for market share has also exploded. An attitude of "produce at any price" has permeated the industry, resulting in everyone getting hurt.
 
Companies such as De Beers, a unit of Anglo-American Corp., which is considered the premier diamond company in the world, at one time could dictate not only the price of its diamonds, but the amount of stones each of its distributors must buy. No longer.
 
Those distributors who cut, polish and trade the rough diamonds have been squeezed the most. They are in the middle, between the mines and the end buyers, the retail jewelry chains. These chain stores, aware that there is a mountain of these gems available, have reduced the inventory they are willing to hold at any one time. In addition, not only have they held the line on price, but have actively negotiated prices downward as the glut grows worse. 
 
As a result, the middleman's profits have evaporated. Banks have stopped offering lines of credit to them. The situation has gotten so bad that distributors have simply refused to buy any more diamonds from the mines. And just when the industry thought it couldn't get any worse, lab-grown diamond popularity has emerged.
 
Ever since the movie "Blood Diamonds" dramatically revealed the downside of diamond mining (child labor, pollution, etc.), more and more millennials are opting to buy the more politically correct alternative to earth-mined diamonds. It also helps that they are cheaper than their earth-bound cousins. So far, sales account for only 2 percent of the diamond market but it is growing quickly.
 
The technology is such that most lab gems are on the smaller size (1.5 to 3 carats) and are in the E-F color range with VS quality. And no, you may never see them displayed in Tiffany's, but then again, as technology improves and consumer preferences continue to change, you just might. All of which just presents yet another hurdle for the people who mine, polish and sell "a girl's best friend."
 
And while I do not revel in an industry's misfortunes, it does present an opportunity for you, the reader. Sure, you may find that buying that diamond still sets you back a bit more than you were originally willing to spend, but take it from me, she/he is worth it. The returns on your investment are going to last you a long, long time. And Black Friday is just around the corner!
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

 

     
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