Consumers have been bludgeoned for years by higher prices. In this era of inflation, discounts disappeared as prices of everyday items climbed higher and higher each year. It has been a long time, but value is finally returning in various consumer areas.

 

This summer could be called the season of markdowns as corporations across America have become concerned that price-sensitive consumers have been trading down to cheaper goods and services. Many companies have seen sales decline as discount stores and labels have taken market share.

 

While the Federal Reserve Bank and the Biden administration applaud the progress made on inflation, the truth for the consumer on Main Street is that inflation is still rising. Sure, the headline inflation rate has been falling, but inflation itself is rising just, at a slower rate.

 

After several years of benefiting what airlines called "revenge travel," consumers are balking at astronomic ticket prices for domestic travel. Airlines have reversed course dramatically which has triggered a race to the bottom on domestic ticket prices. Some readers may already know that some big retail chains have been hawking lower prices for several weeks.

 

Even the discounters are discounting prices. Walmart has cut prices on 7,200 products to compete with rivals. Big Lots, after a hit to sales in June, intends to "significantly grow" its close-out bargain business. Retailers like Ikea, Aldi, Walgreens, and Target have also announced price cuts.

 

Auto dealers, after years of jacking up prices for new vehicles, are suddenly seeing empty showrooms and stagnant sales. In July, discounts started popping up around the country and according to Kelley Blue Book, an average of $3,383 per vehicle was lopped off prices. That was the highest level of discounts in three years.

 

Fast-food restaurants, long the haven of low-priced fare, have had some of the sharpest price hikes since the pandemic. They had risen so much that even die-hard fans of places like McDonalds abandoned their burger for food at home. McDonalds, Burger King, Taco Bell, and Starbucks to name a few, have since rolled out what they call "value meals" with great fanfare.

 

Eating at home, however, has not escaped the price crunch. Food prepared at home still saves you money with prices growing at  1.1 percent per year versus dining out at 4.1 percent annually. Yearly food inflation overall has fallen somewhat from a recent high in August 2022 to 2.2 percent in July 2024.

 

The most recent Consumer Price Index showed that the cost of food at home is up 26.9 percent over the last five years and almost 30 percent over the most recent four-year basis. The bottom line: the price level of groceries in aggregate is the highest on record. Sure, some prices are coming down, while others are still climbing.

 

In a sense, it pays to eat healthier today. Items such as apples, frozen fruits and vegetables, potatoes, rice, and pasta have seen price declines while prices for bacon, pork chops, hot dogs, juices and drinks, eggs, and butter are still rising.

 

I can tell you that after years of price increases in my local supermarkets, I automatically select store brands over name brands in most items because they are cheaper. I also have changed my habit of just shopping at one market. Instead, I frequent whatever grocery store offers the best weekly prices for protein, produce, etc.

 

Do I think price controls on food prices would work as some have suggested? Not really. Few realize that most states already have laws to restrict price gouging. They have been instituted for short times with success in times of emergencies such as floods, and other climate-related events, and even in the pandemic in some cases.

 

If inflation continues to fall as economists predict, even the most price-gouging of companies will have to relent and drop prices or lose market share to others. In the end, it is the customer and not the government who will dictate prices, and most consumers are fed up with paying for everything.

 

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 fertility rate in the United States has fallen by 3 percent since 2022. That is a historic low and marks the second yearly decline in a row. How will that impact the economy?

 

In the simplest terms, if you have lower population growth then you will have fewer people producing goods and services. That will result in slower economic growth. But it is not the only impact. A shrinking workforce will also mean there are fewer people paying taxes.

 

In a country like ours that has seen decades of increased spending and higher debt, the question becomes who will pay this growing obligation.

 

As our deficits expand at an increasing rate, while the birth rate continues to decline there will be fewer and fewer people to pay off the nation's debt burden. The Heritage Foundation estimates that the total amount of debt that a baby born in 2007 assumes was $30,500. That figure almost doubled to more than $59,000 just 13 years later.

 

From 2014 to 2020, the birth rate consistently declined by 2 percent per annum, according to the CDC's National Center for Health Statistics. Last year the birth rate in the U.S. reached a record low. Just 3,591,328 babies were born, which indicates that the birthrate has now fallen below the replacement level needed for one generation to replace itself. This was not supposed to happen.

 

Experts in the field will tell you that the COVID-19 pandemic was supposed to jump-start an increase in the American birth rate. The argument was that the lockdowns were forcing couples to spend a lot more time together indoors. That would lead to many a romantic evening and an increase in babies nine months later. The exact opposite happened.

 

The year 2020 hit a record low in the fertility rate at 1.6, the sixth straight year with a decline in the number of births. The facts are that ever since the Financial Crisis of 2008, births have been declining.

 

Experts point to a variety of reasons for this trend. Changing social norms, demographics, immigration policies, and a decline in teenage pregnancies are some of the most important reasons. Chief among them is that  Americans are delaying, or foregoing marriage entirely. And if they do tie the knot, women are marrying later in life. As a result, couples are having fewer children compared to prior generations. 

 

The Pew Research Center, in tracking birth trends in the U.S., found that some groups were no longer making babies as fast as they used to. Historically, fertility among Hispanics far exceeded that of other groups. However, that is no longer the case. Researchers believe a drop-off in immigration from Mexico has reduced the birth rate among Hispanics to levels more in line with the national average. 

 

Teenage births have also plummeted. The number of births has dropped in half from 10 years ago in this age group. Why? The Pew Research Center cites a greater awareness and use of effective contraceptives, as well as an increase in the number of teenagers who report never having had sex.

 

Lower birth rates are not all bad, especially at the state level. Many school districts are experiencing declines in enrollment. The decline in teenage pregnancies has helped offset some of the rises in health-care expenditures as well. Fewer people will also mean less pressure on infrastructure as well.

 

Whether or not those benefits will offset the declines in income, sales, and other tax revenues will depend on the state. Western states are experiencing the worst declines. Decreasing birth rates in Arizona and Utah, for example, are double that of the 50-state average.

 

Migration trends and a state's tax structure will also be important in mitigating the impact of slowing birth rates. States that are recipients of an influx of new residents from other states or abroad are better positioned to weather the storm. It should come as no surprise that the Northeast has lower fertility rates and more residents migrating elsewhere.

 

It also depends on where each state derives its revenues. Those most dependent on individual income taxes face greater risks than those who generate substantial income from other sources such as extraction of natural resources or corporate income taxes. States such as Florida, Nevada, South Dakota, Texas, and Washington which rely heavily on sales taxes, will likely need to change course in how they generate revenues.

 

In addition to these threats to future revenue declines, states will need to worry about their access to federal funding. Many of the largest federal programs allocate money according to formulas that include a state's headcount. Those states that show greater declines in birth rates may see their funding reduced at a greater rate than in other states.

 

In any case, the impact of low fertility rates won't be felt for several decades when today's children reach an age where they will be spending more and paying significant income taxes. But many nations in Europe and Asia in a similar situation are not waiting for that to occur. They have already developed policies to encourage more babies, while in this country the focus has been more on individual choice and freedom. 

 

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.

As one of the best-performing areas of the financial markets this year, gold and silver have been added to many investors' portfolios. And while every dip has been used as an excuse to buy, bulls should hold off a bit when making any new purchases.

 

The price of gold is up more than 20 percent and silver gained over 17 percent so far this year. Despite the sector's performance, there are many portfolio managers out there who won't touch precious metals and probably never will. "Too speculative," "impossible to analyze," and "we are not in the business of gambling" are all explanations I have heard through the years.

 

Granted, gold is not for everyone, but something must be said for its appeal as a hard currency since it has functioned as such for thousands of years.

 

I am not here to proselytize, but to point out that there are investment cycles for most commodities, and we happen to be in one for precious metals. This time around, some of the typical reasons for owning gold are once again present. Geopolitical uncertainty comes to mind with actual shooting wars in Ukraine and the Middle East, either of which might trigger a more serious conflict with nuclear implications. As such, the safe-haven status of gold is an appealing reason to hedge against this geopolitical risk.

 

Purchases by central banks have been one of the biggest drivers this year with buying hitting a record in the first quarter of 2024. Bank of America estimates that gold has now surpassed the euro as the world's largest reserve asset after the U.S. dollar.

 

The threat of inflation continues to hang over the world's economies and precious metals have long been considered an inflation hedge. Governments continue to spend, especially here in the U.S., reviving fears that whoever may win the coming elections, their policies will lead to a revival in the inflation rate. If you also add fears of a falling dollar, brought on by a ballooning debt load, make gold and silver something tangible that investors can hold on to and offer an appealing alternative to a stock market at record highs.

 

While gold is the go-to precious metal most buy, silver has also been purchased for many of the same reasons. Its price has been linked to gold in the past, but to a lesser extent recently as its industrial usage climbs. About 55-60 percent of silver production is dedicated to the industrial area. This percentage is increasing with the popularity of electric vehicles where silver is in demand for its conductive qualities in EV batteries and photovoltaics. 

 

Silver is normally a byproduct of copper mining and as such its price is heavily dependent on demand for copper. Why is this important? China is the world's largest marginal buyer of copper, so Chinese demand for copper sets the price of that commodity. This year, China is battling with a slowing economy, a major real estate problem, and waning consumer demand. As such, copper demand is anemic at best, and lower copper prices reflect that situation. The price of silver, therefore, is subject to the countervailing forces of a bullish gold price and an offsetting weakening copper price. 

 

Interestingly, much of the recent demand for gold has been attributed to demand from China's central bank as well as retail buying in the form of small gold beads by Chinese investors who are wary of their stock market. Western investors have also piled into gold with physically backed gold funds and have seen three straight months of inflows.

 

Given the bullish background on gold, and to some extent silver, why do I advise caution heading into September? If one studies the 10-year seasonal trend of gold beginning on Labor Day weekend out until Sept. 28, the gold price has declined in every year of the past ten years. In the last 15 years, there were only three up years and 12 down years. Silver's record is almost as negative with four of the past five years suffering declines in September.

 

Does this mean that you should sell all your gold, silver, and the mining stocks that produce precious metals? No, but I do recommend that you just wait to add new purchases, i.e., buy the dip.

 

Remember that the Fed is expected to begin an interest rate-cutting cycle on Sept. 18. Gold futures have rallied an average of 6 percent within 30 days of the first interest rate cut after a hiking cycle begins. At the end of September, gold has rallied on average 13 out of the past 15 years. There is often a slight pause in early November (elections?) and then tends to rise from Thanksgiving into the New Year.

 

In this case, the data says gold and silver have a much better than average chance of falling in price in September. As for silver bulls, I would keep a close eye on the copper price and data coming out of China's economy.

 

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.

U.S. deficits at $35.225 trillion are going through the roof and interest payments on our debt load account for an increasing share of gross domestic product. We are not alone in facing this trend. The question is what monetary and fiscal policymakers will do about it.

 

The time-honored, go-to strategy that has worked well for decades among nations in times like these is to devalue one's currency. How does that work?

 

Readers need to understand that the level of interest rates plays an important role in currency devaluation. For example, the U.S. dollar and U.S. interest rates work hand in hand. When traders buy dollars, they don't just keep their money in the currency and hope it goes up. Most often they buy dollar-denominated Treasury bonds where they can get an interest rate return on their money. If the Federal Reserve Bank cuts interest rates the return for holding those dollars is reduced. That triggers a move to sell the dollar and buy bonds in another currency that yields more. The opposite occurs when the Fed raises rates as they have been doing for the last two years. How does this impact the U.S. debt load?

 

In the simplest terms, imagine I owe you $10, if I push down the dollars' worth by lowering interest rates, those ten greenbacks of debt will be worth less as well. If I keep doing that, over time, my debt to you becomes more and more manageable, since it too is less valuable.

 

You, the lender, may not be happy about it, but there are compensations. A weaker dollar may mean the lender (foreigners who buy our debt, for example) can buy more products priced in cheaper dollars with their currencies. If their plans also include investing money in plants and equipment in America, the cost of doing so suddenly becomes cheaper and they can build more for less.  

 

The key to succeeding at such a strategy is coordination among nations, and a lot of it. Otherwise, it becomes a currency free-for-all and a race to the bottom for all concerned. Most nations understand this from prior experience, and so central bankers and their treasury counterparts work behind the scenes to ensure an even keel in devaluation that over time allows their debt loads to be reduced.

 

I believe the devaluation of the dollar has already started. It was, in my opinion, partially behind the yen-carry trade debacle ("Japanic Monday") of three weeks ago. The dollar, after years of strength, had been falling gradually against many currencies for weeks, but not the yen. The actions of the Bank of Japan to raise interest rates slightly forced the Yen to strengthen against the dollar practically overnight. This currency catch-up trade caused havoc around the world. Bankers want to avoid this kind of fallout whenever possible. 

 

Many believe that a potential rebound in the inflation rate is behind the record run in gold prices recently, but that is not the whole story. There are many global traders, as well as a whole host of central banks, that realize a devaluation of the dollar is underway and have been buying gold as an alternative form of currency.

 

How will devaluing a dollar to ease our debt impact you? Since a weaker dollar means that the dollar can be exchanged for less foreign currency, producing goods priced in dollars and goods made in other countries is more expensive for American consumers. Devaluation can also lead to higher inflation. Therefore, a devaluation must be managed carefully. And finally, it could lead to lower profits for some companies that import a great deal of materials from offshore. That could lead to layoffs in the labor force.

 

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.

In this election season of competing promises, one idea stands out as a good way of redistributing income from the haves to the have-nots. More than 70 million needy Americans would benefit directly by cutting federal taxes on Social Security.

 

Let's face it, retirees have been getting the short end of the stick for a long time. For years, with interest rates at practically zero, retired savers, unwilling to bet on the stock market, have received scanty returns on their savings.

 

Fast forward to the pandemic and its aftermath. Elderly Americans, if they were lucky enough to dodge serious sickness or death as the highest-risk segment of the population, they were faced with burgeoning inflation for everything from food to health care on a fixed income.

 

Sure, interest rates spiked higher, but not nearly enough to keep up with inflation. To make ends meet, seniors were forced to find jobs bagging groceries, waiting on tables, or acquiring whatever menial, minimum-wage job they could find. To make matters worse, many of those part-time jobs ended up pushing their income level over the threshold. What threshold, you might ask? The answer lies in the past.

 

Before 1984, Social Security benefits were exempt from federal income tax. But Congress, faced with a Social Security funding crisis of their own making, then decided to tax a portion of these benefits, with the share gradually increasing as a person's income rose above a specified threshold. Today, if you file single on your tax return and earn above $34,000, or file jointly and make above $44,000, 85 percent of your benefits are taxed. Up to 50 percent of benefits can be taxed if you make between $25,000 and $34,000 (or between $32,000-$44,000 if filing jointly).

 

And those income levels have never been adjusted for inflation over more than 30 years. Bottom line, by eliminating federal income tax on Social Security, many retirees would be given a bit more financial breathing room, especially those who receive other types of taxable income such as wages or distributions from retirement accounts. All but 12 state governments are already recognizing this issue and do not tax Social Security benefits.

 

Advocates of tax-free benefits argue that the present tax structure is not only extremely regressive but discourages seniors from working, even when they want to.

 

How does that fit with all those free-market capitalists out there who extoll the benefits and rewards of American labor? It doesn't. But it gets worse! Retirees have already paid taxes on their Social Security benefit contributions via the payroll tax during their working lifetimes, so retirement benefits are taxed twice.

 

Last year, two Florida congressmen, Daniel Webster and Thomas Massie, introduced a bill, the Senior Citizens Tax Elimination Act, that would eliminate this double tax. Co-sponsoring the bill were 24 Republican members of Congress from across the nation. For Massie, this was the sixth time that he has reintroduced since 2012.

 

Up until now, Massie's bill has been dead upon arrival in Congress. Many politicians argue that tax-free benefits would simply worsen a social program that many in Congress and the Office of Management and Budget predict will be insolvent by 2034. Does it matter that the program brings in 90 percent of its revenue from the payroll tax on earned income, and only 4 percent of the total is derived from the taxation of benefits? That 4 percent is a drop in the budget compared to what we spend every year on so many government boondoggles but an "every little bit helps" attitude permeates the discussion in the Capitol's corridors.

 

Democrat Rep. Angie Craig, from Minnesota, thinks she has solved this hurdle. Her bill, the You Earned It, You Keep It Act, introduced this year, would eliminate taxes, but at the same time increase the Social Security wage base. It would mean that higher earners would foot the bill for eliminating the federal tax on retirement benefits.

 

Craig's bill would increase the wage limit to over $250,000, which would mean that high earners would pay a 6.2 percent payroll tax on almost $100,000 more of their wages. The Social Security Office of the Actuary believes her bill would ensure payments could be made through 2054, rather than 2034 while benefiting retirees for decades ahead.

 

The biggest challenge would be getting enough support on both sides of the aisle to amend Social Security laws. That would take 60 votes in the U.S. Senate. The problem is that neither party has held a supermajority of 60 seats in the upper house of Congress since 1979. But times are changing.

 

At least one of the candidates is savvy enough to see the political benefit of eliminating this double tax on 70 million voting seniors. Populism has swept the country and with it the recognition that income inequality in the U.S. needs to be reversed if this country has any chance of righting the wrongs of the last 40-50 years. To do that, a bottom-up approach to economic and political policies must be enacted. Where better to start than with an unjust tax that is already despised by more than 90 percent of American seniors? Is anyone in Chicago listening?

 

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.