There was a day when a man's love for his bride was measured by the clarity and size of a diamond ring. That notion is as outdated as believing that "artificial" or lab-grown diamonds are second-class stones.

 

Chances are that if you purchased a diamond this year, it may have been manufactured in a laboratory. Lab-grown diamonds account for roughly 46 percent of the U.S. diamond jewelry market. What is interesting is that while the quantity of diamonds sold is almost neck and neck with the natural market, as a percentage of revenue, lab-growns only account for 23 percent of sales.

 

There are two trends at work here. Natural diamonds are getting more expensive and as they do, lab-grown diamonds, which are much cheaper to manufacture have become increasingly popular.

 

Lab-grown diamonds are just as real as the diamonds dug up by miners in Africa or elsewhere. The difference is that the laboratory can make them perfect while mother nature will usually produce stones with several beautiful and even romantic flaws.

 

There are two methods of growing diamonds. In the chemical vapor deposition process,  a small diamond is placed in a chamber and exposed to carbon-rich gas and high temperatures. The gas ionizes and carbon particles stick to the diamond, eventually crystallizing into a diamond. An alternative process exposes a diamond seed to extremely high pressure and temperatures (like Mother Earth) and a metal catalyst helps convert pure carbon into a diamond.

 

Both methods create diamonds indistinguishable from the natural kind, at least to the naked eye. The growing period ranges from weeks to months and the final product is cut and polished into a gemstone. The result is a diamond that is considerably cheaper than the natural stone. The downside is that it is not as rare or unique.

 

For several years, the average cost of an engagement ring with a natural diamond was between $3,200-$3,600. However, between inflation and consumer taste, diamonds are getting larger in size and cost. The average size of a natural diamond engagement ring today is just under 2 carats, 50 percent larger than before lab-grown stones came on the market. Today, the average natural diamond ring is now selling for $6,628.

 

It is one of the main reasons that the lab-grown variety has become so much more popular. The price differential between the two types of diamonds is substantial. Four years ago, the average lab-grown diamond was about 1.2 carats and cost $3,887. This year, the average size is about 1.9 carats, just like the natural diamond, but the average price has fallen by about 30 percent to $2,657. 

 

Many aging Americans still prefer natural diamonds while younger generations are drawn to the lab-grown market. As someone who grew up believing the long-lasting marketing campaign that "diamonds are forever," I still lean toward that market despite the price differential. But I also know that many younger consumers have no idea what that means. 

 

Times have changed in other ways as well. Younger American men are now going ring shopping with their fiancees rather than with a sister or female friend. It turns out that today's bride-to-be is much more frugal in selecting rings. She prefers to save money in that department and use the money elsewhere. 

 

A young friend of mine, for example, just announced his engagement last week. His bride-to-be went shopping with him to select the ring. She settled on a black diamond ring, which is quite dramatic and different. Most black diamonds are superheated or irradiated to an almost black color. These stones do exist in their natural state but are extremely rare.

 

Natural diamond U.S. salespeople also like to remind younger shoppers that lab-grown diamonds have no resale value because they are so cheap to manufacture. It is one reason why so many overseas consumers of engagement rings continue to stick with natural diamonds. But that does not seem to faze the young-and-in-love, here at home.

 

The prices of natural diamonds have fallen by 6.4 percent this year, while the world's largest diamond producer, De Beers, has had its worst year in 20 years. Lab-grown diamond sales hit $12 billion in 2023, and volumes are expected to double from 9 million carats to over 19 million carats by 2030. And prices will get even cheaper.

 

This week, to stem the slide in sales, Signet Jewelers, which owns Kay, Zales, and the Jared chains, have just launched a marketing campaign with De Beers dubbed "Worth the Wait" to promote natural diamonds as "the ultimate symbols of love." Whether that will work in a country where no one waits for anything and equating money with love is unpopular remains to be seen.

 

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.

There was a time when the upstart scruffy purveyors of cryptocurrencies were a mere stepchild of the financial community. Those days are gone as the crypto industry becomes a growing force in influencing election outcomes nationally.

 

In 2024, the crypto industry has accounted for about half of all corporate contributions to political action committees, according to consumer advocacy group, Public Citizen. The donations are being funneled into congressional candidates of both parties and the candidate for president who is deemed to be friendly to the cryptocurrency space.

 

That is a big leap from the historical practice of industries that side with one political party over another. Fairshake, the industry's dominant PAC, endorses candidates on both sides of the aisle and cares little for issues outside its sphere.

 

While many corporations are studiously avoiding this year's elections and keeping a low profile, blockchain companies have contributed 48 percent of the $250 million thus far in corporate donations on the federal level. And yet the crypto spending thus far has carefully avoided making crypto currencies an issue in the elections.

 

Instead, the spending has centered around rebuilding the sector's image after the black eye Sam Bankman-Fried gave crypto after the fall of his firm FTX. And that may prove to be an uphill battle. A recent Federal Reserve survey found that only 7 percent of Americans owned or used cryptocurrencies and yet 59 percent of them polled in swing states held a negative view of the currency.

 

The industry's goals are also a top priority of the spending. Unlike many industries that want less regulation from the government, the powers to be in crypto want the opposite. They want the passage of FIT21, a bill that establishes a framework that would switch the regulation of digital assets out from under Gary Gensler of the U.S. Securities and Exchange Commission to the Commodities Futures Trading Commissions.

 

Gensler, considered an enemy of the crypto community, was appointed by President Biden, and has often voiced his skepticism of crypto. One of the SEC's biggest targets was Coinbase, the largest crypto exchange, and Ripple, the company behind a stablecoin called XRP. As such, it is no wonder both firms have been leading the charge in the cryptos battle with regulators.

 

The crypto industry PACs are singling out those politicians who are anti-crypto and are actively running ads against their candidacy without mentioning crypto. For example, in Ohio, they are supporting Republican Bernie Moreno for the Senate to defeat Senator Sherrod Brown, the chairman of the Banking Committee who is a crypto critic.

 

The companies have made headway in their strategy. In July, Former President Donald Trump headlined a Bitcoin conference in Nashville where he endorsed cryptocurrencies and vowed to champion their cause. He said he wanted America to become the world's Bitcoin superpower and promised to fire Gensler on day one. A Trump PAC raised about $7.5 million in crypto donations since early June.

 

 Trump followed up his endorsement in September by unveiling a new cryptocurrency business, World Liberty Financial, with his children. This week his token sale for this new project had less than a stellar opening. Multiple and lengthy outages plagued the release all day Tuesday.

 

However, true to their goals crypto donations are also finding their way into Democrat campaign war chests. Ripple co-found Chris Larsen, for example, gave the Harris campaign $1.9 million. Others have contributed as well. It seems to be working. Recently, Vice President Kamala Harris announced she would back a crypto regulatory framework where investors would be protected.

 

Corporations are watching the crypto industries' battle to influence federal elections closely. Critics say it is a brazen attempt to force politicians to adopt a sector's chosen policies or say goodbye to their political chances. If it works, you can bet that others will begin to emulate similar strategies. 

 

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 the 1950s, nuclear was deemed the energy of the future. Unfortunately, the world's ardor for replacing fossil fuels with clean atomic energy hit a brick wall in the 1970s. It is only recently, after decades of false hopes, that we may be entering a new age of U.S. nuclear power.

 

Today, nuclear power represents no more than 20 percent of U.S. electricity, and that may be an overstatement. The industry's brick wall occurred in March 1979 at Three Mile Island in Middletown, Pa. A partial meltdown of its Unit 2 reactor released a small amount of radioactivity.

 

I remember it well. The leak resulted from equipment malfunctions, design-related problems, and worker errors. At first, no one knew the extent of the problem. Fears that we were facing a major nuclear disaster only 75 miles from Philadelphia swept the country. Despite the initial panic, the accident had no detectable health effects on plant workers or the public. It didn't matter. It set in motion a deep and long-lasting distrust of nuclear energy among the population.

 

The public's fears seemed justified when just seven years later, the Chernobyl disaster of April 1986 in northern Ukraine created the costliest nuclear disaster in history. It is estimated that the cost was more than $700 billion and caused the evacuation of 70,000 people.

 

In the mid-2000s, there was an effort to revive the industry. A flood of proposals to restart nuclear energy in the U.S. was short-lived. A combination of the fracking boom, which brought in quantities of cheap natural gas, and yet another nuclear disaster sidetracked that effort.

 

In 2011, an earthquake and tsunami sparked a nuclear disaster in Japan's Fukushima Daiichi nuclear plant. Three of the plant's six reactors sustained damage and released both hydrogen and radioactive materials. There were no deaths and no adverse effects among non-worker residents, but it is regarded as the worst nuclear incident since Chornobyl.

 

Construction of nuclear plants has been at a standstill in the U.S. for a generation until now aside from one huge project. The Southern Company's two new reactors in Georgia took two decades to complete and ran massively over budget.

 

What has changed? Electricity demand for one. U.S. electricity use is exploding after going nowhere for 15 years because of new factories, EVs, climate change, and Artificial Intelligence (AI).

 

The AI revolution, for example, is being created on the backs of countless data centers throughout the country. Those data centers require enormous amounts of electricity. The Energy Department projects that almost 25 gigawatts of new data center electricity demand will hit the grids within the next six years. 

 

The major players in AI see the obvious choice to supply that power as the construction of new nuclear facilities. This future demand would be the equivalent of the output of roughly 29 average nuclear power plants.

 

Their idea is to place as many new AI data centers near start-up nuclear plants as possible. That way it saves companies billions of dollars in grid upgrades such as new transmission lines, rerouting power lines, etc.

 

This month, Open AI pitched a plan to the White House to build multiple, 5-gigawatt data centers across the U.S. Each would require the equivalent of five nuclear plants to fuel those centers. The Biden Administration was receptive to the idea given that it had just finished closing on a loan to resurrect the decommissioned Palisades nuclear plant in Michigan. That project will take two years to reopen.

 

Microsoft and Constellation Energy also announced a $1.6 billion power purchase deal to restart the Three Mile Island plant in 2028. And 14 of the world's largest banking institutions pledged to support tripling global nuclear energy capacity by 2050.

 

While all the above is commendable and maybe even doable, the facts are that nuclear energy is expensive. It is both costly to build and to operate. It doesn't have to remain that way. Back in the 1950s and 1960s, construction costs were declining rapidly. The more we built, the more we learned. Production increased and costs went down.

 

After Three Mile Island, safety became the primary objective and of paramount importance. The public demanded it and the disasters at Chernobyl and Fukushima reinforced those demands. As such, new and stringent rules were applied to plant construction.

 

The Nuclear Regulatory Commission and the EPA  became far more concerned with the safety factors of the industry and much less about the economic viability of nuclear power generation. Regulations proliferated. Neither agency has any mandate to increase nuclear power generation, nor any goals based on its growth, nor do they benefit when power plants come online. The approval process now takes several years and costs hundreds of millions of dollars.

 

The Biden Administration is working on a plan to bring additional decommissioned nuclear power reactors back online. That is in addition to developing small modular reactors (SMRs) for certain applications and building advanced nuclear reactors.

 

The benefits of a revival of nuclear power generation are obvious. It is a scalable source of on-demand, emissions-free energy. It takes up little land, consumes a small amount of fuel, and produces little waste. It is a technology that could solve the world's need to beat back climate change and energy poverty. The question is will be willing to take the risk that future accidents in the industry are worth the benefits.

 

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 U.S. economy continues to grow, fueled by generous fiscal spending in an election year, robust corporate earnings, and a consumer willing to keep spending. The Federal Reserve Bank's loosening of monetary policy last month also promises to boost growth.

 

That dovetails with my expectations, at least in the short term. I expect economic growth will continue to show decent numbers when the third-quarter GDP data is released. At the same time, we should see additional modest progress in reducing inflation. September's CPI inflation data, however, could mark the low for this inflation cycle, in my opinion.

 

That is certainly not the consensus view. Wall Street is expecting the Federal Reserve to cut interest rates two more times this year and several more cuts next year. This week, Chairman Jerome Powell attempted to rein in some of those expectations in a speech before the National Association for Business Economics. He promised that the central bank would do whatever it takes to keep the economy in solid shape. However, he warned that markets should not automatically expect interest rate cuts at every Federal Open Market Committee meeting.

 

He said the committee will remain data-dependent and warned listeners that "this is not a committee that wants to cut rates quickly." My advice is to listen to the Fed. The risk I see is that we could see a bump in inflation beginning in the fourth quarter (probably December). I believe the Fed worries about that as well. They know that reducing interest rates is a risk, given the growth in the economy and the still-healthy wage level.

 

I have not mentioned the inflationary impact of the present stimulus efforts in China on materials and other commodities, the geopolitical risk of higher energy prices, nor the possibility of a long strike by union workers at the nation's ports on prices. The Fed, I believe, could be stuck between a rock (stubborn inflation) and a hard place ( avoiding further declines in employment).

 

At the same time, as I wrote in "My economic outlook for 2025" column last week  "I fear we could see declining economic growth — the result of the cumulative impact of the last two years of abnormally high interest rates. This lag effect will outweigh the Fed's interest rate cuts of September and maybe November. I am not predicting a recession, but only a slowdown, a "recalibration" to use the words of Fed Chairman Powell.

 

The plot thickens if you include the dollar and our national debt. A few weeks back (Aug. 29) I wrote a column "How the U.S. Can Manage Its Debt Load," in which I worried that at some point soon it would become necessary to do something about our rising debt load. Historically, the solution to that problem has always been to devalue the dollar. But we would pay the price for that action.

 

A weakening currency is inflationary. The dollar has already dropped 5 percent in as many months and currency traders expect this decline has only begun. It is, in my opinion, just a matter of time (possibly after the November elections), before the world and investors catch on that a devaluation of the dollar is a real possibility. 

 

If I am right, a combination of a declining currency, slowing growth, stubborn inflation, and the onset of easing monetary policy, would spark worries among economists and investors alike over the "S" word — stagflation. Stagflation is an economic situation where increasing inflation, rising unemployment and slower economic growth occur simultaneously. But just imagine how the market would react if inflation indicators like the CPI and PPI see upticks toward the end of the year, while jobs continue to fall.

 

It is not certain, and I know it is not conventional wisdom but that is what concerns me.  And no, I am not expecting a 1970s type of stagflation, but something much more mild.

 

I am not alone in my fears. Jame Dimon, the CEO of JP Morgan, is a man I respect and have followed for decades. He has been sounding the alarm over bullish economic expectations and remains highly critical of the Fed's restrictive policies, which he feels went on for far too long. As for the taming of inflation, as recently as last Friday, he said "I am a little more skeptical than other people. I give it lower odds."

 

So do I.

 

 As such, I looked at what areas do better in such an environment. Assets considered dollar equivalents like gold and silver and other precious metals do well. Some other commodities like copper outperform, as well as emerging markets and Bitcoin.

 

 In the equity arena, utilities, technology, energy, industrials, and consumer discretionary are standouts while financials, telecom, and consumer staples don't do nearly as well.

 

Investment styles such as secular growth, momentum, mid-cap stocks, low beta, and quality outperform, while small caps, dividend plays, value, and defensives underperform. Some fixed-income areas like Municipal bonds, long-dated bonds, and TIPS shine, but stay away from categories like preferred, convertible bonds, high-yield credit, and leveraged loans.

 

Predicting what the economy and inflation will do every year is difficult at best. Trying to call a change as early as December is not for the faint of heart. Right now, Wall Street is so focused on expectations of a steady stream of expected rate cuts and the outcome of the presidential elections that what happens in December seems a long, long way.

 

How long will the economy remain in this mild state of stagflation? Unless the demands of populism are somehow resolved quickly, the future economic environment might indicate more of the same.

 

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.

On the back of last week's half-point cut in interest rates by the Federal Reserve Bank, equities and many commodities rallied anticipating continued growth in the U.S. economy. Why, therefore, did bond prices plunge?

 

Normally, after the Federal Reserve Bank begins an interest rate-cutting cycle, bond prices rally, and yields fall. But not this time. Economists were scratching their heads all week looking for answers. The explanation is straightforward.

 

For weeks before the meeting, many traders were betting that the Fed would be too slow to cut interest rates. And when and if they did it would be a small cut. That delay increased the probability that the economy would dip into recession quite soon. As such, investors bought bonds, the go-to safety trade in anticipation of a hard landing. That had sent bond yields down dramatically.

 

The Fed's larger-than-expected 50 basis point cut surprised traders and reversed that trade. Suddenly, the possibility of a softer landing for the economy has been vastly improved, especially after the Fed clarified that it was ready to match that cut in November if necessary. Buy equities and sell bonds was the new order of the day.

 

Chairman Jerome Powell acknowledged that the Fed's focus has shifted from the inflation numbers to the health of the labor market and the economy. He went to great pains to convince market participants in his Q&A session after the meeting that the economy was still strong, the inflation battle was all but over, and just about everyone was going to live happily ever after.

 

That may be so, but I have a different take on the Fed's actions. We are in an election year. Workers are voters and losing your job can sour one's outlook when deciding which lever to pull in November. Those in government are keenly aware of this. If given a choice between employment or inflation, what would you choose if you were the Fed?

 

The market's reaction to the news is understandable but remember it will be at least two years before the impact of this week's interest rate cut has an impact on the overall economy. Sure, some areas might see a boost sooner but not much. In the meantime, what happens to the economy?

 

The equity market and most advisors will tell you it is up, up, and away. And they are right, at least in the short term. I expect economic growth to continue to show decent numbers and would not be surprised to see a better-than-expected growth rate for the third quarter of this year. I also expect to see additional modest progress in reducing inflation. September and October's inflation numbers, I believe will show a  cooler Consumer Price Index, Producer Price Index, and the Fed's favored index, the Personal Consumption Expenditures Index. That should bolster the Fed's confidence that they have inflation licked.

 

By December, however, I am concerned that things may change. I fear we could see declining economic growth. It will be the result of the cumulative impact of the last two years of abnormally high interest rates.  This lag effect will outweigh the interest rate cuts of September and maybe November.

 

I am not predicting a recession, but only a slowdown, a "recalibration" to use the words of Fed Chairman Powell. Wall Street's interpretation of the Fed's new recalibration policy amounts to lowering interest rates quickly (faster for shorter). If so, it will lessen the blow to growth and ease us into a soft landing. But a soft landing would still be a period of slower growth.

 

At the same time, while the rate of inflation is falling, inflation is still rising, just at a lower and slower rate. And in the background, while inflation still lingers, we have an enormous budget deficit and rising debt load that is now taking more than $1 trillion a year to service. If we add on the stated intentions of both presidential candidates to increase spending by many trillions of dollars over the next four years, we have the makings of both a rekindling of inflation and a coming debt crisis.

 

Next week, we will examine what this could mean for the economy, inflation, the dollar, and the stock market.

 

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.