New highs continue as equities ignore the inflation data and focus instead on the prospects of the next administration. Wall Street consensus is that the upside in stocks should continue at least until the new year.

 

As a contrarian investor, I often disagree with the consensus view but not this time. Last week I explained how global money flows usually support the markets and create the Santa Claus rally. This period of good cheer and higher prices should extend into mid-January.

 

This week, the most recent data on inflation confirmed my fears that we have not seen a bottom in inflation. Back in September, I predicted that inflation would begin to rise again, and it has. The Consumer Price Index (CPI) gained 0.3 percent for November and 2.7 percent compared to last year. The Producer Price Index (PPI) rose 0.4 percent, up from gains in both October and September.

 

Wall Street economists pointed out that if you exclude food and energy, the PPI was almost in line with expectations, but it was still an increase. Sometimes I think the Fed, financial analysts, and economists live in another world.

 

Why they exclude two of the most vital elements for Americans — food and energy — in calculating the inflation rate is beyond me. One PPI category finished consumer food, which is processed food ready to be sold to consumers, was up 31 percent! Of course, they will say those categories fluctuate too much to be proper indicators.

 

Tell that to those who need to fill up at the pump to get to work. Tell that to Joe Biden and Kamala Harris who lost the election because the progress on inflation they touted was nowhere to be seen in the grocery aisles. If tariffs under the new administration raise food prices further, there will be hell to pay.

 

In the meantime, I expect we will see even higher inflation in the data for December and into January. You would think that with this backup in the inflation numbers, the Federal Reserve Bank might at least pause cutting interest rates at their meeting next week on Dec. 18. However, that doesn't seem likely. The bond market is betting (with a 95 percent probability) that the Fed will cut interest rates again by one-quarter of a point.

 

It was why stocks continued to climb this week despite the inflation numbers. The NASDAQ composite had its first-ever close above 20,000. The S&P 500 Index is only a few points away from 6,100, which would be another all-time high for that index. It seems clear to me that investors are counting on both the Fed and Donald Trump to support the stock markets in the coming months.

 

At this point, most traders believe the Fed while cutting rates in December will then stay on hold until at least March. Traders are also counting on the "Trump Put" to support stocks. Since Donald Trump is known to use the stock market as the leading indicator of his progress, he will do whatever it takes to keep the market supported and on an upward trajectory. That remains to be seen. It indicates to me how giddy the markets have become since the election.

 

One variable I follow is the NFIB Small Business Survey. Small businesses represent 99.9 percent of all U.S. businesses. These small firms employ over 46 percent of all private sector workers and contribute 43 percent to Gross Domestic Product. The index gives me a good read on the economy overall.

 

Last month, the NFIB index jumped 8 points to 101.7. That is the highest level it has reached in almost five years. Prior to last month, the index had remained below its 50-year average of 98 for 34 months. At the same time, the uncertainty index which hit an -all-time high of 110 in October, fell by 12 points after the election. It gets better.

 

The net percentage of businesses expecting higher sales volumes rose by 18 points, its highest level since February 2020. Critics might argue that it is just one data point and not a trend. That is true, but the same thing happened after Trump was elected for his first term. Small business sentiment spiked higher after the 2016 election and continued to increase for two more years.

 

One troubling indication of the market's health is breadth, which is the number of stocks going up versus those going down. In December thus far breadth has been falling and getting worse. In November the rally in stocks had broadened out as financials, consumer discretionary, and industrials as well as small caps joined the bull market. That was a good sign.

 

Since then, seven sectors have fallen, and the equal-weighted S&P 500 has fallen sharply this month.

 

As readers know, the performance of the benchmark S&P 500 Index is largely dependent on the heavy weighting of a handful of large-cap mega stocks (FANG & AI). If this trend continues, it means that as we move closer to Christmas the market's gains become more precarious as fewer and fewer stocks participate.

 

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.

Mercantilism is often associated with Donald Trump's economic policies. Can reaching back into the past truly make America great again? That is up for debate.

 

For those few of us familiar with the term, mercantilism was the dominant economic system in Europe from the 16th to the 18th centuries. It was a world where it was believed that global wealth was fixed and finite. To become powerful, a nation needed to acquire as much wealth as possible. Back then, a nation's wealth was measured by how much gold and silver it accumulated.

 

If this period evokes visions of tall ships, the Spanish Main, and epic exchanges of cannon fire between Spanish galleys and English Sea Hawks, you wouldn't be far wrong. All nations strove to maximize their wealth by exporting more goods than they imported by any means possible. Those that could plundered far-flung lesser more undeveloped nations and carried back sugar, timber, cotton, cocoa, gold, minerals, and more.

 

It was a period where many European countries raced and fought to establish colonies. The extraction of raw materials fed a rapidly growing manufacturing system at home. The end products were then sold back to the colonies in exchange for precious metals and more commodities.

 

This resulted in a favorable trade balance under strict governmental control where sea-faring nations established protectionist policies such as tariffs, navigation acts, and quotas that limited imports while promoting domestic industries. It was a beggar-thy-neighbor approach to economic development. Exploiting others led to power at home, vast piles of gold and silver, continuous conflict among rival nations, and ultimately revolutions among colonies.    

 

Now that we have established the concept, fast forward to today. Is Trump truly a mercantilist in the traditional sense? Let's look at the tariff issue that occupies center stage and worries many economists. Trump argues that for decades various countries have taken advantage of America's goodwill in many areas from defense spending to trade balances. He has singled out China, Mexico, Canada, Japan, Germany, and others as targets of his tariff initiatives.

 

There is no question that these countries have been running sizable bilateral current account surpluses with the U.S. for decades. Many of his critics forget that Trump is certainly not the first president to have complained about this situation. In the 1960s, 1970s, and 1980s, Richard Nixon, Ronald Reagan, and John F. Kennedy were just a few of our leaders who attempted but failed to balance the terms of trade between us and other nations.

 

Given this background, one could argue that enough is enough and Trump's approach is long overdue. The question is whether it works in a mercantilist world where our trading partners can levy tariffs in response. Critics argue that a tit-for-tat response will only send global trade downward and the U.S. economy along with it.

 

That could happen but it is far more likely that our partners will settle for buying more of our imports and selling us less of their exports in exchange for a tariff break. It happened in round one of the Trump administration and could happen again. Next week, I look at how Trump's brand of mercantilism is far different than what came before him.

 

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.

Each year from roughly the end of the second week of December through the second week in January the stock market rises most of the time. This year, expect a similar occurrence.

 

There are plenty of explanations for why this occurs. Many believe it is simply the good cheer the holidays bring to the markets. Others point to the additional spending triggered by holiday shopping, while some argue it is because institutional investors buy stocks before going on their Christmas break. 

 

For me, it comes down to the flow of funds in and out of financial markets. Every year, for many reasons the flow of funds into the financial markets increases at the end and the beginning of each year, especially when the stock market delivers outsized gains like they have this year.

 

Think about it. Money managers saw gains of 20 percent-25 percent in 2024 in equity markets worldwide worth roughly $100 trillion or more. That means that there is now another $25 trillion-plus in gains that are available for investment. Where does that money go?

 

Unless you and everyone else cash in all your chips and put them under your pillow, you would expect your investment adviser to reinvest that money into the stock market. If, as many believe, the future looks rosy, at least in the U.S., managers would like to put that money to work sooner rather than later.

 

But that is just the beginning. In December and January, the lion's share of bonuses are paid to employees worldwide. Most of that money will go straight into bank accounts, savings accounts, investment accounts, etc. That flow of funds will also find its way into financial markets.

 

Then, there are those contributions to all those tax-deferred accounts: (401)Ks, 403(B)s, IRAs — held by 50 percent of the American workforce. Much of these money flows hit the financial markets in the next month or so.

 

Many other pools of capital that are a bit more exotic also expire at the end of the year and begin again in January. These instruments like structured products, equity derivatives, yearly, long-dated options expirations, credit spreads and more have one thing in common — leverage. Every year, you take your winnings from last year, borrow money against them, and buy even more of whatever instrument you decide will make the most profits. This creates even greater flows of capital.

 

In a matter of weeks, this river of electronic capital flows into the financial system and washes up on the shores of various markets. A large portion will end up in the stock market. These flows should continue until the middle of January before ebbing once again.

 

This does not happen every year, but since 1950 December has been an up year 74 percent of the time as measured by the S&P 500 Index. That number climbs to 83 percent (in election years 100 percent) when the S&P 500 Index is up more than 10 percent in the first half. Many simply chalk the gains up to "seasonality" without recognizing the powerful underlying currents that create this holiday phenomenon.

 

In any case, last week the S&P 500 tacked on another 50 points reaching the 6,100 level. Bitcoin finally passed the $100,000 mark before backsliding. And November's non-farm payrolls bounced back from a flood and strike-depressed performance in October.

 

This coming week all eyes will be on the last Consumer Price Index data before the Fed's Dec.18 meeting. I expect a hotter number which may (or may not) convince the Fed to pause before cutting interest rates again. I believe it won't matter in the broader context of money flows to a market that seems destined to continue to climb.

 

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.

More than 40 percent of Americans are now classified as obese while 75 percent of adults are either overweight or obese. A new group of drugs called GLP-1 receptor agonists have come on the scene to help in the battle to lose weight. Are they as good as we think?

 

You may have heard about them or some of their brand names like Zepbound, Wegovy, and Ozempic. The use of these drugs has exploded in popularity to the point where companies like Lilly and Novo Nordisk have had problems keeping up with demand. 

 

There is nothing magical about the science behind these drugs. GLP-1 mimics a protein naturally produced by our small intestines. The receptors for these medicines are located across the body. They help us lose weight because receptors in the gastrointestinal tract slow down and send signals to the brain that give us a sense of feeling full.

 

There are some side effects but nothing too serious for most patients. We are still learning how these medications impact the body. They are currently approved for treating diabetes, obesity, and those with a history of cardiovascular disease in people who are overweight. There are a few drawbacks to these drugs at present.

 

Typically, GLP-1 agonists are administered as injections in the abdomen, upper arms, outer thighs, or upper buttocks via a syringe and needle or a pre-filled dosing pen. The shots are generally taken once a day or once a week.

 

For many, this is a big turn-off. Fortunately, you will be able to take tablets soon. The typical weight loss is from 5-15 percent of body weight over at least 12 months. But GLP-1 is no quick fix. Like exercise, you must stick with it. If you stop taking it, most people regain the weight they lost. And you can't expect to magically lose weight while you continue to eat all that junk food you get.

 

The second drawback is the expense. These medications' list price is around $1,000 to $1,400 a month. Without insurance, we are talking $12,000-plus per year for these drugs. Many insurance plans cover some portion of GLP-1 costs, but the extent of coverage can vary significantly. 

 

You probably are wondering whether Medicare covers GLP-1 medications. They do for certain medically accepted indications such as heart attack or cardiovascular disease but not for weight management. To qualify, you must have a BMI of 30 or higher, or 27 or higher with comorbidities like high blood pressure, high cholesterol, or type 2 diabetes. They are currently covered through Part D plans.

 

Coinsurance amounts are pegged to the list price of drugs. As such, Medicare beneficiaries who qualify could still face monthly costs of $250 to $430 before they reach the annual out-of-pocket drug spending established by the Inflation Reduction Act (IRA). The IRA  cap for out-of-pocket expenses was around $3,300 in 2024 and will be $2,000 in 2025. Most retirees living on modest incomes would still find the cost of GLP-1 prohibitive.

 

In November 2024, the Biden administration proposed that Medicare and Medicaid cover obesity medications. In doing so, they sidestepped a 20-year-old piece of legislation that prevented Medicare from covering drugs for "weight loss." The new proposal specifies that the drugs would be covered to treat the disease of obesity and prevent related conditions. Those conditions are serious and include diabetes, high blood pressure, cardiovascular disease, sleep apnea, fatty liver disease, and arthritis.

 

The classification would also mean that every state Medicaid program would be required to cover the drugs starting in 2026. Between the two programs, an additional 7.4 million Americans would gain coverage. The price tag would be high, at least $36 billion over a decade. However, there are more obesity drugs in the pipeline and prices should fall as competition heats up. Starting in 2025, Medicare will also be able to negotiate a lower price for Wegovy as well as many other popular drugs. 

 

As for the future, the costs and usage of GLP-1 medications could change significantly under the second Trump administration. An entirely new team of individuals, including a retired congressman, a surgeon, and a talk-show host could play pivotal roles in how the government goes about safeguarding America's health.

 

Under Robert F. Kennedy Jr., an environmental lawyer, politician, and anti-vaccine organizer, we can expect radically different views and actions in health care, medicine, food safety, and science research. Early indications are that Kennedy, who has been picked to run the Department of Health and Human Services, is not a big fan of Ozempic. He does not believe that using popular GLP-1 drugs is ever going to make America healthy again. His remedy would be to provide good food to Americans. He believes that providing three nutritious meals a day to all Americans would solve obesity and diabetes overnight. 

 

The problem is that for many Americans the admonition to change your diet, eat less, and exercise more has failed to dent the problem. Why not give the country an avenue that shows a much better chance of success over the long term?

 

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

Scott Bessant at Treasury, threats of day-one tariffs on trading partners, and calls for another end-of-year rally buoyed markets. It is a seasonally bullish time for the equity markets with Christmas around the corner.

 

By now, you have probably heard that hedge fund manager Bessant will take the reins at the U.S. Treasury in January. Markets cheered that news. Most market participants believe Bessant is the man best suited for that post. Investors hope he will be market-friendly and a voice of moderation in the new Trump administration.

 

But before Bessant or anyone else gets carried away with the idea that Trump has lost that loving feeling he has for tariff diplomacy, think again. The president-to-be fired a broadside at China, Mexico, and Canada on Monday threatening 25 percent on all products from Mexico and Canada as one of his first executive orders. That is a big deal since exports to the U.S. account for 27 percent of Mexico's economy and 21 percent of Canada's.

 

And just for good measure, he will slap an additional 10 percent tariff on Chinese goods above any additional tariffs he puts in place. I found it interesting that he seemed to go easy on America's number one bashing boy, Xi Jinping, in his broadside. There are rumors that negotiations over tariffs and other issues are already underway with China. If so, I suspect it would be at the urging of  Trump's unofficial everything buddy, Elon Musk. 

 

Musk's EV company, Tesla, has its largest and most productive factory in China and would lose big time if relations go any further south between the two countries.

 

As for Mexico and Canada, Trump's threats were not just about economics. He is promising new tariffs on both nations unless they curb the flow of illegal drugs into the U.S., especially fentanyl. China is the main producer of fentanyl, while America's closest trading partners, Canada and Mexico, have become major conduits for the distribution of this drug into the U.S. He also insists that illegal immigrants are turned back before crossing our borders.

 

Two days later, after a conversation with the new Mexican President, Claudio Sheinbaum Pardo, which Trump described as a "very productive conversation," the problem was solved. "She has agreed to stop Migration through Mexico, and in the United States, effectively closing our Southern border," wrote Trump in a social media post. They also discussed illegal drugs as well. We await the response from Canada.

 

If these announcements evoke a certain amount of deja vu among readers, get used to it. In the Trump 1.0 version, the markets were treated to a daily diet of new tariffs, restrictions, exemptions, threats, bluster, temper tantrums, etc. Trump 2.0 should be even more entertaining. Trump will be Trump, that's for sure.

 

This latest tariff announcement had Wall Street, the media, as well as economists throughout the globe, immediately singing from their same old song sheet: higher inflation and slower growth. The first reaction to the news was a drop of more than 2.3 percent by the Mexican peso against the dollar. The Canadian dollar dropped by 1.4 percent. Since Trump's election, the peso year-to-date has fallen more than 4 percent and the Canadian dollar almost 3 percent. How does that goose inflation? It doesn't.

 

Think about it. If a country's currency adjusts downward to offset a tariff increase (as most of the world's currencies are attempting to do this year against the dollar), there are no meaningful inflation consequences at the macroeconomic level. If the price of a Mexican imported T-shirt at Walmart drops 10 percent because the peso is cheaper against the dollar, a 10 percent tariff on that T-shirt ends up at the same price to holders of dollars.

 

Of course, I am describing a perfect economic world. Real-life tariffs, currency devaluations, and their impact on imported goods and products could spell inflation in some areas and deflation in others.

 

Tariff threats are one of the main reasons why the U.S. dollar keeps rising. It is part and parcel of what happens on the economic front in an era of populism. Tariffs make other countries poorer and ours richer. It is how to make America great again, or at least wealthier, through a beggar-thy-neighbor mercantilist approach. 

 

The problem, however, is that over the last eight years, many of our trading partners have also been swept up in populist movements. Foreign voters have created their versions of MAGA and will not take our new government's threats lying down. Tariffs levied by us will immediately be met by tariffs by them.

 

There is no right and wrong in Trump's approach, especially when you consider the number of deaths (75,000 deaths per year) due to fentanyl in the nation. Our drug policies to date have failed to stem the rise of this drug addiction or convince foreign exporters to find another market for their product.

 

The same could be said for stemming the flow of illegal immigrants. Democrats, Republicans, and independents alike have decided that illegal immigration is one of their top grievances. As such, this populist generation says that doing something is a far sight better than wringing hands while hoping that the bankrupt policies of the past will somehow begin to magically work. For better or worse, we as a nation are past that.

 

Hitting countries where it hurts (in their pocketbooks) is not a new approach. It is quite old. History will tell you it was the economic name of the game in Western Europe from the 16th to the 18th centuries. It is called mercantilism. Mercantilist policies included tariffs, subsidies, import quotas, and restrictions on foreign labor. They were designed to accumulate wealth, protect domestic industries, maintain employment, and bolster state power. At the time, it increased conflict among nations. Sound familiar?

 

As for the markets, most participants were unfazed by the tariff threats. During Trump's first term, those statements would send markets into a swoon. But stocks stayed firm and traders focused on other things. After the first four years, we have been there and done that.

 

We enter December at record highs. We could see a minor decline over the next week or two. It would be just profit-taking and a chance to buy the dip.  At that point I expect the year-end rally to take over into January.