Tariff fears, inflation worries, and now, an economic growth scare, have conspired to sour moods in the markets. The Trump trade has all but disappeared and in its place, investors are looking for defensive areas to protect capital.

 

Uncertainty is the bane of any market's existence and right now that element is in abundance. This week we have seen concerns over inflation take a back seat to an even greater worry—a slowing economy. It began with last week's retail sales number. The data was weaker than many expected as consumers pulled back on their discretionary spending.

 

That could have been explained away as simply a bout of buying fatigue after the strong holiday season, which is normal. However, the flash Services Purchasing Managers Index, which tracks business activity in the service sector, also showed slower growth.

 

Coupled with those signs, as I mentioned last week, Walmart issued a cautious outlook for the rest of the year based on fears of a fall in purchasing power among lower-income consumers. Data released on Friday showed that consumers slashed their spending by the most since 2021 even as their income rose.

 

In addition, we have seen consumer confidence numbers and inflation expectations rise in the most recent consumer surveys. On Thursday, the government announced that the real Gross Domestic Product slowed to 2.5 percent in the final quarter of the year versus a 2.7 percent growth rate in the third quarter of 2024. It also showed weaker real spending growth relative to the third quarter.

 

Weekly initial jobless claims on Thursday jumped to 242,000, above expectations of 221,000 and up from last week's 220,000. Just think what will happen to jobless claims when the firing among federal workers starts to show up in the data. Pending U.S. home sales also slid to an all-time low in January as high mortgage rates, record-high home prices, and terrible weather kept home buyers away.

 

The Personal Consumer Expenditures Price Index (PCE), the Fed's leading inflation marker, came in as expected at 2.6 percent in January and was a 0.3 percent increase over December. That was no surprise to me.

 

I have been writing for months that we would see a back-up in inflation. I also warned that the economy would begin to experience a slowdown about now. The two together would create a somewhat mild stagflation-type environment. So now that we have achieved that state of affairs, what's next?

 

I expect the economy to continue to weaken and unemployment to rise somewhat in the coming quarter thanks to expected government actions on the spending, employment, immigration, and tariff fronts. There may even be a recession by the end of the second quarter or the beginning of the third quarter.

 

That potential outcome will depend on how deeply the Trump administration pursues its present policies.  However, I also see inflation falling simultaneously for the same reasons. As a result, chatter of a rate cut or two by the Fed will be back on the table for this year, which could support markets.

 

On tariffs, the president insists that the 25 percent tariffs on Canada and Mexico are on track to begin on March 4. An additional 10 percent tax on Chinese imports (bringing the total to 20 percent) will also be imposed. He also stated that the April 2 launch of reciprocal tariffs will remain in "full force and effect."  None of those statements improved investor sentiment as we closed out the week.

 

To add insult to injury, Nvidia, the AI semiconductor leader's fourth-quarter earnings results did not help either. While earnings, sales, and guidance were all good, the company's stock still fell as many investors believe that 'the bloom is off the rose' at least temporarily in the AI trade. At the same time, another of Wall Street's darlings, Tesla, the EV maker, has given up almost all of its Trump election gains. The slowdown in sales and Elon Musk's political involvement has driven the stock down 40 percent.

 

The risk-off mood has seeped into most other areas of the market. Gold and precious metals as well as bitcoin and other cryptos have fallen along with stocks. Technology shares continue to decline, and more and more analysts are expressing caution overall when it comes to the market.

 

Investor sentiment is negative wherever you look. The CNN Fear &  Greed Index is registering "extreme fear." The American Association of Individual Investors survey (AAII) had its lowest reading of bulls since March of 2023, while bearish sentiment is up over 60 percent. "In the entire history of the AAII sentiment survey, there have only been six other weeks when bearish sentiment was higher," according to Bespoke Investment Group.

 

My view is that the S&P 500 Index to date, is off by just a few percent from the all-time highs made less than two weeks ago. March is a traditionally tough month in the markets and while I see this pullback as a much-needed pause, the jury is out on how much lower we can go. Could we see further declines, say 8-10 percent overall in the month ahead? That determination is in the hands of one single individual, Donald Trump.    

 

 

They love their country. As such, it is no surprise that many veterans would want to continue to serve their nation after discharge. It is why so many vets apply to work for the federal government. That partnership seemed to work out for both parties—until recently.

 

For those of us who have served in the military, we have done so out of love for our country. When it called, we stepped up. In exchange, we learned a lot of good things in the armed services. For me the list is long. Leadership, teamwork, a strong work ethic, the ability to handle stressful situations, self-direction, and motivation come to mind. I am sure I have missed some.

 

These attributes make vets an incredible asset in the workplace; something long recognized by the government. Working for the government was a marriage made in heaven for many vets. Many veterans viewed working for the government as a way of extending that sense of purpose and belonging they found in the military. Not only could they continue serving their nation, but they could also help their peers outside of active duty. 

 

In addition, the federal government, recognizing their value, offers a "veterans' preference" which puts vets at the front of the line when choosing qualified candidates for employment. The Veterans' Preference Act was established in 1944. It entitled veterans who were disabled and/or served on active-duty preference for virtually all government jobs.

 

The trend was self-reinforcing. The more veterans that worked for the government, the more the atmosphere of camaraderie and understanding among co-workers deepened. Another attraction is the government's generous retirement benefits that allow a vet's years of military service to count toward their federal pension.

 

Given this background, it should be no surprise that veterans made up 28 percent of the federal workforce in 2024, compared to 5% in the private sector, according to the U.S. Office of Personal Management (OMB).  Of that number, more than 200,000 vets are disabled or have a serious health condition.

 

Unfortunately, the Department of Government Efficiency (DOGE) has failed to account for veterans in its campaign to reduce the federal government workforce. What is worse,  veterans are spread out throughout various government departments, which makes downsizing even more dicey for this group.

 

Military veterans have tended to affiliate with the Republican Party and its candidates historically. About six in ten registered voters (61 percent) who say they have served in the military or military reserves supported President Trump in the 2024 presidential election, according to the Pew Research Center. In the past, President Trump has favored veterans on various occasions including improving VA healthcare, education benefits, and reducing homelessness among vets, but not this time. 

 

Many Republican legislators, while publicly cheering the administration's push to cut federal government workers and services are privately attempting to backchannel the powers to be on behalf of veterans. They are not only concerned that the dismissal of military veterans will alienate their base but are also concerned that many federal services that veterans depend upon,  like the Veterans Administration, could be cut back as well. That is already starting to happen.

 

The federal government has dismissed 1,400 VA probationary employees this month although a few senators have succeeded in getting the Trump administration to reinstate some fired employees. 

 

The new Secretary of the Department of Veteran Affairs, Doug Collins, a career politician, who once served a brief stint as chaplain in the U.S. Air Force Reserve, crowed on the DOGE social media conduit, X,  that he has found $2 billion in savings thus far by axing outside contractors who do things like train and coach vets seeking jobs in the private sector. He promises even more cuts in the future. Collins also urged viewers not to let senators, congressmen, and the media scare us into stopping his downsizing efforts.

 

I come down on the opposite side of his argument. Finding and keeping a job is crucial to many veterans transitioning into civilian life. Reconnecting with society through jobs is particularly important during this period. As it is, veterans face higher unemployment rates and poverty levels than non-veterans, making employment even more vital for their economic well-being. Doubly so, for those who are handicapped. The VA is an important backstop in these efforts as well.

 

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.

Gold continues to make new highs. Soft commodities and materials climb a wall of worry and foreign equities rise from the dead. It is all part of a market mindset that a tariff war is right around the corner.

 

As April draws near, President Trump continues to reiterate that he is planning to levy tariffs on America's trading partners. Investors are worried. Given Trump's predilection toward hyperbole, the markets are unsure whether to take his statements at face value. He has used threats to get what he wants on so many occasions that April could come and go without any tariffs at all. What to do?

 

The move higher in some commodities is largely a tariff hedge that the president isn't bluffing this time. Tariffs would make the price of materials, food, and other goods rise here and abroad. Many companies during this week's earnings results warned that tariffs, if levied, would hurt profit growth. The mega-retailer, Walmart, although announcing strong corporate sales and profits on Thursday, sounded the same word of caution. They gave a downbeat outlook for the remainder of 2025 if tariffs are levied.

 

More than ever, investors are rushing into precious metals as a haven. Gold and silver have been rising for months as individuals, institutions, and central banks buy every pullback. Back in September 2024, I advised readers to buy any dips in precious metals ("Precious metals normally fall in September"). Over the last 14 months, gold prices are up 50 percent with gold's market cap now at $20 trillion.

 

This week, geopolitical tensions have risen (not fallen) as American envoys met with Russian representatives in the first of a series of peace talks. The three-year war of attrition was upended this week when the president seemingly switched sides in the ongoing conflict. 

 

Investors fear that any peace treaty would be short-lived if America abandons support for Ukraine. The possibility of a wider future war in Europe with nuclear implications, absent any U.S. influence, has markets on edge. After all, radioactive fallout knows no boundaries.  However, many American voters and much of the media they follow have been cheered by Trump's initiative and willingness to end the conflict quickly regardless of future consequences.

 

While this has created shockwaves among some, especially among our European allies, it is no surprise to me given what I know of populist movements throughout U.S. history. Authoritarian leaders are springing up throughout the world. Those same trends are rising to the surface in political elections throughout Europe In the case of the European Union,  it remains to be seen how this conflicted group of nations will respond to the administration's overtures to Russia.

 

In the meantime, switching gears to the world's second-largest economy, China, the news is better than good. On May 7, 2024, I wrote, "The Chinese Market is on a tear," pointing out that Chinese equities were cheap. Monetary and fiscal stimulus by the government was and is ongoing. Despite American investor's "uninvestible" attitude, I liked what I saw. I even posited the notion that Trump, if elected, was the ideal person to make nice with the Chinese. After all, it was his first term's tariff war that started the Chinese bashing in the first place.

 

In January of this year, in "Trump and the China Trade" I advised readers that China could be the ultimate Trump Trade. Fast forward to today and what have we discovered? On Thursday, a Bloomberg headline stated that "Trump says new China trade deal is possible despite tensions."

 

This week, the  'uninvestible' crowd — Morgan Stanley, Goldman Sachs, JPMorgan Chase & Co., and UBS Group AG — turned bullish on China and its stock market. Of course, the stock market is up 20 percent from my January column but better late than never, I guess.

 

Over the past 10 days, the S&P 500 Index has seen multiple intra-day pullbacks in which traders bought the dip seven times. At the end of the week, the S&P 500 gave way to the uncertainty that seems to be around every corner. I have seen this playbook before. Don't fall victim to the "what ifs." Continue to buy the dips.

 

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.

At last count, the federal government owns 28 percent of the total land in the U.S., and under the surface of that real estate lies a wealth of oil, gas, and coal. Does selling off federal assets make sense in this era of downsizing government?

 

President Donald Trump plans to shrink the federal government through firing, hiring freezes, and layoffs. The only personnel spared are those in military enforcement, national security, and public safety. Everything else is fair game.

 

Earlier this month, regional managers at the General Services Administration (GSA) received memos from headquarters directing them to terminate the leases on approximately 7,500 federal offices across the nation. By doing so, the goal is to save upwards of $100 billion. This could be just the first step in a wider effort to raise additional capital through asset sales.

 

In the president's first term, Trump, the real estate mogul, once suggested that we sell off some of our U.S. assets and pay down part of the debt with the proceeds. He was specifically speaking about energy assets, but the U.S. also owns roads, railroads, infrastructure, levees, dams and hydroelectric facilities among other assets, such as the rights to mineral and energy leases from which the government receives royalties, rents, and bonus payments.

 

No one really knows how much these assets are worth but from time to time some organizations have taken a stab at valuation. In 2013, the Institute for Energy Research estimated the value of federal land and energy resources at around $200 trillion. That is a good round number that would more than solve our debt problem — if only it were true.

 

The problem is that the IER study used gross resource values. They assumed oil was worth $100 a barrel but ignored the cost of finding, extracting, and transporting oil to a refinery. If all those above costs were subtracted, the government's share came to about $9 a barrel. That is not counting the fact that 80 percent of the government's oil is in shale, which is the most expensive to extract.

 

Our coal resources are another good example. Federal coal reserves in the contiguous 48 states represent 1,300 years of American coal consumption. How much will companies be willing to pay for any part of that supply when the U.S. industry is moving away from coal as a source of energy?

 

In 2015, the Bureau of Economic Analysis estimated that the 464 million acres of land the government owned in the contiguous 48 states was worth an average of $4,100 per acre. That amounts to $1.8 trillion. The problem here is that about one-third of that acreage is national parks, wilderness areas, and wildlife refuges. Selling off those areas would be a political hot potato, even for Republicans. Millions of other acreages are either alpine or desert tundra.

 

Other uses like timberlands are not fetching anywhere close to the average acre price nor is agricultural land used for grazing cattle and other domestic livestock. The U.S. has 1.1 billion acres of prime private land but only uses 350 million acres to grow all the food we can eat, feed our livestock, export food, and grow corn for ethanol. 

 

The most likely use of some of the land could be for low-cost housing or second homes. That would be problematic since most of the government-owned land is in Alaska and in western states where demand for housing is far less than in other regions where the population is far greater. 

 

All in all, while an intriguing idea, selling off our energy and land assets would probably not make much of a dent in our $36.22 trillion debt. The few organizations that have estimates of asset sales over the last 5-10 years believe land and energy rights would fetch no more than $2 trillion to $4 trillion. Even if we double that total, selling these assets doesn't seem to be worth the effort involved when the real problem is overspending.

 

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.

For the fourth straight month, the Consumer Price Index registered higher inflation. That has dashed any hope that the U.S. central bank would loosen momentary policy further in the months ahead. And now the country faces even higher prices if tariffs go into effect.

 

The most recent University of Michigan survey of consumers indicated that inflation expectations for the next year increased to 4.3 percent in February. That is one percentage point higher than January and the highest since November 2023.

 

Wednesday's Consumer Price Index (CPI) data for January increased 3 percent over the prior year and 0.5 percent over the previous month. That surprised markets but came in spot-on with my forecast. As readers are aware, I have been warning investors since October that inflation was climbing, and it has done so for the last four months.

 

While a stunned Wall Street pointed to seasonal factors as the culprit, we all know that is a load of bull dinky. The latest inflation numbers were higher in almost everything: autos, insurance, drugs, rent, housing, education restaurants, groceries — the list goes on. On Thursday the Producer Price Index (PPI) echoed the increases in the CPI with  U.S. factory gate prices rising 0.4 percent month over month.

 

Jerome Powell, chairman of the Federal Reserve Bank who was testifying before the House as the numbers were announced, admitted that "we're close but not there on inflation." He had already advised the market not to expect rate cuts and reiterated that "we want to keep policy restrictive for now."

 

With no help from the Fed, where does that leave the markets? Waiting for Donald Trump's tariff onslaught. There are relatively few in the financial markets who believe that tariffs will not add fuel to the inflation fire. Since the election, even the president and his cabinet have admitted that Americans will feel "pain" in the short term from his policies.

 

It may be why he did not implement reciprocal tariffs on foreign nations on Thursday. Instead, he signed a memorandum to "review" such tariffs. That gives him time to negotiate with our trading partners without adding tariff pressure to the inflation rate.

 

Critics also say government spending has been a big part of U.S. economic growth. If you add up lost federal jobs, declines in immigrant labor, and the fallout from the reduction in the size of government overall, the impact on the economy will result in a period of slower growth. In which case, my forecast of a bout of stagflation will prove accurate.

 

However, before you run for the hills, there may be some silver linings in these storm clouds. Peace in the Middle East and between Ukraine and Russia would go a long way in reducing the price of oil. And oil, as you know, is a big factor in the inflation equation. Energy prices have declined for several weeks, and I expect that to continue. It is one reason I see a decline in the CPI for next month.

 

I also believe Trump's tariff strategy is a means to an end and not a permanent fixture in the global economic landscape. He was elected primarily to solve inflation and while he can still blame this month's spike in inflation on Biden, he can't do that forever.

 

Looking back through history, voters in populist times have a short fuse. They expect politician's promises to be kept, and soon, especially when it comes to bread-and-butter issues like groceries. The pressure to succeed in a trade war needs to be weighed against the damage it causes on the inflation front.    

 

And yes, we may see a dip in economic growth because of reduced spending and increased efficiency throughout the government but it should also put a dent in the deficit and hopefully reduce the country's debt load.

 

The stock market appears to have taken the hotter inflation news in stride. However, I think much of the gains this week had more to do with the delay in reciprocal tariffs rather than inflation fears. Was it an accident or leaked information on tariffs that turned the averages around on Wednesday as they plummeted after the CPI print? The S&P 500 Index climbed further on Thursday completely ignoring the hotter PPI.

 

In any case, I have repeatedly warned readers not to tariff trade. President Trump has a long history of using the media to broadcast one intention while doing the exact opposite behind the scenes. My buy-the-dip strategy over the last few weeks seems to be paying off as has my recommendation to buy China and precious metals. Volatility will remain the game but, I am looking for new highs in the days ahead. 

 

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.