This holiday-shortened week is usually a good one for stocks. Volumes are lower, and as the week progresses, fewer participants are at their desks. Whatever the reason, markets recouped all last week's losses.

 

The pullback may be over. At last tally, the S&P 500 Index pulled back about 5 percent. We may retest the lows, but we will cross that bridge if we come to it. In the meantime, let's look at some economic numbers.

 

Government data is beginning to be released, albeit slowly and in fits and starts. U.S. initial jobless claims for the period ending November 22 fell, the third consecutive drop, and are now at their lowest level since February. The data reflect a low magnitude of new jobless claims in the economy.

 

However, retail sales for September came in below economists' expectations, climbing a mere 0.2 percent, which was half the reading that economists expected. To put that in perspective, the August data showed a 0.6 percent gain.

 

This data point is important because consumer spending has a massive influence on economic growth in this country. It represents 67.7 percent of the U.S. Gross Domestic Product. If we couple that sales weakness with the government shutdown that began in October, consumption of goods and services will likely decline in the last quarter of the year.

 

During the earnings season, which ended last week, Target, Home Depot, and Walmart have all indicated that their businesses are facing ongoing pressure from lower and middle-income households due to higher inflation, tariffs, and interest rates that have squeezed budgets.

 

Producer prices for September also rose slightly on the back of higher energy costs. Investors were expecting the advanced estimate of third-quarter GDP this week, but were disappointed. The Bureau of Economic Analysis canceled it along with the preliminary corporate profits report. That leaves investors and policymakers in the dark as we enter the crucial holiday shopping season.

 

We already know that consumers of all income levels (except the very top earners) are trading down this season or have front-loaded their holiday purchases to avoid Trump's tariffs. In my October columns, "Trump's Tariffs and the Holidays" and "Americans Are Getting Stingier," I warned readers that holiday sales might not be as strong as many Wall Street analysts expect. I hope I am wrong.

 

White House economic adviser Kevin Hassett is now the leading contender to become the next Federal Reserve Bank chair. Treasury Secretary Bessent, tasked with interviewing replacements for outgoing Chair Jerome Powell, said it was possible there would be an official announcement of the president's choice in December.

 

If Hassett is selected, there is no doubt that not only will interest rates be cut deeply, but he will also do everything he can to further the administration's economic policies. As a member of both Trump administrations, he is a champion of Trump's tax policies, trade policies, deregulation, and public health initiatives. His appointment would likely damage the notion of an independent central bank in the U.S.

 

As for the markets in this holiday-shortened week, stocks have gained every day since last Friday, anticipating that the Fed will cut interest rates once again when it meets on December 9-10.

 

We may see some profit-taking in the week ahead, but we are now officially in a period when large global flows of funds will need to find a home. Corporations pay yearly bonuses. Savers fund their retirement accounts. Banks provide additional liquidity. This liquidity flow occurs almost every year and, unless something out of left field occurs, much of this new money finds its way into stock markets. Many call it the Santa Claus rally, although Saint Nick has little to do with it. I hope you all had a Happy Thanksgiving. Now go out there and shop (or not).

 

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.

Fifteen thousand U.S. troops mass on land and sea. Facing them, the beleaguered president of a nation 11 times smaller than the U.S. Will we invade and why? "I don't rule out anything," answers the president of the United States.

 

A near naval blockade surrounds tiny Venezuela. President Trump has accused his counterpart, Venezuela's Nicolas Maduro, of leading the Cartel de Los Soles, a designated foreign terrorist organization. Maduro denies it, claiming Trump is simply using that pretext to effect regime change. But before you start lambasting Donald Trump for going off the deep end, consider the following.

 

We are witnessing Gunboat Diplomacy, a tried-and-true American tactic that dates back several centuries. For example, one of the first things a Parris Island Marine recruit like me memorizes in boot camp is the Marine Corps Hymn. It starts with "From the Halls of Montezuma to the Shores of Tripoli; We fight our country's battles …" Want to know where that comes from?

 

In June 1815, the Navy, still in its infancy, blockaded the nations along the North African coastline, bombarding Tripoli until it signed a treaty promising not to attack American trade ships. The capture of Mexico City was next in 1847. A couple of decades later, in 1853, Commodore Matthew Perry's naval expedition steamed into Japan's ports. He was hellbent on asserting U.S. interests and trade by force, if necessary, against the Japanese, which had a long-standing policy of isolation.  

 

The following year, we participated in similar exercises in China along the Yangtze River. Skip a few years, and then again, an invasion of  Panama in 1903. I could go on, but the point is that America has exercised a lot of foreign policy over the years by using the threat or the use of force, most often through the Navy and the Marines on board.

 

In my last column, I outlined some of our history with Venezuela and its current economic, political, and military relationship with both China and Russia. I wrote that our domestic energy production is peaking. Trump's "Drill, Baby, Drill" policy involves a significant expansion of lease sales to drill for oil off the coasts of Alaska, California, and the Gulf of Mexico.

 

Lease sales do not guarantee buyers will drill. To do so requires a higher oil price than we have now, and the president wants energy prices to fall further. Given that conundrum and America's need to procure additional energy reserves, Venezuela's 303 billion barrels of proven reserves are a tempting target.

 

The problem is that Venezuela, under President Nicolas Maduro, is no friend of the U.S. After years of U.S.-imposed sanctions, Venezuela's economy continues to decline, with the only hard money the country earns coming from its role as a transit country for drug smuggling.

 

Despite having the world's largest oil reserves, Venezuela's oil production has been declining for years, from 3.2 million barrels per day in 2000 to roughly 800,000 barrels per day in 2025. The decline is attributed to years of underinvestment and mismanagement, limited access to capital, and little to no maintenance. Maduro, and before him Chavez, drove the industry into bankruptcy. They expropriated foreign oil companies, drove investors and technology away, and engineered an almost complete collapse of infrastructure and refineries.

 

To turn around Venezuela's oil industry would require $20 billion per year over two to three years. Once completed, it would require another four to five years to yield additional production, according to the U.S. Energy Information Administration. At that point, the country could sustain an additional 1 million barrels per day.

 

Another challenge is in the complexion of Venezuela's oil. The Orinoco heavy oil is the largest accumulation of heavy and ultra-heavy crude in the world. About 77 percent of the country's oil reserves are in that region. This oil requires specialized refineries to process this high-density fuel.

 

Extracting this material is difficult and involves high greenhouse gas emissions, making it one of the more carbon-intensive oil sources in the world. Believe me, I have been there. It's a complex extraction process in a remote, treacherous jungle environment that requires substantial energy and water and generates significant waste.

 

There are about 125 operational oil refineries located primarily along the Gulf Coast in Texas, Louisiana, California, and the Midwest, that already process a significant amount of heavy oil. The supply of heavy crude has been shrinking, however, due to prolonged OPEC supply cuts and sanctions on Venezuela, Iran, and Russia. A lifting of sanctions on Venezuela would be a welcome development for refineries struggling to find cheap supplies.

 

Trump's gunboat policy might succeed in ousting the present government through the threat of force or an actual invasion. That would be dangerous but doable. A ready replacement, Nobel Peace Prize winner Maria Corina Machado, who is widely popular in her country, would quickly embrace the U.S. and, presumably, an oil-friendly policy along with it.

 

A harder sell is convincing Maduro to step down and/or abandon his allies, and to embrace the U.S. once again after years of bad blood. It could happen, but it is unlikely. And even if that were to happen, the road ahead would require years of effort and money. The United States would have a hard row to hoe to secure this Latin American country's energy wealth without Machado or someone like her in office.

 

Many critics of the president and administration believe that Trump's Venezuela invasion tactics are a domestically motivated diversionary tactic. If so, the tactic has yet to play out. Clearly, in the short term, Trump's focus is on becoming the "peace president." His reputation as a consummate deal maker is currently fully occupied with accomplishing peace between Russia and Ukraine, while holding together a fragile agreement between Israel and Hamas.

 

It also appears the president is changing his justification for regime change from fentanyl  smuggling (which was a mirage in the first place) to ejecting Russia, Iran, and China from the western hemisphere. To some, Venezuela may be a bridge too far for now, but I wouldn't put anything past this guy in the months ahead. 

 

Markets were poised for a bounce, and Nvidia delivered. The AI semiconductor giant beat earnings handily, and its forward guidance was even better. The company's stock spiked higher and then fell. Where Nvidia goes, so goes the market. 

 

After four down days in a row, Thursday saw all the main indexes gain more than 1.5 percent, with the tech-heavy NASDAQ gaining 2.5 percent. It was a classic dead-cat bounce. The sigh of relief from the bulls could be heard across markets worldwide, as this single stock's third-quarter results were important enough to lift most stocks. But the respite proved temporary.

 

By mid-morning Thursday, the AI darling began to falter, giving back all its gains and then some. Readers should know that here in the U.S., Nvidia makes up 8 percent of the benchmark S&P 500 Index, and together with 19 other stocks now represents 50 percent of that index.

 

As I wrote recently, investor concerns that too much money was being spent on AI with no returns in sight returned to the forefront, even though the company's CEO, Jensen Huang, said sales of its newest chip were off the charts. Investors didn't care, and markets across the board were down at least 1 percent at the closing bell Thursday afternoon. 

The excitement over Nvidia's results completely overshadowed the first non-farm labor jobs report since the government shutdown, at least at first. The U.S. economy supposedly added 119,000 jobs in September, which was above economists' estimates of 50,000. In this market, that data was so stale it should have been next to useless, but something, no matter how old, is better than nothing.

 

And even if the numbers were up to date, many on Wall Street have come to doubt the objectivity and integrity of government data. The Bureau of Labor Statistics claims it can't capture the data to release October's results, or that the results may only be partially available. Is that a coincidence, given that the mass layoffs in the government sector would have shown up in that month's data?

 

I do not remember these data glitches happening in past shutdowns. It begs the question: has the BLS suddenly become more incompetent since the firing of its last head, or are statisticians being coached by outsiders?

 

In any case, the bears took the numbers and ran with them, claiming that stronger payroll numbers will convince the Fed to hold off on cutting rates until more information becomes available. The next payroll report will be delayed until the middle of December (another coincidence). This leaves the Fed without the data they need to make an informed decision on interest rates in time for the Dec. 9-10 FOMC meeting. In which case, any decision they make will be at best a guesstimate. I am betting they cut interest rates.

 

In the meantime, I promised volatility in November, and that is what markets have delivered. As the lion's share of robust corporate earnings results has faded, support for equity indexes has faded with them. As such, equity indexes draw ever closer to my downside targets. Bitcoin and other cryptocurrencies are leading the markets lower. I had warned investors to expect a pullback in this asset class. We are getting it.

 

Traders are using Bitcoin as a leading indicator of investors' risk level. Given its speculative nature, the fall from $126,000 to its current level (below $84,000) is a clear indication that market sentiment is definitely risk-off. I see a bottom for Bitcoin around $74,000-$76,000.

 

Precious metals, another speculative asset class, are holding up a lot better. This is another area where I advised readers to expect a decline and be cautious in adding to dips. Although volatile, gold is down about 10 percent from its highs and is still consolidating after its spectacular gains this year.

 

Both crypto and gold will make no headway until the U.S. dollar turns down once again. Heading into Thanksgiving week, markets are approaching my target levels. NASDAQ has declined by about 8 percent while the S&P 500 Index is down less than half that. I expected a 4-6 percent decline, so my downside risk from here is about 1.5 percent for the S&P.

 

What could save the markets from further downside would be an interest rate cut when the Fed meets in December. I suspect that will happen given my scenario of better inflation numbers in the next two months and a somewhat weakening employment picture. Until then, stay invested, grin, and bear it.

 

It was supposed to be about fentanyl, or was it replacing Maduro? The Sleeping Giant has returned, and make no mistake, Venezuela is the target. The stakes, however, are much bigger than most realize.

 

It has been a while so you may need an update on the definition. "Gunboat diplomacy is the pursuit of foreign policy objectives with the aid of conspicuous displays of naval power, implying or constituting a direct threat of warfare should terms not be agreeable to the superior force," according to Wikipedia. 

 

Does that sound familiar in the context of the current situation between the U.S. and Venezuela?

 

For the last several weeks, the full might of the Navy, including the largest, most deadly aircraft carrier in America's arsenal, has been cruising off Venezuelan shores, blowing fishing boats, speed boats, and maybe even row boats out of the water. The toll to date is 22 boats sunk, 83 KIA. The justification — the interdiction of alleged drug smuggling to the U.S. by President Nicolas Maduro's regime, as well as Latin American cartels. 

 

The reasoning is a bit thin, however, since more than 90 percent of fentanyl smuggling into the U.S. is through Mexico and is carried into the country by U.S. citizens. No fentanyl is produced in Venezuela, and none of that drug has been aboard the sunken boats.

 

As for other drugs, while Venezuela does not produce them, it is a transit country. More than 250 tons of cocaine pass through Venezuela every year on its way to Europe (not the U.S.). And while 80 percent of narcotics smuggled into the U.S. are transported via maritime lines, 30 percent are now hauled by narco-submarines. None of those vessels seems to be on the Navy's list of targets.

 

The narrative from most media and political sources is that drugs are just an excuse to accomplish the government's primary purpose — regime change. The stated purpose is to return the country to free and fair elections. Sounds good, but while the American anthem plays in the background, as a cynical Vietnam veteran, I have lived through too many of these "for democracy" playlists.

 

The entire escapade leaves me still looking for a deeper reason behind these excuses. After all, Donald Trump has proven that he has no problem with dictators and strongmen, nor with their governments. Why now, why Venezuela, and why Maduro?

 

Reason one could be Venezuela's relationship with China and Russia. Back in the day, we were friends, allies, and investors in Venezuela. I traveled there often in the 1980s. Caracas was a vibrant and dynamic city back then, known for its freewheeling democracy and oil-fueled economic prosperity. Things changed, however, with the rise in power of left-leaning Hugo Chavez in the 1990s.

 

Beginning in 2005, the U.S. started to sanction Venezuela as Chavez moved to appropriate foreign assets and deepened his relationship with Cuba. Combined with Chavez's economic and political policies, sanctions have weakened Venezuela's economy. After Maduro's 2013 election, sanctions increased again.

 

Maduro sought help from outside nations to keep the country solvent. China has obliged by extending $60 billion in loans over the past 20 years in exchange for oil. They have established satellite positions across the country, along with surveillance equipment, to secure strategic control over Venezuela's natural resources and critical infrastructure. 

 

Russia, for its part, has seen Venezuela as a forward base of influence in the Western Hemisphere and as a counterweight to U.S. military dominance. Putin has provided arms, military access, and expertise totaling more than $14 billion to the country, as well as loan restructuring, oil-for-debt agreements, and energy development.

 

Given this geopolitical background, enter Donald Trump stage right. He assumed the presidency with the promise of lowering inflation. He knew that one significant way to accomplish this was by reducing energy prices. Through his "Drill Baby Drill" policies, he promised to increase America's energy reserves and, at the same time, lower energy prices. Therein lies the rub.

 

The economic truth that the president failed to understand was that oil drillers have less incentive to explore and/or produce oil when energy prices fall. Adding insult to injury, a decades-long boom in U.S. oil production peaked two years ago and is expected to continue to decline. "Drill Baby Drill" seems to have been relegated to the backburner alongside DOGE.

 

After years of surplus energy, the U.S. faces an uncertain energy future. The country needs to procure a safe, reliable, and dependable oil supply. Before and after World War II, the Middle East fulfilled that role. After the creation of OPEC, the world changed, leaving the U.S. to seek out other sources.

 

We successfully developed our own energy resources, but now, with declining production, we need more oil, but where and how? Clearly, Russian oil is out, which leaves Latin America. Venezuela holds the world's largest proven oil reserves, estimated at 303 billion barrels, primarily located in the Orinoco Belt.

 

Enter Donald Trump and the return of Gunboat Diplomacy. Drugs and regime change may be the first step and the opening gambit in a far deeper, much more strategic ploy to secure additional energy resources for America's future. Next week, I will discuss the moves necessary to accomplish those goals in a global energy chess game that could bring Venezuela back into the fold of US influence in the years ahead.

 

For several years, readers have asked me to establish a website where they can read my past columns and interviews. I am thrilled to announce, "The Retired Investor," a comprehensive collection of my writing and videos, past and present, at www.SchmicksRetiredInvestor.com. I invite you to check it out and share your thoughts. Your feedback is invaluable to me.

 

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.

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.

 

After six weeks, the macroeconomic data that disappeared during the shutdown will begin to flow once more. The question Wall Street is asking is, will it be good, bad, or indifferent for the markets?

 

Readers should pay attention to the slew of expected government reports that are expected to be released this coming week. The Consumer and Producer Price Indexes, average hourly earnings, average weekly earnings, factory orders, durable goods, retail sales, housing starts, building permits, and the most important number of all, the non-farm payrolls (NFP) report, are expected to be announced on Friday. The markets are worried.

 

The NFP report will be critical. Investors believe that the Federal Reserve Bank will base its decision on whether to cut interest rates again at its Dec. 10 meeting on the state of the job market. Given that missing October inflation and jobs data may never be reported, according to the White House, it leaves the markets hanging and elevates the importance of the coming deluge of data.

 

At present, the Federal Open Market Committee is a hung jury, split roughly down the middle between voting members who want another rate cut and those who don't. The betting markets have dropped their view of a December rate cut from almost a sure thing to a little below 50/50.

 

The stock market has yet to discount those lower odds but is in the process of doing that right now. The Fed has made it clear that the health of the jobs market is just as crucial as reigning in inflation, if not more so. If the number of jobs continues to rise, that will give the Fed a reason to stand down and wait. The bulls are hoping to see some job losses, but not too many, just enough to reduce rates by another quarter point.

 

The bears contend that employment is dropping like a stone, and the numbers will prove it. They argue the Fed will need to cut by 50 basis points. Why would that be bearish for stocks? Because it could mean that a sharp decline in job growth would indicate the economy is rolling over. That would panic the markets. Oh, the webs we weave.

 

As readers surely know by now, the government shutdown is over, at least until Jan. 31. Then we get to do this all over again. If it were to happen again, markets, which had basically ignored the drama in Congress, might not be as understanding the second time around. What was the point of this one? Let me know if you figure it out. Otherwise, the country has lost billions of dollars or more in growth with nothing to show for it.

 

My own forecasts indicate that we will see less inflation over the next 2-3 months. While economic growth will moderate, it will not lead to a recession. Employment should decline somewhat. This is due to the ongoing labor disruption caused by the president's immigration policies and the displacement of jobs by AI. If I am right, the chances of another Fed cut are higher than the market anticipates.

 

On a side note, the CPI basket of items has been pared back under both the Biden and Trump administrations. The government has removed some of the worst inflationary components, including meat, coffee, new cars, trucks, and motorcycles, as well as long-term care and vehicle insurance, electricity, natural gas, and energy services. Given this list of excluded items, it is a mystery why anyone really believes that the CPI accurately reflects inflation.

 

Did you notice that the Trump administration is rolling back tariffs on beef, coffee, and bananas? I have been writing about how Trump tariffs are not only a tax but a tax on the food we eat, among other things. Donald Trump, his Treasury Secretary, and most Republican members of Congress have denied this, claiming that tariffs are not the cause of higher prices — until now.

 

Finally, the truth is coming out. Trump recently acknowledged that U.S. consumers are "paying something" for his tariffs. Don't look for him to admit the truth on his tariff taxes, especially in front of a Supreme Court decision on that subject.

 

In my last column, I mentioned that investors were worried that the AI boom in stocks had reached a peak. This week, we see the results of that narrative. AI darlings have led the decline, taking the rest of the market with them. Remember these two key points: the markets will remain volatile, and I expect a 4 to 6 percent decline in the averages.

 

This coming week, we also have the AI King of Kings, Nvidia, reporting earnings on Wednesday. At this juncture, where Nvidia goes, the market follows. Remember, do not think "down" when I use that word. Volatility cuts both ways, and given the global flows of money, that means both big up and big down moves. Strap in, stay invested, and hold off on buying dips for now.   

 

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.