Investors sold stocks, as bond yields reached new multi-year highs. Third-quarter earnings are almost an afterthought in this climate, and geopolitical events did not help either.

 

The 10-year, U.S. Treasury bond hit the 5 percent mark. The 30-year bond has already broken through that number and then some. The higher yields climb, the more investors fear that they will rise even further. As it stands now, the return you can get by putting your money in bonds is becoming more and more attractive versus stocks.

 

This is happening despite the cessation of long-term bond auctions by the U.S. Treasury this week. Short-term bills and notes have been auctioned instead. The next tranche of longer-dated securities won't begin again until November. You would think that with the pressure off yields, longer-term bonds would have rallied but they didn't.

 

The explanation is simple but also troubling. After years of ignoring the growing U.S. deficit, the financial markets are becoming worried that the government's continued spending is rocketing out of control. I have written about this in past columns, but it seems investors are starting to pay attention to the problem at long last.

 

A reader may wonder why it is so hard for politicians to corral their spending. The simple answer has nothing to do with whether we are talking about Democrats or Republicans. Two-thirds of U.S. spending is earmarked for just two programs: Social Security and Medicare. That's it, and no one in their right mind is going to cut back on those programs unless they want to lose their jobs.

 

That leaves a much smaller piece of the pie to squabble over. Liberals want spending to go to social programs and cut the rest. Conservatives insist it is spent on things like defense and investment instead. In a political landscape, where compromise has become a dirty word, the only answer is to keep spending more and more to satisfy the demands of both sides.

 

A great example of the conundrum we all face is President Biden's emergency funding request to Congress this week. The president is asking for $75 billion to aid Israel and Ukraine. There is another $30 billion he wants to fortify border security.

 

So, who among us is ready to say no to that kind of spending? Sure, some might, but most Americans and their representatives in the heat of the moment are going to want to approve those additional funds. But it was no accident, in my opinion, that when the president first announced this additional spending request on Oct. 18, the yield on the benchmark, ten-yield bond spiked even higher and hit a 16-year high.

 

The Chairman of the Federal Reserve Bank Jerome Powell gave little comfort to investors in a speech before the Economic Club of New York on Thursday. Some investors hoped that he might be willing to relax his monetary policies instead of the recent run-up in bond yields. Instead, Powell said inflation is still too high and warned that more interest rate increases are still possible if the economy stays strong, or if the tight labor market does not ease further.

 

The most he said about the recent surge in long-term bond yields was that "we remain attentive to these developments" acknowledging that if this situation persists "it can have implications for the path of monetary policy."

 

As for the continuing saga of failed governance among the Republicans in the House of Representatives, the facts speak for themselves. Rep. Jim Jordan, the radical politician and Trump lackey, has failed in his attempt to claim the position of speaker for a second time. His followers used social media to browbeat and threaten some Republicans into voting for him. That ruse backfired leaving him no choice but to try again on Friday. Once again, Jordan failed to convince his fellow legislators that, somehow, he had changed his stripes.

 

One hopes that he will accept the "three strikes you're out" verdict, but given his nature, he could very well claim the voting was fixed. He has done it before. The country remains in limbo as a result, with no progress in averting a government shutdown or aiding our allies around the world.

 

Last week, I said we were still in a bottoming process. I expected this period should have been over a week ago. It is still not done. I blame the Hamas terrorist attack in Israel for prolonging this process. I warned that we were going to test the low 4,300s on the S&P 500 Index. If the geopolitical events worsened (and they have) we could fall all the way down to the 4,200 area. That is just what we did. 

 

As of noon on Friday, we were trading 35 points above my low-end target. We bounced off the 200 Day Moving Average at 4,233, which was to be expected. Is it almost over, maybe? I still think we could go lower if the geopolitical news gets worse.

 

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.

They are called general practitioners or primary-care doctors. Overworked, suffocating under mountains of paperwork, they see more than 30 patients a day in one of the most underpaid areas of the medical field.

 

An estimated one-third of all physicians in the U.S. are primary-care doctors, according to the Robert Graham Center, which studies the primary-care market. They include medicine physicians, general internists, and pediatricians. Depending on the definition, other researchers, like the Peterson-KFF Health System Tracker, say that number is far lower, around 12 percent. That compares with a range of 23-45 percent of primary care doctors in Europe.

 

My doctor, whose office is a stone-throw away from my house, fits the profile of most doctors in her field. She is meticulous, saved me from serious health issues several times, and knows my family intimately. I trust her implicitly and don't know what I would do without her.

 

Through the COVID-19 pandemic, her doors were always open, and she did it alone since finding anyone willing to work for her was impossible. With no help, she spent her evenings entering patient data into the nation's cumbersome electronic health record systems, scheduling appointments, and checking on patients.

 

Today, a smaller and smaller percentage of medical students are even considering the field. Salaries are a big reason why other medical and surgical specialties are promising far more income. Retirement is further depleting the nation's stock of GPs. At the same time, the demand for primary care is growing, thanks to record enrollment in Affordable Care Act programs. 

 

This results in longer and longer waiting times between visits to see your primary-care doctor. The average wait time is now about 21 days and growing. If, God forbid, your doctor retires, most people are faced with a "not taking new patients" electronic message from most physicians.

 

In response, over the last five years, large primary care and urgent care groups have sprung up across the nation. They are flourishing. Patients can usually walk in to see a doctor (although not necessarily the same doctor) on each visit. Many times, they will not even see a doctor. They will instead see a nurse practitioner or a physician's assistant.

 

Retail clinics like CVS Minute Clinics, offer in-person and virtual care seven days a week. Changes in Medicare and state laws have loosened the requirements for physicians and billing. This has boosted the growth in these areas, making them one of the fastest-growing segments of the medical arena.

 

The trend has grown so fast that roughly 46 percent of all primary-care physicians are currently working in practices they do not own. And two-thirds of those doctors do not work for another doctor, but a different entity altogether — Corporate America.

 

Given the present state of the primary-care field, why would the country's largest health-care insurers, drug store chains, and other billion-dollar corporations want to get involved in this business? Names like CVS, Amazon, Aetna, and Amazon are all buying up primary-care centers, doctor groups, and even the practices of individual doctors.

 

The simple answer — to create one-stop shopping for all your health-care needs. Corporations want access to the nation's huge number of consumers who need all sorts of health care and medical insurance. Primary-care doctors hold the pulse of millions and millions of patients. These patients will continue to generate a steady flow of business and profits to hospital systems, health insurers, and pharmacies.

 

In addition, Medicare, the federal health insurance program, is gradually being privatized. As it stands now, more than 30 million beneficiaries have policies with private insurers under the Medicare Advantage program. That is worth $400 billion a year for insurers and is growing every year.

 

Corporations entering the field say they are bringing coordinated health care to patients. Health insurers and others want to institute "value-based care" where the insurer and doctor are paid a flat fee for individual patient care. They argue that fixed payments will act as an incentive to maintain the health of the patient and provide access to early care, which in turn will reduce hospital stays and visits to expensive specialists.

 

Critics, however, worry that the economies of scale invading patient care will destroy the personal doctor-patient relationship. It may also end up in situations where corporate owners begin to dictate and limit services from the patient's first visit to extended hospital stays.

 

Given the growing scarcity of primary-care physicians, many millennial patients, especially those who are younger and generally healthy, are unfazed by the changes in health care. A video call or a no-wait visit at their local drug store or big-box store beats waiting for weeks to see a doctor. As for me, I am both lucky and grateful for my primary-care doctor.

 

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 American work culture has shifted radically since COVID-19. The idea that there is more in life than work is catching on among many workers. Working from home, quiet quitting, and "missing Mondays" are all symptoms of this change as is a four-day workweek.

 

Most full-time workers and job seekers, when asked, say a four-day workweek is at the top of their wish list. That is what a recent study by Bankrate, a consumer financial services company, discovered. Fully 81 percent of 2,367 adults polled, supported such a move, and 89 percent of workers were willing to make sacrifices to achieve that goal. Those surveyed said they would work longer hours, change jobs, take a pay cut, have fewer vacation days, switch industries, and even sacrifice advancement for the chance to reduce their days of toil.

 

At the same time, more than half of American employers offer, or plan to offer, a four-day workweek, according to a poll of 976 business leaders by ResumeBuilder.com. In that survey, 20  percent of those businesses already offer a four-day week and another 41 percent are planning to implement a similar week at least on a trial basis.

 

Several large trials are already occurring both here and abroad to explore the possibilities of a shortened work week. Studies have shown that for those who have implemented the change employees are happier, have less burnout, and it is also easier to attract new talent. In a Canadian trial, researchers found that revenue increased by 15 percent in many of the 41 companies that decided to continue with the approach after the trial ended.

 

Some large private-sector companies in the U.S. including Shopify, and even Amazon and Microsoft, are experimenting with a shorter workweek. California, Massachusetts, Missouri, Pennsylvania, Texas, and possibly Vermont have introduced legislation to reduce the standard workweek as well.

 

You would think that with this much support from both employee and employer, why hasn't it happened already?

 

The facts are that the lion's share of U.S. companies and organizations still operate under a five-day work schedule. It happens to also be a labor law and has been for more than 80 years. Changing that would require a large adjustment and require a great deal of planning. Just think for a moment about how downsizing the working week might impact you. Everything from taking the kids to school, to when you go grocery shopping might change.

 

From the perspective of your company, there is a lot that needs to be assessed. Staffing needs, concerns over productivity gains or losses, increased costs, and complex changes to operations are all legitimate concerns. None of those issues can be overcome quickly. Experts estimate a complete changeover could take five years or more.

 

Back in 1926, Henry Ford was credited for standardizing the five-day workweek (down from six) in response to pressure from the labor movement. Unions have long been instrumental in fighting for most of today's worker benefits like weekends off, overtime, and health benefits.

 

In 1940, an amendment to the Fair Labor Standards Act mandated pay for any time worked beyond 40 hours per week. Since then, not much has changed in labor laws.

 

While remote workers, office jockeys, and the salaried bunch are lobbying for a change in the workweek, the United Auto Workers are putting the four-day workweek on the map for hourly workers. Today's striking autoworkers union, in addition to wanting better pay and benefits, are asking for a four-day workweek. The deal they want is to put in a 32-hour week and get paid for 40 hours. In addition, anything clocked over the 32-hour limit would count as overtime.

 

Part of the union's effort is due to the auto industry's transition from building gas-powered vehicles to electric. It takes less time to assemble EVs on the line, so assembly workers wouldn't necessarily see their weekly take-home pay take a hit.

 

Most labor experts do not expect the UAW will win on that demand. And not all workers want a reduction in their hours worked anyway. Hourly workers across many industries are fighting for more, not less, hours to work. It is a sad fact in this country that many employers actively try to keep workers' hours under certain thresholds to avoid paying fringe benefits. It would take a concerted effort by labor unions, corporate executives, and politicians to pull off something like a four-day workweek. Nonetheless, the idea is gathering steam across the nation, and at some point, we should expect it to become a fact, possibly in my lifetime.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

As the market enters October, there is both good and bad news. The sell-off that started in September is continuing. The good news is that we should be close to the bottom.

 

Blame the waterfall decline in the price of the 10-year U.S. Treasury bonds, the continuing gains in the U.S. dollar, and the seasonal pattern in the equity market. Throw in the absolute mess in Washington and the market's free fall can be understood.

 

None of this should be new to readers because this is exactly what I predicted would happen back in August. I expected markets to correct into the second week of October and here we are with one week to go. The argument over government spending levels and the potential shutdown has forced investors to focus on not only the amount of our national debt but also the rising cost of servicing it.

 

The fiscal deficit this year is more than $1.5 trillion. Overall, the U.S. government debt is roughly $33 trillion with a debt-to-GDP ratio of 120 percent. Estimates are that we are now paying 8 percent of Gross Domestic Product (GDP) to holders of Treasury bonds worldwide just to service this debt. That number could easily rise to 9-10 percent, or more.

 

I suggest that you take a peek at my Thursday column. It will explain the background and risk to the markets caused by the dysfunction in Washington. Bottom line: we can expect Moody's credit agency to cut its rating of our government debt unless the country and its politicians can get their act together.

 

The Fed's policy of keeping short-term interest rates higher for longer doesn't help. But the bond market is now also bidding up the yields on the longer-end of the bond curve as well. The 30-year bond is almost 5 percent. This is shaking investors' confidence in the soft-landing scenario popular among many economists.

 

As such, all eyes are on the employment numbers. These are the keys some believe to what is happening to the economy. Stronger job numbers and wages mean more tightening from the Fed. Weaker data is okay, but if it is too weak, that would set off fears of a deeper recession. That leaves investors in an impossible situation where they are looking for a Goldilocks scenario where jobs are neither too hot nor too cold. Good luck with that.

 

This Friday's non-farm payroll numbers were almost double the 171,000 job gains expected. The U.S. economy added 336,000 jobs, which sent yields even higher, and stocks lower on the news. And yet, yields, the dollar and stocks all reversed during the day. That should tell readers that we are in the bottoming process.

 

Yield-wise, the benchmark 10-year, U.S. Treasury bond hit 4.83 percent, which was its highest level since 2007. And we all know what happened in 2008 (the financial crisis). Not that I am expecting something similar, but a lot of the investment community is freaking out at where interest rate yields can go from here.

 

I think we may be close to a short-term top in yields, at least in the short-term. That is one reason I am expecting a bottom in the equity markets. And where yields go, so does the U.S. dollar. The two asset classes have moved together over the last month. Friday's jobs number pushed the greenback up .65 percent on the news but it quickly gave all its gains back. The dollars’ gains have trashed just about everything from commodities, foreign markets, U.S. equities, and precious metals. That could be changing.

 

Underlying the rise in yields has been the avalanche of U.S. Treasury auctions that began in earnest this quarter. I'm guessing that yields have risen in anticipation of that event. Could we therefore see a "sell on the news" event where bond traders cover their shorts and buy back bonds at some point soon? Stanger things have happened.

 

Last week I targeted the 4,200 area on the S&P 500 Index, which is the 200-day Moving Average as a level we could look for in the bottoming process. I also said that looking for a perfect number like that is not usually the end of the story, since markets overshoot on the upside and the downside. We could easily slip below that number before all is said and done.

 

Keep an eye on the dollar and yields because they are the big dog wagging the tail of the equity markets. When they roll over, as they may be next week, stocks will have reached a bottom.

 

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 ongoing partisan battles in Congress over a government shutdown are making daily headlines. However, whether a shutdown ultimately occurs or not may not be the most important outcome of this squabble.

 

Over the weekend, at the 11th hour, Congress and the White House passed a continuing resolution to postpone a government shutdown until Nov. 14, 2023. Axing funding for Ukraine was the price Republicans demanded to kick this spending can down the road. This was somehow hailed as a bipartisan victory, one of the few in this deeply divided Congress. It seems to me that the only victor in this mess was Russia. 

 

Since then, a handful of radical right Republicans in the House, led by Matt Gaetz, a Republican congressman from Florida and the subject of an ethics probe, forced a vote to push House Speaker Kevin McCarthy out of his post. Combined with most Democrats, the House voted to oust McCarthy.

 

Gaetz and the radical right had accused McCarthy of breaking his word to conservatives on spending bills and how he would run his house. They pointed to McCarthy's behind-the-scenes, side deal with the Biden administration to restore funding for Ukraine as just another reason not to trust the speaker. The straw that broke the radical's back, however, was when McCarthy reached out across the aisle to come up with a compromise that would keep the government's lights on at least temporarily.

 

Democrats were divided on their response to the turmoil within the Republican Party. But few Democrats trusted the speaker, given his partisan track record. In the end, partisan politics dictated they voted to oust the speaker, even though it meant that no work could be done in Congress until a new speaker was elected.

 

If one steps back from the hour-by-hour circus in Washington and looks at this debacle from the perspective of others, the U.S. government appears to be in a precarious state. Many developed countries plan their budgets, their spending levels, the level of debt, etc. in five-to-10-year increments. Our government can't even agree on whether they will be able to pay its employees next month.

 

It is also becoming increasingly apparent that the U.S. government is unable to control spending on both the short-term and long-term levels. This failure to manage continues to happen under both parties. This is not just my opinion. Two of the three largest credit agencies, Fitch and Standard and Poor's, have come to the same conclusion.

 

Back in 2011 Standard and Poor's reduced our long-held triple-A credit rating to AA, citing a weakening in the effectiveness, stability, and predictability of American policymaking and political institutions. 

 

This year, thanks to the debt ceiling debacle spawned by this same group of dysfunctional politicians, Fitch, another big credit rating agency, downgraded our debt as well. Fitch cited a "steady deterioration in standards of governance over the last twenty years." They went on to explain that "repeated debt limit political stand-offs and last-minute resolutions have eroded confidence in fiscal management."

 

And here we are again — more than two months later — repeating the same suicidal behavior. The actions among U.S. legislators befit a banana republic economy, not the U.S. Only one credit agency is left, Moody's, that still maintains a AAA rating for our sovereign debt. How long that status remains is my concern.

 

Politicians of both parties fail to realize (or don't care) that these rating changes have a real cost to the nation and taxpayers for decades to come. The cost of issuing U.S. debt and paying bondholders interest is climbing year after year. As it stands today, interest payments alone are costing the country 8 percent of GDP. That percentage is expected to increase exponentially. We are talking billions of dollars, readers, if not trillions, when we consider the cost that we will have to bear (as will our children and their children).

 

Moody's has already commented that a shutdown would have credit implications. A downgrade in their rating based on "the weakness of U.S. institutional and governance strength," as well as "the fractious bipartisan politics around a relatively disjointed and disruptive budget process" indicates to me that unless things change dramatically next week, we could see yet another downgrade.  

 

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.