There are two shortcuts to moving goods around the world, the Suez Canal and the Panama Canal. Drought has more than halved the traffic able to sail through the Panama Canal that connects the Atlantic and Pacific Oceans. That was bad enough, but the alternative shortcut around the world has all but shut down.

 

This is a serious matter since maritime transport accounts for 80 percent of global trade. Under normal circumstances, the Panama Canal would account for about 3 percent of that global trade and 46 percent of container traffic moving from northeast Asia to the East Coast of the U.S. On average, more than 13,000 vessels passed through the Panama Canal per year — until last year.

 

Climate change, and now the El Nino climate pattern, has sabotaged Panama's ability to keep the system of water locks and infrastructure functioning properly. What is worse, Panama's dry season began last month and will run into April 2024. That is draining even more water from the locks. As such, the prolonged waiting times and capacity limitations that have plagued the man-made 40-mile canal will not be alleviated anytime soon.

 

This has already delayed American exports of grains bound for East Asia. In the case of Japan, U.S. corn exports account for more than 65 percent of that country's needs and 71 percent of its soybean imports. It is only a matter of time before these delays begin impacting the Japanese consumer. The Panama bottlenecks have also increased costs. Shippers have bid up the price for a transport slot through the canal as waiting times lengthen. A slot can now cost anywhere from $1.4 million to $2 million. That effectively raises the price of transporting grain to Japan from the U.S. by 50 percent. Charter rates have also increased by about 30 percent as well.

 

Given this background, is it any wonder that shippers had decided to opt for the Suez Canal, instead, even though it adds about 18 days to the trip? And that is where the shippers found themselves between a rock and a hard place.

 

The Israeli/Hamas war started in October 2023. It did not take long for those aligned with Hamas to begin retaliating against Israel and its allies. Over the border, missiles and drones failed to avoid Israel's air defense system. In late November 2023, the Houthi rebels found an easier target. Armed attacks against defenseless container ships in the Red Sea were launched by the Houthi Militia. To date, the Iran-backed militia that controls northern Yemen is targeting all shipping, some with not even a remote connection to Israel. 

 

For those who are unaware, the Red Sea is a narrow strip of water, west of Sudan and Saudi Arabia and Yemen to the east. At the northern end of the sea sits the Suez Canal. At the southern end lies a strait, called the Gate of Tears, which borders Yemen. It is where the Houthis have been targeting many of the tankers and container ships with increasing ferocity.

 

This waterway is a crucial piece of the world's supply chain. Up to 15 percent of the world's shipping sails through the Suez Canal. It is the most direct ocean route between Asia and Europe. And now it has become part of what appears to be the tip of a widening conflict in the Middle East.

 

In the maritime industry, shipping companies can buy war risk insurance. Almost overnight, the premium on this kind of insurance went from 0.02 percent to 0.7 percent of the total value of the ship and its cargo. Container ships can easily carry hundreds of millions of dollars' worth of cargo, so insurance fees alone are now in the millions. Shippers are now passing on those extra costs by charging higher fees for transporting cargo in that area. Average costs to ship containers have doubled in the last two months.

 

As more and more attacks occurred, shipping companies began rerouting vessels to avoid the area altogether. For those vessels who were already on a detour from using the Panama Canal, costs are continuing to mount. The new alternative route has ships going around the Horn of Africa, and then back into the Mediterranean. That route can tack on an extra 14-15 days to a trip already delayed by avoiding the Panama Canal. 

 

The costs of extra fuel, labor, and penalties for late deliveries must now be added to already sky-high shipping fees. Europe and Asia are feeling the brunt of this extra cost. But in the end, I suspect that given the interconnectedness of global supply lines, it should be only a question of time before the U.S. is also whacked from this new threat to global supply chains.

 

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 proliferation of streaming services over the past few years appears to have reversed course. Price increases, the introduction of advertising, and fewer hit shows have consumers finally looking at the number of streaming services they are paying for.

 

Wall Street has also lost its love affair with streaming companies, except for Netflix. That company continues to benefit from its competitors' woes. During COVID, when Americans were trapped at home, they spent hours watching television. Streaming services could do no wrong.

 

However, times change, and the couch potato behavior is disappearing. As it does, the willingness to pay higher prices for something few are watching is also declining. Throw in the fact that due to the writers and actors strikes last year, there will be fewer streaming products available, and you have a ready-made excuse to pare back on streaming services.

 

From Wall Street's perspective, there are simply too many services competing for your dollars. The major players led by Netflix include Disney+, Hulu, Paramount+, Max, Starz, Peacock, Discovery+ and Apple TV+ are facing lower profitability or no profits at all. Few of these streamers have developed the scale necessary to achieve profitability.

 

There are two main options to turn around profitability — increase prices, add advertising, or merge with other streamers. Over the past several months, most of these services announced price increases. In addition, levels of pricing were offered, if you want to put up with advertising. Those who do can pay a lower price.

 

Starting at the end of this month, for example, Amazon Prime Video will be charging viewers another $2.99 per month. If you don't pay the extra fee, you will be forced to watch advertising interspersed within all your shows. Disney, Netflix, Max, Apple+, and others have raised prices, and some have introduced advertising as well.

 

These moves have had a predictable knee-jerk reaction from their audience. Consumers who didn't care suddenly became interested in discovering exactly how much they were paying and for what services.

 

Back in June 2022, I pointed out in a column "Streaming Come of Age," that almost a third of U.S. consumers underestimated how much they spend on subscriptions by $100 to $199 per month, according to a study by market research firm, C+R Research. It was also true that many people (42 percent) have forgotten that they are paying for a streaming service that they no longer use. That appears to be changing. In the past two years according to Antenna, which studies subscription services, about 25 percent of consumers who had subscribed to the major streaming services have dropped three or more of these services.

 

Some consumers, like my brother-in-law, who is an avid sports fan, are debating whether cutting cable or cutting streamers is the cheapest way to go. This is surprising since streaming services have been the beneficiary of the recent trend of cutting cable services. By the end of 2023, over half of U.S. consumers (54.4 percent) have dropped cable TV and traditional Pay-TV services, according to Insider Intelligence.

 

For some streamers that lack the scale needed to achieve profitability, the only course that makes sense is merger or acquisition. Paramount, for example, is in discussions with Warner Brothers Discovery to combine forces. Rumors abound that other streamers are going down the same path. Disney+ is acquiring the remaining 33 percent stake in Hulu it does not already own from Comcast.

 

Merging two unprofitable streaming services into a single service might improve scale, but probably not enough to guarantee profitability. Subscribers of both services could save money, but beyond that, I can't see how the costs of producing content would change. 

 

It may be that we are on the verge of a "back to the future" moment where bundles of streaming services are offered at a discounted price as they were on cable. What bothers me more is that the trend toward reinstating advertising in streaming services takes us back to a time when audiences were forced to watch hours of mindless drivel on cable. I was saved with the advent of DVR which allowed fast-forwarding through ads. It is not available on streaming. That puts most of us between a rock and a hard place. Who knows, it may make cable a better option for many once again.  

 

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.

 

Numerous studies have predicted that climate change will be the death knoll of skiing. That may be true, but year after year, ski resorts large and small seem to eke out one difficult season after another. And not every year has been a disaster.

 

No one is denying that the weather is changing, and winters are getting warmer. This week, which kicks off the 2023-2024 ski season, for example, most of the country is experiencing warm weather, disappointing skiers and resorts alike in the Midwest and New England.  And yet, during the 2022-2023 ski season, there had been mammoth snowfalls in some areas of the country. Climate change can do that, dumping extraordinary amounts of precipitation in some places while causing drought in others.

 

Record snowfall totals at western ski areas, for example, contributed to the number of skier visits, while overall average snowfall at ski areas across the country totaled 224 inches. That was a 30 percent increase above the 10-year average, which contributed to an increase of six days for the season, above the average of 116 days. 

 

New England winters, where I live, have been warming faster than the national average. Over the past 50 years, the temperatures have increased by 4.5 degrees and as the weather gets warmer, nature is producing less snow. For the entirety of New England, January 2023 was the warmest it has been since record-keeping began in 1895. New Hampshire had its third warmest winter on record.

 

As such, snowmaking has become the saving grace for the ski industry. Ski resorts have become increasingly reliant on snowmaking to combat climate change. Today, more than 90 percent of resorts depend on some system of artificial snow production.

 

Some may be surprised to know that investment by the ski industry hit a record high last year at $812.4 million and is expected to be even higher this season. The lion's share of spending was on upgrading lifts, but snowmaking has also taken an increasing share of expenditures. Climate change has made that a vital area for continued improvement. Overall, resorts reinvested $26 per skier visit back into their operations last year.

 

As the winter temperatures get warmer, companies are coming up with technology to counter the temperature changes. Back in the day, making snow required temperatures around 14 to 10 degrees below freezing. Today, new snow-making machines can make snow with temperatures as high as 80 degrees — if you are willing to spend the money to do so. Improvements in snow guns, for example, can make copious amounts of snow much faster, and at higher temperatures. Unfortunately, snowmaking is an energy-expensive process, especially in compressing the air needed to spread the artificial snow.

 

Most local utilities limit the amount of energy resorts can consume. However, both hardware and software breakthroughs have allowed energy cost-savings and efficiencies in the snowmaking systems that encompass everything from hydrants to fan snowmakers, and computer systems that can automate and analyze the entire process. 

 

One of the challenges many resorts face is drought in many regions. The amount of water needed to make snow doesn't change. Areas that are experiencing decreases in their water supplies due to climate change or resort expansion are scrambling to come up with ways to conserve and/or increase their water supply. 

 

Last season (2022-2023), the $50 billion U.S. ski industry saw an estimated 65.4 million skiers and snowboard riders hit the slopes. That was a jump of almost 5 million skier visits from the previous season, according to the National Ski Areas Association.  Factors that boosted industry performance were heavy snowfall in ski areas on the Pacific Southwest and the Rockies. The number of working ski areas also increased a bit from 473 to 481.

 

In 2024, the arrival of the El Nino cycle is set to bring a warm dry winter to this part of the world. The impact of climate change colliding with the El Nino event has a 54 percent chance of being one of the top five events since 1950, according to the U.S. National Oceanic and Atmospheric Administration. Mild and wet with a cooler drier end to winter, is the NOAA prediction. However, The Old Farmer's Almanac is predicting a banner ski season for 2024. 

 

No matter what forecast proves accurate, snowmaking will continue to be the difference between a good and a bad year for the ski industry overall.

 

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.

It is the season to be jolly, but don't let your busy schedule interfere with some "must-do" planning for this year and next. At the top of your financial list should be reviewing your tax-deferred accounts.

 

First things first. If you are required to take a minimum required distribution from your IRA or 401(k) by the end of the year, you are running out of time. The new rules state that if you are 73 years of age in 2023 you are required to take a mandatory MRD before January 2024. This requirement includes both pretax and Roth 401(k) accounts, and most IRAs.

 

If you skip your yearly RMD or don't withdraw enough, there is a 25 percent penalty on the amount you should have withdrawn. You can reduce that penalty to 10 percent if the RMD is corrected within two years, according to the IRS.

 

By now, you may know that the Internal Revenue Service has increased the amount of money you can contribute to a qualified IRA plan for 2024. The standard tax-deductible contribution limit for next year has risen from $6,500 per taxpayer (49 years and younger) to $7,500. If you are 50 years or older, the IRS will allow you to make a catch-up contribution. The amount has been increased from $7,500 in 2023 to $8,000 in 2024.

 

Contribution limits apply to all your IRA accounts in total as an individual taxpayer. So, if you decided to split your contributions between your two Roths and a traditional IRA, that is fine with the IRS, if the total contributions are within the limit. If you are married, that means that you both have the right to contribute the same equal amounts. That means you can double the limit in your combined accounts. However, remember that the contributions apply to only earned income. Income from investments, dividends, or excess student loan money does not qualify.

 

Once you reach the age of 73, you can no longer contribute to a traditional IRA. However, for a Roth IRA, you can continue to make contributions at any age. As a rule, you will have until Tax Day to make IRA contributions for the 2023 year. That means you can still contribute toward your 2023 tax year limit of $6,000 and the catch-up limit (depending upon age) until April 15, 2024. After Jan. 1, 2024, you can also make contributions toward your 2024 tax year limit until Tax Day, 2025.

 

There are limits on who can contribute to tax-deferred accounts depending on your income level. The IRS phases out some of the tax advantages of an IRA for wealthier savers. As you earn more money, the government decides that you need less help saving for retirement. Jeff Bezos or Elon Musk, for example, do not need as much help as you or I in saving for retirement. However, if either men or their spouses are enrolled in an employer retirement plan, such as a 401(k), they can make the full IRA contribution regardless of income.

 

Those interested in the cut-off income levels, partial phase-outs, and single versus couples' income, can get all that information easily at the IRS website. 

 

As far as employee contribution plans, those who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plans, have seen their contribution limit raised to $23,000, up from $22,500. The catch-up limit for 50 years and older in 2024 will remain the same ($7,500), For those contributors, the overall contribution limit is now $30,500. However, the IRA catch-up limit was amended under the SECURE 2.0 Act of 2022 to include an annual cost-of-living adjustment but remains at $1,000 for 2024.

 

If I were you, I would take the time this weekend to review where you are as far as your 2023 tax-deferred contributions and what you plan to do in 2024. You still have time to make changes and if married please, please talk it over with your spouse.

 

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.

If you still think that fundamental variables such as earnings results, price/earnings ratios, and future sales prospects determine where the equity markets are going, you are living in Lala land. Today, the flows into the options markets determine the future direction of stocks and indexes. At the pinnacle of this market trend lies the zero-date option.

 

But before we get into that subject, I think an option primer is in order.  For those who don't know, options give traders the right to buy or sell a particular stock or index at a specific price by a stated date. Leverage is involved, since one contract allows you to control 100 shares of a stock at a fraction of the price one would normally need to buy a similar number of shares. Instead of committing $13,500 to buy 100 shares of Alphabet, for example, the buyer of the option can control the gains (or losses) of that block of stock for a few hundred dollars. But you don't get to keep this option contract forever. The length of time a contract is in force varies. Some contracts go out for several years, but the more common options are in terms of months, weeks, and now, days.

 

The longer the contract, the more one pays. This premium is in addition to the price of risk or volatility the seller demands, granting you the contract since some stocks and indexes are riskier than others. In the old days, if I placed a bullish bet on the price of a stock that I expected would go up in price over the next few months, I could make several times my money. If on the other hand, the stock went down or simply did nothing, I would lose all my investment. In short, I am betting the price goes up (a call contract) or a bet that the stock will decline (a put contract).

 

Over the last 50 years, options trading has grown in influence until today it rivals the stock market in importance. Some say options have become the tail that wags the dog. While the popularity of options has increased, the trend toward shortening the length of time of option contracts has also grown. But it wasn't until COVID-19 that traders’ appetites for taking large risks came to the forefront. The sharp decline of the stock market over a short period during the initial phase of the pandemic set the stage. The government's response, which triggered a huge spike upward in financial markets, brought in an entirely new generation of market participants.

 

An influx of retail, stay-at-home traders sparked a desire for big risks and big returns. It was the era of meme stocks, of supply chain shocks, inflation, Fed interest rate increases, and AI. Over the last three years, all of these developments made trading 'events' such as macroeconomic data or Fed meetings a popular blood sport. Enter the idea of ODTE. 

 

ODTE is an acronym for zero-days-to-expiration options. Professional proprietary traders that normally hold billions of dollars in equities needed to hedge their risk around one day economic events such as a data release or monetary policy meeting. Traders used ODTE options to protect their stock positions against adverse moves in the overall markets.

 

An announcement by the Fed to hike interest rates could send the stock market down 2 percent in one day. A bad inflation number could do the same thing. This week's date release of the Consumer Price Index on Tuesday, the Producer Price Index, and the Fed's FOMC meeting on Wednesday would be examples of these one-off events.

 

Over time, that strategy worked so well that more and more traders decided that what worked for one-day events could work every day for everything from stocks to bonds to indexes and even commodities. Institutional investors, including hedge funds and asset managers, moved into certain indexes like the SPX (S&P 500 Index futures). As a result, ODTE accounted for more than 43 percent of SPX's daily volume in the first half of the year, according to the CBOE. After the FOMC meeting on Wednesday, for example, $3 trillion worth of the SPX traded in a few hours.

 

It didn't take long before retail traders followed the big boys into this ODTE arena. As a result, by the end of October 2023, the market share of option contracts expiring in less than five days was 59 percent, according to SpotGamma, which monitors and publishes metrics of the options market.

Buy-and-hold strategies, despite their long-term track record of success, have become passé among many millennials. Betting on whether the price of a stock will go up or down before the close of each day has nothing to do with investing. It creates an atmosphere where all stocks become meme stocks. It is the reason why some companies that announce dismal earnings in the morning and drop 15 percent at the open can be up by 5 percent by the end of the day.

 

Some critics claim that ODTE options cause needless volatility in the markets and among stocks. Overall, if daily volumes are evenly balanced between those who are buying and those who are selling these options then the impact on the overall market is somewhat benign. It is when everyone decides to move to one side of the boat at one time that problems could occur. JP Morgan earlier this year argued that under certain circumstances ODTE options could turn a 5 percent intraday market decline into a 25 percent rout.

 

Regardless of the risks, more and more brokers are jumping into this market attracted by the order flow and fees it offers. As such, it appears that the chances of volatility accidents should rise over time. One thing is for sure, the days when one could feel confident that investing in quality companies would be reflected in the price of their stocks is disappearing. 

 

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.