Oct. 1, 2023, is the deadline to avert yet another government shutdown. At this point, the chances are high that partisan politics will once again disappoint the country and most voters.

 

The truth is that the U.S. has a long history of dysfunctional shutdowns. There have been 20 such incidents since 1976. The longest single shut down in history occurred from Dec. 22, 2018, until Jan. 25, 2019.

 

The credit or blame for that debacle goes to former President Donald Trump. Trump held government workers and the nation hostage to fund his pet folly, a border wall between the U.S. and Mexico. How important was that issue? The subject has disappeared entirely from the political realm with even the most radically conservative right-wingers dropping the issue as an embarrassment.

 

As the House of Congress returns to business this week, far-right Republicans have made it clear to Speaker Kevin McCarthy that there is no way they will support legislation to keep the government open unless they see substantial spending cuts, including less aid to Ukraine, tough new border policies, and in the case of Rep. Marjorie Taylor Greene and others, an impeachment inquiry against President Biden.

 

Behind the scenes presidential candidate Trump has been orchestrating a Biden impeachment effort among members of the Freedom Caucus and just had dinner this past weekend with his henchwoman Greene on the subject. Speaker McCarthy caved in to the impeachment demand on Tuesday, hoping to appease his opponents, but that was not enough to satisfy their demands. 

 

Readers may recall that this same group of dissidents sabotaged the debt-ceiling talks and were largely responsible for the subsequent downgrading of the nation's debt by the credit agencies. Americans will pay for their actions in the form of higher interest rates for U.S. government debt for decades to come.

 

On Tuesday, Rep. Matt Gaetz, the Florida Republican, delivered a floor speech that outlined the conservative case for ousting the speaker. He and others in his group, the "Freedom Caucus," believe McCarthy failed to honor the promises he made to win the speakership. They are disappointed with his handling of the budget process and his reluctance to investigate President Biden and his family. Gaetz, by the way, is the guy the Department of Justice refused to prosecute for sex trafficking with underage women (although a Gaetz associate was sentenced to 11 years in prison for the crime).

 

Economists believe that a shutdown normally reduces economic growth by 0.15 percent for each week it lasts. Why? Federal government spending amounts to roughly one-quarter of Gross Domestic Product. A shutdown will immediately reduce that spending. If a shutdown is short, whatever loss of spending that occurs is usually made up once the government is back in action. "Short" is the key word here.

 

A Moody's economist, Mark Zandi, estimates that if for some reason this shutdown were to last a lot longer, for example, a full quarter, the impact would be a 1.2 percent hit to fourth-quarter economic growth. How likely is such a historically unprecedented event to occur?

 

The House would need to pass 12 appropriations bills in the next nine working days to fund the government before the deadline. It has not passed a single one thus far. The U.S. Senate is already preparing to pass a short-term funding bill (called a continuing resolution) to give legislators time to hammer out a full-year agreement. The thinking is that unless that happens a shutdown is almost guaranteed. Unfortunately, there is no guarantee that the hard-liners will even agree to that.  Gaetz made it clear that any attempt to pass a resolution by McCarthy would trigger a move to remove him from office immediately. The hard-liners suspect that a short-term resolution would only lead to a bigger spending bill that would thwart their objectives. 

 

Lending credence to that suspicion is the fact that several Biden administration priorities including an additional $24 billion for Kyiv, $4 billion for his border security program, and $12 billion for a FEMA disaster relief fund are already part of the resolution that would be passed by the Senate.

 

Further complicating the problem is the position of the speaker, himself. Many of the Freedom Caucus are threatening to depose the speaker if he does not give in to their demands or attempts to turn to Democrats for the votes, he may need to avoid a shutdown. If McCarthy were ousted, it would almost guarantee a protracted shutdown in my opinion.

 

Normally, government shutdowns do not have much of an impact on financial markets, however. There have been exceptions such as the 4 percent decline in stocks during the Trump debacle. That could happen again if the antics in Congress were to escalate further.

 

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 we enter the second week of the month, September is living up to its reputation as a bad time for stocks. No matter the reasons, stocks should see further declines in the week ahead.

 

There are several villains in this sell-off besides seasonal factors, however. Bond yields continue to climb with the Ten-year, U.S. Treasury bonds hitting 4.30 percent at one point this week. Place the blame on Treasury Secretary Janet Yellen and the government. She continues to auction billions in Treasury bills and bonds to replenish the Treasury's general account. That avalanche of new issues is driving up yields and squashing bond prices.

 

Then there are oil prices. A barrel of West Texas crude was closing in on $90 a barrel this week. That has re-ignited fears that the rate of inflation is going to start climbing once again. Remember, oil is still the fuel that runs the world's economy. OPEC-plus seems bound and determined to keep the price as high as it can to balance its budget. All the cartel members, (even Russia) have agreed to extend production cuts until the end of this year.

 

And let's not forget China's faltering economy and its rocky relationship with the U.S. After months and months of blacklisting Chinese companies like Huawei, the Chinese chip maker, and mobile phone company, China is striking back. And what better target for payback than Apple?

 

This week China announced that they have banned the use of iPhones for central government officials as well as employees of state-run companies. To put that in perspective, Apple generates about 17 percent of iPhone sales from China.

 

The Chinese are not stupid. They know Apple is the No. 1 company in the world and is held in countless mutual funds, exchange-traded funds, and individual portfolios throughout the U.S. How better to play tit-for-tat than to hurt American investors in their pocketbooks?

 

Apple shares plummeted on the news, taking the tech sector and the market down with it. At the same time, Huawei has built an advanced 7-nanometer processor to power its latest smartphone. It is in direct competition with Apple to win back Chinese consumers and so far, it is succeeding.

 

In the meantime, the U.S. dollar continued its eight-week climb to its highest level since March. The continued strength in the U.S. economy, while other nations like Europe and China experience faltering growth, has kept the greenback strong. This is hurting overseas trade. A stronger dollar makes it tough for U.S. exporters to compete overseas.

 

Last week, I warned investors to tread carefully in September. Thus far, I have been proven right. I do expect this shallow sell-off to continue into next week, but then we should see a bounce. We may re-test the August lows (around 4,330 or so on the S&P 500 index), but that remains to be seen. Holding that level would be positive. If not, we could face another 5 percent decline before bouncing back. 

 

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.

Women with young children have hit their stride in America's workforce. The ability to work remotely has given these women the flexibility to make money while raising children.

 

A new report in June 2023 by the Hamilton Project at the Brookings Institution indicated that prime-age women (ages 25 through 54) had a labor force participation rate of 77.8 percent.

 

What was even more surprising was that women whose youngest child is under the age of 5 are the main locomotive behind this upward trend. Prepandemic, this group's participation in the workforce peaked at 68.9 percent but has now jumped to 70.4 percent. No other category of women has surpassed their prepandemic level thus far.

 

This is a far cry from the predicament women faced during the pandemic-induced shutdown of schools and the inability to find day-care services. At that time, working women were forced to choose between taking care of the kids or employment. Those who tried to do both, like my daughter, were under enormous pressure on both ends.

 

How bad did it get? In 2020, about 113 million women aged 25-54 with partners and small children were out of the workforce, according to the International Labor Federation. In that year, more than 2 million mothers left the labor force. That compares to 13 million males out of work.

 

Two factors conspired to get these women back in the workforce. The supply/demand imbalance of workers in the U.S. has resulted in the present-day historically tight labor market. Possibly even more important was the introduction of remote work. More research needs to be done, but one idea is that women who were highly educated and allowed more flexibility to work remotely rejoined the labor force. For those like my daughter who works in a high-level, high-demand management job in the retail sector, adding remote flexibility allowed her to retain her stressful job and care for her 8- and 11-year-old children.

 

The ability to tend to a child's needs, whether to pick up or drop off from school, make a doctor's appointment during work hours, or handle playdates during the summer allows mothers to juggle both jobs. If that is not possible, many moms are forced to throw in the towel on jobs like my daughter's and either quit or go part time. 

 

There does seem to be a cut-off point where women with very young children remain less likely to work than women with older kids or no kids. Normally, childbirth is when a woman's career path changes in the U.S., which impacts the rest of their economic life. It usually limits income, job selection, promotions, and fringe benefits.

 

For decades, women advocates have lobbied for more flexibility in the workplace that would allow women with children to remain in the workforce. COVID-19 and the subsequent remote work policies could have major implications for women and their future ability to hold careers and all that comes with it.

 

But there are still bumps in the road for working women. Indeed, the job search company, surveyed more than 1,000 stay-at-home moms, who re-entered the workforce only to find a good deal of bias in their job search. About 73 percent reported some bias due to the employment gap on their resumes. Many found difficulty in obtaining a flexible position.

 

Unfortunately, as the risk of contagion recedes, an increasing number of employers (mostly males) are clamping down on remote work. Many large companies are insisting on at least three days in the office per week. Employees are pushing back, but if the labor market weakens, workers may not have the leverage to resist the curtailment of remote work, at least for now. Longer-term, however, the aging of American workers should mean that labor shortages will continue and with it, remote work. That would be a big plus for women.

 

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.

Decades after the first lunar landing, the space race has come back into vogue. Driving the competition is the potential value of the moon's economic, scientific, and even geopolitical promise.

 

Dominance in space, while I was growing up, was something confined to comic books and sci-fi movies. In 1969 that changed. Three astronauts from the U.S. made "one giant leap for mankind" by walking on the Moon. As a high school student, I marveled that Mars would be next, but space exploration quickly took a back seat to other issues like Vietnam, Civil Rights, and the arms race.

 

Fifty-four years later, space is back, and it is now a real proposition. Countries like China, Japan, India, Russia, and the U.S. are looking to stake claims in this new extraterrestrial frontier. 

 

The current thinking is that the moon is a great place to test out the technology needed to further explore the universe. In addition, those that can establish a presence, and mine for water and other resources, will have the necessary ingredients to travel deeper into space to destinations such as Mars. In short, the Moon is the most obvious place to jump off into infinity and beyond for the winners.

 

NASA's launch of the un-crewed Artemis 1 last year was the opening shot in a long-range plan to send people to the lunar surface by 2025 and, in time, establish a sustained lunar presence. Other nations have a similar mindset and are not far behind the U.S.

 

Much of the world's attention has switched to a specific area of the Moon after researchers discovered water on the Moon in 2008-2009. The existence of water is key to sustaining human life on the surface and it appears that the South Pole of the Moon contains quite a bit of it.

 

Russia, which made history in 1966, when the Soviet Union's Luna-9 touched down on the Moon's surface, has been racing against India to be the first to land in that area. However, their Luna-25 vehicle crashed into the lunar surface earlier this month. That allowed India's Chandrayaan-3 vehicle to touch down a few days later. India became the first nation to reach the moon's South Pole.

 

For India and its people, it was the crowning achievement in becoming a new power in space. It had already succeeded in sending its landers to the lunar surface and deploying a space station. India now joins the U.S., China, and Russia as the only nations that have succeeded in accomplishing a controlled landing on the Moon. Many have tried over the years without success, most notably both Israel and Japan.

 

But giving up is not an option in the race for the moon's economy. Several nations, as well as private companies, have plans to explore the lunar surface. Japan's Aerospace Exploration Agency, for example, is launching a craft in a few weeks. Private companies such as Ispace and Astrobotic are also planning to send missions to the lunar surface with the intent of delivering cargo for governments. Altogether, there are more than 22 companies that have set their sights on the Moon.

 

Private companies are expecting this new space race, fueled by government competitors, will be a fertile field for future profits. Communication, defense, and data requirements are accounting for the largest share of private sector purchases right now. Entrepreneurs hope that products and services unique to the moon will soon follow.

 

In the case of NASA, supporting private industry is now part of their space program. Buying services from the private sector to support Earth orbit programs are already in place. Eventually, other business lines that could include transportation, water extraction, mining, and construction are contemplated. The fact that Boeing and Northrop Grumman (among others) built the Space Launch System rocket lends credence to these beliefs. In addition, several private companies are already working on spacesuits and Moon landers.

 

Critics worry that private companies may be putting the cart before the horse in investing in a new space industry at this early stage. Planning for the economic exploitation of the moon might happen, they argue, but it could be years away. 

 

Spending billions now to develop the technology that would enable the delivery of payloads to the moon, with no sure customer, or even a human presence on the lunar surface is risky at best. But risk has always been the price for innovation, for breakthroughs, and for building a better future. Governments are betting that space and the exploitation of the moon could spark new industries, more economic growth, and plenty of new jobs, so it is worth the risk. 

 

As for me, it's simple. I'm in for the long haul. If you have doubts, you only need to ask what would Buzz Lightyear do?

 

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.

Fed Chairman Jerome Powell indicated that he was "prepared to raise rates further" at the Jackson Hole Symposium this week. Investors who were hoping to hear a more dovish outlook were disappointed.

 

The market walked away with an understanding that interest rates had two paths forward. The best case was flat for a longer period, or higher if inflation persists. About last year's address, Powell said "The message is the same: It is the Fed's job to bring inflation down to our 2 percent goal, and we will do so."

 

Beyond Friday's event, it was a slow week with little volume and plenty of volatility. Second-quarter corporate earnings in the retail sector were lackluster for the most part with forward guidance indicating a slowing in retail spending on the margin.

 

On the economic front, data revealed further weakness in certain sectors, but the job market remained buoyant. The weakness in the U.S. Purchasing Managers Index (PMI) indicated that demand for new business in the services sector contracted. This followed a bigger-than-expected decline in Euro Zone PMIs as well as slowing growth in China. All this data indicates that inflation may continue to fall but most of the downward pressure could be due to a softening economic picture in Europe and China.

 

The most important event of the week, aside from Powell's comments, revolved around an individual company, Nvidia, the semiconductor giant. Nvidia is the world's leader in the manufacture of Artificial Intelligence (AI) microchips. It commands an 80 percent market share worldwide. Many Wall Street analysts believe we are just at the beginning of an enormous multi-year demand for AI chips that will benefit Nvidia enormously.

 

Following a blockbuster May earnings report that rocked Wall Street and sent the stock soaring up 200 percent this year, Thursday's second-quarter earnings announcement blew away what were already sky-high expectations. The company reported a 101 percent jump in sales from last year, while earnings were up 429 percent. They also guided higher revenues for the coming quarter that was $3.5 billion higher than the loftiest estimates.

 

However, sometimes there is a difference between a company's fortunes and what happens to its common stock. The stock price had been bid up relentlessly for weeks before the earnings results. The earnings did catapult the stock higher after the announcement in the pre-market hours by 7 percent.

 

It took most of the market higher with it and dragged the tech-heavy NASDAQ up over one percent.  And then boom, both the stock and the market tumbled shortly after the opening.

 

In hindsight, (as often happens in trading) all the good news was already discounted in the stock price. There was nothing left to do but sell on the news and that is exactly what traders did. Be aware, however, that this price decline has nothing to do with the fundamental value of the company and its prospects.

 

As for the markets overall, the S&P 500 index did give me the bounce I was looking for. It gained 2 percent this week before reversing back down. I believe we are in a topping process in the markets, which should continue into the second week of September. After that, I expect a bigger move down.

 

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.