The nation's Strategic Petroleum Reserve (SRP) has been reduced by more than 25 percent over the last year. That is the lowest level in 40 years. Oil had dropped below $80 a barrel mark this week, causing some critics to argue that it might be time to start building the SRP back up. I disagree.

 

My reasoning centers on a handful of geopolitical events that could send oil prices soaring in the first week of December. To understand how important the SRP might be in that case, one needs to know more about the Biden administration's use of the SRP since 2021.

 

A year ago this month, on Nov. 23, 2021, President Joe Biden announced the release of oil from the Strategic Petroleum Reserve in response to the Ukraine/Russian conflict, which caused o and gas prices to explode higher. The president's stated goal was to lower oil and gas prices while addressing the lack of energy supply worldwide.

 

Since then, Biden's activist intervention in global oil markets has succeeded in reducing U.S. gas prices at the pump, as well as contributing to the decline in oil prices to their lowest level in more than a year. So far, 160 million barrels of oil have been released with another 10 million barrels scheduled to be drained this month. Some say that is more than enough. Maybe, maybe not.

 

To gain some perspective, let's look at the history of the SRP. It was first created by Congress back in 1975 in response to the 1973 oil crisis. For those who are curious, the nation's emergency crude oil is stored in underground salt caverns at four major storage facilities on the Gulf Coast, two sites in Texas, and two sites in Louisiana.

 

The purpose of the SRP was to manage market disruptions such as a war in the Middle East, an oil embargo, or a natural catastrophe. Our energy stockpile has been used by several presidents, most notably during the Iraq/Kuwait War in 1990-1991, Hurricane Katrina in 2005, and the 2011 Arab Spring energy disruptions. The Ukraine War and the subsequent sanctions on Russian-produced oil certainly fit the bill for use of the SRP and thus the release of oil from the U.S. emergency energy storage.

 

Criticism of President Biden's move to employ the SRP as an energy weapon has been harsh and varied. Some Republicans have called his decision reckless because it endangers our energy security at a time when there is so much global conflict and uncertainty. Others accuse him of a blatantly political move.

 

They say his use of the SRP before the midterm elections was simply a ploy to win over voters. If so, it worked. Gasoline prices dropped from more than $5 a gallon to $3.80 a gallon today. Voters may have also been swayed by the decline in pump prices since the GOP failed to score the "red wave" they were expecting. 

 

But to be fair, several presidents besides Biden have released oil from our stockpile during political campaigns. Bill Clinton, for example, did so just before the 2000 presidential campaign between Al Gore and George W. Bush.

 

However, this is the first time a president went on the record in admitting that he was using our petroleum reserves to reduce prices, rather than to bolster supplies. Most economists would laugh at that distinction, since ordinarily if you increase the supply of something, its price will decline over time.

 

To me, the Biden administration's activist interference in the global oil markets may just be the beginning. Until recently, the global price of oil has been in the hands of a few volatile foreign governments and OPEC. But a lot has changed in the American oil patch since the 1970s. The U.S. is now one of the leading producers of oil and gas and a major energy exporter. Pricing power comes with that kind of production.

 

The willingness of the U.S. government to enter the fray and become a price setter instead of a taker via the SRP could become a geopolitical tool and an answer to the OPEC+ Cartel's domination and control of energy prices and supply. The bottom line: by focusing on price, President Biden may be putting the price-fixing cartel of OPEC+, and Russia on notice that there is a new boy on the block.

 

I also believe that the administration's announced intention to start rebuilding the SRP somewhere between $67-$72 a barrel of oil is an attempt at establishing a floor of price support for oil. That may be comforting news to U.S. energy companies. If the oil majors and shale producers believe that the U.S. government is willing to backstop their business at a certain oil price, would that give them added confidence and an incentive to increase U.S. energy supplies? I think so, but now is not the time to start building back our oil reserves.

 

On Dec. 5, 2022, the Group of Seven (G7) and the European Union (EU) are planning to embargo Russian oil. In addition, a G7 plan, intended as an add-on to the EU embargo, would allow shipping services providers to help export Russian oil, but only at enforced lower prices. An embargo like that could take as much as 2.4 million barrels per day of Russian oil off the market. That could increase oil prices dramatically. There is also an added risk that Russia retaliates and cuts off energy supplies to Europe in response.

 

Oil analysts worry that these plans could backfire, at a time when seasonal energy demand is at its highest. OPEC is worried as well. They are rumored (officially denied) to be debating a 500,000 barrel per day increase in production just in case.

 

If the worse happens and oil prices skyrocket higher into the first quarter of 2023, what will be the U.S. response? Will the president stand fast, or will he be forced to order another 90-100 million barrels, of oil, or more to be drained from the SRP? I am betting he would be forced to release more barrels because the alternative could be $120 barrel oil in the months ahead.

 

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

Thanksgiving is right around the corner and then the Christmas holidays are upon us. Will Santa deliver coal, or will the stock market find gains in their stocking?

 

The bulls are expecting a pretty good market between now and year-end. Historically, the evidence is on their side, although there have been several years when the Grinch stole Christmas, stocks usually gain during the coming holiday season.

 

On the other hand, history has not been as reliable in predicting the market's direction of late. That is understandable, given the continuing presence of COVID mutations, a European War, soaring inflation, and rising interest rates. If the equity market wanted a wall of worry to climb, it surely has one.

 

On the plus side, we have had two inflation indicators, the Consumer Price Index, and the Producer Price Index for October, signaling that if inflation isn't declining, it is at least not rising as fast. As a result, interest rates and the U.S. dollar have also declined a little. All the above has given equities a reason to reach my target area (4,000-4,100). This week, the S&P 500 Index hit 4,028.

 

I expect that we are running out of bull fuel. We could hit the higher end of my range, but if we do, the markets would be rising on fumes and would not likely stay there very long. Does that mean we have to immediately re-test the year's lows? Not necessarily.

 

Over the next week or two, I see increased volatility with a risk of a 100-point pullback on the S&P 500 Index down to 3,850. However, a bounce could happen after that. Slowing consumer demand, worries over Christmas sales by U.S. retailers, and further layoff announcements should dampen enthusiasm for stocks. And then what?

 

We have three inflation points in December. The Personal Consumption Expenditure Price Index (PCE) will be released on Dec. 1. It is this inflation index that carries the most weight with the Fed. It sets up a binary event for the markets.

 

If this number is cooler than expected, investors will believe it confirms that inflation is dropping. Markets would rally if that happened. If it comes in hotter, then we swoon. Either way, we still have the next CPI and PPI numbers to contend with, so prepare for further volatility.

 

On Dec. 9, the CPI is released, followed by the PPI on December 13, 2022. Those could be wild card events -- either to the upside, or the downside. And on Dec. 14, the next FOMC meeting decisions will be announced, along with Chairman Jerome Powell's Q&A session afterward.

 

As you can imagine, the fate of the markets will rest on how all these data points line up.

 

Economists argue that market participants are asking for trouble by resting their hopes on just two inflation numbers. I agree. We are bound to see a lot of fluctuation in the coming months in the inflation data. Rarely, do we see inflation drop precipitously without some exogenous event to trigger a free fall. Economists would expect several conflicting inflation reports, some up, some down, before seeing a new trend form.

 

The Fed has already stated that while they welcome the good news on the inflation front in the short-term, nothing is going to change in their stance. This message was underscored repeatedly last week by a long line of Fed Heads who messaged the markets that interest rates are going to stay higher for longer.

 

So where does that leave us regarding the cherished Christmas rally? I imagine we will see several rapid moves up and down in the markets before the FOMC meeting in mid-December. At that point, I am hoping (but not expecting) that the Fed will be less hawkish. There is a high probability that Powell will walk on that stage and dun his Grinch mask. If he does, it would likely be a "look out below" moment for the markets. In which case, think coal in your stockings. However, given the soaring price of coal worldwide, a little coal in my stocking would not be all that bad.

 

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 unemployment rate for veterans in the U.S. is 2.5 percent. That is a level that is 1.2 percentage points lower than the national unemployment rate. Much of this declining jobless trend can be attributed to the success of hiring, training, and education programs of businesses and the government.

 

Today, veterans account for 7 percent of the civilian population, according to the Bureau of Labor Statistics, so that's good news for the overall economy. Granted, the tight labor market and demand for workers after the COVID-19 pandemic, have helped everyone seeking a job find one.

 

In the case of veterans, they have had some extra help from the U.S. military, the Department of Veterans Affairs, and various veterans' service organizations in preparing them to re-enter the U.S. labor force. In addition, American companies have launched initiatives of their own that have successfully hired hundreds of thousands of vets as well.

 

It wasn't always this way.

 

Much of the impetus for this combined effort was triggered by the Great Recession and the dearth of jobs that were available to returning service members who were damaged and stressed out by their service in Afghanistan and Iraq. Credit goes to President Barack Obama who established several service initiatives supported by a bipartisan Congress.

 

Today, among businesses, veterans are seen as an exceptional class of Americans. Thanks to government programs that provide tax breaks, salary subsidies, and regulatory benefits the risk of hiring vets has been diminished substantially. 

 

The gains in employment rates are good news for vets. Some readers might ask why these ex-members of an extremely capable fighting machine need all this extra help. This bleak batch of statistics concerning our nation's heroes might give you a few reasons:

 

Since 9/11, four times as many U.S. service members have died by their hands as have died in combat. Of all adults who are experiencing homelessness, 13 percent are veterans, and PTSD impacts 15 out of every 100 veterans daily.

 

I can commiserate. Back in the day, my job search suffered after my return from Vietnam. Part of that difficulty derived from the blowback I received from employers who equated my service with an unpopular, controversial war. I also know what it means to suffer from PTSD.

 

I count myself lucky because I benefited from the help I received from the psychology department of a local university I attended on the GI Bill. Still, many years later, while paddling up the Amazon River on vacation with my teenage daughter, I suffered constant flashbacks and nightmares in those jungles and afterward for days.

 

In any case, I can attest that many vets may feel isolated once they separate from their band of brothers. It is even worse for female veterans, who relied on sisterhood to navigate a male-dominated military. More than 70 percent of a national survey of 4,700 women veterans admitted adjusting to civilian life was difficult.

 

For many vets, it may take years to find a new identity, employment, and a new purpose in life. Employers say that vets do bring specific skills like leadership ability, and a strong sense of mission to the job. Companies eager to hire may sometimes be disappointed, however, because a job fit that seemed ideal on paper doesn't work out that way once the vet is hired.

 

A mistake many vets have made is accepting a job similar to what they did in the service, only to trigger unexpected reactions. A military convoy truck driver, for example, may discover that his new FedEx job simply aggravates negative feelings from his combat experience. It is one reason why more than 50 percent of vets returning to the workforce quit and find a second job within a year. 

 

Fortunately, both government and businesses are now aware of the unique pitfalls vets face and have developed all sorts of successful re-training programs that exist within companies, in various governmental organizations, and the non-profit sector.  

 

At my old alma mater, Forbes Magazine, a list of America's "Best Employers for Veterans," is now in its third year of publication. Forbes partnered with a market research company, Statista, to survey 7,000 U.S. veterans working for American-based companies employing 1,000 people or more. Two hundred companies received the highest score with aerospace and defense companies claiming the top three spots.

 

Government services occupied 24 spots in the list with NASA, the Environmental Protection Agency, and the Department of Commerce leading the public sector pack. One reason the government is so heavily represented may be that veterans are given preference over other applicants for almost all federal government jobs.

 

All in all, veterans today have an enormous number of avenues available to them and, for the most part, most ex-military service members are willing and able to take advantage of them. That doesn't mean they won't need our help in the future. If a country is willing to go to war, in my opinion, the greater the obligation to care for those who fought.

 

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.

More than 23 million Americans purchased or adopted pets during the COVID-19 pandemic. Today, these new pet owners are discovering that the costs of caring for these pets are climbing higher and higher as inflation takes its toll.

 

The annual inflation rate over 12 months ending in June 2022 was 9.1 percent. We all know what this has done to food prices, rents, energy, etc. One subset of the population that has been especially hard hit by rising inflation is pet owners, according to a recent study by Veterinarians.org. Their Special Reports Team surveyed 1,000 U.S. pet owners to find out how they were coping with inflation. The results are not encouraging.

 

Half of those surveyed are trading down to cheaper pet food, whiles 41 percent switched to cheaper treats. More than half (55 percent) canceled their food subscriptions to purveyors like Chewy and Amazon.

 

At the same time, with the number of COVID-19 cases declining, more and more workers are being asked to return to the office. As a result, many pet owners are waking up to the need to place their pets in doggy day care. Beyond the emotional wrenching, this may cause for both owner and pet, there is the problem of finding a place to care for him or her. Doggy day cares and boarding kennels have waiting lists that in many cases are months long. What is worse, many of these new owners have failed to socialize their dogs, making boarding them nearly impossible.

 

And while pet owners may feel relieved if they were able to nail down one or more services for their pet, the cost of doing so is fast becoming untenable for many pet owners. Rising costs have reduced day care and boarding visits by between 20-24 percent.

 

Veterinarians' services are just as much in demand as a day care with waiting times for appointments measured in weeks, if not months. Many vets are not taking on new pet owner clients. There has been a 28 percent decline in vet visits, according to the survey. What is worse, 46 percent of owners have had to forego or delay veterinary procedures, or treatments, and a further 33 percent have had to cancel their pet's prescription medications.

 

Sadly, almost one quarter (24 percent) of pet owners are considering rehoming their pets or rehoming them to shelters, or rescue as a result of inflation. My wife and I have personal experience in this area. As many readers are aware, we lost Titus, our 13.5-year-old chocolate Lab, in April 2022.  A few months ago, we were contacted by a young guy in the area, who could no longer afford to keep his 2-year-old standard poodle, which he purchased in 2020. He asked for our assistance in placing his pet in a good home.

 

True confessions force me to admit that a poodle did not fit our image of the type of dog we wanted to hike, swim, or run with, but we promised to do what we could to place him. In the end, none of that mattered. We fell in love with this curly, mop-haired, COVD cast-off. The first thing we did was purchase pet insurance, followed by selecting a great trainer and teaching him to swim and retrieve.

 

And while this dog hopefully will live a happy-ever-after existence, many more will not. More than 22 percent of pet owners have already applied to special services in their state for help in paying for pet-related costs. The majority of those surveyed believe that a food pantry for pets would help them navigate through this inflationary period. 

 

Unfortunately, we could say the same thing for many Americans well who are having to decide on whether to put food on the table or fuel up to make the commute to work.

 

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 should have come as no surprise, but it did. Investors were poised for a slightly less hawkish Jerome Powell but were once again disappointed by the Federal Reserve Bank chairman.

 

Chairman Powell and his Federal Open Market Committee's decision to maintain a course of rising interest rates for longer punctured this most recent bear market rally. The three major indexes dropped more than 2 percent and continued to fall for the remainder of the week.

 

There was nothing new in the FOMC statement, nor in Powell's remarks afterward in the Q&A session. To some observers, he seemed even more hawkish than usual. Sure, he conceded that at some point, the Fed might pause in their tightening but not yet, and a pause would not mean a pivot toward a more dovish stance anyway.

 

How many times will the Fed have to reiterate its stance before the markets get it? If there is money to be made in promising hope without reason, traders will continue to suck investors into these bear market rallies. However, there may be other more interesting areas that an investor might want to consider.

 

For example, those who have been hiding in cash, or those who may be losing their shirts invested in equities, may want to consider purchasing some U.S. Treasuries. One-through-five-year notes are yielding between 4.87 percent and 4.44 percent. Granted, that is only giving you about half the present inflation rate, but even the Fed is expecting the inflation rate will come down over the next 12 months. In the meantime, you are at least earning something, instead of losing more money in the stock market.

 

Another suggestion might be to consider Series I Bonds, which are U.S. savings bonds that protect you from inflation. You earn both a fixed rate of interest and a rate that changes with inflation. Twice a year, however, the government resets the inflation rate for the next six months. Nov. 1, 2022, for example, was the last day you could have purchased an I Bond that was giving you more than 9 percent. That rate has since dropped to 6.89 percent for the next six months and will likely see a comparable drop six months hence. You must keep I Bonds for one year after purchase.  

 

Now that doesn't mean you should go out and sell everything and pile the money into U.S. Treasuries. But investing some money in short-term debt might be a smart investment. I would at least ask your investment advisor about the possibility if you haven't done so already.

 

So, is this latest rally over? Not necessarily, but if the markets are going to continue to move up, at least for another week or two, it will have to be on something other than Fed policy. About the only bullish event in the U.S. that I could see that would trigger another rebound would be the results of next week's mid-term elections. 

 

As of today, Republicans are expected to take back the U.S. House, and maybe the Senate. If so, a two-year period of paralysis will likely descend again on our government. Historically, financial markets have liked that kind of political standstill. No new major legislation would likely be passed. That means taxes will not rise, nor would spending increase, except on the margin. Predictability is the grease that oils the wheel of market gains, all things being equal.

 

Rumors that China may be considering lifting its Zero-Covid policy propelled the markets higher on Friday. If this rumor, which is based on a news story from Bloomberg News, turns out to be true, that could give a major growth boost to world economies. China’s economy has been disrupted by their frequent openings and closings of cities, factories, ports, etc. based on virus outbreaks. A change in policy could boost demand, imports, exports and impact many companies worldwide. However, even if the rumor is true, a full reopening of the Chinese economy wouldn’t happen until March 2023.

 

Could that outcome trigger a rally in the markets for a couple of weeks? Probably, and we might be able to put together a bullish scenario that could see my target of 4,000-4,100 met on the S&P 500 Index achieved. I warned investors that this relief rally would be different and so far, it has been — lots of ups and downs. In the meantime, equities are still at the mercy of interest rates, the strong U.S. dollar, and geopolitical events.

 

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.