On Sunday, Nov. 6, 2022, Americans turn their clocks back to Standard Time. Earlier in the year, the U.S. Senate unanimously approved a bill that would have made Daylight Savings Time (DST) permanent as of Nov. 20, 2023. What happened?

 

The U.S. House of Representatives has failed to act on the measure. In order to become law, the measure would need to pass the House and be signed into law by the president. Fundamental disagreements over the language of the Senate bill, called the Sunshine Protection Act, ultimately focused on which was the proper time to make permanent -- Daylight Savings or Standard Time.

 

Recent public opinion polls say most Americans would like to see DST made permanent. You might ask why and when did the present system develop, and what is the economic impact of changing it?

 

Benjamin Franklin came up with the idea in 1784, but it was Europe, specifically Germany, that first implemented the change back in 1916. In America, DST has had a checkered past, beginning with President Wilson, who first made it a law in 1918. It was repealed seven months later, reinstated in 1942 by FDR, and made official by Lyndon Johnson in 1966, who made the start and end dates of DST uniform across the country.

 

Arizona, Hawaii, Puerto Rico, American Samoa, the U.S. Virgin Islands, and the Northern Marianas do not recognize DST. Only 70 countries worldwide observe it, but those that do, are strict about it. For example, on Saturday, Oct. 30, 2022, clocks in most of Europe were set back an hour as DST ends.

 

In passing the Sunshine Protection Act, legislators in the U.S. Senate justified the permanent switch to DST by arguing that it could boost consumer spending, while reducing energy consumption by adding an extra hour of daylight at the end of the workday.

 

Historically, not everyone in the U.S. liked the concept of daylight savings. Farmers lobbied against the concept because it would give them one less hour of sunlight to send their crops to market. They also claimed the cows didn't like it because milking is done on a schedule and DST disrupts that.

 

As for energy savings, at one point the U.S. implemented DST year-round (from January 1974 through April 1975) to combat the energy crisis back then. Once again in 2005, Congress extended DST by a month to also keep energy costs down. Unfortunately, studies have shown that the fraction of savings on one's electric and gas bills from DST was more than offset by higher energy usage in other areas.

 

The U.S. Chamber of Commerce has long been a supporter of DST. The Chamber contends that consumer spending increases during DST. Retail sales jump due to more people shopping after work. Energy usage increases as well. More air conditioning and fan usage, and additional driving occur as consumers take advantage of extra daylight to care run errands. That explains the minimal gains in energy savings overall.

 

Two of their members, the golf, and the barbecue industry, have put numbers to their arguments. Golfers take advantage of the extended hour of play to the tune of $200-$400 million annually, according to the Chamber of Commerce, while profits to BBQ-related companies increase by more than $150 million per month. Restaurants, hotels and those businesses in tourism areas are also in favor of DST because they say visitors stay out later.   

 

On the negative side, William F. Shugart II, an economist at Utah State University, states that the changing of clocks itself can cost the country $1.7 billion in lost opportunity costs. He argues people could be doing something more productive. In addition, the Air Transport Association, as far back as 2007, believed the airline industry suffers more than $147 million in snarled time schedules worldwide as a result of the clock change.

 

Beyond the economics, which seems to have as many pros as it does cons, the social impacts are just as confusing. Longer daylight promotes safety for children playing outside, joggers, and dog walkers, and increases visibility causing fewer auto accidents.

 

Countering the pros, are arguments that moving clocks forward provides less sunlight in the morning when most children are going to school. Since most robberies are committed at night, however, extra daylight may cut down on crime.

 

In any case, do not expect Congress to move on legislation to make one or the other time change permanent this year. Depending on the outcome of the mid-term elections, something might change in 2023, but given the partisanship in Congress, I wouldn't hold your breath. 

 

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.

Traders are hoping for good news from the Federal Open Market Committee meeting on Nov. 2. Stocks have been rallying in anticipation, but the Fed has disappointed before. Will they do it again?

 

The bulls figure it this way: The economy is expected to weaken, at least moderately. However, the third quarter Gross Domestic Product (GDP) came in a bit better than expected rising 2.6 percent versus the 2.3 percent expected. So, there is no real proof that the bulls are right quite yet.

 

As for the slowing of inflation, there is little evidence of that as well. The Personal Consumption Expenditures Price Index (PCE) is a measure of prices that Americans pay for goods and services and is closely watched by the Fed. The PCE for September did come as expected, 0.5 percent. The University of Michigan Inflation Expectation index also rose in October.

 

Bond yields continue to gyrate and are held captive by every macroeconomic data point that is released. The dollar seems to be topping, at least in the short term. However, topping may not mean down, but just a period of moving sideways.

 

Nonetheless, the above combination of macro fundamentals is supporting stocks. The strength of the market has been even more remarkable given the earnings results of Google, Microsoft, Amazon, and Meta. Together these stocks comprise an enormous weighting in the overall market. Earnings results have been bad to terrible for these FANG stocks. Apple is the lone positive, beating analysts forecasted results. However, even Apple warned that the coming holiday season would not be great for the company.

 

 Weeks ago, I explained to readers that this rally would be led by energy stocks, materials, precious metals, financials, utilities, and health care. For the markets to continue to hold their own (or move up), will depend on the strength of those segments of the market. I also advised, "don't expect markets to move straight up. Each economic data point will provide an excuse for traders to move markets up or down, but overall, the trend should be your friend." That has been the nature of this bear market rally.

 

Most strategists had been warning that this third-quarter earnings season would be a make-or-break event for the markets. I have ignored buzz kill predictions like that. As you know, I am cynical about the Wall Street quarterly earnings game. The way it works is that analysts cut their forecasts drastically in front of earnings, which then enables companies to "beat" these forecasts. Usually, a "beat" will see a company's stock price stock move up several percent or so.

 

The facts are that earnings, sales, and corporate guidance have not been stellar, despite the supposed "beats." More and more corporate managers are predicting a recession. Some have even given up providing guidance claiming that the environment is so uncertain that they cannot predict sales and profits with any certainty.

 

However, that is not what is moving markets in my opinion. It is the decline in the U.S. dollar and the recent pullback in bond yields that has done the yeoman's work, along with what I'll call "hopeification" that the Fed will turn less hawkish.

 

In recent days, we have seen the dollar decline on the back of intervention. The Japanese, Chinese, and British treasuries have been selling dollars. At the same time, the fear of recession has put a halt to rising yields in the bond market, at least in the short term.

 

What has not been a factor in the markets thus far is the mid-term elections, which are right around the corner. In past years, there was much more discussion, positioning, and predictions on what would happen to the markets and the economy depending on which party came out on top. I assume that neither party will have a meaningful impact on resolving the problems of the economy over the next two years, despite campaign promises.

 

I still think we continue higher with the S&P 500 Index reaching the 4,000-4,100 level in the days ahead. Of course, all bets are off if the Fed turns even more hawkish next week but I'm betting they won't be.

 

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.

A parade of Spider-Men, dinosaurs, and the kids from "Stranger Things" will likely be ringing your doorbell this weekend. However, adults, schools, and communities are also planning their celebrations. Together, Halloween spending should top $10.2 billion.

 

That's the expectation of the National Retail Federation, which would top last year's record haul of $10.1 billion. More Americans are celebrating Halloween than they have since the onset of COVID-19. Approximately 68 percent of consumers in 2022, versus 69 percent in pre-COVID 2019, are splurging on candy, costumes, lawn decorations, and other Halloween-themed merchandise.

 

And don't forget the household pet, Fido, is also getting into the act. Costumes for pets are boosting sales this year and can total $700 million, out of a total of $3.6 billion in U.S. costume sales overall. Better still, since spook night falls on a Monday, the family can celebrate throughout the entire weekend.

 

Normally, Halloween budgets tend to increase when there are multiple days to celebrate. This year, college students and other adults can start partying on Thursday, Friday, and Saturday nights, plus Sunday and Monday for community events and family outings. In many cases, successive nights of parties can require multiple costumes as well, and there are plenty of dress-up themes to tempt those in the market.

 

While witches topped the list of costumes for 2022 for children, plenty of new costumes are proving popular with adults. Elvis and Priscilla Presley, Patrick Bateman from "American Psycho," DC Comic's Harley Quinn, "Hocus Pocus" characters, as well as "House of the Dragon" and "Lord of the Rings" outfits.

 

Miles, my 11-year-old grandson, will be flying high as Maverick in "Top Gun," while granddaughter Maddie, a few years younger, will be terrorizing the neighborhood as a vampire. If I know her, she will be testing out her fangs on anyone less wary than Abe Van Helsing.

 

To be sure, supply chain issues continue to plague the availability of everything, including Halloween-oriented products. Generally, the good decorations, costumes, and candy started to disappear off the shelves by the end of September 2022. Retailers have done what they could to alleviate the problem. Some companies have used air freight to avoid the backlog of container ships at U.S. ports, but in the end, those who shopped early won.

 

On the inflation front, candy prices have experienced the largest yearly spike in prices ever recorded, according to the U.S. Labor Department. The combination of soaring flour, milk, and sugar prices, as well as higher labor costs, has pushed up candy prices by 13 percent versus last year. 

 

The NRF expects most consumers to spend $100 to celebrate Halloween, which is lower than last year's record of $103. My daughter and son-in-law shopped early. In addition to the costume costs, they spent $150 to decorate the outside of their home and another $150 for neighborhood candy. My kids live in New York City, so everything is more expensive, but they usually tend to spend more than average in celebrating Halloween.

 

In addition to the retail segment, communities and schools are also celebrating. In my town, a community collaboration by MassDevelopment's Transformative Development Initiative and Downtown Pittsfield TDI Partners celebrated Halloween on Friday, Oct. 21, 2022. "It's Alive" turned out to be a gala event, lining both sides of the main street, and included a kid's fun zone, a monster treasure, and candy hunt, music, as well as live performances from local artists and troupes. 

 

Adults enjoyed a "Zombie Pub Crawl" and a night market of local vendors. The entire community showed up, many in costumes, willing and able to spend money and generally have a great time.

 

"We estimate it costs about $10,000 overall," said Rebecca Brien, managing director of Downtown Pittsfield Inc., "and it was a great success with as many as 500 kids, plus adults, who showed up."

 

I believe as time goes by, Halloween will become a bigger holiday in America, if it isn't already. Being able to dress up, become someone we're not, and shed some of the daily trials and tribulations that beset most of us may be just what the doctor might order.     

 

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.

Household heating prices this winter are expected to be higher as a result of the ongoing Russian-Ukraine conflict. Depending on the severity of the winter, gas supplies could be in short supply, especially in the Northeast. 

 

The U.S. Energy Information Administration is forecasting that Americans who heat their homes with natural gas will see their heating bills rise by an average of 28 percent. Given that almost half of the households burn natural gas as their primary heating fuel, that is a painful poke in the eye for consumers who are already contending with high gasoline and food prices

 

Those who use oil for their home heating needs will not fare much better, with heating bills expected to climb as high as 27 percent. On average, your oil bill will cost $2,354 this year versus $1,212 in 2020, while gas bills will average $1,094.

 

Over the last few weeks, natural gas prices have fallen, but they are still up 68 percent thus far in 2022. Unseasonably warm weather in October, as well as an ongoing shutdown in a large liquified, natural gas (LNG) plant, has depressed prices. In addition, several LNG export terminals have closed temporarily for maintenance.

 

Before you ask, yes, we do have an overabundance of natural gas in this country, however natural gas, like oil, has become a political chip in the present conflict in Europe. Natural gas, as we know, has become the Achilles heel of Europe's conflict with Russia over the invasion of Ukraine. As a result, demand for LNG exports from the U.S. has become a critical lifeline for the European Union in both industry and consumers.

 

In the U.S., New England utilities depend on natural gas to generate electricity, unlike other areas of the country. This situation has worsened with the closing of antiquated, oil, nuclear-powered, and coal generators, which historically had accounted for about 25 percent of peak demand in the winter months. That is not a new situation. The Northeast has been wrestling with energy supply problems for more than a decade.

 

One of the main issues is New England's limited pipeline capacity. One proposed pipeline, for example, which would have transported natural gas from Appalachia to New England has been blockaded by "not in my back yard" opposition by New Yorkers. Today, more than one-third of natural gas supplies in the form of LNG are imported during periods of peak demand, according to EIA. What's worse, thanks to the Jones Act, which restricts the movement of cargo ships between U.S. ports, sea delivery of U.S. natural gas is almost impossible.

 

As a result, the Northeast is in the unenviable position of competing with Europe and other nations for foreign LNG. The going price for natural gas in Europe is $100 per million British thermal units (BTU), versus $30 per BTU in New England. That makes securing off-shore LNG an extremely expensive prospect. In addition, most utilities only purchase a portion of their imported gas on fixed-price agreements. They rely instead on the volatile, natural gas spot market to purchase additional supplies.

 

 If the winter turns out to be severe, utilities could be paying several times today's prices for fuel on an ongoing basis. In Europe, in countries such as Germany, frantic efforts to purchase and store natural gas in preparation for winter have been going on for months. Right now, the EU’s storage tanks are full and LNG tankers are lined up off the coast of Spain. 

 However, in New England, utilities have a limited capacity to store natural gas. We could see a situation that a harsh winter could set up a bidding war for supplies around the world.

 

As it stands today, if the Northeast has a moderate winter, natural gas supplies, while expensive, will be sufficient. However, if the opposite occurs, the grid may be in trouble as more gas will be diverted to heat homes, and less to generate electricity. If so, that could result in rolling blackouts, or conservation efforts to keep electricity supply and demand in balance similar to what happened in parts of California this summer during the state’s heat waves.

 

Thus far, the National Weather Service is forecasting warmer than normal temperatures across the southern and eastern U.S., let’s hope that is accurate.  

 

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 was a week that looked promising. The three main U.S. averages spiked higher, gaining almost 4 percent in two days on no news. The remainder of the week saw profit-taking. Blame higher interest rates and a stronger dollar. 

 

The benchmark yield on the U.S. 10-year Treasury bond has topped 4 percent this week and hit 4.3 percent on Friday. The greenback climbed higher as a result. It is about one percent below its year-to-date high on the U.S. Dollar Index (DXY) of 114.78. As interest rates and the dollar continue to climb higher, stocks can still go up, but only to a point. We have reached that point this week.

 

The impetus for these rising rates is the bond market's belief that the Federal Reserve Bank will be unrelenting in its promise to raise interest longer and higher than the equity markets had hoped. Underlying this belief is the continued strength of the economy and the persistent strength in the inflation rate. Nothing in this statement is new. So why do both the bond and stock markets continue to ignore that fact?

 

I believe there is a hidden conflict among traders and investors that explains this divergence. It has its roots in the underlying, short-term behavior of equity and fixed income traders today versus the longer-term approach of the Fed.

 

This is understandable given the nature of the markets. Bond investors historically have thought in terms of months to years. That has changed somewhat as young, inexperienced, bond vigilantes attempt to push interest rates up and down rapidly. Many argue that the volatility in the bond market outstrips that of the stock market.

 

That is more difficult to accomplish given the depth of assets in the bond markets. In short, it takes a lot more money to move bonds around than it does stocks. However, applying leverage can amplify price movements.

 

In comparison, the Federal Reserve Bank thinks in terms of years. Inflation is high, and in their view, it will take anywhere from a year to three, or more, before they can manage to bring inflation down to their stated target of 2 percent. No matter how many ways they express those sentiments to market participants, investors, fail to believe them. Why?

 

Equity and bond players, I believe, have become increasingly short-term in their trading behavior. Generally, 70  percent of them (day and algo traders) are immersed in trading where the time horizon is in minutes, if not seconds. Long-term to them is, at best, a couple of weeks. Why is that significant?

 

The markets have been in a downtrend since December of last year. The decline has tried the patience of these new financial jockeys. They simply do not have the temperament to accept the longer-term perseverance that is required in these troubling economic times. They might be able to accept that the Fed will continue to raise Fed funds to some terminal rate of 4.5 percent or so, but then what?

 

The mistaken assumption is that the Fed will immediately start reducing interest rates again. What if interest rates simply remain at these higher levels for much longer? Most traders can't conceive of that happening. What if interest rates remain elevated for a year, maybe more? If so, we may face declining markets at worse, or sideways markets at best for longer than many might expect. 

 

For someone who began his financial career in 1979, I know how dreadful a sideways market can be. At the time, I think the S&P 500 Index gained a total of 26 points from 1979 to 1982.

 

From a technical point of view, we are still in a downtrend, and to see markets do what I want, we need to get above 3,800 on the S&P 500 Index by 20 points or so. I believe we will see that happen over the next week. However, we could easily see a hundred points or more down before that happens. 

 

How high could we go if I am right? A guess on the upside would be as high as 4,100-4,200, over a few weeks.

 

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.