It was a losing week for stocks. Most of the blame can be pinned on a proposal by the Biden administration to double the capital gains tax on investments. It is not official yet, but investors are counting on an announcement next week.
Before you hit the sell button on all those huge capital gains you have accumulated over the last few years, know the facts. Right now there aren't any. What we do know is that Joe Biden ran his winning presidential campaign on increasing taxes on the rich and on corporations. He plans to do just that, so it should not be a surprise to investors.
This proposal, if true, would impact the top 0.3 percent of Americans. For those earning $1 million a year or more, he wants to increase the capital gains tax rate from 20 percent to 39.6 percent. That is on top of the 3.8 percent tax on investment income that presently funds Obamacare. If you add in state taxes, the overall capital gains tax would be as high as 52.22 percent for New Yorkers and even higher for California residents (56.7 percent).
That would clearly be a steep increase and one that would impact all the stock market, at least temporarily. Just think of the gains some have accrued in the FANG stocks over the past few years. Many high-growth stocks are in the technology space and wealthy investors may want to cash in some of their chips if they truly believe the capital gains proposal would soon be the law of the land.
Wall Street pundits, while concerned, are attempting to downplay the suggested tax risk to investors. The level of increase, they say, is simply an opening gambit, a trial balloon, meant to be negotiated downward, if it were to pass at all. The slim majority of Democrats in Congress might make it impossible to get any capital gains tax change to get through. And, even so, the timing of any tax hike is also in question. Would it be effective this year or next?
Market participants are also anxiously watching the global COVID-19 case levels. Countries such as India and Japan are seeing coronavirus cases skyrocket. Here in the U.S., spring coronavirus cases are surging. Back in February, during the last surge, the U.S. was averaging 65,686 new COVID-19 cases a day. Fast forward to today, and we are averaging 64,814 new cases daily. Some states, like Michigan, are breaking all-time records in new cases.
You would think that doubling the number of vaccinated Americans would have at least made a dent in the rate of new cases, but at best, all it has done is kept the level of new cases around 65,000 a day. What may be even more concerning is that a new COVID variant has been detected by scientists at the Texas A&M lab that show signs of antibody resistance and more severe illness among young people.
The more contagious variants of COVID-19, which have become the dominant strains within the U.S., seem to be the culprit in this case and in the high level of new cases, according to medical experts. However, the good news is that the present administration seems to be doing all it can to get more people vaccinated, provide additional stimulus to the economy, and expand global trade and relations.
All this news, as you can imagine, is having an impact on the financial markets. The three averages have pulled back a little this week, but the real story is in the Bitcoin trade. I warned readers last Friday, cryptocurrencies (Bitcoin specifically), were ripe for a correction. Saturday, Bitcoin dropped 15 percent and by the end of this week the price of Bitcoin was below $50,000. Other popular coins such as Ethereum and Litecoin have also declined. Some analysts are expecting as much as a 50 percent pullback in Bitcoin (to $30,000) before the correction is over.
It does appear that momentum is stalling in this space. As I have written in the past, cryptocurrencies are considered speculative assets and not currencies, according to The U.S. Federal Reserve Bank, and other central banks. As such, investing in this area is fraught with risk, no matter how convinced you are in its viability in the long-term. Only those with a strong stomach and staying power should be involved in this space.
As for the equity markets, despite a 1-2 percent decline, stocks are in a trading range. As we consolidate recent gains, I expect continued daily rotations between sectors and asset classes. I still think stocks will continue higher in the weeks ahead, but so will volatility.
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.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
COVID-19 effectively put a halt to most elective surgeries. As the nation gets vaccinated, however, medical authorities have given the all-clear to resume those surgeries. But will patients come back?
The answer to that question is important to the nation's hospitals, whose bottom line has suffered as much as, or even more than, most of their patients. Last year, hospitals were forced to shut down surgery in order to create capacity for skyrocketing cases of the coronavirus. But even after beds opened up again (as a result of the reduction in new, serious Covid-19 cases), most patients are still putting off surgery, concerned that they might catch the coronavirus during a hospital stay.
In 2020, the nation's hospitals' revenues declined by $320 billion. At the same time, drug expenses increased by 17 percent, labor by 14percent and hospital supplies by 13 percent. This year, hospitals are expected to lose another $53 billion to $122 billion, which amounts to 4 to 10 percent of their total sales. In the meantime, costs continue to rise.
A recent health-care market research survey by Becker's Hospital Review, found that fully 68 percent of respondents, who are considered health-care leaders, believed patient fear will delay or limit demand for surgery for at least the next six months. In response, hospitals are working overtime to turn the way they do business on its head.
Since making patients feel safe must be their top concern, hospitals have implemented a number of changes in the way in which they operate. For instance, 68 percent of hospitals surveyed have reserved operating rooms and/or intensive care units just for Covid-19 patients. About 23 percent of these organizations have allotted an entire building, including parking lots, to ensure coronavirus patients are isolated from other patients. That increases the feeling of safety but cuts down on the number of non-COVID patients that can be served at any one time. As a result, more than 70 percent of hospitals are running at less than 75 percent capacity.
That level of separation also incurs costs that would otherwise be saved. Additional cleaning, maintaining PPE, and conducting testing, as well as the need for higher numbers of employees to accomplish all of the above, hurt the bottom line. As readers might imagine, the demand for additional cost savings is of paramount importance. That is where virtual care solutions come in.
Virtual health care reduces cancellations, streamlines surgical operations, provides less time in the physical hospital setting, and reduces costs dramatically. Many hospitals had already been employing some level of virtual care, but it was mostly confined to information gathering and storage. The bad news is that few hospitals have the appropriate tools necessary to effectively deliver virtual care at the scale required.
There are no easy answers to the dilemma hospitals face, outside of more aid from the federal government. The Provider Relief Fund, which was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act is currently helping hospitals to stay afloat. But the $100 billion fund is not nearly enough, according to the American Hospital Association. Given the present trend, I have to agree that it won' t be enough to keep the doors open in many emergency rooms, let alone surgical centers.
What's worse, most medical experts believe that we should expect additional coronavirus-type threats in our future. Prior to the pandemic, we already knew that our healthcare system was broken. It is clear to me that we can no longer deny the obvious. The hospital system may be the wakeup call that we all needed to finally overhaul the healthcare system in the U.S.; at least I hope so.
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.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
Most Americans seem excited and hopeful about the prospects for the Biden Administration's infrastructure plan. Local politicians as well as their construction buddies are salivating at the possible promise of getting their share of this multi-trillion-dollar prize. But looking beyond the pork barrel, we might want to consider how innovation and technology could help America regain its first-class status in infrastructure.
As of 2019, the United States is ranked 13th in the quality of its infrastructure after countries like Singapore, Japan, Germany, and the United Kingdom among others. Of course, it may not be a fair comparison since the U.S. has to rebuild and maintain 4 million miles of roads, streets, tunnels, bridges and other structures, while a nation like Singapore is smaller than New York City.
The sheer size of our infrastructure is made even more difficult by how many fingers are in the nation's pie. All of this infrastructure is essentially owned, operated, and maintained by state and local highway agencies. At the local level, about 40,000 individual governmental units of varying sizes and populations are responsible for 75 percent of the nation's highway mileage.
In turn, these agencies contract with thousands of private companies that furnish products, services, and equipment to build, maintain, and operate the system. This private sector portion is comprised of highway contractors and consultants, material and equipment manufacturers and suppliers, plus all the professional, trade, and industry assortations that proliferate at the national, state, and local levels. We are talking about many thousands of individual businesses from the largest multinational corporations to single-person operations.
Over and above this vast public and private sector army sits the federal government, which provides funding in the form of financial assistance to the states, as well as certain regulations, policies and guidelines.
As one can imagine, like in every army, there are traditional ways of thinking and doing and when it comes to infrastructure, even more so. When thinking about infrastructure, more often than not, familiar terms like "shovel ready," "pothole repair," and "black topping," accompanied by long traffic delays and detours comes to mind.
But while we have largely delayed or ignored our infrastructure, other countries have been achieving technological breakthroughs and new innovations for years. My hope is that the U.S. will be able to take advantage of some of these advances in our own infrastructure plan in the coming decade.
Software programs, for example, are changing the way infrastructure projects are being designed. New building information modeling programs enable three-dimensional, computer-generated designs that allow professionals at all stages, from architects to engineers to building managers, to collaborate on a project. Among other things, using these state-of-the-art programs decreases errors, gives much greater predictability when it comes to costs, and would help to deliver projects that are on time and on budget.
Another innovation is the application of 3D printing to construction and design. 3D printing is poised to totally disrupt the construction site, according to many construction experts. A Dutch company, for example, designed and built the world's first 3D-printed steel bridge recently. The use of 3D technology not only can reduce costs, but aid in constructing safer, more durable projects.
Plastic roads is another concept that promises to replace traditional asphalt as a primary material in road construction. Advantages over asphalt include quicker installation time, triple the service life, and an effective way to recycle the plastic that is filling up our oceans and landfills.
Blockchain technology can also be applied to infrastructure long before the first 3D blueprint is drawn up. Remember that army of private and public sector entities? Imagine how long it usually takes the government to actually contract out and procure all the processes involved in even one project. That's where blockchain comes in. The technology would be ideal in its ability to eliminate the layers and layers of contracts and middlemen that sit between the conception and delivery of just about any infrastructure project.
These are just some of the advances that are available to the U.S. The challenge will be to overcome the skepticism and resistance to change that confronts all of us. I'm hoping that with the correct approach, our effort to rebuild America could be the envy of the world.
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.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
April is usually a good month for markets. Historically, it is one of the three best months of the year for equities. We all know what happens in May ("sell in May and go away") but we will worry about that later.
Over in the bond market, the bond vigilantes may have started to doubt their conviction that inflation is a fait accompli and so yields must go up. This week, yields declined a bit, which gave a boost to some sectors (gold and silver, for example), while banks pulled back a little. But Friday's Producer Price Index report for March reversed that. PPI was up 1 percent versus expectations that were only half that, which brings the year-over-year gain to 4.3 percent.
After the report, precious metals fell back, banks rallied, and the U.S. dollar gained along with bond yields. But for long term investors these weekly, and even monthly, government reports should be taken with a grain of salt. The Fed has said that over the short-term the inflation rate will rise, but not nearly enough to cause any risk of runaway inflation.
This week's sector rotation among the day traders was to sell out of the re-opening stocks and back into large cap technology. Like gold and silver, readers should know that higher interest rates provide a headwind for the technology sector. As such, it makes sense that NASDAQ outperformed both the Dow and the S&P 500 Index this week. But the tech-heavy NASDAQ is still below its old highs, while the Dow and S&P 500 Indexes have been making new highs. I expect that technology overall and the FANG stocks could play catch-up with the other averages this month.
The Biden administration's infrastructure proposal also influenced trading. The president's willingness to compromise on the corporate tax rate, plus his invitation to talk with Republicans about the package overall, helped sentiment. That, in turn, pushed the benchmark S&P 500 Index to new highs as well as the Dow. In the meantime, the Russel 2000 small-cap index has taken a back seat to the main averages.
In this rotation-prone market, investors have been taking profits in the small-cap arena. There is some justification for this selling. Medical experts have been advising caution over the short-term due to a possible third wave of the coronavirus. This has fueled fears among traders that sporadic shutdowns could occur across America. If so, that could impact smaller companies more than larger concerns.
In addition, there has been a noted slow-down in retail participation in the small cap arena lately. Wall Street analysts were predicting that at least half of the latest stimulus checks would find their way into that retail-favored market. That was a bad bet, since the opposite seems to have occurred.
Instead, retail investors have paid down debt with their government windfall. Times are changing as well. As the country gets vaccinated, and more and more new opportunities present themselves (re-opening restaurants, movies, gyms, etc.), individuals are no longer confined to day trading on their computer screens.
I expect stocks to continue to climb this month, supported by good news on the earnings front and the expectation that the economy is gathering steam. Outside of the U.S., Europe and the lesser-developed areas, emerging markets, hold promise. Emerging markets have had substantial corrections during the last two months and seem ripe for buying, in my opinion, especially if the greenback continues to decline.
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.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
America is running out of water. During the next 50 years, the nation could see its fresh water supply reduced by one third. But if you think that's a problem for the next generation, you are wrong. This year alone, as many as 83 out of 204 U.S. water basins could begin to feel the brunt of these shortages.
And don't think these shortages will only affect those regions that we would expect to be dry. The central and southern Great Plains, the Southwest and central Rocky Mountain states, as well as the South, Midwest, and parts of California are all in danger. The twin culprits are rising temperatures and changing rainfall patterns brought on by climate change.
The wettest regions of the country are getting wetter, while the driest areas are getting dryer. At the same time, we are seeing more intense concentrations of rainfall that make capturing and using that water more difficult. If you combine that with temperature changes that are expected to heat up the nation by 5.7 degrees in the years ahead, you have a perfect storm for water shortages.
But that's only the tip of the iceberg. The demand for clean, fresh water is also increasing. Population growth alone is setting us on a path where we are going to need to make hard choices between water use for drinking, irrigation (37% of water usage is for agriculture) and manufacturing. We already are fighting over water in many states. The Colorado River is just one example of the ongoing controversary of water use and state's rights.
However, most Americans simply assume that if push comes to shove, there will always be enough clean tap water in most of the major cities and towns, at least in places like the Northeast, where I live. Think again. Our drinking water has been contaminated by industry, weakening government oversight, and aging infrastructure for years and years. Did you know, for example, that a water main breaks in the U.S. approximately every two minutes?
Leaking lead from aging pipes in New Jersey, radioactive waste in the ground water in Arizona and New Mexico from uranium mines, hookworm disease in Alabama from sewage pipes, mining spills in Kentucky, chemicals in the South Carolina water supply—these are just some of a long list of calamities that are popping up more and more frequently throughout the country.
In the middle of this crisis, the demographics of the U.S. population are changing. Some cities and communities are getting bigger and richer, while others in areas such as the upper Midwest, the Great Plains, and the Mississippi Delta are dealing with fewer resources and declining populations. Unfortunately, these trends will mean increasingly unaffordable water for certain segments of the population going forward. Today, for example, in some areas of North Carolina, a low-income family of six people needs to work 4 to 5 days each month just to cover their water bill.
Utility disasters, such as the massive lead-tainted water crisis in Flint, Michigan in 2015, are expected to grow in frequency and with increasing economic impact. This week's latest calamity involves a Florida reservoir in the Tampa Bay area on the brink of collapse. It was leaking toxic wastewater and could have devastated much of the region's environment and economy. It was narrowly averted, although environmentalists had been warning of the danger for years.
The truth is that many cities and states face huge upgrades in their water infrastructure and have for many years. The only way to obtain the money is to raise taxes or borrow the funds through municipal bond offerings. If you live in a big city or state with a prosperous population, that may be costly but still possible. But what do you do if your utilities are serving a shrinking or stagnant population with lower income prospects?
Given the dilemma we face as a nation in this area, the Biden Administration's infrastructure proposal seems to be on the right track in proposing $45 billion in grants to help water utilities replace lead water lines and another $56 billion for water and sewer projects. It seems clear to me that preserving our water supply, both now and in the future, is every bit as important as fixing our roads and bridges. As for our growing water shortage, let's hope we all finally take climate change seriously.
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.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
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