The saga of rising interest rates in the long end of the U.S. Treasury market continued this week. Investors, fearing runaway inflation, sold both bonds and stocks. Will the selling continue, or Is this a buying opportunity?

 

It depends upon which asset class we are talking about. Yields on the 10, 20, and 30-year U.S. Treasury Bonds, I believe, will continue to rise. How far? It is possible that the benchmark "Tens" could finish the year at 2 percent. In the short-term, however, I expect yields to fall a bit on profit-taking.

 

Last week, I warned readers that the rise in rates was not over. I expected yields on the U.S. Ten Year Treasury Bond to hit the 1.70 percent level or higher. Currently, they are yielding 1.75 percent, which is a fairly steep move in less than a week. It is the speed of the ascent in yields that is most spooking equity investors.

 

But where is the Fed in all of this? The simple answer is that the Federal Reserve Bank controls short-term interest rates, while long term rates are determined by the buying and selling of you and me. But it goes further than that.

 

Investors have been conditioned over many years to expect the Fed to be pre-emptive in guiding monetary policy. If, for example, the FOMC board members believe inflation might be getting out of hand in the future, they will nudge rates higher now to head off that danger.

 

Not this time. The Fed, and its Chairman Jerome Powell, want inflation to rise and plan to wait until that happens before reacting. This is a new concept for market participants.

 

For the first time in a long time, the Fed is making employment its priority and not Wall Street. The real unemployment rate in this country is thought to be about 9 percent, depending on what data you look at. The Fed wants to let the economy grow until that number drops dramatically. If that means the economy grows "hot" and inflation rises for a quarter or two to achieve that goal, so be it.

 

The Fed believes that any sustained, long term rise in the inflation rate will only become a problem if wages start to rise and rise substantially. Consider that back in 2019, when the unemployment rate was as low as 3.5 percent (the lowest since 1969), the inflation rate was only 1.81 percent, despite wage growth of 4.6 percent. Given the still high rate of unemployment, it is hard to imagine that wage growth and any potential inflation it might cause will occur any time soon.

 

But what about the record rise in commodity prices, like food and energy? Isn't that inflationary? The Fed considers these price movements short-term aberrations. Consider the oil price, which can fluctuate by as much as 4-5 percent in a day. On Thursday, for example, crude fell 7 percent. The Fed is concerned with the long-term trends, while you, me, and Wall Street are focused on today, tomorrow, and at the latest, next week.

 

But who is to say that if the Fed waits to react to a 2.5 percent-3.5 percent uptick in the inflation rate, they will be able to put the genie back in the bottle? Can we trust the Fed to let the economy grow hot enough to employ America's workers without unleashing a new and damaging multi-year trend of inflation? The market seems to doubt that.

 

I advised investors to raise some cash in highflyers, mostly in the new tech area, in February because I believed this month would be volatile at best. That is proving to be the case. Over the next few weeks, readers should start putting that cash back to work on the market's down days.   

 

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.

Thirty-three percent of adults are obese, while ten percent of households with children are facing a food crisis. This is happening together, at the same time, in the same place — America. How can this be?

 

During the height of the pandemic, if you recall, the media featured long lines of hungry Americans queuing up at food banks and other community centers for food to feed their families. That was a shocking sight to me. In the supposed wealthiest country in the world, where Americans usually throw away more food than they eat, there are people going hungry? I thought it must be caused by supply chain problems, not the scarcity of food.

 

Digging deeper, I discovered that millions of Americans have been facing food insecurity well before the coronavirus. The pandemic simply made a bad situation worse and food scarcity strikes hardest at the most vulnerable populations. Black families, for example, are twice as likely as white to have inadequate access to healthy food.

 

But first, we need to understand the definition of food scarcity or food insecurity, since both terms are being used to define the same thing. The term refers to the lack of access to enough good, healthy, and culturally appropriate food. From an economic perspective, it is defined as the inability to afford that same healthy food for all family members.

 

Let me be clear, however, food insecurity and hunger are not the same concept, even though they may be somewhat related. Food insecurity is socio-economic, which means its roots are both financial and cultural. Hunger is physiological, meaning physical. It is a physical sensation that might be a consequence of food scarcity or insecurity, but not always. We usually measure food scarcity at the household level and hunger at the individual level.

 

Back in the day, my family was considered "poor" (lower income would be the politically correct handle in today's world), but we were never hungry. Although, I suspect that there may have been times that my mother went without to feed us kids, but I couldn't prove it. Thank God, however, for the little backyard summer garden we had (although eating tomato sandwiches for lunch several times a week was a bit much).  

 

Today's food security (or insecurity) is our society's attempt to move the discussion of food policy beyond simple hunger. It is an effort to capture the reality of individuals and families who struggle to get enough good quality food on the table. Food scarcity and obesity, believe it or not, have much in common.

 

Obesity is defined as having excess body fat. Adults 35 years of age and older with a Body Mass Index (BMI) greater than 30 are considered obese. Former President Donald Trump, for example, falls onto that category. Where food scarcity and the problem of obesity meet most often is around the meaning of "good and healthy" foods.

 

The lifestyle of the obese and the poor coincide in a number of areas. Poorer working families (especially single parent households), for example, have neither the money, nor the time to plan meals and supervise their family's food intake. Skipping breakfast, eating out at cheap, fast food joints, consuming highly processed and calorie-rich foods, snacking in front of the television, and drinking sugar-sweetened beverages are regular occurrences for families working to put food on the table. Those same eating habits are also commonly found among obese families and individuals.

 

Given that background, it should not surprise us that one out of every six American children are at risk of food scarcity and suffer from obesity as well. Food insecurity is influenced by any number of factors including income, employment, race/ethnicity and disability. It can be long-term or temporary.

 

For years, I have written about the growing income inequality in this country. Unfortunately, both the private and public sectors have ignored that issue. The onset of the pandemic only made a bad situation much worse. The huge rise in unemployment, the long-term trend of sinking real wages in the service industries, coupled with the shrinking safety net of both private health care and social programs have resulted in problems only one of which is food scarcity.

 

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 large cap technology sector bounced back this week as bond yields fell. It is a see-saw market filled with several cross-currents. But if you want to know where stocks are going, keep your eyes focused on the U.S. Ten-Year Bond yield.

 

In my last column, I explained how rising bond yields are like kryptonite to the continued performance of what I call "super tech stocks." Over the last two weeks, the NASDAQ 100, for example, experienced a 10 percent-plus down draft, as bond yields rose to 1.60 percent from 1.25 percent. Investors sold FANG stocks, and technology shares in new-era sectors, like solar and electric vehicles, and bought old economy stocks, like in energy, financials, and cyclicals.

 

This week, that trade reversed somewhat as bond yields stopped rising, drifted lower, and seem to be stabilizing around 1.50 percent -- until Friday. While the S&P and Dow Indexes pulled back a little in response, NASDAQ dropped 1.5 percent. The question is whether the rate rise in yields is coming to an end, or will we see yet another backup in yields as investors become even more concerned over future inflation.

 

There is no reason why the yield on the "Ten Year" couldn't rise further, in my opinion, maybe as high as 1.80 percent to even 2 percent later in the year. After all, that was where yields were on the Ten Year just before the pandemic. What could drive yields higher? Inflation concerns.

 

I believe the Federal Reserve Bank Committee is expecting the inflation rate to hit their long-term target of 2 percent in the next few months. Fed Chairman, Jerome Powell, has already said they would be willing (and happy) to see that happen. That would be a textbook and natural occurrence in any recovering economy. But what the Fed expects, and what the markets are prepared for, may be two different things.

 

"As long as yields rise gradually, and not all at once," say the experts, then investors can and will adjust accordingly. That remains to be seen. In this world of instant price reactions and compressed time periods, I am not so sure "gradual" is in the dictionary of today's traders. To them, a 25-30 basis point rise in yields could mean the end of the world. I fear a mad exit for the door could occur all at once at some point. It is a possibility, so be on guard.

 

The good news is that the $1.9 trillion American Relief Bill passed in what amounted to a one-party rescue of the American people. Not one Republican voted for the rescue plan, despite the fact that between 65-80 percent of Americans approved of the plan. The ink was barely dry on President Biden's signature, however, before investor attention turned to the passing of a future infrastructure package.

 

Unlike the relief package, which was passed through the budget reconciliation process, an infrastructure bill of real substance would require bi-partisan support. If that turns out to be a non-starter, President Biden could still provide some money ($300 billion or so), but nothing like the $2 trillion that would be needed to really address the nation's decrepit highways, bridges, seaports, and airports.

 

An infrastructure bill would actually provide a needed stimulus to grow the economy, while providing a real need that is long overdue. But it would also take longer to thread its way throughout the economy and would require a year or two before we would really see the impact in the data.  

 

In any case, the prospect of such a bill will be enough to occupy investors' attention over the next few months. I suspect "infrastructure plays" will be bid up in anticipation of this potential government spending program. This happened four years ago, you may recall, when the Trump Administration announced their intentions to pass similar legislation. We all know that effort hit a brick wall, despite a Republican-held Congress and White House.

 

Today, with countries like China breathing down our necks, the U.S. is falling further and further behind in so many areas. We fiddle in bitter partisan politics, while the rest of the world plows ahead. A substantial infrastructure program would be a first step in stemming our economic slide.  

 

In any case, we have two weeks left of volatility, so use the time to employ any excess cash you may have on down days. I expect stocks to regain their luster in April, so hang in there.

 

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 nation should have a lot to celebrate in the coming months. Most economists are busily raising their forecasts for growth for the remainder of the year. If their forecasts are accurate, Americans can expect a booming economy this year and into 2022.

 

The arguments for growth are straightforward. The number of Americans that are being vaccinated is now higher than the number of new coronavirus cases. By the end of May 2021, if government forecasts are correct, almost everyone in the U.S. that wants a vaccination should have one. As a result, we can expect to see a re-opening of most businesses no later than the second half of the year. That, in turn, should lead to a rapid hike in economic activity.

 

But what will really spark the coming boom for the nation's economy is the $1.9 trillion American Relief Plan. The bill has just passed Congress and, according to the Biden Administration, money will start flowing into the pockets of those Americans who have suffered the most in the past year.

 

As a result, economic growth is expected to be the strongest since 1984. The latest consensus numbers of 76 economists are looking for Gross Domestic Product to rise by an annualized 5.6 percent in the second quarter, followed by 6.2 percent in the third quarter. Some see the economy jumping by as much as 10 percent between April and June.

 

The engines of growth are expected to be a combination of business investment and consumer spending on everything from airlines to restaurants. Throughout the last year, Americans that could, have saved as much as 20 percent of their total income. That brings the total savings amount for the month of January to $4 trillion. Some of that savings is expected to find its way into the economy as pent-up demand comes to the forefront. If you combine that with additional fiscal spending, we have what could be a perfect storm of demand for goods and services.

 

Recent manufacturing data from the Institute for Supply Management revealed that the sector had logged its highest growth level since August 2018. Personal income surged 10 percent in January, while household wealth increased nearly $2 trillion for that month.

 

Recently, many market participants have jumped on the inflation bandwagon figuring that all this demand coupled with the central banks loose monetary policies will trigger a higher rate of inflation. The Federal Reserve Bank has already said that they would be willing to allow inflation to rise to something above their long-stated ceiling of 2 percent. I expect that 2 percent rate should be achieved sometime in the next few months if economic growth is close to the forecast. Unfortunately, it will take job growth much longer to recover. Full employment could take years to accomplish.

 

None of these economic forecasts consider the possibility of an infrastructure program later on this year. The numbers talked about today are about equal to the amount of the $1.9 trillion relief package. Estimates that, at the minimum, such a program could mean another $2 trillion or more would surely boost the economy further into next year.

 

But, unlike the Democrat-sponsored and passed American Relief Bill, a meaningful infrastructure effort would require a bi-partisan effort. Politics has been the death knell in just about every past attempt at fixing the nation's roads, bridges and airports. Given the present state of uncertainty and division within and between both parties, the chances of that happening are neutral at best. But for the nation's sake, we can always hope.

 

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 rough week in the markets. Investors were whipsawed throughout the week and finished down once again. I expect more of the same for investors this month.

 

However, I don't expect stocks to go straight down, find a bottom and then rebound. This downdraft is occurring at about the same time that markets sold off last year, but I do not expect the kind of severe correction we suffered through then. Overall, I am anticipating a 10-15 percent decline as I mentioned last week. Actually, as of Friday (March 5, 2021) morning we have suffered a 6.3 percent decline from the top on the S&P 500 Index futures contract. The pullback, by the way, is long overdue. I am hoping it will flush out some of the speculation and froth that were rising to dangerous levels among certain stocks.

 

The small backup in interest rates we have been experiencing in the last three weeks has been an excuse for a sell-off, in my opinion, but not a reason to fear the future.  My evidence: we are on the cusp of an additional $1.9 trillion in fiscal stimulus, which may be passed by the Senate as early as this weekend. An even larger government spending program in infrastructure may also be in the offing in the coming months.

 

Of course, as I have been saying for a year, the key element to the future health and well-being of the economy, and the stock market, will be the country's battle to vanquish the coronavirus. Right now, thanks to the vaccination, and rapid distribution of the drugs by the present administration, that battle looks winnable in the months ahead.

 

But investors have not been waiting around for that to occur. A re-opening trade has been ongoing since the beginning of the year. Airlines, cruise lines, hotels, and casino stocks, among others, have all been gaining. That is an area where I would add some money in this pull back.

 

All my recommended natural resource plays have also been booming, led by energy. The bull market in commodities has a number of tailwinds that I believe will propel that sector even higher this year, but runaway inflation is not one of them. The present belief by a growing group of Wall Street analysts, namely that "inflation is here to stay so buy commodities" is too simple.

 

There is a big difference between expecting reflation (my opinion) and inflation, (or worse, hyperinflation). As global economies re-open, the demand for materials and other commodities should rise. If you throw in some supply chain issues and other pandemic-related conditions, sure, prices are going to rise, some substantially, but that is simply textbook economics. That doesn't automatically translate into an inflationary problem as so many are predicting.

 

It has been so long since we have had any real inflation, that there are investors out there that have never seen inflation in their professional careers. If you throw in the two-thirds of professional investors and traders who have also never experienced a rising interest rate environment, you have the makings of a perfect storm of inexperience, ineptitude, and chaos. I believe that is what we are witnessing in today's financial markets.

 

The Ides of March is actually on the 15th of this month and I expect to see a continuation of this chop fest at least until then, if not longer. The best declines are those that are sharp, short, straight down, and over before you know it. Unfortunately, I expect this correction to be different. There will be relief rallies like the pre-market 1  percent gains in the markets on Friday mornings followed by sharper down days. This kind of action should keep us all biting our nails, and if you attempt to trade it, emotionally exhausted and stressed out.  The time to take profits is in the past. Hopefully, you followed my advice last month and did just that, but it is still too early to employ those funds.

 

The good news is that once this month comes to a close, I expect stocks and the economy to explode in the third and fourth quarters. All we need do is get through this month.

 

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.