Fed Chairman Jerome Powell kicked off his speech at the annual Jackson Hole Economic Policy Symposium by admitting that the economic outlook may warrant a change in the Fed's tight money policy. That was Fed speak for it is time to cut interest rates. Markets soared on the news.

 

Economists will debate endlessly whether Powell's sudden turnaround reflects the mounting pressure by the administration on the Fed to cut interest rates or worries that unemployment may be rising. In the meantime, all the main averages were up more than 1.5 percent as I write this.

 

The assumption (more than a 90 percent chance) is that this first-interest rate cut will occur on Sept. 17, the date of the Fed's FOMC meeting. The question most are already asking is how many more cuts are in the cards between that meeting and the end of the year. The market believes two more cuts will occur. The next series of economic data points, released before their next meeting, will determine that.

 

If inflation data comes in higher than expected, then there may be only one cut in September. Readers know that I am expecting hotter inflation readings to continue through the end of the year. Powell seems to be aware of that as well. He said the risks from inflation remain "tilted to the upside." Like me, he also believes that tariff-related inflation pressures "are now clearly visible."

 

Balancing out the inflation risk, however, is the growing unemployment risk. Job risk became a factor after the Bureau of Labor Statistics revealed that unemployment had been ticking up for the last three months. Most analysts believe that the July non-farm payrolls report will also show weakening job growth. The onset of tariffs has made the job of managing monetary policy tricky at best.

 

Suppose that is the case, why cut interest rates at all? Therein lies the rub. Ostensibly, the fear of further job losses. However, the pressure by the Trump administration to remake the Federal Reserve Bank is growing by the day. By September, if Congress votes to approve Stephen Miran, the president's chair of his Council of Economic Advisors, to the Fed, at least three members of the FOMC will be Trump appointees.

 

This week, Trump made it clear that he plans to fire Fed Governor Lisa Cook if she doesn't resign. If so, and he replaces her as well, he will have four out of 12 FOMC members in his pocket. If his efforts fail, it is likely that the president, unless somehow appeased in the short run, will continue to find cause, reasons, or excuses (manufactured or otherwise) to continue his persecution of the remaining Fed members not under his control. From Powell's point of view, the political circumstances might justify a "hawkish" cut next month to alleviate the pressure. Sort of a cut in time to save nine (FOMC members).

 

Before Friday, the S&P 500 was down 2.2 percent this week, while the NASDAQ was lower by 4 percent. That was the second week in four that markets sold off only to bounce back. However, under the hood, those sectors and stocks that have driven the market's gains over the last few weeks were trashed.

 

Investors sold momentum names like Palantir, Tesla, and Nvidia. Other artificial intelligence names took it on the chin, falling by double digits. Some software stocks were down more than 20 percent. Wall Street bears have long argued that valuations in the AI space are absurd. Companies with little to offer investors beyond some mention of AI in their company name or business saw their stock price triple and quadruple in a matter of weeks.

 

Bulls say valuations don't matter. No one knows how AI power will transform the world's economies, but they believe that the AI potential must be measured in megatrillions of dollars. Given that thesis, it was a shock when Sam Altman, the CEO of ChatGPT, one of the movers and shakers behind AI, joined the fray.

 

He said this week that the billions of dollars flowing into the AI arms race risk causing a bubble comparable to the dot-com crash of the early 2000s. "Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes. Is AI the most important thing to happen in a very long time? My opinion is also yes."

 

But Powell's comments on Friday effectively dismissed all these misgivings as investors rushed to buy the dip. Interest rate-sensitive sectors and stocks lead the charge higher. Small-cap stocks, as represented by the Russel 200 index (3.87 percent), outperformed. The dollar fell almost a whole percentage point since expectations of lower U.S. interest rates mean a lower dollar. As such, both gold (plus-1 percent) and silver (plus-2.28 percent) as well as  cryptocurrencies also chalked up some significant wins.

 

The last few weeks of mild corrective actions have now given way to higher stock prices and possibly another attempt to regain former highs. I could see the S&P 500 Index tack on another 75 points or so to 6,550-6,570. Are we out of the woods and on our way to the moon? Not yet, I see another decline once we reach my target sometime in September.  

 

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.

If President Trump has his way, investments in private equity, real estate, and even digital assets will soon be allowed in your 401(k). As in everything, there are risks and rewards in this proposition.

 

Last week, Donald Trump ordered the Labor Department to examine his proposal. The new investments, aside from your 401(k), would also apply to other defined benefit plans. These are America's primary vehicles for retirement savings.

 

How much money are we talking about? As of the first quarter of 2025, 90 million Americans held $12.2 trillion in 401(k) plans alone. That is not counting the $8.9 trillion in federal, state, and local government plans.

 

Today, most of that money is invested in either stocks or bonds, but the pool of investments offered to the public is shrinking. More companies are going private as regulations, disclosure requirements, litigation, and compliance costs increasingly interfere with the job of creating products, making profits, and increasing sales. Over half the 8,000 companies that existed in 1996 have concluded that going private is a far better proposition.

 

"Going public" used to be the primary method of raising capital for growing companies. Not today. Dozens of companies now tap private funding sources for their financing needs. Technology and AI companies, like SpaceX and OpenAI, with more than $400-$500 billion in capital, consistently raise capital in the private equity markets. Over the last two decades, the number of companies tapping this source of funds has grown from 2,000 to more than 11,500. As a result, equity and private credit funds have skyrocketed with assets greater than $8 trillion, which is a $5 trillion gain over the past 10 decades.

 

Defined benefit plans, unlike your 401(k) or 403(b), guarantee an annual payout to retirees. That means the professionals who manage this money need to perform consistently. In a bid to do just that, plan sponsors have been investing substantial sums in alternative assets for at least the last 30 years.

 

Those bets have paid off. They have outperformed the typical 401(k) by almost 30 percent over that time. The main driver of that performance has been their investments in private equity and private credit funds. However, most investors have been shut out of this market. Only about one-third of those saving for retirement can participate in these plans.

 

However, the private equity industry is facing a slowdown. The appetite for investing in private companies has been waning among the institutional crowd. It is a mature industry where the lion's share of money has already been made. Private equity buyers are worried that they might not be able to offload these investments in a saturated market. To grow, managers need to tap new markets for their funds. The employee retirement market is a tempting market for them. 

 

On a different front, the presidential order also includes crypto investments and real estate. These are two areas the president knows something about. Over the last nine months, the president and his family have dived into the crypto market with both feet. He has made about $1 billion on crypto since then, lifting his net worth to around $5.6 billion. Most of the rest of his wealth is in commercial real estate. While the real estate market has been nothing to write home about lately in the commercial market, home prices have skyrocketed since the COVID pandemic.

 

As for cryptocurrencies, both Bitcoin and Ethereum have been on a tear. New rules and regulations offer investors much greater safeguards, and the creation of stablecoins sets the stage for a much greater use of digital assets over time. Next week, we examine the risks involved in these investments

 

CORRECTION TO LAST WEEK'S COLUMN

 

Several readers notified me during the week of an error in my column "Trump Accounts Could Be Seed Money For America's Future Generations."

 

I wrote that under the recent passage of the government's tax and spending bill, beginning in 2025, each newborn American would receive $1,000 into a tax-deferred investment account that will grow tax-free until retirement. My error was in computing how much that seed money would be worth by the time of retirement at age 68.

 

I wrote, "The short answer is $1,029,500, assuming you invested the money in the S&P 500 Index at an annual average return of 6 percent and were not allowed to touch it until you retired at age 68." That is incorrect. If only the $1,000 were contributed and nothing more through the years to retirement, the total would be a little over $50,000. However, if family, friends, or employers continued to contribute $1,000 per year (as the government hopes), which I did not make clear, then the total would be more than one million dollars by retirement. "In one fell swoop, that could solve the Social Security issue facing future U.S. generations." I apologize for the error.

 

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.

About 3.6 million babies are born in the U.S. every year. Imagine that at birth, each one was given $1,000 to invest. Any ideas how much that would be worth by retirement age?

 

The short answer is $1,029,500, assuming you invested the money in the S&P 500 Index at an annual average return of 6 percent and were not allowed to touch it until you retired at age 68. In one fell swoop, that could solve the Social Security issue facing future U.S. generations. Hats off to the president on this one.

 

This new kind of savings account was part of the One Big Beautiful Bill Act, and this "Trump Account" may turn out to be one of the most beautiful pieces of legislation in years. Over the next few years (until Dec. 31, 2028), each newborn American citizen with a Social Security number (and under age 18 in the year the account is established) can open an account.

 

The U.S. Treasury will provide the $1,000 seed money to a new custodial individual retirement account for our children. The investments must be in low-cost mutual or exchange-traded funds consisting of mostly U.S. equities. The money would grow tax-deferred with income taxes due only upon withdrawal.

 

At age 18, the child could access the account and empty it if so desired. There is an early distribution penalty for withdrawals before age 59 1/2 unless an exception applies, such as using the money for higher education or up to $10,000 for a first-time home purchase. Distributions can become more complicated depending on other factors, like who else is contributing to this Trump account.

 

Beyond the government's money, others will be able to contribute to this retirement fund. Parents, relatives, and friends can contribute up to $5,000 annually in after-tax money until the child turns 18 years old. That amount in contributions will increase if inflation rises. Employers can also contribute as much as $2,500 for an employee or an employee's dependent, and it will not be considered taxable income by the IRS. Charities can also contribute.

 

Last month, Democrats called out Treasury Secretary Scott Bessent for stating that these Trump accounts "are a back door for privatizing Social Security." I understood what he meant by that, but his words ventured a bit too close to the third rail of politics — Social Security. Critics feared that Bessent's suggestion could be an attempt to reduce the government's role in funding the nation's safety net program for retirees. Bessent quickly posted on social media that these accounts were not an "either-or question" and that the administration was committed to protecting Social Security.

 

However, the facts are that the future of Social Security, as presently constructed, cannot guarantee benefits for future generations. Young people know this, believe this, and have a great deal of anxiety over this fact. In my book, anything that provides Americans with an opportunity to build wealth as early as possible is key to a solution.

 

These accounts, according to tax experts, are projected to cost the federal government $15 billion over 10 years. This country needs to identify and promote alternative ways to finance Americans' retirement. What better way than to allow the power of compounding growth through investment to work for all Americans?

 

Those who say that people would be better off just contributing more to a traditional investment account on behalf of their children are missing the point. This program helps those with no savings, no traditional tax-deferred investment accounts, and no money or inclination to start one. They make up a large proportion of those who are fueling the populist movement in this country.

 

For the 50 percent or more of Americans that face this dilemma, this is an excellent way of ensuring future generations won't end up in the same situation. If I have any criticism of these accounts, I would have liked to see no early withdrawal loopholes. In addition, I had hoped that the age at which one could begin to withdraw funds would be later, or only at retirement age.

 

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 surprise revisions to the non-farm payroll data last week convinced investors that the Federal Reserve Bank will lower interest rates at its next meeting in September. Beyond that, expectations that at least two more rate cuts are in the offing sent stocks flying.

 

The promise of a potential decline in interest rates outweighed the Aug. 7 implementation of reciprocal tariffs by the Trump administration. Then again, while the headlines appear to show sweeping tariffs levied on dozens of countries, with "no exemptions, no exceptions," the truth is much murkier.

 

The announcement of 100 percent tariffs on semiconductors by the White House on Wednesday came with the caveat that companies that are investing in U.S. manufacturing will be exempted. Precious few global semiconductor companies are not investing in the U.S.

 

Trump also said that India would be hit with an extra 25 percent tariff in addition to the 25 percent tariff it already faces for buying Russian oil. And yet, China, which buys more oil from Russia, gets a free pass. Brazil faces similar 50 percent tariffs, but behind the headlines, the number of exemptions on imported goods is climbing quickly. About 43 percent of Brazil's $42.3 billion exports to the U.S. have already been exempted from these tariffs.

 

A long list of products, including minerals, metals, drugs, aircraft, and food, has been exempted as well, depending on the country or company's ability to make a strong case to the administration negotiators. As such, TACO is alive and well. It is not that obvious unless one is willing to read the fine print (if there is any). 

 

It is the reason why tariffs have become yesterday's news. Investors erroneously believe that Aug. 7 marked the end of the trade war. We have seen the end of the beginning of an ongoing period of trade negotiations. We have entered a different world where the U.S. can and will implement tariffs on any country, at a moment's notice, for any reason real or imagined.

 

However, markets no longer focus on anything more than the next few months. Tariffs are out, earnings were in this week. Corporate profits were better than forecasted. At this point, with so many participants understanding the farce behind earnings beats, all that matters is guidance — what company management says they believe will happen in the next few quarters. Good guidance, good performance, it's that simple. 

 

Readers may wonder why last week's stunning reversal of the employment numbers sent stocks higher. Remember, sometimes Maine Street and Wall Street have different agendas. For those who missed it, June's non-farm payroll data and the massive revisions, which lower the number of jobs gained in the past three months, were seen as a body blow to the economy and job growth. That isn't good for Main Street. Wall Street, however, quickly realized that slower job growth was likely to force the Fed to cut interest rates and shift from its wait-and-see stance. Typically, lower interest rates equal higher stock prices. 

 

The macroeconomic data continues to support my contention that we are in an environment of mild stagflation. As I have written before, gold and other precious metals do well in that background. Usually, a declining dollar accompanies stagflation, as it has been doing so far this year. That also supports gold, silver, and cryptocurrencies. Tariffs on 100-ounce and 1-kilo bars of gold are also playing their part by pushing the price of gold higher. Importing this gold primarily from Switzerland is now subject to 39 percent tariffs.

 

In any case, the bond betting market has now penciled in at least three rate cuts this year (up from two). September's probabilities are above 90 percent. My forecast (if accurate) for a lower July Consumer Price Index reading (released on August 12) would improve those odds.

 

Last week, I advised readers that we were in the middle of a slight pullback. The tech-heavy NASDAQ fell about 4 percent. The S&P 500 declined less than that. This week, we rebounded quickly with the NASDAQ large and in charge. I expect we can move a bit higher into next week, but I doubt the selling is over. Fewer and fewer stocks are participating as we climb higher. Don't be surprised to see some higher volatility in the weeks 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.

This weekend, my wife went shopping for a beach hat but came home empty-handed. A new display of plastic skeletons, smiling pumpkins, and scary costumes occupied the beachwear display at her favorite store. Welcome to Summerween.

 

If you thought holiday merchandise is getting earlier each year, consider the July launch by most retailers of their fall Halloween collection. Walmart calls it their "Summer Frights" section, but it was Home Depot that first set the tone by marketing 12-foot skeletons back in April. Michaels, Lowes, Target, Costco, HomeGoods — you name it — major retailers have jumped into this trend.

 

The fact is that Halloween spending is a multibillion-dollar business. Last year $11.6 billion went into buying candy, home decorations, costumes, parties, and pumpkins. This year, retailers are expecting $12.2 billion, which would be a record spending total, according to the National Retail Federation.

 

That is a 37 percent gain over the last five years, and 47 percent of shoppers in their annual survey said they were beginning their Halloween shopping before October. Early shopping continues to be dominated by the 25-34 age group, with almost 50 percent of consumers saying it was their favorite holiday. But in July? 

 

Think skeletons in beach chairs, ghosts in bikinis, and sun hats on Frankenstein. It all started with an episode of Disney's animated show "Gravity Falls" (season 1, episode 12). The town of Gravity Falls loved Halloween so much that they decided to celebrate it twice a year (June 22 and October 31). That started a trend, but the summer dates are loose with Summerweeners picking the last weekend in July or whenever they decided, as long as it was in the summer.

 

And just like its Fall sister, Summerween has its own lineup of snacks and drinks from mummy hot dogs to marshmallow ghosts. Kids have been known to paint beachballs as pumpkins while parents have crafted ghoulish-themed floral displays from their gardens.

 

Retailers were quick to capitalize on the trend, which has only kick-started this summertime holiday trend. Walmart introduced its July deals with a DIY pumpkin head figure. Michaels beat them to it, launching two out of their five Halloween collections on June 13. Spirit Halloween plans to open more than 1,500 stores and hire 50,000 retail associates sometime in August. And Home Depot launched its full lineup of online Halloween items this week. Their collections will be in stores before Labor Day.

 

Don't think it's all about greed, however, what is pushing consumers to spend so far in advance can be summed up in one word: tariffs. Back in April, the Halloween and Costume Association warned that tariffs were threatening to wipe out Halloween and severely disrupt Christmas unless urgent action was taken to reverse them. Since most Halloween items are imported from China, that threat is real.

 

Currently, there is an across-the-board 55 percent tariff rate on Chinese imports into the U.S. Many retailers have already downsized their orders much earlier in the year, so shoppers who wait risk paying more for the most coveted items, and costumes will be out of stock. At this point, even if the U.S. comes to a trade agreement before the Aug. 12 deadline, it will be too late to alter the supply and demand balance for this year.

 

My advice is not to be too upset over the early Halloween displays. Embrace the change and celebrate along with the 47 percent of shoppers who love the holiday and now get to celebrate twice a year. Just make sure that the Reese's Peanut Butter Cups and M&M's are on ice. Happy Summerween!

 

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.