Americans are used to purchasing products, either on credit or cash, and having them delivered within a week, at the latest. Repairing those products such as a household appliances may take a little longer, but not by much. The pandemic has changed all that.

 

Now, I am not talking about toilet paper. That was last year's problem. No, it's about some large appliances and the accessories and parts that are crucial to their inner workings. Take my 9-year-old refrigerator for example. The water dispenser on the outside door doesn't work. It's a problem that has been going on for a year now, and the part needed to fix it is "on back order.”

 

Then there are my broken gas fireplace fans. The fans gave up the ghost just in time for the winter season. Ordering the parts was easy, but here it is the beginning of March and maybe, just maybe, the fans will be delivered and installed just in time for summer.

 

And then there is the mystifying disappearance of one of my cooking staples of convenience, minced garlic. For years, it was a ubiquitous purchase that I rarely thought about, until suddenly it was no longer in its usual place above the potatoes and loose onions counter. The guy in the vegetable department said they were out of stock and were uncertain when or if they would be getting any more of it. I finally found a few small jars hidden away in a corner of another supermarket.

 

Those are just a few personal examples. I came to realize that the coronavirus has upended the world's supply chains in ways that we rarely think about. The pandemic forced certain changes in our habits. Many of us stayed at home. Few outlets existed to spend money, so we stayed at home and spent money on our home goods. Instead of restaurants, we had to learn to cook. That meant stocking up on food and the freezers and refrigerators in which to hold it.  We didn't need dry cleaners because we are all wearing sweats and working from home. But we do need washers and dryers.

 

At the same time that demand for these appliances exploded, the factories in countries that produced them were forced to scale back or shut down production entirely as the coronavirus decimated their workforce. This has created shortages. Exactly what appliances and other products depends on the supply chain of the individual good. It becomes a question of who makes the individual parts that together comprise so many appliances.

 

The facts are that certain important parts, items such as magnetron tubes for microwaves, compressors for refrigerators and freezers, for example, are made by a mere handful of overseas manufacturers. Most of these companies are in Asia.

 

Some of the product categories that have been really hurt by supply chain disruption might surprise you. The FDA is monitoring certain medicines and prescription drugs, especially some generic brands, since certain ingredients are manufactured in China and India. A number of consumer electronic products, solar panels, auto parts, air conditioners, toys and games, vaping devices, and even T-shirts and socks are included.

 

As for my beloved minced garlic, 70 percent of the garlic consumed in the United States is imported from China. Prices have risen by more than 30 percent since the pandemic began, so I'm guessing that minced garlic is getting too valuable to simply mince and stuff into a jar. To tell the truth, I'm finding that while convenient, the canned flavor lacks the pungency of mincing garlic myself. I guess that might qualify as a silver lining in the present supply chain chaos.   

 

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.

In the grand scheme of things, a small, upward blip in the yield of the U.S. 10-year Treasury bond should be of little concern to equity investors. But sometimes, when the conditions are ripe, even the tiniest spark can cause a conflagration within a speculative stock market.

 

As readers are aware, interest rates have been trading at historically low levels for some time. The onset of the coronavirus forced our Federal Reserve Bank to pin them even lower. Essentially, it is why the stock market has been having such a great run. Investors have been conditioned to just assume that, if anything, interest rates might trend even lower but not higher. However, during the last few weeks, the yield on the benchmark 10-year U.S. Treasury bond has been moving higher. Since the beginning of the year, it has gained roughly one-half percent. But real interest rates (minus the inflation rate) are still yielding nothing.

 

In just about every economic recovery, one should expect to see longer-term rates begin to rise somewhat. Economists have been arguing that a moderate rise in this benchmark bond's yield should be good news for the stock market. That may be true, but skittish investors — accustomed to low rates, for longer, and imbued with so much speculative fever — are finding it difficult to accept that concept.

 

Investors are concerned that all the stimulus that the government has poured into the economy, plus all the trillions of dollars that the Biden Administration is planning in the near future, will spark inflation. That, in turn, could force the Federal Reserve to raise interest rates and tighten monetary policy prematurely.

 

It doesn't matter that just this week, Federal Reserve Bank Chairman Jerome Powell, in testifying before Congress, once again reiterated that the central bank has no intention of doing that. In fact, he said just the opposite.  That calmed down investors for about a day, but it didn't last. Suddenly, the yield shot up to above 1.50 percent on the benchmark bond, and bond traders panicked. It was as if some magic level of interest rates was unearthed that would suddenly put an end to the entire economic recovery. The bears appear to be betting we are at the doorstep of that level.

 

It is the main reason why technology shares, especially the large-cap favorites, have been taking it on the chin all week. Higher rates are considered the "Achilles Heel" for that group. It is why the NASDAQ has suffered far greater declines than the S&P 500 Index this week. But these large cap companies are now also in so many equity indexes that investors cannot escape them. If stocks like Apple and Google decline, they will (and are) take the whole market down with them.

 

This week, we have seen the increasing volatility I have been expecting throughout the stock market. We have also seen another uptick in speculation, both to the upside and to the downside. Bitcoin has had some enormous swings, while gold has dropped to six-month lows. The U.S. dollar was first in a free fall and then soared higher. On top of all this, the Reddit/GameStop crew has returned with a vengeance.

 

For weeks, I have been advising readers to raise cash gradually while the markets climbed to new highs after new high. If you had followed my advice, you should have a nice pile of cash available at this point in the event that markets take a real tumble. That time could be almost upon us.  

 

As I write this, the markets are battling with an important technical level. A sustained move below 3,830-3,840 on the S&P 500 Index would signal to me that a correction is already unfolding. If so, my potential target would be around 3,550. It hasn't happened yet, but it could. In any event, whether it happens now or sometime in March, that correction is coming. Stay tuned.

 

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.

One of the hottest trends on Wall Street today is "special purpose acquisition companies" or SPACS. There is hardly a day that goes by without an announcement of a new SPAC, or the acquisition and merger of a private company by one.

 

It works like this. Even though they are called "companies," SPACs have no commercial operations, no sales, profits, or losses. All they have is a pile of cash. They received that money from investors in an initial public offering (IPO) with the promise that they would invest that money down the road into a private company with good prospects.

 

You are basically giving a blank check to a group of financial pros with a track record, betting that they will make good on their promises. The new SPAC usually prices its shares at $10 in the IPO, while the money raised goes into an interest-bearing count until the right target company looking to go public agrees to be acquired and merged into the SPAC. But that is no sure thing.

 

SPAC shareholders must vote their approval of the proposed target company. They can refuse or agree and exchange their SPAC shares into the merged company or redeem their SPAC shares at their original investment price, plus interest. There is also a deadline involved. The SPAC must come up with a suitable purchase within two years, or the SPAC is liquidated, and the money returned to investors with interest.

 

Initially, SPACs were conceived and marketed by Wall Street types, usually a team of institutional investors with reputations for making money in the hedge fund or private equity areas. Although the SPAC structure has been around for years, it was only used as a last resort by tiny companies that would have a difficult time going public through an IPO. The pandemic changed all that.

 

Many private companies that wanted to go public feared that investors would not have an appetite for new IPOs in an extremely volatile, coronavirus-fueled market. SPACs offered an easy, fairly streamlined alternative solution. Companies could close a SPAC deal in a few months, rather than waiting as much as six months or more for a SEC IPO regulatory approval. Going the traditional IPO route is expensive as well. Plus, prospective companies can negotiate their perceived public market value with the SPAC management instead of being at the mercy of their IPO investment bankers or the buying public during the road show.

 

Typically, the sponsoring SPAC receives a 20 percent stake in the final, merged company, which makes it a lucrative proposition for the sponsors. That payout has attracted a growing number of professionals looking to start their own SPACs. In addition, a slew of big-name CEOs and billionaires have jumped on the SPAC bandwagon, as have sports stars, singers, and others seeking to cash in on the trend.

 

If all this sounds like a dream come true, it is — at least for private companies that want to go public.  Last year $83 billion was raised through SPACs, which was six times the amount raised in 2019, and almost equaled to the total new IPO market.

 

For the individual investor, however, it may not be such a great deal. More often than not, the track record of investing in SPACs is less than if you purchased a typical IPO. Although some SPACs do hit home runs, according to a recent Harvard study, the vast majority of post-merger SPAC share prices drop by one-third or more after the deal. The Harvard study went on to say that by the time the merger actually does occur, the $10 share price actually has a cash value of just $6.67. In this kind of transaction, it is the shareholder, and not the company, that is bearing the brunt of costs. There is another and more pressing issue with SPACs. They might also be victims of their own success in the future.

 

This army of new SPACs is already in fierce competition with traditional IPO bankers, as well as venture capitalists. They are all chasing the same dwindling supply of well-capitalized private companies with good prospects. The temptation may be to just find companies willing to merge, despite their prospects or financial condition. In addition, the temptation to value the targeted company at a price that will win their business over the competition is a real and present danger.

 

My own experience in buying SPACs is that I have made the most money buying pre-deal SPACs. I usually pay less, but that is understandable. I take on the risk of waiting for a deal. Remember, the SPAC could take two years to find a suitable merger company, if ever. In most cases, I usually sell some, or all, of my position in the days following the announcement of a successful merger. Of course, there have been some notable exceptions to that rule depending on the company, its products and future potential. It requires research, patience and work.

 

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

There was no contest this week. Cryptocurrencies took center stage as the stock market churned, chopped and gave investors a little indigestion. Welcome to the market's brave new world.

 

It appeared that Bitcoin was the answer to whatever ails you. Higher interest rates, the threat of higher inflation, weaker (or stronger) dollar, no problem just buy Bitcoin. By the end of this week, the crypto coin had chalked up a 15 percent gain and was trading above $52,000. Ethereum, Bitcoin's younger cousin, was also up 10 percent.

 

None of the financial market's usual suspects — stocks, bonds, or commodities — could come close to those kinds of gains. Detractors warn that the entire cryptocurrency run-up is just a fad and will end badly. Maybe so, but that didn't stop some of the largest institutions on Wall Street to at least consider investments in cryptocurrencies. And while Bitcoin soared, gold has plummeted.

 

Normally, in times of a weaker dollar and expectations of higher inflation ahead, gold would be soaring. As a result of price declines, traditional commodity analysts have been forced to adjust their bullish precious metals forecasts downward. The most common explanation given for this down draft is that Bitcoin has become the modern-age digital alternative to gold.

 

After all there is no need to pay storage costs, which you do for gold bullion; nor do investors need to worry about what central banks will do with their gold supplies. As for purchasing power, Bitcoin is accepted at some of the largest credit card companies in the world, as well as PayPal. You can even buy a Tesla with it, if you so desire.

 

Bitcoin is one reason, but not the only reason, why I wrote last month that although I expected most commodities to do well in 2021, gold was my least favorite among the group. Silver, platinum and copper, for example, are used in industry and are considered part of the re-opening trade. Rare earth metals, such as lithium, which are used in the manufacturing of electric batteries, should also see their prices continue to rise.

 

Oil has already performed well this year. The shutdown of almost 40 percent of the country's oil production this week, thanks to the deep freeze in Texas and the Mid-West, has resulted in what I suspect could be a short-term, "blow-off" top in oil and gas prices. But, longer-term, I expect energy prices to continue higher.

 

But what of equities? As we get closer to 4,000 on the S&P 500 Index, (if we actually get to that target) I expect to see more volatility in the markets. Right now, it is all about the stimulus package, which is expected to pass in early March. Will passage be a sell-on-the-news event?

 

You may have noticed by now that large cap tech continues to advance, but the real action is in small cap stocks. This is also part of my 2021 thesis. What has worked for investors over the last decade (think FANG stocks) may not perform as well this year. 

 

My advice for now is to hold tight, continue to take some profits when you can, and set that cash aside for the future. The next 100 points higher on the S&P 500 are not a sure thing, so be ready for some possible downside as we work our way towards the end of the 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.

 

The latest entrant into the social media orbit is an audio-only chat app called Clubhouse. The internet company had a $1 billion valuation before it had a business plan. That is even more surprising since membership is by invitation-only.

 

On Jan. 24, 2021, the company announced its latest $100 million fundraising effort, and for the first time presented a rough sketch of how it plans to start generating sales. Its Silicon Valley founders, Paul Davidson and Rohan Seth, are hoping to offer paid subscriptions, ticketed events, and other schemes to turn the site profitable.

 

You need to know an existing member in order to get an invite to join Clubhouse. Once you become a member, you can join the conversation on a variety of topics. Everything from cryptocurrencies to the latest sports games, to any other topic you can imagine. You can wander what is called "the hallway" and listen in on various live conversations in process as you pass different rooms.

 

So, who, you might ask, would want to pay just to listen in or have a conversation with someone? Well, it might depend on who was doing the talking. What if Elon Musk, or Mark Zuckerberg, Oprah, or Drake were the guest speakers?  

 

The site's virtual rooms are organized into a host, moderators, and audience members. The host and moderators determine the conversational flow, who can speak, and when, as well as any question-and-answer segment if applicable. It is quite similar to a virtual panel discussion you might attend through Zoom or GoToMeeting. However, this is an audio-only event with no videos.

 

Each event or topic may be different. And if, for example, the subject matter is performance-related, as in acting, or presenting a comedic routine, or the topic is designed for listen-only, then the panel member may not allow audience feedback or a Q&A.

 

The founders are betting that you will not only be attracted to Clubhouse's exclusivity, but will also be willing to pay for a seminar by a famous influencer on topics like the future of coronavirus, or watch the Clubhouse production of "The Lion King."

 

To date, there are about 180 investors, including several large venture capital firms, and a group of smaller, independent investors that have funded the effort. There are an estimated 6 million registered Clubhouse users, which continues to grow by leaps and bounds.  

 

Clearly, the formula for success is providing the membership a growing list of relevant topics and "influencers" who are loyal to the site. Tesla CEO Elon Musk made his first (and only) appearance on the site on Jan. 31. He is credited with single-handedly driving membership from 3 million to more than 5 million users worldwide in a matter of days. New members sprouted up in Taiwan, China, Hong Kong, and Japan.

 

Much of the credit for the APP's early success lies with a group of talented Black artists who transformed what was a geeky tech hangout into something more that would appeal to a much wider audience. But success does not come without a price.

 

Clubhouse in its earlier days had its fair share of hate speech, nasty conversations, and verbal harassment of speakers, moderators, and audience members. Since then, the company has developed its own set of community guidelines as well as "block," "mute" and "report" buttons. In addition, some of Clubhouse funds are now used to hire more professional moderators as well as for training of those members who host and/or moderate rooms. Given the varied and heated opinions of these divided states, I suspect it will become even more difficult to maintain civility in these rooms depending upon the topics presented.

 

The Clubhouse success has also spawned competitors. Twitter recently launched a live audio feature called "Spaces," Facebook is reported to be developing something similar, and the Chinese are putting together their own version of the app.

 

As for me, I am still waiting for someone who is a Clubhouse member to send me an invite. I would greatly appreciate it. My email is billiams1948@gmail.com.