At the beginning of this year, the global price of carbon was $24.05 per ton of CO2. In order to achieve the emissions reduction goals of members of the Paris Agreement, prices need to reach a range of $50-$100 per ton of CO2. That makes buying carbon an attractive investment.

 

The ongoing concerns about climate change have spawned several emission trading schemes over the last decade. The reasoning is simple: if left unchecked, carbon emissions (among other factors) will have a material impact on our environment and will do severe damage to the global economy.

 

The ratification of the Kyoto Protocol of 2007, by world governments, effectively addressed the challenge, establishing rules of carbon emissions. And in the process created an entirely new asset class.

 

Today, whatever system a government chooses has at its core, a cap-and-trade system. Emitters of carbon must by law either limit carbon emissions to the level allocated by their government, purchase additional carbon emissions permits in the marketplace, or pay a fine for exceeding their emission limits. This has created a new commodity: carbon emission permits.

 

The European Union Emission Trading Scheme (EU ETS) is by far the largest such scheme in the world. It has also become the model for most of the world's governments. Carbon emissions, according to the Financial Times, was the top performing commodity in recent years, growing fivefold in the last four years. By the end of 2020, the three largest global carbon futures exchanges had a market size of $260 billion.

 

In April 2021, on Earth Day, President Joe Biden hosted a "Leaders' Summit on Climate," and promised to reduce emissions by 50-52 percent below 2005 levels by 2030. The U.S. was just one country, among many. The EU, the U.K., and China promised similar, if not larger, reductions. Carbon emission pricing was the central theme of the summit and is the key, fundamental component for achieving the summit's reduction goals.

 

Prices have risen by 70 percent this year in response to the aggressive goals set by the EU, which is targeting a 55 percent reduction in greenhouse gases by 2030 and net-zero by 2050. The hope is that as the price of carbon credits continue to rise, polluting companies will at some point decide to invest in reducing emissions rather than purchasing increasingly expensive credits.

 

The re-opening of the world's economies is also a bullish development for carbon pricing as industrial companies and utilities increase output and carbon emissions, which is sparking even more demand for carbon credits. And adding to that trend, new carbon markets seem to be popping up every month. Cap-and-trade carbon pricing exists in 24 national and sub-national markets currently. Another 19 more markets are in the development or consolidation phase.

 

Some American institutional investors and pension funds are gaining access to this market either directly, or through Exchange Traded Funds (ETFs). The retail crowd is still relatively absent from this asset class.

 

In addition, as far as I can tell, the carbon market is uncorrelated with other risk assets. The underlying asset, the EU ETS, is a liquid instrument with a well-understood prospective risk premium. Its risk-adjusted returns have outperformed traditional asset classes such as equities, bonds, and other commodities. In my opinion, it appears to be a case of making some real money over the long-term, and, at the same time, contributing to the greater good by helping to address climate change and a much-improved global environment.

 

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 inflationary environments, investors historically have hedged their bets by buying gold. However, this time around, the precious metal has languished as investors bought alternative investments. But times are changing.

 

The primary alternative to buying gold has been cryptocurrencies. Bitcoin and Ethereum, two of my 2021 buy recommendations (for those with a strong stomach) have enjoyed spectacular gains in 2021. Bitcoin, at one point in May, had gained almost 100 percent, while Ethereum saw gains of more than 400 percent.

 

In addition, other commodities held more interest than gold for most investors. In January 2021, I recommended investors focus on some specific commodities, especially oil, copper, and soft commodities, like food and lumber. I listed gold as my last pick among those commodities.

 

That proved to be the correct approach because I recognized that the world had moved on, at least temporarily from something as arcane as gold. In today's internet world among the Robin Hood traders and GameStop crowd, gold was simply not be as attractive as digital currencies. There are plenty of arguments for why that could be the case. Bullion, for example, is expensive to hold, and rising interest rates increases the cost of holding it. Gold is cumbersome, while digital transactions are easy and far more efficient. And while gold is still used in several products, copper, lumber, and oil are far more leveraged to a re-opening global economy.

 

It is not as if gold has gone nowhere. Gold made what I consider a cycle low back in November 2020 at $1,767.20 an ounce. Today, that same ounce of gold will fetch $1,882.70. That's roughly a 6.5 percent gain. That's much better than the risk-free rate in the bond market but compared to the stock market's 12 percent gains it has been disappointing at best.

 

However, recently gold has begun to perk up and I believe we may be on the cusp of a new move higher in this precious metal (and silver along with it). Why the change in attitude? The increased worry over how high and how fast inflation will rise and the dollar's sharp decline has investors nervous. At the same time, other commodities are at record peak prices, while gold has done little.

 

In addition, recent arguments that crypto currencies are the Twenty-First Century's "new gold" is beginning to unravel as speculation within that asset class runs amuck.

 

As an example, the crypto world is in the midst of a massive decline (evenas I write this). Bitcoin has fallen from a high of $64,000 to Wednesday's low of $33,700, which is almost a 50 percent decline. Ethereum and Dogecoin have also incurred similar losses. The argument that it is a hedge against inflation or rising interest rates seems to be suspect given recent events.

 

I have noticed over the last few months an increasing number of Wall Street firms including Goldman Sachs and Credit Suisse have warmed to the prospects of gold. Some respected analyst forecasts are expecting gold to move much higher. Twelve out of 32 analysts are predicting that gold will average $2,000 an ounce this year. The median forecast with half above and half below, averages $1,965 an ounce.

 

I expect that all these forecasts could be low. I am putting gold at the top of my commodity list for the second half of 2021. Silver could be a close second. For investors interested in this area, keep in mind that gold and silver mining stocks usually outperform the metals by a ratio of 2-3 to one. Remember, however, that commodities overall, and precious metals in particular, are highly aggressive investments.

 

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 hiring boom that was expected in April 2021 fizzled. Last Friday's nonfarm payrolls report came in at 266,000 jobs gained compared to over a million expected. It was the biggest miss in decades.

 

Politicians and many corporations were quick to provide a ready scapegoat for that failure. They blamed it on the weekly payments of $300 in federal unemployment aid through September 2021, on top of the regular unemployment benefits paid out by the states. In short, the fault apparently lies with the Biden administration's stimulus package. If the president and the Democrats had not provided these overly generous benefits, more workers would be thrust back into the work force in order to eat and pay their bills. Hogwash!

 

Many of these complaints are coming from service providers in the restaurant and retail trade where the median wage is around $11 a hour versus more than $20 a hour in other occupations. Non-partisan economists can find no evidence to support these wild claims, but there are two factors that could explain the lack of available workers.

 

Fear of contracting the coronavirus is one reason. Many millions of Americans avoided hunting for jobs in April because they were afraid they might be infected with the coronavirus. In the restaurant and retail business sectors (where the accusations are loudest), there is a much higher risk that can occur. Disruptions in schooling and child care also contributed to the anemic job hires, since 2 million or more women specifically were prevented from looking for work because of caring for children at home.

 

A third explanation involves economic theory. The economy has suffered, and continues to suffer, from a severe shock. As in all such shocks, growth and hiring are not likely to evolve smoothly, like clockwork. The economic data will be choppy, reflecting the fits and starts of an enormous economy coming back to some semblance of normalcy. 

 

Surging consumer confidence has fueled demand as Americans want to buy, eat, travel, and shop. Many companies have been caught flat-footed by this sudden explosion in new business. They somehow expected that workers would magically appear just because they decide to reopen their business after months of lockdowns and hesitation and fear. But business owners have been spoiled by decades of cheap available labor, especially in the U.S. services sector, which now represents about 70 percent of the American workforce.

 

In times like these it is easy to fall back on all the old myths about the American workforce and their failings. I am hearing comments like "Why work when you can get more staying home?" or "stimulus and unemployment benefits are killing the workforce," and of course the old tried and true racially motivated "people just do not want to work."

 

Let me put an end to this crap. The U.S. is the most overworked, developed nation in the world. Today, 70 percent of American children live in households where all adults are employed and 75 percent of those women are working full time. In the U.S. 85.8 percent of males and 66.5 percent of females work more than 40 hours a week. And women make 87 cents for every dollar a man makes. Productivity per American worker has increased 400 percent since 1950. All the net gains in April's job growth went to men. Women, as a group, lost jobs.

 

My solution to the nation's dilemma of finding more workers is not to reduce unemployment benefits. That would simply lock our antiquated attitude toward labor. It is obvious to me that American companies, especially in the service sectors, need to pay higher wages to attract the workers they need. If they cannot do that and still make a profit, they should not be in business at all.

 

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 you have been grocery shopping lately, there is no question that prices and inflation are going higher. The same can be said for the price of a gallon of gas. But is it a transitory event, or are we at the beginning of an inflationary era not seen in decades?

 

Clearly, commodity prices, which are usually the harbinger of future inflation are soaring. Copper, oil, sugar, corn, steel, aluminum and lumber as well as many other food and material prices are hitting multi-year highs. But it is not just commodities that are seeing a price surge. Shipping costs are also skyrocketing. And there are parts shortages that are leading to higher prices, plus a global semiconductor shortage that is sending microchip prices climbing.

 

Against this backdrop, the U.S. economy is exploding higher with the growth rate. This quarter and next combined are expected to exceed 10 percent. The nation is reopening and with it the demand (and prices) for everything from airline tickets to rental vacation cottages. The back-to-the-office crowd, as an example, has retailers trying to keep up with the sudden heightened demand for everything from dress trousers to make-up.

 

And while all this activity is gathering momentum, the U.S. government is feeding more fuel to the fire. Both government spending and monetary stimulus are at historical levels. We would need to go back to the Roosevelt Era to find a similar period of spending in our history. But this governmental expansion has even dwarfed FDR's efforts.

 

Thanks to the pandemic, there have also been a growing number of supply shortages and logistical logjams worldwide. From diapers to toothpaste, consumer-related poduct scarcities are also contributing to rising prices. Time and again, during quarterly earnings calls over the last two weeks, corporate executives have complained about the mounting costs of almost every input to their businesses. Where they can, those costs will be passed on to the consumer through higher prices. The fear of inflation is no longer theoretical.

 

Up until now, if you listen to the Fed, the uptick in the rate of inflation is going according to plan. The need to expand GDP considerably will by necessity, mean that inflation will move higher. They expect inflation to run "hot," or at least hotter than would normally be the case.

 

Both the U.S. Treasury Secretary Janet Yellen, and Fed Chairman Jerome Powell, believe that a higher inflation rate will be necessary in order to get employment back to 2019 levels. Chairman Powell has said on many occasions that if inflation runs a little higher than their historical comfort level of around 2 percent that would be better than okay.

 

A higher rate of economic growth, they believe, will also address some of the potential scarring of the economy wrought by the pandemic. "Scarring" refers to the potential for permanent damage that may have occurred to the economy and the work force during the last year or so.

 

What has many investors concerned is that once the inflation genii is out of the bottle, it won't be that easy to put it back in again. Will a 2.5 percent inflation rate, for example, be a transitory event, or the harbinger of something more?  And if so, how much more?

 

Will the Fed be forced to hike interest rates, if inflation runs amuck? Will they take away the monetary punch bowel and with it the stock market and the economy?

 

One thing is clear. Until we know the truth, investors will be sleeping with one eye open. In recent days, several Fed members, in speeches around the country, have mentioned the "potential" for tapering in the near future — something opposite of the Fed's stated policy position. In addition, this week, Secretary Yellen also mentioned a possible need for higher rates ahead. That riled the markets, and she later walked back that statement. Investors dismissed it as a "slip." It is hard to believe that a veteran like Yellen would say anything in any circumstance.

 

 My own thinking is that what we are hearing are a series of trial balloons. It is usually the method by which the Fed and other official entities gauge and test the reaction to future policy changes. Could it be that, despite the central bank's belief that their lower-or-longer stance is the right approach, there may be the need to adjust if prices continue to ratchet too much higher? Afterall, when you allow things to heat up there is always the chance of being burned.     

 

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.

 

 

Oceans cover more than two-thirds of the earth's surface. For centuries, these bodies of water have supplied us with a bountiful harvest of ocean wildlife and millions of well-paying jobs. Unless something changes, however, the future of fisheries is in serious jeopardy.

 

The demand for fish is growing with aquaculture trends reaching a growth rate of 527 percent from 1990 to today. At the same time, fish consumption has doubled as well.

 

Declining fisheries, the destruction of the marine habitat, and the near-depression-like economic conditions of more and more coastal fishing communities, is no surprise to most of us. It has been going on for decades. And yet, the appetite for fish, especially among developing nations, keeps growing by more than 3 percent a year. Fish consumption accounts for one-sixth of the global population's intake of animal protein, and more than half in many emerging markets has doubled as well.

 

Since the 1980s, the global seafood catch has been falling. This is despite better fishing boats and improved underwater technology, such as GPS, fish finders, echo-sounders, and acoustic cameras. This has led to an annual 2 percent-per-year increase in a boat's capacity to capture fish. Thanks to this "technological creep," the 10-boat fishing fleet of a generation ago has the power of 20 vessels today.

 

At least a billion people, if not more, rely on fish as their primary protein source and tens of millions of people around the world depend on the sea for their livelihood. As such, several foreign governments have traditionally provided massive subsidies ($35-40 billion a year) to their fishing fleets in order to increase their ability to compete and catch more of the world's fish. The top five nations include China, the European Union, the U.S., Korea and Japan.

 

Global fishing fleets are taking too much wildlife from the sea and the laws and regulations that are meant to manage and conserve fisheries are either ignored or only selectively enforced. The fact that wild-capture fish prices continue to increase and are projected to rise by 23 percent over this decade makes flouting the law an easy excuse. There is not a day that goes by without some new violation of existing fishing regulations somewhere, and those illegal activities are increasing.

 

We all know this, but few realize how bad the problem has become. Most scientists expect that if the present situation continues, by 2050 there will be a complete collapse of all wild seafood that is fished today. Ninety percent of all tuna, marlin and sharks will be gone. Of the top 10 species that account for 30 percent of all fisheries production, six of them (anchoveta, mackerel, pollock, Japanese anchovy, blue whiting and Atlantic herring) are fully exploited or overexploited today.

 

The World Trade Organization (WTO) is where government leaders meet to negotiate the dos and don'ts of commercial fishing. Six years ago, negotiations began on eliminating government subsidies that are behind the excessive and illegal depletion of the world's fisheries. It has been a game of good intentions, but broken promises. Deadlines come and go, but like so many things at the WTO, nothing has changed.

 

China, India, and other Asian nations account for 85 percent of the world's commercial fishing employment. Those governments have only been interested in gaining exemptions, rather than enforcing more discipline among their fishing fleets. But there may be hope yet.

 

For one thing, there is a new director-general at the WTO, Ngozi Okonjo-Iweala. She has moved a successful fishery deal to the top of her agenda for 2021. She is pushing member trade minsters to agree and sign a deal by July.

 

At the same time, President Biden has placed environmental concerns at the top of his agenda. His U.S. Trade Representative Katherine Tai seems focused on the problem of overfishing and is backing the WTO's efforts to finally get members to take some actions. Let's hope, for all our sakes, that the world can finally come to its senses before our oceans end up depleted.

 

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.