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The Retired Investor: Too Late to Stop Climate Change?
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Invest in energy infrastructure now. Our grandchildren's future depends on it.
The argument over climate change has been going on for years. Disagreement over how bad the effects will be, how long we have left to act, and, how much needs to be spent in combating this worldwide danger has resulted in delays, underspending, and even ignoring the threat altogether. And now it may just be too late.
Here in the U.S., we tend to focus on our own needs. After years of wrangling, we have finally passed the $1 trillion, bipartisan Infrastructure Investment and Jobs Act. It promises to address America's dilapidated infrastructure. On the shopping list of investment projects is an upgrade in power infrastructure and additional spending to increase the "resiliency of our infrastructure" in relation to climate change, cyber-attacks, and extreme weather events.
While I applauded the effort, I was disappointed with the amount of spending, and said so in past columns. As far as Congress is concerned, the subject is now closed with this one-and-done spending effort. To me, this spending is not only insufficient, but will cost a heck of a lot more to resolve in the years ahead — if we have the will to do so.
Almost everyone agrees the globe is getting hotter. Fossil fuels, as we know, contributes a great deal to global warming. Renewable energy seems to be the answer. Unfortunately, we need to develop both alternatives for the foreseeable future thanks to the geopolitical state of world affairs. Equally important, we need the capability to move the power generated from these energy sources to where they are most needed. That is where the electrical grid becomes of vital importance.
Here in North America, the power grid is divided into five distinct regions. Texas, Alaska and Quebec comprise three smaller grids, while two larger ones serve the East and West.
Although some money in the infrastructure law addresses the grid, it is woefully inadequate, in my opinion. A recent Princeton University research paper estimates just upgrading the U.S. transmission grid alone will cost $2.4 trillion by 2050. That sum is many times the amount of investment spending earmarked for the power grid in the new legislation.
Most readers are aware of the precarious state of the power grid in Texas. Recently, California's grid has made the headlines as it joined several states buffeted by heat wave after heat wave that threatens widespread blackouts. These heat waves are expected to continue. Switching to hydroelectric power and its transmission, the Colorado River Basin supplies 57 percent of renewable energy in the West through hundreds of hydroelectric dams along the river's main stem and tributaries. Drought is threatening that power generation output.
Take Lake Powell, the nation's second largest reservoir. Its water moves through generators that churn power to more than 5 million people in seven Western states. Thanks to the historical, 21-year megadrought, the water levels of the Colorado Rivers biggest dams are fast-approaching, or already at record lows. Power generation is already down 20 percent in the last two-plus decades. Further declines are expected this year and next.
In prior columns, I explained that the decline in the number of U.S. oil refineries has translated into a lack of refining capacity. It has hamstrung the nation's abilities to process usable grades of oil, no matter how many barrels we pump out of our wells. I could go on and on, but what is happening here is also happening overseas.
In Europe, the Ukraine War, Russia's response to European Union (EU) sanctions, and the continents over reliance on Russian gas has thrown the EU's energy infrastructure into chaos. Germany, Europe's economic powerhouse, has been especially short-sighted in its energy decisions. For years, cheap Russian gas has allowed the country to produce and pursue economic leadership, while reducing alternative sources of energy such as nuclear power.
China is also reeling from its own policy mistakes in infrastructure. Its massive, decades-long, decision to replace coal with hydropower as their source of power generation has been crippled by drought. Unfortunately, the government failed to diversify sufficiently into alternative forms of energy. Instead, they are now expanding their coal-fired power capacity with 258 coal-fired power stations proposed, permitted, or under construction. India and some African nations are even worse off. These large coal users have yet to even consider energy infrastructure investments.
Climate activists, some policy makers, university think tanks, environmentalists and many economists have spent more than a decade begging global governments to spend or borrow the multi-trillion dollars necessary to address climate change and its damage to world economies. It was a time when interest rates were practically zero, and the cost of borrowing trillions was historically low. That window has closed.
Interest rates are rising and are predicted to keep rising. Economies are slowing and inflation is adding additional costs to solving what is fast becoming an insurmountable problem that will make COVID-19 look like child's play.
There are estimates out there that the cost of achieving a net-zero global economy by 2050 would require $5 trillion in spending per year between today and 2030. The financing cost of such spending in a rising interest rate environment is anyone's guess.
The hard truth, however, is that expansion of power generation capacity throughout the energy space faces opposition from voters who do not want a smelly refinery, or bird-killing windmill in their backyards or mountain tops. Politicians are only too happy to oblige. After all, why should they worry about what happens to your grandchildren when they are no longer running for office? Unless we all do something now, those grandchildren may not be around to solve this problem.
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 Retired Investor: Where Have All the Workers Gone?
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Help wanted posters continue to populate storefront windows in a multitude of service-related businesses across the nation. The U.S. has 3 million more job openings than it did before the pandemic. This labor imbalance is entering its third year. Why has it been so difficult to remedy?
First, I would like to dismiss any assumption you may have that American workers are lazy and simply don't want to work. That attitude is neither true, nor particularly helpful, in understanding the major forces that are at play in this nation. Instead, I see four main areas that largely explain America's labor dilemma.
Let me start with older workers like myself, who left the work force. Prior to COVID-19, neither my wife nor I had any plans to retire, although we were both close to, and over, the typical retirement age. However, the risk to our health and life in the pre-vaccination days convinced us to leave the work force. More than 3 million Baby Boomers did the same and retired early. That was 2.6 million more people than labor experts predicted. That left a big dent in the available work force.
In addition to early retirement, COVID-19, itself, continues to be an important reason for our labor shortage. The Brookings Institute believes COVID could be keeping as many as 4 million workers out of the labor force,
Despite its disappearance from the daily news feeds, mutations of COVID-19 are everywhere. In just 13 days, between June 29 and July 11, 2022, more than 3.9 million workers took sick leave due to catching the virus or having to care for someone who was infected. That is double the rate of sick leave due to COVID-19 in the same time period last year.
Another factor in this lopsided labor imbalance is the shortage of women in certain areas of the workforce, especially Black and Hispanic women without college degrees. These women made up a goodly portion of the work force in some service sectors like restaurants and retail stores. COVID infections are a factor in the decline in numbers, but the lack of access to affordable childcare is the bigger problem keeping many women at home.
The simple fact is that there just are not enough people working in the child-care sector to meet demand. Employment levels are 8.45 percent lower today, than in February 2020. Even before COVID-19, the child-care industry was in trouble, but its poor financial health today prevents most programs from offering competitive compensation in an already-tight labor market.
As it is, child-care expenses are equal to or higher than the wages earned in many minimum wage jobs.
Immigration, or the lack thereof, has also crippled efforts to address the supply/demand imbalance of labor in the U.S. Normally, when a country can't find enough workers to do the jobs necessary to keep an economy humming, they import labor from abroad. Not so under America's recent immigration policies.
From picking apples in New England, to staffing high-tech positions in Silicon Valley, our present partisan policies have reduced those workers to a mere trickle. The U.S. issued 4 million nonimmigrant visas in 2020, which is half as many as it issued in 2019, and nowhere near the 10 million issued in 2016.
Last year, the number of L-1 visas (used to transfer an employee from a foreign country to the U.S.) dropped 68 percent to only 24, 863, while temporary work visas saw a similar drop in numbers. The situation is expected to get worse as old visas expire and new visa issues continue to decline. Many of the sectors that have the highest rates of unfilled positions are those that historically were filled by immigrants like hospitality and transportation. The unfortunate truth is that many immigrants often take jobs that Americans do not want to do. Most businesses know that, but that does not seem to matter to the voters and their representatives opposed to immigration.
There is some good news. Recent data has pointed to a rebound in workers re-entering the job market, which has caused a rise in labor force participation. In August 2022, 786,000 people re-joined the labor force. My wife, for example, decided to go back to work, part-time this year.
However, the rate of gain for workers over 55 years of age fell in August 2022 to only 38.6 percent of the work force. Overall, just 2.8 percent of early retirees went back to work since the beginning of this year, according to data from the Census Bureau's Current Population Survey.
As a result of these factors, the wage growth spiral we are experiencing will continue. And as it does, the inflation rate will continue to be a major problem for the Fed, for the economy, and for the stock market. Is there a chance that somehow the labor shortage will fix itself?
Doubtful, since I see little enthusiasm to expand immigration, nor for a comprehensive and universal answer to child care. The rate of COVID-19 infections will continue to grow, since most Americans have decided to pretend it does not exist. And as for Baby Boomers like myself, we aren't getting any younger.
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 Retired Investor: The Supreme Court Loves Business
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Over the past seven decades, the U.S. government has embraced business. Both political parties and their leaders have continued and expanded a broad, business-friendly agenda. However, the judiciary tops the list when it comes to ruling in favor of American business.
In fact, the current Supreme Court of the United States (SCOTUS) appears to top the tape in handing down favorable decisions to corporations and small business, according to a research paper by the Virginia Public Law and Legal Theory Research. The authors, Lee Epstein of the University of Southern California, and Mitu Guli at the University of Virginia School of Law compared the last decade and a half of Justice John Roberts' court rulings. Businesses won a lot more cases than they lost. The authors concluded it may well be the most pro-business Supreme Court in the last century.
Historically, SCOTUS has only ruled in favor of businesses 41 percent of the time. In the Roberts Court, however, that number shot up to 83 percent in 2020, and 63 percent since John Roberts assumed the role of Chief Justice.
If you look at the makeup of the court right now, six justices with the best record for supporting businesses in their voting habits were nominated by Republican presidents. That list includes Clarence Thomas, Samuel Alito, Brett Kavanaugh, Amy Barrett, Neil Gorsuch, and John Roberts.
However, that does not mean that Democrats' appointees are anti-business. Elena Kagan, for example, has a better pro-business record than Antonin Scalia. Sonia Sotomayor ranks last of the justices at 48 percent in favor of business but that is still above the historical averages. The areas in which the Court has actively ruled in favor of business are in the realm of upholding arbitration clauses and denying class-action suits in the securities sector.
The study found that there were several factors that may be influencing the justices' decisions in coming down on the side of business. Government, for example, has a strong influence on the court's decisions. When the Solicitor General, whose office represents the Federal government in front of the Supreme Court, takes an interest in a case, the court listens. It just so happens that the Solicitor General has rarely (20 percent of the time) opposed business interest during the Roberts Court and neither has the Court.
Over the last few years, there has also been a change in who pleads the case of businesses in front of the Court. A small, but savvy group of elite attorneys with extensive experience before the Court, are now representing business 77 percent of the time. That compares to just 25 percent of business attorneys during the Burger Court between 1969 and 1985, when voting in favor of business was much less common. And whether a justice was appointed by a Republican or a Democrat, they were more likely to vote in favor of businesses represented by a SCOTUS-experienced lawyer.
It is a common belief that through the years, SCOTUS had done a fairly good job tracking public sentiment. However, in the case of business, while public opinion toward business has soured, the courts' decisions have gone the other way since the 1960s. Recently, the Court seems to be willing to ignore, or in some cases, even go in the opposite direction of prevailing public sentiment.
In any case, given that the Republican-nominated justices represent a six to three majority on the court, businesses can continue to count on even more favorable rulings in the years 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.
The Retired Investor: Consumers Get Price Relief on Beef
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Many consumers have changed their diets over the last two years consuming more chicken, pork, and fish and less beef. Driving this substitution have been the stratospheric increases in meat prices. The good news is that high-end beef cuts are now dropping in price.
As readers are aware, prices for food have been rising for months. On a personal basis, my custom of grilling outside at least once or twice a week is just not the same. The prices of steak — sirloin, rib eye, New York strip and steak tips — forced me to switch to chicken kabobs, hamburgers, hot dogs and maybe a cut of London broil.
Beginning in August, however, I noticed that some supermarkets were running sales on some high-priced cuts of meat. Checking prices nationwide, I discovered that prices for rib-eye and beef loin are down nearly 10 percent compared to a year ago. Beef brisket has dropped by more than 18 percent.
On the other hand, ground beef prices, usually the cheapest choice of beef for consumers, increased by 7 percent over the same period. That is understandable from my point of view. I began substituting ground beef for prime rib and other expensive cuts of meat well over a year ago, as have many other shoppers. I suspect my wife is getting sick of eating my meat loaf, and I don't blame her.
I would like to think that the economic concept of product substitution is at work here. The idea is that a customer will substitute a preferred product for another product with similar characteristics. Consumers are increasing demand for ground beef and reducing their demand for high-priced beef cuts.
In this case, substitution occurs due to the large price deferential between the two products. At some point, as supply becomes greater than demand, prices should fall and they have. Meat processors argue that bottle necks had caused the price declines and not price gouging.
The tight labor market and higher employee turnover and absenteeism due to COVID-19 has eased somewhat since last year due to higher wages and fringe benefits, although it is not yet back to pre-COVID levels.
Climate change is another reason for higher beef prices. Drought has forced ranchers to push more cattle into processing plants as drought, high heat, and the price of feed forces the size of herds to be reduced. For example, thousands of cattle in Kansas died in June as a result of excessive heat. Cattle prices are up 15 percent versus 2021, for ranchers, but so has other expenses like feed fertilizer and fuel, so producers are struggling to just break even.
I wish I could predict that meat prices will continue to decline but that doesn't seem to be the case. Prices may see a temporary decline, but only if ranchers continue to reduce their herds. Industry experts and the USDA are forecasting that U.S. beef production will decline once again in 2023, and possibly out into 2024. The law of economics would say, as beef supplies dwindle, processors will be paying (and passing on to you) higher prices once again.
The morale of this tale is to take advantage of cheaper prices while you can and maybe buy a bigger freezer in the process. In the meantime, any meat lover will tell you that the taste of London broil is a far cry from a juicy, rib-eye, but steak is steak when you're craving beef.
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 Retired Investor: The Beloved Baseball Glove
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Baseball continues to be one of the most popular youth sports in North America. More than 3 million kids in the U.S. play the game and about 10 million children play worldwide. They are not alone. In 2022, approximately 20 percent of Americans between the ages of 18 and 64 also play baseball, according to Statista. Every one of them do so with a baseball glove.
Prices have risen substantially since I was a kid. Today, the price of these baseball gloves can range from $20 to $400, depending on the kind of materials involved. Back in the day, most kids in my neighborhood kept their glove next to the bed. A typical summertime day started with pick-up games in the morning, followed by practice in the afternoon, and a little league game starting at 6.
In this age of the internet, children (ages 6 to 18) probably play less than we did, but they still spend four hours during the week in free play, another 6.5 hours in practice and training, and 4.5 hours at games, according to TeamSnap, a mobile and web service for managing recreational and competitive sports teams and groups.
Overall, the global baseball equipment market is valued at $13.3 billion in 2022 and is expected to top $16.6 billion by the end of 2027. Gloves account for a large share of those overall sales. COVID-19 dented sales, as well as the number of children who played baseball in 2020 and 2021. However, the long-term growth rate has turned back up. Analysts expect baseball equipment should return to its historical growth rate of 3.2 percent annually.
For those who do not play baseball, there are different types of gloves depending on what position is played, the size of the glove and dominant hand. Common glove types include outfield and infield gloves, first base and catcher's mitts, and pitcher's gloves.
There are various types of gloves from the cheapest to the most expensive. There are plenty of lightweight and flexible gloves with enough padding constructed of all-synthetic fabrics. Many of these designs can resist moisture and absorb impact. These are normally the cheapest gloves (good for starters), but prone to breaking over time.
Full-grain, or cowhide leather gloves are more expensive ($30-$60), and are thicker, and more durable, but require time to break in. These are the gloves most familiar to players of my age. The problem is they require time, effort, and a lot of glove oil to break them in, molding them to your hand, and your play.
There are more expensive choices like steer hide leather gloves ($75-$300), that are even more durable and the choice of many amateurs, as well as professional players. Finally, another high-end product, the kidskin glove, is usually the favored choice of certain professionals and can fetch as much as $400 a glove. Infielders love these mitts. Light, smooth, and yet, durable, they balance comfort with ruggedness.
The top brands in this market include Wilson, Rawlings, Easton, Akadema and Mizuno, among others. Many baseball manufacturers are based in the United States. However, many of these companies now outsource to other regions in order to reduce costs. In the 1960s, production shifted to Asia in places such as the Philippines, Vietnam and, of course, China.
Most of the wholesale baseball glove manufacturers are based in China. China boosts the factories, workforce, and training to deliver large orders in time. The quality is equal to most brand-name products, but at much lower prices. These are the gloves usually purchased by schools, clubs, sports centers, and youth leagues.
There is only one place in the U.S. that still manufactures baseball gloves from top to bottom. Based in Nocona, Texas, and founded in 1926, Nokona has been making baseball gloves in a small brick factory since the Great Depression era.
The process of making a glove requires about 40 steps and can take four hours to complete. Basic parts of a glove include the bridge, web, heel pad, hinge and the lacing. As a result, Nokona's gloves can run many times the price of a competitor's mitt that is produced on an assembly line. For example, a 9-inch kid's glove that you can pick up for $8 at your local big box store would cost $220 at Nokona for an equivalent-sized glove.
Surprisingly, most professionals have little interest in custom gloves. They usually purchase gloves from one of the many manufacturers. Rawling's and Wilson's gloves seem to be the manufacturer of choice for many pros. The good news, in my opinion, is that some things stay the same. Yes, the price has gone up by several multiples, but several generations can still relate to that feeling of slipping one's hand into a well-used glove as the game begins.
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.
