The war drums are beating. Oil and gas prices are soaring. Inflation is at a decades-long high. Bearish sentiment is exploding. And the stock market is giving investors angina. What to do?

 

Take a deep breath and remember that whatever the circumstances, this too shall pass. I know that is easy to say, but a longer-term perspective might prevent you from doing something foolish like selling into this downturn.

 

Let's address the present fear that today's geopolitical tension will somehow escalate into possibly WWIII. Sure, anything can happen, but is war the most probable outcome? The present reaction by the U.S. and its allies regarding Vladimir Putin's aggression toward Ukraine has been confined to economic sanctions. No one in the administration is contemplating a military response.

 

Make no mistake, the economic sanctions that we implement against Russia could have a certain amount of blowback for the U.S. and European nations. We already see higher prices for energy (oil is above $100 a barrel as I write this. Other commodities have also shot up in price. This could mean that further increases are ahead and for a longer period of time than we expected, which would make fighting the present rate of inflation more difficult, but not impossible.

 

From a historical perspective, the specter of a new cold war shouldn't have a debilitating impact on the world economy. Economies, including our own, have thrived despite decades-long cold wars in the past. Could we see further hacking attacks directed against our companies or financial system? We could, but I suspect they would be more of an inconvenience than a real body blow. If anything, it may change the investment prospects for certain sectors (such as defense or IT security) in the future.

 

As for how the markets are handling this event, one must understand that for many this kind of correction is brand new. There are 25 million investors new to the stock market that have only seen markets go higher in the last year or so that have been investing. And there is an entire generation of investors who have never seen an environment of rising interest rates and higher inflation.  

 

In addition, there are now armies of short-term traders with software programs set to react instantly to news based on certain key words. You can guess that words like "war," "invasion," and "sanctions," in connection with "Ukraine" or "Russia" are triggering buy or sell programs with millions (if not billions) of dollars at risk. The fact that the world media is broadcasting every accusation, every rumor, every quote concerning this crisis simply heightens this type of trading.

 

Don't mistake these computer-generated day trades as indicative of what the market thinks will or will not happen. The professional institutional investors are not panicking. Dark pool buying, which is a better indication of what the pros are doing, has seen consistent buying for the last few weeks. Of course, what they are buying (and selling) could be significant.

 

In this age of higher inflation, materials, financials, commodities, and defensive sectors like REITS, telecommunications, and utilities are in demand. Technology and speculative areas, such as cryptos and the "Kathy Wood" stocks, are being liquidated and will continue to be a source of funds, in my opinion.

 

Will the overall market continue to decline? If the Federal Reserve Bank continues its monetary tightening program, the odds are that we have more downside ahead of us. If things get out of hand (and it appears today that they are),  this decline fall another 6-7 percent in the S&P 500 Index. That would bring the total decline to almost 20 percent overall between now and the end of March.  Given the market's outstanding performance over the last few years, it seems to me a small price to pay for those gains.

 

Yes, a loss like that in less than six months would be painful, but not the end of the world. And losses you might incur now could easily be recouped by the end of the year. If you hold through this downturn, they would only be paper losses. If you sell in a panic however, they will become real losses. Selling the "news" is a bad strategy, but selling when the news cannot even be verified is a real sucker's game. We are in that kind of investment atmosphere today.

 

Take it from me, it is too late to sell. Hang in there, ignore the news, and take a deep breath.

 

You would think that the Americans would be feeling pretty good right now. Wages are increasing almost monthly. Workers have their pick of jobs in this tight labor market and the coronavirus seems to be peaking. So why are so many consumers unhappy?

 

Consumer sentiment numbers, as measured by the University of Michigan Consumer Sentiment Survey, fell in preliminary February 2022 numbers to its lowest level in more than a decade. Back then in October 2011, the unemployment rate was more than double the present 4 percent rate.

 

In a January 2022 Gallup Poll, 72 percent of those surveyed thought it was a great time to find a quality job. That was the highest reading since 2001. Historically, there is a strong correlation between consumer sentiment and rising employment but this time it is different. So, what has changed?

 

In one word: Inflation. To understand why, we need to recognize that economic society has two roles: the average worker is both a producer and a consumer. Essentially, most Americans receive a certain income in exchange for some level of production. In a perfect world, the more one produces, the higher the pay, or so the economists tell us.

 

The consumer side of us believes that in exchange for our production we receive money and access to buying products at reasonable prices. Today, that side of the equation is becoming increasingly problematic as the inflation rate climbs and supply chain problems continue to make some products scarce at any price. As such, we may feel that we are not getting a fair shake in this economy.

 

I also suspect that the Michigan survey's target audience had something to do with this decline in consumer sentiment. The survey was confined to those families that are making more than $100,000 annually. That demographic, more likely than not, earmarks some of their income annually toward retirement savings. In the stock market. As such, their attitude may be partially influenced by what is happening in the financial markets.

 

That brings me to the latest data from the American Association of Individual Investors (AAII), which surveys investors' sentiment toward the stock market. Over the last few weeks, the number of individuals that believe the stock markets are going to continue to fall is much higher than historical averages. In short, individuals are bearish on America. This negative sentiment, coupled with the shock of a higher rate of inflation, may explain the sour state of the consumer right now.

 

I count myself as one of these disgruntled consumers/producers. As my loyal readers know, the equity markets are going through one of the most volatile periods in recent memory. I warned readers almost two months ago to reduce risk and prepare for this outcome. But don't think the wild daily swings in the markets are a cake walk no matter how well prepared you may be.

 

The stress for those trading these markets frequently (like me) is extremely high. To relieve stress, I often resort to cooking (and exercise). Imagine my dismay, therefore, over the past few months when grocery shopping.

 

Aside from the risk of contracting the Omicron variant while standing in line, I increasingly discover that some of the most important ingredients for my dinner menu are nowhere to be found. Worse, even if they are available, the prices climb on a weekly basis. That package of London broil or lamb chops has doubled in price in just a few short months. "One package per customer" signs assault me at every turn.

 

This weekend, I noticed everything from a loaf of fresh-baked bread to a container of almond milk have shrunk seemingly overnight. Even the rotisserie chickens seem to have gone on a diet, despite hefty price increases.

 

My own reaction is to spend less, work harder, and try to quell the helpless anger I feel at this sudden turn of events. I am old enough to remember when inflation was a fact of life for Americans, but it is still a shock to me. I can just imagine how younger workers, who have never seen the devastating impact of inflation, could be somewhat grumpy with their lot in life at the moment.

 

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 they had their choice, most couples would want to get married on a Saturday. The problem is that there are just so many Saturdays in a year and tying the knot is a crowded trade this year.

 

Weddings, like so many other events that involve community gatherings, have suffered mightily during the pandemic. Postponements were about the best a couple could hope for during the worse of the COVID-19 crisis. Since then, bottlenecks, supply and labor shortages, not to mention the isolation required to safeguard against the coronavirus itself, have plagued wedding planners continuously. But, as virus fears begin to fade, there is suddenly a mad rush to get hitched.

 

A look at wedding statistics, according to WeddingWire, which follows nuptials data, shows the average cost of a wedding in 2021 was $22,500. That number is supposed to rise to $23,517 or more in 2022. Last year (2021), saw an increase in weddings from the dismal lockdown year of 2020. In 2022, more couples will be getting married than at any time since 1984 with estimates exceeding 2.5 million.

 

Underneath these figures is the story of a wedding industry that had suffered steep financial losses from the 2020 season. Many of this year's estimated 2.5 million weddings are simply "reschedules" from 2020-2021 postponements. During the last two years, the industry, like so many others, has had to cope with and then adjust to the costs of the pandemic. For example, increased safety precautions, such as temperature checks, sanitation stations, and spacing concerns has reduced the space available while increasing manpower and health safeguards. In addition, vendors and venues were hit with a vast array of higher costs for everything from caterers, personnel, flowers, paper products, and much more.

 

What this means for the average couple, who may have been waiting for a year or two, may be a severe case of sticker shock. Adding insult to injury, competition for popular locations, dates, photographers, DJs, and even wedding gowns, makes for a wedding planning nightmare. To just get married somewhere, at some time during the year is a win-win. Obviously, making key decisions now without delay, should be at the top of the list for engaged couples.

 

On the cost side, there are things couples can do to keep expenses down starting with hiring a competent wedding planner, who knows how to cut costs. You can also reduce guest count, share expenses with another couple who are getting married at the same venue, or in the local vicinity, who can share certain items like flowers. Finally, choose a venue that offers some flexibility on things — lower minimums on food, beverages, and smaller guest sizes. That venue may be harder to come by if you are planning a weekend wedding.

 

Weekday weddings, therefore, may be just the ticket to keep costs down, while also getting most of what couples want. That is why a lot more couples are seriously contemplating a weekday wedding. Weekday weddings are expected to rise by about 2 percent in 2022, according to a survey by TheKnot.com. In the destination wedding category, 13 percent of weddings took place on weekdays in 2021. Thursdays seem to stand out as the weekday most coveted by couples planning either local, or destination weddings. A Thursday allows for a long weekend of activities for guests.

 

A weekday wedding in general provides a lot more flexibility around dates, especially when it comes to booking a dream venue. It may also come with a discount on everything from the site itself, to the prices various suppliers normally charge. Most venues also offer added extras on weekdays, including things like reduced minimum spends and complimentary extras, such as arrival cocktails, upgraded beverage options, side dishes, etc.

 

There will also be much less competition for photographers, bands, make-up and hairdressers. If you are planning a destination wedding, hotels and airfares are less expensive as well. You can also expect a smaller guest list and therefore a more intimate affair.

 

But will your invited guests agree to come on a weekday? My guess is that more than you think will say "yes."

 

Who knows, a day off from work may be just what they need. After two years of remote work, they have probably built up a lot of paid time off, or annual leave. And after so much enforced isolation, many more than you might expect may be up for a wedding with friends they may not have seen for a year or two. Destination-wise, I would love a Thursday wedding in Costa Rico right now. How about you?

 

Fifty dollars may be an exaggeration, unless you frequent some high-priced restaurants in Manhattan. But consumers should be prepared. Beef prices, for the foreseeable future, will continue to climb.

 

Some cuts of meat are already up 25 percent from where they were six months ago. As the cook in the house, I usually buy a prime rib roast for New Year's dinner, but not this year. The cost for said morsel doubled in price since last year. I bought Australian lamb instead, which was much more reasonable, but just not the same.

 

I assumed that the price of beef, like almost every other food product, was going up due to supply shortages caused by the pandemic. I knew that as the number of COVID cases climbed and businesses started to shut down, there was a run on everything from toilet paper to steaks.

 

In my neighborhood (back at the start of the pandemic), consumers flocked to the wholesale stores and supermarkets to buy what meat they could and stock up their freezers. At one point, rationing became a commonplace tool in controlling the consumption of beef, pork, and chicken in a tight market.

 

One of the major bottlenecks was in the slaughtering and processing part of the business. More than 59,000 meatpacking workers were infected by coronavirus and 250 lost their lives, according to a government investigation. Since then, turnover has been high in this labor-tight market, where low wages and poor working conditions are prevalent. All of these issues have contributed to higher costs.

 

Climate change has also become a bigger factor in the production of beef. Drought, now a constant companion to ranchers and farmers, last year squeezed supplies of feed for cattle in the Northern Plains. It was so bad that some ranchers were forced to sell even breeding stock to slaughterhouses. This reduced the overall herd of beef by 2 percent, according to the Department of Agriculture.

 

Now, the southern part of the Plains is experiencing a deepening drought. It is here that most of the cattle in the U.S. is raised. That is expected to reduce the cattle stock even further, marking three straight years of declines and the smallest herd since 2016.

 

You might think that America's ranchers and farmers are in "hog heaven" as a result of these skyrocketing prices for beef at the supermarket, but you would be mistaken. Cattle ranchers receive about 37 cents on every dollar spent on beef, according to federal data.

 

As input costs for everything from gasoline to livestock feed keep rising, the ranchers' portion of profits drop even further. The sad fact is that drought is forcing more and more ranchers to reduce their herds, which has caused a glut of product at the slaughterhouses. That, in turn, causes the price the processors are willing to pay to plummet. But those price declines never show up at the grocery store. Why?

 

It can be summed up in four names — Tyson Foods, Cargill, National Beef Packing Co. and JBS — together, these conglomerates now dominate the meatpacking industry with an 85 percent market share. Over several decades, through mergers and acquisitions and a lax attitude toward competition by regulators, the meat-packing industry became an oligopoly. Once that was accomplished, these four remaining companies, in the name of efficiency, cut their capacity to process beef, closing slaughterhouses, and processing plants across the nation.

 

As a result, profit margins improved. Company stock prices improved, but ranchers and farmers were increasingly forced to accept whatever prices the processors were willing to pay for their product. Over time, this oligopoly was able to first influence prices and then dictate what they were willing to pay ranchers for their herds. It worked. The four meat packing companies identified above, for example, saw their profit margins jump 300 percent last year.

 

So, you might ask, who is making money from these steadily climbing meat prices? The government is asking the same question. Last month, the Federal Trade Commission opened an inquiry into how anticompetitive practices by major companies have contributed to supply chain problems.

 

As for the meatpackers, Senior White House economists Brian Deese, Sameera Fazili and Bharat Ramamurti, in a blog post in December 2021, explained it this way:

 

"Here is the bottom line: the meat price increases we are seeing are not just the natural consequences of supply and demand in a free market — they are also the result of corporate decisions to take advantage of their market power in an uncompetitive market, to the detriment of consumers, farmers, and ranchers, and our economy."

 

While investors focus on the losses that are piling up in the stock market, the cryptocurrency space has suffered far more. The bears say it has further to go, but that may depend on what happens to stocks.

 

Bitcoin, the grandaddy of crypto currencies, is trading around $36,900 per coin as of Jan. 27, 2022. It has suffered a 50 percent decline since its record high in November 2021. Ethereum, the second most popular coin, has dropped from almost $5,000 to $2,498. In total, the combined crypto market has lost $1.4 trillion over the past week.

 

At one time, crypto speculators argued that coins like Bitcoin danced to their own music and were uncorrelated with the boring stock and bond markets. Others like Nayib Bukele, the President of El Salvador, made Bitcoin legal tender in his country. Some professional sports stars announced their desire to be compensated in crypto, and even the Mayor of New York City Eric Adams said he would be converting his first three paychecks into Bitcoin and Ethereum.

 

As more celebrities (like Matt Damon) and companies expressed willingness to accept payment in crypto currencies, it seemed crypto's extreme volatility might be a thing of the past. More and more retail and then institutional players began investing in crypto currencies. Company managements from Tesla's Elon Musk to MicroStrategy's Michael Saylor expressed confidence in the viability of this market. That may have been true, but underneath the hype things have changed. As many traditional investors began to consider electronic currencies, the currency market changed.

 

That was good news at first, as crypto bulls argued that "crypto had finally come of age." But traditional investors soon began to consider electronic currencies as just another risk asset. As a result, over the last two years, the prices of coins such as Bitcoin and Ethereum have increasingly become linked to the movement of stock prices.

 

In tougher markets, like we have been experiencing since the new year, investors tend to sell riskier assets like commodities, stocks and now crypto. So, who has been selling? Retail investors for the most part, according to reports from the Wall Street Journal. That makes some sense, since crypto currencies, (in hindsight) were a main beneficiary during the pandemic of the wave of government stimulus money and extended unemployment checks that found its way into many American pockets.

 

As in every market, as certain coins hit historical highs back in November 2021, many retail buyers poured money into the coin market at its peak. Now, these investors (called weak hands by the crypto faithful) are heading for the exits all at once, while institutional investors, inured to the ups and downs of the market, hold steady. Some believe that there may be a political angle to this sell-off as well.

 

The government continues to monitor and study ways of reigning in some of the excesses of this crypto currency market.  There have been recent reports in the media that the Biden Administration is gearing up to issue a cryptocurrency executive order asking federal agencies to determine crypto risks and opportunities. The specter of a flurry of government regulations dealing with everything from national security to oversight on transactions, products, and platforms has investors worried.

 

As the crypto market matures, some misconceptions are becoming apparent. Clearly, the idea that crypto currencies could act as an inflation hedge has now proven to be a myth. Nor do they act as a safe haven (like the U.S. dollar) in times of geopolitical uncertainty. Volatility, however, seems to a distinguishing and enduring feature.

 

The fact is that this marks the eighth time that Bitcoin has fallen 50 percent or more since its inception in 2009. In each case, the price has risen to a higher price, although there have been times when it has traded sideways for months to years. It is not, as many believe, a get-rich-quick scheme, or sure-fire way to riches. Strip out the mystique — what it ultimately could be, or should be — and what do you get? Crypto currencies are simply another class of risk assets. and What's wrong with that?