Valentine's Day has come and gone. About 92 percent of American consumers were planning to share chocolate and other candies for Valentine's Day this year, according to the National Confectioners Association, but the price tag for that heart-shaped box of chocolates may have left a bad taste in many a mouth this year.

 

Last year, chocolate sales exceeded more than $4 billion. It feels like I paid my fair share of that total. You see my wife, Barbara, loves chocolate, so giving a gift on Valentine's Day was easy. Along with flowers and a card, a generous amount of dark chocolate (but not milk chocolate) in any form — hearts, cups, dipped pretzels, bonbons, truffles — is sure to win the day. Her craving, however, transcends that one day, so chocolate is my go-to source for gift-giving on birthdays, and most holidays. As such, in this era of inflation, I have kept track of how much these sweet dark delights are costing me.

 

This year, I was not surprised to see candy prices continue higher. Retail chocolate prices have risen about 17 percent over the last two years, according to a report by CoBank, and I expect they will continue to do so. Why?

 

Cocoa, a main ingredient in chocolate, is responsible for much of the price rise. The price of cocoa hit record highs last week, just in time for Valentine's Day. Prices have doubled over the past year and are up 40 percent since January. This week cocoa futures prices continued higher to $6,030 per ton, another record high. The outlook for the 2024 growing season is worsening, which is leading to fears of a larger global deficit.

 

Cocoa, you see, is another victim of climate change. Poor weather and crop disease have afflicted the world's main cocoa-growing region, which is in West Africa. Massive rains followed by severe drought, coupled with wind, devastated the cocoa crop. Insects and disease followed shortly thereafter. This has led to the third year in a row where cocoa harvests have been coming up short.

 

But don't think that higher prices in the futures markets are making growers in Ghana and the Ivory Coast rich. Ghanaian farmers are receiving between $1,800 and $1,900 per ton and Ivorian growers even less ($1,600/ton), according to the Ghana Cocoa Marketing Co. In both countries, the government controls prices that farmers receive, which are based on prices that were current anywhere from 12 to 18 months ago. That is an unworkable system but that is another story.

 

It is the world's hedge funds that have reaped most of the benefits of this surge in prices. At the end of 2023, speculative traders began massing billion-dollar bets on cocoa futures contracts, gambling that this year's harvests would be poor as well. At this point, the hedge fund community has the largest risk exposure ever, according to the Commodity Futures Trading Commission, with more than $8 billion in futures positions.

 

Of course, with all these new traders jumping into the market, prices have soared, but so has volatility, making it even more difficult for processors to hedge their purchases. They need cocoa beans to make cocoa butter to supply chocolate makers. As a chocolate buyer throughout this period, I have noticed that big companies like Nestle and Cadbury have been raising prices consistently for the last two years.

 

Hershey, one of America's most loved chocolate makers, said product prices rose 6.5 percent in the fourth quarter, and 9 percent in all of 2023. The company is planning on cutting 5 percent of its workforce because price inflation is forcing consumers to pull back on purchases.

 

The bad news is that not only are cocoa prices continuing to rise, but so too are the price of sugar and wages. Both are key components in just about every chocolate factory including Willi Wonka's, where even Oompa-Loompas demand raises. I would expect that by Easter we will see yet another hike in chocolate prices and by Halloween, well, who knows? So, unless you discover a golden ticket inside your chocolate bar, I would buy it early.

 

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.

Forget fuel and food, auto insurance leads the way in areas where inflation is ramping higher. The rise in premiums has far outpaced the overall inflation rate and we could see further gains in 2024. 

 

Auto premiums are up 43 percent in the past three years and there is no sign the rate increases are over. In 2023 alone, auto insurance prices rose 19.2 percent, as registered by the Consumer Price Index (CPI). The January 2024 CPI data just released this week shows a 20.6 percent increase from last year. It is one of the greatest contributors to the inflation rate and exceeded the price gains in almost every other spending category.

 

Industry analysts' best guess is that we could see another 10 percent increase this year before prices plateau. As it stands, consumers are paying an average of $1,785 per year for full-coverage insurance, according to AAA. That is a big jump from the 2019 pre-COVID costs of $1,194. What is behind this spike in premiums?

 

Back in the pandemic lockdown period, insurance premiums fell. Many cars (mine included) sat for weeks in parking lots. For me, I used our second leased car so infrequently that I gave it back to the dealer. Accidents declined and the roads were empty.

 

For whatever reason, when people got back on the roads in 2020-2021, the accident rate skyrocketed, according to the National Highway Traffic Safety Administration. Nearly 43,000 people died on U.S. roadways in 2022 which was 6,000 higher than in 2019. Accidents, injuries, and fatalities continue to climb as drivers embrace riskier behavior behind the wheel. That behavior costs insurance companies a boatload of money.

 

And let's not forget car thieves. Motor vehicle thefts jumped 29 percent last year compared to 2022. Given the price of replacing a new or used car, insurance companies are paying out more than ever before. It has gotten so bad that some insurance companies have refused to cover certain coveted Kia and Hyundai models in select locations that have become hot-wire targets for droves of criminals. 

 

The profitability of the insurance industry has suffered. The Insurance Information Institute reports that auto insurers paid $1.12 in claims last year for every dollar they collected in premiums. In 2024, that should drop a little (to $1.09) thanks to premium price hikes, but it is still going in the wrong direction. There are even more reasons premiums are rising.

 

Thanks to supply chain disruptions, rising wages, and parts shortages, the costs of repairing or replacing a car damaged in an accident are much higher than it was in 2020. The good news is that the trend in auto body repair prices is reversing. From 12 percent gains in 2022, costs slowed to "only" 3.3 percent in 2023.

 

Add in the higher cost of paying out for car rentals. Throw in the additional costs of higher legal services, and medical care for injuries when required, and you are starting to get the big picture facing your insurance provider.

 

I'm not done. Natural disasters, many of which have been the result of climate change, are fueling higher premiums as well not just in states prone to hurricanes and wildfires. Rainstorms, hail, floods, blizzards — all manner of weather conditions — are causing more and more damage to our automobiles throughout the country. Insurers are resorting to more than price hikes to deal with these trends.

 

Many carriers are pushing customers to move from standalone auto policies to bundled coverage, while at the same time raising deductions in both homeowners and auto policies from $500-$1,000 to $2,500-$10,000. Underwriters are also getting pickier in vetting potential clients.

 

If you have had a claim over the last several years for water damage, for example, they may ask what you have done to mitigate future damage. Other companies are excluding family members from your auto policy who may have had more than one car accident in the past.

 

Insurance regulators are caught between a rock and a hard place. They are finding it difficult to keep insurance premiums low enough for drivers to afford them while keeping insurance companies solvent. And there are repercussions when regulators balk at granting premium increases.

 

There have been several instances where some large property insurance companies have simply stopped writing business in states such as California, Texas, and Florida. In some cases, this has affected the availability of auto insurance as well. Is there anything you can do to lower your bill?

 

You can shop around. Browse the internet. Talk to your friends to see what discounts are possible. Check out at least three companies, and maybe more, if you have blemishes on your record. Companies tend to penalize tickets and accidents differently, so you may get a wider range of price quotes.

 

Bundling your auto and property insurance is another way to go. Accepting higher deductibles can also lower your premiums but have a care if you go that route. Too little insurance defeats the purpose. Another idea is to opt-in to a usage-based program where an app monitors your driving and tracks things like distracted driving, harsh braking, or speeding. Switch auto insurance companies if it turns out you are overpaying, no matter how friendly you may be with your agent. 

 

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.

Electric vehicles are piling up in dealer lots. Consumers are by-passing EVs for gas-powered autos and hybrids while unwanted EVs sit at the dealerships for months. Production is being cut at the Big Three auto companies. What happened to the EV boom?

 

The green revolution promised that electric vehicles were the wave of the future. Government incentives were offered to boost purchases in the name of clean energy as a way to fight climate change. Over the last few years, wealthy American consumers waited in long queues for their chance to plunk $75,000 or more down for their vehicular status symbol.

 

Auto producers worldwide scrambled to build their version of EVs. Companies that mined lithium, a critical ingredient in the manufacture of batteries, predicted endless demand for the material. Tesla and its billionaire founder, Elan Musk, could do no wrong. Investors flocked into Tesla stock and other equities in that space. What could go wrong?

 

It turns out that despite the tax breaks and Wall Street hype, electric vehicles are just too expensive for the average American consumer. Automobiles overall have climbed in price since the pandemic supply chain disruptions. Add in that inflation and the average price of a new gas-powered car skyrocketed to $46,077 in 2023.

 

In comparison, a new EV averaged $63,878 in the U.S. The total cost of ownership during the first five years must also be added to the price tag. It costs $2,000 to install an at-home charger. Insurance also costs more for EVs in a world where auto insurance continues to rise dramatically.

 

But price isn't the only pitfall. Consumers continue to have concerns over the EV's battery range. Compared to fossil fuel autos, the EV's range is typically less. And once the battery charge is depleted, it takes longer to recharge a battery than it does to fill up a gas tank. The availability and dependability of charging stations are also an issue. Nearly 21 percent of consumers have reported that they have shown up at a charging station only to find it broken, according to a J.D. Power survey.

 

For many consumers, an EV needs to fit their circumstances. Demand for electric vehicles is concentrated in just a few states. Last year, the best markets for EVs were West Coast cities and metropolitan areas. City living, where typical driving trips are shorter, and chargers are readily available makes more sense than a rural environment where drivers encounter long drives, scarce charging stations, rough terrain, and cold weather. 

 

But even in some metropolitan areas, such as Chicago, sub-zero temperatures can decimate battery life. Media coverage of stranded Tesla's in Windy City parking lots has not encouraged electric vehicles and fence-sitters. Reports that charging stations were also not working and those that took much longer than usual to charge didn't help either. 

 

In the used-car market, EV prices have seen big price drops of as much as 30 percent. Last month, rental firm, Hertz Global Holdings announced they are selling 20,000 electric vehicles from its U.S. fleet. That is just two years after inking a deal with Tesla to offer vehicles for rent. They are reversing their plans to convert 25 percent of their fleet to electric vehicles by the end of this year citing higher expenses related to collusion and damage for EVs.

 

As more and more competitors come to market, competition has heated up. A pricing war of sorts has started. Tesla models were on a pricing roller-coaster ride for most of last year as GM and Ford made a big push into the market. Ford's new vehicle, the F-150 Lightening Pro, for example, was sold out early last year. But by the last three months of 2023, the pace of sales slowed.

 

The Pro was marketed as a rugged entry-level electric truck but when cooler weather hit, so did the buyer's anxiety over range. The expected range dropped significantly in cold climes and so did sales. This year both Ford and General Motors have announced they are curtailing electric vehicle investments. Ford has just announced it will cut its plans for production of the pickup, while GM is delaying some new EV model introductions. It is also switching gears to produce more hybrids instead. 

 

Hybrids seem to have benefited from the slowdown in sales of EVs. Hybrid sales jumped 65 percent versus 46 percent for EVs last year. Ford, Kia and Toyota are offering more hybrid new-car options, while in the used car market the gas-electric versions of BMW, Toyota, and Hyundai are selling well.

 

It appears that while consumers have embraced the concept of electric-powered autos, they are not quite ready to bet the farm on them. Given the price differentials, the hybrid offers the best of both worlds. For now, it seems that is where the consumer is most comfortable. I believe that could change and will when buyers see further price declines in the future. That still does not answer the need for more and better charging stations or improved technology in the battery space. I am sure that day is coming but just not now.

 

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 economic condition of the country has convinced a minority of the population that the only person who can save the country from economic ruin is Donald Trump. The growing budget deficit and persistent inflation are two areas of growing concern for that bloc of voters.

 

However, more and more Americans are paying attention to those areas as we head into 2024. Last week, I pointed out some areas of economic contention between Trumpers and those against him such as illegal immigration. Inflation is another major gripe for Trumpers. That seems to fly in the face of economic facts.

 

The inflation rate has dropped in half over the last year, according to government statistics, but most voters ignore that data. Their main inflation gauge is how much it costs to feed the family and the price of gas at the pumps. Unfortunately for them, inflation continues to thrive at the check-out counters in the supermarket and gas stations. As we know, inflation hurts those within the lower-income groups, many of whom are Trumpers, far more than it does higher-income earners. 

 

The Federal budget deficit is also a major concern. Trumpers and many hard-right congress members are demanding a 30 percent decline in spending. Notice too that continued support for Ukraine and the Israel wars has also fallen by the wayside. For 40-plus years we have been hearing how important it was to finance unending conflicts around the world in the name of Democracy. Many of those Americans who fought and bled in those wars have had enough. To them, the questions continue to be "What about me and mine." Trump, despite his background, answers that question in ways that many can identify with and support. 

 

Of course, the spending cuts they are demanding are in areas that reflect Republican arguments — some traditional, like reducing the size of government, cutting waste, etc., and others directed at the counterculture. However, with the size of the federal debt continuing to climb, many Americans are also beginning to worry that spending should be reduced as well.

 

The overwhelming support for fossil fuels in the face of the obvious impacts of climate change is another area that stumps Trumper critics. It shouldn't. To me, it is all about jobs. About 8.1 million people are employed directly in the energy industry. Countless more receive ancillary benefits from the fossil fuel sector.

 

The top five energy-producing states are Texas, Wyoming, Pennsylvania, Louisiana, and West Virginia.  Any guess who most of those states support? No matter the impact of drought, floods, hurricanes, tornados, etc., for workers in fossil fuels, there is no contest. Losing one's job will take precedence over climate change.

 

Many are so fearful of losing their livelihood that climate change itself becomes deniable. Any threat to their livelihood will be voted down again and again no matter how many initiatives are tabled, or disasters occur. And yet none of us have come up with a viable plan to transition workers into good-paying alternative jobs in different industries. Sure, there are programs available that can retrain and transition workers, but this takes time. Who feeds the family in the meantime?

 

Do these differences make Trump voters bad people? No, it doesn't. The simple fact is that their career paths and life experiences in America have been radically different from your own. There are some areas that both sides can agree on like our debt load and inflation.

 

But face it: forty years or more of widening inequality in America have left a large segment of the population on the sidelines. They have not been able to share or experience the benefits of democracy, and certainly not capitalism.

 

It is not lost on these voters that President Biden was elected to the U.S. Senate in 1972. He, and many like him, governed through countless wars, the exportation of U.S. jobs to Asia, the creation of the Rust Belt, and the death of manufacturing. To this segment of the population, he is part of the problem and has little creditability no matter what he says or does.

 

Biden, on his part, is doing a lot on the economic front. He has staked his re-election bid on "Bidenomics." His administration is spending billions of dollars in public investments while focusing on assisting middle-income workers, rejuvenating the rustbelt, and hiking investments in manufacturing capacity. Those efforts are being ignored, or worse, ridiculed by those against him. Some may forgive him and politicians like him, but none will forget.

 

Some say that over time our democracy swings like a pendulum from right to left and back again. Sometimes, it swings too far (think the 1930s, and again in the 1960s). Over the last four decades, the pendulum has swung to one of those extremes again creating excesses like billionaires in this country whose wealth rivals several countries' GDP. I expect the swing to the right, and towards populism, is just beginning. How volatile it becomes will be up to all of us and how we handle differences. Economics is a good place to start. 

 

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.

Inflation, government spending, immigration, jobs, and fossil fuels are just some of the areas that are motivating partisan politics as we enter 2024. Both sides are adamant that their approach is correct. Is there a common ground? 

 

In this land of deep divides, neither side seems willing to listen or understand the position of those who disagree. Today, I am giving my two cents on explaining why former President Trump's supporters believe their positions are best for the country and them. The hope is by deepening your understanding of the "whys," the willingness to compromise might also be enhanced.

 

The former president has the backing of 67 percent of registered Republicans, 71 percent of conservatives, and 55 percent of those who do not have a college degree, according to a recent CNN poll. By overwhelming numbers, they believe Trump will do a much better job running the economy. Given those numbers, I ask myself, how can so many people be wrong? What motivates these pro-Trump voters on the economic front?

 

For years, I have been writing about the increasing inequality in this country. For decades, as governments and politicians lauded the benefits of global trade, American jobs were exported overseas. The country's middle class was whittled down. The Rust Belt grew wider and the divide between the haves and have-nots became frightening and apparent to everyone. I warned that the consequences of this trend would lead to great change.

 

Enter Donald Trump and the advent of populism.

 

Liberals tend to dismiss Trumper's stance on many issues as not worth discussing. Starting with their leader, Trumpers are enmeshed in a tangle of racism, bigotry, outright lies, and conspiracy theories. Their anti-immigration position, for example, is the result of racism, even though many who back that position are black, Asian, and Latino.

 

Was the anti-immigration movement simply motivated by a desire to preserve American jobs while reducing crime? Over the last several years, as immigration policies have been tightened by both the Trump and the Biden administrations, the unemployment rate has dropped to historical levels. Whether that trend is coincidental or connected is immaterial to more than half of those Trump supporters without college degrees. To them, it is simple — immigration down, employment up.

 

Corporate America bemoans this trend. Scarce labor has driven up wages, and jobs for even the least educated have been plentiful. And it is not just for white people. More job opportunities for minorities, women overall, and single mothers have been climbing as have jobs for teenagers. All of them have been beneficiaries of the tight job market.

 

Better still, due to labor shortages, companies are even reconsidering college degree requirements in certain positions. So, while the 10 percent of the highest income earners may complain about the higher costs of nannies and gardeners, meat packers, farm workers, drivers, and other manual laborers can now buy gas and feed their families.

 

There are other areas where Trump supporters have major beef with the economy. Inflation, the Federal budget, and fossil fuels come to mind. In my next column, I will examine those areas and more. If this column has raised your ire and your fingers are just twitching to send in a rebuttal buttressed by the facts, you are missing the point. 

 

We need to know what drives the differences between us. Today, your facts mean nothing or everything depending on the source and who is listening. Take the time to understand the other side and find common ground. Otherwise, we are all on a train to nowhere and none of us will like the last stop.

 

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.