Consumers have been bludgeoned for years by higher prices. In this era of inflation, discounts disappeared as prices of everyday items climbed higher and higher each year. It has been a long time, but value is finally returning in various consumer areas.

 

This summer could be called the season of markdowns as corporations across America have become concerned that price-sensitive consumers have been trading down to cheaper goods and services. Many companies have seen sales decline as discount stores and labels have taken market share.

 

While the Federal Reserve Bank and the Biden administration applaud the progress made on inflation, the truth for the consumer on Main Street is that inflation is still rising. Sure, the headline inflation rate has been falling, but inflation itself is rising just, at a slower rate.

 

After several years of benefiting what airlines called "revenge travel," consumers are balking at astronomic ticket prices for domestic travel. Airlines have reversed course dramatically which has triggered a race to the bottom on domestic ticket prices. Some readers may already know that some big retail chains have been hawking lower prices for several weeks.

 

Even the discounters are discounting prices. Walmart has cut prices on 7,200 products to compete with rivals. Big Lots, after a hit to sales in June, intends to "significantly grow" its close-out bargain business. Retailers like Ikea, Aldi, Walgreens, and Target have also announced price cuts.

 

Auto dealers, after years of jacking up prices for new vehicles, are suddenly seeing empty showrooms and stagnant sales. In July, discounts started popping up around the country and according to Kelley Blue Book, an average of $3,383 per vehicle was lopped off prices. That was the highest level of discounts in three years.

 

Fast-food restaurants, long the haven of low-priced fare, have had some of the sharpest price hikes since the pandemic. They had risen so much that even die-hard fans of places like McDonalds abandoned their burger for food at home. McDonalds, Burger King, Taco Bell, and Starbucks to name a few, have since rolled out what they call "value meals" with great fanfare.

 

Eating at home, however, has not escaped the price crunch. Food prepared at home still saves you money with prices growing at  1.1 percent per year versus dining out at 4.1 percent annually. Yearly food inflation overall has fallen somewhat from a recent high in August 2022 to 2.2 percent in July 2024.

 

The most recent Consumer Price Index showed that the cost of food at home is up 26.9 percent over the last five years and almost 30 percent over the most recent four-year basis. The bottom line: the price level of groceries in aggregate is the highest on record. Sure, some prices are coming down, while others are still climbing.

 

In a sense, it pays to eat healthier today. Items such as apples, frozen fruits and vegetables, potatoes, rice, and pasta have seen price declines while prices for bacon, pork chops, hot dogs, juices and drinks, eggs, and butter are still rising.

 

I can tell you that after years of price increases in my local supermarkets, I automatically select store brands over name brands in most items because they are cheaper. I also have changed my habit of just shopping at one market. Instead, I frequent whatever grocery store offers the best weekly prices for protein, produce, etc.

 

Do I think price controls on food prices would work as some have suggested? Not really. Few realize that most states already have laws to restrict price gouging. They have been instituted for short times with success in times of emergencies such as floods, and other climate-related events, and even in the pandemic in some cases.

 

If inflation continues to fall as economists predict, even the most price-gouging of companies will have to relent and drop prices or lose market share to others. In the end, it is the customer and not the government who will dictate prices, and most consumers are fed up with paying for everything.

 

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.

After two years of monetary tightening, the Federal Reserve Bank is poised to begin loosening its policy. Is the event already priced in or will the stock market celebrate with new highs?

 

It may depend on how deep a cut the Fed is willing to make. In my opinion, in the long run it won't matter unless you are one of those day-to-day options traders who live or die based on the next trade. Nonetheless, in a market that may well hit a new high next week, what the Fed does and how it talks about future cuts will be important.

 

Some believe the Fed should cut one-half of a percent (50 basis points), while others are in the camp that it will only need a 25-basis point cut. Does that matter in the scheme of things? My answer is no. There are arguments on both sides of that decision. I come down on the side of a lesser cut. Anything more might signal that the Fed may be worried that growth and jobs are slowing too rapidly.

 

In addition, the U.S. central bank has preferred to use consecutive smaller cuts rather than big ones. The Fed might also be sensitive to the political environment as well. Although the Fed argues it is a non-political organization, one of the candidates, Donald Trump, has already warned Fed Chairman Jerome Powell (who he appointed) that the Fed should refrain from cutting rates until after the November elections. He said a cut would aid the incumbents in a tight race where the economy is one of the key areas of contention. The facts are that no matter what the Fed does, both sides will claim politics played a hand in the decision.

 

The last inflation data before the meeting came in mixed this week. The Consumer Price Index (CPI) for August registered a 0.2 percent increase, the lowest since early 2021. That was about what economists expected although the core CPI, which excludes food and energy, increased 0.3 percent. That was higher than forecast.

 

At first, skittish traders did not take kindly to that number. In the bond market, the betting on a 50-basis point cut next week plummeted. Stocks fell in the morning but bounced back as traders realized that a 25-basis point cut was still in the cards. The Producer Price Index (PPI) came in mostly cooler for August, which cheered the markets on Thursday, and betting on a bigger cut rose once again.

 

With so many cross currents, the key macroeconomic variables I am watching for direction are the labor market, the dollar, and bond yields. Weaker job growth will be the Feds' chief concern. A weakening dollar will be good for equities unless we see our currency fall out of bed overnight as it did in August during the yen-carry trade debacle.

 

Lower yields in the bond market have provided a cushion for stocks thus far. That should continue unless and until the story changes. If the labor and growth data weaken sharply, for example, that would evoke worries of a hard landing. In that case, yields would continue to drop but so would equities for all the wrong reasons. Treasury bonds would be seen as a flight to safety, while stocks fell on recessionary fears. 

 

Beyond the economic data, the most popular show of the week was the presidential debate. It was entertaining but less informative than Wall Street would have liked. As far as the economy is concerned, nothing of substance was discussed in depth. While many may bemoan the slogan-filled nature of the race thus far, do not be surprised. It is not that kind of race.

 

Few among us are undecided. Those that are, will largely make their decision based on a particular issue. Inflation is coming down, but not enough. Growth is still robust but slowing. Jobs are still available, but there are fewer. Many other issues such as abortions, immigration, crime, etc. may be more important than economic concerns to undecided voters.

 

Unless one or the other candidate pulls ahead substantially in the weeks ahead, markets will remain volatile and in a trading range until the election. My advice is not to be pulled into the day-to-day ups and downs of the market. This week, for example, we saw spikes in sectors such as solar energy (up), insurance (down), pot stocks (up and down), and crypto (up) all based on a positive or negative sentence or two from the candidates.

 

Last week, I suggested that we could see a bounce in stocks. We did. The S&P 500 Index was up more than 3 percent while the NASDAQ gained 5 percent. But remember, as I have cautioned readers for the last few weeks, we are in a seasonally bad time for equities. The final two weeks in September are especially so, and the Fed's FOMC announcement will be on Sept. 17-18. Chances are that markets will hold on to these gains next week at least up until the Fed meeting. However, be prepared for more volatility after that if not before.

 

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 fertility rate in the United States has fallen by 3 percent since 2022. That is a historic low and marks the second yearly decline in a row. How will that impact the economy?

 

In the simplest terms, if you have lower population growth then you will have fewer people producing goods and services. That will result in slower economic growth. But it is not the only impact. A shrinking workforce will also mean there are fewer people paying taxes.

 

In a country like ours that has seen decades of increased spending and higher debt, the question becomes who will pay this growing obligation.

 

As our deficits expand at an increasing rate, while the birth rate continues to decline there will be fewer and fewer people to pay off the nation's debt burden. The Heritage Foundation estimates that the total amount of debt that a baby born in 2007 assumes was $30,500. That figure almost doubled to more than $59,000 just 13 years later.

 

From 2014 to 2020, the birth rate consistently declined by 2 percent per annum, according to the CDC's National Center for Health Statistics. Last year the birth rate in the U.S. reached a record low. Just 3,591,328 babies were born, which indicates that the birthrate has now fallen below the replacement level needed for one generation to replace itself. This was not supposed to happen.

 

Experts in the field will tell you that the COVID-19 pandemic was supposed to jump-start an increase in the American birth rate. The argument was that the lockdowns were forcing couples to spend a lot more time together indoors. That would lead to many a romantic evening and an increase in babies nine months later. The exact opposite happened.

 

The year 2020 hit a record low in the fertility rate at 1.6, the sixth straight year with a decline in the number of births. The facts are that ever since the Financial Crisis of 2008, births have been declining.

 

Experts point to a variety of reasons for this trend. Changing social norms, demographics, immigration policies, and a decline in teenage pregnancies are some of the most important reasons. Chief among them is that  Americans are delaying, or foregoing marriage entirely. And if they do tie the knot, women are marrying later in life. As a result, couples are having fewer children compared to prior generations. 

 

The Pew Research Center, in tracking birth trends in the U.S., found that some groups were no longer making babies as fast as they used to. Historically, fertility among Hispanics far exceeded that of other groups. However, that is no longer the case. Researchers believe a drop-off in immigration from Mexico has reduced the birth rate among Hispanics to levels more in line with the national average. 

 

Teenage births have also plummeted. The number of births has dropped in half from 10 years ago in this age group. Why? The Pew Research Center cites a greater awareness and use of effective contraceptives, as well as an increase in the number of teenagers who report never having had sex.

 

Lower birth rates are not all bad, especially at the state level. Many school districts are experiencing declines in enrollment. The decline in teenage pregnancies has helped offset some of the rises in health-care expenditures as well. Fewer people will also mean less pressure on infrastructure as well.

 

Whether or not those benefits will offset the declines in income, sales, and other tax revenues will depend on the state. Western states are experiencing the worst declines. Decreasing birth rates in Arizona and Utah, for example, are double that of the 50-state average.

 

Migration trends and a state's tax structure will also be important in mitigating the impact of slowing birth rates. States that are recipients of an influx of new residents from other states or abroad are better positioned to weather the storm. It should come as no surprise that the Northeast has lower fertility rates and more residents migrating elsewhere.

 

It also depends on where each state derives its revenues. Those most dependent on individual income taxes face greater risks than those who generate substantial income from other sources such as extraction of natural resources or corporate income taxes. States such as Florida, Nevada, South Dakota, Texas, and Washington which rely heavily on sales taxes, will likely need to change course in how they generate revenues.

 

In addition to these threats to future revenue declines, states will need to worry about their access to federal funding. Many of the largest federal programs allocate money according to formulas that include a state's headcount. Those states that show greater declines in birth rates may see their funding reduced at a greater rate than in other states.

 

In any case, the impact of low fertility rates won't be felt for several decades when today's children reach an age where they will be spending more and paying significant income taxes. But many nations in Europe and Asia in a similar situation are not waiting for that to occur. They have already developed policies to encourage more babies, while in this country the focus has been more on individual choice and freedom. 

 

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.

As one of the best-performing areas of the financial markets this year, gold and silver have been added to many investors' portfolios. And while every dip has been used as an excuse to buy, bulls should hold off a bit when making any new purchases.

 

The price of gold is up more than 20 percent and silver gained over 17 percent so far this year. Despite the sector's performance, there are many portfolio managers out there who won't touch precious metals and probably never will. "Too speculative," "impossible to analyze," and "we are not in the business of gambling" are all explanations I have heard through the years.

 

Granted, gold is not for everyone, but something must be said for its appeal as a hard currency since it has functioned as such for thousands of years.

 

I am not here to proselytize, but to point out that there are investment cycles for most commodities, and we happen to be in one for precious metals. This time around, some of the typical reasons for owning gold are once again present. Geopolitical uncertainty comes to mind with actual shooting wars in Ukraine and the Middle East, either of which might trigger a more serious conflict with nuclear implications. As such, the safe-haven status of gold is an appealing reason to hedge against this geopolitical risk.

 

Purchases by central banks have been one of the biggest drivers this year with buying hitting a record in the first quarter of 2024. Bank of America estimates that gold has now surpassed the euro as the world's largest reserve asset after the U.S. dollar.

 

The threat of inflation continues to hang over the world's economies and precious metals have long been considered an inflation hedge. Governments continue to spend, especially here in the U.S., reviving fears that whoever may win the coming elections, their policies will lead to a revival in the inflation rate. If you also add fears of a falling dollar, brought on by a ballooning debt load, make gold and silver something tangible that investors can hold on to and offer an appealing alternative to a stock market at record highs.

 

While gold is the go-to precious metal most buy, silver has also been purchased for many of the same reasons. Its price has been linked to gold in the past, but to a lesser extent recently as its industrial usage climbs. About 55-60 percent of silver production is dedicated to the industrial area. This percentage is increasing with the popularity of electric vehicles where silver is in demand for its conductive qualities in EV batteries and photovoltaics. 

 

Silver is normally a byproduct of copper mining and as such its price is heavily dependent on demand for copper. Why is this important? China is the world's largest marginal buyer of copper, so Chinese demand for copper sets the price of that commodity. This year, China is battling with a slowing economy, a major real estate problem, and waning consumer demand. As such, copper demand is anemic at best, and lower copper prices reflect that situation. The price of silver, therefore, is subject to the countervailing forces of a bullish gold price and an offsetting weakening copper price. 

 

Interestingly, much of the recent demand for gold has been attributed to demand from China's central bank as well as retail buying in the form of small gold beads by Chinese investors who are wary of their stock market. Western investors have also piled into gold with physically backed gold funds and have seen three straight months of inflows.

 

Given the bullish background on gold, and to some extent silver, why do I advise caution heading into September? If one studies the 10-year seasonal trend of gold beginning on Labor Day weekend out until Sept. 28, the gold price has declined in every year of the past ten years. In the last 15 years, there were only three up years and 12 down years. Silver's record is almost as negative with four of the past five years suffering declines in September.

 

Does this mean that you should sell all your gold, silver, and the mining stocks that produce precious metals? No, but I do recommend that you just wait to add new purchases, i.e., buy the dip.

 

Remember that the Fed is expected to begin an interest rate-cutting cycle on Sept. 18. Gold futures have rallied an average of 6 percent within 30 days of the first interest rate cut after a hiking cycle begins. At the end of September, gold has rallied on average 13 out of the past 15 years. There is often a slight pause in early November (elections?) and then tends to rise from Thanksgiving into the New Year.

 

In this case, the data says gold and silver have a much better than average chance of falling in price in September. As for silver bulls, I would keep a close eye on the copper price and data coming out of China's economy.

 

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.

We enter September with the three major averages close to or above yearly highs. Momentum is still on the side of the bulls. As such, in the next week or so, markets could attempt to scale those heights and possibly better them.

 

It is what happens next that concerns me. The next two months are seasonally the worst period for the stock market. However, investors also expect the Federal Reserve Bank to cut interest rates at their meeting on Sept. 17-18. That is normally a bullish development for stocks. We won't know if the Fed will cut rates, but the markets are betting heavily on that outcome.

 

The macroeconomic data this week certainly reinforced those expectations. Second quarter GDP was revised upward on the back of higher consumer spending from 2.8 percent to 3 percent. This week's jobless claims were flat versus last week and the Fed's favorite inflation gauge, the Personal Consumption Expenditures Price Index (PCE), came in line for July with economists' expectations at 0.2 percent.

 

Between now and the FOMC meeting, the only data point that could make a difference to the Feds' rate decision would be next Friday's non-farm payroll numbers for August. Recall that the last report spooked investors. The number of jobs decreased by 36.3 percent versus the month before. Economists were looking for 175,000 job gains but the economy only added 114,000 jobs.

 

The data sparked fears of a deep recession and calls for immediate rate cuts by the Fed to avert a hard landing.  Since then, investors have explained away the sharp increase by blaming the shortfall on Hurricane Beryl, which decimated the Houston job market. If next week's jobs report does not show another sharp decline, the Fed is expected to cut the Fed Funds rate by 25 basis points.

 

What concerns me is that several market strategists are expecting an even deeper rate cut by one-half percent, followed by cuts every month for the remainder of the year. In my opinion, they are way over their skies unless the jobs data next week is poor.

 

In any event, one of the major concerns of investors this week was the fear that a disappointing quarterly earnings result from Nvidia might sink the markets. While the AI leader posted better earnings and sales, it wasn't enough to satisfy investors. As a result, the company's stock fell roughly 6 percent after its earnings announcement, but the markets overall held their own.

 

There has been a lot of backing and filling in the markets over the last several days. Blame it on the summer doldrums. It feels like the market wants to grind higher, possibly into the FOMC meeting in two weeks. An added variable investors will contend with is politics.

 

After Labor Day, voters normally begin to pay attention to the upcoming elections. It is a time when political promises come fast and furious as politicians and the media make hay while the sun shines. The combination of negative seasonality and election rhetoric could be "a perfect storm" of volatility for the stock market, especially given the level of gains in the market. Many who follow technical charts are convinced that a pullback will occur. It is just a question of when. I agree.  

 

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.