For those of us in the business world, the myriad economic policy initiatives spewing from the White House are both confusing and at times difficult to understand. 

 

Certain policies seem to cancel each other out. Full employment while reducing immigration, drill-baby-drill to force oil prices lower while raising tariffs to increase prices? 

 

The point is that if even the professionals are having difficulty, how can those with little financial background hope to understand where the economy is going and why?

 

It appears, for example, that economic growth may be moderating as consumer spending weakens, while inflation remains stubborn. Some are calling for a recession. Others stagflation, while the president sees a golden age ahead of us.

 

After sorting through all the above and reading the statements of the president and his cabinet while ignoring the partisan rhetoric, some objectives of the Trump approach to economics have become clear to me.

 

Few would argue that over the last eight years, fiscal spending, deficit, inflation, and the size of government have exploded. As a result, the share of the economy represented by the government versus the private sector has grown lopsided. From an economic viewpoint, the present situation is unsustainable.

 

The Trump administration wants a larger private sector and a smaller share of the economy by the public sector. However, all that government spending did have some beneficial consequences. The growing gap in income and wealth between the haves and have-nots, which we call income inequality, slowed somewhat from historical levels. But it also increased inflation. Over those years, most consumers neither invested nor saved their government-fueled additional income. Instead, they spent their enlarged paychecks on another TV, a bigger car, a family excursion to Disney World, or a front-row seat to the latest rock concert.

 

Turning the direction of the world's largest economy, however, is no easy feat. It will take time and, according to the president and Scot Bessent, his Treasury secretary, will involve a period of pain and discomfort for most Americans.

 

Their first objective, in my opinion, is to slow demand in the real economy. Keynesian demand-side economics says the best way to do that is to reduce spending. Doing so, they believe, will also slow inflation. How do they do that? By distributing less money to the greatest number of people possible. That means slowing wage growth and providing fewer social services to Americans in the median income level and below.

 

Here is where Elon Musk and his DOGE efforts come in. His job, while ostensibly to reduce waste in the government, is also about cutting government employment. All department heads now have that as their No. 1 priority. That is how you generate real cost savings.

 

In addition, Congress has its marching orders. Given the ongoing budget discussions, it is certain that the Republican majorities in both houses intend to cut social services drastically. Medicaid, SNAP food assistance, school lunches, low-income housing assistance, and dozens of other programs are on the chopping block. Those cuts will impact those who are making $80,000 a year or less, which is roughly 81 percent of the population.

 

That will mean no more rock concerts, and in many cases no more jobs unless you want to replace immigrants picking tomatoes or peanuts. Once these bills are passed, it will likely take three to six months for all these spending cuts and lost jobs to work through the economy. 

 

Our income inequality problem will reverse. How will that impact a generation of populists counting on a better life in the months and years ahead? Next week, we will examine the next step in Trump's economic plan, which will center on his program to jump-start a faltering economy through a return to supply-side economics.

 

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 Trump administration's economic policies have placed a target on the back of most foreign nations. As for the economy, a slowdown, if not a recession, seems to be around the corner. As such, overseas investors have little reason to remain in America's financial markets.

 

Foreign investors represent about 17 percent of the overall holdings in the U.S. equity market and about the same in the bond market. Over the last 15 years, as I wrote in my previous column, American markets were the only game in town. While our share of the world's economy was only 27 percent, our share of the world's total investments was 70 percent.

 

America was perceived as being the safest place on Earth to put your money. Our currency, Treasury bonds, and stock markets are the strongest and most lucrative around the globe. In the last 80 days, however, thanks to American policy shifts and a growing realization that our debt and deficit are coming unstrung, foreign investors have been having second thoughts. 

 

At the same time, the administration's about-face in geopolitical terms has not only caught the rest of the world by surprise but has also called into question the future security of many of our allies including Mexico, Canada, Japan, Korea, and the European Community.

 

For the first time in years, there have been compelling arguments for shifting focus from the American financial markets to elsewhere. Is that a good or bad thing? It is always nice to be number one but too much of a good thing can be a negative. One must credit the president for this global shift in thinking.

 

As Scott Bessent, the U.S. Treasury secretary said last weekend about U.S. markets in an NBC interview, "I can tell you that corrections are healthy. They're normal. What's not healthy is straight up." Neither he nor the president has ruled out a recession this year.

 

Trump's tariff plans have caused a wave of self-examination. He has forced countries to re-think who besides the U.S. could offer better and more stable terms of trade in the future. His reciprocal tariffs that are going into effect in April have spurred other countries to stop talking and start planning a defense. Without his sudden about-face in U.S. support for Ukraine and rapprochement with Russia, I suspect Europe would have carried on taking our support for their economies and security for granted for another 50 years.

 

These nations now realize that there has been a generational change sweeping America. It is not only Donald Trump who demands a different approach to trade, politics, and security. In this new era of populism, more than half of all U.S. voters not only applaud his policies but want even more change. It has finally hit home to the rest of the world that MAGA was always about "Making America First" by beggaring everyone else.

 

Trump has provided a wake-up call for the EU and others. Last week, Germany's plan to massively increase spending, just announce has triggered a sea change in European policy making. Canada, who in some respects has acted like a back-water subsidiary of the U.S. for decades, has suddenly found its voice, as has Mexico.

 

China, after several years of declining growth, has used the U.S. trade and security initiatives as a reason to not only stimulate their economy and reach out to other countries to form trade and military alliances but also galvanize the government and private sector. Many in China believe Donald Trump's governance style has much in common with their leader, Xi Jinping. They applaud his efforts to steer the American government closer to their own authoritarian central model.

 

In the last month, money is fleeing U.S. markets and going home. Trump's policies have increased the total value of all businesses in China and Hong Kong by 20 percent and decreased business values in the U.S. by 10 percent. Money is fleeing US markets and going home. Chinese equities are up double digits this year, while the German stock market gained 17 percent, Italy up 15 percent, Spain 14 percent, and emerging markets are up 8 percent.

 

Extreme valuations may also be a factor in the recent move by foreigners to "take their money home." Based on price-to-book value and enterprise value, the U.S. premium to non-U.S. markets is above the 95th percentile and has continued to climb until now. The growth premium for U.S. stocks is what helped to justify those valuations.

 

If growth were to slow, as both the government and investors believe is happening now, U.S. valuations become a headwind. Investors everywhere may no longer be willing to pay lofty prices for less growth.

 

In addition, for America to maintain or increase its share of the world's private-equity market capitalization, which is growing every year, more and more of the world's capital would need to be allocated to the U.S. Given the policies of deliberately slowing economic growth, increasing unemployment, a falling dollar, and an expanding debt problem, why would any foreign investor want to increase their capital allocation to the U.S.? This point was driven home by this month's Bank of America Global Fund Manager Survey. It revealed the second-largest decline in U.S. growth expectations by professional investors ever as well as the largest drop in U.S. equity allocation in the history of the survey.

 

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.

It has been a great run. For 15 years, the U.S. stock market has been the envy of the world. Led by the FANG stocks, global investors could not get enough of American stocks — until now.

 

By the end of 2024, global investors had committed more capital to America than ever before. At the same time, the dollar traded at a higher value than ever since the world abandoned fixed exchange rates 50 years ago.

 

While America's share of the global economy was 27 percent, its stock market represented 70 percent of the worldwide stock market. Since 1992, every year China has grown closer to the U.S. as the world's biggest economy. China's GDP has grown 6.5 times as fast as America's, but U.S. stock returns have been 3.5 times as high. China, which makes up 17 percent of the global Gross Domestic Product, has captured less than 3 percent of worldwide market investments.

 

This has not always been the case. At the beginning of the 20th century, for example, the U.S. accounted for less than 15 percent of global equity markets. Since then, we have improved with gains throughout the 1950s and 1960s. Japan at one point in 1989-1990, caught up with our gains but quickly reversed while we continued to gain. 

 

U.S. markets have outperformed all other markets in eight of the past 10 years. And the global market for private-sector investments, which includes equity and credit, is huge. Some companies estimate it is more than $100 trillion. 

 

In the first decade of this century, our ranking fell during the financial crisis but shot up as productivity growth boomed. Productivity is creating more output with the same amount of labor. Over the last five years, American economic output per hour worked rose almost 9 percent despite the COVID-19 setback.

 

The dominance of U.S. returns was also helped by a variety of other factors such as accelerating earnings by U.S. corporations improving profit margins, and cleaner balance sheets. In addition, U.S. firms have had greater success expanding overseas. Prior to 2010, 30 percent of U.S. corporate profits were generated overseas. That number has since expanded to 40 percent.

 

Another reason for U.S. outperformance is our ability to take risks. America has been a fertile ground for business formation and risk-taking is part and parcel of starting a new business. 

 

But regardless of how efficient Corporate America and the private sector overall are, it has had enormous support from the government. While America went on a debt spree, Europe, for example, practiced austerity. All that government spending boosted corporate profits considerably.

 

In 2025, however, the mood toward American dominance has soured. Just weeks ago, U.S. investors were hailing Donald Trump's second term as the beginning of America's golden age. His blend of tax cuts and tariffs would accelerate economic growth and boost American dominance once again. Next week, we will focus on the risks that could reverse our No. 1 position in capital markets.

 

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.

It is getting to be a regular occurrence. The U.S. Treasury runs out of money and warns Congress that they need more. Politicians on both sides strut and crow but delay until the 11th hour only to pass another "continuing resolution" for a few months. Will it ever end?

 

Exactly what is a continuing resolution (CR)? They are temporary spending bills that allow the federal government operations to continue when final appropriations have not been approved by Congress and the president. CRs are never-ending stories with a shelf-life of 2-3 months.

 

This time, the deadline is March 14. Has anything changed? Well, yes and no. The factions within the Republican party are still around, with scores of Republicans who routinely vote against funding the government. At the same time, the narrow GOP House majority of last year is narrower still. The Republicans versus Democrats score card is 218-214 (with the death of Texas Democrat Sylvester Turner on Tuesday) in this new Congress. That makes it probable that to pass another CR, Democrat votes will be needed.

 

In prior votes, Democrats have stepped up to the plate to support short-term bills but that was under a president of their own party. However, that was then. President Trump's program of slashing government workers, efficiency efforts by DOGE, the threatened upending of entire departments, and the administration's effort to control spending have the minority party in no mood to compromise.

 

The Democrats argue that Congress, not the president, holds the power of the purse. Unless there is explicit language in the bill that limits the involvement of the executive branch in spending decisions, many Democrats will not be a party to a compromise. Other Democrats insist that there also be included written constraints that would rein in Trump and Elon Musk's attempts to close or reduce the size of government agencies.

 

The opposition is also against several GOP add-ons to the bill including $32 billion in transfer authority for the Defense Department, a $20 billion cut to IRS enforcement, and an increase in funding ICE deportation operations. Of course, the Republicans are laughing at these Democrat demands and have no intention to compromise either.

 

Within the Republican Party, the Freedom Caucus voted last week to go along with the rest of the majority to pass a budget resolution to raise the debt ceiling by $4 trillion. The chairman of that group, Rep. Andy Harris, has already signaled that the group is on board to pass a continuing resolution as well. But there are at least two Republicans who say they are sick and tired of kicking the can down the road and want a full appropriations bill passed. 

 

Every president, including Donald Trump, would like to put an end to these constant bills that last for a month or three, but a full funding deal seems out of reach. The most that can be expected is maybe another short-term bill to keep the government running on autopilot until the end of the fiscal year. You can be sure that the administration will be doing its utmost to make sure every one of the party faithful votes yes on March 14th.

 

If a deal fails to be passed, Donald Trump has proven that shutdowns do not deter him.  It happened during his first administration when Congress failed to fund his proposed wall along the southern U.S. border. The partial government shutdown was the longest in U.S. history.

 

 This time around there would be some unintended benefits to a shutdown from the administration's point of view. For one, government spending would come to a standstill for the most part. That helps when your stated aim is to reduce government spending anyway. For another, thousands of government workers would be laid off, some of which could be permanent if the administration so desired.  That also coincides with their effort to reduce the size of government.

 

In any case, whatever happens will be dragged on until the last bit of free airtime is used up and every legislator has his or her comments duly recorded for posterity. Some things never change. In Congress, it appears as if it is business as usual when it comes to spending.

 

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.

They love their country. As such, it is no surprise that many veterans would want to continue to serve their nation after discharge. It is why so many vets apply to work for the federal government. That partnership seemed to work out for both parties—until recently.

 

For those of us who have served in the military, we have done so out of love for our country. When it called, we stepped up. In exchange, we learned a lot of good things in the armed services. For me the list is long. Leadership, teamwork, a strong work ethic, the ability to handle stressful situations, self-direction, and motivation come to mind. I am sure I have missed some.

 

These attributes make vets an incredible asset in the workplace; something long recognized by the government. Working for the government was a marriage made in heaven for many vets. Many veterans viewed working for the government as a way of extending that sense of purpose and belonging they found in the military. Not only could they continue serving their nation, but they could also help their peers outside of active duty. 

 

In addition, the federal government, recognizing their value, offers a "veterans' preference" which puts vets at the front of the line when choosing qualified candidates for employment. The Veterans' Preference Act was established in 1944. It entitled veterans who were disabled and/or served on active-duty preference for virtually all government jobs.

 

The trend was self-reinforcing. The more veterans that worked for the government, the more the atmosphere of camaraderie and understanding among co-workers deepened. Another attraction is the government's generous retirement benefits that allow a vet's years of military service to count toward their federal pension.

 

Given this background, it should be no surprise that veterans made up 28 percent of the federal workforce in 2024, compared to 5% in the private sector, according to the U.S. Office of Personal Management (OMB).  Of that number, more than 200,000 vets are disabled or have a serious health condition.

 

Unfortunately, the Department of Government Efficiency (DOGE) has failed to account for veterans in its campaign to reduce the federal government workforce. What is worse,  veterans are spread out throughout various government departments, which makes downsizing even more dicey for this group.

 

Military veterans have tended to affiliate with the Republican Party and its candidates historically. About six in ten registered voters (61 percent) who say they have served in the military or military reserves supported President Trump in the 2024 presidential election, according to the Pew Research Center. In the past, President Trump has favored veterans on various occasions including improving VA healthcare, education benefits, and reducing homelessness among vets, but not this time. 

 

Many Republican legislators, while publicly cheering the administration's push to cut federal government workers and services are privately attempting to backchannel the powers to be on behalf of veterans. They are not only concerned that the dismissal of military veterans will alienate their base but are also concerned that many federal services that veterans depend upon,  like the Veterans Administration, could be cut back as well. That is already starting to happen.

 

The federal government has dismissed 1,400 VA probationary employees this month although a few senators have succeeded in getting the Trump administration to reinstate some fired employees. 

 

The new Secretary of the Department of Veteran Affairs, Doug Collins, a career politician, who once served a brief stint as chaplain in the U.S. Air Force Reserve, crowed on the DOGE social media conduit, X,  that he has found $2 billion in savings thus far by axing outside contractors who do things like train and coach vets seeking jobs in the private sector. He promises even more cuts in the future. Collins also urged viewers not to let senators, congressmen, and the media scare us into stopping his downsizing efforts.

 

I come down on the opposite side of his argument. Finding and keeping a job is crucial to many veterans transitioning into civilian life. Reconnecting with society through jobs is particularly important during this period. As it is, veterans face higher unemployment rates and poverty levels than non-veterans, making employment even more vital for their economic well-being. Doubly so, for those who are handicapped. The VA is an important backstop in these efforts as well.

 

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.