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@theMarket: AI Trade Came Home to Roost
What goes up must come down, or so they say. The run in artificial intelligence stocks that propelled markets higher over the last two years has ended at least for now. Unfortunately, the area is taking the markets down with it.
Investors have certainly enjoyed a great run in all things AI. Plenty of companies have seen their stocks double and even triple in a short period of time. Momentum traders had a field day. When that play began to falter, other areas caught their attention. Traders began to sell AI and moved the proceeds into precious metals.
At first, it was just a few brave souls. But as that trade began to work out, more jumped in until it became a stampede. Like the AI trade before it, bidding up precious metals became a global phenomenon. U.S. and Chinese traders took the lead, and before long, the buying frenzy became a 24-hour trade of epic proportions. In January, the prices of precious metals exploded higher.
As AI and crypto prices fell, the market for precious metals soared. However, the gold and silver market is much smaller than the technology market. As such, metals soared in price far faster than the AI trade. It was a classic supply-and-demand situation — too many traders chasing too few investments. Until it wasn’t.
Over the last week or so, we have seen the momentum trade reverse. It started last Thursday in Asia and has declined steadily since then. This week, spot silver saw a breathtaking two-day bounce, only to fall midweek as Chinese traders sold it, sending silver down 18 percent by the time the U.S. market opened on Thursday morning. On Friday, prices rebounded again.
In the meantime, cryptocurrency prices, which have a high correlation to the tech-heavy NASDAQ index, fell as AI stocks deflated. This week, all of crypto's gains since the Trump Pump have been wiped out. Many players in both crypto and AI are now realizing momentum works both ways.
You may notice that the above explanation has little or nothing to do with fundamentals. Not a word about economic growth, inflation, Donald Trump, or tariffs and trade. None of that mattered. That is normally a warning that the overall market has reached a speculative peak that cannot continue without some consolidation.
So, what now? Does this mean that the bull market is over? Not at all. It just needs to consolidate a bit. To clarify, remember my thesis explaining the Santa Claus rally: the global flow of funds that fueled those gains is now reversing, as it does every year. With less money in the system, there's less fuel for gains — a simple but true relationship. Still, if this pullback continues, there are plenty of sectors worth your attention.
I still like emerging markets and overseas stocks in general. Small-cap stocks, in my opinion, will be the main beneficiaries of all this AI spending by the big guns. Google just reported a massive $180 billion spending plan for 2026; double the already massive bet they made last year. Amazon announced an additional $200 billion in AI outlays.
These stocks sank on the news, despite Wall Street applauding the confidence management showed in AI's future. But rather than buy Google and wait for a multi-year payback, I prefer to buy small businesses that will ultimately grow and improve productivity despite lacking the capital to expand their labor force.
It is a midterm election year, so the government spending and other goodies that Donald Trump is throwing at the market in the months ahead should keep the economy and the stock market buoyant. That should benefit anything small-cap like regional banks and maybe biotech. Materials, industrials, defense, and energy should also gain. The technology sector will still participate; it just won't lead as it has in the past.
The S&P 500 has lost all its gains since the beginning of the year at this point. My worries over AI expansion have come home to roost. As for precious metals, although they have been in a bull market for well over two years, I warned investors two weeks ago to take profits across the board in this area. It is not the end of AI, nor is it the end of the bull market in precious metals.
I think the worst damage has already been done in gold, but probably not the gold miners. Silver is still in no man's land. The problem is that the volatility in these metals makes them a "no-touch" for most of my readers right now. If you still want to take a stab at it, you know my email.
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.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Does It Make Sense to Borrow From Your 401(k) to Buy a House?
Younger generations cannot afford to buy a home. They cannot even make the down payments necessary to take out a mortgage. Borrowing the down payment from your 401(k) might make sense, especially if the Trump administration helps out.
Last week, the president's director of the National Economic Council, Kevin Hassett, said the administration was finalizing a plan for some 401(k) funds to go toward home down payments. He said it would be part of a series of White House initiatives on housing affordability.
"I'm not a huge fan," said the boss. Trump said, "One of the reasons I don't like it is that their 401(k)s are doing so well."
And that is true. The problem is that after several years of exorbitant gains, the potential for a large sell-off is growing.
Readers should know you can already use your 401(k) for a home down payment, either through a withdrawal or a loan, though both options have drawbacks. Under existing hardship withdrawal rules, buying a principal residence is one of the permitted reasons.
The problem is that you owe income tax on the withdrawal, which could also move you into a higher tax bracket. If you are younger than 59 1/2 years old, you owe an additional 10 percent penalty on the money you withdraw. You also lose out on years of future tax-free earnings on the money you withdrew.
However, you also have the option to borrow the money for a house from your 401(k) to the tune of $50,000 or half the value of your account, whichever is less. But there are several drawbacks. For one, you are required to repay the loan within five years and report it to the bank if you are applying for a mortgage.
In addition, if you leave your job, you must repay the loan by the due date of your federal income tax return, or the loan will be considered a withdrawal. That would trigger income taxes and possibly another 10 percent early withdrawal penalty if you are under 59 1/2 years old. Worse, depending on your plan, you may not be able to contribute to your 401(k) until you pay off the loan.
You are charged interest on the money you borrow, usually two points over the prime rate. The good news is that you are borrowing from yourself and earning a little on the funds you withdraw. The downside, whether borrowing or withdrawing, is that you miss out on potential investment growth for retirement savings. That final negative is what the president doesn't like.
How could the government help reduce the negatives? An increase in the borrowing or withdrawal limit might help. They could also do away with the 10 percent tax penalty for those under 59 1/2 if you were to withdraw rather than borrow funds or even make the withdrawal tax-free if it was earmarked for the purchase of a home.
For borrowers, the IRS could also extend the repayment period from 5 years to 10 years or longer. The rules could also change for those who have left their job. Rather than forcing repayment or treating it as a withdrawal, the rules could be changed. For example, as long as you obtained another job before the end of the tax year, the borrowing rules would remain the same and not trigger the exiting tax consequences.
The issue I am sure the administration is wrestling with is that withdrawing the money from your tax-deferred savings account to buy a house puts those funds on a different track. In an era when younger generations and many politicians are convinced there will be no social safety net like Social Security, saving for retirement becomes critical.
Making withdrawals or borrowing for a home from tax-deferred savings makes it easier to divert that money from its original purpose: compounding growth for your retirement through investing in the stock and bond markets. In exchange, you could say you are diverting some of your retirement money into real estate.
Given the growing dissatisfaction with their lot in life, younger generations might prefer the ability to own a home, start a family, and get out from under their parent's spare bedrooms or basements, worth the cost of a little less in retirement savings.
That may not be a bad thing. Over half of Americans' wealth today is attributed to their real estate holdings, namely their home. Diversifying one's investments is rarely a bad idea. If the rules were relaxed, and let's say two million Americans borrowed $100,000 each for a home, those transactions would have a substantial impact on U.S. economic growth as well. In turn, financial markets would rise, and the remaining funds in an existing 401(k) portfolio of stocks and bonds would also gain.
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.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
@theMarket: New Fed Head, Iran Threats Trigger Some Profit-taking
Kevin Warsh, formerly of the Federal Reserve, was chosen to lead the U.S. central bank in May. At around the same time, U.S. forces gathered in the Middle East, as the president again threatened Iran. Together, these developments triggered traders to adopt a risk-off stance.
At first glance, it appears that market participants believe Warsh is less willing to ease monetary policy if it would raise inflation. Consequently, currency traders bought the dollar and sold precious metals. Meanwhile, increased tensions in the Middle East also pushed the dollar higher and boosted oil prices.
Amid these market shifts, the Fed met this week, but the event was largely a nothing burger. The Fed is on pause, as the market expected, and will likely remain so until Kevin Warsh is appointed in mid-May. Now that the Federal Open Market Committee meeting is over, investors' attention will be focused on the fourth-quarter 2025 earnings results. Thus far, more than 78 percent of companies have beaten earnings estimates as usual.
By now, readers know the game Wall Street plays. Analysts deliberately lower their earnings estimates, allowing the companies they follow to beat expectations. This week, however, the big guys reported. Meta skyrocketed on their results, while Microsoft and Tesla cratered on theirs. Apple, despite stellar earnings, was dumped as well.
The AI fears that companies are spending way too much and getting little in the way of returns for their effort was underscored by Microsoft's disappointing earnings announcement. Once again, that event, along with news of a widening U.S. trade deficit, has cast a pall over the AI trade.
The U.S. Commerce Department announced that the nation's trade deficit for November 2025 was the largest in almost 34 years. The trade gap increased by 94.6 percent to $56.8 billion, well above expectations of below $30 billion. The culprit was a surge in capital goods imports driven by investments in artificial intelligence. That is not what the administration wants to see.
And speaking of the administration, this week the president rattled his saber once again, threatening military action unless Iran renounced its nuclear development. He also said the declining U.S. dollar was "doing great" and did not think the dollar had declined too much.
The prices of most commodities and oil spiked higher on his comments, as traders realized that not only was he comfortable with the decline, but that further downside was highly probable. As a result, the dollar fell 1.3 percent on Tuesday, while gold and other precious metals spiked higher. Since then, that trade has reversed on the news of the Kevin Walsh appointment.
From a global perspective, the current parabolic surge in commodity prices was driven by a systemic external drain on U.S. dollar-denominated assets. Foreign nations are aggressively liquidating U.S. Treasuries and moving away from the dollar toward gold, silver, and other commodities. It is one of the main reasons I remain bullish on precious metals, oil, and other commodities as the year progresses.
As the dollar weakens, we can expect to see global investors seek out a replacement, a store of value that will protect their wealth. Gold, silver, platinum, palladium, and now copper have fulfilled that role thus far. But wait, you might ask, didn't I just advise readers to sell some of those metals last week?
Yes, I did. It is a timing thing. Most precious metals have risen too rapidly; one might describe the move as parabolic, so I recommended taking profits on some investments. At the same time, hold some positions in case prices rise further. They did until Friday. Since there is no way to tell when or even if this parabolic move has peaked, I booked some gains. The declines on Friday show the wisdom of my advice. In just a matter of hours gold dropped by 7 percent-plus, silver fell by 21 percent, platinum dropped by 16 percent, and palladium declined by more than 13 percent.
In the blink of an eye, we could easily see a 30 percent decline in this space, and it could happen, as it did on Thursday night, while you are sleeping in bed. That is the nature of the beast. At some point, when I think the metals have fallen enough, I will advise you to reinvest those profits back into precious metals.
In the meantime, I suggested readers accumulate copper (through an exchange-traded fund) and copper mining stocks. At one point this week, Chinese investors (while you were sleeping) bid up the price of copper to $14,500 ton, an 11 percent increase, the highest price ever recorded. Thursday morning, prices in the U.S. rose by more than $1,400 a ton, only to slide by $1,000 in less than half an hour. By Friday, copper had joined the metals rout, falling 4.28 percent.
The moral of this tale is that you do not bet the farm when investing in commodities, or you won't have any farm left to bet. As for equity markets, the last week of January saw profit-taking, though the month was positive overall as measured by the S&P 500 Index. The Russell 2000 small-cap index outperformed, while the tech-heavy NASDAQ also rose. But not all is what it seems. If one had been invested in commodities, metals and mining, capital goods, aerospace and defense, energy , basic materials, and/or retail, one did far better even with the end-of-the-month sell-off.
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.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Administration Devises Workaround to Circumvent the Fed
Jawboning, bluster, threats, and court actions have yet to force the Federal Reserve Bank to do the president's bidding. Undeterred, Donald Trump thinks he has found a way to lower consumer borrowing costs without further Fed action.
Given his background in real estate, where borrowing is a way of life, it is no wonder he believes lowering borrowing costs for consumers is the key to affordability. As of November 2025, the U.S. consumer debt was roughly $18.10 trillion, a new record. Mortgage debt represents $13.39 trillion, while bank cards account for $1.09 trillion. Overall, consumer debt rose 2.9 percent from the prior year.
There is no question that, with that amount of debt, any relief effort would be well received by many voters. In response to an affordability issue that the administration denies, President Trump has demanded that credit card companies cap interest rates at 10 percent. He also ordered Fannie Mae and Freddie Mac to buy $200 billion worth of mortgage bonds. By doing so, he believes mortgage interest rates will fall, which could attract new buyers to the housing markets.
Both initiatives were announced on Truth Social rather than through a legislative proposal to Congress or by drafting new regulations. It makes one wonder if these are serious proposals or simply pre-election promises. But let's give the president the benefit of the doubt and ask: what does this accomplish?
Circumventing the Fed, which officially oversees interest rates, is questionable business, but it has happened before. Prior to 1935, there was really no difference between the U.S. Treasury and the Federal Reserve Bank; however, over time, a series of amendments made the Fed the master of monetary policy.
In the case of housing affordability, buying up bonds might work. After Trump's media post, long-term rates on U.S. 30-year bonds fell below 6 percent but have risen since. There has been little impact on the benchmark 10-Year bond. The problem is that lower rates, while making a mortgage more affordable, can also push home prices higher. He also signed an executive order this week to prohibit institutions from buying single-family homes, something he believes has contributed to rising housing prices.
As for capping credit card interest rates for one year, which are now, on average, higher than 24 percent, it has been tried before, not only here in the U.S. but also in other countries. President Jimmy Carter, through his March 1980 credit control policy, attempted to limit additional borrowing through credit cards. The policy lasted about two months. France, South Africa, Ecuador, Japan, Kenya, South Korea, and the Philippines are other examples of what happens when caps are imposed.
In every case, caps shrink credit access for high-risk borrowers( most retail borrowers). Credit card companies (read: banks) simply stop lending or won't approve applicants they deem high-risk, including low-income or subprime consumers. Smaller loans disappear, and average loan size increases.
Short-term credit dries up. Lenders shift to serving higher collateral borrowers. People who pay off their credit card charges in full each month are sought after. It usually ends with a series of workarounds. Retailers and auto dealers, for example, move in offering financing with baked-in high credit costs in their product prices.
Unregulated pawn loan shops, rent-to-own stores, payday lenders, and loan sharks all experience a sharp increase in business because most, if not all, of them are excluded from the interest rate cap. By now, you are catching my drift. The fact that the cap would only be instituted for one year could save consumers billions in interest payments, but once it ended, there is no guarantee that banks wouldn't raise interest rates to recoup their losses.
JP Morgan's well-respected CEO, Jamie Dimon, said in an Economist interview last week that the proposed 10 percent cap on credit card interest rates would effectively cut off credit for roughly 80 percent of Americans. He said the policy would be an economic disaster, shrinking access rather than protecting consumers.
History says he is right, but by then the votes would have been counted, and that's the objective. Welcome to American populist politics.
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.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
@theMarket: Headline noise equals opportunity
A Greenland invasion, the end of NATO, another tariff war, Iranian riots, threats, and counterthreats. This week saw it all. It could have been the end of the world, but it wasn’t. Savvy investors took advantage of the noise.
Talk about TACO (Trump always chickens out)! This week exemplified Trumpian scare tactics. It is remarkable how many investors were influenced, not recognizing this as another page from Trump’s novel, “The Art of the Deal.”
In any case, the ruffled feathers on both sides of the Atlantic after the president’s threat to take over Greenland or else were resolved in short order. The World Economic Summit in Davos set the stage for Trump's speech.
Behind the bluster and bravado, and the back-room negotiations, was the real issue—strategic security. Shipping lanes, undersea infrastructure, defense positioning, and more are real concerns for the U.S. and Europe regarding Greenland and the Arctic.
I call it Gunship Diplomacy mixed with a heavy dose of the new 'Donroe Doctrine’. It is all part of my thesis that Donald Trump is following in the footsteps of presidents like Jefferson, Madison, Monroe, Andrew Johnson, William Howard Taft, Harry Truman, and others who expanded America’s reach for its own gains and strategic interests either by threats or force.
The world is getting smaller, and Greenland and the Arctic, once a remote region, are in reality right next door to China, North Korea, and Russia. Those nations are attempting to expand their presence in the area, as they are in other areas of our hemisphere. It is the reason behind Donald Trump's strategy for the Golden Dome missile defense system. Like Ronald Reagan’s Star Wars initiative, the Golden Dome is all about nuclear missile attacks. It would detect and destroy ballistic, hypersonic, and cruise missiles before they launch or during their flight.
The media focused on Trump’s words rather than the substance of the issue, continuing their typical approach. Trump’s rhetoric often inflames situations, a pattern that is now recognizable.
In any case, all one had to do was look at how the rest of the world reacted. Markets in China, South Korea, and even Denmark did not fall for the noise. The panic selling was uniquely American. It was a great opportunity to buy the dip.
As for the fundamentals, the economy was still expanding in the third quarter of last year, rising at a 4.4 percent pace, slightly higher than the government’s initial estimate. In addition, personal spending rose 0.5 percent in November 2025 versus October. The Personal Consumption Expenditures Index (PCE) for November rose 0.2 percent, the same as in October, which was in line with estimates. All of which implies that inflation is in check, the economy continues to grow, and labor is showing slight moderation, with little hiring or firing.
Earnings season, in typical fashion, is turning out to be a little better than expected, with 78 percent of companies reporting beating estimates. Equities overall are still exhibiting bullish tendencies. This week’s geopolitical tape bomb was met with buying, and market breadth remains resilient. The rotation trade is still working, but the tech sector and growth stocks in general are beginning to signal oversold readings. We could see a bounce in the Mag 7 group if earnings and guidance come in better than expected next week.
The precious metals complex, especially silver, is approaching bubble territory. Typically, in equity markets, tops are processes while bottoms are events (usually due to policy intervention). Conversely, in gold, silver, platinum, etc., bottoms are a process, and tops are an event.
FOMO is white hot in the silver market, driven by the belief that the metal is in short supply, and the U.S. government has deemed it a critical metal. In the case of gold, central banks and many foreign nations are beginning to use gold to settle trade outside of the U.S. Treasury and petrodollar systems. While still bullish on all precious metals, I would not chase them here. If you own them and the miners, I would lighten up here. That does not mean selling out of your positions. Just bank some profits and possibly buy back at lower prices.
However, in the case of copper, I would see any weakness in price as an opportunity to add. In addition, I still think emerging markets, especially China’s A shares, the Shenzhen and STAR markets, have more room to run this year despite their stellar performance in 2025. As for this weekend, stay warm.
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.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
