Month: April 2018

Dear Ladies and Gentlemen

My friend and partner Dr. Christian Schärer was attending the Denver Gold Forum in Zürich and I had asked him to write a guest comment and share his impressions with us, this is what he wrote:

“Every year in April, numerous representatives from the mining industry meet with analysts and investors from all over Europe at the highly regarded conference. A good opportunity to learn more about the latest trends in the gold industry and to feel the mood among investors.

After visiting various company presentations in the plenum and numerous 1:1 with representatives of mining companies from our investment universe, we would like to summarize our impressions as follows:

The mood was basically constructive. However, there were fewer institutional investors than in other years. This was also confirmed by the representatives of the mining companies, which usually had to deal with a smaller number of 1:1. Nevertheless, discussions between investors and companies were conducted with a positive undertone. The consensus among participants sees a lower USD, rising inflation and a peak in gold production as catalysts for a positive gold price development…

However, we were less interested in argumentation at the macro level. As a stock picker, we wanted to verify two investment hypotheses. On the one hand, against the background of a historically high gold-silver ratio of 80:1, we were particularly interested in the shares of silver producers. On the other hand, we are driven by the question of whether the growing fee cash flows of well-managed mining companies in combination with the much-discussed “peak” in gold mining could lead to a wave of M&A transactions in the coming quarters.  

Silver has regularly disappointed investors’ performance expectations in the recent past. In our view, the long-term decline in industrial demand is the main reason for this frustrating development. The steadily decreasing industrial demand distinguishes silver from other industrial metals. One of the reasons for this negative trend was the marginalization of classical photography as a great demand for silver. Since the turn of the century, demand has fallen by around 180 million ounces annually. This corresponds to about 17% of the current market volume. 

Now, however, a silver lining seems to be emerging on the horizon. For the current year, the “Silver Institute” sees an increase in industrial demand for silver for the first time since 2013. The constantly growing demand from the field of photovoltaics can compensate for the losses in the field of traditional photography and leads to new dynamics. Despite improving industrial demand, global silver production continues to fall in the current year. It is likely to fall by around 10% compared with the record level achieved in 2015. Against this background, we would not be surprised if silver outperformed gold in the medium term, albeit from a historically low base. We are positioning ourselves accordingly in our commodity equity fund. True to our preference, we focus on companies with a solid balance sheet and an attractive free cash flow profile…

Few takeovers have recently confirmed our assessment that the prerequisites for a constructive M&A environment in the space of precious metal producers are certainly given. In recent years, the sector’s heavyweights have focused primarily on reducing their production costs and have been reluctant to invest in expanding their production capacities or to replace mined ounces. Accordingly, there is a need to catch up here. In addition, the stock performance of many exploration stocks and mine developers has been disappointing in recent quarters. This makes the relative valuation between potential buyers and possible takeover targets appear attractive. This is not a bad prerequisite for a new wave of consolidation in the precious metals sector. A big deal would be a possible catalyst for the start of such a movement. 

Finally, we would like to emphasize that the shares of well-managed mining companies also move in cycles. Gold and silver stocks are not “buy and hold” investments. However, selected stocks are currently trading at quite attractive levels. Moreover, as these stocks correlate comparatively little with the overall market, they can certainly find a place in a clearly structured equity portfolio. At least they belong back on the watch list of an active investor.”

To me this looks a lot like looming opportunities. Let’s see…

Please share your thoughts and ideas with me. Please feel encouraged to do so but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend!
Kind regards

Yours truly,

Stefan M. Kremeth

Dear Ladies and Gentlemen

Many thanks for the many and very positive comments I received to my “China-weekly”. Maybe I should start writing travel reports rather than trying to explain topics in connection with macro-economics, global exchanges and investments. I had quite a few of my readers sharing their experiences while travelling in China and the feedback I received confirmed my view. China is just a great place to see and experience and thus well worthwhile visiting.

Now and back in Liechtenstein/Switzerland and because of this very positive feedback, I would like to do another and final round of “China potpourri”.

Opera: We had organised tickets for Nabucco at the Shanghai Grand Theater. The Shanghai Grand Theater is a reasonably modern building, immaculate, with comfortable seats and very good acoustics. We had perfect seats, fifth row in the stalls and spent a wonderful time listening to the beautiful voices, the impressive choir and the harmonic music. It was just great! We were somewhat surprised about the casual dress code of our fellow spectators (which suit us well as we didn’t bring along very formal clothing) and the low ticket prices. We payed roughly 20% of what we would have had to pay for such tickets in Zürich. Fantastic value for money!

Mobile Phones: Mobile phones are omnipresent. People use it, at least this was my impression, even more extensively than here in Europe. Younger people watch TV on their mobile phones in the subway, on the bus and even walking in the streets, they listen to music, pay their bills, shop groceries. book tickets and call for taxies, they communicate through their social media accounts, take pictures (especially in restaurants) and just seem to love selfies. My mobile phone is important to me but from what I have seen in the large cities we visited in China, mobile phones are even more important to people in China.

Apps: There seems to be an App for just about everything, on just about every mobile phone in China. What impressed me were the restaurant apps. Clients may pre-order their food in restaurants and when arriving at the restaurant (in the morning before work or during work or at lunch time) hold their mobile phone against a reader and receive their pre-ordered drinks and/or food immediately. There are also taxi apps that pay a bonus to the taxi driver and/or the customer when ordering a taxi via the app. This leads of course to terrible consequences during rush hour and/or other times of high demand for taxis, as taxi drivers will not pick up customers in the streets if not necessary in order not to miss out on the bonus offered when being hired via app.

Tips: As an experienced traveller and just being on a great trip to new places in China I felt like wanting to tip the people that offered services to us. Only, this is not at all standard everywhere in China. In the large hotels and sometimes taxis it is no problem and tips are appreciated but in many restaurants service staff is not used to tips. At one time a waitress did not want to take the tip we offered and gave it back to us with a mile, thanking us, explaining that this was not necessary.

Marriage Market: This marriage market thing, Ladies and Gentlemen, may seem somewhat strange to people not used to all the cultural peculiarities. Marriage markets are events, usually happening on weekends in local parks. The idea is that parents advertise with small posters their adult daughters and/or sons to find a partner for them. I asked Laura from Fudan University if she could give us an explanation. She told us that the idea was for parents that their children would go to school, study hard, go to University, finish their bachelor and master’s degrees and spend time rather behind books and in libraries than in bars and clubs. Like this it is very difficult to find a partner. At the end of their studies and in the eyes of their parents, the children would need a partner to form a family and get children of their own. You know, those parents take great pride in talking about their children and in seeking a perfect match for them. The parents, born during communism, where everything was planned and organised for them, want to help organising the life of their children. Laura told us that this was somewhat embarrassing for the children but out of respect for the parents, children would usually go on a first date with a potential candidate and at worst would spend half an hour talking to someone. This is of course not binding for the children and once the children have found a partner in their own ways and present their partner to their parents, the parents will stop the advertising and spend their time travelling, playing cards, dancing and singing karaoke.

Interesting, no?

Please share your thoughts and ideas with me. Please feel encouraged to do so but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend!
Kind regards

Yours truly,

Stefan M. Kremeth

Dear Ladies and Gentlemen

Many thanks for the many comments I received to my last “weekly”. It seems I am not the only one concerned. It is important for each one of us to start as early as possible to work on a strategy that ensures financial security besides or in addition to what governments may offer or not.

But now, I would like to switch to today’s topic, China.

As some of you may know, I am currently travelling in China. So far, I was in Shanghai, Xi’an, Beijing and just arrived in Shanghai again, before heading back to Europe next week.

This is my first visit to Mainland China and it is a short one (18 days) and I am only receiving a superficial first impression of this enormous country and still from what I am seeing, I am truly fascinated. Let me share some impressions in potpourri style with you.

People: I saw a lot of people; the cities are huge and there are people everywhere. The people I saw were mostly friendly and seemed happy. I saw families, grandparents, parents and children, spending time together in parks, restaurants at markets, visiting sites. I saw people of all ages and all styles and a lot of them. Very few of the people I met spoke proper English or any other foreign language, this makes conversations sometimes difficult.

Traffic: I used the high-speed rail between Xi’an and Beijing, which is perfect (average speed 300 km/h). Not only was it super easy to use but very punctual and clean. During one week of Beijing I used the subway system multiple times every day and I was impressed by the cleanliness and punctual and efficient service of this public transport system. On the other hand, the streets are almost all day long full of cars and it needs time and nerves to cope with such intense traffic. Scooters and small bikes in cities are all electric, which could lead to reasonably calm and silent traffic. However, in Xi’an and Beijing drivers are honking all the time, trying to squeeze themselves in front of others. This is not so much the case in Shanghai.

Culture: Very rich and old cultural heritage, plenty of sites dating back thousands of years, thus older than Europe. Mostly underestimated by non-Chinese and reduced to some stereotypes of rich emperors enjoying life with their concubines.

Food: You can get anything you like. From Swiss chocolate, fondue, veal sausage to German Schweinshaxe, Japanese Sushi and all sorts of Chinese dishes. This all comes in different price and quality ranges. I am loving it! We mainly ate Chinese food and Asian fusion (my favourite) and even on domestic flights in economy class the food was of surprisingly good quality.

Shopping: As for the food anything also goes for shopping. I have never seen such a concentration of upper level brand stores than in the large cities of China. However, they are very expensive, more expensive than in Switzerland as I noticed. On the other side you can buy non-branded articles at minimal cost. The range of the offer is huge.

Politics/economics: I also had the possibility to meet with people at Shanghai Fudan University and speak about current global political and economic issues and consensus was that (at least amongst the people I met) they didn’t seem too concerned by this “talk” of a global trade war. First it seems mainly the United States wanted to adjust tariffs to what seems fair to them, but no other country is following and second even if Chinese exports to the U.S. will decrease, they should be mostly compensated by exports to other regions/countries over time. Not to forget that if the United States increases tariffs on Chinese products, China will not hold back but do the same for products exported to China by the United States and according to an article in the Global Times over 900,000 U.S. jobs are supported by exports to China and thus would be at risk. Furthermore, and unlike in the U.S., the Chinese political leaders are not facing elections every four years and can therefore take decisions that may seem unpopular at short term without baring the risk of being taken out of office and therefore can easily stand up to President Trump’s threats.

Interesting, no?

Please share your thoughts and ideas with me. Please feel encouraged to do so but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend!
Kind regards

Yours truly,

Stefan M. Kremeth

Dear Ladies and Gentlemen

Zero or close to zero percent Interest rates, equities markets going down, decreasing gross yields on real estate investments and longevity.

Ladies and Gentlemen, baby boomers may have to rethink their retirement plans.

You may think we know all that, but this is really important, now! Because knowing alone doesn’t help, it just doesn’t do the job considering most of us will agree upon the fact that knowledge that doesn’t change behaviour is useless and therefore we may need to change our behaviour or in this case investment behaviour. I have received so many mails from concerned readers of my weekly mails during the last three months, some were worried to lose their wealth, some questioned their investments and almost all were emotionally affected.

This, Ladies and Gentlemen, is normal human behaviour, nothing to worry about. Our ancestors needed such pronounced emotions to survive. It helped them not to become a snack for some hungry, ferocious animal. But today we don’t need these emotions to be as pronounced as 100’000 years ago and to see a personal portfolio go down by 10% or even 20% is in most cases, as unpleasant as it may feel, not a life-threatening experience. Volatility is just part of the game of investing and if you want to take out all volatility of your portfolio your return will most probably be negative as the cost of reducing risk down to zero is higher than the expected return from your investments may be. Therefore, especially during difficult times, i.e. very volatile markets, you should not lose focus and maybe avoid listening to all the negative voices around you, because they are either a) wrong for years or follow some b) unproven or c) outdated theory (most of the time a combination of all three of them).

Keep in mind what your investment goal is and if your investment goal is capital preservation over centuries, invest in assets that have a proven track record of keeping their value over the very long term like for example gold. But gold may be very, very volatile in the short to medium term and your life expectancy may be too short for you to appreciate the positive effects of gold. If you want to achieve very high investment returns in the short term, you will need to speculate and put (I deliberately avoid using the term “invest”) your money into highly volatile and risky equities, private equities, crypto currencies, etc., facing the risk to lose the entire “invested” capital. If you are willing not to be affected by the volatility of your portfolio but are happy to receive a cash return on your investments, you may want to consider a balanced equities portfolio of companies with a proven track record of being able of producing free cash flows even during not so perfect market conditions.
If you don’t want to see negative signs in front of your performance at any time, please do not invest whatsoever, rather spend your money or you will become your banker’s nightmare.

However, Ladies and Gentlemen, if you want to live through a long and healthy retirement age with some regular income stemming from your wealth and if you want to be avoiding eating up day by day more and more of that wealth, you may need to get accustomed to the idea of accepting volatility as an unavoidable variable.

All of us, Ladies and Gentlemen, must make sure not to overweight short term thinking too much and to let it influence our long-term investment strategies. It is always good to question investment strategies, but sudden changes and fear mostly lead to worse than expected results.

…and this brings me to the answer of the question in the title: “will we have enough to retire?”

Well, it entirely depends on you!

Please share your thoughts and ideas with me. Please feel encouraged to do so but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend!
Kind regards

Yours truly,

Stefan M. Kremeth