Month: June 2020

Dear Ladies and Gentlemen

Thank you very much for all your positive feedback on the Oscar Wilde quote. I am happy you liked it.

Today I am asking myself: Are there any signs of inflation?

Currently, we cannot say so.

We do not see any significant increase in commodity futures prices. Especially on the energy front, it even looks as if energy will be produced at ever-lower prices in the coming years. And you know what, household incomes do not reflect any sharp increase in the price of goods as of yet either.

Ladies and Gentlemen, I know some of you might not like this, but since the 1980s, the relationship between monetary developments and inflation rate does no longer seem to show statistical significance. A correlation is not recognizable. Even if one were to argue with a shadow inflation rate, there would be no positive correlation. The deflationary pressures of globalization, due to technical progress and age-related demographics, have not dissolved. Moreover, I believe these factors will remain for some time, still.

Besides, the composition of the shopping basket used for statistical purposes has continuously changed over the past 50 years. While the share of services was increased, the share of goods was decreased. Therefore, rises in wages and salaries in the service sector should lead to a more significant impact on the inflation rate than before, and yet, we can not see that. Anyway, I think you would agree an increase in inflation rates in the course of economic recovery would be somewhat healthy.

Today we do not assume hyperinflation, especially not in the case of a recession and not on a global basis.

I am interested in getting to know your views, Ladies, and Gentlemen!

Every week I am receiving emails from readers asking me about our portfolio mix. It is still the same, roughly 50% in equities and roughly 30% in cash. We are considering an increase in the equity portion over summer. Interestingly, I just read in a research paper that the bullish expectations of U.S. private investors (measured by AAII) fell from 24.4% to 24.1%. This shows that private investors remain very cautious. I keep telling our investors that as a rule of thumb, a rise in the markets only ends when private investors have also returned to the markets and become bullish. For this, we would have to see significantly more than 50% of private investors turning bullish.

Ladies and Gentlemen, I am looking forward to your comments! But please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Ladies and Gentlemen, I wish you a good start into the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Dear Ladies and Gentlemen

Central Banks are doing everything to avoid economic calamities, and I am not necessarily against it. However, now it seems we are entering an entirely new phase of central bank intervention in financial markets.

Central banks are now buying corporate bonds directly in the markets. While this may seem not worth mentioning to some investors, it is rather noteworthy to me. Why? Is this going to have any sort of impact you may ask? Well, to tell you the truth, to me, this is quite a mind-boggling exercise because market forces are getting subdued more and more and on multiple levels. For example, in today’s ultra-low interest environment, one may find plenty of corporate bonds of fine companies yielding zero or (slightly) negative returns. If central banks are buying those corporate bonds, it is going to be market-distorting and effectively means, interest rates will go down even more, and those companies will not only not have to pay interest on their debt but on the contrary, will receive interest from some friendly central banks for taking up dept.

Moreover, and of course, such market interference favours fine, large, multinational companies with healthy balance sheets, and it will quite likely lead to higher concentration rather than to higher diversification. Smaller players will disappear while more significant players will become even more powerful and more significant, as they may generate interest income for taking up debt, use the money to buy up or squeeze out their competition and increase their (pricing and everything else) power.

Eventually, this increasing power may be felt by consumers and employees alike “Amazon”-like business behaviour creates wealth for a very few and not necessarily for the masses.

Ladies and Gentlemen, wealth for some very few and nothing for the masses are what in the end led to the (French – but not only) revolution. Can we still control what is happening, or is it spinning out of control? What will the result look like? What is our political leaders’ vision?

Oscar Wilde once said: “Everything is going to be fine in the end; if it is not fine; it is not the end.”  Is what is happening today fine for large parts of our global population?

Ladies and Gentlemen, I am looking forward to your comments! But please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li

Furthermore, Ladies and Gentlemen, I wish you a good start into the day, a wonderful weekend and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Dear Ladies and Gentlemen

Some new participants joined our year-end competition last week. This is perfect. Thank you very much.

After the massive rally, we have seen since the March lows, many of my readers ask me what I am expecting for the next months. Those who read my weeklies for a longer time know that I’m not particularly eager to make predictions, and yet, I get involved in a year-end competition you may think. Well, the year-end competition is for fun, and I am happy to distribute a silver coin once a year. Market predictions are a different ball game.

I cannot foresee the future, nor can anybody else. However, anyone working in the financial industry and managing assets must have at least a loose idea of where markets could be heading, and this is why I am in general, working with scenarios.

Now, what I find quite extraordinary during this crisis is the fact that market direction may change very rapidly and extensively. Two months ago, only very few people could imagine markets going up to current levels in such a short time frame. There was hardly any expert who was not seriously concerned, not to mention the media. Interestingly enough, in the last two weeks or so all of a sudden, some experts turned positive, and the press started to come up with positive market news.

But why can stock markets go up while there are increasing numbers of people losing their jobs and queuing for food?

Let me give you what I think could be a possible explanation. While average citizens may experience negative economic impacts in their life at this very moment, many institutional investors, i.e., institutional (professional) stock market participants, are already looking into 2021. Now those institutional investors see the world from a slightly different perspective. They acknowledge that politics and central banks have tied up rescue packages as quickly and comprehensively as never before, they are seeing lockdowns being lifted, consumption rebounding very slowly and yet surely, travel restarting very slowly and yet surely as well and a recession that is going to be over eventually and at the same time, they see remaining stimuli for years to come, leading to an overflow of liquidity.

…or as the CIO of a global financial institution casually mentioned this week: “the world is swimming in cash!”

That sort of liquidity will seek its way to the highest proposed returns, which due to low-interest rates, most probably will be found in equities rather than in bonds.

Ladies and Gentlemen, this is highly simplified, and of course, I don’t have a crystal ball, and of course, I can’t foresee the future, but to me, this seems like a valid explanation for what we have seen in the markets ever since March and what we might experience in the months to come.

As always, please feel free to share your ideas and thoughts to me, but please don’t forget (instead of hitting the reply button) to send your messages to smk@incrementum.li

And now, Ladies and Gentlemen, I wish you a good start into the day, a wonderful weekend and above all good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Dear Ladies and Gentlemen

Time for an update on our year-end competition. The estimates are wide-spread; this is great and makes it more fun than if everybody is around the same numbers.

Gold:

The highest estimate comes from Hannes. His estimate for the 2020 year-end price stands at USD 2’000. The lowest estimate comes from myself, and I know this is rather provocative, but it is just for fun, after all. My estimate is a year-end price of USD 1’280.

Silver:

The highest estimate comes from Barbara. Her estimate for the 2020 year-end price stands at USD 45. The lowest estimate comes from Mark, and his estimate is a year-end price of USD 14.50.

S&P 500:

The highest estimate comes from Barbara again. She seems slightly bullish; her estimate for the 2020 year-end price stands at 4’500. The lowest estimate comes from John, and he estimates a year-end price of 2’100.

Currently (at the time when I was writing this message) Gold stands at USD 1’720, Silver at USD 17.76, and the S&P at 3’107.

If there are still readers out there who would like to participate, please feel free to send me a quick email and I will be happy to take you on the list. Don’t forget, you may win a one-ounce Silver coin.

Moreover, now, Ladies and Gentlemen, I wish you a good start into the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein