Month: March 2021

Dear Ladies and Gentlemen

I am not convinced! I am not convinced we will see the sort of inflation augurs are expecting. The mainstream media is full of inflation fears; the alternative channels are full of inflation fears; if you are, like I am currently, arguing against it, you get rather lonely. I am used to «getting lonely on a lonesome trail.»

Why?

I personally do not believe in comparing historical events. One may draw conclusions from the past, but I believe life is (maybe, unfortunately) not that simple. Just to project such conclusions into the present or future, stimulate investors’ confirmation bias, drawing big conclusions to me is not good enough.

Where is the correlation?

Since the 1960s, there has been no statistical correlation between inflation and broad money growth. As I have pointed out in previous weeklies, today the velocity of money circulation remains extremely low, and therefore the enormous money supply growth of recent years does not lead to inflation, except, Ladies and Gentlemen, in asset prices.

Asset Price Inflation

Ladies and Gentlemen, we see an asset price inflation, higher equity prices, higher real estate prices, higher prices for second-hand watches, etc. and we also see signs of inflation due to product shipping issues, higher energy prices and maybe raw material cost, but these, I believe, are onetime effects.

Antifragility

As an investor, you want to stay antifragile as much as possible. Talib taught us to be flexible. If one is structuring an investment strategy only for one event, inflation, one is, in fact, everything but antifragile. Betting on one event is a perilous strategy. Why would one do that? The opportunity cost is enormous.

Conclusion

Even Russel Napier, a critical mind, stated in a recent interview in the Swiss financial newspaper «Finanz und Wirtschaft» that solid companies’ equities offer some inflation protection, and I am adding furthermore they offer cash returns in the form of dividends. To me, Ladies and Gentlemen, there is absolutely no way around a mixed portfolio. The mix should be customised to the investor’s very personal taste and needs.

Please let me know your views!

Please feel free to share your ideas and thoughts with me, but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li.

Many thanks, indeed!

Ladies and Gentlemen, I wish you a good start to 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

In July 2020, I did write a weekly on crude oil. My conclusion at the time was the following: «I believe we will see higher crude oil prices in 12  – 24 months from now, as inventory levels will decrease drastically in H2 ».

Massive Price Increase

In the meantime, crude oil prices have increased massively. For me, all of this happened almost too quickly. The interesting question is why the crude oil price did go up?

I think there are a few reasons for this. One one side, we hade a reduction of inventory as suggested in my weekly by then. Furthermore, OPEC+ was very disciplined in not increasing oil production by too much, unlike in the past. Then the weather phenomena  «la Nina» led to a cold winter and increased energy consumption. Also, President Biden’s call for green energy and restrictions for U.S. fossil energy production probably sparked speculation on crude oil shortage and added to the momentum. Increasing economic activity indeed was a sentiment moving factor, too.

What comes next?

Now, the question is, what comes next? Well, Ladies and Gentlemen, as disappointing as it may seem, I do not know.

However, I think we will see some consolidation; I would not be surprised to see OPEC+ acting less disciplined in the months to come, trying to sell as many barrels as possible on these relatively high levels. Currently, there seems to be a lot of positive sentiment reflected in the price of crude oil and this usually calls for lower prices, at least to some extent.

Please let me know your views!

Please feel free to share your ideas and thoughts with me, but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li.

Many thanks, indeed!

Ladies and Gentlemen, I wish you a good start to 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

Wow, my last weekly mail triggered quite some feedback and also led to questions. Many thanks, Ladies and Gentlemen!

The Fed’s Mandate

Now, most of the feedback and questions hovered around the Fed’s mandate. Some readers feel uneasy with the mandate’s expansion to «maximum employment». I see the point, and one could easily argue that maximum employment should be a political much more than a central bank task.

Facts

Fact is, maximum employment is part of the Fed’s mandate, and thus it is compulsory for the Fed to reach that goal as part of their mandate and, I assume the Federal Reserve will do whatever is necessary and possible from their side to fulfil their mandate to the best of their knowledge.
Fact is, too, that all of those actions impact the economy and financial markets. Now, the partners of Incrementum AG are active in a business where monetary expansion has led to prosperity. Even if I am never a fan of increasing government debt, I must admit that without the «help» of government rescue packages and stimuli from central banks, financial markets, precious metals, and crypto-assets (a term I have not yet gotten used to entirely, «crypto» and «asset» to me does not go together very well) would most probably not have benefitted to the extent they have ever since the great financial crisis. Is this good, or is this bad? To me, it is a question of perspective and highly philosophical.

A reader’s comment

I want to share a comment by John, one of my readers, out of an email conversation we had over the weekend: “As I have gotten older, I realized that balancing paradoxical forces is the name of the game. Being a good investor means being conservative when market valuation/greed is high and aggressive when market valuation/fear permeates many investors’ psyche. It is easy always to be conservative (by avoiding the market crashes but also avoiding market swing ups). Being a permanent bull investor means one can be susceptible to mania valuations. Managing deflation and inflation in a balanced way is key to having a healthy economy. It is too easy to abuse the powers of printing money (MMT) or adhere strictly to Austrian economics do not have monetary expansion. Fiat currency does lead to more rapid economic marvels as it supplies readily available capital to enterprising ventures. Hard currency like gold may lead to more robust economies, but it may not grow as fast.”

Biases

Unfortunately, human beings (and with your permittance, I will count the partners of Incrementum AG to this cohort) are vulnerable to availability bias, worse, and besides, we are susceptible to confirmation bias. This fact sometimes makes it challenging to see beyond what we can and want to see. For this reason, we read a lot of research, books, listen to podcasts, attend conferences, speak to investors, analysts, maintain contact with open-minded readers through our many publications, of which this weekly mail is one. We try very hard to beat those and many other biases, but we are not always successful.

Please feel free to share your ideas and thoughts with me, but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li.

Many thanks, indeed!

Ladies and Gentlemen, I wish you a good start to 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

Many thanks for the feedback to my last weekly. Rising interest rates seem on everyone’s mind. But are the recent bond yield increases really sustainable, and are they even showing a new trend?

Jerome Powell

Yesterday, Federal Reserve Chairman, Jerome Powell, was interviewed during  the “The Wall Street Journal (WSJ) Jobs Summit”. I have included the link to the interview video towards the end of this weekly for your convenience. I think Mr Powell did a fair job explaining the Fed’s mandate and the tools to achieve the mandate’s goals. I had the impression he was well elaborating while being asked by the interviewer on potentially rising interest rates. The interviewer asked more or less the same question from different angles, yet Mr Powell’s answers seemed consistent.

What about inflation

I know there are many, many « prophets » out there, almost longing for higher inflation. For them, Mr Powell’s answers in the interview must have been a blow. As he mentioned, while he would see temporary inflation due to a post-pandemic increase in economic activity and higher energy prices, the Fed’s chairman believes all of this looks more like a one time effect from today’s point of view.
Ladies and Gentlemen, the Federal Reserve is not just a one-person show. It is an institution with thousands of employees, data scientists, economists, mathematicians from the best universities on this planet with access to data, not many can imagine. And yet, and of course, not even the Fed can foresee the future.

However

One of Mr Powell’s statements was very clear. He stated that it is not the Fed’s intention to surprise the market, and I do not see why I should not believe him. However, I understand that forecasts are somewhat tricky to make, even for the Fed.

Bondquake?

Quite frankly, I did not think so before the interview and certainly do not think so now. At least not for the time being. To see interest rates moving up significantly and continuously, we would need to see ongoing consumer price inflation over a more extended period.

Arrogance hitting the Fed – a short comment on the side

Please allow me one last comment. I sometimes seem to sense a certain arrogance from analysts and the (social) media regarding that institution’s work. I can not think much of that. I am convinced the Fed’s employees are trying to fulfil their mandate’s goals as much as they can.

Link to Interview with Fed Chairman Jerome Powell:

Watch Jerome Powell at WSJ Jobs Summit

Please feel free to share your ideas and thoughts with me, but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li.

Many thanks, indeed!

Ladies and Gentlemen, I wish you a good start to 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