Month: October 2021

Dear Ladies and Gentlemen

This year’s year-end competition still shows an interesting picture, and since we are going slowly but surely towards the year-end, we should look at where we are standing.

Extremes

As you will see, the volatility in the individual underlying’s market prices is somewhat represented in the spread between the highest and lowest of your estimates for gold, Bitcoin and the S&P 500.

Gold

The range in gold still stretches from USD 1’650 to USD 2’066, with roughly half of the estimates hovering around 1’850. Thus, my readers seem not too bullish on gold but slightly optimistic. This matches at least partially with yesterday’s market price of roughly USD 1’801.00.

Bitcoin

The range in Bitcoin stretches from USD 23’000 to USD 123’000. Now, for Bitcoin, the picture is very much different than for gold. So far, more than half of the estimates still lie above USD 70’000, which shows my readers’ great confidence for higher prices in Bitcoin, and so far, my readers have been pretty close to reality with their estimates. Also, they have until today rightly seen gold underperforming and Bitcoin reaching new highs. Well done! You know what? I could almost conclude that reading my weekly posts regularly develops people into great forecasters.

S&P 500     

The range in the S&P 500 stretches from USD 3’835 to USD 5’100. Almost two-thirds of the estimates came in lower than today’s market price, and therefore the rest of the estimates came in at above current prices.

Conclusion

Two more months to go and with inflation at the highest levels in more or less ten years, gold not living up to its expectations this year, Bitcoin almost seems like the new inflation hedge, even if the correlation is somewhat difficult to take as there are not yet enough data points on the timeline to come to such a conclusion, and finally, equities still performing well.

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to:… but please do not forget (instead of hitting the reply button) to send your messages to:           smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG – we love managing assets

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

«Where there is no vision, there is no hope.»

Adrian shared this quote by George Washington Carver (George Washington Carver – Wikipedia) with us, and it fits today’s weekly perfectly!

Catastrophic and Disastrous

U.S. Treasury Secretary Janet Yellen described the scenario for the economy if Congress would not have raised the debt ceiling by 18 October as «catastrophic» and «disastrous».

You know what, I think «catastrophic» and «disastrous» are the right words; however, not in conjunction with this year’s debt ceiling discussions but with the total amount of debt so far accumulated and handed over to the next generation over and over again.

Debt Ceiling

According to an interview, I read the other day; with Professor Felix Oberholzer-Gee, Harvard University, the USA is the only country besides Denmark with a debt ceiling.

What is a Debt Ceiling?

Investopedia gives us a concise definition: «The debt ceiling is the maximum amount of money the United States can borrow cumulatively by issuing bonds. The debt ceiling was created under the Second Liberty Bond Act of 1917 and is also known as the “debt limit” or “statutory debt limit.” If U.S. government national debt levels bump up against the ceiling, the Treasury Department must resort to other “extraordinary” measures to pay government obligations and expenditures until the ceiling is raised again.» Thus, a debt ceiling that can be lifted all the time probably does not make much sense.

Showtime

Ladies and Gentlemen, this is all part of a political show. This time the Republicans will make it look like Democrats have no fiscal discipline. During a Republican presidency, the same argument is being used by Democrats. The enormous debt is sure to be an issue in the campaign for next year’s midterms, and one party can and will blame the other for the high debt.

Not a Question of Spending

Look, this is not a question of spending or budget discipline whatsoever. Congress has already approved all the spending; that is what it costs to run the United States of America the way it is run. You know what? There is no genuine political dispute about it because the spending was already decided. This is why the debt ceiling will be lifted again and again and again (it has been provisionally increased until December of this year).

Do we need to be worried?

Currently, I do not think so. Any political party, this time the Democrats, can manage the debt ceiling increase without the other political party (theoretically: «ies») this time, the Republicans, if necessary, within the framework of a so-called «reconciliation» with a simple majority in the Senate. Now, reconciliation is a complicated emergency procedure that, as already mentioned, only needs a simple majority in the Senate – which the Democrats currently have by a narrow margin. Republicans know that and will fight and make much noise ahead of next year’s midterms to keep the show going, and yet, eventually, they will agree on lifting the debt ceiling on what will be sold to the general public as a great compromise. Do not let yourself be fooled, Ladies and Gentlemen; in the history of rising U.S. debt ceilings, Democrats, as well as Republicans, have shown great passion in keeping the political show going on.

Today’s Quote

If we keep in mind the quote at the beginning of today’s weekly, one could easily argue that where there is no vision in changing the behaviour of both leading parties of continuing to pursue their particular partisan interests, there is no hope.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG – we love managing assets

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

«I believe in common sense like a miracle, but common sense forbids me to believe in miracles.»

This quote by Erich Kästner describes a dilemma in which many people find themselves and which occurs in the most diverse social contexts and the most diverse personal relationships and, Ladies and Gentlemen, in investing.

The Investing Dilemma

I believe that investing in financial assets almost constantly leads to dilemmas. Firstly and probably most obviously, there is the never-ending dilemma between risk and reward. Can I live with volatility, or can I not live with volatility. Is the risk-free rate of return good enough for me (in the Swiss Franc currency space – to which Liechtenstein belongs – the risk-free rate of return is negative), or to the contrary, am I seeking double-digit absolute returns?

A Question of Personal Preference

I would argue that there is no right or wrong, only a question of personal preference. This personal preference may be influenced by age, social context, past experiences, professional environment, etc.
People who invest in cryptocurrencies are most probably much more inclined to embrace higher volatility for the chance of higher returns than people investing in government bonds.

No One-Way Street

However, there is no one-way street in investing, at least not in the short run. Let us quickly look at gold as an example. Over a few thousand years, gold was a proven remedy against loss of purchasing power. But, unfortunately, so far this year, gold was not a good hedge against inflation. Yet, Ladies and Gentlemen, I think this does not mean a lot. Because as we can learn from the past, gold protected investors’ purchasing power over centuries but not necessarily on a month-to-month or even year-to-year basis. The gold example goes for commodities, equities, real estate, etc. It comes and goes in cycles, different asset classes have investment cycles of different lengths, and even within an asset class, investment cycles length can differ from previous investment cycles.

So What?

Ask yourself what you expect from your investment. Only if you can answer that question will you find the hopefully right investment approach for yourself. Alternatively, in other words, if you are looking for a vehicle that helps you work your farm’s fields and you are buying a Mercedes limousine, you will most probably have bought a good car that, however, will not suit your purpose and thus not lead to much satisfaction.

Common Sense

It should be a question of common sense and not a miracle to know what you want in investing. Therefore, I recommend starting an investment only after answering what is to be achieved with the investment.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG – we love managing assets

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

«Money is one of the greatest instruments of freedom ever invented by man.»

Friedrich August von Hayek

Friedrich August von Hayek was an Austrian (-British) economist and philosopher who shared the 1974 Nobel Prize in Economic Sciences with Karl Gunnar Myrdal.

Money as an Instrument

«Money is one of the greatest instruments of freedom ever invented by man.» With this quote Friedrich August von Hayek claimed that money in our existing society opens an astounding range of choices to the poor man, a range more significant than that not many generations ago was open only to the wealthy.

I could not agree more, however, depending on where and in what social context one was born, obtaining a minimum amount of money may still represent a significant challenge that should not be underestimated. One question I would have for Mister Hayek is if more money means more freedom to him? Although we live in a world of monetary expansion, I do not feel «freedom» expands at the same magnitude, if at all. Now, I know it is a question of definition. The question is, what does freedom mean to the individual?

Your Feedback

Ladies and Gentlemen, thank you very much for your positive feedback to my last weekly mail, «No Stopping for the Prophets of Doom». I would like to share the following feedback with you because the statements coincide with my thoughts:

«I never saw volatility as a risk (if you do not sell when prices are low, you cannot crystalise the loss). In my view, the biggest risk for investors (which by definition I take to mean long-term capital allocators with a desire to build multi-generational wealth) is politics: changes in regimes. For example, far more dangerous is a shift in legal systems from a set of values that respects private property to one that does not – this, in my opinion, is a greater risk than fluctuations of prices because it has the genuine chance of forever destroying wealth for some people.»

And:
«As long as the risks that these doom prophets are trumpeting about are market vicissitudes, there should be a little worry. After all, if money moves out of stocks and their prices go down, they will go into other asset classes until the panic passes and then back into equities, as they usually do.»

Updated Website

I would also like to take the opportunity to share two links to our updated website with you:

Wealth Management – Incrementum

Home – Incrementum

The first one leads directly to our Wealth Management site and the second link brings you to the Incrementum AG landing page.

We have not changed it massively, but we took some stuff out and slightly adjusted the structure. My partners and I hope you will like it.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG – we love managing assets

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

Seasonal reasons may be responsible for increased nervousness on the stock markets.

Gloomy times ahead

The prophets of doom are in high season. Some are supposedly world-famous stock market gurus; others are less known, yet a doomsday scenario connects them. They predict gloomy (stock market) times and tell their market crash stories. “The warners are warning again,” wrote the Swiss newspaper «Handelszeitung». So hardly anything is booming more than crash scenarios. “The prophets of doom are in top form.” Stagflation (much inflation, little growth), “bubbles everywhere” (not just in stocks), “the biggest U.S. fantasy trip ever”, “the crash is imminent, if not this year, then certainly early next year”.

Interests/Motivation

I wrote about this many times, Ladies and Gentlemen, and even if I risk repeating myself, please never forget there are always interests behind stories. No matter if we are looking at stories of a stock market crash or stories of booming markets. Always ask yourself the writer’s and speaker’s motivation behind the story he writes or tells us.

October 1929 – Facts

October is just around the corner, the month in which the biggest stock market crashes occurred. The most serious happened on October 24, 1929, when panic broke out on Wall Street for not entirely clear reasons. Stock exchange traders threw their securities on the market; private investors lost their savings, companies went bankrupt. They covered the loans with their shares, which were suddenly worth nothing. It was the mother of all crashes. A global depression lasting several years was the result.

October 1987 – Facts

An even bigger crash, but less disastrous, took place on Black Monday, October 19, 1987. (It happened during my last month of a 12-month internship at UBS Toronto, and I was (very young and very impressed) sitting in an office just above the Toronto Stock Exchange). The Dow Jones plunged 23 per cent in just one day, the most significant price drop ever. Five hundred billion U.S. dollars, almost a quarter of the market, vanished into thin air within a few hours.

More Facts

However, just 15 months later, share prices had largely recovered. The fall in share prices was also a consequence of the computerization of stock market trading. Traders had set sell limits. As soon as a price of a Stock XYZ fell to a certain level, the paper was sold. This started an avalanche. Since then, stock exchanges have learned. To prevent a cascade, like the one on that Black Monday, computerized stock market trading is stopped as soon as panic breaks out and an uncontrolled downward spiral gets underway. This was also the case on September 11, 2001 (when terrorist attacks brought down the Twin Towers in Manhattan), during the Great Financial Crisis in 2008 and the Covid-19 Crisis last year.

Volatility/Risk

As unfortunate as it may seem, volatility/risk is part of the game. Volatility is the price we have to pay to get maybe (there is no certainty) awarded with returns. Of course, prophets of doom will always try to scare investors out of investments, and as every broken analogue watch twice a day shows the right time, they will from time to time be correct, but history and statistics show that without doubt, a basket containing equities of trustworthy companies remain one of the best long-term investments there is.

Outlook

I cannot foresee the future and therefore cannot give any outlook. However, If you are invested in solid business models that produce ample cash flows, your investments’ price should not necessarily be seen as a snapshot. Our private client’s portfolios are in constant motion. On weak days we tend to add to the positions. On boom days, we let go of some stock. Always in very low single-digit percentages of the entire portfolio and never with leverage. Of course, we never get it right 100%, but we tend to harvest decent and relatively stable returns over the years, and since we invest solely in companies producing positive net cashflows, willing to let investors participate in the form of dividends, etc. our investors take advantage of the effect of compounding.

Fear

Fear should not rule our lives and our investment behaviour neither. Caution makes sense, after all, we live in a risky market environment. However, fear does not make sense in my opinion.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG – we love managing assets

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