Month: August 2022

Good Morning Ladies and Gentlemen

“I believe that children are our future. Unless we stop them now.”
Homer Simpson

All eyes are on Jerome Powell

Today, all eyes will be on Jerome Powell. Will he and the other leaders of the most prominent central banks still take on a hawkish tone, or will they start to use a somewhat calmer vocabulary?

The balance between supply and demand

The reason for any price movement remains the balance or imbalance between supply and demand. Any price movement of an asset class or even an entire financial market works after the same principle. Injecting liquidity into economies or financial markets gives buyers more liquidity, i.e. money, which leads to higher demand. Higher demand with stable or slow growing supply leads to price increases. Thanks to global money supply growth since the Great Financial Crisis, liquidity has flown into economies and sometimes directly into financial markets and even individual asset classes on a vast scale.

Wanted and unwanted effects

The wanted effects were stable economic growth, full employment, and general growth of wealth. The unwanted effects were ever faster-growing government debt, misallocation of capital, increasing government budget deficits, an ever-growing wealth gap between extreme wealthy people and the average population, an early asset price inflation and now large-scale inflation hitting Mainstreet and the average household.

The importance of money flows

Financial liquidity, i.e. increasing or decreasing money flows, are the reason for all the positive- and, unfortunately, all adverse effects. Considering the importance of money flows, today’s liquidity draining by central banks and, in some instances, treasury departments must have an unconditional negative effect on financial markets, and it has. The wanted effects will eventually be lower inflation; the unwanted ones may be lower, if not negative economic growth, unemployment, general wealth destruction, etc. Therefore, governments and central banks are challenged with at least somewhat correcting past extreme monetary policy measures to cope with current inflation without stalling the economy, letting it fall into recession or depression.

What do you think?

Will this year’s conference in Jackson Hole lead to an easing of tension in financial markets or rather the opposite? One thing seems clear; it will not be an easy task for its participants because none of the possible measures may satisfy all stakeholders.

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 great weekend, and above all and still, peace!

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

Good Morning Ladies and Gentlemen

The Other Day

The other day I wrote to one of my readers: “The state cannot possibly regulate everything, get involved everywhere and try to regulate the most diverse lifestyles, yet this is precisely what some political leaders are proposing, and as it looks, some voters seem to hope for.”

CPI Reading

If we assume that this year’s bear market can be attributed to skyrocketing inflation fears and, as a consequence, rising interest rates and the resulting “money crunch”, then we can perhaps slowly but surely hope for an easing of the situation. Last week’s reading of the U.S. CPI (Consumer Price Index) may seem scary since the change in that consumer price index compared to the previous year was a whopping 8.5%. However, not only was this 8.5% slightly below market expectations of 8.7%, but we must not forget that it represented the price increase of the previous year.

Peak Inflation?

Moreover, looking at the actual level of the July 2022 CPI versus the June 2022 number, we find it even fell slightly. So it is fair to say that actual inflation last month was zero. Now, a single month does not make a trend, and as many market participants, analysts and journalists quickly point out, the Federal Reserve does not set policy based on one month’s change in the CPI. This is undoubtedly correct, and yet I dare say the possibility is rising that we are in the process of forming a preliminary inflation summit in at least some of the leading G20 countries. In this context, it is unsurprising that the Chinese central bank this week adjusted its interest rates slightly to signal to the market that it wants to avoid a slide into recession. Now, I believe a rethink of the “Zero COVID” strategy would have a better chance of success than a ten basis point cut in the key interest rates, but then I also believe the Chinese government will not care much about my opinion, which is fair enough.

Outlook

Almost no market participant, analyst or journalist is optimistic about financial markets. I understand this and share specific fears. But on the other hand, very few people consider that inflation concerns could cool down and thus positively impact the leading central banks’ rate hike path, which could lead to a less steep rate hike. I am considering such a scenario and always stick to our investment approach because we weigh long-term cash flows higher than potential short-term dislocations.

Our Friend Barry

Some roughly two weeks ago, I wrote to our friend Barry that I thought the market participant’s eyes would be on the Fed, and dovish or hawkish would make the difference. But, of course, Yellen and Powell know the importance of financial asset prices to the U.S. economy, and while they certainly want to fight inflation, they probably would not want the U.S. to fall into a depression. A recession they have already achieved, even if they deny it. Technically the economy was shrinking for the second quarter.

Gold

As to gold, I am receiving many emails regarding its disappointing performance this year. Quite frankly, I am slightly frustrated as well. Even if I was not a massive bull at the beginning of the year, this year’s performance is not in line with what I had expected for the current geopolitical and geoeconomic environment. But, never forget, gold in physical form may protect you from the dire effects of economic dislocation; thus, I keep some of 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 great weekend, and above all and still, peace!

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

Good Morning Ladies and Gentlemen

Your Guesses

Wow, Ladies and Gentlemen, some of you seem really bearish, at least for equities. So far, the highest S&P bid came in at 4’482, the lowest at 1’881, with an average of around 3’100. On the other side, most of my readers seem to be optimistic about gold. So far, the highest bid for gold came at 2’350, the lowest at 1’715. For crude oil, the price estimates range from160 to 88 (mine), with an average way above today’s levels.

My Guess

As always, I am happy to share my estimates with you as well. For the S&P, I am not all that negative and guess it will close at around 4’200 in 2022. Roughly 4’200 is a level that I could imagine building either some sort of resistance or otherwise a floor in the market. So how did I guess my numbers? I often orient myself around the futures prices quoted at the CME for gold, crude oil and other natural resources. This is why my guess for the year-end price of gold comes in at 1’803 and for crude oil at 88.

Peak Bearishness?

I do not think that bearishness is at its peak. At this moment, it seems we are past the point already. Although, as our reader, Annika, pointed out to me correctly, cash levels among investors are high. This is true, yet; there has been a rebound, at least in some asset classes. This is why I believe we have left peak bearishness behind us for the time being. Currently, I am, at times, almost surprised that equity markets are holding up that well. Looking at the daily newsflow, one could become depressive and, considering investors turn depressive; one would probably be bound to sell rather than buy.

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 great weekend, and above all and still, peace!

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