Month: May 2023

Good Morning Ladies and Gentlemen

«The crash influencers who run their investment funds earn money themselves with expensive tips.»

NZZ am Sonntag; May 21, 2023

Perception

Financial markets are all about perception, at least short-term and bad news sells better than good news; I understand that. However, even with this in mind, and to be upfront, I think the news we hear, read and watch about the fundamental state of financial markets is overly pessimistic. In my last Stefan’s weekly, I elaborated on the latest data from Bank of America’s monthly survey. According to that data, investors seem already quite pessimistic. The cash levels are high, and investors’ confidence is low. It almost seems most investors are only waiting for the next crash to happen, and usually, it does not work like this. Usually, the opposite happens to what the majority of investors hope for.

But where is the rally in bonds?

Yes, Ladies and Gentlemen, bonds’ failure to rally (interest rates’ failure to decline), despite declining inflation rates, a somewhat subdued economic environment, and a recession in Germany may suggest, indeed, that a supply/demand mismatch in the market may materialise even as the debt ceiling has forced the U.S. Treasury Department lately into some sort of austerity. If such a supply/demand mismatch turns out to be the case, it suggests that once the debt ceiling is lifted and the U.S. Treasury Department begins to refill its coffers, interest rates could be pressured higher, possibly significantly higher. Would that be positive for equities? Probably not, but it loses its terror once that effect becomes priced in. To think about questions like this is part of any portfolio manager’s daily routine.

Portfolio management

So, what does it take to become a solid portfolio manager in times like this? Well, I am still convinced that it takes a lot of work, patience and composure to succeed in the financial markets in the long term, and it certainly helps if you see opportunities as well as risks. Pessimism, fear and alarmism inhibit investment taking and can lead to significant opportunity costs. This Ladies and Gentlemen, is true for challenging and easy market environments.

Crash influencers

But now, allow me to return to the quote at the beginning of today’s “Stefan’s weekly”. I was quite astonished to notice in the last issue of the “NZZ am Sonntag” that even journalists seem to have understood and were taking up the topic of the so-called «crash influencers». Those guys earn big heaps of money with expensive tips and by running investment funds banking on people’s fears. Unfortunately, even in today’s ever more regulated world, average investors are still shamelessly plucked like Christmas geese by some market participants. So my advice is not to let yourself be distracted by negative noise too much but to stick to your investment principles.

Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of 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

«The1930s depression was wide, deep, and prolonged because there was no international lender of last resort.»
(The World in Depression, 1929-1939, Charles Kindelberger)

Valid thoughts on the concept of fiduciary duty

In his latest edition of the «Seasonal Reflections», my partner Hans elaborates on his trip to the U.S. and some of his experiences. Let me briefly quote him for what I consider sensible, simple and remarkable thoughts. I do not want this to be too political, yet politics play an essential role in financial markets and must be considered.

Quote

«Perhaps, it is just another sign of what is wrong with our system of governance. Democracy is about the fair and equitable representation of voters’ interests. However, politics increasingly seem to have degenerated to the preferred career path for bureaucrats and opportunists, whose primary focus is on keeping the competition at bay to secure re-election rather than what is best for the long-term fate of the electorate. In business, particularly the financial sector, we apply the concept of fiduciary duty, but politicians still get away with baseless promises and empty claims of having the best interest of their electorate at heart. There is no need to prove this objectively and no real accountability. Furthermore, with no skin in the game, the taxpayer’s money is usually squandered on short-term measures designed to increase (re-)election chances, while all Western democracies are put ever deeper into debt. Where is the sustainability in that?»

Seasonal reflections

My partner Hans is a seasoned portfolio manager. He is calm and long-term oriented, and he manages the Incrementum flagship fund, the «Incrementum All Seasons Fund» (Incrementum All Seasons Fund – Incrementum). Regularly, he writes his «seasonal reflections» for our investors in the fund and other interested parties. So if after the above quote, you feel like reading just some more, I have included this link to the current edition of it. Please take a look: Seasonal Reflections (2023 / 02).

Bank of America May 2023 survey

The key message of the May 2023 Bank of America survey is that investors remain bearish. With cash levels at 5.6%, bond allocation at a 14-year high, and bull & bear indicator at 3.4 (bearish). For the last 15 months, the fund managers’ cash balance has exceeded the 5 per cent mark. This is a historically long period, and only one period was more extended; the 32 months in the bear market from 2000 to 2002. The participating fund managers identify a credit crisis combined with a global recession as the most significant risk. In the second place, they mention the risk of central banks remaining restrictive due to a stubbornly high inflation rate.

Personal conclusion

The negative sentiment among professional and private investors, high bond allocations and high cash levels have already anticipated a market collapse, at least to some degree. Yet, so much bad news seems priced in, and markets are still not going down significantly. Interesting, no?

Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of 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 best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.»
John Maynard Keynes

One last hike?

It seems most of my readers think this was it, Ladies and Gentlemen, the last hike for this inflationary period. So much the sum of the comments to my lase «Stefan’s weekly».

U.S. labour market

The labour market in the USA, which has been running hot, is showing signs of cooling down. The number of initial claims for unemployment benefits was recently much higher than expected. A total of 264,000 citizens filed for government assistance last week, according to the Labour Department in Washington yesterday. Economists polled by Reuters had expected only 245,000, after 242,000 the previous week.

Tipping Point?

The initial jobless claims thus no longer remain far below the critical 270’000 mark, which is considered a tipping point that signals a deterioration in the labour market. Most recently, job creation in the job market had been robust: In April, 253’000 new non-farm jobs were added. However, job creation in March was not as strong as initially reported, as the number was revised downwards by the ministry to 165’000 from 236’000.

Alternative indicator

In addition to the number of initial jobless claims, the development of the U.S. labour market can also be measured by the development of the U.S. job advertising market index. The development of the U.S. job advertising market index, i.e. the market for job ads in the U.S., has been moving sideways since the beginning of the year. Therefore, any resumption of any downward trend in that index would signal an adverse change in the U.S. labour market.

Hence

Hence I am increasingly convinced that interest rates, at least in the U.S., are peaking. But, let me be frank, Ladies and Gentlemen, this does not mean any immediate interest rate decrease.
Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of 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

Today’s financial press, research, and analysts’ comments were full of reasons why yesterday’s interest hike by the U.S. Federal Reserve was the last one for this interest rate cycle. Before sharing my view on this topic with you, let me quickly go back to last week’s Stefan’s weekly.

Your comments

Many thanks, Ladies and Gentlemen, for all your messages and comments to my last Stefan’s weekly. Most people who wrote to me seemed equally concerned about what is happening in good old Germany. None of the messages I received came up with any sort of idea about a quick solution but rather shared concerns on structural political issues.

One last hike?

But now, let us go back to today’s topic. The U.S. Federal Reserve on Wednesday – as widely expected – raised the key interest rate another time by 25 basis points. Jerome Powell emphasised the data dependency for upcoming interest rate decisions and that the outlook for the economy and inflation is, therefore, crucial. According to the Fed Funds futures market, yesterday’s 25 basis point Fed rate hike was the last hike of this cycle.

Possible interest rate path

Looking at the Fed Funds futures market, market participants already expect a first-rate cut for Q3 2023. This seems a little early to me and could only be justified in a clearly recessionary environment. However, as many analysts will point out, the recent fall in the oil price and the fall in iron ore and copper may indicate that economic worries are increasing and that a recession is ante portas, even though the latest U.S. data surprised positively.

What would that mean for financial markets?

If the U.S. government cannot find a reasonably quick solution to extend its debt limit, equity markets will likely decrease, and U.S. government bonds may act as a safe haven. Nevertheless, assuming this was the last rate hike in the U.S. and assuming the market is right and the interest rate path will start to go down still this year, and assuming financial markets are following the playbook of the past, we should see more stock market weakness in the upcoming days, but as early as next week or the week after, stocks would already start to rally; with some high beta stocks and real estate leading the way. Interesting, no?
Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of 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