Month: September 2023

Good Morning Ladies and Gentlemen

“‘Hindsight bias makes surprises vanish.”
Daniel Kahneman

Introduction

Ladies and Gentlemen, some months ago, I was asked to write an article on Liechtenstein as a hub for private wealth management services for the executive global magazine. I looked at it as an exercise to see if I would still choose Lichtenstein as the hub for Incrementum’s business.

Link:

I have included the link to the article for your convenience and hope you like it. Enjoy the read:
https://www.incrementum.li/en/journal/executive-global-magazine-liechtenstein-a-solid-hub-for-private-wealth-management-and-family-offices/

Your point of view

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

“Do people become unhappy when they are full and unthreatened?.”
anonymous

Introduction

Ladies and Gentlemen, I was asked to participate in a short interview for the Swiss-French Magazine “BILAN” by its former editor-in-chief. The topic was BlackRock’s and Templeton’s application for licenses to issue Bitcoin ETFs. I had the questions and my answers translated for your convenience.

BlackRock and Templeton have applied to the SEC for a license to issue Bitcoin cash ETFs. What do you think of their potential?

I am convinced there will be interest and, therefore, a market for it. Two large, well-known providers offering tradable and regulated products on a crypto-currency that has until now been little or unregulated will certainly attract investor interest. We must not forget, however, that Bitcoin, i.e., the underlying asset, is still largely anonymous, unregulated and relatively unknown.

If these products were approved, would it be bullish for BTC by creating demand from institutional investors?

I think BlackRock and Templeton have enough investors in their networks who can get excited about investing in such products. As the ultimate number of Bitcoins remains limited, additional investors should, under normal circumstances, lead to additional demand, and while supply rests unchanged, this would, I assume, lead to a price rise.

What could be the risks for investors?

To be honest, the data on Bitcoin is a bit thin. So far, we do not know who created the network. We still do not know who invented the Bitcoin cryptocurrency and who hides behind the pseudonym Satoshi Nakamoto. On the other hand, we do know who is behind the much-maligned U.S. dollar, the euro and the Swiss franc. Behind all these FIAT currencies, there are national economies with citizens, territories, companies, a tax base, and so on. What do we know about Bitcoin? We know that the Bitcoin white paper was published in October 2008 and that the first version of the Bitcoin Core reference implementation was published in January 2009. We also know that the network consumes a great deal of electricity and that Bitcoin transactions can be processed 24 hours a day, anonymously and free of charge, in a largely unregulated framework. The risks are, therefore, of a different nature. Because we do not know who is behind the network, we cannot know whether it is an intelligent individual or maybe a criminal organisation. Moreover, financial market regulations (anti-money laundering act, anti-tax evasion policy, etc.) may suddenly lead to increased demand for transparency or, depending on the state, even a total ban on crypto-currencies. Who knows?

Which clients should be advised to use this type of product?

The underlying of such pure Bitcoin products have no intrinsic value. This is why I would, if at all, only recommend such products to investors who can handle high volatility and even live with a total loss.

Recession?

Ladies and Gentlemen, I still receive many messages on the recession topic, mainly because Germany is in a recession; Switzerland is slowly but surely going in the direction of zero growth, and despite the Fed’s aggressive interest increases, the U.S. economy is still comfortably growing. Yes, there is this massive gap between the U.S. and Germany. The reasons I like to look at the U.S. numbers while working in Liechtenstein, living in Switzerland and mainly investing in Europe is that not only the data published by the U.S. government, the Fed, etc. is vast and easy to access, but, and this is probably very important to most investors anywhere, the U.S. financial markets play the leading role in global financial markets and therefore have a significant influence on most other financial markets across the globe. In any case, it seems some economists have postponed the projection of a U.S. economic downturn because of the immense spending programmes by the U.S. government that are likely to take more and more effect in the months and years to come.

Your point of view

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

“It is also human not to always give in to every fear.”

Joachim Wilhelm Gauck, President of Germany from 2012 to 2017

Last weekly

Ladies and Gentlemen, I received significant feedback for my last “Stefan’s Weekly”. In summary, I am happy to report that many readers share my conviction that we should treat tail risks as such and not overestimate them, and of course, that it is suitable for investors to change their perspective from time to time consciously. Maybe this will change their mindset or investment behaviour; if not, it will confirm one’s existing perspective, which is a flattering experience for most people. One feedback stuck out to me, and I would like to share it with you. It comes from John, and it goes like this: “Hoarding gold, crypto, and food means nothing if you do not have a solid community. You would be robbed, or money will eventually run out. A community is necessary to get out of tough times.” What can I say? I totally agree.

German residential construction

One of the sectors I usually keep an eye on is residential real estate. Residential real estate plays an essential economic role in many countries. In Germany, the crisis in residential construction continues to worsen. In August, 20.7% of companies reported cancelled projects, up from 18.9% in the previous month. This is according to surveys by the IFO Institute. “Cancellations in residential construction are piling up to a new high. We have not seen anything comparable since the survey began in 1991. The uncertainty in the market is huge,” says Klaus Wohlrabe, head of IFO surveys. Yesterday’s interest rate hike by the European Central Bank, the tenth in a row, is unlikely to lead to a positive change in these survey results, but risks to hit the sector again. For me, this data means I still keep my hands off the sector.

Macro versus bottom-up

Some analysts, bankers, fund managers and the like are trying hard to predict the economic future of economies, make a business model out of predicting it, and perhaps even invest investors’ money according to their prediction. The point is, it is utterly difficult to foresee the future also in macroeconomics, and most models are, if I want to be generous, not entirely flawless and if I do not want to be generous, total crap.

The effect of compounding

That is why we have taken a different approach for our private customers. We focus on business sectors that promise positive cashflows over the cycle and try to find companies and their seasoned business models within these sectors in a bottom-up approach that are available at reasonable prices, i.e. valuations. Those companies must be willing to share the generated cashflows with their investors. The approach is very long-term; short-term volatility is an intrinsic part of the investment style. The beauty of it comes from the exponential effect of compounding. Dividend payments can be reinvested and lead over time to ever more cashflows. Hard data on the macro environment, i.e. not forecasts, may have an influence on the sectors we look at, as outlined in the example of the German real estate sector.

Wrap up

The audacity of some market participants to believe in being more competent than the entire cohort of financial market participants is striking to me. I think that only because the average investor forgets very quickly and is either unaware of or unable to fight the confirmation bias, macroeconomic forecasts play such a prominent role in investment management. Keeping the macro environment in mind while following a strict bottom-up approach seems more sensible to me than trying to call any subsequent interest increase or decrease in some opaque process.

Your point of view

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

«You can always tell when a man’s well-informed.
His views are pretty much like yours.»

Bob Hope

No big fan

I receive many emails from readers who seek total financial protection from the next financial crisis, global economic crisis or worse, World War III. The ones following my “Stefan’s Weekly” for the last few years know I can not think much of this. Unfortunately, there is no such thing as total protection in life. I too, do like to have some protection, like a place I own and live in, insurance and healthcare coverage, some small bills of different currencies, some physical precious metals in small denominations, water and food. However, hoarding such assets and perhaps even cryptocurrencies in vast amounts is not my thing and is far too ideology-driven for my taste.

The world off the rails

If the world goes off the rails as some people may think it will, one can perhaps buy a lot with very little precious metal and the like and maybe even become relatively wealthy for some time. However, if such a scenario comes to pass, I have no difficulty imagining the new world currency would be “food” and “shelter”. In such an environment, large cohorts of humanity may fall back from the top of Maslow’s pyramid of needs to its bottom, and I fear that even by owning so-called hard assets, you may not be able to escape any of this. Civil wars, brutalisation and perhaps a prolonged global conflict could follow as probable scenarios. Yet, I do not believe at present in such a development.

My rather personal view

I have absolutely no understanding for people who indulge in disaster romance. In such thought games, I see an outgrowth of boredom of a spoiled, somewhat too wealthy, and without reasonable tasks living small cohort of people who believe to know it all. I hope you, Ladies and Gentlemen, dear readers, will not associate with such people. It cannot possibly make you happy to think about such dark scenarios.

Furthermore and conclusion

From an investment point of view, it certainly makes sense not to put all eggs in the same basket. Alternatively, it probably makes sense to try weighing the probability of your scenarios and not only trying to protect yourself from tail risks with your entire fortune. Also, I believe it makes sense to keep ideology out of your investment principles. Think about it.

Seasonal Reflections

Moreover, Ladies and Gentlemen, Incrementum’s top performer on the fund management side, Hans Schiefen, publishes his “Seasonal Reflections” every quarter, hence the name. Last week, I quoted him or someone he had quoted in the latest edition of his thoughts on paper. One or the other of you asked me if I could add a link to the full paper, which I gladly do. Please feel free to click on the link below for your convenience:

Incrementum All Seasons Fund Seasonal Reflections – 2023/03 – Incrementum

As always, my thoughts do not necessarily fully match Hans’ or anyone else’s. This is why, at Incrementum, we have lively discussions during our asset allocation meetings.

Your point of view
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

«I’m not getting old – I’m evolving»

Keith Richards

Extrapolation of bad news

I do not want to be part of the people sending negative news. By my nature, I usually see the glass half full. However, the media plays an essential role in extrapolating bad news. It seems that short-term negative changes are often turned into negative trends. On the one hand, this is based on the scientifically proven fact that humans are characterised by a psychologically inherent risk and loss aversion. On the other hand, as I repeatedly pointed out in various publications, because of this deep-seated risk and loss aversion, bad news sells better than good news, which the media is ruthlessly exploiting. Nevertheless, the impact of the cost of money can not be neglected.

What about U.S. government bond yields

But first, let us have a look at U.S. government bond yields. This is important because they represent the price, i.e. cost of money. Now, this may be mainly concerning market participants anticipating fewer interest rate cuts next year, and yet I still find it interesting to look at and think about it.

Slightly easing

U.S. government bond yields are somewhat easing again, while they were rising sharply during the summer when trading was weak. After a survey on Wednesday signalled that U.S. business demand for labour cooled in September, yields slipped again, falling to less than 4.1% on 10-year Treasury bonds – they had been more than 4.3% last week. Two-year U.S. paper also fell by 0.2 percentage points within a week. (As a result, the interest rate advantage over the euro area was also falling, boosting the euro against the U.S. currency. From the daily low of around US$1.078 on Tuesday, it went up to more than US$1.092 on Wednesday).

However

As my partner, Hans Schiefen pointed out in his “Seasonal Reflections”, Michael Lewitt from Credit Suisse concluded, “Low rates lowered I.Q.s along with the value of the financial instruments they debauched, leading people to buy worthless SPACS and cryptocurrencies, grossly overvalued IPOs, even more grossly overvalued stocks after they went public, and egregiously overvalued credit instruments of all kinds. Now, the cost of money is being reset by central banks because they lost control of the inflation narrative (particularly financial asset inflation – long ago). Investors have yet to adjust to the cost of money, which is not going back to zero (or below zero) absent another financial crisis (which, if you look at government finances, is a real possibility, but that is a topic for another day). For now, rates will remain well above zero, which means all the assumptions that led public and private actors to borrow trillions of dollars will be tested (and borrowers will flunk those tests).”

The cost of money

Ladies and Gentlemen, as Michael has so aptly formulated, the significant impact the cost of money may have on various financial instruments (and he pointed out some of them) should never be underestimated.

Closing remark

Although I am a genuinely positive person, I am always concerned by the cost of capital or money, as Michael named it. I am considering it when investing for our private clients, and today I have the impression that, at least in some financial instruments, some of the effects are already priced in. Yet, if interest rates continue to go up for a few more quarters, market participants may not be impressed.

Your point of view

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