Month: January 2024

Good Morning Ladies and Gentlemen

“I object to intellect without discipline.”

by Mr. Spock

Thank you

Thank you for your positive feedback on my last «Stefan’s Weekly». I was happy to read that many of my readers were also into Star Trek and Mr. Spock in their youth. Mr. Spock was one of my heroes when I was a boy. Because of your positive feedback and because he was my hero, I wanted to share another quote by him with you today.

Your feedback on conviction-building

I want to share an excerpt from a brief e-mail conversation with John, a long-time reader and former year-end competition winner. He wrote: «Dealing with randomness is unsettling. Notice how financial outlets always comment on why the markets move daily.” My reply: «Absolutely, it is big business to put investors through emotions!» Furthermore, «Thinking about Mr Spock’s quote…people seem very forgiving of being misinformed or lied to if they are told what they want to hear…reinforcing their conviction.» My reply: «This drives me crazy; why are people forgetting so quickly?»

ECB policy meeting; my personal conclusion

At their first monetary policy meeting in 2024, ECB President Christine Lagarde and her «guardians of the euro» decided yesterday on their first monetary policy meeting this year to leave the key interest rate at 4.5% and the deposit rate at the record level of 4 %. In their statement, they did not indicate when the first interest rate cut may be expected; however, they claimed that the future decisions of the ECB Governing Council will ensure that key interest rates remain at a sufficiently restrictive level for as long as necessary.

What does this mean?

You may ask what this means for investors. It means there will not be any immediate interest cut in the euro currency area, not like widely expected in the second half of Q4 2023. However, this also means that the carrot will continue to be held in front of our noses, and we can expect a rate cut just later than market participants originally expected. It also means that the ECB management does not want to let anyone look at its cards and keeps all options open.

Okay, but is this now good or bad for equities, precious metals, bonds, etc?

I imagine markets will stay somewhat lacklustre for a few more days or maybe even weeks but may move up afterwards. I would not be surprised to see investors return to the «rate cut» narrative, leading to a positive bias as a consequence.

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 and the 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

“In critical moments, men sometimes see exactly what they wish to see.”

by Mr. Spock

Negative bias

From the Emails I receive, I sense a particular negative bias among some of my readers. This is interesting, and I sometimes ask myself how the thoughts of these readers are shaped. Let us have a look at some basic theory on conviction building.

Conviction building

How do we humans arrive at our convictions? According to research, Ladies and Gentlemen, there are at least two very prominent ways. On the one hand, we arrive at our convictions based on evidence that is either made available to us or that we collect ourselves, while on the other hand, we may arrive at our convictions by adopting the beliefs of others with more or less evidence verification.

We just love patterns

At Incrementum AG, we constantly produce charts; some readers can not get enough of them. This is great for us, and we see it as a big compliment for our work. It is also fascinating because our brain constantly searches for patterns that have meaning for us or from which we can derive (potential) predictions. In doing so, we often overshoot the mark by recognising patterns where there are none. This cognitive distortion is called the clustering illusion (The clustering illusion describes the human characteristic of attributing meanings to random patterns that inevitably occur in sufficiently large amounts of data). Now, when we (humans) discover patterns, we also want to discover their cause because most of us strongly need causal explanations, which I believe is not all that bad. However, we tend to weigh “evidence” asymmetrically. In other words, we give more weight to facts that correspond to our convictions than to facts that speak against them.

The issue

It becomes problematic when convictions mutate into dogmas and can no longer be corrected, no matter how much evidence is available. Yes, Ladies and Gentlemen, questioning our thoughts, ideas, and beliefs is not really our strength.

Solution for your investment approach

If you apply the above to your investment strategy, you may conclude that you need to make one or two adjustments. In any case, I recommend that you not overestimate the patterns but question them and that you not just follow the opinions of gurus but form your own opinion and be aware of the asymmetric weighting of your conclusions. For me, the best way to fight that behavioural pattern is to try to prove the opposite of my current opinion, and my current opinion probably has some value if I am still convinced by it at the end of such a process. To me, this is almost the only way to get a more complete picture of almost any situation. Think about the quote by Mr. Spock.

The glass is half-full

Besides all the horrible things humans can do and the tremendous suffering and ghastly political decisions made by some incapable political leaders, I see changes and opportunities. To me, the glass is half-full.

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 and the 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

“Ceterum censeo Carthaginem esse delendam.”

by Cato the Elder, a Roman Politician 150 BC

Emails

I received some emails asking for a market outlook. I usually do not like to predict the future because I do not believe in predicting, unless one can win a silver coin. Nevertheless, I am happy to share my view of what happened in 2023 and the potential consequences for 2024. Investing during the first quarter was essential when looking at our private clients’ portfolios. The ones that missed the first quarter did not perform. Unfortunately, the performance is not evenly distributed. This is also why I am advocating, as a general rule, investing and staying invested. Trying to time the market is utterly difficult.

Interest rates drive the market

Under normal circumstances, one would assume interest rates to drive the markets. However, at least in the short term, perception is even more important than fact, which is precisely what happened in December 2023. There is a famous saying among traders, and it goes like this: «Buy the rumour, sell the fact». I think it is fair to say that this happened in December 2023. The perception was that U.S. base rates would drop for the first time in Q1 2024, and markets went up. But will there be rate cuts in Q1 2024 already? I do not think so.

ECB and Fed

I believe the ECB and the Fed will keep their base interest rates high for longer than anticipated by the market because I believe the current rates will stay where they are until the decision-makers are convinced that inflation is falling, particularly in core services. However, I also believe that the central bankers have reached the end of their interest rate hikes.

Bullish markets

Especially towards the end of the year, markets went up on decreasing interest rate fantasies. The central bankers from the ECB and the Fed seemed much more cautious than the markets, and there are still objective reasons for this because of the ongoing tight labour market and sticking inflation that is still well above target. Even if some market participants feel differently, the central banker’s caution is probably essential because if central banks decrease interest rates too early and inflation remains high, markets may collapse, and central bankers may face a credibility issue.

Okay, but when will we see the first interest rates decrease?

I obviously do not know, maybe in Summer? You know, Ladies and Gentlemen, the great uncertainty as to the «when» is driven by the fact that the high-interest rates will only have a delayed effect on the economy. This is why central bankers repeat at every meeting that monetary policy works with long and variable delays, making it difficult to estimate the magnitude of the slowdown.

Is a recession in the cards?

We certainly are in a recession in Germany, but for the U.S., I am more optimistic and see low growth rates or a soft landing. 2024 is an election year in the U.S., which could drive the market because election years under a democrat presidency are usually good years for equities.

The quote

The quote, sent in by Mike, stems from a Roman senator 2’200 years ago and is about the destruction of the North African city of Carthage. It shows that, in some respects, we seem not to have developed despite all the knowledge accumulated over that period. Think about it!

Many thanks, indeed!

I wish you an excellent start to the day and the 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 intelligent altruists, though less altruistic than the unintelligent altruists,
will be fitter than unintelligent altruists and selfish individuals.”

Herbert Simon, Nobel Prize winner in economics

Who won?

Finally, and once again, the sleepless nights are over; it is time to declare our year-end competition winner.

Like every year, the data stems from Finanz und Wirtschaft (fuw.ch).

S&P 500            

According to the above source, the S&P 500 closed the year at 4’768.67. Almost every year, my readers are far too negative for equity markets; I wonder why this is the case because, statistically, there is no better way to invest than in equities. The lowest bid for the 2023 year-end competition for the S&P 500 came in at 3’175. The closest call in the S&P 500 came from my partner Ronni Stöferle, who had 4’634 points, which was also the highest bid; well done, Ronni and many thanks for participating!

Gold

According to the above source, Gold closed the year at USD 2’062.75; in clearly positive territory. A few of my readers were hoovering around USD 2’300.00 and the highest bid came in at USD 2’600.00; however, most were far too optimistic. Michael’s estimate came in at USD 2’071 and, therefore, was the closest. Well done, Michael and many thanks for participating!

Silver     

According to the above source, Silver closed the year at USD 23.785. However, the participants were too bullish on Silver as well, with estimates flying as high as USD 38.00. The closest call in Silver came from Attila with USD 24. Well done, Attila and many thanks for participating!

The Winner   

Dario is the Incrementum 2023 year-end competition winner; thus, the one-ounce Silver coin goes to Dario, a long-term reader of Stefan’s weekly, who regularly participates in the year-end competition. Congrats, dear Dario, well done!

However

However, Dario won because the first-place participant came from within Incrementum AG. Partners and employees from Incrementum AG can only participate out of competition. Ladies and Gentlemen, the closest overall bets came from my partner Ronni Stöferle; Dario finished second, my partner Mark Valek third, and I, Ladies and Gentlemen, finished fourth. There will most probably be another competition in 2024. And of course, Ronni, I will get you a Silver coin too. Well done, Ladies and Gentlemen, congrats to all participants!

Many thanks, indeed!

I wish you an excellent start to the day, the weekend, and a fabulous 2024!

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