Author: Stefan Markus Kremeth

Good Morning Ladies and Gentlemen

”Most investors steer their portfolios with only the benefit of the rear view mirror.”

Jesse Felder

In last week’s edition of Stefan’s Weekly, “Embrace the Power of Value Investing,” we explored various facets of value investing. Today, I want to share some key metrics you can utilise when adopting this investment approach.

How Should We Define Value Stocks?

To begin with, let’s clarify the definition. In simple terms, value stocks trade on the stock exchange at prices lower than their intrinsic worth. These stocks typically exhibit strong financial fundamentals, such as low debt levels, stable profits, a reliable business model, and a lengthy company history. Investors who follow a value investing approach seek out and purchase undervalued shares that presently underperform in the market and do not show immediate growth potential. The hope is that growth will eventually return, the market will recognise the “true” value, and the stock price will rise to align with its fair value.

How Can We Identify Value Stocks?

Having established a definition of value stocks, the next important question is identifying these potentially undervalued investments. The process of pinpointing value stocks necessitates a thorough fundamental analysis of companies, with time being a crucial factor. To assist in this identification process, analysts typically utilise several key metrics to uncover stocks that may be undervalued. While no single metric is deemed the ultimate indicator, their combined use strengthens the analysis and supports a more accurate company evaluation. These metrics’ preference for and weighting often come down to personal judgment. It can lead to slightly differing company assessments, varying from sector to sector or company to another. While this subjectivity can complicate the task for asset managers, it also reflects the nuanced nature of investment analysis. Now, let us explore some of these key metrics.

The Classic: Price/Earnings Ratio (P/E Ratio)

The P/E ratio is one of the most recognised indicators of stock valuation. It is calculated by dividing the share price by the earnings per share. Generally, a lower P/E ratio may indicate that a stock is undervalued. However, it is crucial to consider these ratios in the context of different sectors, as various industries tend to have distinct P/E ratios. The classic P/E ratio is the first metric I examine when evaluating a potential investment. Additionally, I assess the company’s P/E ratio trend over the past few years, determining whether it has risen, fallen, or remained stable, and I compare it to its peers within the sector.

For Deep Value Seekers: Price-to-Book Ratio (P/B Ratio)

The price-to-book (P/B) ratio compares a company’s share price to its book value per share, which is calculated by dividing the company’s equity by the total number of shares outstanding. A P/B ratio of less than 1.0 may indicate that the stock is undervalued, suggesting that the market price is below the estimated net asset value. However, the challenge with this metric lies in the reliability of the equity valuation. It raises questions about how and by whom this calculation is performed. Analysts often lack direct access to a company’s assets and base their assessments on annual reports and their assumptions. Additionally, a company might trade below its book value if it consistently incurs losses from its operations. While the P/B ratio can be a factor to consider, it should not be the sole determinant of an investment decision.

Price/Earnings Growth Ratio (PEG) 

My partner, Dr. Christian Schärer, advocates for the PEG, which relates the P/E ratio to anticipated earnings growth. This metric is calculated by dividing the P/E ratio by the earnings growth rate. A PEG value under 1.0 is typically viewed as favourable, indicating a potential undervaluation of the shares.

Liquidity Ratio (Current Ratio)

During my early career, I worked in the staff unit supporting the CEO of UBS. My superior, who served as chief of staff to the CEO, frequently emphasised the importance of liquidity and the Current Ratio. A company’s liquidity ratio evaluates its capacity to fulfil its debt obligations, calculated by dividing fixed assets by liabilities. A liquidity ratio below 100% suggests that available fixed assets are inadequate to cover the liabilities. The lower the liquidity ratio, the higher the risk that the share price will continue to decline, potentially leading to the stock being undervalued.

Debt-Equity Ratio

Another essential ratio for deep value seekers is the debt-equity ratio, which assesses the proportion of total debt relative to equity. Generally, a low gearing ratio (below 1.0) is seen positively, as it suggests that the company relies less on debt financing and can adapt more readily during times of crisis. However, this ratio’s importance is diminished in a zero-interest-rate environment like Switzerland.

Return on Equity (ROE)

Return on equity (ROE) is another key financial metric that assesses the efficiency with which a company employs its shareholders’ equity to generate profits. It is computed by dividing the annual net profit by the total equity possessed by shareholders. A high ROE indicates a robust and profitable business model, reflecting the ability of the management to maximise returns on equity investments. This measure is essential for investors and analysts in evaluating financial performance and determining the potential for capital growth within an organisation.

Earnings Yield or Inverse P/E Ratio

The earnings yield represents the inverse relationship of the P/E ratio and is computed by dividing earnings per share by the prevailing share price. A share is deemed attractive when its earnings yield exceeds the yield offered by risk-free government bonds, indicating a potentially higher return on investment than a virtually riskless asset.

Dividend Yield

Lastly, dividend yield serves as a crucial financial metric that quantifies the proportion of a company’s share price that is allocated to annual dividend distributions. A robust and sustainable dividend yield possesses the capacity to significantly augment total returns, particularly in contexts where the underlying asset is perceived to be undervalued. This correlation emphasises the critical role of dividend yield within the framework of investment strategy and valuation assessment in equity markets. Personal investment analysis often prioritises the long-term trajectory of the dividend itself, as this metric can provide deeper insights compared to dividend yield, which is inherently influenced by fluctuations in share price.

Conclusion

In a 2016 OECD survey, it was revealed that many individuals struggle to grasp even basic financial concepts, such as compound interest. Given its slightly more complex nature, value investing is likely understood by even fewer. Through “Stefan’s Weekly,” my aim is to assist readers in making informed investment choices. However, I urge you not to underestimate the intricate dynamics of financial markets, where capital intersects with risk and opportunity. As asset managers, we delve into the captivating ideologies that shape our aspirations and decisions. Each investment presents an enticing yet unpredictable encounter. Beneath the surface, misunderstandings linger like echoes in a dimly lit room, prompting us to reevaluate our perceptions. An approach like value investing provides a clearer perspective on our investments, even if we ultimately gravitate towards a different investment style or a hybrid variation of it.

Next Week

Next week’s edition of “Stefan’s Weekly” will explore “A Deeper Look at Wealth / Part II.” Just as with the first part, Anton will provide the text while I handle the editing. Hopefully, some of your questions from part one will be addressed, and perhaps new inquiries will emerge.

Ladies and Gentlemen

Feel free to send your messages to smk@incrementum.li. Many thanks, indeed!

I wish you an excellent start to the day and 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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

”The key to successful investing is having everyone agree with you — LATER.”

Jim Grant

I would like to share one final thought regarding the numerous messages I have received in response to the “Political Views and Seductive Misconceptions” in last week’s “Stefan’s Weekly.” I firmly believe that in a democracy, free dialogue should not devolve into anarchy. Public discourse must adhere to recognised principles when addressing urgent and significant issues. There should be a legitimate mechanism, such as elections or voting, which embodies majority decisions, to arrive at a conclusion, even if it may not satisfy everyone. This requires respect for the thoughts of others and should not be a reason for rancour or hatred, and we must remain cautious about censoring human perspectives.

What is Value Investing?

Summarised in just a few words, value investing is not just a strategy but a profound philosophy seeking to uncover hidden market gems. Investors can seize opportunities that others overlook by focusing on a company’s intrinsic value rather than its current market price. This approach requires patience, discipline, and a deep understanding of financial fundamentals.

Unlocking the Secret: How Can You Identify a True Value Stock?

The essence of the matter is that valuation ratios differ significantly by sector. For instance, a P/E ratio ranging from 8 to 15 in the insurance sector may indicate an undervaluation, whereas in the technology sector, shares with a P/E ratio between 20 and 30 are often considered favourable. Successful value investors, therefore, employ a multifaceted approach: they compare key metrics like P/E (price/earnings) ratios, P/B (price/book) ratios, and dividend yields against industry averages, assess the company’s performance over recent years, and evaluate its future prospects.

Investing in Value Stocks: What’s Next?

According to the value investment principles, the fundamental objective of every value investor is to identify opportunities for entry at levels of undervaluation and to execute an exit strategy during periods of maximal overvaluation. Nonetheless, it is imperative to divest as soon as an equity ceases to be classified as a value stock.

What are the Risks?

A significant challenge associated with value stocks is the risk of encountering a value trap, where a seemingly cheap company is not genuinely undervalued. A company may exhibit an attractive valuation for valid reasons, such as structural issues within the sector, outdated business models, or ineffective management. Classic examples include newspaper publishers and retailers that have struggled due to digitalisation; their low valuations often reflect justified concerns about their future rather than true undervalued opportunities. Furthermore, many investors were misled for an extended period by Credit Suisse’s low price-to-book ratio, which plummeted to 0.06 prior to the bank’s downfall, appearing to indicate undervaluation.
Another complicating factor is timing. Even when fundamental analysis suggests a stock is undervalued, it can often take years for the market to acknowledge this discrepancy. This gap between recognition and realisation demands considerable patience from investors and can lead to increased opportunity costs. Consequently, many successful value investors combine quantitative metrics with qualitative assessments, such as evaluating management quality, competitive positioning, and industry trends. They also seek out catalysts that could prompt revaluation, including spin-offs, share buybacks, or strategic shifts.

Are Value Stocks Currently Attractive?

Value stocks have underperformed compared to growth stocks since 2007. However, after a brief resurgence in 2022 and 2023 during which value stocks outperformed, growth stocks have once again taken the lead. According to the US financial information service provider Morningstar, “value does not run the stock market,” yet they regard value stocks as a promising strategy in capital markets. Currently, the opportunities to identify undervalued stocks are substantial. As reported by “cash.ch”, Swiss companies such as telecommunications provider Sunrise, food conglomerate Nestlé, and speciality chemicals firm Clariant have been highlighted as appealing options for value investors in recent months. However, it is advised that patience may be necessary.

Conclusion

If you are considering investing in value stocks, embrace the challenge of value investing to unlock the potential for exceptional returns while cultivating a deeper connection to the companies and assets you choose to invest in. Your journey to financial success starts with recognising the immense power contained within sound investment strategies. In the forthcoming edition of “Stefan’s Weekly,” I will present a curated selection of crucial financial metrics aimed at identifying undervalued stocks.

Ladies and Gentlemen

Feel free to send your messages to smk@incrementum.li. Many thanks, indeed!

I wish you an excellent start to the day and 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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

”The level of immaturity is beyond words.”

Sen. Rand Paul

A Deeper Look at Wealth / Part I: A Philosophical Approach to Wealth

I sincerely appreciate your thoughtful messages and generous compliments regarding last week’s “Stefan’s Weekly.” I shared your feedback with Anton, who was truly honoured by your kind words.
@ Adrian: During the summer, you will receive responses to your inquiries.
Thank you, Ladies and Gentlemen, once again!

The Swiss National Bank

The Swiss National Bank (SNB) has reduced its key interest rate by 0.25 percentage points, bringing it to 0%. This decision is a response to the uncertain economic landscape, the strong Swiss franc, and the persistently low inflation rate, which dipped slightly into negative territory in May. The appreciation of the Swiss Franc is a burden on exports, tourism, and, among others, Swiss pension schemes.

Federal Reserve / Sensual Economics

On Wednesday, the Federal Reserve signalled its intention to adopt a wait-and-see approach regarding future developments. Chair Jerome Powell and his colleagues in monetary policy decided to maintain interest rates within a range of 4.25% to 4.5% for the fourth consecutive meeting, citing a high level of uncertainty surrounding the economic outlook, though noting that it has lessened somewhat. Additionally, officials revised their projections for economic growth this year downward, while simultaneously raising their forecasts for unemployment and inflation.
The pivotal excerpt from the remarks made by Powell that contributed to the subsequent elevation in bond yields was the following:”Ultimately, the cost of the tariff must be paid, and some of it will be passed on to the end consumer. We know that’s coming, and we want to see a little bit of that before we make judgments prematurely.”
Ladies and Gentlemen, this perspective makes a lot of sense to me! The Federal Reserve maintains its independence and does not yield to political pressure, while it appears to be taking its mandate very seriously.

Crude Oil

The interplay between geopolitical conflicts and fluctuations in food prices may significantly intensify economic pressures faced by Federal Reserve Chair Jerome Powell during the summer months. An increase in oil prices is also indeed correlated with elevated inflationary expectations within the economy.

Political Views and Seductive Misconceptions in the Markets

Finally, I often receive emails from readers seeking clarification on my political views. At my core, I am a freedom-loving individual who supports a limited role for the state. However, I strive to remain open-minded and avoid rigid ideologies, as my primary focus is as an asset manager. My main objective is to identify opportunities within the financial markets. Over the years, I have come to recognise that some of the most lucrative deals arise when widespread beliefs are based on seductive misconceptions or ideologies.

Ladies and Gentlemen

Feel free to send your messages to smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day and 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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

”It Ain’t What You Don’t Know That Gets You Into Trouble. It’s What You Know for Sure That Just Ain’t So.”

Mark Twain

In May, I had several conversations with my friend Anton, who lives in Oxford (UK) and works in the financial services sector. He is interested in literature, philosophy, and theology. We were discussing finance and wealth, and the idea emerged to publish a series of texts over the summer on the topic of wealth. Anton authored the texts while I assisted with the editing.

In that series of articles, we will examine the familiar term “wealth” and aim to gain a deeper understanding of its meaning. Below is the first article in this series. It analyses wealth from a financial perspective but with a philosophical bent.

The article that follows will explore wealth from a metaphysical perspective, examining what wealth is, how it comes into being, and its connection to related concepts, such as knowledge. Then, a cultural perspective will be offered in a third article, examining the concept of wealth through the lens of human relationships. Finally, we will conclude with the fourth article that will bring all of this together, offering, hopefully, a richer understanding of the concept of wealth.

Part I: A Philosophical Approach to Wealth 

The geopolitical and financial events of the last five years have changed how many investors and market commentators perceive wealth. Phrases like “long-term,” “capital allocation,” and “risk mitigation” often revolve around the concept of wealth, which remains somewhat elusive.

This ambiguity is understandable. While the notion of risk has become more tangible, the definition of wealth remains vague. Traditionally, volatility, market concentration, and the correlation among asset prices were the primary concerns. However, following the Global Financial Crisis, liquidity risks were added to this list. Since 2020, geopolitical tensions have become more pressing, and numerous other developments have contributed to the ever-expanding concept of risk.

In light of the evolving understanding of risk, what does wealth mean? Does the concept of wealth expand alongside our definitions of risk? How much does wealth relate to money, and what kind of money? How does it connect to other assets? What is the relationship between wealth and luxury? Are these terms synonymous or not? Ultimately, what do we truly mean by wealth?

We could attempt to answer these questions using a conventional approach, which might involve consulting well-known reports on global wealth produced annually by firms like UBS, Allianz, or Knight Frank. These reports typically define wealth as the total value of assets. However, the circumstances we face today necessitate a shift or change in our approach.

There are different types of change, but the most impactful ones can be categorised as either revolutionary or renewing. J.R.R. Tolkien, the beloved English author, articulated this distinction brilliantly. He argued that revolution represents a forceful break from the past, discarding old methods and traditions. We have witnessed this in historic events such as the French Revolution of 1789, as well as during the tragic upheavals of the 20th century in Russia, China, Iran, and elsewhere.

Conversely, Tolkien described renewal as the old reimagined, previous understandings and methods enriched for a world that is in constant flux. As the pre-Socratic philosopher Heraclitus observed, “No man ever steps in the same river twice; for it’s not the same river, and he’s not the same man.” Just as a river changes, so does our world.

**The Notion of Renewal in the Concept of Wealth**

When we apply the idea of renewal to the concept of wealth, we combine conventional methods of evaluating wealth with a philosophical perspective. This approach aims to provide a more dynamic understanding of wealth.

Why use philosophy as the lens through which to examine wealth? The term “wealth” often brings to mind various concepts: money, effort, time, risk, politics, luxury, value, and knowledge. To understand whether these concepts are genuinely connected to wealth, we first need to define what we mean by “wealth.” Moreover, to achieve a comprehensive understanding, we must not only describe each of these concepts but also explore their precise relationship to wealth if such a relationship exists. This task is fundamentally philosophical, although it may exceed the scope of our current discussion. Nonetheless, it is worthwhile to make a brave attempt at redefining wealth.

Searching for definitions of concepts was one of Socrates’ primary intellectual pursuits. In many of Plato’s dialogues, Socrates employs questioning to clarify notions by arriving at their definitions. However, as shown in Plato’s dialogues, this method is not always productive. A potentially better, though still imperfect, approach is found in Aristotle’s theory of causes, which he elaborates in his works “Physics” and “Metaphysics.”

Before we proceed, it is important to define a key term that will frequently appear in our exploration of wealth: “object.” In philosophy, an “object” refers to anything we examine. For instance, knowledge can be an object of philosophical inquiry, known as epistemology. Knowledge is abstract and intangible, while the object of examination can also be a material entity, like a bronze statue, which Aristotle exemplifies. The crucial point is that “object” denotes what we focus our thoughts on, which, in this case, is the concept of wealth.

We begin with the material cause, which answers the question, “What is it made of?” UBS distinguishes between financial and non-financial wealth. When combined, these two categories yield total wealth. Financial wealth consists of “assets that can easily be converted to cash,” including equities, bonds, mutual funds, savings accounts, and other securities traded in financial markets.

Non-financial wealth, on the other hand, comprises “land, real estate, and other tangible assets” that cannot be readily traded on financial markets and are recommended as long-term investments, unlike financial assets, which may not be perceived similarly. Therefore, wealth consists of different types of assets. This traditional definition of wealth is not particularly novel.

Next, we examine the formal cause, which addresses the question, “What is it?” This inquiry is the most complex in philosophy, as it relates to the core of metaphysical thought. As the German thinker Martin Heidegger would argue, it concerns the question of Being or existence. However, for our purposes, we need to simplify the matter. We should ask: What kind of object is wealth, simple or complex? The UBS report informs us that wealth is a complex entity comprising various components known as assets. At first glance, this answer appears straightforward, but it conceals significant complexity. Consider two individuals, A and B, both possessing equal wealth of $100 million. Person A’s wealth comprises 20% cash and 80% land, while Person B’s wealth consists of 80% cash and 20% land. Despite both being labelled as “wealth,” is there truly no distinction between tangible and intangible assets, such as meadows, woods, gold, and the trust in government that underpins fiat money? I would contend, perhaps without causing too much controversy, that there is indeed a distinction, and our understanding of what we term “wealth” requires deeper consideration.

Meanwhile, we have the efficient cause, which addresses the question, “Where does change come from?” The simple answer, in this context, is that changes in wealth arise from fluctuations in the value of the assets that constitute that wealth. In other words, this is a matter of value. What determines the value of something? What influences its value, either increasing or decreasing it, so that a particular asset, be it precious metal, a painting, a plot of land, cash, or claims to future cash flows, can be regarded as part of the intricate entity we call wealth? How should we understand value as it relates to wealth?

Value is intrinsically linked to human psychology, economic activity, and legal systems. This philosophical perspective highlights how the term “wealth” is interconnected with various concepts that need to be considered independently and then in relation to wealth itself.

Finally, we arrive at the final cause, which answers the question, “What is its purpose?” We can outline three primary aims of wealth. First, wealth offers a sense of security, acting as a safety net against the uncertainties of nations and economies. It serves as an anchor in the turbulent river of our ever-evolving world. Second, wealth acts as a source of daily income. Third, it provides resources necessary for maintaining a specific standard of living, which can vary in luxury not solely based on the changing value of the assets themselves but also on the behaviours of those who claim ownership of these assets at any given time.

In conclusion, we can define wealth as a complex object comprising various components collectively referred to as assets. These assets can be tangible or intangible, liquid or illiquid, and their value can fluctuate based on a combination of cultural, economic, and legal factors. Wealth serves to provide security in an uncertain world, to generate income, and ultimately to act as a resource for sustaining a particular standard of living, which depends on individuals’ spending habits. This definition refines the traditional understanding of wealth through philosophical inquiry.

In the following article, we will look at wealth from a metaphysical perspective. This will require us to delve even deeper into the realm of philosophy, but it will ultimately enable us to extract a richer understanding of what wealth truly is.

Ladies and Gentlemen

Feel free to send your messages to smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day and 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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

”The USA is responsible for less than 15% of world trade. What happens to the world trading system now will be decided by the other 85 per cent.”

Professor Richard Baldwin

Elon Musk’s statement, “I think a bill can be big or beautiful. I don’t know if it can be both”, a bill he described as a “disgusting abomination”, and especially his tweet “without me, Trump would have lost the election, Dems would control the House and the Republicans would be 51-49 in the Senate”, makes me wonder if they are still best friends, and if not, what will be the consequences?

Update

Anyway, before all my readers head off on vacation, I thought it would be fitting to provide an update on the Incrementum 2025 Year-End Competition. As I write this edition of “Stefan’s Weekly,” the prices stand as follows: Silver at USD 35.62, the Shanghai Composite at 3,376.20 points, and the 10-year U.S. Treasury yields 4.37%.

Silver

No modifications have been made to our “betting landscape” thus far. Hans continues to hold the highest bid at USD 47.80, while Mark, a former fund manager and client, has submitted the lowest bid at USD 35.77. I think this disparity in bid amounts highlights the varying levels of engagement and risk tolerance among participants in this betting scenario.
                   

Shanghai Composite

The same principle applies to the Shanghai Composite Index, where my associate, Hans, submitted the highest bid at 3’980 points, which is marginally higher, approximately five points, than the corresponding bid submitted by Mark. In stark contrast, Niklas’s lowest recorded bid stands at 2’950 points.
 

10-Year U.S. Treasury

In the 10-year U.S. Treasury securities market, Mike has the highest recorded bet at 5.55%, while Hans maintains the lowest at 3.8%. Again, this disparity highlights a significant divergence in the gentlemen’s expectations regarding future interest rates and, thus, economic conditions. To me, this is the most interesting bet.

Closed Competition       

The competition has officially closed, and I appreciate your understanding. As mentioned in my previous update, I intend to add an additional silver coin if Dario emerges victorious once again. Dario seems to be in a league of his own; therefore, if he secures a win, I will send a silver coin to him as well as to the runner-up. This also applies if a partner of Incrementum takes home the prize.
Data will be sourced from https://marktdaten.fuw.ch/.

Fingers Crossed

I keep my fingers crossed for all participants and look forward to sending this one-ounce silver coin to the winner at the end of the year.

Addendum

Overnight, the feud between President Trump and Mr Musk has escalated; on one hand, I am surprised, and on the other, I am not. I have serious doubts that this is for the greater good of the American people.

Ladies and Gentlemen

Feel free to send your messages to smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day and 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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

”The magnitude and speed at which these prices are coming to us are somewhat unprecedented in history.”

John David Rainey, Walmart’s CFO

In the realm of financial investments, it is essential to recognise that fear can be an inadequate guide for decision-making. Historically, evidence suggests that a long-term investment strategy, particularly one that includes allocations in robust dividend-paying equities coupled with a measured approach to market volatility, has yielded favourable outcomes.

Debt Delinquencies

According to recent data from the Federal Reserve Bank of New York, an increasing number of Americans are struggling to keep up with their debt payments. The percentage of credit card balances at least three months overdue has risen to its highest level in 14 years. While overall credit card balances have decreased, the share of individuals unable to meet their payment obligations has risen. In other words, US households collectively borrow less on their credit cards, yet the proportion of borrowers experiencing difficulty repaying their debts is increasing.

Interest Rates Must Go Down

Lower interest rates are crucial for governments of heavily indebted countries. Lower interest rates are also vital for consumers in countries that heavily rely on domestic consumption, as well as for homeowners relying on mortgages. As we have learned above, the proportion of U.S. borrowers experiencing difficulty repaying their debts is rising. This is particularly important because the United States benefits from robust domestic demand, with consumption accounting for approximately 70% of its GDP. If consumption increases steadily at a rate of 2%, it can contribute approximately 1.4 percentage points to GDP growth. Conversely, sluggish consumption could significantly impact the country’s overall economic performance. At the same time, the U.S. government is spending roughly 20% of its entire income on interest payments on its debt. What exacerbates the situation is that Japan, the largest creditor of the United States, and the Japanese government, which is even more indebted than the U.S. government, are currently facing significant upward pressure on long-term JPY-debt interest rates. As Albert Edwards, strategist at Société Générale, points out, “if sharply higher JGB yields entice Japanese investors to return home, the unwinding of the carry trade could cause a loud sucking sound in US financial assets.”

Carry Trade

What is the carry trade, some readers might wonder. The carry trade can be illustrated through the example of Japan and the U.S. In this scenario, investors borrow funds in a low-interest currency from a highly indebted country like Japan and then invest that money in high-interest, fixed-income products in a country with lower government debt, such as the U.S. (lower government debt is a very relative term in this example, as the effective government debt is still very high). Why is the debt situation significant? Generally, over time, the currency of a country with higher debt, such as Japan, tends to depreciate relative to the currency of a country with lower debt, like the U.S. This creates a dual benefit for investors. They not only capitalise on the interest rate differential between Japan’s low rates and the U.S.’s higher rates, but they also stand to gain from the favourable currency exchange as the USD appreciates against the JPY due to Japan’s higher government debt.

The Reverse Of The Carry Trade

What Albert Edwards, strategist at Société Générale, has attempted to explain in his FT interview is that rising yields in Japan may lead to a lower interest differential between the USD and JPY and, at the same time, may lead to a strengthening of the JPY, consequently and also driven by an unwinding of the carry trade. This makes the carry trade less profitable, if not risky.

Consequences of a Reverse of the Carry Trade

The repercussions of the unwinding of the carry trade between the Japanese Yen (JPY) and the U.S. Dollar (USD) may manifest as significant challenges in refinancing U.S. government debt. This situation could subsequently lead to elevated interest rates on U.S. government bonds, contributing to an increase in inflation and potentially precipitating an economic recession in the United States.

Expectations

What can we, therefore, expect on the interest front in the upcoming months?

European Central Bank

The ECB key interest rate (deposit rate) has been 2.25% since the meeting on 17 April. At the meeting on 5 June, it looks as though interest rates will be cut again by 25 basis points. The ECB’s target range for the deposit rate (key interest rate) is 1.54% in March 2026, meaning that the 1-month euro futures give the ECB three interest rate cuts of 25 basis points each until spring 2026.

Federal Reserve System

As of the present date, the United States’ key interest rate is positioned within a range of 4.25% to 4.5%. The Federal Reserve refrained from altering this rate during its most recent policy meeting. As indicated by futures traders, market expectations suggest the anticipation of four potential interest rate reductions over the forthcoming twelve months. Specifically, these reductions are projected to occur in September and December 2025, as well as in January and June 2026, with each cut of 25 basis points.
Additionally, analysis of Fed funds futures reveals that market participants assign a very low likelihood of any change in interest rates at the upcoming meeting scheduled for June 18.

Conclusion

It is essential to acknowledge the significance of President Trump’s actions. While he has been vocal in his appeals for Federal Reserve Chair Jerome Powell to reduce interest rates, his emphasis on tariff policies and recent tax cuts may have undermined the justification for future rate reductions. The Fed, concerned about the potential for another inflationary shock, has indicated its intention to maintain restrictive rates as a safeguard against allowing inflation to spiral out of control once again. After all, maybe “TACO” is not that bad, or at least better than unintended far-reaching economic consequences.

Ladies and Gentlemen

Feel free to send your messages to smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day and 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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

”There is frustration with a state growing while the infrastructure is rotting.”

A quote by a journalist about the situation in Germany

The current fiscal policy of the United States administration, the big and beautiful bill, characterised by a combination of tax reductions and inadequate efforts at expenditure reductions, is projected to result in an exacerbated deficit. Over the past two years, the Biden administration avoided a forecasted recession by employing expansionary fiscal measures, already paying a high price. Notably, the federal deficit has thus reached unprecedented levels outside of a recessionary context. Historical comparisons reveal that the current fiscal challenges surpass those experienced during the economic downturns of the 1970s and 1980s, underscoring the severity of the present situation.

In Gold We Trust

This, Ladies and Gentlemen, is exactly why we thought it was high time to publish another edition of the Incrementum “In Gold We Trust” Report. I have included the links to the various versions of it, and for the first time, it is also available in Japanese. You know, Ronni will spend his family’s summer vacation in Japan and figured investing in his language skills would be beneficial. Therefore, why not use those newly acquired language skills for the report, right?

Links and Enjoy the Read

As every year, the report comes in various formats. I have included all of them for your convenience. Feel free to download, print and distribute them among friends and family:
English
German
Compact version – English
Compact version – German
Compact version – Spanish
Compact version – Japanese

Ladies and Gentlemen

Feel free to send your messages to smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day and 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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

” In a gold rush, do not invest in gold mines but in shovels.”

André Kostolany

Today’s “Stefan’s Weekly” is a bit of a potpourri, for which I ask your pardon. But many things happened during the last seven days, and I would like to cover them at least briefly.

The Most Famous Person Ever

Jesus Christ is universally acknowledged as one of the most renowned figures in history. He was born in Bethlehem, Palestine, to Mary, who the Bible states “was found with child of the Holy Ghost” (Matthew 1:18). He represents humanity and divinity. In contemporary times, the Pope, regarded as God’s representative on Earth, is arguably the most recognised person worldwide. Yesterday’s election of a new Pope, an American, has surprised many and presents an intriguing choice. I must admit I am positively surprised. Therefore, the most famous living person in the world is an American, yet it is not the American President.

The Wisdom Of Experience

The benefits of increased globalisation, which contributed to economic growth and sustained disinflation, are now at risk due to a reversal of that trend. As Dieter Borchmeyer, Professor Emeritus of Modern German Literature and Dramatic Theory, articulated in a recent article for the Neue Zürcher Zeitung: “Conservative reforms preserve the existing order, while revolutionary actions seek to dismantle it. Abstract political ideas often lead to ideology, which can, in turn, incite violence. In contrast, reform policies draw upon the wisdom of experience.” We should never forget what Peter Atwater teaches us: that widely shared extreme vulnerability resolves in spontaneous social movements. This is why I firmly believe that an economic environment is only good if broad sections of the population can share in the prosperity.

The Fed

Ladies and Gentlemen, according to the latest Fed statement, “the risks of higher unemployment and higher inflation have risen” since the last meeting. However, suppose that cheaper crude oil will trickle through to lower prices for American motorists at the end of the long refining process. That would present enough reason for hope that consumer confidence can be bolstered and inflation can stay under control. So maybe that justifies the expectations of rate cuts. I keep my fingers crossed, yet I am long crude oil, as I do not trust that scenario enirely.

One Last Thought

Why do politicians tend to spend ever more money? Politicians aim to win elections, and one of the most effective strategies to achieve this is by making promises or offering incentives to voters. However, these incentives often come at a cost, and that funding must originate from somewhere. In political circles, money is typically acquired in small, inconspicuous amounts (small direct or indirect taxes), so its impact on citizens goes unnoticed. Politicians may also opt to incur debts that future leaders and our children will inevitably have to address or repay long after the current officials have left office due to age. Beware!

Ladies and Gentlemen

Feel free to send your messages to smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day and 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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

”The history of high tariffs shows extreme danger: 1890s McKinley Tariff led ~60% EPS drop in S&P 500; 1930s Smoot-Hawley Tariff led 70% drop.”

Societe General

Today’s discourse centres on the Principality of Liechtenstein, a small nation in Central Europe. I have been tasked with composing an article for the Executive Global Magazine, and I am pleased to present the findings and insights regarding this unique country. Through this examination, I aim to explain Liechtenstein’s political structure, economic landscape, and cultural heritage, hoping to contribute to a deeper understanding of its significance in a global context.

The Golden Age

But first, allow me quickly to give you my take on the purported “golden age”, which seems to commence with a pronounced false start, at least economically, marked by a significant deceleration in economic growth. This downturn can be attributed to the erratic policy trajectory of the United States government, which is expected to perpetuate high uncertainty in the financial landscape. Consequently, both investment and consumption decisions are anticipated to remain prudent in the near term. Moreover, the US economy appears poised for a summer slump, exacerbated by the increasingly evident burdens associated with tariff implementation. The current economic climate, characterised by elevated prices and diminished growth prospects, has resulted in a consequential decline in overall prosperity. This situation calls for a thorough assessment and development of strategies to enhance economic conditions. However, recent days have instilled a bit more confidence in me, as it appears that the current government in the U.S. may have paid attention to the markets and business leaders and perhaps even learned from the missteps of its initial 100 days. For my part, I choose to see the glass as half full.

Freedom

But for now, let us dig into today’s topic. Liechtenstein is distinguished by a substantial degree of individual freedom, guaranteeing strong personal asset protection for its citizens. It is also committed to fostering a robust sense of community with a strong awareness of and respect for cultural norms and local customs. Like any healthy and liberated community, Liechtenstein intends to enhance all its members’ overall quality of life. While some individuals may receive slightly less support or financial assistance from the state, this thinking still contributes to the collective well-being of society overall. In such a framework, the government serves its citizens by fulfilling essential duties while respecting their autonomy in decision-making.

Budget Management

Due to prudent budget management and an unemployment rate of only 1.6%, the country enjoys the advantages of having no national debt and reasonably low tax rates for its citizens and businesses. Therefore, the quote by Thomas Sowell, “What exactly is your ‘fair share’ of what ‘someone else’ has worked for?” could easily be attributed to a session in the Parliament of the Principality of Liechtenstein. The Parliament comprises 25 members within a single chamber, with the President and Vice-President elected during the opening session of each new year.

Community

The country enjoys low crime rates, which can be attributed in part to a strong sense of community and, in part, to stringent immigration controls. This is particularly important for such a small state, the sixth smallest in the world with only 39,330 inhabitants, as significant demographic changes could quickly threaten the nation’s identity. The government ensures the provision of essential infrastructure and basic services, allowing citizens to thrive. However, individuals must take the initiative and strive for their success. Short-term thinking is discouraged, and the Princely Family consistently focuses on generational well-being rather than quarterly results.

Full Article

To access the full article, please use the following link to download the PDF:
https://www.incrementum.li/journal/exploring-liechtenstein-a-hidden-jewel-in-the-heart-of-europe/

Ladies and Gentlemen

Feel free to send your messages to smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day and 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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li