Category: Stefan’s Weekly

Good Morning Ladies and Gentlemen

“Success is guaranteed if the right people make the right decisions and distinguish between hope and illusion when interpreting the facts.”
(Lea Ypi, newly interpreted and slightly amended by myself)

Our Private Mandates

You know, Ladies and Gentlemen, our private clients are solely invested in cash-generating assets. Why is this, you may want to ask; the simple reason is that most large and lasting fortunes were built thanks to cashflows and the effect of compounding. Therefore, just holding non-productive assets will probably not make you rich, and if, only relative to devaluating assets and most probably only for a short period.

The Effect of Compounding

Over the last two thousand years, almost every large fortune was built on cashflows and the effect of compounding. So why are people neglecting that fact? Maybe because of fear of losing all? People seeking maximum protection are usually geared to an unfavourable risk/reward profile, and in most cases, «fear» does not lead to the most brilliant investment strategies.

Last week’s Bank of America Fund Manager Survey

“Full capitulation” was the verdict of BofA last week’s fund manager survey. Investor pessimism was very high. Growth expectations, cash levels and equity allocations were lower than during the financial crisis of 2008/09. The cash level of global asset managers is at a two-decade high of 6.1% (the previous month, 5.6%). The last time the cash share was higher was in October 2001. Expectations for an improvement in global earnings are at an all-time low. Global growth expectations fall to an all-time low. Accordingly, equities are underweighted. Equity underweighting is at October 2008 levels, and global fund managers’ positioning is more defensive than in October 2008. A recession is priced in because of consensus among asset managers. The equity allocation to the euro area fell to its lowest level since June 2012.

Container Congestion

…and last but not least, the U.S. West Coast container congestion is nearly relieved.
https://www.cnbc.com/2022/07/22/west-coast-ports-reduce-idling-vessels-as-container-supply-increases.html

The last Contrarian

I feel like the last contrarian in the investment world. I see the signs; I read the research, mainstream and alternative, and yet, I cannot quite believe that all those companies will not be able to produce cashflows anymore or even go bust. To my understanding of equities markets, today, some great companies are priced at rather attractive levels. Twelve months ago, people would pay ridiculously high prices for companies not producing cashflows for years to come and today? Today one can buy excellent companies producing cashflows at interesting levels.

What is your view?

Ladies and Gentlemen, I am only expressing my very personal opinion in my weekly emails, nothing more; I am not a fortune teller. Now, please let me know your opinion. Will we have a summer rally, or will we enter a period of ongoing devaluation and P/E contraction, or will we maybe even see a mega crash in the second half of 2022? Please let me know your opinion, 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

For those who have joined our readers recently, every year, I organise a year-end competition in guessing, for example, the price of gold, silver, crude oil, the SMI, a cryptocurrency or the S&P 500 Index.

Predictions

Regularly, I receive emails from readers asking me where I think the price of gold would be at the end of the year or the SMI or interest rates or the cost of silver. Those who follow my weekly emails frequently will know that I would not say I like making predictions.

Invitation

However, from time to time, I am happy to tell you what I think may happen just for fun, and since we are in July already, it is time for our traditional year-end competition. Like I did in the past, I invite you to compete with all the other readers and myself, and as always, the winner will receive one ounce of silver in the form of a silver coin. Suppose the winner stems from within Incrementum or my family, I am happy to also send a one-ounce silver coin to the second in place.

Former Winners

The list of former winners includes an old friend from university, two clients, a former fund manager and value specialist from London and regular readers. So far, none of my family members or partners was close enough to be called a winner. It is difficult, if not impossible, to guess the future, yet I look forward to receiving your bets!

Gold, Crude Oil, S&P 500

Now, Ladies and Gentlemen, I suppose we try to guess the year-end price for one ounce of Gold in USD, the S&P 500 and Brent Crude Oil in USD. All cash, no futures. The closest one wins the silver coin. The year-end prices will be taken from this page: https://marktdaten.fuw.ch/.

Ladies and Gentlemen, what do you think? What is your best guess for the year-end prices of gold, the S&P 500 and Brent Crude Oil? 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

After de-dollarisation, de-globalisation today’s weekly is about my view on de-carbonisation. De-carbonisation has been the keyword in the sustainability strategy of many countries, especially in the West, since the United Nations Framework Convention on Climate Change (COP21) in Paris in December 2015. However, there is a significant challenge; unlike petroleum, which has been used «safely» and reliably for over a century, many energy sources that could fuel the industry’s future consist of unknown, untested technology.

Paris Climate Agreement

First, the Paris Agreement (UPU) was adopted at the COP21 and entered into force in November 2016. It aims to limit global warming to a maximum of 2°C and, if possible, 1.5°C by 2050. Additional information can be found under Paris Agreement – Wikipedia.

How should this be reached?

In order to limit the global rise in temperature and reduce man-made CO2 emissions as quickly as possible, the COP21’s participants agreed to reduce carbon dioxide (CO2). More precisely, the agreement refers to shifting to an economic system that sustainably reduces and compensates for carbon dioxide emissions. The long-term goal would be to create a CO2-free global economy.

Feasibility with the example of electric cars

For example, Ladies and Gentlemen, one challenge is consumer hesitance to adopt electric cars. Another is that the cost to retool a company (even partially) is not insignificant. The entire energy industry was built on fossil fuel extraction, refinement, and consumption. Existing infrastructure may most probably not fully support alternative energy sources. Governments need to build an electric power grid that fully supports electric cars without releasing carbon at the production source. How will they be able to do that, and what about heating, shipping, trucking and aviation?

Same Conclusion

As I had written in my weeklies on de-dollarisation and de-globalisation, I do not expect any immediate massive change on a global scale. De-carbonisation is a process, and we are at the very beginning of it and should not be surprised not to see any immediate result. You know, Ladies and Gentlemen, Russia’s war on Ukraine and the shortage of fossil raw materials resulting mainly from sanctions have relentlessly revealed the dependence and thus also the vulnerability of the global energy procurement system.

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, 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

On Sunday June 19, 2022 I sent one of my regular updates to our private clients. I feel like sharing it with you. Enjoy the read:

“Dear customers

Last week, our portfolios also suffered from the financial market slumping.

The German stock index DAX stands at -18% for the current year, the European stock index EuoStoxx 50 at -20% and the Swiss stock index SMI at -19%. Unfortunately, the situation is even worse in the USA. While the most famous index in the world, the Dow Jones Industrials Index, is “only” at -18% this year, the broader S&P 500 is at -23%, and the much-respected Nasdaq Composite is even at -32% in the meantime.

From time to time, I am asked by customers, acquaintances, and people who write to us how I see future development. Precisely because we are bad at predicting the future, we invest in solid companies that can generate positive cash flows and are willing to share these with their investors in the form of dividends. So nothing at all has changed in our strategy for private clients. We offer a product based on the benefits of positive cash flows. At times this strategy may seem tedious, but in most cases, it lets our clients sleep well and yields a respectable return on invested funds over the years. Even if the prices of individual shares are lower than they were a few months ago, dividends will continue to flow in most cases. This is because we are invested in companies with solid business models. In addition, we held significant cash positions in 2021 for tactical reasons, as the financial markets were somewhat too euphoric for us. This is now to our advantage, as our portfolios have slid less sharply into negative territory than the benchmark indices, and we can make additional purchases at lower levels. So it is highly likely that we will not hit the lows in the individual companies with our investments but will receive an acceptable purchase price over the months.

Dear customers, it will probably take some time before we get close to the highs of the financial markets of 2021 again. But, until then, it is vital to enjoy the dividends and, where possible, reinvest them so that more and more dividends bubble up in subsequent years, thus creating a compound interest effect over time. In addition, this strategy has the positive side effect of offsetting the current inflation rate of almost 2.4% (for the Swiss franc currency area).

In the past, our portfolios for private clients have always been less volatile than the underlying indices. We are confident that this will also be the case in the future. But, on the other hand, it is not possible to be invested and want to generate a return without accepting the market’s volatility. Thus, and in a figurative sense, dear clients, enduring market fluctuations is to be seen as the price to be paid for long-term investment success.

In this spirit, I wish you a sunny Sunday and send you my warmest regards.”

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, 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

After Wednesday’s Fed meeting, hope germinated for a temporary end to the wave of selling on the financial markets. On Thursday, the tender plant of this budding hope was destroyed by the interest rate hike by the Swiss National Bank.

Falling Financial Markets

Few people are happy about falling financial markets. I also do not belong to the cohort of financial market participants who enjoy falling prices. Nevertheless, I am always pleased to be able to invest in quality stocks at lower prices. The day before yesterday, I would have thought that much of the negative news of the past few months was priced in and that we should see a calming down in daily volatility. Now, Ladies and Gentlemen, this was unfortunately not the case. Yesterday, the fear of boisterous inflation triggered by an interest rate hike by the Swiss National Bank weighed heavy on financial markets again.

Finally

Switzerland is widely regarded as a haven of financial stability, and with inflation (CPI) at just over 2% (2.386 to be precise), yesterday’s 0.5% increase in the base rate may have seemed a bit extreme. Yet, unlike in other G 20 nations, the base rate in Switzerland will still be negative by 0.25% after the 0.5% base rate increase. This is why (although I did not like seeing markets trading lower on Thursday) my initial reaction was: «finally»! Negative interest rates are not sustainable and create all sorts of issues, leading to a misallocation of capital, they should, if at all, only be introduced temporarily. In addition to this step, the Swiss National Bank acted independently from the European Central Bank, which again I think is a good sign.

This time is different

This time is different, Ladies and Gentlemen, or maybe not? Downward movements in financial markets are unpleasant and bear the potential to instil fear. However, if this time is no different to other times, eventually, financial market participants will look forward, markets will calm down and over time move up again. Once all the negative news is priced in, once the light at the end of the tunnel can be seen, market participants will feel confident enough to pick up stock. Whether this will happen at the current or lower levels and at what time of the year is beyond my ability to predict. Nevertheless, it looks pretty likely to me that it will eventually happen. In the meantime, I am enjoying dividends from companies that have held on to paying dividends for decades under the most challenging circumstances.

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, 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

I receive a fair amount of messages from people asking me if the «crash» will continue or if this was it and I think my last Stefan’s weekly on “peak pessimism” triggered some additional messages in this respect. So now, Ladies and Gentlemen, thank you very much for writing to me, asking for my opinion and your trust in my forecasting capability. I do not know, I have my personal view, but I cannot possibly know.

Definition

We’d like first to look at what a stock market crash defines. One definition that describes the term “crash” is as follows: “A crash is a sudden, precipitous drop in stock prices; the downward spiral intensifies as more and more investors, seeing the bottom falling out of the market, try to sell their shares before their investments may lose their entire value.»

Two major U.S. Stock Market Crashes

In the U.S., older market participants still speak about two major stock market crashes. Those two significant U.S. crashes of the 20th century, in 1929 and 1987, had very different consequences. The first was followed by a period of economic stagnation and severe depression. The second major U.S. crash had a much shorter impact. While some investors suffered huge losses in 1987, recovery was well underway within three months.

Arbitrary Designation

Today we can read, hear and watch on all sorts of media channels the latest news on «the» crash. This is what I would call an arbitrary designation for the term “crash”. Because the word «crash» is used in too many different ways. Everyone does not use one clear definition (as there is none), but many different ones, especially regarding the absolute per cent decrease of a so-called crash. The word “crash” is catchy and is always suitable for triggering an audience’s fears. I have the impression that the word is almost being used in an inflationary fashion, bringing me back to your question regarding my view on it.

Conclusion

We might as well face it, Ladies and Gentlemen; this year, fuels, rents and food were the most significant price drivers in most advanced economies. Even U.S. Treasury Secretary Janet Yellen admitted that she was wrong when assessing inflation as unproblematic a year ago. “I think I was wrong then about the trajectory of inflation,” she recently told CNN. Curbing inflation is, therefore, most probably the central issue at the moment. Thus my answer to the question would be that once we know if the announced measures will do the job, we can assume to be close to the bottom of the current market correction; before that, any assessment seems complicated, if not impossible. However, this does not mean one cannot find attractive investments and buying the market’s lows will proof as tricky as foreseeing the bottom of the correction.

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, 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

How much pessimism is priced in? If only I knew, you might think. So do I! I do not know if the market is clean, the crash is over, and a less volatile period lies ahead of us; however, one thing I know is that fear is not of great help when investing.

«Victory belongs to the most tenacious.»

The Philippe Chatrier court at Roland Garros has the line «Victory belongs to the most tenacious» on one of the walls between ranks, which I think, besides tennis or other sports, also most suits asset management.

Your Feedback

I very often collect feedback for my weeklies. There is one piece of feedback I would like to share with you on my «de-globalization» Stefan’s weekly from some weeks ago. I received various comments that went in the same direction. Thus, I allow myself to only share the one below with you.

David’s feedback (de-globalization)

«You are absolutely correct. Comparative advantage will always be a dominant factor in global markets and has served us well during globalization. Geological endowment (e,g, Australia) or lower wages (e.g. China) provides obvious advantages on the supply side, feeding into demand from the large, affluent advanced economies. Australia exports commodities, given its vast resource base, but imports cars because of its relatively small market. The consumer is prepared to support local industry geared towards local requirements, but not at a significantly higher price. Concerning diversification of suppliers, I see this happening, but one small-scale manufacturer is tied up with his supply chain issues that compound other problems involving one minor but crucial component that is missing. Globalization is credited with raising almost a billion people worldwide from abject poverty – estimates vary but are enormous. Having worked extensively in remote regions of China, India and elsewhere over the past decades, I have witnessed a transformation. For the first time, paid work became more widely available, living standards were raised, schools and clinics were established, and people were far better off. Children are properly clothed and nourished, and lower-income parents are happy to own a few more chickens and goats and perhaps a transistor radio and bicycle for the first time. What concerns me is the warning of possible global food crises in the coming years because of conflict, reduced grain exports, fertilizer shortages, and perhaps a slowdown in the global economy. If this transpires, shutting down of manufacturing facilities, even sweatshops, in developing regions of the world due to the de-globalization process could not come at a worse time.»

Thank you very much, David, for sharing your thoughts!

Peak Pessimism

Ladies and Gentlemen, what do you reckon? Are we currently experiencing «peak pessimism» already, or is more to come?

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, 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

Last week my partners Ronni and Mark, together with their team of roughly 20 people, published the latest version of the annual iconic Incrementum «In Gold We Trust» report. The enormous work of the team culminated again in a comprehensive, easy to understand and highly entertaining report. You may download the report in five versions for free via the following links.

Please enjoy the read:

In Gold We Trust report – English (390 pages)

Compact Version – English (26 pages)

In Gold We Trust-Report – Deutsch (420 Seiten)

Compact Version – Deutsch (26 Seiten)

Compact Version – Spanish (26 Pages)

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 week, and above all, 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

Everyone is talking about de-dollarisation, de-globalisation and de-carbonisation, especially financial mass- and alternative media and analysts across the range. For the moment, it seems any topic that catches the attention of potential readers or listeners even in the slightest way is trashed, reproduced and exploited to the max, and this repeatedly. However, disappointingly, most opinions are more or less in line with the consensus.

Series

Two weeks after my weekly on de-dollarisation, I take the opportunity to share my thoughts on de-globalisation today. My third Stefan’s weekly in this series on «de-carbonisation» will be published in the following weeks.

What are the odds?

Ladies and Gentlemen, I do not believe in de-globalisation. Even if, for the time being, some idealists believe and perhaps even secretly hope that global sourcing has passed its zenith and that a time of local sourcing has now dawned again, I do not believe it has. Global affluent consumers are used to purchasing almost anything at almost any time and at the best price. Such is only possible because of economies of scale and because goods can be sourced from low labour costs countries. Therefore, even if we assume that consumers are willing to pay a premium for goods produced in their home country during particular situations (times of war, etc.), most of those consumers would eventually be reluctant to pay a premium for goods produced in their home country if they were available from somewhere else at a discount. This is why I believe the odds are small.

Diversification

Instead of large-scale de-globalisation effects, I think we will experience large-scale diversification effects. Soon enough, we will see international companies sourcing from many more different suppliers producing in many more different locations than so far. This may lead to minor initial price increases, on the one hand, making companies massively less fragile on the other hand. Furthermore, it opens opportunities for flexible, smaller suppliers in the shade of super-large ones.

Transition

The chances are high that there will be a transition phase, yet I do not think it will take all that long because markets, producers, and suppliers tend to adapt quickly to new situations and changes.

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 wonderful weekend, and above all, 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

Since the beginning of the year, almost all asset classes have been deeply in the red. By spreading investments across different asset classes, investors can usually spread their risks. Unfortunately, this does not seem to be working correctly at the moment.

DAX: -12.94%, Euro Stoxx 50: -15.13%, SMI: -10.27%; Nasdaq: -26.67%, Dow Jones: -12.4%, Gold +1.51%, Bitcoin: -40.69%.

Equities

It was a sell-off across the board. April was the second-worst month for equity investments since 1976. Furthermore, this time the losses were not compensated with gains on bonds. On the contrary, the bond markets were hit even harder. As a general rule, stocks gain when bonds lose – and vice versa. Since 1976, this rule has been confirmed in 84% of all stock market months, writes Burkhard Varnholt, head of investment strategy at Credit Suisse Switzerland, in one of his latest weekly report. “Only once, in May 1994, was the combined loss from equities and bonds greater than in the last month of April.”

Government Bonds

Since the beginning of the year, long-dated US government bonds have lost almost 30 per cent in value, even more than the index of the technology exchange Nasdaq. It was the worst start to the year for US government bonds in more than 200 years, according to asset manager DWS. Swiss government bonds, the epitome of security, have lost 12 per cent since the beginning of the year, more than Swiss equities.

Gold

As some of my readers keep pointing out, one big disappointment in the environment of rising inflation was undoubtedly the development of the gold price so far. With a modest gain of 1.5% this year, one cannot speak of excellent inflation protection, and I must say, I am surprised myself. Nevertheless, physical gold is my ultimate protection, and I would not think about selling any of it.

Cryptocurrencies

The youngest of these asset classes still have a long way to go. Bitcoin is called “digital gold” by its supporters. According to the narrative that dominates the internet and social media, Bitcoin will replace gold as a hedge against inflation (thesis number one) and provide refuge when governments confiscate private assets (thesis number two). However, one thing is clear for the time being: cryptocurrencies are not yet the promised “digital gold”. The bitcoin price runs more or less parallel to the US technology exchange Nasdaq as I have pointed out on multiple occasions. Analysts at the US investment bank J. P. Morgan already noted last year that the correlation, i.e. the statistical connection between Bitcoin and stocks, was becoming stronger: “Cryptocurrencies continue to be the worst hedge against sharp downturns in the stock market.” The more popular Bitcoin becomes, the more it becomes a cyclical financial product and the less suitable it is for diversification. Maybe this means that its great success until the summer of 2021 has to some extent, negatively impacted its formerly positive diversification features, at least temporarily.

Commodities

Only commodity investments are firmly up. A formerly unloved sector by many investors that had been hammered down and suffered during a difficult time for years and years is outperforming during one of the most challenging market environments ever since the Great Financial Crisis. This is fantastic, Ladies and Gentlemen, please do not forget that commodities are tangible.

What does all of this tell us

There are no 100% certainties to rules in financial markets. But, eventually, the most unloved asset may become the outperformer of the year or even decade and do not get carried away by greed and not by fear either, and, the darkest moment of the night comes shortly before dawn.

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 wonderful weekend, and above all, 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