Autor: Stefan Markus Kremeth

Good Morning Ladies and Gentlemen

„Be fearful when others are greedy and be greedy when others are fearful.“
Warren Buffett

Difficult Market Environment

Liquidating stock positions when prices fall is generally terrible advice because it pays to remain patiently invested even in a challenging stock market environment.

History I

A look back shows that sharp price corrections and bear markets are a recurring feature in the financial markets. This was the case on Black Monday during the 1987 stock market crash, in 2001 after the bursting of the dot-com bubble, in 2008 with the great financial crisis, in 2020 with the stock market crash when the Corona epidemic broke out and also when Russia started its war on Ukraine last year. What all these events have in common is that prices went up again.

History II

All it takes is time, well, almost (it helps to implement a sensible strategy and invest in solid companies). Anyway, anyone who invested in the S&P 500 Index over 20 years always made a profit. During the 1987 stock market crash, it took 3.5 years for the S&P 500 Index to recover its losses. At the low during the financial crisis, it took five years until 2013 before the index rushed to a new record high. The fastest recovery was during the Corona pandemic when the S&P recovered a 25 per cent loss within five months. The losses from last year’s crash have yet to recover, but we are getting closer.

Dividends

While the markets go up and down, dividends are usually much more resilient. In our private mandates, we have raked in the highest cashflows ever for the year 2022, and it looks like 2023 will be no less successful in terms of the dividends expected from the companies we invest in for our clients.

Sitting out the bear market

Sitting out the bear market more than pays. Warren Buffett’s philosophy: buy shares in a well-performing company when the market is dumping them in panic and take profits when the whole world only believes in an eternally rising stock market statistically makes enormous sense. However, quite a few investors do the opposite of what Buffett recommends. They fall into panic mode when prices plummet or the mood on the stock market is terrible and sell everything when prices have practically hit rock bottom. Looking back, it is not only the realised losses that hurt. Far more severe is that one usually misses the right time to get back in. The consequence is to be underinvested at the beginning of the upswing.

Stats – 25 vital days

A study by Blackrock, the world’s largest asset manager, shows how much profit potential investors are giving away. Those who missed the 25 best days on the stock market in the last 30 years gave away a great deal of return potential. This is almost impossible to recover.

Holding period

In the long run, shares bring the most significant return if held in the portfolio over several decades. The successful investors Peter Lynch, Benjamin Graham, Jesse Livermore and Warren Buffett have done well to invest in solid companies in uncertain times or during crises, or as Warren Buffett put it, „our preferred holding period is forever“.

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

„Know nothing, understand nothing, say everything can find a majority these days.“
My friend Peter S. in a WhatsApp message yesterday

Last week’s competition

Ladies and Gentlemen, the quote from last week’s competition stems from the book „Melody“ by Martin Suter. No one did find the correct answer, and thus the silver coin rests in the drawer for our next competition. Thanks for your participation!

Incrementum All Seasons Fund

This week an investor wrote to me about our flagship fund’s unusually moderate performance this year. I quickly asked my partner and the principal portfolio manager, Hans Schiefen, to write back to the investor. His reasoning makes sense, and I thus want to share the main arguments with you.

Reasoning

The reason for the recent IASF NAV decline has been that, on the one hand, equity markets in economically sensitive areas (incl. energy, shipping, and commodities) have been hammered as investors increasingly anticipate a recession, affecting many of IASF’s long positions. On the other hand, the AI-driven narrative and the familiarity of past investment successes have had investors chasing after the major tech platform companies in an echo-bubble to 2020/21, thus negatively affecting our exposure on the short side to NDX and SPX. At the same time, volatility has been plummeting amid a surprising degree of complacency towards potential risk in this environment. Meanwhile, fundamentals look increasingly less supportive of risk assets. Growth globally is slowing, (core) inflation remains too high and central banks are thus proclaiming higher for longer interest rates, a scenario the market is responding to in the customary manner of buying long-term bonds, whose yields remain profoundly negative in real terms. LEI, the yield curve and many other (historically highly reliable) indicators suggest a recession is on the cards for H2 2023, which still points to a rather stagflationary environment. (If growth does not disappoint as expected, it will keep inflationary pressures higher, and if it does, it would typically end in lower corporate top lines, coupled with pressurised profit margins, lower cash flows and earnings).

Scenario

Given this scenario, tangible assets remain the place for (rationale) investors, while remaining partly hedged long-duration assets remain sensible. If we had not experienced similarly frustrating developments in 2021 (and earlier), we might be more concerned, but our experience tells us that these kinds of pain trade periods are part and parcel of the investment process and experience. The difference, however, compared to 2021 is that risk-free rates are double or triple the levels they were back then, which, if one uses DCF-based valuation, should result in a (significant) contraction of overall valuations, which has not (yet) happened.

Last week

Last week I mentioned, „To invest, you may want to think positively about your investment. Else you might as well let it be.“ Today I would like to add; when buying a style-based product, one needs primarily to understand the asset manager’s investment style, have confidence in it, and, as always, show some patience.

Questions

I am always happy if investors come back to us with challenging questions. Investors should write much more questions to their asset managers; questions make huge sense. We cannot foresee the future, and having to explain our different investment solutions (style and/or theme-based) supports our effort in calibrating our thinking.

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

„But I do not believe everything he says. He is a writer; they love fiction more than truth.“
By whom?

Thank you very much

Thank you very much for all the heartwarming messages we have received for our 10th anniversary. We have received cards, presents, letters, emails and best wishes via LinkedIn and other social media channels. Many thanks, indeed!

Quick competition

Ladies and Gentlemen, do you know by whom the above quote is? I am happy to offer one ounce of silver to the first to reply with the correct answer.

Investing

In order to invest, you may want to think positively about your investment. Else you might as well let it be. Many financial markets were reasonably strong this year, but few institutional investors could capture any of it. Why is that? I think because of all the harmful noise we get to read in the daily news. Most investors are getting excited too quickly about the upside but also about the downside. While investing needs time and offers opportunities to the brave and patient, in a time of maximum excitement and instant gratification, neither time nor the will to take on risk as an opportunity seems to be widespread. You will not believe the number of negative investment cases I receive daily. Some of them I read and use as counter indicators. Ladies and Gentlemen, most of those who believe to be smarter than the markets are not, however convincing their arguments may seem.

Risks

Investing without risk is not possible. However, some investors, pampered by our Western government-induced complete protection societies, which they often happily criticise, cannot take on risk, and you know what? This is perfect and offers excellent opportunities to buy into fantastic companies at low prices, harvesting cashflows and waiting for the next upswing. Ladies and Gentlemen, most of the risks the average investor or analyst writes about are known; they are not news! Whatever is known to market participants is mainly priced in. Reading the same storyline ten times should elicit a weary yawn from investors. Surprisingly, the opposite is very often true and even reinforces the negative attitude and the more they see their investments underperform, the more they try to find reasons to confirm their (obviously wrong) views.

Stay open

Successful investors must stay open, know they will not always win, and are more inclined to perform well than want to be right!

Silver coin

Please do not forget our quick competition from the beginning of this «Stefan’s Weekly.» The first one to reply will receive the coin. This time it is a little more tricky.

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

„If you are not having fun, you are doing something wrong“.
Groucho Marx

Celebration

The five owners of Incrementum AG were celebrating a relaxed party with staff, clients, business partners and friends of Incrementum for our 10th anniversary this week. Since I held a speech to those present on Incrementum’s past and plans for the future, I am pleased to share some very short excerpts from it in today’s «Stefan’s Weekly» to give you a brief idea of our past and our ambitions for the future.

Introduction

„Our employees, my partners and I are proud that we can celebrate with you today. This is not self-evident for us and, therefore, all the more wonderful“.

Past

The decision to found Incrementum AG in Liechtenstein was taken in 2011. At that time, our former partner Fritz and I already had an asset management company called Incrementum Advisors in Baar/Switzerland. We wanted to expand towards Europe and decided to apply for a licence in Liechtenstein. At that time, it was already clear to me that we needed new, additional competencies in our company, and fortunately, we found them, thus broadening our shareholder base and board of directors compared to our Swiss company. Of the seven founding members of Incrementum AG, Mark Valek, Ronald Stöferle, and I are still on board today. We were also very fortunate to have Dr Christian Schärer join Incrementum AG in 2015 and Hans Günther Schiefen in 2019 as partners, shareholders and members of the Board of Directors.

Future

The last few years‘ growths motivates us to remain innovative and continue on our course, to grow, but not at any price. Incrementum AG is one of the few asset managers who has never accepted any reimbursements, retros, etc., in its history and only maintains client relationships under so-called „regular due diligence“. For governance reasons and because we did not want to be subject to any conflict of interest/loyalty, we have deliberately avoided stocking portfolios with our Incrementum AG’s products. For our future, we want to take the right people on board and develop further in quality, content and size.

Fun and thanks

Groucho knew it; fun is essential, and our party was great fun! Many thanks to our guests, team, Claudia, Jeannine, Chloe, Marcel, Richard, Lois and of course my partners and friends, Christian, Ronni, Hans and Mark. Thank you very much indeed!

Ladies and Gentlemen, please share your opinion with me or my partners, 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

«In the first few days, there is no rush to run out to buy, but if it follows the script, we should see a couple of better weeks.»

Kevin Muir from the «MacroTourist» on what happens after the last interest rate hike

S&P

So far, the highest bet on the S&P still stands at 4’634 and the lowest at 3200. Yesterday the S&P traded at 4’284.

Gold

So far, the highest bet on gold stands at 2’600 and the lowest at 1’910. Yesterday gold traded at  USD 1’963.

Silver

So far, the highest bet on silver stands at 38 and the lowest at 21.13. Yesterday silver traded at  USD 24.29.

Incrementum partner’s bets     

Every year, I like to be transparent. So my bets are gold 2’090, silver 21.425 and the S&P 4’116. The bets of my partners for gold came in between USD 2’121 and USD 2’350. The bets of my partners for silver came in between USD 24.50 and 26.50; for the S&P, they came in between 3’500 and 4’634. Quite a range, you may think, and yes, this is it. All the Incrementum partners have their very individual perspectives. I think this is an advantage because it allows investors to choose between different views and, thus, investment approaches.

Ladies and Gentlemen, please share your opinion with me or my partner Ronni and Mark, 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

«We have identified three major showdowns:
1. The Monetary Policy Showdown, with the central banks leading.
2. The Geopolitical Showdown between the West and the emerging BRICS.
3. The Showdown in the Gold Price.»

Ronald P Stöferle and Mark J. Valek, In Gold we Trust report, 2023 edition

Enjoy

My partners have once again composed a comprehensive work on the subject of gold and more. I have included, for your convenience, two links to the reports. Every year, they can be downloaded for free. Now, once in a while, I am asked why we can distribute such a quality product for free. A fair question, I would say! Well, this is only possible because of our sponsors or „Premium Partners“, as we call them. But now, Ladies and Gentlemen, please enjoy the read.

Links

In Gold We Trust report – English
Compact Version – English

Ladies and Gentlemen, please share your opinion with me or my partner Ronni and Mark, but please remember (instead of hitting the reply button) to send your messages to: smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day and a wonderful weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

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

NZZ am Sonntag; May 21, 2023

Perception

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

But where is the rally in bonds?

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

Portfolio management

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

Crash influencers

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

Ladies and Gentlemen, please share your opinion with me, but please remember (instead of hitting the reply button) to send your messages to:
smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day and a wonderful weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

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

Valid thoughts on the concept of fiduciary duty

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

Quote

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

Seasonal reflections

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

Bank of America May 2023 survey

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

Personal conclusion

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

Ladies and Gentlemen, please share your opinion with me, but please remember (instead of hitting the reply button) to send your messages to:
smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day and a wonderful weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

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

One last hike?

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

U.S. labour market

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

Tipping Point?

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

Alternative indicator

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

Hence

Hence I am increasingly convinced that interest rates, at least in the U.S., are peaking. But, let me be frank, Ladies and Gentlemen, this does not mean any immediate interest rate decrease.
Ladies and Gentlemen, please share your opinion with me, but please remember (instead of hitting the reply button) to send your messages to:
smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day and a wonderful weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

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

Your comments

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

One last hike?

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

Possible interest rate path

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

What would that mean for financial markets?

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

Many thanks, indeed!

I wish you an excellent start to the day and a wonderful weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li