Autor: Stefan Markus Kremeth

Good Morning Ladies and Gentlemen

„My policies encourage the hardworking, protect the weak, and punish the lazy. There is no right to government-paid laziness.“

Guido Westerwelle, German politician, Federal Chairman of the FDP 1961 – 2016

Jumping inflation in the E.U.

This year’s second-highest jump in inflation in the European Union (E.U.) occurred in February 2022. In February 2022, E.U. inflation went up by +0.94% versus January 2022. However, the highest month-on-month inflation jump in the E.U. this year happened just one month later. In March 2022, inflation increased by a hefty +2.43%. This was among Europe’s highest month-on-month inflation increases in the past 50 years.

ECB: monetary policy meeting

On September 8, 2022, the Governing Council of the ECB will hold a monetary policy meeting in Frankfurt, followed by a press conference. I expect the ECB to raise interest rates by 0.5%, maybe even 0.75%. Then, on October 27 and December 15, 2022, the Governing Council of the ECB will hold two more monetary policy meetings this year. That gives the ECB the chance to raise base rates three times during the next four months. Nevertheless, analysts, journalists, bankers, augurs and speculators assume E.U. inflation to increase well into 2023.

Base effect

However, with all respect and as I mentioned above, it is essential to understand that the 2.43% March 2022 month-on-month inflation increase in the euro area represents one of the highest month-on-month inflation jumps in the past 50 years. Therefore, I believe it is fair to assume that in Q1 2023, inflation numbers will come down and be it just because of a base effect. The same, Ladies and Gentlemen, applies to the U.S., albeit at a lower base effect level. Consequently, the base rate increases and the expected base effect in Q1 2023 could mean eventually a reduction in the aggressiveness of the central banks‘ communication towards the end of this year.

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 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

„I believe that children are our future. Unless we stop them now.“
Homer Simpson

All eyes are on Jerome Powell

Today, all eyes will be on Jerome Powell. Will he and the other leaders of the most prominent central banks still take on a hawkish tone, or will they start to use a somewhat calmer vocabulary?

The balance between supply and demand

The reason for any price movement remains the balance or imbalance between supply and demand. Any price movement of an asset class or even an entire financial market works after the same principle. Injecting liquidity into economies or financial markets gives buyers more liquidity, i.e. money, which leads to higher demand. Higher demand with stable or slow growing supply leads to price increases. Thanks to global money supply growth since the Great Financial Crisis, liquidity has flown into economies and sometimes directly into financial markets and even individual asset classes on a vast scale.

Wanted and unwanted effects

The wanted effects were stable economic growth, full employment, and general growth of wealth. The unwanted effects were ever faster-growing government debt, misallocation of capital, increasing government budget deficits, an ever-growing wealth gap between extreme wealthy people and the average population, an early asset price inflation and now large-scale inflation hitting Mainstreet and the average household.

The importance of money flows

Financial liquidity, i.e. increasing or decreasing money flows, are the reason for all the positive- and, unfortunately, all adverse effects. Considering the importance of money flows, today’s liquidity draining by central banks and, in some instances, treasury departments must have an unconditional negative effect on financial markets, and it has. The wanted effects will eventually be lower inflation; the unwanted ones may be lower, if not negative economic growth, unemployment, general wealth destruction, etc. Therefore, governments and central banks are challenged with at least somewhat correcting past extreme monetary policy measures to cope with current inflation without stalling the economy, letting it fall into recession or depression.

What do you think?

Will this year’s conference in Jackson Hole lead to an easing of tension in financial markets or rather the opposite? One thing seems clear; it will not be an easy task for its participants because none of the possible measures may satisfy all stakeholders.

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 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

The Other Day

The other day I wrote to one of my readers: „The state cannot possibly regulate everything, get involved everywhere and try to regulate the most diverse lifestyles, yet this is precisely what some political leaders are proposing, and as it looks, some voters seem to hope for.“

CPI Reading

If we assume that this year’s bear market can be attributed to skyrocketing inflation fears and, as a consequence, rising interest rates and the resulting „money crunch“, then we can perhaps slowly but surely hope for an easing of the situation. Last week’s reading of the U.S. CPI (Consumer Price Index) may seem scary since the change in that consumer price index compared to the previous year was a whopping 8.5%. However, not only was this 8.5% slightly below market expectations of 8.7%, but we must not forget that it represented the price increase of the previous year.

Peak Inflation?

Moreover, looking at the actual level of the July 2022 CPI versus the June 2022 number, we find it even fell slightly. So it is fair to say that actual inflation last month was zero. Now, a single month does not make a trend, and as many market participants, analysts and journalists quickly point out, the Federal Reserve does not set policy based on one month’s change in the CPI. This is undoubtedly correct, and yet I dare say the possibility is rising that we are in the process of forming a preliminary inflation summit in at least some of the leading G20 countries. In this context, it is unsurprising that the Chinese central bank this week adjusted its interest rates slightly to signal to the market that it wants to avoid a slide into recession. Now, I believe a rethink of the „Zero COVID“ strategy would have a better chance of success than a ten basis point cut in the key interest rates, but then I also believe the Chinese government will not care much about my opinion, which is fair enough.

Outlook

Almost no market participant, analyst or journalist is optimistic about financial markets. I understand this and share specific fears. But on the other hand, very few people consider that inflation concerns could cool down and thus positively impact the leading central banks‘ rate hike path, which could lead to a less steep rate hike. I am considering such a scenario and always stick to our investment approach because we weigh long-term cash flows higher than potential short-term dislocations.

Our Friend Barry

Some roughly two weeks ago, I wrote to our friend Barry that I thought the market participant’s eyes would be on the Fed, and dovish or hawkish would make the difference. But, of course, Yellen and Powell know the importance of financial asset prices to the U.S. economy, and while they certainly want to fight inflation, they probably would not want the U.S. to fall into a depression. A recession they have already achieved, even if they deny it. Technically the economy was shrinking for the second quarter.

Gold

As to gold, I am receiving many emails regarding its disappointing performance this year. Quite frankly, I am slightly frustrated as well. Even if I was not a massive bull at the beginning of the year, this year’s performance is not in line with what I had expected for the current geopolitical and geoeconomic environment. But, never forget, gold in physical form may protect you from the dire effects of economic dislocation; thus, I keep some of it.

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 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

Your Guesses

Wow, Ladies and Gentlemen, some of you seem really bearish, at least for equities. So far, the highest S&P bid came in at 4’482, the lowest at 1’881, with an average of around 3’100. On the other side, most of my readers seem to be optimistic about gold. So far, the highest bid for gold came at 2’350, the lowest at 1’715. For crude oil, the price estimates range from160 to 88 (mine), with an average way above today’s levels.

My Guess

As always, I am happy to share my estimates with you as well. For the S&P, I am not all that negative and guess it will close at around 4’200 in 2022. Roughly 4’200 is a level that I could imagine building either some sort of resistance or otherwise a floor in the market. So how did I guess my numbers? I often orient myself around the futures prices quoted at the CME for gold, crude oil and other natural resources. This is why my guess for the year-end price of gold comes in at 1’803 and for crude oil at 88.

Peak Bearishness?

I do not think that bearishness is at its peak. At this moment, it seems we are past the point already. Although, as our reader, Annika, pointed out to me correctly, cash levels among investors are high. This is true, yet; there has been a rebound, at least in some asset classes. This is why I believe we have left peak bearishness behind us for the time being. Currently, I am, at times, almost surprised that equity markets are holding up that well. Looking at the daily newsflow, one could become depressive and, considering investors turn depressive; one would probably be bound to sell rather than buy.

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 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

„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