Autor: Stefan Markus Kremeth

Dear Ladies and Gentlemen

Thank you very much for your positive feedback on my last weekly mail under the title «all things must pass». Interestingly, many messages were hovering around the intrinsic value of cryptocurrencies, probably also because of the crash we had experienced in Bitcoin and Co. last week and over the weekend. John sent some interesting questions and made some remarks, I would like to cover in this weekly.

Bitcoin

One Bitcoin, the best-known and most prominent digital currency in terms of market share, cost just under USD 32’000 on the Bitstamp trading platform on Sunday evening, a good 15 % less than the previous day. Other digital currencies such as Ether also fell – in some cases much more sharply than Bitcoin. Last week, Bitcoin briefly fell to USD 30’000 on Wednesday but could recover somewhat in the days that followed. With a level of around USD 37’000 last Friday evening, Bitcoin had lost around a quarter of its value over one week. Since the record high of almost USD 65’000 in April, it had halved last week but recovered ever since.

What happened?

Experts cited news from China as a fundamental reason for the recent price slide. The government reaffirmed an earlier announcement to take stricter action against the production of cryptocurrencies. The production of digital currencies is also called mining and consumes enormous amounts of electricity in the production process. Previously, Tesla CEO and crypto advocate Elon Musk had already stirred up the cryptocurrency market several times. Musk seemed to suggest that Tesla, the electric car manufacturer, could divest its Bitcoin holdings. Musk quickly denied this, but the price movements in bitcoin were enormous. Another negative factor came from the US last week. On Thursday evening, the US Treasury Department announced that it was considering making crypto transactions of more than USD 10’000 subject to mandatory reporting for tax honesty purposes. If implemented, this would be a blow to the anonymity of crypto transactions that crypto fans value so much.

Excessive Volatility

Ladies and Gentlemen, excessive volatility is part of the game. Volatility is the price any speculator has to pay to get maybe (there is no certainty) awarded with excessive returns. There is no free lunch ever, and I do not understand why speculators (sorry, I can not call them investors) buy cryptocurrencies if they cannot stand the volatility. In other words, if they cannot stand the volatility, they should maybe consider staying away from cryptocurrencies or even financial markets alltogether. The massive fluctuations show the market dilemma for digital currencies; on the one hand, they promise high profits, on the other hand, immensely high risks.

However

However, despite the heavy losses in recent weeks, Bitcoin still costs roughly four times as much as it did a year ago and as I have mentioned before, I would not be surprised to see it move up to USD 100’000 or more neither would I be surprised to see its price implode.

Intrinsic Value

Ladies and Gentlemen, depending on whom you ask, you will find every possible answer to the question of the intrinsic value of Bitcoin and Co. Up to you to choose the answer you want to believe. My take on it is that a national economy backs any fiat currency issued by governments or central banks. People, land, labour, innovation, education, a social system, physical gold on central banks‘ balance sheet, taxes, etc., is part of this backing. Whatever value you may want to attribute to this, it is there. Something Bitcoin and Co. cannot offer. On the other side, the last decades have shown a massive increase in central banks‘ balance sheets and an almost frivolous issuance of fiat money, which eventually may lead to inflation. Something that cannot occur in Bitcoin, as volume is strictly limited, at least per currency. However, another currency can be added relatively quickly, and another one and another one and therefore, inflation can maybe not occur within a currency but in the number of currencies issued.

For me the topic is fascinating and I am looking forward to the further development of it.

Please do not hesitate to write back to me and please let me know your views!

… but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li

Many thanks, indeed!

Ladies and Gentlemen, I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

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

Dear Ladies and Gentlemen

All Things Must Pass, launched in November 1970, was the first solo studio album by George Harrison after the Beatles‘ break-up.

Investment Committee Meetings

Every week at our investment committee meetings, my partners and I talk about the markets and potential unique investment opportunities. We are always taking minutes on our conclusions, and when I look at the previous minutes again from time to time, I see that we are pretty cautious and critical of the price excesses on stock- and other markets.

Crash

There is no question that another crash will occur, All things must pass, eventually. It is and it has always been part of the game. The timing, however, is not so easy to predict. We think that there is still an enormous amount of liquidity in the system and that this liquidity will prevent an immediate crash. Still, volatility may increase for some weeks and even months. Any exchange is a market where among other things, greed and fear play a role. As I keep repeating, nothing comes for free, especially not (excessive) financial return potential in a 0% government bond yield environment.

The Price Investors have to pay

The price for such (excessive) financial return potential is volatility. However, volatility is not necessarily something wrong or bad. Volatility is just a measure of the ups and downs of prices and also offers chances. My partner Mark successfully manages an Incrementum product where «volatility harvesting» adds a significant part to the entire portfolio’s returns.

Timeframes

This week I read a piece of research and was impressed by a rather blunt yet reasonable statement I would like to share with you. The author of the report asked his readers not“ to make the mistake of mixing timeframes, as Washington has a more extended duration outlook than Wall Street“, which seems obvious but sometimes also seems to get forgotten so easily.

Managing Expectations

Washington, i.e. the lawmakers, are most probably (and hopefully) not thinking in quarters but decades. I know, I mentioned many times in all sorts of publications that politicians all too often make decisions with upcoming elections in mind. I still believe this is true. However, I (maybe naively) believe in democracies‘ more or less functioning when it comes to lasting investment decisions.

Please do not hesitate to write back to me and please let me know your views!

… but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li

Many thanks, indeed!

Ladies and Gentlemen, I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

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

Dear Ladies and Gentlemen

The Swiss writer and architect Max Frisch famously claimed: a crisis is a productive state; you just have to take away the flavour of catastrophe.

Global Debt Level

According to AXIOS, current global debt in relation to global GDP stands at 356%. This is a fairly high number, Ladies and Gentlemen, and at least to some extent worrisome.

Current Free-Market Order

It seems the current free-market order is overridden by sustained political intervention. I would not be surprised if this led to structural inertia right down to the broad electoral base, i.e. the average citizens. Alternatively, in other words, if a state intervenes massively in economic processes over a long period and is not prepared to hand those economic processes back from the hands of politicians and bureaucrats right into the hands of the economy’s primary stakeholders, a lethargic attitude among those stakeholder right down to average citizens can hardly be avoided.

Conviction

Look, Ladies and Gentlemen, one could easily argue, and I am convinced this is the case, that the problem is not the awareness or acceptance of some of the current issues by political leaders but the will to deal with them. Because unpopular views or actions, even if maybe necessary, are unable of gaining majority support, which is likely to lead to political consensus on the lowest common denominator, which likely does not necessarily lead to the best possible outcome,no?

Solution?

This is a very complex topic, and although I believe intervention during the Great Financial Crisis and the Covid-19 Pandemic was justified, probably more sooner than later, governments should refrain from further increasing debt deficit spending, because any further departure from fiscal solidity may hurt future economic prosperity.

Next Week

Ladies and Gentlemen, I will be on vacation next week and will only send out my next weekly on May 21, 2021. Thanks for your understanding.

Please do not hesitate to write back to me and please let me know your views!

… but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li

Many thanks, indeed!

Ladies and Gentlemen, I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

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

Dear Ladies and Gentlemen

I received many emails from readers feeling the same as me regarding the comments I made in my prior weeklies on assets with no intrinsic value. So far, some of those assets have shown genuinely outstanding performance, and I am happy for everyone who made money with it! Well done!

Where is it?

Here I am, sitting in my office at home on Thursday evening after 8 pm, and still no crash anywhere to be seen. (Due to the covid-19 pandemic, we have reduced physical presence in our offices in Schaan, Liechtenstein and, we often work from our individual homes).

A Question of Liquidity

How come this crash does not materialize. So many analysts, bankers, brokers, journalists, social media people are expecting a crash for months, and it just does not happen. Well, I believe that we will not see a significant crash in equities markets as long as central banks keep injecting liquidity into the system. Valuation in some stocks seem stretched; personally, I think that, especially in some Nasdaq stocks, a correction would probably not be a surprise and yet, here I sit and wait, and stocks are trading within normal boundaries after yesterday’s Fed meeting.

Expectation

Fed Chairman Jerome Powell was very clear about it yesterday and does not seem intrigued by the temporary inflationary pressure we currently experience. However, if towards the end of summer, inflationary pressure has not ceased, central banks may feel urged to counteract and interfere verbally or act by reducing their asset purchasing program, by suspending their asset purchasing program, or even by increasing interest rates. Such measures could lead to an adverse reaction in equity markets. As I have mentioned before, I still believe that the current inflationary pressure is temporary, but I obviously may be wrong.

Positioning

Quite some people are contacting me regularly asking for advice. Ladies and Gentlemen, it would be not very sensible to advise people I hardly know. Investing depends on total wealth, age, risk tolerance, cash flow needs, etc., and this is why at Incrementum, we invest much time in filling in risk- and client profiles for our private clients before accepting a mandate. Furthermore, and for regulatory reasons, I am not allowed to give any advice just like this. Therefore, please do not take it personally if I cannot answer your questions the way you may expect them to be answered. Thanks for your understanding.

Please do not hesitate to write back to me and please let me know your views!

… but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li

Many thanks, indeed!

Ladies and Gentlemen, I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

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

Dear Ladies and Gentlemen

Thank you very much again for all your feedback!

Today I would like to point out some thoughts on the relativity of value.

…but first just some more on Inflation

Ladies and Gentlemen, I do not feel entirely comfortable in an environment of exploding central bank balance sheets and government budget deficits. We see helicopter money, small amounts for the time being, but eventually, why not rain down millions per person, as one of my readers pointed out? You know, if eventually money has no value anymore and is a simple lubricant for the economy and cannot be used as a store of value no longer, any outcome seems possible.
But enough for inflation so far. Maybe you want to have a look at the timber price chart. Timber is significant for the U.S. housing industry, and this chart looks rather «topish». Now, I know everyone is forecasting higher inflation right now, but I believe, if salaries are not following price increases on a recurring basis, higher inflation or even hyperinflation will not occur. We will certainly come back to this in a few months from now.

Unprecedented Times

We truly live in unprecedented times. Ladies and Gentlemen, I genuinely do not like using the term «unprecedented times». Too many analysts and journalists have overused this term in too many publications. However, the term is accurate after all, and yet, looking back at the last 120 years, was this not always the case from time to time (at least more or less)? Ask people who have lived through WWII, experienced the Vietnam war, the fall of the iron curtain, the Berlin wall, etc.

Migration in Asset Management?

I read an intriguing article the other day, and I did mention my view to Mark, one of my readers, about it. The article somewhat created a blurred vision in my head that maybe we live at the brink of a time of an ongoing migration from what I would call a period of classic asset management (connected to a classic value approach) to a form of asset management of exponential growth, exponential opportunity and exponential loss potential. I cannot think much of some of those «assets» out there, yet they still show phenomenal price increases. Maybe my „value- and positive cashflow-based“ investment approach not only is old school but outdated. We will only know in the future what approach still holds in a few years from now. If investors are willing to pay the price for what I would call an asset without any intrinsic value, it clearly shows that value is relative according to and depending on an investor’s point of view.

Uncomfortable

Nevertheless, I just feel uncomfortable looking at «assets» with now intrinsic value exploding in price also because members of specific social media platforms push them to unexpected levels. To me, this has almost a Ponzi schemes character. Again, I am old school in many ways, so do not take my perspective too seriously.

Please do not hesitate to write back to me and please let me know your views!

… but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li

Many thanks, indeed!

Ladies and Gentlemen, I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

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

Dear Ladies and Gentlemen

Thank you very much for all your feedback. I received many emails from people who so far have never shared their thoughts with me. I take this as a compliment to have picked a topic of interest and also as a sign that inflation is on many of my reader’s minds.

Detecting Inflation

As I replied to feedback, I received:  «When it comes to detecting inflation, deflation or anything, really, it always fascinates me to realise that we humans often see facts ex-ante but cannot correctly classify them and then rub our eyes in amazement ex-post.» Everything is on the table; maybe we can see it, and maybe we can not. Maybe we can draw the correct conclusions from what we are seeing, and maybe we can not. Nevertheless, my partners and I are trying to draw the correct conclusions and yet, often fail to predict the right outcome. Mea culpa!

I maybe need to clarify

Maybe, Ladies and Gentlemen, I have not expressed myself precisely in my last weeklies on inflation; I am not against looking at history and considering findings, adding them into the inflation equation; however, I think it is dangerous to extrapolate history into the future.

Very exciting!

In my next weekly, I would like to look at what we can expect from markets in the upcoming months and maybe share some of my thoughts on the relativity of value with you. I hope this will be exciting for all of us.

Please do not hesitate to write back to me and please let me know your views!

… but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li

Many thanks, indeed!

Ladies and Gentlemen, I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

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

Dear Ladies and Gentlemen

I am not convinced! I am not convinced we will see the sort of inflation augurs are expecting. The mainstream media is full of inflation fears; the alternative channels are full of inflation fears; if you are, like I am currently, arguing against it, you get rather lonely. I am used to «getting lonely on a lonesome trail.»

Why?

I personally do not believe in comparing historical events. One may draw conclusions from the past, but I believe life is (maybe, unfortunately) not that simple. Just to project such conclusions into the present or future, stimulate investors‘ confirmation bias, drawing big conclusions to me is not good enough.

Where is the correlation?

Since the 1960s, there has been no statistical correlation between inflation and broad money growth. As I have pointed out in previous weeklies, today the velocity of money circulation remains extremely low, and therefore the enormous money supply growth of recent years does not lead to inflation, except, Ladies and Gentlemen, in asset prices.

Asset Price Inflation

Ladies and Gentlemen, we see an asset price inflation, higher equity prices, higher real estate prices, higher prices for second-hand watches, etc. and we also see signs of inflation due to product shipping issues, higher energy prices and maybe raw material cost, but these, I believe, are onetime effects.

Antifragility

As an investor, you want to stay antifragile as much as possible. Talib taught us to be flexible. If one is structuring an investment strategy only for one event, inflation, one is, in fact, everything but antifragile. Betting on one event is a perilous strategy. Why would one do that? The opportunity cost is enormous.

Conclusion

Even Russel Napier, a critical mind, stated in a recent interview in the Swiss financial newspaper «Finanz und Wirtschaft» that solid companies‘ equities offer some inflation protection, and I am adding furthermore they offer cash returns in the form of dividends. To me, Ladies and Gentlemen, there is absolutely no way around a mixed portfolio. The mix should be customised to the investor’s very personal taste and needs.

Please let me know your views!

Please feel free to share your ideas and thoughts with me, but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li.

Many thanks, indeed!

Ladies and Gentlemen, I wish you a good start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

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

Investors are required to understand if and how things changed. This means assessing what parts of our world will resemble the past and not going to do so. This is not an easy task, and maybe it can never be done with absolute accuracy; however, it is a necessary endeavour to successfully (i.e. profitably) invest.

Stefan M. Kremeth
Wealth Management
Incrementum AG

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

Dear Ladies and Gentlemen

I am not convinced! I am not convinced we will see the sort of inflation augurs are expecting. The mainstream media is full of inflation fears; the alternative channels are full of inflation fears; if you are, like I am currently, arguing against it, you get rather lonely. I am used to «getting lonely on a lonesome trail.»

Why?

I personally do not believe in comparing historical events. One may draw conclusions from the past, but I believe life is (maybe, unfortunately) not that simple. Just to project such conclusions into the present or future, stimulate investors‘ confirmation bias, drawing big conclusions to me is not good enough.

Where is the correlation?

Since the 1960s, there has been no statistical correlation between inflation and broad money growth. As I have pointed out in previous weeklies, today the velocity of money circulation remains extremely low, and therefore the enormous money supply growth of recent years does not lead to inflation, except, Ladies and Gentlemen, in asset prices.

Asset Price Inflation

Ladies and Gentlemen, we see an asset price inflation, higher equity prices, higher real estate prices, higher prices for second-hand watches, etc. and we also see signs of inflation due to product shipping issues, higher energy prices and maybe raw material cost, but these, I believe, are onetime effects.

Antifragility

As an investor, you want to stay antifragile as much as possible. Talib taught us to be flexible. If one is structuring an investment strategy only for one event, inflation, one is, in fact, everything but antifragile. Betting on one event is a perilous strategy. Why would one do that? The opportunity cost is enormous.

Conclusion

Even Russel Napier, a critical mind, stated in a recent interview in the Swiss financial newspaper «Finanz und Wirtschaft» that solid companies‘ equities offer some inflation protection, and I am adding furthermore they offer cash returns in the form of dividends. To me, Ladies and Gentlemen, there is absolutely no way around a mixed portfolio. The mix should be customised to the investor’s very personal taste and needs.

Please let me know your views!

Please feel free to share your ideas and thoughts with me, but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li.

Many thanks, indeed!

Ladies and Gentlemen, I wish you a good start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

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

Dear Ladies and Gentlemen

In July 2020, I did write a weekly on crude oil. My conclusion at the time was the following: «I believe we will see higher crude oil prices in 12  – 24 months from now, as inventory levels will decrease drastically in H2 ».

Massive Price Increase

In the meantime, crude oil prices have increased massively. For me, all of this happened almost too quickly. The interesting question is why the crude oil price did go up?

I think there are a few reasons for this. One one side, we hade a reduction of inventory as suggested in my weekly by then. Furthermore, OPEC+ was very disciplined in not increasing oil production by too much, unlike in the past. Then the weather phenomena  «la Nina» led to a cold winter and increased energy consumption. Also, President Biden’s call for green energy and restrictions for U.S. fossil energy production probably sparked speculation on crude oil shortage and added to the momentum. Increasing economic activity indeed was a sentiment moving factor, too.

What comes next?

Now, the question is, what comes next? Well, Ladies and Gentlemen, as disappointing as it may seem, I do not know.

However, I think we will see some consolidation; I would not be surprised to see OPEC+ acting less disciplined in the months to come, trying to sell as many barrels as possible on these relatively high levels. Currently, there seems to be a lot of positive sentiment reflected in the price of crude oil and this usually calls for lower prices, at least to some extent.

Please let me know your views!

Please feel free to share your ideas and thoughts with me, but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li.

Many thanks, indeed!

Ladies and Gentlemen, I wish you a good start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

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