About Perception

Dear Ladies and Gentlemen

I receive a fair amount of messages from readers puzzled by the performance of equities markets. The arguments are similar, high valuation, Covid-19 crisis not priced in yet, general public suffering from lockdowns, etc. While I understand the arguments, the reality is much more about perception. Let me elaborate quickly:

Financial Markets

Financial Markets do not necessarily move based on what analysts regard as being fairly priced but are mainly driven by supply and demand. If billions of multiple currencies are pumped in financial systems locked into a zero- or negative interest „investment-prison“, investments will seek the seemingly best return for the seemingly lowest risk. However, the seemingly best return for the seemingly lowest risk always remains a question of perception, and that perception may change.

Perception; Definition by Cambridge Dictionary

According to the definition by Cambridge Dictionary, the word „perception“ means: „belief or opinion, often held by many people and based on how things seem„.

The critical words in this definition are „belief“, „opinion“ and „seem“. Perception is not necessarily about reality; it is about what seems to be the reality; it is about opinion and belief.

The market is always right

„The market is always right“ is one of the first things a young investor will learn from older investors. There are thousands of quotes defending but also renouncing to this theory.

I often get the impression that some market participants underestimate the power of perception by large investment cohorts and at the same time are overestimating their own investment knowhow. Investing sometimes also means going with the flow, the so-called market momentum. However, if this means investing against one’s principles, Ladies and Gentlemen, I would always recommend taking money off the table. Gorden Gekko’s „greed is good“ is probably not the right strategy for everyone. Investing has to feel right; otherwise, it will very quickly become a rather stressful exercise.

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 into 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

Isaac Newton and Energy

Dear Ladies and Gentlemen

Today I am pleased to share some thoughts from my friend Bob on fossil versus renewable energy with you. Please feel free to write back to me, and I will be happy to forward your comments to Bob. Please enjoy the read:

„Some day soon our rich societies will collapse. 

GDP Gap:

Robert Solow found that „labour + capital“ did not explain GDP growth. It left a gap.  Robert Ayres found the gap – energy consumption.  GDP  correlates perfectly with energy consumption: more energy consumption – more GDP growth, and vice versa.

Where to from here, how do we protect ourselves?  Is a chancy pursuit of high stock returns the answer?  With insider knowledge, supercomputers, and luck, it might be.  For private investors, I would say not.

Isaac Newton:

Isaac Newton was governor of the Bank of England.  He bought South Sea Company shares and got rich selling them before the top. Then he suffered „fear of missing out“ bought back in, the bubble burst, he lost everything and died pennilessly.  Furthermore, Newton was a genius.

Governments and their „renewables“ paymasters are telling you that fossil fuel energy is optional.  Germany’s Energiewende is an experiment currently suggesting that idea is false.

You can live without fossil energy, billions do.  In the UK energy consumption per capita is approx 125 kgoe/a (kilograms of oil equivalent per annum). In Yemen, it is just 13. Yemeni lifestyles are not like the UK’s, for a good reason.

Wealth:

„Wealth“ is not one single thing, and is neither currency nor promissory notes.  Primary wealth is coal in the ground, iron ore, good land.  Secondary wealth is what you can make with them.  Tertiary wealth is currency, which is like a will-o-the-wisp.

Indeed in these times, caution is advisable. Increase resilience, not risk.“

Your Ideas and Thoughts:

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 into 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

Four Years – Economic Data

„Tyrants fear the poet – now that we know it – we cannot blow it – we owe it – to show it – not slow it – although it – hurts to sew it – when the world – skirts below it.“  by Amanda Gorman

 

 

Dear Ladies and Gentlemen

After four years of President Donald Trump, I would like to share some economic data with you today. All the numbers I am sharing with you are reflecting the situation as it was at the beginning of Mr Trump’s presidency on January 20, 2017, on January 20, 2020, i.e. before the beginning of the pandemic and at the beginning of Mr Biden’s presidency on January 20, 2021. I hope you will appreciate the comparison.

On January 20, 2017, GDP growth compared to the previous year stood at 1.7%, on January 20, 2020, at 2.2% and January 20, 2021, at -3.5%.

On January 20, 2017, the unemployment rate stood at 4.7%, on January 20, 2020, at 3.6% and on January 20, 2021, at 6.8%.

On January 20, 2017, the base rate (upper bound) stood at 0.75%, on January 20, 2020, at 1.75% and on January 20, 2021, at 0.25%.

On January 20, 2017, the ten-year treasury interest rate stood at 2.5%, on January 20, 2020, at 1.8% and on January 20, 2021at 1.1%.

On January 20, 2017, inflation compared to the previous year was at 2.1%, on January 20, 2020, at 2.3% and on January 20, 2021, at 1.4%.

On January 20, 2017, government debt stood at USD 19.9 trillion, on January 20, 2020, at USD 25.4 trillion and on January 20, 2021, at USD 27.7 trillion.

On January 20, 2017 trade deficit (numbers from November of the previous year) stood at USD 45.2 trillion, on January 20, 2020, at USD 43.1 trillion and on January 20, 2021, at USD 68.1 trillion.

On January 20, 2017, income tax (highest income class) compared to the previous year stood at 39.6%, on January 20, 2020, at 37% and on January 20, 2021, at 37%.

…and just for the fun of it; on January 20, 2017, the oil price stood at USD 52.42, on January 20, 2020, at 58.34 and on January 20, 2021, at 52.36.

I think everyone can draw their conclusions from these figures, and I do not want to judge, but, indeed, the economic growth of the first three years of the last administration was massively financed by debt accumulation, which seems to be an everyday thing ever since the Great Financial Crisis and unfortunately not only limited to the U.S.

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 into 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
Web: www.incrementum.li

Why?

Dear Ladies and Gentlemen

I receive many emails from readers who ask me why gold is not going up, but equities are. The question goes along the lines that amid a pandemic, politically unstable times in the U.S. and global lockdowns, the economy will be hurt and central banks are printing and will print like there was no tomorrow, which eventually should lead to inflation.

Gold did perform relatively well in 2020; therefore, I do not see why people would be unhappy.  Moreover, yes, some equities performed well, but many did not. The fact is that investors were panicking in spring but got accustomed to the situation of the pandemic and today we see that global economies did far better than initially expected during the first wave of the covid-19 pandemic. The question remains, though, if, in the upcoming months, the opposite effect will occur. Investors seem almost careless these days and may somewhat underestimate the current third wave and its economic consequences.

However, one essential factor for the boom in risk assets so far was the central banks‘ money printing and most G-20 governments massive economic stimulus packages. The introduction of such monetary base expenditures favours what we would call an asset price inflation, especially in risk assets. If you look at the price of cryptocurrencies, you will immediately see what I am talking about. If we take bitcoin as a proxy for risk assets in general or some of the Nasdaq highflyers, we can make out a little frenzy; some would even call it a big frenzy. How else would you justify that a company selling 500’000 cars per year would have a market cap higher than all other car manufacturers on this planet together?

Ladies and Gentlemen, I would not be surprised to see weaker markets in the days and/or weeks after Mister Bidens‘ inauguration. Not because of Mr Biden but because I have the impression there is some hot air in the markets. Well, and who knows, maybe we will finally see, after predicting it for 12 years now, some consumer price inflation (a weakening U.S. dollar may help).  And yes, I know what you are thinking, eventually, even a broken analogue watch will show the correct time twice a day. Ashes over our heads…

One thing I would like to add though, those who predict the U.S. government to go belly up will be disappointed also in 2021. Never forget what the former and iconic Fed’s chairman Alan Greenspan used to say: „the United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.“

Zero probability seems somewhat low, and out of principle, I can not agree to such an absolute statement; nevertheless, I too regard the probability of a U.S. default as very low.

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 into 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
Web: www.incrementum.li

And the winner is…

Dear Ladies and Gentlemen

Finally, the sleepless nights are over, time to declare our year-end competition winner.

The data stems from: Finanz und Wirtschaft (fuw.ch).

Gold:
According to to the above source, Gold closed the year at USD 1’898.75. A few of my readers were hoovering around USD 1’800 and USD 2’000, But only John’s estimate came in at USD 1’900 and therefore was the closest of all.

Silver :
According to to the above source, Silver closed the year at USD at 26.34. People were relatively bullish on Silver with estimates going up to USD 45. The closet call in Silver came from David with USD 26.91.

S&P 500:
According to the above source, the S&P closed the year at 3’756.07. People were quite bearish on the S&P, with most of my readers‘ estimates hovering around 2’000, 2’500. However, there were a few bullish ones with estimates between 4’000 and 4’500. The closet call in the S&P came from Felix with 3’750.

The winner of the competition and thus of the one-ounce Silver coin is Felix (nomen est omen). Congratulations! Felix won because he was one of the only ones foreseeing higher prices in Gold, Silver and in the equity markets. Most of the participants in this competition were bullish on Gold and maybe Silver but negative on equities as if it had to be an either-or, whereas Felix anticipated price increases in precious metals and the S&P. Well done!

Most probably there will be another competition in 2021.

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 into the year, 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
Web: www.incrementum.li

Merry Christmas

Dear Ladies and Gentlemen

This was quite some year!

I have never experienced anything like that, and it would be o.k. for me if next year were not going to be all that challenging.

In any case, I wish you all the best, a relaxed, funky Christmas and a happy and prosperous New Year.

Stay safe and healthy and never stop sharing your ideas, points of view, concerns and experiences.

Many thanks for all your contributions!

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

Legends never die

Dear Ladies and Gentlemen

This is to my friend Anton, who not only is a very bright economist but who has a talent for spotting culturally significant pieces of art.

According to data published by the Chinese customs administration, China’s imports grew by 4.5% last month, while exports jumped 21.1% versus November 2019. The increase of 21.1% marks the highest since February 2018. The two numbers result in a trade surplus of USD 75.4 billion for November 2020, which by the way, represents the largest number on record in data going back for at least 30 years. Wow!

Now that, Ladies and Gentlemen, of course, also means that China is sucking up USD liquidity to an inconceivable extent. Keeping that in mind and thinking back to my weekly mail published in the first half of this year on USD liquidity (and here the circle closes; as that very text was submitted by my friend Anton), consumer price inflation can not only be derived from money supply growth. Many economists have done precisely that for the last twelve years, ever since the Great Financial Crisis, predicting exploding consumer price inflation and were caught on the wrong foot as consumer prices did not show any significant increase whatsoever. Governments and central banks in most G20 nations have undertaken significant efforts to get inflation up and so far failed. I get the impression inflation cannot be planned it is developing.

You know, analysts are known for hazy memories when it comes to their predictions that did not turn out to be materialising. Predictions that are not materializing shouldn’t be a problem. As no-one can foresee the future, predictions are nothing more than a very personal interpretation of at the time available data (information) on a given subject and by a given person or an institution at a given moment in time. This is it. People who are taking predictions for more than they are have most probably not understood the concept. How inconvenient it may seem, there is no magic; it is presumably impossible to predict outcomes of any sort, even less, outcomes of complex interrelations with many unknown variables. This is why, when reading research (something I do a lot and truly like doing), I try not to base my investment conclusion on what I have just read but merely look at research as a piece of a puzzle, admittingly not always an easy task.

And now, Ladies and Gentlemen, why did I call this weekly „Legends never die“? Please let me know what you think. Thank you so much for your attention and participation.

As always, 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 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

Risk of Rising Inflation Rates?

Dear Ladies and Gentlemen

My partners Ronni Stöferle and Mark Valek and many of their helping hands came up with a special report getting somewhat more in-depth into the inflation/deflation topic. I am happy to dedicate this weekly mail to their exciting work, which shares an interesting point of view.

Please see for yourself and please enjoy the read:

„The extraordinary events of 2020 have motivated us to write an In Gold We Trust special on the heightened risk of rising inflation rates. We chose the classic children’s fable „The Boy Who Cried Wolf“, by Æsop as the leitmotif of this report. 

Why did we choose this allegory? As the story goes, a boy guarding over sheep jokingly cries wolf, twice. After returning to the village twice, the locals decide not to respond when the boy cries again. Little did the villagers know that this time the wolf was attacking the sheep.

Similarly, the global paradigm of the past decades has been disinflationary and occasional warnings about rising consumer price inflation have not materialised. Now, with debts at an all-time high and trust in public institutions eroding, populist policies could serve as the bedrock of a new inflationary paradigm. We suspect that the monetary developments of 2020, coupled with the recent paradigm shift, could soon push inflation rates significantly higher.

Policymakers and investors at large are reluctant to acknowledge this possibility. Decades of the deflationary paradigm have rendered them wholly sceptical of a potential wolf attack: spiking inflation.

The main topics of this In Gold We Trust special are:

  • How and why politicians have taken over credit creation
  • Why Vaccinations will lead to an increase in the Velocity of Money
  • Average Inflation Targeting
  • Unprecedented Growth of the Broad Monetary Aggregates 
  • The Rise of „People’s“ Policies (MMT, Helicopter Money)
  • How to Prepare Your Portfolio for Inflation

The In Gold We Trust special report can be read and downloaded here: 

The Boy Who Cried Wolf – Inflationary Decade Ahead? (English)

Given the unique combination of circumstances, we are convinced that inflation poses a high risk towards wealth and its creation. Investors would do well to reconsider traditional portfolio theory in favour of something more robust against inflation risk.“

As always, 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 into 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

Year-End Competition Update III

Dear Ladies and Gentlemen

Time for one last update on our year-end competition before the final contender for the one-ounce Silver coin will be elected. The estimates are still wide-spread; this is great and as I had mentioned before, makes it more fun than if everybody is around the same numbers. We had some new readers joining in, and there is a new „highest“ estimate for Gold, no changes, however, for the prices for Silver and the S&P.

Gold:
The highest estimate comes from Trevor. His estimate for the 2020 year-end price stands at USD 3’000. The lowest estimate comes from me, and I know, and I mentioned it many times, this is rather provocative (I did get some comments for this), but it is just for fun, after all. My estimate is a year-end price of USD 1’280.

Silver:
The highest estimate comes from Barbara. Her estimate for the 2020 year-end price stands at USD 45. The lowest estimate comes from Mark, and his estimate is a year-end price of USD 14.50.

S&P 500:
The highest estimate comes from Barbara again. She seems bullish; her estimate for the 2020 year-end price stands at 4’500. The lowest estimate comes from John, and he estimates a year-end price of 2’100.

Currently (at the time when I was finishing writing this message) Gold stands at USD 1’811.10, Silver at USD 23.32, and the S&P at 3’629.65. Since my last update on October 16, 2020, the prices for Gold and Silver have gone down, while the prices for the S&P 500 has moved up.

Because trading for the year 2020 ends in approximately four weeks, I do not let new people join in our competition. Do not worry; there is most probably going to be a new competition around the corner, i.e. in 2021.

As always, 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 into 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

Powerplay

Dear Ladies and Gentlemen

Quarantine your mind was my last week’s topic. I received many approving answers, and I would like to thank all those who are writing to me, keeping up the challenge. Thank you very much, indeed!

I received a comment that may be interesting for one or the other amongst my readers. The following comment came from Bob:

«what I have so far read about cyclicality suggests that assets like gold and equities move in opposite directions».

I replied the following:

„Now, as you may know, in statistics and with statistics you may underline almost every conclusion you want. This makes statistics such a powerful instrument. If you widen a period or if you do the opposite, you may come to very different results. I usually try to look at more extended periods. I am not particularly interested in the short-term. For the sake of argument, I have looked at the five-year performance of the S&P (https://marktdaten.fuw.ch/detail/indices?ID_NOTATION=4359526), which stands at +75.4% and the five-year performance of gold (https://marktdaten.fuw.ch/overview/commodities), which stands at +77.91%. To me, this looks like a very close correlation, even if during five years, the two asset classes did not always move in the same direction.“ (The prices may have changed ever since I wrote my answer to Bob over the weekend; however, the 5-year performance has most probably not changed significantly).

Some weeks ago, I was looking at the Weekly Economic Index and its positive development over the last weeks. Now guess what, the trend continued, and the index rose to -2.7% versus -3.1% in the previous week. Also, the JOLTS (job vacancies) data was more positive. However, there is a delay in the publication of U.S. job vacancies data, as measured by the U.S. Bureau of Labor Statistics, the figures mentioned date from September. The U.S. inflation rate for October is 1.2% (1.3% was expected).

The recovery of the U.S. economy continues. The WEI is scaled to the growth rate of the past four quarters. (Towards the end of the year, it therefore increasingly approaches the expected growth rate of the calendar year). Furthermore, positive news also emerged from the side of U.S. consumer confidence, as the Bloomberg Consumer Comfort Index rose from 47.5 to 48.0 points last week.

Given the Covid-19 crisis, these are somewhat promising data.

By now, Ladies and Gentlemen, you may wonder why I would call this weekly mail „powerplay“. I called it powerplay simply because I believe the current powerplay in the U.S. government between President Trump and President-Elect Biden is a drag to the U.S. economy and because the current powerplay in the government about the terms of a new stimulus package is not helping the economy either and the powerplay between supporters and opponents of Covid-19 measures is not helping the economy whatsoever, just imagine what the economic figures would look like with sensible people from both parties managing that country. Do not forget, the loser of all these powerplays usually can be found among the average citizens. Frankly speaking, I can not think much of it.

Ladies and Gentlemen, 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!

And now, Ladies and Gentlemen I wish you a great day and weekend.

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