Autor: Stefan Markus Kremeth

Dear Ladies and Gentlemen

Today’s weekly “Full Stop or the Road to Zero” covers some of the thoughts I was sharing with our investors during the course of the week. I was writing two mails to our private clients this week. I tried to explain what had happened in financial markets and what my thoughts were.

Losses, even if only book losses, always hurt. I am convinced a cool head can help to some extent, especially in difficult times. Since the Second World War there have been around 25 – 26 stock market crashes. Each one of these stock market crashes was most likely associated with an extremely unpleasant experience for investors at the time, but despite all these stock market crashes we have been able to experience new highs in many indices over the past decades.

What conclusions can be drawn from this fact? In my opinion, the conclusion can be drawn that periods of great fear are followed by periods of confidence and with time investments in well-managed companies may again be considered attractive and rated accordingly by market participants.

But let us quickly see what has happened to financial markets so far this year? Here are some figures for 2020: Dow Jones: – 25.71%, EuroStoxx 50: – 32.04%, DAX: – 30.85%, SMI: – 22.1%, Crude Oil (Brent) – 46.33%.

The fear of a global recession is undrstandable and has risen sharply almost overnight, leading to major disruptions in stock markets around the globe. The entry ban imposed by President Trump on travellers from Europe, Switzerland, etc. has not helped the situation. This measure is evidence that the fear of the pandemic has now reached the US government. To me it seems the U.S. government has long been rather reluctant in accepting the importance of the virus.

In addition, a large proportion of the money under management today is invested in so-called passive instruments such as ETFs (Exchange Traded Funds) and other index-based instruments. In the event of a crisis, such instruments are thrown onto the market and find no buyers, which puts massive pressure on the prices of the individual shares they contain. This is the flip side of indexed products and it is also but not only for this reason that we do not use them in our portfolios. Nevertheless, our portfolios have also suffered greatly, albeit not to the extent of the indices or index products.

However, Covit-19 is a temporary and not a structural issue. Covit-19 reveals many weaknesses in the system, and I am convinced that governments and government-related organizations, global companies, local authorities and market participants will learn from it and that we as a global community can emerge from the crisis stronger than before. In China, there are already the first slight all-clear signals and in certain regions, everyday life (which is still reduced in most cases) is returning. Covit-19 should not be underestimated and be treated with respect. Nevertheless, every crisis is followed by a recovery and recovery often leads to a surge in consumption, people will be relieved and want to treat themselves.

A full stop generally comes before a restart and sooner or later all of us will be restarting again. I see absurd price movements in the markets and can’t imagine this full stop leading us into a closed end road to zero. If financial markets continue to fall like yesterday for the next 10 days, indices will go down to zero and if this happens, I promise, at zero I will „buy“ every stock I can for all my clients and for myself as well.

Dear Ladies and Gentlemen I wish you a good start into the day and above all good health!

Please feel free to share your ideas and investment experiences with me, but please don’t 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
Web: www.incrementum.li

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

Dear Ladies and Gentlemen

Today I would like to share a transcript with you. It is a rather long transcript, and this is why I will keep it short here. It is a transcript of a meeting the partners of Incrementum conducted some two weeks ago. We were discussing about financial markets and some of the risks we see. It somewhat was the purpose of the exercise to gear it towards risk and less towards opportunities of financial markets. However, and as you can imagine, ahead of the start of a new physical and digital gold fund, it will come as no surprise to you that we see opportunities in those two asset classes, otherwise we would not come up with such a product in the first place. Therefore, please excuse our bias.

Please feel free to come back with your comments, ideas and questions, but first enjoy the read:

https://www.incrementum.li/en/journal/incrementum-inflation-diversifier-advisory-board-call-q1-january-2020/

Thank you for letting me know about your views and please don’t forget, if you are sharing your viewpoints, (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

Ladies and Gentlemen, I wish you a great day and weekend

Kind regards.

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

Dear Ladies and Gentlemen

Many thanks for your feedbacks. It seems I am not the only one concerned. Unfortunately I am unable to publish all the very valuable comments I received. Before sharing some or at least extracts of them, allow me to mention that many of you indicated a disturbing feeling of ever-increasing moralizing arguments in political debates. I almost get the impression that the weaker an argument the higher the moralizing part in a debate becomes. Unfortunately this phenomenon can be detected across all political parties and/or interest groups.

Let me start with David:

“Yes Stefan, I fully agree with your summation. „Collective outrage“ is indeed a new phenomenon, and it appears to be managed by special-interest groups and social media to persuade society at large to conform to the „politically correct“ or ideologically expedient consensus. Some of these mass circulations are just naive oversimplifications. Others are gross falsehoods, which repeated often enough become the „truth“ for large sectors of the population. Freedom of thought is actively discouraged, making it easier for a certain breed of politicians, economists and malcontents to manipulate public opinion.”

Thank you, David! Many of us are intrigued by the “power” modern mass media or better, the ones who know how to use them, have over public opinion.

Let me continue with Kelly:

“In general I agree with your sentiment. I would only add that people are also social creatures. As such, community is important. Community being a group of people that share enough common values and interests to cooperate with one another toward common ends. This leads me to the thought that nations of millions that attempt top down rule will always be pushing a string vs. pulling. Peaceful communities are achieved through voluntary cooperation; because people are so unique, I believe, it is unreasonable to think that millions of unique individuals will have enough in common to voluntarily cooperate on enough subjects to form a mutually beneficial cohesive society. I believe smaller communities that govern their common interests through direct democracy are better suited to peaceful existence. Alliances can be built between communities that address trade and security while leaving the majority of governance within the smaller communities. Final thought: when the will of one is imposed on the will of another, disharmony and conflict are assured.”

I couldn’t agree more. Thank you, Kelly!

And now, Anton, my friend and research partner in a paper on “risk shift in pension schemes”:

“I’m so glad that more people are seeing these phenomena (Ray Dario spoke about something similar in one of his recent LinkedIn posts). This course of action has been in acceleration for the past 10 years but has much longer roots (I highly recommend the book called Public Opinion by Walter Lippmann). The core of the problem as I see it is a betrayal of trust by politicians, scientists, teachers, journalists and religious people: all the core institutions of our socio-economic order have betrayed the implied trust in them – we trust them to “guide” us in exchange for them having the freedom to do so. When that trust is placed secondary to vested interests, under the cheap veil of “nothing is true, everything is permitted” (a postmodern narrative), then things start to go downhill. I personally see no simple solution. I believe that change comes forcefully: I don’t see “leaders” coming together, putting their differences aside and dealing with the many, many issues that we face. They will play the moral card and the outrage card as long as they stay in power: power has always been the archenemy of progress for it needs rigid structures.“ 

Thank you very much Anton, always a pleasure exchanging ideas and working together with you! I hope you don’t mind me having had to cut short your extensive assessment.

Ladies and Gentlemen, please do not hesitate sending in your comments. Next week we will be looking at financial markets.

Please let me know your views and reply to my thoughts, but if you are sharing your viewpoints, please don’t 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 great day and weekend.

Kind regards.

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

Dear Ladies and Gentlemen

Today I would like to share some readers’ feedback on my question from two weeks ago: “are we going to see another Great Financial Crisis, or will we see perfect markets for another decade?

Now, the consensus certainly is going into the somewhat expected direction of “difficult markets”. One of the only contrarian views came from my good friend Andy, CIO of a large Swiss pension fund. The reason for this can be found in the fact that Andy enjoys great insight into the world of Swiss pension funds, which ranks among the largest on a global scale. As CIO of a multi-billion fund he shares the concerns of the entire industry on missing returns from fixed income and (these days) even on new investments in real estate. One of the alternatives still delivering positive cash returns (no matter the volatility) can still be found in equities markets.

And you know what, Andy has a point, with a cumulated cash position of roughly CHF 65 billion the Swiss pension funds lose millions in negative interest rates every month and this “cost” is born by us, i.e. the pension fund policy holders. Please think about it, Ladies and Gentlemen.

My friend Robert is seeing a crisis at the horizon but is careful about any timing indication as this is difficult if not impossible to foresee. The main arguments for his scenario are inflation, rising interest rates and a massive currency devaluation, which according to his views will become a problem for a long time.

John also sees another financial crisis approaching. He argues that not only the problems of the last crisis have not been addressed adequately but on top of that the steep increase in global debt levels have made them even worse. David certainly shares that view and sees inflation and rising rates and a massive currency devaluation and thus sees no chance that the new decade will be anything like the last one. He adds that the already crippling burden of insurmountable debt is increasing by the day; the demographic outlook in advanced economies is grim; democracy is being rendered dysfunctional by political ineptitude and polarization and that domestic unrest and international confrontation do not augur well for a global economy kept afloat by absurdly low interest rates and the deluge of liquidity created out of thin air. Wow, what a statement.

Thank you very much, Gentlemen (there were unfortunately no Ladies offering any feedback) for submitting your views on the topic. Due to the format of this weekly mail I was unable to publish all the answers I had received, but I think I covered most of the views that were shared with us. Please keep it up.

Now, debt is of concern to many of my readers and I certainly share a lot of sympathy for these concerns, but maybe I am missing a point?

Next week or the week after I would like to look at a phenomenon which bothers me more and more. I am thinking of what I would call “collective outrage”. Please feel free to already send in your views to this or just wait and reply to my thoughts. In any case, if you are sharing your view points, please don’t 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 great day and weekend.

Kind regards.

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

Dear Ladies and Gentlemen

Today I would like to introduce you to a new product, which one of my partners will be launching for Incrementum in due course. I truly hope you don’t mind, but I think the product is interesting, even if only available to professional investors.

Please enjoy the following truly concise introduction to the product by my partner Mark J. Valek:

„On February 19, Incrementum is launching an innovative and uncorrelated investment strategy. The investment success is independent of further rising stock markets as the strategy invests in cryptocurrencies and gold.

These are the key facts:

By combining „digital“ and physical gold, the investment fund serves investors as a portfolio building block, which as a diversifier excellently complements a traditional investment portfolio.

The strategic asset allocation of 75% gold and 25% cryptocurrencies significantly dampens the high volatility of cryptocurrencies.

The rule-based rebalancing results in regular profit-taking from price gains in cryptocurrencies.

Additional income is generated through systematic „covered call writing“ of listed Bitcoin options.

The implementation is cost-efficient and in compliance with the most secure custody standards.

The Strategy will be set up as AIF for professional investors.

As part of a seeding program, we are offering attractive fees during the seeding phase. The subscription period ends on February 14, 2020. If you are interested, please feel free to contact us and we will be happy to send you further information.”

Please let me know what you think, Ladies and Gentlemen. Next week I will share with you the feedback from my readers on my last week’s question: “are we going to see another Great Financial Crisis, or will we see perfect markets for another decade?“

…and please don’t 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 great day and weekend.

Kind regards.

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

Dear Ladies and Gentlemen

Who would have thought that right after the Great Financial Crisis we would see the first decade ever without a U.S. recession? More than ten years have passed since the end of the last U.S. recession, which happened in July 2009. The decade that just ended is actually the first one without a U.S. recession since the U.S. declaration of independence in 1776.

One can easily argue that the monetary policies of the U.S. Federal Reserve and other central banks certainly helped. True, this certainly helped.

Nevertheless, there are many people out there who completely misjudged the situation over the last decade and probably also missed most of the markets’ upside.

Overall, Ladies and Gentlemen, it is also clear that the global economy expanded more strongly in the 75 year period after World War II than ever before. Reasons for this can be found amongst other things in  an „end of war“ relieve, infrastructure investments, ground-breaking inventions and population growth. Another economic success story came from some countries in the Far East. This has been particularly true for China where over the last 20 years hundreds of millions of people have risen from poverty to middle class. Keep in mind that the West also benefited big time from this effect.

Therefore one can easily state that the circumstances leading to this recession-free decade in the U.S. were certainly very positive and exceptional and now, today, I am asking myself, if we will see another such positive and exceptional decade or if we will see dampening effects from low interest rates, over-indebted public- and private households, over-ageing populations in G20 nations, pension reforms leading to lower disposable incomes and thus dampening effects on private consumption, lower growth rates from the typical silicon valley companies leading to a dampening base effect and, and ,and.

I am usually a rather positive person but currently I am cautious. Another reason for being cautious is that we have been looking at research analysing consensus forward guidance of large investment banks, brokers, analysts and asset managers. You probably are aware that the people working for such organisations are very skilled, well-educated and they do nothing else but analysing macro and micro economic data, simulating models and taking assumptions. This is their job and it certainly is a very interesting one.

Yet, and strangely enough the majority of those analysts believes that we will not see any big changes in the markets and/or economy in the near-term future. Depending on the market (macro economics, precious metals, currencies, bonds, equities, commodities, etc) there are consensus deviations, but overall the picture is astonishingly homogeneous. If we take the average from the data we have looked at, we will recognise an expectation for modest economic growth and modest positive market performance.

Now, and this is why I am slightly cautious at this very moment, I have the impression that the average almost never happens. I have no statistical evidence backing my impression but thinking back. I can’t recall any such economic research consensus having materialised.

Please let me know what you think, Ladies and Gentlemen, are we going to see another Great Financial Crisis, or will we see perfect markets for another decade? Please share your thoughts, but please don’t 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 great day and weekend.

Kind regards.

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