Autor: Stefan Markus Kremeth

Dear Ladies and Gentlemen

Looking at the consensus forecasts for crude oil, it seems most analysts see price levels of between USD 55 – USD 60 for the years to come. Three reasons seem to convince most analysts of expecting stable to slightly lower crude oil prices. Reason number one is an assumption of almost endless supply of shale rock oil in the U.S., reason number two seems to be the assumption that OPEC members will go back to competing for market share and start flooding markets with cheap oil and reason number three is taking the assumption that alternative energy sources will lead to a decrease in global crude oil demand.

Ladies and Gentlemen, to me all three assumptions are rather boring and known to just about everyone in the market these days and they are lacking any sort of new thinking.

Fact is the global economy is growing and we found one analyst who builds his case for “triple digit oil prices” on the scenario of macro-economic growth especially macro-economic growth of heavily populated aspiring economies. I am fond of his idea. Let me try to elaborate the “why” in a reasonably concise way.

We all know from our own experiences that the global crude oil market may be very volatile. However, the global crude oil market has one very distinct characteristic, demand is very sticky almost no matter of where the price stands. This means that even if prices half as seen two years ago, consumption doesn’t jump up. Same is true for increasing price levels, i.e. even if prices for crude oil double, consumption is not really decreasing. Let’s have a look at the demand distribution, maybe we can draw a first conclusion from there. 56% of global crude oil consumption can be attributed to transport (trucks count for 24%, cars for 20% and 12% for other means of transport like marine and aviation). On a global scale this is very inelastic and even if Tesla sells many cars these days, the impact of electric cars will only be seen in decades. Another 28% of global crude oil consumption can be attributed to industrial usage. Again, I think we can agree that, on a global scale industrial demand will be rather inelastic. The next 5% of global crude oil consumption can be attributed to electric power generation. Inelastic, maybe even increasing I would think. Leaves us with some 11% for various use, which may be somewhat more elastic but even if this part of the cake increases or decreases by 20% it will not have any major impact.

Now, interestingly the same is true for the supply side. Supply is relatively inelastic. Even if we take U.S. shale oil production and potential increases by OPEC member states into the equation, relative to global consumption, global crude oil supply is reasonably stable. It appears in 2017 demand exceeded supply by roughly 0.7 million barrels per day, leading to lower inventories. According to PIRA (energy markets database) a hefty inventory increase is wanted and can be expected in 2018 and the beginning of 2019. The supply side is expected to increase only slightly but not enough to cope with regular consumption and demand for higher inventory levels.

This, Ladies and Gentlemen, is of course a very simplified explanation and maybe even speculation but gives you a somewhat different perspective of what might happen to crude oil prices in 2018.

What is your take on this?

Please share your thoughts and ideas with me. Please feel encouraged to do so and please 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

Dear Ladies and Gentlemen

With all the ups and downs in the markets and all the political and economic uncertainties we are currently experiencing, I think it is fair to say that we are living in a much less investor friendly environment than 18 months ago. “Wait a minute” you may think, this is more or less the time of Mr. Trump’s presidency. Yes, it is, and I don’t want to judge Mr. Trump, take conclusions or even blame him, but fact is, the world as I see it has become somewhat increasingly restless, no matter why and without looking for any correlation. Such „restlessness“ as I want to call it, usually is not good for equity markets. Market participants, as you all know, don’t like uncertainties. I wrote about this many times.

You know, analysts and/or researchers but also the media tend to impose their own views and ideas (or the views and ideas they may sell best) on their audience. What does this mean, it means that what happens ever so often is that analysts and/or researchers or the media will go back to trick their audience with two very old and rather blunt possibilities of attacking our inner feelings, our sentiments by manipulating our senses of greed and fear,

Either they are trying to tell us how unbelievably fantastic an economic scenario, a product or an investment idea is to make us greedy and wanting to buy into their idea or they will tell us how bad the world has become and how much protection or insurance their economic concept or investment idea offers … again to make us want to buy their concept, product or investment idea.

Ladies and Gentlemen, I want to sharpen your senses.

When reading a text, when listening to the news, when talking to your investment advisor, banker, an analyst or a researcher, etc. rather than just accepting the views of the one talking to you (essentially about his/her realities), keep in mind that there is almost for every situation in life a possibility of negotiating your (very own) reality. Which means that you may have a view that is close or not so close to the view of the person trying to convince you. Realities may depend on many factors like education, socio-demographic or socio-economic backgrounds, religious beliefs, etc. They generally consist of impregnated factual claims trying to modulate our “consumer” behaviour. If you therefore take a somewhat agnostic stance to all of this talk it probably can not hurt.

Now, what does this have to do with investing in an unstable environmentyou may ask. Well, first of all I don’t know anyone who has a crystal ball and may foresee the future and second of all I am very careful when listening to people preaching the same mantras over and over again and I would strongly advise you to do the same and rather stick to an investment style that seem good for you, suits your purpose and matches your risk profile.

Please think about it.

…and please don’t forget, if you want to share your thoughts and ideas with me. Please feel encouraged to do so and please 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

Dear Ladies and Gentlemen

At Incrementum AG we are meeting with people on a regular basis. Be it because we are speaking in front of an audience, be it because investors, friends and interested people are taking the opportunity to come and see us in our offices in Schaan, be it because we are invited to people’s homes. This is the most enjoyable part of our business – the personal contact with you!

I think it is time to thank you for your trust and confidence in our ability to act as a solution provider for you, as a trusted asset manager and sometimes even as a friend.

At Incrementum we truly value personal relationship and contact. With great interest are we looking at the development of robo-advice and internet banking and there is obviously demand for such services and still algorithms are not able to interpret emotions and emotions is what we are after.

We are always happy of taking the time to broaden our views and knowledge while discussing with you all sorts of topics over a cup of tea or a coffee. If you are close by, give us a shout, don’t hesitate to come and see us

…and please don’t forget, if you want to share your thoughts and ideas with me. Please feel encouraged to do so and please send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend!
Kind regards

Yours truly,

Stefan M. Kremeth

Dear Ladies and Gentlemen

My friend and partner Dr. Christian Schärer was attending the Denver Gold Forum in Zürich and I had asked him to write a guest comment and share his impressions with us, this is what he wrote:

“Every year in April, numerous representatives from the mining industry meet with analysts and investors from all over Europe at the highly regarded conference. A good opportunity to learn more about the latest trends in the gold industry and to feel the mood among investors.

After visiting various company presentations in the plenum and numerous 1:1 with representatives of mining companies from our investment universe, we would like to summarize our impressions as follows:

The mood was basically constructive. However, there were fewer institutional investors than in other years. This was also confirmed by the representatives of the mining companies, which usually had to deal with a smaller number of 1:1. Nevertheless, discussions between investors and companies were conducted with a positive undertone. The consensus among participants sees a lower USD, rising inflation and a peak in gold production as catalysts for a positive gold price development…

However, we were less interested in argumentation at the macro level. As a stock picker, we wanted to verify two investment hypotheses. On the one hand, against the background of a historically high gold-silver ratio of 80:1, we were particularly interested in the shares of silver producers. On the other hand, we are driven by the question of whether the growing fee cash flows of well-managed mining companies in combination with the much-discussed „peak“ in gold mining could lead to a wave of M&A transactions in the coming quarters.  

Silver has regularly disappointed investors‘ performance expectations in the recent past. In our view, the long-term decline in industrial demand is the main reason for this frustrating development. The steadily decreasing industrial demand distinguishes silver from other industrial metals. One of the reasons for this negative trend was the marginalization of classical photography as a great demand for silver. Since the turn of the century, demand has fallen by around 180 million ounces annually. This corresponds to about 17% of the current market volume. 

Now, however, a silver lining seems to be emerging on the horizon. For the current year, the “Silver Institute” sees an increase in industrial demand for silver for the first time since 2013. The constantly growing demand from the field of photovoltaics can compensate for the losses in the field of traditional photography and leads to new dynamics. Despite improving industrial demand, global silver production continues to fall in the current year. It is likely to fall by around 10% compared with the record level achieved in 2015. Against this background, we would not be surprised if silver outperformed gold in the medium term, albeit from a historically low base. We are positioning ourselves accordingly in our commodity equity fund. True to our preference, we focus on companies with a solid balance sheet and an attractive free cash flow profile…

Few takeovers have recently confirmed our assessment that the prerequisites for a constructive M&A environment in the space of precious metal producers are certainly given. In recent years, the sector’s heavyweights have focused primarily on reducing their production costs and have been reluctant to invest in expanding their production capacities or to replace mined ounces. Accordingly, there is a need to catch up here. In addition, the stock performance of many exploration stocks and mine developers has been disappointing in recent quarters. This makes the relative valuation between potential buyers and possible takeover targets appear attractive. This is not a bad prerequisite for a new wave of consolidation in the precious metals sector. A big deal would be a possible catalyst for the start of such a movement. 

Finally, we would like to emphasize that the shares of well-managed mining companies also move in cycles. Gold and silver stocks are not „buy and hold“ investments. However, selected stocks are currently trading at quite attractive levels. Moreover, as these stocks correlate comparatively little with the overall market, they can certainly find a place in a clearly structured equity portfolio. At least they belong back on the watch list of an active investor.”

To me this looks a lot like looming opportunities. Let’s see…

Please share your thoughts and ideas with me. Please feel encouraged to do so 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!
Kind regards

Yours truly,

Stefan M. Kremeth

Dear Ladies and Gentlemen

Many thanks for the many and very positive comments I received to my “China-weekly”. Maybe I should start writing travel reports rather than trying to explain topics in connection with macro-economics, global exchanges and investments. I had quite a few of my readers sharing their experiences while travelling in China and the feedback I received confirmed my view. China is just a great place to see and experience and thus well worthwhile visiting.

Now and back in Liechtenstein/Switzerland and because of this very positive feedback, I would like to do another and final round of “China potpourri”.

Opera: We had organised tickets for Nabucco at the Shanghai Grand Theater. The Shanghai Grand Theater is a reasonably modern building, immaculate, with comfortable seats and very good acoustics. We had perfect seats, fifth row in the stalls and spent a wonderful time listening to the beautiful voices, the impressive choir and the harmonic music. It was just great! We were somewhat surprised about the casual dress code of our fellow spectators (which suit us well as we didn’t bring along very formal clothing) and the low ticket prices. We payed roughly 20% of what we would have had to pay for such tickets in Zürich. Fantastic value for money!

Mobile Phones: Mobile phones are omnipresent. People use it, at least this was my impression, even more extensively than here in Europe. Younger people watch TV on their mobile phones in the subway, on the bus and even walking in the streets, they listen to music, pay their bills, shop groceries. book tickets and call for taxies, they communicate through their social media accounts, take pictures (especially in restaurants) and just seem to love selfies. My mobile phone is important to me but from what I have seen in the large cities we visited in China, mobile phones are even more important to people in China.

Apps: There seems to be an App for just about everything, on just about every mobile phone in China. What impressed me were the restaurant apps. Clients may pre-order their food in restaurants and when arriving at the restaurant (in the morning before work or during work or at lunch time) hold their mobile phone against a reader and receive their pre-ordered drinks and/or food immediately. There are also taxi apps that pay a bonus to the taxi driver and/or the customer when ordering a taxi via the app. This leads of course to terrible consequences during rush hour and/or other times of high demand for taxis, as taxi drivers will not pick up customers in the streets if not necessary in order not to miss out on the bonus offered when being hired via app.

Tips: As an experienced traveller and just being on a great trip to new places in China I felt like wanting to tip the people that offered services to us. Only, this is not at all standard everywhere in China. In the large hotels and sometimes taxis it is no problem and tips are appreciated but in many restaurants service staff is not used to tips. At one time a waitress did not want to take the tip we offered and gave it back to us with a mile, thanking us, explaining that this was not necessary.

Marriage Market: This marriage market thing, Ladies and Gentlemen, may seem somewhat strange to people not used to all the cultural peculiarities. Marriage markets are events, usually happening on weekends in local parks. The idea is that parents advertise with small posters their adult daughters and/or sons to find a partner for them. I asked Laura from Fudan University if she could give us an explanation. She told us that the idea was for parents that their children would go to school, study hard, go to University, finish their bachelor and master’s degrees and spend time rather behind books and in libraries than in bars and clubs. Like this it is very difficult to find a partner. At the end of their studies and in the eyes of their parents, the children would need a partner to form a family and get children of their own. You know, those parents take great pride in talking about their children and in seeking a perfect match for them. The parents, born during communism, where everything was planned and organised for them, want to help organising the life of their children. Laura told us that this was somewhat embarrassing for the children but out of respect for the parents, children would usually go on a first date with a potential candidate and at worst would spend half an hour talking to someone. This is of course not binding for the children and once the children have found a partner in their own ways and present their partner to their parents, the parents will stop the advertising and spend their time travelling, playing cards, dancing and singing karaoke.

Interesting, no?

Please share your thoughts and ideas with me. Please feel encouraged to do so 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!
Kind regards

Yours truly,

Stefan M. Kremeth

Dear Ladies and Gentlemen

Many thanks for the many comments I received to my last “weekly”. It seems I am not the only one concerned. It is important for each one of us to start as early as possible to work on a strategy that ensures financial security besides or in addition to what governments may offer or not.

But now, I would like to switch to today’s topic, China.

As some of you may know, I am currently travelling in China. So far, I was in Shanghai, Xi’an, Beijing and just arrived in Shanghai again, before heading back to Europe next week.

This is my first visit to Mainland China and it is a short one (18 days) and I am only receiving a superficial first impression of this enormous country and still from what I am seeing, I am truly fascinated. Let me share some impressions in potpourri style with you.

People: I saw a lot of people; the cities are huge and there are people everywhere. The people I saw were mostly friendly and seemed happy. I saw families, grandparents, parents and children, spending time together in parks, restaurants at markets, visiting sites. I saw people of all ages and all styles and a lot of them. Very few of the people I met spoke proper English or any other foreign language, this makes conversations sometimes difficult.

Traffic: I used the high-speed rail between Xi’an and Beijing, which is perfect (average speed 300 km/h). Not only was it super easy to use but very punctual and clean. During one week of Beijing I used the subway system multiple times every day and I was impressed by the cleanliness and punctual and efficient service of this public transport system. On the other hand, the streets are almost all day long full of cars and it needs time and nerves to cope with such intense traffic. Scooters and small bikes in cities are all electric, which could lead to reasonably calm and silent traffic. However, in Xi’an and Beijing drivers are honking all the time, trying to squeeze themselves in front of others. This is not so much the case in Shanghai.

Culture: Very rich and old cultural heritage, plenty of sites dating back thousands of years, thus older than Europe. Mostly underestimated by non-Chinese and reduced to some stereotypes of rich emperors enjoying life with their concubines.

Food: You can get anything you like. From Swiss chocolate, fondue, veal sausage to German Schweinshaxe, Japanese Sushi and all sorts of Chinese dishes. This all comes in different price and quality ranges. I am loving it! We mainly ate Chinese food and Asian fusion (my favourite) and even on domestic flights in economy class the food was of surprisingly good quality.

Shopping: As for the food anything also goes for shopping. I have never seen such a concentration of upper level brand stores than in the large cities of China. However, they are very expensive, more expensive than in Switzerland as I noticed. On the other side you can buy non-branded articles at minimal cost. The range of the offer is huge.

Politics/economics: I also had the possibility to meet with people at Shanghai Fudan University and speak about current global political and economic issues and consensus was that (at least amongst the people I met) they didn’t seem too concerned by this “talk” of a global trade war. First it seems mainly the United States wanted to adjust tariffs to what seems fair to them, but no other country is following and second even if Chinese exports to the U.S. will decrease, they should be mostly compensated by exports to other regions/countries over time. Not to forget that if the United States increases tariffs on Chinese products, China will not hold back but do the same for products exported to China by the United States and according to an article in the Global Times over 900,000 U.S. jobs are supported by exports to China and thus would be at risk. Furthermore, and unlike in the U.S., the Chinese political leaders are not facing elections every four years and can therefore take decisions that may seem unpopular at short term without baring the risk of being taken out of office and therefore can easily stand up to President Trump’s threats.

Interesting, no?

Please share your thoughts and ideas with me. Please feel encouraged to do so 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!
Kind regards

Yours truly,

Stefan M. Kremeth

Dear Ladies and Gentlemen

Zero or close to zero percent Interest rates, equities markets going down, decreasing gross yields on real estate investments and longevity.

Ladies and Gentlemen, baby boomers may have to rethink their retirement plans.

You may think we know all that, but this is really important, now! Because knowing alone doesn’t help, it just doesn’t do the job considering most of us will agree upon the fact that knowledge that doesn’t change behaviour is useless and therefore we may need to change our behaviour or in this case investment behaviour. I have received so many mails from concerned readers of my weekly mails during the last three months, some were worried to lose their wealth, some questioned their investments and almost all were emotionally affected.

This, Ladies and Gentlemen, is normal human behaviour, nothing to worry about. Our ancestors needed such pronounced emotions to survive. It helped them not to become a snack for some hungry, ferocious animal. But today we don’t need these emotions to be as pronounced as 100’000 years ago and to see a personal portfolio go down by 10% or even 20% is in most cases, as unpleasant as it may feel, not a life-threatening experience. Volatility is just part of the game of investing and if you want to take out all volatility of your portfolio your return will most probably be negative as the cost of reducing risk down to zero is higher than the expected return from your investments may be. Therefore, especially during difficult times, i.e. very volatile markets, you should not lose focus and maybe avoid listening to all the negative voices around you, because they are either a) wrong for years or follow some b) unproven or c) outdated theory (most of the time a combination of all three of them).

Keep in mind what your investment goal is and if your investment goal is capital preservation over centuries, invest in assets that have a proven track record of keeping their value over the very long term like for example gold. But gold may be very, very volatile in the short to medium term and your life expectancy may be too short for you to appreciate the positive effects of gold. If you want to achieve very high investment returns in the short term, you will need to speculate and put (I deliberately avoid using the term “invest”) your money into highly volatile and risky equities, private equities, crypto currencies, etc., facing the risk to lose the entire “invested” capital. If you are willing not to be affected by the volatility of your portfolio but are happy to receive a cash return on your investments, you may want to consider a balanced equities portfolio of companies with a proven track record of being able of producing free cash flows even during not so perfect market conditions.
If you don’t want to see negative signs in front of your performance at any time, please do not invest whatsoever, rather spend your money or you will become your banker’s nightmare.

However, Ladies and Gentlemen, if you want to live through a long and healthy retirement age with some regular income stemming from your wealth and if you want to be avoiding eating up day by day more and more of that wealth, you may need to get accustomed to the idea of accepting volatility as an unavoidable variable.

All of us, Ladies and Gentlemen, must make sure not to overweight short term thinking too much and to let it influence our long-term investment strategies. It is always good to question investment strategies, but sudden changes and fear mostly lead to worse than expected results.

…and this brings me to the answer of the question in the title: “will we have enough to retire?”

Well, it entirely depends on you!

Please share your thoughts and ideas with me. Please feel encouraged to do so 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!
Kind regards

Yours truly,

Stefan M. Kremeth

Dear Ladies and Gentlemen

Investors don’t like uncertainty.

Yesterday’s financial markets plunge, triggered primarily (but not only) by fears of a global trade war, marked the fifth-largest point decline in the Dow’s history. CNN’s fear and greed index, measuring seven different market indicators, currently shows extreme fear. A potential trade war leads to uncertainty, uncertainty is fuel for bad performing markets.

I am often being asked by friends and investors what would be best to do, and I keep repeating the same over and over again and I believe it really seems fairly simple and usually works fine for me:

1. Don’t leverage your portfolio.
2. Do the nitty, gritty work and analyse potential investments.
3. Buy mainly (or even only) into net cashflow producing companies.
4. Keep the bulk of your assets in the currency of your expenses.
5. Keep a fair amount of cash so that you can invest (buy more) when others need to sell.
6. Buy on weak days.
7. Sell on strong days, take profits. Taking profits is wonderful. Don’t get too greedy!
8. Invest in companies distributing stable dividends, interests, capital reductions, etc. The cashflow from such investments will keep you afloat during difficult market times and there will always be difficult market times, like the one we are experiencing so far this year or maybe even worse!
9. Don’t try to time markets, it is very difficult to time markets because you will most probably not be able to foresee the future.

Ladies and Gentlemen, this is only a selection of investment principals I am living after. Obviously, they do not represent a recipe for the construction of an all-weather proof portfolio. Portfolios need to be custom tailored according to clients’ needs, age, risk awareness, etc. If you think about what is important to you, you may come up with your very own list of investment principles.

In any case, investing is not speculating. It is not playing around with financial instruments either in search/hope of a quick buck. It is a serious exercise and it is by definition: long-term.

Please share your thoughts, ideas, fears and questions with me. Let us put together a great list to look at during difficult market conditions. Many thanks!

…and therefore, Ladies and Gentlemen, if you are happy to share any of your thoughts with me, please feel encouraged to do so 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!
Kind regards

Yours truly,

Stefan M. Kremeth

Dear Ladies and Gentlemen

Thanks to the ACQ5 award we received some weeks back, I have been interviewed and am happy to share with you the final text that was published, as it shows well our way of thinking:

“At Incrementum AG we genuinely believe in tangible assets and we are modest enough to accept the fact that we cannot foresee the future and thus, where markets are heading. Our investment team has a serious interest in and a profound understanding of monetary history. In combination with out-of-the-box reasoning and prudent fundamental financial research, purposely avoiding daily chatter and noise, this offers a distinct skill set that has proven to be utterly valuable for our private clients and investment fund investors alike.

Participations in listed companies are very tangible to us and equities therefore belong to our core investments. We are building truly customised client portfolios according to our clients’ requirements, needs and willingness to accept risk. As long-term investors we invest solely in equities of listed companies with a proven track record of producing net free cashflows over years, happy to share those cashflows at least partially with investors in the form of dividends and/or capital reductions. On the other hand, and after many years of extraordinary money supply and ultra-low interest rates, we do not invest in government bonds as we do not feel comfortable with the current risk reward profile offered by those.

Large scale monetary policies are difficult to judge and while we are not entirely certain that the increase in global debt will be sustainable, we are humble enough to recognise that so far, the leading central banks seem to have mastered the 2007/2008 financial crisis rather well. Either way at Incrementum we see money only as means for facilitating global trade, consumption, maybe storing value very short term and thus as a lubricant for the global economy.

Our independence and short lines of communication are helping us to respond to evolving markets rapidly, to communicate freely and to act without any bias for our clients which as a result is helping them to prosper long term even in challenging market environments.

Ultimately, we believe in our independent and flexible boutique approach as it combines unconventional thinking with state of the art asset management know-how. We are convinced that the assets we manage will offer our investors the growth element that our company name Incrementum stands for.”

Ladies and Gentlemen, I am very happy to receive your feedback and if you want to share any of your thoughts with me, please feel encouraged to do so 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!
Kind regards

Yours truly,

Stefan M. Kremeth