| 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:
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 Tel.: +423 237 26 60 |
Kategorie: Stefan’s Weekly
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: Silver: S&P 500: 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 Tel.: +423 237 26 60 |
Powerplay
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Quarantine Your Mind
| Dear Ladies and Gentlemen
I continuously receive many, many emails from our readers with questions on various asset classes and sometimes even on what seems specific investment opportunities. For regulatory reasons, I cannot possibly get into such potential suggestions or recommendations as I am not allowed to give specific advice in the format of my weekly emails. Thank you for your understanding. However, when it comes to the greater picture, I am allowed to share my personal view, and this is what I am happy to do from time to time. As it happens, I did I receive a question on the quality of banks in Europe. Now, banks are no homogeneous group. There are indeed large differences between different banks. Yet, many banks in Europe have significantly improved their balance sheet quality since the financial crisis, and the supervision of banks in Europe is much stricter than before the financial crisis. I, therefore, consider the banking landscape to be reasonably OK, although there may be large differences between single banks and between the various jurisdictions as well and no matter by how much the balance sheets have improved, I would not consider investing in banks for our customers. One topic to keep an eye on in this regard is a possible impending wave of covid-19 induced bankruptcies that may harm bank balance sheets. Although I personally think governments and central banks would intervene, the risk of failure cannot be denied. It seems governments and central banks have abolished de facto, a large part of the free markets, and yet, the risk of failure of non-system relevant banks is existing. From an investor’s point of view, government and central bank intervention is not necessarily a bad thing at all. There is much hypocrisy out there and to be very blunt it is probably mostly thanks to governments‘ and central banks‘ flooding the markets with big heaps of money that asset classes like gold, equtîties, and crypto-assets gained in value over the last years. If you hold one or more of these asset classes, do not complain too much. You know, Ladies and Gentlemen, in 1986/87 I spent 12 months in Toronto as an intern in the securities department of UBS Toronto. Our office was located right in the center of Toronto’s banking district, directly above the stock exchange. I witnessed the legendary crash of 1987. At that time, there was a classy, somewhat nervous but bright-eyed stock exchange trader working for the bank who smoked out tons of cigarettes. While the most significant panic on the stock exchanges since the 1930s unfolded, he told me over and over again almost mantra-like: „do not worry, in 24 months, probably even before that, people will have forgotten“ (I do not know the exact wording anymore, but +/- this is it). What can I say, he was right, and since then there have been over 20 stock market crashes, and the result is and remains the same. Those who hold a good selection of equities in a balanced portfolio are usually doing well in the long run. However, to be able to stick to your investment principles when everyone around you is panicking, you probably need to be able to quarantine your mind for as much as possible. 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 Tel.: +423 237 26 60 |
Hard talk with Václav Klaus
| Dear Ladies and Gentlemen
On May 4, 2020, my old friend Claudio Grass published an interview he had conducted with former President of the Czech Republic, Prof. Ing. Václav Klaus. Amid a second Covid-19 wave, the interview has not lost any of its relevance. Claudio Grass acts as an independent advisor to high net worth individuals for well over a decade. Please enjoy the read: „Claudio Grass (CG): The magnitude and the global scale of the lockdown and shutdown measures we have seen during this corona-crisis are unprecedented. How do you evaluate the response compared to the threat itself? Do you believe it is justified? Václav Klaus (VK): I do not pretend to be an expert in epidemiology, but my background in economics and statistics tells me that the threat is smaller than the consequences „organised „by governments all over the world as a reaction to this pandemic. I would add unnecessary consequences. The authorities reacted in an exorbitant way, in a moment of fear. This is partly the result of the current „online democracy „. CG: The „emergency measures“ and the restrictions that have been imposed on civilians‘ basic rights have served as a reminder of the true extent of the state’s powers. Do you find this worrying and do you see a risk that these new, extraordinary powers might not be as easy to roll back once the crisis is over? VK: The restrictions on basic civil rights that were introduced so swiftly and so easily demonstrate the power of the modern state, with all its new, „smart“ technologies and drastically expanded enforcement capabilities. Economists often talk about the so-called „ratchet effect“, or the limited ability of existing processes and dynamics to be reversed and to return to normal once a specific event has radically altered them. It is true of prices, of productivity, and it is also true of social and political systems. Therefore, I am afraid it will be very difficult, if not impossible, to return to the pre-corona days. CG: On an economic level, what is your assessment of the impact of the shutdown measures? VK: Most, if not all, of the circulating quantitative estimates and forecasts, are wrong. The „experts“ should first say how long the quarantine restrictions will last and when the economic shutdown will be fully lifted. Their economic forecasts depend on the length of the quarantine period. They should announce explicitly when they plan to end it. Until this is established and known, the current forecasts are economically meaningless. CG: The monetary and fiscal interventions that we have seen so far are as extreme and as shocking as the shutdown policies themselves. Do you think they will be enough to keep the economy afloat though, or is a deep and long recession simply inevitable? VK: The monetary and fiscal measures – unacceptable for the true democrats – may have positive short-term effects, but they will destabilise the economy and public finances for a very long period of time. They could lead to very high inflation. CG: Trillions upon trillions are being injected into the system, while wild ideas like the Universal Basic Income have become mainstream. Apart from the obvious monetary and economic risks of these policies, do you also foresee political and social implications? VK: Those of us in the ex-communist countries were used to living in a world of something like „Universal Basic Income“. We wanted to get rid of communism because of principles like this. These principles destroyed the motivation to work, which proved to be ruinous. VK: I would not call it „central planning“ yet. I prefer Walter Eucken’s term (used for the description of the German economy in Hitler’s time), „centrally administrated economy“. It is not planning in its original meaning. It is the very heavy and visible hand of the government at work, instead of the „invisible hand“ of the market. CG: The corona-crisis has also had some very serious geopolitical ramifications, especially vis-à-vis China. What are the main changes that you expect to see going forward in this arena? VK: We should not use this situation for the introduction of new dangerous foreign relations policies and to strengthen the demonisation of countries such as China and Russia. To my great regret, however, we see this is already happening. CG: What about the future of the EU? Do you think this crisis has further weakened it and what is your outlook for the bloc? VK: The EU will – unfortunately, in my view – survive the corona-crisis. Its exponents will use it to further weaken nation-states. They are on the defensive now, but they will reemerge again in full strength very soon. I wish I will be proven wrong, but I do believe they will use this crisis to their advantage and I fear they will do so successfully. CG: Citizens, investors and savers everywhere are justifiably scared, if not of the virus itself then certainly of financial ruin. In your view, what can we do to take back at least some control of our own future? VK: It is quite simple. The people should say „NO“ to all of it. Otherwise, what lies ahead is a real-life approximation of the dystopian „Brave New World“ of Aldous Huxley.“ Thank you very much, Claudio for letting me use your interview with former President of the Czech Republic, Prof. Ing. Václav Klaus. Regular readers of my weekly emails know that I cannot entirely agree with all of it and yet, the interview carries an alternative perspective to what can generally be found in mainstream media and is therefore not only interesting but also meaningful. 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 And now, Ladies and Gentlemen I wish you a great day and weekend. Yours truly Stefan M. Kremeth Tel.: +423 237 26 60 |
A Time of Aggressive Nervousness
| Dear Ladies and Gentlemen
I somewhat do have the impression, we live in a time of aggressive nervousness, and I can not think much of it. I am fully aware that bad news sell and yet, we all deserve a break. This is why I decided to write only about positive things in today’s weekly. First of all, the sentiment of U.S. house building companies is skyrocketing. In October, the mood among home builders reached a new all-time high, rising from 83 to 85 points compared to September. The NAHB home construction index has never been higher at any time since the start of the survey in 1986. Housebuilding sentiment is good when interest rates are falling or when interest rates are staying on low levels for a long time. It can be seen as an indicator and usually runs ahead of a stock market trend. At least this was the case at the end of 1998 and in summer of 2005. The S&P 500 marked its high points one and a half and two and a half years later (September 2000 and October 2007). Following the corona-related economic slump in the second quarter, the U.S. economy grew strongly again in the third quarter. The gross domestic product grew by 33.1 per cent between July and September on an annualised basis, thus exceeding market expectations. Then we have seen last week’s Weekly Economic Index (WEI) rise to -3.8 per cent from -4% in the previous week. The recovery of the U.S. economy continues. As the WEI is scaled to the growth rate of the past four quarters, it is increasingly approaching the expected growth rate for the calendar year. Considering all Covid-19 implications, this is rather good. Looking at the largest economy in Europe, we see the German truck toll performance index remaining at a high-level. The decrease compared to February is now only marginal at 1.7%. The toll performance index is published with a delay of about one week and acts as an indicator for the development of industrial production. Germany’s industrial production developed positively in October. The reason for this is substantial demand from Asia. Last but not least, we have seen Bitcoin performing positively over the last few weeks, and this usually is a clear sign of risk-on mood among investors and speculators. Therefore, if Bitcoin continues to rise, it could well be a positive signal for stock markets. Ladies and Gentlemen, by the end of next week one uncertainty is most probably going to be gone. I hope we will receive the results from the U.S. presidential election next week and this again would be good news, no matter who would be elected, as there would be one short-term uncertainty out of the way. By the way and just for fun, I like looking at the quotes on: Now, next week I have a real treat for all of you. My old friend Claudio was able to interview a former head of state on and during the Covid-19 pandemic ’s first wave and he allowed me to publish the interview in my next weekly. 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 And now, Ladies and Gentlemen I wish you a great day and weekend. Yours truly, Stefan M. Kremeth Tel.: +423 237 26 60 |
Does Patience bring Roses?
| Dear Ladies and Gentlemen
On October 3, one month before the elections in the USA, the editorial of the „Magazin“ (No 40) read the following: „What does it make to be an adult?“ (I did mention this quote some three weeks ago in my weekly mail). „Faced with difficulties, they look for solutions. They do not despair at the first hurdle. They know that many problems that seem big and important at the moment are not in the long run and will eventually resolve themselves. However, above all, being an adult also means always being friendly and showing compassion for others“. Alain de Botton Now, back to the question in the headline of this mail. Is the old wisdom that patience should bring roses justified and above all, does it also apply to my profession, the investment of assets for private clients. Let me say straight away; I think this is the case. When I look back over the last decades, long-term investors have always been able to earn money with stable equity investments, even if they had to accept negative performances in the short term. As you know, our private clients‘ mandates are geared to cash flows. That is why our portfolios always include shares from insurance- and telecom-, pharmaceutical- and energy-, real estate- and food industry sectors. Now, this year, it is precisely such stocks that are suffering. All of these companies usually produce positive cash flows for years and sometimes decades. From time to time, for a quarter or two, those cash flows may stop. However, and due to their strong balance sheets, these companies are still able to pay dividends. Even though Royal Dutch, for example, has cut its dividend payments for the first time in 45 years, they still pay out 3%, Swiss Re has always paid out 5% or more in recent years, and Zurich Insurance has shown a constant dividend yield of over 6% in recent years. For us, these shares belong in every portfolio that is geared towards cash flow. If I now take the share of Zurich Insurance as an example, the dividend of 20 Swiss francs over 15 years can amortise the investment of 300 Swiss francs. In our opinion, this is very attractive. All the more so as we find ourselves in an environment of negative interest rates. We are well aware that our approach requires patience, especially in this exceptional year, but we are convinced that after many good years, some of them even very good, we will just get through this year as well. You know, Ladies and Gentlemen, Molière is credited with saying that „trees that grow slowly bear the best fruit“. So if patience brings roses and the slow-growing trees produce the best fruit, and if, as Alain de Botton suggested, many of the problems that currently seem to be significant and vital are not in a longer-term perspective and will eventually resolve themselves, then I am rather confident that our cash flow strategy will continue to generate gratifying returns over the coming decades despite Covid-19. 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 Tel.: +423 237 26 60 |
Year-End Competition Update II
| Dear Ladies and Gentlemen
Time for another update on our year-end competition. 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, but there were no new „highest“ or „lowest“ estimates. However, the prices for Gold, Silver, and the S&P moved up considerably since the last update. So, let us have a look where we are standing. Gold: Silver: S&P 500: Currently (at the time when I was finishing this message) gold stands at USD 1’908.59, Silver at USD 24.24, and the S&P at 3’483.34. If there are still readers out there who would like to participate, please feel free to send me a quick email, and I will be happy to take you on the list of participants. Do not forget; you may win a one-ounce Silver coin. Its price just went up by roughly 35% since my last (June-) update. 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 Tel.: +423 237 26 60 |
Efficient Market Hypothesis
| Dear Ladies and Gentlemen
Much as expected, I received many messages concerning my last weekly mail called „a quantum of decency“. Also, much as expected, my personal perspective was not necessarily congruent with the perspectives of all of my readers. Nevertheless, thankfully, and again much as expected, most of the messages not agreeing with my point of view came along politely and thoughtfully, and I had many interesting conversations with readers explaining (agreeing or not) their perspectives, and this is what my weekly emails are all about, at least for me. Thank you very much to Barbara, Bob, AJ, Tom, Thomas, Mark, Steve, John, Mike, David and all the others for sharing your points of view! Now, before writing about the market efficiency hypothesis and because it fits last week’s topic so well, I would like to share a quote by the Swiss/British writer and philosopher Alain de Botton. When asked what adulthood meant to him, he said: „When faced with difficulties, they (adults) look for solutions. They do not despair at the first hurdle. They know that many problems that seem big and important at the moment are not at all in a long-term perspective and will eventually resolve themselves. Above all, being an adult also means always being friendly and showing compassion for others.“ Today’s topic is about EMH, the efficient market hypothesis (EMH), which is a mathematical-statistical theory of finance. The EMH states that asset prices reflect all available information. Therefore, assuming this is true, no amount of analysis can give an investor an edge over other investors in a given market. EMH does not require that investors be rational; it says that individual investors will act randomly, but as a whole, the market is always right. In simple terms, „efficient“ implies „normal“. For example, an unusual reaction to unusual information would therefore be expected. If for example, a crowd suddenly starts running in one direction, it would be normal for anyone to run in that direction as well, even if there is not a rational reason for doing so. A direct consequence to believers of that theory is that no market participant can beat the market in the long run. Many market participants and even financial markets scientists object to it. Warren Buffet, Daniel Kahneman, Amos Twersky and Richard Thaler have been criticizing EMH on various occasions. 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 And now, Ladies and Gentlemen I wish you a great day and weekend. Yours truly, Stefan M. Kremeth Tel.: +423 237 26 60 |
A Quantum of Decency
| Dear Ladies and Gentlemen
Last week I wrote about mean reversion and proposed this week’s mail to be on the market efficiency theory. I am sorry, but the topic will have to wait, I feel we „have bigger fish to fry“. I do not want my weekly mail to become a political instrument of any sort, and I consider myself to be a reasonably free spirit, but I almost felt urged to share my thoughts with you. So, there I was, getting up at 02:30 CET in the morning (yes, 2:30 am) on Wednesday to be ready for the first of three debates between the U.S. President, Donald Trump, and the former U.S. Vice President, Joe Biden. Ladies and Gentlemen, I was shocked by the performance. Are these two candidates really the best the U.S. has to offer? After all, this is supposed to be one of the most important jobs in the world (comes right after CEO at Incrementum) and out of a population of 328.5 million people, one could expect to find at least a handful of intelligent and classy people, no? But, let me start with first things first. To win a presidential election, a U.S. president needs a majority in the „electoral college“, i.e. the electoral men and women. This body consists of 538 people, so the majority is 270 votes. Each state sends a certain number of electoral men and women depending on the size of its population. The winner of a state receives all the votes, thus strengthening the Electoral College for his or her party. The absolute majority of the people’s votes (popular vote) is not decisive. Now that we have established this part, let us briefly concentrate on what happened from my perspective on Wednesday morning. It should have been a debate to show the two candidates‘ position on the following six topics chosen by Chris Wallace, the debate’s T.V. host, from Fox News. “The records of President Trump and former Vice President Joe Biden.” Chris Wallace is a 72-year-old and very experienced journalist, and yet, he had severe troubles to keep the debate and discussion on a decent level. To me, the president of the United States of America behaved in a very indecent way, and watching him perform on Wednesday morning CET confirmed one fundamental view that had developed over the past four years inside myself. The view I have today is that no matter how potentially excellent his political performance was during his term in office, without a quantum of decency no one should serve as president of the United States of America (or any other country), the largest economic and military power in the world. You know, Ladies and Gentlemen, in sociology, decency is defined as a standard for ethical and moral standards and expectations of good or correct behavior that is taken for granted. Decency determines manners and lifestyle. To me, this is a must-have for any politician, but even more so, for the president of the superpower called the USA. I am not sure if Mister Joe Biden will be a good president and if his political program will help to get the job done, but because to me he seems to be the more decent person, than the current U.S. president, the political program becomes almost less critical. I want the without a doubt globally most influential politician to be a reasonably decent person, and currently, I do not have the impression President Donald Trump meets this expectation. 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 And now, Ladies and Gentlemen I wish you a great day and weekend. Yours truly, Stefan M. Kremeth Tel.: +423 237 26 60 |