On Power, Markets, and the Art of Living with Uncertainty

Good Morning Ladies and Gentlemen

“Our feelings, it seems, are characterised by our deep immersion in the present and, consequently, by a certain indifference towards the future.”

Eva Illouz

The current U.S. government under President Trump, it seems, has successfully unsettled not only the United States‘ traditional allies in Europe and Asia but also its closest partner in the Middle East. The recent bilateral agreement with Iran, made without Israel’s input, has cast doubt on the US’s longstanding and unwavering support for Israel.

The Limits of Political Power

We often overestimate the influence of politics, believing that governments can effectively guide developments, manage conflicts, and plan for the future. However, the Middle East serves as a continual reminder of the significant limitations of political control. Decisions can set off chain reactions, allies act according to their own interests, and adversaries do not simply vanish because one assumes they have been militarily subdued.

The Limits of Political Power and Financial Markets

In the realm of financial markets, the limits of political power underscore the challenges governments encounter in influencing economic outcomes within intricate, globally integrated systems. While policymakers can shape markets through regulation, taxation, and monetary policy, their control is neither absolute nor predictable. Political decisions often introduce uncertainty, leading to heightened risk premiums, increased volatility, and shifts in investor behaviour. Conversely, financial markets can impose constraints on political power, as capital mobility and investor sentiment serve to hold policymakers accountable. This dynamic interplay ensures that financial markets continuously assess not only economic fundamentals but also the credibility, stability, and limitations of political authority.

How to Predict Financial Markets

The aspiration to predict financial market outcomes remains a central yet contentious goal within the field of finance. While investors utilise models grounded in historical data, economic indicators, and increasingly advanced AI techniques, financial markets are inherently complex and influenced by unpredictable information flows, sentiment, and external shocks. The efficient market hypothesis posits that prices already incorporate all available information, making consistent predictions exceedingly difficult. Consequently, while forecasting can provide probabilistic insights and tools for risk management, it seldom yields precise outcomes. Ultimately, market prediction is less about achieving certainty and more about adeptly navigating uncertainty through disciplined frameworks and informed judgment.

Feelings and Financial Markets

In Philip Roth’s novel “Indignation”, a mother admonishes her son: “Feelings can be life’s greatest problem. Feelings can play the most terrible tricks on you”. Feelings indeed play a powerful yet, in the long-term, somewhat constrained role in financial markets. Emotions such as fear and greed can provide valuable intuition; however, they often distort judgment, leading to irrational decisions that impact financial markets in the short term. This frequently results in unintended consequences, including losses. Investors motivated by emotions may buy assets during euphoric periods or sell during moments of panic, thereby amplifying market volatility. Emotional biases, such as overconfidence and herd behaviour, further erode objective analysis, leading to mispricing and market inefficiencies. Additionally, strong emotions can induce hesitation or even decision paralysis in uncertain situations. Ultimately, an overreliance on feelings undermines discipline and consistency, underscoring the necessity for structured, rational decision-making frameworks in investing.

Conclusion

I firmly believe that crises are an inherent part of life, yet it is possible to learn how to remain reasonably calm in the face of them. As Eva Illouz insightfully observes, “Our feelings, it seems, are characterised by our deep immersion in the present and, consequently, by a certain indifference towards the future”, a tendency that often amplifies uncertainty precisely when clarity is most needed. Ultimately, the limitations of political power, the unpredictability of financial markets, and the impact of human emotions converge on a singular realisation: uncertainty is both enduring and unavoidable. Governments cannot exert complete control over outcomes, models cannot forecast risks with perfect accuracy, and emotions cannot be entirely suppressed. However, it is precisely within these constraints that resilience is cultivated. Successfully navigating the markets necessitates humility, discipline, and a clear acknowledgement of what lies beyond our knowledge or control. Instead of seeking certainty, both investors and policymakers must learn to operate within ambiguity, balancing judgment, structure, and adaptability in a world characterised not by predictability but by perpetual change.

Ladies and Gentlemen

Feel free to send your messages to smk@incrementum.li. Many thanks, indeed!

I wish you an excellent start to the day and weekend!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li