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