Arbitrary Designation

Good Morning Ladies and Gentlemen

I receive a fair amount of messages from people asking me if the «crash» will continue or if this was it and I think my last Stefan’s weekly on „peak pessimism“ triggered some additional messages in this respect. So now, Ladies and Gentlemen, thank you very much for writing to me, asking for my opinion and your trust in my forecasting capability. I do not know, I have my personal view, but I cannot possibly know.

Definition

We’d like first to look at what a stock market crash defines. One definition that describes the term „crash“ is as follows: „A crash is a sudden, precipitous drop in stock prices; the downward spiral intensifies as more and more investors, seeing the bottom falling out of the market, try to sell their shares before their investments may lose their entire value.»

Two major U.S. Stock Market Crashes

In the U.S., older market participants still speak about two major stock market crashes. Those two significant U.S. crashes of the 20th century, in 1929 and 1987, had very different consequences. The first was followed by a period of economic stagnation and severe depression. The second major U.S. crash had a much shorter impact. While some investors suffered huge losses in 1987, recovery was well underway within three months.

Arbitrary Designation

Today we can read, hear and watch on all sorts of media channels the latest news on «the» crash. This is what I would call an arbitrary designation for the term „crash“. Because the word «crash» is used in too many different ways. Everyone does not use one clear definition (as there is none), but many different ones, especially regarding the absolute per cent decrease of a so-called crash. The word „crash“ is catchy and is always suitable for triggering an audience’s fears. I have the impression that the word is almost being used in an inflationary fashion, bringing me back to your question regarding my view on it.

Conclusion

We might as well face it, Ladies and Gentlemen; this year, fuels, rents and food were the most significant price drivers in most advanced economies. Even U.S. Treasury Secretary Janet Yellen admitted that she was wrong when assessing inflation as unproblematic a year ago. „I think I was wrong then about the trajectory of inflation,“ she recently told CNN. Curbing inflation is, therefore, most probably the central issue at the moment. Thus my answer to the question would be that once we know if the announced measures will do the job, we can assume to be close to the bottom of the current market correction; before that, any assessment seems complicated, if not impossible. However, this does not mean one cannot find attractive investments and buying the market’s lows will proof as tricky as foreseeing the bottom of the correction.

Ladies and Gentlemen
As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li.

Many thanks, indeed!

I wish you an excellent start to the day, a great weekend, and above all, peace!

Yours truly,

Stefan M. Kremeth

Wealth Management
Incrementum AG – we love managing assets

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