Month: February 2025

Good Morning Ladies and Gentlemen

”It’s never stupid to be afraid of shit that can kill you.”

Anna Windsor, from Bound by Light (a book I have not read)

Stagflation is a challenging economic phenomenon characterised by high inflation, low growth, and elevated unemployment rates. In this week’s edition of “Stefan’s Weekly,” I wish to focus on this topic. As I observe the events unfolding in the world’s largest economy, I struggle to identify any sensible processes or coherent implementation of effective strategies to address the current situation. While it may still be early in the unfolding events, it seems prudent to prepare for the worst while hoping for the best, rather than the inverse.

Stagflation a Definition

Stagflation is a difficult economic situation characterised by high inflation, low growth, and high unemployment. It can result from a negative supply shock that reduces an economy’s production capacity and increases costs or a mismatch between aggregate demand and supply.

Why Is Stagflation Challanging

Stagflation poses several challenges for policymakers, businesses, and consumers. It can lead to lower living standards and higher poverty rates for consumers, lower profits and uncertainty for businesses, lower tax revenues and deficits for governments, and higher interest rates and lower bond prices for investors.

How To Overcome Stagflation

Overcoming stagflation is problematic because it requires a delicate balance between monetary and fiscal policy, both of which can have unintended consequences. Monetary policy can curb inflation by raising interest rates and reducing the money supply, exacerbating the economic downturn and increasing unemployment. Fiscal policy can boost growth by increasing government spending and lowering taxes, but it can also fuel inflation and increase government debt.

Stagfaltion Protection

Defensive stocks deliver stable earnings and reliable dividends. These stocks are generally less affected by economic cycles, making them solid investments during challenging economic times due to their consistent demand. Real estate represents another valuable asset class. It offers protection against inflation and economic downturns while generating rental income. Investing in commodities, including energy, metals, and agricultural products, can be rewarding during stagflation, as they may benefit from rising prices due to inflation and supply shortages. However, this approach carries risks, including price volatility and potential regulatory changes. Gold is another dependable asset that safeguards against inflation and currency devaluation, maintaining its value over time. Its scarcity and durability make it less susceptible to fluctuations in supply and demand, usually providing solid performance during periods of stagflation. Last, Treasury Inflation-Protected Securities (TIPS) are government bonds that hedge against inflation by adjusting their principal value by the Consumer Price Index (CPI). They provide fixed interest payments every six months, making them an attractive investment choice during stagflation.

Conclusion

While stagflation presents a significant economic challenge, it doesn’t necessarily mean disaster for your investments. You can effectively navigate these turbulent times by grasping the intricacies of this rare economic phenomenon and adopting appropriate investment strategies. The resilience of defensive stocks and the lasting appeal of real estate, gold, TIPS, and commodities can partially safeguard your wealth and potentially even flourish in a stagflationary environment.

Finally

Ladies and Gentlemen, my last week’s “Stefan’s Weekly” led to some very positive feedback. Many thanks! Some of you asked for my opinion regarding a perceived change in the political landscape. Let me share the following with you. I firmly believe that any political landscape is, by definition, dynamic, and thus stability, even if perceived, is not guaranteed at all. Furthermore, I feel that humans often suffer from cognitive dissonance, which can create confusion regarding beliefs, ideologies, and worldviews. Consequently, many find it challenging to think abstractly and prefer to seek guidance from a rigid ideological framework. The drawback of this tendency is that many individuals lean towards one of the simplified dichotomies, as concepts such as good and evil and binary distinctions provide readily accessible answers and a sense of emotional certainty. This, of course, allows one to avoid grappling with the complexities and contradictions inherent in a complex reality. But is this really the right approach? Please think about it!

Ladies and Gentlemen

As always, please share your opinion with me. 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

Good Morning Ladies and Gentlemen

”That most delicious of all privileges – spending other people’s money.”

John Randolph of Roanoke

In my view, the political ramifications of money printing manifest in an escalating dependency on the state for various forms of support. Events such as the Great Financial Crisis, the pandemic, and the Ukraine crisis have undeniably contributed to uncertainty and diminished confidence in individuals’ capacities to lead self-determined lives. Although the state policies aimed at providing substantial financial assistance during crises are well-intentioned, they have inadvertently cultivated a growing sense of entitlement toward state support, which appears to be putting pressure on democratic systems.

Distributing OPM

More and more groups are focusing on advocating for support or rescue, leading to a situation where less action is taken, and more is expected. However, it is essential to remember that every distribution of resources must first be collected. As the culture of achievement, crucial for a thriving, inclusive society, transforms into a mindset of entitlement, the risk of democratic failure grows. The more diverse the demands placed on the state, the more money is distributed, yet the more challenging it becomes to meet all expectations, which leads to some disappointment. Consequently, because of increasing government spending, taxes are likely to increase as well, resulting in ever greater dissatisfaction among the population. While short-term ruthless politicians may gather votes by distributing other people’s money (OPM), the long-term effect of such action is devastating.

The Crux of Modern Democracy

In a recent correspondence, my partner Hans Schiefen articulated an exceptionally well-constructed statement that I believe is highly relevant to the current discourse presented in today’s “Stefan’s Weekly”. Thus, I would like to take the liberty of sharing his insights with you for consideration. “The crux of modern democracy is that politicians often mutate into power- and career-conscious opportunists, while citizens limit their political engagement to the occasional trip to the ballot box at best, where they hope like children at Christmas that their wishes will be fulfilled, regardless of their realistically possible realisation potential”.

Finally

I believe that politicians should strive for greater honesty and treat citizens as mature individuals. While addressing unpleasant topics with transparency may result in fewer votes in the short term, it ultimately reinforces citizens’ trust in the political system over time. Furthermore, it’s essential for citizens to be more aware of the significance of their vote and to consider whom they choose to empower with that vote carefully. This weekend, the third-largest economy on the planet will elect a new government. Who knows, perhaps the newly elected government in Germany will adopt a more honest approach in addressing the nation’s challenges. Instead of relying increasingly on borrowed money to maintain social order, they may choose to confront uncom-fortable truths. This could pave the way for genuine solutions and help steer the country away from the negative consequences of money printing.

Ladies and Gentlemen
As always, please share your opinion with me. 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

Good Morning Ladies and Gentlemen

”I wasn’t worth a cent two years ago, and now I owe two million dollars.”

Mark Twain

I have long been interested in debt and have observed a prevalent misperception of its nature among the general populace. I would like to clarify that not all forms of debt are equivalent; rather, debt encompasses a spectrum of financial obligations that can vary significantly in terms of their implications, costs, and benefits.

Debt and Productivity

In principle, taking on debt is not inherently harmful; it can stimulate an economy. However, the underlying reasons for incurring debt are crucial, particularly for many countries around the world that are facing increased borrowing. When the borrowed funds are invested in infrastructure or projects designed to enhance productivity and stimulate future economic growth, such borrowing can be reasonably justified. A similar rationale applies when private households take a mortgage to finance their homes. Conversely, suppose the purpose of lending is merely to cover the ongoing operational costs of a government, as is often the case in countries like the USA, France, and Germany. In that case, it cannot be assumed that such expenditures will contribute to future productivity. Instead, this approach tends to exacerbate the existing debt burden, ultimately reducing productivity and potentially leading to increased government spending, higher taxes and increasing inflation.

Debt and Debt Servicing

Yes, Ladies and Gentlemen, the persistent accumulation of government debt is associated with increased government expenditure, primarily driven by the necessity of debt servicing. Over time, this dynamic exerts upward inflation pressure, resulting in a higher government spending-to-GDP ratio. While low interest rates may temporarily relieve these fiscal pressures, an eventual adjustment of interest rates is imperative in response to the prevailing levels of debt and inflation. Failure to do so may lead to difficulties in attracting creditors in the open market who are willing to accommodate such debts in exchange for interest payments. However, it is essential to note that the imposition of higher interest rates can dampen economic growth, which would be critically needed to address the rising burden of public debt.

Debt and GDP

In any sensible family, maintaining a household budget is essential. While, for example, it may be reasonable to invest in a home through a mortgage, the family’s primary objective is typically to reduce or ultimately pay off that debt over time. This approach makes perfect sense to me. Unlike in political systems, where leaders must be elected by their constituents every four or five years, parents do not face such pressures. They can make financially prudent decisions that might be unpopular with their children at times yet are crucial for the family’s long-term budget and well-being. Moreover, parents are responsible for generating the family’s household income.
In politics, however, leaders who introduce unpopular spending cuts, despite their rationale, often face the likelihood of not being reelected. Voters avoid confronting unwelcome truths; instead, they frequently cast their ballots for enticing promises, regardless of the financial implications. Since politicians do not directly earn the money they spend, they feel little pressure to avoid making unrealistic commitments that may seem appealing to secure their re-election.

I know

I’m generalising and simplifying things. However, my perspective is not entirely inaccurate. Genuinely, we need to re-claim certain responsibilities or absorb the costs for tasks that we have outsourced to the government over the past few years or even decades. This is primarily because we, as a collective society, can no longer manage these rising costs.

Ladies and Gentlemen

As always, please share your opinion with me. 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