Category: Stefan’s Weekly

Good Morning Ladies and Gentlemen

The end of last week, the beginning of this week, and also yesterday finally showed some positive market moves. However, the question remains if this is it or if we have further potential. Since I do not know the answer, I am looking at some sentiment indicators, and maybe they can hint at what direction the market will go.

Bank of America (BofA)

To come straight to the point, the BofA Global Research Fund Manager Survey for October sees macro and investor capitulation complete.

This is it, then?

Unfortunately, it is not all that easy. Because central bank capitulation has only just begun, and lack of fund outflows prevents the “big low”. The BofA research has drawn up a list of criteria for the so-called “big low”. The list comprises eleven points, of which the first six result from the fund manager survey. In total, BofA sees seven of the eleven points fulfilled. Just not enough for a “big low”, even if already quite pessimistic.

Macro capitulation

The BofA survey shows that 72% of fund managers expect a weaker global economy. No real surprise, you may think, and yet 72% is quite a number. Nevertheless, this expectation has already been pretty low for the last eight months. Financial markets have taken their time to adjust. Today, I may say, the current levels somewhat better reflect that pessimism.

Investor capitulation

The cash level of global asset managers is at a two-decade high of 6.3% (the previous month’s 6.1%). The last time the cash share was higher was in April 2001.

So what is missing for a more positive outlook?

We need a statement from Fed Chairman Jerome Powell that gives confidence to market participants that inflation is slowly but surely getting tamed and interest increases will stop eventually or at least perform at a lower speed. Then, with 60%, we still see a relatively high share of equities as part of BofA’s assets under management, and last, but not least, funds have so far hardly seen significant outflows.

Research

Once again, and as you all probably know, I am not a big fan of average research issued by the average commercial bank. Much of it always goes in the same direction, always late cyclical and nicely wrapped in consensus-driven statements, and not to forget ESG-compliant. Nevertheless, The investor crowd gobbles this stuff up; why I do not understand because the platitudes from some of these reports could, at times, easily overpower the Swiss alps.

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 and still, 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
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

I sometimes get the impression that I am always reading/watching the same narratives. Now, I understand journalism is, by definition, cherry-picking. It reports on rare events, such as wars, epidemics or catastrophes, not on everyday life, i.e. peace, health and security. This tendency towards negativity is exacerbated because journalists fight for clicks and, as moral preachers, want to jolt their audience out of its complacency. The satirical magazine “The Onion” sneered: “CNN holds morning meetings to decide why viewers should panic all day long.” While this may seem funny, it is not; it is dangerous. Think about it.

Conversation with John

Anyway, the other day I had a long conversation with John, and I would like to share some of the thoughts that came up during our conversation. I will concentrate on John’s thoughts; they are much more interesting than mine.

Financial markets may fool participants (Stefan)

Many people make money in a bull trend in whatever asset class and believe it was because of their fantastic judgement. So if they feel happy about it, that is just fine. However, such situations may lead to sorrow once the market trend changes and the investment mood swings from greed to fear. There was so much hot air in the markets at the beginning of this year. Cashflows were unimportant; multiples did not count; the crazier, the better and the faster it went up. A correction was overdue; pitty that even quality companies lose a lot in such an environment. As long as asset managers stick to their investment principles and do not panic, I think they are fine.

Though experiences are necessary (John)

There is a saying that the youth is wasted on the young. Massive losses are how people gain investment wisdom. It is necessary to gain experience to understand that bull trends do not last forever, and neither do bear markets. Experience via direct exposure is the best teacher, not via arguments. A disciplined approach geared towards cash flows is more enduring, but that has limited appeal when new-era companies dominate the landscape.

Predicting the future (John)

The future is hard to predict, yet the Federal Reserve makes so many decisions that deconstruct economics and the future into math models. Words and numbers are insufficient to capture the rich reality we experience via our five senses.  Yikes on the Fed. So many unintended consequences can result, which lead to further variations in the future. My former boss said everyone is right in their prediction of the market. There will be bubbles, crashes, investment fads, cyclical phenomena, inflation, and deflation in a long enough time frame. Timeframes are important. Is one right if the gold bull market will occur 20 years down the line? One can say that he/she is correct every year for the next 20 years and will be proven right due to the fickle nature of markets. When people think of the future, they extrapolate the performance of the recent past. Observing history, most things are cyclical.

Next cycle’s winners (John)

Current cycle winners become the next cycle losers. Prior cycle losers become the following cycle winners. Having an understanding of cycles can make predictions of the future more accurate. Yet, the future is unwritten. However, the key to understanding the future is to understand the environment that the past has created. Unfortunately, too many people think linearly in a nonlinear world.
Did you ever notice how every cycle change needs to have a crash? It resets the allocation of capital and redoes the investment narrative. Trends in motion stay in motion until there is a break in the narrative. For example, a key to the start of a bull market cycle (a focus on arithmetic which is a reality play) is to figure out what industry has started to pay down debt, consolidate, and focus on profitability/dividends instead of dense growth. In contrast, the start of a bear market involves new entrants, loads of debt, and overproduction. Increased competition will threaten profitability (think of pot companies and electric cars).

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 and still, 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
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

Today I have a special goody for you. I am happy to send you a link to a video recording of a fireside talk between my partner Ronni Stöferle and John Hathaway. Both are well-known and respected experts in the gold space.

Please enjoy:

https://www.gowebcasting.com/events/precious-metals-summit-conferences-llc/2022/09/14/keynote-presentation-gerald-ford-hall/play/stream/34758

I wish you an excellent start to the day, a great weekend, and above all and still, 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
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

Guesses

The book is closed, and no more participants are accepted. The final highest S&P bid came in at 4’482, the final lowest at 1’881. The final highest bid for gold came at 2’350, and the final lowest was at 1’715. For Brent crude oil, the final price estimates range from 160 to 33.63. As always, all prices are USD, not Turkish Lira, McDonald’s burgers or sea shells.

Today’s prices

While I am writing this edition of «Stefan’s weekly», the S&P is trading at 3’771.52, gold at 1’674.90 and Brent crude oil at 91.84.

Predicting the future

To me, predicting the future is pretty hard, if not impossible. Interestingly enough, some of you have seen one or the other price development going in the right direction, and this is what you keep mentioning when writing to me. All fine, I know the feeling. When speaking to my family members, I also tend to highlight past arguments that, in retrospect, turned out to be correct. Now, with this «Stefan’s weekly» and also thanks to the «year-end competition», I would be super happy if I was able to make you a little aware of the difficulties when making predictions. Moreover, I hope for your understanding when we cannot always hit it exactly.

The price of gold

In this regard, Ladies and Gentlemen, I receive one or the other message about the price development in gold once in a while from some of you. I know the current gold price development may be disappointing. Nevertheless, when you look back at our research over the last years and you look at the scenarios we developed, you probably will have to admit that they are pretty banging (please excuse that expression, it is one of my son’s favourites) with increasing inflation, higher interest rates, central banks being behind the curve, possible stagflation (maybe not in the U.S. but in Europe, where it will be pretty hard to avoid). Look, Ladies and Gentlemen, I think the one exception is gold, which did not turn out to take advantage of the current situation and become a winner.

Forecast

As I did point out to Joao the other day: «We can not foresee the future, not with the best models and not with the best intentions. Gold will most probably always be an excellent inflation hedge but not necessarily in the short-run. Over decades or better centuries, gold will most likely keep its purchasing power, at least so far it has; however, gold holders may seek shorter-term performance, and there may be a mismatch between investors’ expectations and the price movement itself.»

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 and still, 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
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

Many thanks for your messages and compliments on my last post. Many of you, like myself, seem to have warm memories of watching Groucho Marx and his brothers decades ago.

U.S. Dollar (USD)

Since the great financial crisis about fifteen years ago, I have read one book, some research and many articles about the demise of the American currency. Nevertheless, the U.S. Dollar is still standing and is standing relatively strong! So far, it has proven to be the ideal inflation hedge ever since the current inflation cycle started roughly 18 months ago. The presumed dead still lives happily ever after.

My view eighteen months ago

Ladies and Gentlemen, I was utterly wrong. I believed inflation would not get out of hand and was surprised by the dynamics of rising energy prices, mainly due to Russia’s war on Ukraine. Eighteen months ago, this war was not part of the inflation equation I had in mind. But, nevertheless, I was wrong.

Gold

Gold was not an ideal inflation hedge; we all know that, and gold miners did very poorly as well, we also know that. Lower precious metals and rising energy prices hit miners simultaneously, a blow to any miner’s margin. However, Ladies and Gentlemen, if we take up one idea of my last weekly mail.

Light-grey swan

Let us assume, just for the heck of it, that over the next six to nine months, the U.S. Fed can tame inflation in the U.S. and will therefore refrain from raising interest rates in significant steps of 0.75% or even 1% after every Fed meeting. What would this mean to the USD? I believe this could be the light-grey swan in a cohort of black swans and lead to a weakening of the USD. But, on the other hand, a weakening USD would probably lead to a strengthening of gold and gold miners with some short delay, do you not think so?

Investing / peak fear

Investors are people who are willing to delay gratification and invest for the future because investing is all about rewards that come from planting seeds and seeing them come to fruition over the long term. Now, while I have great sympathy for people’s fears and understand that today investors refrain from buying in these uncertain times, I can nevertheless easily imagine that once we have reached peak fear, the lowest levels in the market will be close. The difficulty is, of course, to know ex-ante when we have reached peak fear. How are you handling the timing of your investments?

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 and still, 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
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

Thank you very much for your great comments and all the PDFs, videos, links and texts I have received. Unfortunately, I can not possibly view and/or read all of them. Please send me only what is genuinely different from mainstream thinking. To me, Ray Dalio, for example, is not. I follow him on LinkedIn and therefore mostly know what he publishes. On the other side, I like Kevin Muir; he looks at things differently.

“The secret of life is honesty and fair dealing. If you can fake that, you’ve got it made.”
Groucho Marx

Serious talks

Now, I am convinced most people even in Russia want to stop this war, bring the parties involved to the table, and discuss solutions everyone can live with. However, the particular interests and maybe even egos of the involved parties/politicians seem to make this currently impossible. Groucho would be astounded by the fact that our world leaders seem not even to be faking honesty and fair dealing anymore and still get away with it.

My view on inflation

When it comes to inflation, I probably have indeed, as some of you suggested, a slightly different view because of living in Switzerland and working in Liechtenstein; besides higher gas prices for my car, I have so far not felt any difference. However, the government just published the new tariffs for electricity two days ago, and in our community, they will go up by roughly 27%.

Media noise

From what people tell me and write to me about from outside Switzerland, i.e. mainly in Europe, the noise in the media is still higher than the inflation impact on the average citizen. I do not know if this is true, but in the past, the media seemed to exaggerate very often to create clicks. The media’s business case is built on selling, also thanks to ANGST. Ladies and Gentlemen, if we see let us say 10’000 (if at all) energy bills posted online, we think this is a lot; measured against almost 500 million inhabitants, it becomes a small number. I am by all means not downplaying that this energy crisis will hurt households, but I think a lot of it is known by now. Institutions are trying to seek solutions, and so far, humanity has always found ways of adapting to new situations, even if the process was painful.

Antifragility

The good thing about this energy crisis is that we are now forced to seek energy sources outside the established channels. So even if short-term this will hurt us, mid to long-term, it should help us to make us more antifragile.

Black swan

As an asset manager, I am constantly trying to gauge what is in the price of financial markets and where is more potential for upside or downside. Interestingly, black swans are only ever conjured up in connection with negative scenarios, and the same applies in the meantime with grey swans; soon, I can imagine, there will be light grey and dark grey swans. Russia has completely stopped its gas deliveries to Germany. The gas price has only reacted negatively initially; in the meantime, it went down. So the leverage of decreasing gas supplies from Russia is now gone. What I want to say with this is that perhaps from this, the possibility of a light-grey swan arises, which in the abundance of the ubiquitously assumed black swans would stand out positively. Think about it, Ladies and Gentlemen.

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 and still, 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
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

“My policies encourage the hardworking, protect the weak, and punish the lazy. There is no right to government-paid laziness.”

Guido Westerwelle, German politician, Federal Chairman of the FDP 1961 – 2016

Jumping inflation in the E.U.

This year’s second-highest jump in inflation in the European Union (E.U.) occurred in February 2022. In February 2022, E.U. inflation went up by +0.94% versus January 2022. However, the highest month-on-month inflation jump in the E.U. this year happened just one month later. In March 2022, inflation increased by a hefty +2.43%. This was among Europe’s highest month-on-month inflation increases in the past 50 years.

ECB: monetary policy meeting

On September 8, 2022, the Governing Council of the ECB will hold a monetary policy meeting in Frankfurt, followed by a press conference. I expect the ECB to raise interest rates by 0.5%, maybe even 0.75%. Then, on October 27 and December 15, 2022, the Governing Council of the ECB will hold two more monetary policy meetings this year. That gives the ECB the chance to raise base rates three times during the next four months. Nevertheless, analysts, journalists, bankers, augurs and speculators assume E.U. inflation to increase well into 2023.

Base effect

However, with all respect and as I mentioned above, it is essential to understand that the 2.43% March 2022 month-on-month inflation increase in the euro area represents one of the highest month-on-month inflation jumps in the past 50 years. Therefore, I believe it is fair to assume that in Q1 2023, inflation numbers will come down and be it just because of a base effect. The same, Ladies and Gentlemen, applies to the U.S., albeit at a lower base effect level. Consequently, the base rate increases and the expected base effect in Q1 2023 could mean eventually a reduction in the aggressiveness of the central banks’ communication towards the end of this year.

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 and still, 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
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

“I believe that children are our future. Unless we stop them now.”
Homer Simpson

All eyes are on Jerome Powell

Today, all eyes will be on Jerome Powell. Will he and the other leaders of the most prominent central banks still take on a hawkish tone, or will they start to use a somewhat calmer vocabulary?

The balance between supply and demand

The reason for any price movement remains the balance or imbalance between supply and demand. Any price movement of an asset class or even an entire financial market works after the same principle. Injecting liquidity into economies or financial markets gives buyers more liquidity, i.e. money, which leads to higher demand. Higher demand with stable or slow growing supply leads to price increases. Thanks to global money supply growth since the Great Financial Crisis, liquidity has flown into economies and sometimes directly into financial markets and even individual asset classes on a vast scale.

Wanted and unwanted effects

The wanted effects were stable economic growth, full employment, and general growth of wealth. The unwanted effects were ever faster-growing government debt, misallocation of capital, increasing government budget deficits, an ever-growing wealth gap between extreme wealthy people and the average population, an early asset price inflation and now large-scale inflation hitting Mainstreet and the average household.

The importance of money flows

Financial liquidity, i.e. increasing or decreasing money flows, are the reason for all the positive- and, unfortunately, all adverse effects. Considering the importance of money flows, today’s liquidity draining by central banks and, in some instances, treasury departments must have an unconditional negative effect on financial markets, and it has. The wanted effects will eventually be lower inflation; the unwanted ones may be lower, if not negative economic growth, unemployment, general wealth destruction, etc. Therefore, governments and central banks are challenged with at least somewhat correcting past extreme monetary policy measures to cope with current inflation without stalling the economy, letting it fall into recession or depression.

What do you think?

Will this year’s conference in Jackson Hole lead to an easing of tension in financial markets or rather the opposite? One thing seems clear; it will not be an easy task for its participants because none of the possible measures may satisfy all stakeholders.

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 and still, 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
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

The Other Day

The other day I wrote to one of my readers: “The state cannot possibly regulate everything, get involved everywhere and try to regulate the most diverse lifestyles, yet this is precisely what some political leaders are proposing, and as it looks, some voters seem to hope for.”

CPI Reading

If we assume that this year’s bear market can be attributed to skyrocketing inflation fears and, as a consequence, rising interest rates and the resulting “money crunch”, then we can perhaps slowly but surely hope for an easing of the situation. Last week’s reading of the U.S. CPI (Consumer Price Index) may seem scary since the change in that consumer price index compared to the previous year was a whopping 8.5%. However, not only was this 8.5% slightly below market expectations of 8.7%, but we must not forget that it represented the price increase of the previous year.

Peak Inflation?

Moreover, looking at the actual level of the July 2022 CPI versus the June 2022 number, we find it even fell slightly. So it is fair to say that actual inflation last month was zero. Now, a single month does not make a trend, and as many market participants, analysts and journalists quickly point out, the Federal Reserve does not set policy based on one month’s change in the CPI. This is undoubtedly correct, and yet I dare say the possibility is rising that we are in the process of forming a preliminary inflation summit in at least some of the leading G20 countries. In this context, it is unsurprising that the Chinese central bank this week adjusted its interest rates slightly to signal to the market that it wants to avoid a slide into recession. Now, I believe a rethink of the “Zero COVID” strategy would have a better chance of success than a ten basis point cut in the key interest rates, but then I also believe the Chinese government will not care much about my opinion, which is fair enough.

Outlook

Almost no market participant, analyst or journalist is optimistic about financial markets. I understand this and share specific fears. But on the other hand, very few people consider that inflation concerns could cool down and thus positively impact the leading central banks’ rate hike path, which could lead to a less steep rate hike. I am considering such a scenario and always stick to our investment approach because we weigh long-term cash flows higher than potential short-term dislocations.

Our Friend Barry

Some roughly two weeks ago, I wrote to our friend Barry that I thought the market participant’s eyes would be on the Fed, and dovish or hawkish would make the difference. But, of course, Yellen and Powell know the importance of financial asset prices to the U.S. economy, and while they certainly want to fight inflation, they probably would not want the U.S. to fall into a depression. A recession they have already achieved, even if they deny it. Technically the economy was shrinking for the second quarter.

Gold

As to gold, I am receiving many emails regarding its disappointing performance this year. Quite frankly, I am slightly frustrated as well. Even if I was not a massive bull at the beginning of the year, this year’s performance is not in line with what I had expected for the current geopolitical and geoeconomic environment. But, never forget, gold in physical form may protect you from the dire effects of economic dislocation; thus, I keep some of it.

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 and still, 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
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

Your Guesses

Wow, Ladies and Gentlemen, some of you seem really bearish, at least for equities. So far, the highest S&P bid came in at 4’482, the lowest at 1’881, with an average of around 3’100. On the other side, most of my readers seem to be optimistic about gold. So far, the highest bid for gold came at 2’350, the lowest at 1’715. For crude oil, the price estimates range from160 to 88 (mine), with an average way above today’s levels.

My Guess

As always, I am happy to share my estimates with you as well. For the S&P, I am not all that negative and guess it will close at around 4’200 in 2022. Roughly 4’200 is a level that I could imagine building either some sort of resistance or otherwise a floor in the market. So how did I guess my numbers? I often orient myself around the futures prices quoted at the CME for gold, crude oil and other natural resources. This is why my guess for the year-end price of gold comes in at 1’803 and for crude oil at 88.

Peak Bearishness?

I do not think that bearishness is at its peak. At this moment, it seems we are past the point already. Although, as our reader, Annika, pointed out to me correctly, cash levels among investors are high. This is true, yet; there has been a rebound, at least in some asset classes. This is why I believe we have left peak bearishness behind us for the time being. Currently, I am, at times, almost surprised that equity markets are holding up that well. Looking at the daily newsflow, one could become depressive and, considering investors turn depressive; one would probably be bound to sell rather than buy.

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 and still, 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
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li