Category: Stefan’s Weekly

Good Morning Ladies and Gentlemen

“Prophets are best spoken to 10 years later.”

Willi Ritschard, member of the Swiss Federal Council between 1973 – 1983

Time Confetti

Time confetti (a term coined by Brigid Schulte, the director of the Better Life Lab at New America and formerly a staff writer for The Washington Post for nearly 17 years) is a phenomenon which amounts to little bits of seconds and minutes lost to unproductive multitasking. Each bit alone is good. Collectively, though, all that confetti adds to something more pernicious than you might expect.

What is the price you are willing to pay

What price are you willing to pay is one essential question for almost everything in life. There is mostly a trade-off or cost associated with things in many aspects of life. It means something else of value is foregone whenever a choice is made. In a broader sense, the concept of everything having a price can extend beyond monetary terms. It can touch upon life’s philosophical, ethical, or even personal aspects. For instance, success might require hard work, dedication, and sacrifices, which can be seen as the “price” for success. Therefore, the idea varies based on context. Sometimes, the “price” might be tangible, like money or effort, while in other cases, it could be more abstract, like the compromises or sacrifices we make in pursuit of specific goals or beliefs.

Your emails, our conversations

When I look at individual emails in my inbox and think about some of the conversations I have with investors from time to time, I often notice that some people want to maximise short-term profit without paying the corresponding price. Preferably the highest possible returns without the unpleasant side of volatility. Unfortunately, Ladies and Gentlemen, this is not possible. In a world of seemingly instant gratification, this may seem unpleasant, yet it is the truth. For our private clients, we are trying not to separate between different investment styles. Instead, we offer one mandate style, trying to stay focused on the mandate specifications. However, volatility is part of the price our private investors must accept to exploit the long-term compounding effects of the mandate’s positive returns.

The connection between time confetti and the theory that everything has its price

You know, Ladies and Gentlemen, there is a connection between “time confetti” and the concept that everything has its price. Time confetti refers to the fragmented and scattered nature of our time due to various small, often mundane tasks or interruptions that consume a significant portion of our day. In the context of everything having a price, time is a valuable resource with its own cost. When time gets fragmented into bits and pieces by various demands on our attention, it can feel like we are paying the price for our ability to focus, concentrate, and engage in deeper, more meaningful tasks or pursuits. This fragmentation of time can directly relate to the notion that everything has a price. The “price” in this case might be the loss of focus, decreased productivity, or reduced quality in the tasks we engage in because our time and attention are divided among numerous demands. When time feels fragmented or scattered, the cost might only sometimes be immediately evident, but over time, it can impact our overall effectiveness and well-being. Therefore, managing time effectively becomes essential to mitigate the “price” paid.

Conclusion

By staying focused on one mandate style for our private clients, we try to keep the adverse price of time confetti as low as possible. When I was a boy, my parents often told me I should do one thing well rather than many mediocre things. At the age of sixty, it still makes sense to me.

Your point of view

Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful 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 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

“We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power.”

Alan Greenspan

Why miners are not performing

Ladies and Gentlemen, we were asked why miners were not performing. You know, we, too, are unhappy about the performance of mining stocks – especially regarding an okay-ish gold price. We believe that the weakness in miners stems from a combination of cost inflation (personnel, energy), significantly higher capital costs and a lack of risk appetite (due to higher opportunity costs).

Global pension schemes

Do you know that global pension schemes are the most significant contributors to liquidity in financial markets? Every month, billions of dollars (worldwide) of retirement money are collected and allocated in cash, investment funds, mandates, direct investments, bonds, equities, real estate, etc.

Why pension schemes matter

Solid pension funds are essential for several reasons at an individual and societal level. Stable pension funds play a vital role in ensuring the financial well-being of individuals in their retirement years, reducing the strain on public resources, contributing to economic stability, and serving as significant investors in the financial markets. Governments do not want to see millions of people without sufficient pensions starving to death.

Retirement security for individuals

Pension funds provide individuals with a stable source of income during their retirement years. This helps retirees maintain their standard of living and cover essential expenses like housing, healthcare, and daily living costs. A solid pension fund allows individuals to plan for their retirement more confidently. They can estimate their future income and make informed decisions about when to retire and how to manage their finances.

Reduced dependency on social welfare programs

Solid pension funds reduce the reliance on government-sponsored social welfare programs and lead to less strain on public resources. Individuals with sufficient retirement savings are less likely to depend on public assistance, which helps governments manage their budgets more effectively.

Economic stability

Retirees with solid pension funds are more likely to have disposable income, contributing to consumer spending, which stimulates economic growth and helps maintain a stable economy. Adequate pension funds can contribute to lower poverty rates among the elderly population. When retirees have enough income to cover their basic needs, they are less likely to fall into poverty, reducing the overall burden on social support systems.

Employment attraction and retention

Employers offering solid pension plans can attract and retain talent more effectively. Employees often consider retirement benefits as a crucial factor when evaluating job opportunities. A competitive pension plan can be valuable to an overall compensation package.

Investment in capital markets

Pension funds are significant institutional investors. They pool the savings of billions of individuals and invest them in various financial instruments such as stocks, bonds, and real estate. This capital injection into capital markets can contribute to economic development.

Financial market stability

Pension funds are long-term investors, and their stability helps counter short-term market fluctuations, which can contribute to the overall stability of financial markets.

Inter-generational equity

Pension funds enable the transfer of wealth across generations. Individuals can pass on accumulated assets to their heirs by saving for retirement, promoting inter-generational equity.

Conclusion

In summary, solid pension funds play a vital role in ensuring the financial well-being of individuals in their retirement years, reducing the strain on public resources, contributing to economic stability, and serving as significant investors in the financial markets.

Your point of view

Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful 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 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

“If you are going through hell, keep going.”

attributed to Winston Churchill

Update

It is time for an update to our «Incrementum Year-End Competition 2023-Edition». The last update dates back a few months, and Q3 was a challenging quarter for most market participants, leading even to fearful comments among the less experienced ones. I truly understand it was not easy, and worse, the problematic time lasted until the end of October.

S&P

So far, the highest bet on the S&P still stands at 4’634 and the lowest at 3200. Yesterday, the S&P traded at 4’347.35, slightly above our June update, despite the rough ride we have experienced during the last three months.

Gold

So far, the highest bet on gold stands at 2,600 and the lowest at 1,910. Yesterday, gold traded at  USD 1’957.27, slightly below the price in our June update.

Silver

So far, the highest bet on silver stands at 38 and the lowest at 21.13. Yesterday, silver traded at  USD 22.60, almost 10% below our June update.

What may be ahead of us

Statistically, the best six months of the year for financial markets have just begun. However, there is no one-way street and looking at what is going on on our planet, there may be a bumpy ride ahead of us until springtime; a bumpy ride with a positive bias, however.

Your point of view

Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful 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 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

“The stuff your dreams are made of is not tearproof.”

Simone Lappert

Tenacity: my favourite definitions

An example of tenacity is the ability to keep doing something challenging despite obstacles or setbacks. Another example of tenacity is the determination to continue pursuing a goal or a dream, even when there are difficulties or opposition. Tenacity can also mean the quality of holding firmly or being persistent in something. Others may not easily persuade someone who defends their beliefs or opinions with tenacity.

Tenacity in Investment management

Sensible investment management mainly makes the most of opportunities within a given mandate. Sometimes, opportunities do not come easy, and we (investment managers) must be tenacious to seize them. By persistently pursuing opportunities, we increase our chances of success. Tenacity does not mean mindlessly persisting in the same direction; it also involves adaptability. It is about finding new strategies, being open to change, and adjusting sometimes only little things to reach our objectives, always within the given mandate.

Conclusion I

Tenacity is often the key to achieving someone’s goals or dreams. Many worthwhile endeavours require time, effort, and the ability to push through challenges. One may give up easily without tenacity when faced with obstacles hindering one’s progress. However, one will inevitably encounter obstacles and setbacks, like in Simone Lappart’s quote, “The stuff your dreams are made of is not tearproof”. There may be tears on the way to reaching our dreams. However, tenacity helps build resilience and allows us to persevere through these challenges, learn from them, and become more assertive.

Conclusion II

The process of being tenacious often involves a learning curve. We acquire valuable experience and skills by persistently working towards our goals, undoubtedly a quality that fosters personal growth. This experience can be applied to future endeavours. When others see our determination and willingness to see things through, they are more likely to trust and believe in our abilities, enhancing our reputation and credibility in personal and professional settings. At least, Ladies and Gentlemen, this is what I would hope for from our clients and investors.

Your point of view

Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful 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 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

“If term premiums rise, they could do some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening.”

 Lorie K. Logan, president and chief executive officer
of the Federal Reserve Bank of Dallas

What is happening?

Although it seems that the inflation momentum has been broken, there has been a massive sell-off in the bond markets over the past few weeks and interest rates have risen. The term premium shot up, even though inflation was mainly in line with expectations. Many market participants were surprised by this interest rate tsunami and lost money on their long bond exposure.

A question of demand and supply

Monetary authorities are shrinking or trying to shrink their respective balance sheets, i.e. they are increasingly dropping out as buyers of government bonds. The Fed, for example, is cutting its mountain of Treasuries by USD 50 bn per month. This means that high sovereign issuance is meeting less and less demand, and finally, investors are asking for ever higher compensation for the risk of investing in long-term bonds. The yield on ten-year U.S. Treasuries briefly scratched the 5% mark last Friday.

The war in the Middle East’s influence

However, an external event has broken the interest rate trend since last weekend. The war in the Middle East has led to a flight to safe havens, and government bond yields have thus returned somewhat from their highs.

The difficulty

Ladies and Gentlemen, the difficulty for global monetary authorities will be taming inflation without risking economic calamities. That is quite a task, and as we have learned in last week’s “Stefan’s Weekly”, in an ideal world and theory, rising interest rates should tame inflation, while government spending on infrastructure projects and the like should prevent the economy from stalling and yet, unfortunately, the theory is not always ideal.

Possible Conclusion

If we go back to Lorie K. Logan’s quote, “If term premiums rise, they could do some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening” at the beginning of today’s “Stefan’s Weekly” we may conclude that the market is effectively doing the Fed’s work. The Fed would need to tighten less or tighten no more; in other words, I believe there is a fair chance that no more rate hikes are coming. Interesting, no?

Your point of view

Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful 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 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

“If term premiums rise, they could do some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening.”

 Lorie K. Logan, president and chief executive officer
of the Federal Reserve Bank of Dallas

What is happening?

Although it seems that the inflation momentum has been broken, there has been a massive sell-off in the bond markets over the past few weeks and interest rates have risen. The term premium shot up, even though inflation was mainly in line with expectations. Many market participants were surprised by this interest rate tsunami and lost money on their long bond exposure.

A question of demand and supply

Monetary authorities are shrinking or trying to shrink their respective balance sheets, i.e. they are increasingly dropping out as buyers of government bonds. The Fed, for example, is cutting its mountain of Treasuries by USD 50 bn per month. This means that high sovereign issuance is meeting less and less demand, and finally, investors are asking for ever higher compensation for the risk of investing in long-term bonds. The yield on ten-year U.S. Treasuries briefly scratched the 5% mark last Friday.

The war in the Middle East’s influence

However, an external event has broken the interest rate trend since last weekend. The war in the Middle East has led to a flight to safe havens, and government bond yields have thus returned somewhat from their highs.

The difficulty

Ladies and Gentlemen, the difficulty for global monetary authorities will be taming inflation without risking economic calamities. That is quite a task, and as we have learned in last week’s “Stefan’s Weekly”, in an ideal world and theory, rising interest rates should tame inflation, while government spending on infrastructure projects and the like should prevent the economy from stalling and yet, unfortunately, the theory is not always ideal.

Possible Conclusion

If we go back to Lorie K. Logan’s quote, “If term premiums rise, they could do some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening” at the beginning of today’s “Stefan’s Weekly” we may conclude that the market is effectively doing the Fed’s work. The Fed would need to tighten less or tighten no more; in other words, I believe there is a fair chance that no more rate hikes are coming. Interesting, no?

Your point of view

Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful 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 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

“‘The distinction between ideal theory and nonideal theory was first introduced by John Rawls in his classic “A Theory of Justice”. Given certain facts about human nature and possible social institutions, Rawls’s ideal theory is an account of the society we should aim for and involves two central assumptions. First, it assumes full compliance of relevant agents with the demands of justice. Second, it assumes that society’s historical and natural conditions are reasonably favourable. These two assumptions are individually necessary and jointly sufficient for his ideal theory. For Rawls, nonideal theory primarily addresses how the ideal might be achieved in practical, permissible steps from the actual, partially just society we occupy.”

 Christopher Thompson

10-year U.S. government bond yield

The 10-year U.S. government bond yield is slightly over 4.7%. The 5.2% mark represents significant resistance for the 10-year yield.

JOLTS

U.S. job openings rose by 700,000 in August compared to the previous month. This figure is calculated monthly by the U.S. Bureau of Labour Market Statistics. JOLTS means “Job Openings and Labor Turnover Survey”. In addition to the JOLTS report, initial jobless claims since July also indicate the strength of the U.S. labour market. Some market participants view this resilience negatively because it may indicate that the Fed has difficulties slowing the economy and may be forced to raise interest rates again.

Ideal theory

If yields rise, stock markets tend to react negatively. The question is whether a high yield of 10-year U.S. government bonds also means a low in the stock market. An example is October 2022, when the high yields meant the low for the year in the S&P 500. A look at 1994 shows similar behaviour in the spring of that year. The S&P 500 continued its downward movement in the fall of 1994 when interest rates did not fall immediately but remained on a plateau and disappointed investors. October 1987 also offers a negative prime example of a sharp rise in interest rates. The stock markets panicked at that time after forming a lower high point.

1987 or even 1929 all over again?

There are enough considerations that the current situation is similar to that of 1929 or 1987. One could argue that the season (October) of 1987, strongly rising yields in 1987 and 1929, and the jump in the VIX (1987) are clear signs. Ladies and Gentlemen, those who know me know that it is stronger than me, and I apologise for it, yet I cannot take these arguments for granted because today’s situation is different.

Big difference

There is one significant and colossal difference: in 1929 and 1987, the markets increased excessively and reached new highs in the months before the crashes. In the current cycle, the high of January 2022 (in the Nasdaq November 2021) was not reached again. This year’s high in July 2023 actually means a lower high.

Lessons from the past I

In the autumn of 1987, the crash in the stock markets led to a sell-off in yields. In the autumn of 1994, the October-December yield plateau (yields stayed up) unnerved the equity markets and led to a 10% correction.

Lessons from the past II

There is absolutely no guarantee that sharply falling yields will cause stock markets to rise. As long as yields maintain their upward trend or stagnate at the top, equity markets may not like it. But then again “theory” may not be ideal.

Conclusion and 10-year U.S. government bond yield

As I mentioned earlier, the 10-year U.S. government bond yields slightly over 4.7%. The 5.20% mark represents significant resistance for the 10-year yield. I am fascinated by the current market environment and I recognise threads but also opportunities and in general see the glass half full, but then and as always, that is just my humble point of view.

Nonideal Theory

At the end of the day, Ladies and Gentlemen, the ideal theory does not always unfold and nonideal theory is reality, whether we are talking about human beings in general, constitutional law, politics, the philosophy of financial markets, or any other aspect of life.

Your point of view

Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful 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 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

“‘Hindsight bias makes surprises vanish.”
Daniel Kahneman

Introduction

Ladies and Gentlemen, some months ago, I was asked to write an article on Liechtenstein as a hub for private wealth management services for the executive global magazine. I looked at it as an exercise to see if I would still choose Lichtenstein as the hub for Incrementum’s business.

Link:

I have included the link to the article for your convenience and hope you like it. Enjoy the read:
https://www.incrementum.li/en/journal/executive-global-magazine-liechtenstein-a-solid-hub-for-private-wealth-management-and-family-offices/

Your point of view

Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful 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 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

“Do people become unhappy when they are full and unthreatened?.”
anonymous

Introduction

Ladies and Gentlemen, I was asked to participate in a short interview for the Swiss-French Magazine “BILAN” by its former editor-in-chief. The topic was BlackRock’s and Templeton’s application for licenses to issue Bitcoin ETFs. I had the questions and my answers translated for your convenience.

BlackRock and Templeton have applied to the SEC for a license to issue Bitcoin cash ETFs. What do you think of their potential?

I am convinced there will be interest and, therefore, a market for it. Two large, well-known providers offering tradable and regulated products on a crypto-currency that has until now been little or unregulated will certainly attract investor interest. We must not forget, however, that Bitcoin, i.e., the underlying asset, is still largely anonymous, unregulated and relatively unknown.

If these products were approved, would it be bullish for BTC by creating demand from institutional investors?

I think BlackRock and Templeton have enough investors in their networks who can get excited about investing in such products. As the ultimate number of Bitcoins remains limited, additional investors should, under normal circumstances, lead to additional demand, and while supply rests unchanged, this would, I assume, lead to a price rise.

What could be the risks for investors?

To be honest, the data on Bitcoin is a bit thin. So far, we do not know who created the network. We still do not know who invented the Bitcoin cryptocurrency and who hides behind the pseudonym Satoshi Nakamoto. On the other hand, we do know who is behind the much-maligned U.S. dollar, the euro and the Swiss franc. Behind all these FIAT currencies, there are national economies with citizens, territories, companies, a tax base, and so on. What do we know about Bitcoin? We know that the Bitcoin white paper was published in October 2008 and that the first version of the Bitcoin Core reference implementation was published in January 2009. We also know that the network consumes a great deal of electricity and that Bitcoin transactions can be processed 24 hours a day, anonymously and free of charge, in a largely unregulated framework. The risks are, therefore, of a different nature. Because we do not know who is behind the network, we cannot know whether it is an intelligent individual or maybe a criminal organisation. Moreover, financial market regulations (anti-money laundering act, anti-tax evasion policy, etc.) may suddenly lead to increased demand for transparency or, depending on the state, even a total ban on crypto-currencies. Who knows?

Which clients should be advised to use this type of product?

The underlying of such pure Bitcoin products have no intrinsic value. This is why I would, if at all, only recommend such products to investors who can handle high volatility and even live with a total loss.

Recession?

Ladies and Gentlemen, I still receive many messages on the recession topic, mainly because Germany is in a recession; Switzerland is slowly but surely going in the direction of zero growth, and despite the Fed’s aggressive interest increases, the U.S. economy is still comfortably growing. Yes, there is this massive gap between the U.S. and Germany. The reasons I like to look at the U.S. numbers while working in Liechtenstein, living in Switzerland and mainly investing in Europe is that not only the data published by the U.S. government, the Fed, etc. is vast and easy to access, but, and this is probably very important to most investors anywhere, the U.S. financial markets play the leading role in global financial markets and therefore have a significant influence on most other financial markets across the globe. In any case, it seems some economists have postponed the projection of a U.S. economic downturn because of the immense spending programmes by the U.S. government that are likely to take more and more effect in the months and years to come.

Your point of view

Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful 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 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

“It is also human not to always give in to every fear.”

Joachim Wilhelm Gauck, President of Germany from 2012 to 2017

Last weekly

Ladies and Gentlemen, I received significant feedback for my last “Stefan’s Weekly”. In summary, I am happy to report that many readers share my conviction that we should treat tail risks as such and not overestimate them, and of course, that it is suitable for investors to change their perspective from time to time consciously. Maybe this will change their mindset or investment behaviour; if not, it will confirm one’s existing perspective, which is a flattering experience for most people. One feedback stuck out to me, and I would like to share it with you. It comes from John, and it goes like this: “Hoarding gold, crypto, and food means nothing if you do not have a solid community. You would be robbed, or money will eventually run out. A community is necessary to get out of tough times.” What can I say? I totally agree.

German residential construction

One of the sectors I usually keep an eye on is residential real estate. Residential real estate plays an essential economic role in many countries. In Germany, the crisis in residential construction continues to worsen. In August, 20.7% of companies reported cancelled projects, up from 18.9% in the previous month. This is according to surveys by the IFO Institute. “Cancellations in residential construction are piling up to a new high. We have not seen anything comparable since the survey began in 1991. The uncertainty in the market is huge,” says Klaus Wohlrabe, head of IFO surveys. Yesterday’s interest rate hike by the European Central Bank, the tenth in a row, is unlikely to lead to a positive change in these survey results, but risks to hit the sector again. For me, this data means I still keep my hands off the sector.

Macro versus bottom-up

Some analysts, bankers, fund managers and the like are trying hard to predict the economic future of economies, make a business model out of predicting it, and perhaps even invest investors’ money according to their prediction. The point is, it is utterly difficult to foresee the future also in macroeconomics, and most models are, if I want to be generous, not entirely flawless and if I do not want to be generous, total crap.

The effect of compounding

That is why we have taken a different approach for our private customers. We focus on business sectors that promise positive cashflows over the cycle and try to find companies and their seasoned business models within these sectors in a bottom-up approach that are available at reasonable prices, i.e. valuations. Those companies must be willing to share the generated cashflows with their investors. The approach is very long-term; short-term volatility is an intrinsic part of the investment style. The beauty of it comes from the exponential effect of compounding. Dividend payments can be reinvested and lead over time to ever more cashflows. Hard data on the macro environment, i.e. not forecasts, may have an influence on the sectors we look at, as outlined in the example of the German real estate sector.

Wrap up

The audacity of some market participants to believe in being more competent than the entire cohort of financial market participants is striking to me. I think that only because the average investor forgets very quickly and is either unaware of or unable to fight the confirmation bias, macroeconomic forecasts play such a prominent role in investment management. Keeping the macro environment in mind while following a strict bottom-up approach seems more sensible to me than trying to call any subsequent interest increase or decrease in some opaque process.

Your point of view

Ladies and Gentlemen, please share your opinion with me, but please remember (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 and a wonderful 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 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li