Jackson Hole

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