What do you expect?

Dear Ladies and Gentlemen

Many thanks for the plentiful and positive feedbacks I had received to my last “weekly”. I was amazed to see that so many of you were thinking along the same lines.

Now once again I would like you to have a look at the following link by the Centre for Systems Science and Engineering (CSSE) and the department of Civil and Systems Engineering (CaSE) at Johns Hopkins University (JHU):

https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6

Some of you may know the link already, as I had sent it out to you in a “special edition” of my weekly mail last weekend.

Ladies and Gentlemen, COVID-10 is a serious threat and yet beginning Monday the 2^nd of March 2020, for the first time, the cohort of recovered people was larger than 50% of all known and registered cases. This is particularly good news because the increase of the number of recovered patients is developing faster than the total number of all known and registered cases. This of course does not mean that everything is fine now but at least I think we see a silver lining on the horizon.

The weeks and months to come risk to be very volatile and painful. How inconvenient this may seem, it is unfortunately part of investing. Investing is no one way street and maybe we will see much lower prices for financial assets. This is why I personally like to receive cash returns on my investments. While the price of our financial assets go up and down and up and down, the cashflows from such investments are usually rather stable.

COVID-10 will have an impact in the quarterly results of many companies. Those with a healthy balance sheet will recover and maybe even get out of it as winners, while those with weak balance sheets will disappear in a worst-case scenario and be taken over if all works well.

Financial markets are being pulled by greed and fear. Last week fear pulled the markets down, in the beginning of this week greed pulled them up and yesterday fear pulled them down again. One can’t possibly know what next week will happen. However, looking back at central bank and government behaviour over the last years, I see a tendency of uncompromising will to keep global economies from anything like a serious recession. This doesn’t mean there will not be a recession, but it means that the efforts by the major global political powers and their respective central banks will be directed at avoiding calamities as much as possible. Of course there is no guarantee that calamities will not happen still.

Last week I wrote: “From what we have seen, experienced ever since the GFC (Great Financial Crisis), I think we can expect the central banks to be on the side of the markets in the event of a crisis. I believe they will not hesitate to respond to possible losses of momentum in the global economy by cutting interest rates and flooding the markets with cheap money over and over again. Furthermore, President Trump aims for a re-election. If the U.S. economy is in a desperate state of a looming recession and financial markets are down, his re-election hopes will most probably evaporate at the ballot.”

Now, Ladies and Gentlemen, this week the U.S. Federal Reserve System announced an unexpected interest rate cut of 0.5%. This was big and even if it was not giving the expected stability to financial markets, it shows how far central banks are willing to go and eventually those ultra-low interest rates will lead to an ever increasing “hunt for return” und thus one day to yet another stock market rally. Whether this will happen in two weeks or in two decades, I can’t possibly know. I also believe China will do everything to show their economic strength in the second half of 2020 and I would not be surprised to see solid economic growth rates from them in two or three quarters from now.

Last week I also wrote: “I am cautious too but if I see an opportunity to buy into a well-managed net free cashflow producing company at lower prices, I will do it. I am fully aware that I will not buy at the lowest prices possible and yet, I will still do it. I buy in small amounts and over many days, if not weeks and I am looking forward to harvesting dividends, interests and the like.” To me this is still valid. “I buy in small amounts and over many days, if not weeks and I am looking forward to harvesting dividends.” If you follow that route, it is important not to put all eggs in one basket and to buy in multiple small amounts and over time.

What is your opinion, Ladies and Gentlemen, please let me know about your ideas, your investment experiences, but please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend.

Yours truly,