Zero Gravity /
Blessing and a Curse

Good Morning Ladies and Gentlemen

“Government spending is taxation. When you look at this, I’ve never heard of a poor person spending himself into prosperity, let alone of a poor person taxing himself into prosperity.”

by Arthur Laffer, Professor of Business Economics and member of President Reagan’s Economic Policy Advisory Board

Zero gravity

According to an excerpt from Wikipedia, weightlessness is the complete or almost complete absence of the sensation of weight, i.e. the absence of apparent weight. It is also referred to as zero-g force or zero-g (named after the g-force) or sometimes incorrectly as weightlessness. Gravity also exists in space. It prevents satellites from flying straight out into the interstellar void. What is missing is the “weight”, the resistance to the force of attraction by an anchored structure or a counterforce.

The Swiss National Bank

The Swiss National Bank (SNB) is reversing its monetary policy and lowering interest rates as the first one among the large global national banks. The central bank announced on Thursday that their key interest rate will be lowered by 0.25% to 1.5%.

The Swiss National Bank II

“The easing of monetary policy was made possible because the fight against inflation has been effective over the past two and a half years,” the central bank explained. Inflation has been below 2% for several months, and within the range, the SNB equates with price stability.

SNB Chairman Thomas Jordan

SNB Chairman Thomas Jordan’s comment to the media yesterday included: “With our decision, we are taking account of the lower inflationary pressure and the real appreciation of the Swiss franc over the past year. The interest rate cut also supports economic development. Today’s easing, therefore, ensures that monetary conditions remain appropriate.”

Well, well, well

Yes, Ladies and Gentlemen, as mentioned in the previous “Stefan’s Weeklies”, I would not be surprised to see the ECB and Fed lower their base rates in June. One interesting statement by the SNB claimed that inflation will likely remain in “this range” (i.e. below 2%) for the next few years.

But why?

But why is the Swiss Franc so incredibly strong compared to other currencies? The answer can probably be found in the Swiss government’s discipline regarding household policies. A balanced annual financial statement is still regarded as a politically accepted normality, even if leftist politicians tend to favour ever more social benefits, regardless if this means more debt.

Ratio

The evolution of the Swiss Franc monetary aggregates M1, M2 and M3 (Monetary policy | Federal Statistical Office (admin.ch)) is in percentage, more or less in line with the evolution of the percentage increase (production) of the amount of global gold (Global gold production from mines 2023 | Statista). Interesting, no?

A blessing and a curse / the feeling of zero gravity

A strong Swiss Franc helped Switzerland to keep inflation down massively compared to other G20 nations, which was a blessing for the general public. However, most Swiss companies export, and thus, the strong Swiss franc made their exports challenging and more expensive for customers from non-Swiss franc currency zones. For some of the exporters, therefore, the strong Swiss Franc certainly seemed to be a curse. Nevertheless, in a tense global economic environment, Switzerland has been able to maintain its economic stability in recent years thanks to decades of government budgetary discipline, and the strong Swiss Franc made the majority of the Swiss population feel like it is in “zero gravity”, while in other currency areas all around Switzerland and Liechtenstein, purchasing power plunged.

Good Friday

There will be no “Stefan’s Weekly” next week due to Good Friday Holiday. Thanks for your understanding.

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 and the 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