Dear Ladies and Gentlemen
Some new participants joined our year-end competition last week. This is perfect. Thank you very much.
After the massive rally, we have seen since the March lows, many of my readers ask me what I am expecting for the next months. Those who read my weeklies for a longer time know that I’m not particularly eager to make predictions, and yet, I get involved in a year-end competition you may think. Well, the year-end competition is for fun, and I am happy to distribute a silver coin once a year. Market predictions are a different ball game.
I cannot foresee the future, nor can anybody else. However, anyone working in the financial industry and managing assets must have at least a loose idea of where markets could be heading, and this is why I am in general, working with scenarios.
Now, what I find quite extraordinary during this crisis is the fact that market direction may change very rapidly and extensively. Two months ago, only very few people could imagine markets going up to current levels in such a short time frame. There was hardly any expert who was not seriously concerned, not to mention the media. Interestingly enough, in the last two weeks or so all of a sudden, some experts turned positive, and the press started to come up with positive market news.
But why can stock markets go up while there are increasing numbers of people losing their jobs and queuing for food?
Let me give you what I think could be a possible explanation. While average citizens may experience negative economic impacts in their life at this very moment, many institutional investors, i.e., institutional (professional) stock market participants, are already looking into 2021. Now those institutional investors see the world from a slightly different perspective. They acknowledge that politics and central banks have tied up rescue packages as quickly and comprehensively as never before, they are seeing lockdowns being lifted, consumption rebounding very slowly and yet surely, travel restarting very slowly and yet surely as well and a recession that is going to be over eventually and at the same time, they see remaining stimuli for years to come, leading to an overflow of liquidity.
…or as the CIO of a global financial institution casually mentioned this week: „the world is swimming in cash!“
That sort of liquidity will seek its way to the highest proposed returns, which due to low-interest rates, most probably will be found in equities rather than in bonds.
Ladies and Gentlemen, this is highly simplified, and of course, I don’t have a crystal ball, and of course, I can’t foresee the future, but to me, this seems like a valid explanation for what we have seen in the markets ever since March and what we might experience in the months to come.
As always, please feel free to share your ideas and thoughts to me, but please don’t forget (instead of hitting the reply button) to send your messages to smk@incrementum.li
And now, Ladies and Gentlemen, I wish you a good start into the day, a wonderful weekend and above all good health!
Yours truly,
Stefan M. Kremeth
Wealth Management
Incrementum AG
Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li