Monat: Juni 2022

Good Morning Ladies and Gentlemen

On Sunday June 19, 2022 I sent one of my regular updates to our private clients. I feel like sharing it with you. Enjoy the read:

„Dear customers

Last week, our portfolios also suffered from the financial market slumping.

The German stock index DAX stands at -18% for the current year, the European stock index EuoStoxx 50 at -20% and the Swiss stock index SMI at -19%. Unfortunately, the situation is even worse in the USA. While the most famous index in the world, the Dow Jones Industrials Index, is „only“ at -18% this year, the broader S&P 500 is at -23%, and the much-respected Nasdaq Composite is even at -32% in the meantime.

From time to time, I am asked by customers, acquaintances, and people who write to us how I see future development. Precisely because we are bad at predicting the future, we invest in solid companies that can generate positive cash flows and are willing to share these with their investors in the form of dividends. So nothing at all has changed in our strategy for private clients. We offer a product based on the benefits of positive cash flows. At times this strategy may seem tedious, but in most cases, it lets our clients sleep well and yields a respectable return on invested funds over the years. Even if the prices of individual shares are lower than they were a few months ago, dividends will continue to flow in most cases. This is because we are invested in companies with solid business models. In addition, we held significant cash positions in 2021 for tactical reasons, as the financial markets were somewhat too euphoric for us. This is now to our advantage, as our portfolios have slid less sharply into negative territory than the benchmark indices, and we can make additional purchases at lower levels. So it is highly likely that we will not hit the lows in the individual companies with our investments but will receive an acceptable purchase price over the months.

Dear customers, it will probably take some time before we get close to the highs of the financial markets of 2021 again. But, until then, it is vital to enjoy the dividends and, where possible, reinvest them so that more and more dividends bubble up in subsequent years, thus creating a compound interest effect over time. In addition, this strategy has the positive side effect of offsetting the current inflation rate of almost 2.4% (for the Swiss franc currency area).

In the past, our portfolios for private clients have always been less volatile than the underlying indices. We are confident that this will also be the case in the future. But, on the other hand, it is not possible to be invested and want to generate a return without accepting the market’s volatility. Thus, and in a figurative sense, dear clients, enduring market fluctuations is to be seen as the price to be paid for long-term investment success.

In this spirit, I wish you a sunny Sunday and send you my warmest regards.“

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, 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

Good Morning Ladies and Gentlemen

After Wednesday’s Fed meeting, hope germinated for a temporary end to the wave of selling on the financial markets. On Thursday, the tender plant of this budding hope was destroyed by the interest rate hike by the Swiss National Bank.

Falling Financial Markets

Few people are happy about falling financial markets. I also do not belong to the cohort of financial market participants who enjoy falling prices. Nevertheless, I am always pleased to be able to invest in quality stocks at lower prices. The day before yesterday, I would have thought that much of the negative news of the past few months was priced in and that we should see a calming down in daily volatility. Now, Ladies and Gentlemen, this was unfortunately not the case. Yesterday, the fear of boisterous inflation triggered by an interest rate hike by the Swiss National Bank weighed heavy on financial markets again.

Finally

Switzerland is widely regarded as a haven of financial stability, and with inflation (CPI) at just over 2% (2.386 to be precise), yesterday’s 0.5% increase in the base rate may have seemed a bit extreme. Yet, unlike in other G 20 nations, the base rate in Switzerland will still be negative by 0.25% after the 0.5% base rate increase. This is why (although I did not like seeing markets trading lower on Thursday) my initial reaction was: «finally»! Negative interest rates are not sustainable and create all sorts of issues, leading to a misallocation of capital, they should, if at all, only be introduced temporarily. In addition to this step, the Swiss National Bank acted independently from the European Central Bank, which again I think is a good sign.

This time is different

This time is different, Ladies and Gentlemen, or maybe not? Downward movements in financial markets are unpleasant and bear the potential to instil fear. However, if this time is no different to other times, eventually, financial market participants will look forward, markets will calm down and over time move up again. Once all the negative news is priced in, once the light at the end of the tunnel can be seen, market participants will feel confident enough to pick up stock. Whether this will happen at the current or lower levels and at what time of the year is beyond my ability to predict. Nevertheless, it looks pretty likely to me that it will eventually happen. In the meantime, I am enjoying dividends from companies that have held on to paying dividends for decades under the most challenging circumstances.

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, 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

Good Morning Ladies and Gentlemen

I receive a fair amount of messages from people asking me if the «crash» will continue or if this was it and I think my last Stefan’s weekly on „peak pessimism“ triggered some additional messages in this respect. So now, Ladies and Gentlemen, thank you very much for writing to me, asking for my opinion and your trust in my forecasting capability. I do not know, I have my personal view, but I cannot possibly know.

Definition

We’d like first to look at what a stock market crash defines. One definition that describes the term „crash“ is as follows: „A crash is a sudden, precipitous drop in stock prices; the downward spiral intensifies as more and more investors, seeing the bottom falling out of the market, try to sell their shares before their investments may lose their entire value.»

Two major U.S. Stock Market Crashes

In the U.S., older market participants still speak about two major stock market crashes. Those two significant U.S. crashes of the 20th century, in 1929 and 1987, had very different consequences. The first was followed by a period of economic stagnation and severe depression. The second major U.S. crash had a much shorter impact. While some investors suffered huge losses in 1987, recovery was well underway within three months.

Arbitrary Designation

Today we can read, hear and watch on all sorts of media channels the latest news on «the» crash. This is what I would call an arbitrary designation for the term „crash“. Because the word «crash» is used in too many different ways. Everyone does not use one clear definition (as there is none), but many different ones, especially regarding the absolute per cent decrease of a so-called crash. The word „crash“ is catchy and is always suitable for triggering an audience’s fears. I have the impression that the word is almost being used in an inflationary fashion, bringing me back to your question regarding my view on it.

Conclusion

We might as well face it, Ladies and Gentlemen; this year, fuels, rents and food were the most significant price drivers in most advanced economies. Even U.S. Treasury Secretary Janet Yellen admitted that she was wrong when assessing inflation as unproblematic a year ago. „I think I was wrong then about the trajectory of inflation,“ she recently told CNN. Curbing inflation is, therefore, most probably the central issue at the moment. Thus my answer to the question would be that once we know if the announced measures will do the job, we can assume to be close to the bottom of the current market correction; before that, any assessment seems complicated, if not impossible. However, this does not mean one cannot find attractive investments and buying the market’s lows will proof as tricky as foreseeing the bottom of the correction.

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, 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

Good Morning Ladies and Gentlemen

How much pessimism is priced in? If only I knew, you might think. So do I! I do not know if the market is clean, the crash is over, and a less volatile period lies ahead of us; however, one thing I know is that fear is not of great help when investing.

«Victory belongs to the most tenacious.»

The Philippe Chatrier court at Roland Garros has the line «Victory belongs to the most tenacious» on one of the walls between ranks, which I think, besides tennis or other sports, also most suits asset management.

Your Feedback

I very often collect feedback for my weeklies. There is one piece of feedback I would like to share with you on my «de-globalization» Stefan’s weekly from some weeks ago. I received various comments that went in the same direction. Thus, I allow myself to only share the one below with you.

David’s feedback (de-globalization)

«You are absolutely correct. Comparative advantage will always be a dominant factor in global markets and has served us well during globalization. Geological endowment (e,g, Australia) or lower wages (e.g. China) provides obvious advantages on the supply side, feeding into demand from the large, affluent advanced economies. Australia exports commodities, given its vast resource base, but imports cars because of its relatively small market. The consumer is prepared to support local industry geared towards local requirements, but not at a significantly higher price. Concerning diversification of suppliers, I see this happening, but one small-scale manufacturer is tied up with his supply chain issues that compound other problems involving one minor but crucial component that is missing. Globalization is credited with raising almost a billion people worldwide from abject poverty – estimates vary but are enormous. Having worked extensively in remote regions of China, India and elsewhere over the past decades, I have witnessed a transformation. For the first time, paid work became more widely available, living standards were raised, schools and clinics were established, and people were far better off. Children are properly clothed and nourished, and lower-income parents are happy to own a few more chickens and goats and perhaps a transistor radio and bicycle for the first time. What concerns me is the warning of possible global food crises in the coming years because of conflict, reduced grain exports, fertilizer shortages, and perhaps a slowdown in the global economy. If this transpires, shutting down of manufacturing facilities, even sweatshops, in developing regions of the world due to the de-globalization process could not come at a worse time.»

Thank you very much, David, for sharing your thoughts!

Peak Pessimism

Ladies and Gentlemen, what do you reckon? Are we currently experiencing «peak pessimism» already, or is more to come?

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, 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