Monat: September 2024

Good Morning Ladies and Gentlemen

”Honi soit qui mal y pense”

The motto of the English Order of the Garter

Chinese Central Bank

On Tuesday, the Chinese financial supervisory authority provided a considerable tailwind with the announcement of several measures. For example, the minimum reserve requirements for banks are to be lowered by 50 basis points, and mortgage interest rates are also to fall. These steps are primarily aimed at stimulating slow economic growth; however, the People’s Bank of China (PBOC) also intends to use its stimulus program to stabilise the Chinese real estate sector and stock markets. The announcement of these economic stimulus measures by China’s central bank has led to a global increase in share prices.

Bank of America

According to Bank of America (BofA), solid labour market reports and PMI data could trigger a rally in stock prices. BofA believes good news is generally good for equities and that positive surprises in both data should be a tailwind for stocks. Investors will, therefore, closely monitor the non-farm payroll reports for September and October, to be released on October 4 and November 1, respectively. The big week of third-quarter earnings from October 21 to 25 could also be a significant market catalyst. However, technically, November 6, the day after the U.S. presidential election, is probably the most important day for the stock market. BofA estimates that the S&P 500 will move 2.5 per cent either way on that day. Therefore, the 6th of November 2024 will be significant for investors because, with a clear winner, markets will begin to price in future policies during the 47th president’s four-year term. The stock market experienced a similarly large move the day after the last presidential election when President Biden won; the S&P 500 rose by 2.2% on 4 November 2020.

The Swiss National Bank

The Swiss National Bank (SNB) has reduced the key interest rate from 1.25% to 1%. The tone of its announcement was unexpected, as it highlighted multiple times the decreased inflationary pressure in Switzerland. In August, the annual consumer price inflation was at 1.1%. Today, the monetary authorities stressed that Swiss inflation is expected to be significantly lower than previously thought, with a projected average inflation of just 0.6% in 2025, a significant decrease from their June forecast of 1.1%. For the first time, the SNB indicated that further interest rate cuts are likely necessary to ensure price stability in the medium term. This indicates a departure from combating inflation, as the SNB is now ready to take all necessary measures to prevent Switzerland from falling into a deflationary state.

Ronni’s Trip to the U.S.

As summer draws close each year, my partner Ronald P. Stöferle travels to the U.S. to speak at a conference and gain insights into the precious metals market. You can find his gold and gold miners analysis by following the link below. I highly recommend taking the time to look at it and gaining Ronni’s perspective. Enjoy:
https://mcusercontent.com/b268a38a165b03979d95268dd/files/151d72b7-01bb-5cc2-f8a2-fb614f7f6d57/Incrementum_2024_09_Notes_from_the_Road_EN.pdf

Interesting political development in Iran

According to the Guardian, Iranian President Massud Peseshkian recently expressed Iran’s disapproval of Russia’s actions against Ukraine, stating, „We have never supported Russian aggression against Ukraine”. Peseshkian also conveyed Iran’s readiness to resume the 2015 nuclear agreement, emphasising, „If the commitments of the agreement are implemented in full and in good faith, the dialogue can be extended to other issues,“ as reported by Reuters. According to Peseshkian, Iran stands for peace and does not intend to engage in conflict. “Honi soit qui mal y pense”! Well, it almost seems Iran feels somewhat under pressure, groaning under the sanctions of the West. Anyway, if the nuclear agreement could be resumed, that would definitely be appreciated and hopefully lead to political relaxation in the entire Middle East.

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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

”I fear that there is no voluntary return in the history of mankind.”

“The Count” in Robert Musil’s The Man Without Qualities (first edition)

U.S. Federal Reserve

The U.S. Federal Reserve Bank has responded to the recent slowdown in inflation by implementing its first key interest rate cut in over four years. On Wednesday, the Fed reduced the interest rate band by 0.5% to 4.75% to 5%. This significant cut is accompanied by indications from the U.S. central bank of further interest rate reductions this year. While a more relaxed monetary policy was expected, there needed to be more certainty about whether the central bank of the world’s largest economy would opt for this substantial interest rate cut or take a more cautious approach by only reducing interest rates by 0.25%. In last week’s “Stefan’s Weekly,” I anticipated a 0.25% reduction, which was also reflected in future prices at that time.

Why financial markets like interest rate cuts

Rita asked me why I had written in my last “Stefan’s Weekly” that interest rate cuts are great news for financial markets. The reason is, that the recent significant interest rate cut by the US Federal Reserve and the two cuts by the European Central Bank are positive news for the economy. Reduced interest rates translate to lower costs for short-term loans. Investors and economists anticipate that lower interest rates can stimulate economic growth because it becomes more advantageous for individuals and companies to borrow money. Consequently, companies can achieve higher profits, making the economy more resilient. Consumers are likely to increase their spending as lower interest rates make them feel more financially capable of making major purchases or investing in their children’s education. Businesses can also capitalise on lower interest rates by securing more favourable financing for their operations, acquisitions, and expansions, potentially leading to increased future profits and higher share prices. Sectors that offer high dividends and businesses requiring substantial capital stand to benefit the most from lower interest rates. Nevertheless, companies with steady cash flows and strong balance sheets can also gain from more advantageous debt financing.

Next week

The good news is that there is more to come; at least, that is what I think. The Swiss National Bank will probably be the last to cut interest rates this month. Next week, I expect them to lower base rates by 0.25%.

My Thoughts for the Weekend

Ladies and Gentlemen, progress should only be considered meaningful if it contributes to added value and, notably, increased prosperity for the general population. Additionally, the traditional understanding of right and left in politics needs to be re-evaluated, as the population appears much more fragmented in many aspects than it was during the last decades. We may need new parties alongside established ones with new offerings. I often wonder if things are as grim as many people perceive them to be or not as dire as they appear. However, living in Switzerland and working in Liechtenstein certainly influences my thinking and my point of view.

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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

”More jargon equals more bullshit, and more bullshit equals more billable hours.”

Phil Elwood

Cut Number 1

As anticipated, the ECB has reduced the deposit rate by 0.25% to 3.5%. This action positively influenced European financial markets, while currency markets remained relatively stable. Following ECB chief Christine Lagarde’s remarks on future interest rate policy, the euro strengthened further. She indicated that the ECB would base its decisions on meeting-to-meeting data and refrain from committing to a specific interest rate trajectory. I am not the biggest ECB fan, but this makes sense to me.

Cut Number 2

The Ministry of Labour announced in Washington Yesterday that initial jobless claims rose by 2,000 to 230,000. Economists had expected an average of 226,000 applications. The previous week’s figure was revised slightly upwards by 1,000 to 228,000. Financial markets pay close attention to jobless claims because they are considered a timely indicator for the US labour market. The US, the labour market plays a vital role in the Fed’s monetary policy decisions. These increases are relatively moderate and, thus, not an indicator of a weakening economy. The Fed’s expected interest rate cut will be added to yesterday’s ECB cut next week. I currently expect a reduction of 0.25%, which is reflected in future prices.

Cut Number 3

Let us examine the Swiss National Bank. The SNB key interest rate currently stands at 1.25%, effective 21 June 2024. In Switzerland, there has been a consistent decline in inflation over the past few months. In August 2024, consumer prices in Switzerland rose by 1.1% compared to last year, remaining unchanged from July. In December 2023, the Swiss inflation rate was recorded at 1.7%. There is a strong possibility that Thomas Jordan, the President of the board of directors, will lower the base rate at his final policy meeting before retiring at the end of September.

Financial markets like interest rate cuts

In general, a decrease in interest rates, known as interest rate cuts, creates a more favourable environment for stocks. The question is, of course, to what extent the markets have already factored this into their pricing.

What is a high-quality company?

I am often asked what a high-quality company is and how I go about choosing companies to invest in. Well, Ladies and Gentlemen, defining a high-quality company is complex. Quality encompasses many factors that should be evaluated from a long-term perspective spanning several years. Profitability is critical; the company must consistently generate profits to cover costs and facilitate sustainable long-term growth. Strong innovation, a solid market position, and competitive pricing contribute to robust profitability. Quality companies are distinguished by their ability to achieve sustainable development. It’s vital to balance investing in expansion and nurturing existing business areas. Excessive growth can strain a company’s financial reserves, so prudent financial management is essential. A solid balance sheet is another hallmark of a quality company. Managing growth to maintain a healthy balance sheet is critical to mitigate the risk of bankruptcy from excessive debt. Positive free cash flow and a healthy balance sheet are strong indicators of a company’s financial strength. It demonstrates the cash available to the company after covering all operating expenses and investments. Positive free cash flow provides a company with flexibility, enabling it to consider options such as debt repayment, dividends, or further expansion. These are my primary considerations.

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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen

”There may be more beautiful times, but this one is ours.”

Jean-Paul Sartre  

ISM

On Tuesday, the stock markets declined following Monday’s Labor Day closure. Tech stocks, susceptible to economic changes, were impacted by discouraging sentiment data from the industry. The Purchasing Managers‘ Index from the Institute for Supply Management (ISM) continued to indicate an economic downturn. However, it is anticipated that this decline will be brief, with investors eagerly awaiting the potential interest rate reductions by the Federal Reserve in the coming days.

The Fed’s Path Forward

The current target interest rate the Federal Reserve sets ranges between 5.25% and 5.5%. Since mid-2023, short-term USD interest rates have remained at this level. The Fed has maintained a firm hold on the rates despite a notable decrease in inflation. However, it seems a shift may be underway. During this year’s Jackson Hole meeting on August 23, Fed Chairman J. Powell surprisingly suggested that inflation risks were in check and that the Fed might consider lowering the key interest rates. The interest rate policy will likely emphasise the labour market, which has recently shown weakness. The likelihood is high that the US Federal Reserve will decrease the key interest rate by 0.25 percentage points at the next interest rate meeting on September 18.

Today’s Economic Indicators

Today, several macroeconomic indicators are being released in the U.S. These indicators provide essential information about the labour market in the world’s largest economy, which has been losing momentum in recent months. The indicators include the unemployment rate, the number of employees outside the agricultural sector, and hourly wages.

Conclusion

Once again, everything boils down to perception. If market participants view today’s numbers favourably and refrain from raising concerns about the US economy losing momentum faster than the Federal Reserve intends, markets will experience an upturn. However, if market participants perceive today’s numbers negatively, with concerns about a significant economic downturn, markets will decline, at least in the short term.

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 153
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li