Monat: November 2024

Good Morning Ladies and Gentlemen

”Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.”

Groucho Marx

Last Week’s “Stefan’s Weekly”

Last week, I wrote: “Statistics show a clear correlation: as a country’s GDP per capita increases, so does its energy demand. In other words, prosperity is closely tied to energy availability. Electric vehicles, KI, still growing population, etc., demand high and continuous levels of (electric) energy.” Furthermore, I asked: “Where should this come from?”

Your Answers I

Thank you very much, Ladies and Gentlemen, for the numerous responses I have received. I was truly overwhelmed by your feedback. There is significant concern among my readers. While a constant source of energy is essential for any society aiming for prosperity, I was surprised to see how many of you also care about environmental issues. The consensus from your feedback is clear: life without energy would be challenging, so it should be available without restriction at an affordable cost, and its production should prioritise cleanliness and sustainability. It was fascinating to see the energy mix that my readers prefer. While cost and environmental concerns were key factors, the need for energy to be consistently available 24/7 contributed to the unsurprising conclusion that many of you believe we need more nuclear power plants.

Your Answers II

The issue, of course, is that nuclear power plants cannot be built in the short term, which means there needs to be a transitional source of energy. Most of my readers are aware of this fact and, where possible, would prefer to utilise hydropower, solar energy (primarily for home use), and small-scale but efficient liquid gas power plants. Only a few have mentioned coal, as its energy density, along with its CO2 and soot emissions, makes it an unattractive option.

My Question

Well, Ladies and Gentlemen, even if we simplify the discussion in my „Stefan’s Weekly,“ we can all agree that our society needs reliable sources of energy that are affordable, accessible at all times, and environmentally friendly. In this context, nuclear power plants represent a promising alternative. So, why do the politicians we elected not seem to recognise this?

Politics

I have always believed that politics should revolve around a competition of ideas, where the best and most transparent proposals for the majority prevail. Unfortunately, significant structural reforms, and this is not only true in politics, frequently generate a considerable number of losers, many of whom are voters. This dynamic leads politicians to be cautious about undertaking essential, extensive reforms. Consequently, they often engage in discussions of ambitious initiatives while implementing only marginal changes. It has become evident that their evaluation hinges not on tangible achievements but rather on the promises and declarations they make.

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

”The best obtainable version of the truth.”

Bob Woodward

U.S. Inflation Data

This week’s U.S. inflation data for October showed an increase from 2.4% in September to 2.6% in October. This result is owed to a base effect that was generally in line with expectations and provided the US dollar with an additional boost. While the data does not rule out further interest rate cuts by the U.S. Federal Reserve, it could support those advocating for a slower pace of rate reductions. Currently, nearly 80% of economists anticipate a 25 basis point cut in U.S. interest rates on December 18, while around 20% expect rates to remain unchanged. Broader market participants seem to share a slightly different view, reflected in recent weeks; the yield on 10-year US government bonds has risen sharply. Following President-Elect Trump’s vic-tory in the presidential race, U.S. bond yields rose to their highest level since the Federal Reserve cut interest rates in July, approaching 4.5%. In Germany, long-term bond yields have likewise increased, though to a lesser degree. Ten-year Bunds, which had a low yield of 2.04% at the start of October, are now yielding 2.38%. In contrast, Swiss Confederation bonds have remained relatively stable, with their yield only increasing slightly from a low of 0.34% in early August to 0.37% as of Wednesday.

U.S. Interest Rate Cycle

Already prior to the final election results, the U.S. central bank announced further interest rate cuts, although it did not clarify the rationale behind this decision. Futures traders are anticipating an additional rate cut of 25 basis points on December 18, followed by a pause in January, with another cut expected in March. However, given Donald Trump’s tariff policy, I believe that futures traders‘ expectations may be over-ly optimistic. The rate cut cycle is unlikely to go on and on and should conclude even-tually unless a recession occurs, which is not currently projected.

Goldman’s View

However, economists at Goldman Sachs remain unconcerned. Despite the recent US inflation figures, they maintain their yield target of 3.85% for 10-year US govern-ment bonds by the end of December. Observers note that this would effectively rep-resent a real decline in interest rates over the upcoming weeks. However, the situa-tion does not appear to be trending that way at the moment. The legendary Franz Beckenbauer once said, “ Let’s take a look, and then we’ll see” (freely translated).

Energy and Prosperity and a Question for the Weekend

With a newly appointed government in the U.S. and an expected change in govern-ment in Germany, early elections will be held in February 2025; I wonder what the impact on energy production and consumption will be. This change may bring a new perspective on the issues of energy production and consumption. Statistics show a clear correlation: as a country’s GDP per capita increases, so does its energy de-mand. In other words, prosperity is closely tied to energy availability. Electric vehi-cles, KI, still growing population, etc., demand high and continuous levels of (electric) energy. Where should this come from? Let me know your views.

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

”Power without abuse loses its charm.”

Paul Valéry

Finally

The US election campaign seems to have lasted forever, but it finally ended this week. On Tuesday, November 5, voters decided that former President Donald Trump would succeed President Joe Biden in the White House. They also determined the future composition of the Senate and, to a large extent, the House of Representatives.

Interest rate cuts in the U.S.

On Thursday, Federal Reserve Chairman Jerome Powell and his team lowered the interest rate by a quarter point, bringing it to a new range of 4.5% to 4.75%. This marked the second step in the interest rate change that began in September of this year and occurred just two days after the presidential election. Most analysts had anticipated this 25 basis point cut, so it was no surprise.

…and in the UK.

The Bank of England’s Monetary Policy Committee also voted to reduce interest rates from 5% to 4.75%, marking the second reduction this year. Bank of England Governor Andrew Bailey reaffirmed his stance on gradual interest rate cuts, stating that borrowing costs should continue to decline as long as the economy develops in line with expectations.

Lower interest rates are good for risk assets

As I mentioned in one of my previous „Stefan’s Weekly“ updates, rate cuts, i.e. lower interest rates, are generally favourable for financial markets, particularly for risk assets.

Chaos and order / Paul Valéry

Society fluctuates between chaos and order, and both extremes threaten its existence. Paul Valéry’s unique perspective is that he does not view the „disorder of modernity“ as a problem to be fixed. Instead, he sees it as a captivating phenomenon that should be preserved. This appreciation for and celebration of modern disorder was uncommon during Valéry’s time (1871 – 1945), and it remains unusual today, especially in an era with a strong desire for order and stability.

Another last thought before the weekend

With Paul Valéry’s thoughts in mind and confidence that while short-term noise can significantly impact stock market activity, global financial markets ultimately adhere to economic principles over time, I look forward to the exciting times ahead.

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

”Art is like oxygen.”

Marina Abramović

Rising yields?

I was asked why yields are rising in the U.S., and I am happy to share my view. It seems many market participants are selling some of their bond holdings before the elections (= yields are rising) as a hedge against a Trump election victory. Although Donald Trump wants to stimulate the US economy, he also wants to significantly expand and increase tariffs on imported goods. This would consequently increase the US inflation rate, which would cause yields to rise.

Does the economic data support rising yields?

The latest data for the third quarter, published on Wednesday, shows that the net investment ratio of US companies was on the verge of falling in the spring but is now turning around again. The U.S.’s gross domestic product (GDP) grew by 0.7% compared to the previous quarter (2.8% annualised). Therefore, the soft landing of the economy that so many observers had been waiting and even hoping for could materialise, and if it does, it will probably happen shortly after the elections. Meanwhile, the rise in government bond yields will likely end in anticipation of the US elections. However, this week’s solid economic data also suggests that the US Federal Reserve will be in no hurry to increase the pace of interest rate cuts.

What about the EU?

Yes, Ladies and Gentlemen, that is a valid question. Spain is driving the economic bloc in the EU, while Germany is slowing down. Wednesday’s numbers for Q3 show that the differences between the major economies have widened. The eurozone’s GDP increased by 0.4%, with French GDP growing at the same rate. On the other hand, Italy only managed a red zero, and although Germany’s GDP increased by 0.2%, this was not enough to compensate for the more substantial decline in spring, which was revised downwards from -0.1% to -0.3%. Germany’s economic output is currently 0.1% lower than in Q1 2024 and just 0.15% higher than at the end of 2019. This marks the third consecutive year of stagnation following Russia’s invasion of Ukraine and the resulting energy crisis in Germany. I found some interesting comparative figures highlighting the challenges Germany’s economy faced over the past five years, i.e., before Russia’s invasion of Ukraine and the current government’s tenure. Since the end of 2019, France’s GDP growth has outperformed Germany’s by 3.9%, Italy’s by 5.4%, Spain’s by 6.5%, and the United States GDP growth was a hefty 11.3% higher than Germany’s.

The positive twitch

Lack of growth in the European Union may increase the chances that the European Central Bank will lower its key interest rates by 0.5% in December. I would not be surprised to see the Swiss National Bank act accordingly.

Elections’ Impact on Financial Markets

Over four billion people, about half the world’s population, are being called to vote this year. One of the significant events in this super-election year is the U.S. Presidential Election. However, elections in Brazil, India, Indonesia, and the European Union have not significantly impacted their respective stock markets. It can be assumed that the same will hold for the U.S. Economic growth remains the critical factor influencing stock market performance. However, in the short term, I would not exclude a rumble in the jungle after another dirty U.S. election campaign.

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