Biases and Philosophy

Dear Ladies and Gentlemen

Wow, my last weekly mail triggered quite some feedback and also led to questions. Many thanks, Ladies and Gentlemen!

The Fed’s Mandate

Now, most of the feedback and questions hovered around the Fed’s mandate. Some readers feel uneasy with the mandate’s expansion to «maximum employment». I see the point, and one could easily argue that maximum employment should be a political much more than a central bank task.

Facts

Fact is, maximum employment is part of the Fed’s mandate, and thus it is compulsory for the Fed to reach that goal as part of their mandate and, I assume the Federal Reserve will do whatever is necessary and possible from their side to fulfil their mandate to the best of their knowledge.
Fact is, too, that all of those actions impact the economy and financial markets. Now, the partners of Incrementum AG are active in a business where monetary expansion has led to prosperity. Even if I am never a fan of increasing government debt, I must admit that without the «help» of government rescue packages and stimuli from central banks, financial markets, precious metals, and crypto-assets (a term I have not yet gotten used to entirely, «crypto» and «asset» to me does not go together very well) would most probably not have benefitted to the extent they have ever since the great financial crisis. Is this good, or is this bad? To me, it is a question of perspective and highly philosophical.

A reader’s comment

I want to share a comment by John, one of my readers, out of an email conversation we had over the weekend: „As I have gotten older, I realized that balancing paradoxical forces is the name of the game. Being a good investor means being conservative when market valuation/greed is high and aggressive when market valuation/fear permeates many investors‘ psyche. It is easy always to be conservative (by avoiding the market crashes but also avoiding market swing ups). Being a permanent bull investor means one can be susceptible to mania valuations. Managing deflation and inflation in a balanced way is key to having a healthy economy. It is too easy to abuse the powers of printing money (MMT) or adhere strictly to Austrian economics do not have monetary expansion. Fiat currency does lead to more rapid economic marvels as it supplies readily available capital to enterprising ventures. Hard currency like gold may lead to more robust economies, but it may not grow as fast.“

Biases

Unfortunately, human beings (and with your permittance, I will count the partners of Incrementum AG to this cohort) are vulnerable to availability bias, worse, and besides, we are susceptible to confirmation bias. This fact sometimes makes it challenging to see beyond what we can and want to see. For this reason, we read a lot of research, books, listen to podcasts, attend conferences, speak to investors, analysts, maintain contact with open-minded readers through our many publications, of which this weekly mail is one. We try very hard to beat those and many other biases, but we are not always successful.

Please feel free to share your ideas and thoughts with me, but please do not forget (instead of hitting the reply button) to send your messages to smk@incrementum.li.

Many thanks, indeed!

Ladies and Gentlemen, I wish you a good start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth