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Input 22.09.2021

“Life is divided into three terms – that which was, which is, and which will be. Let us learn from the past to profit by the present, and from the present, to live better in the future.” William Wordsworth

While Chinese regulators have urged Evergrande to resolve its debt situation, the government has so far stayed silent on whether it will provide financial support.

In 2016, founder and chairman Xu Jiayin was the eighth-richest person in China, worth $4.9 billion. In 2017, Evergrande stocks, share price, profits and revenue surged almost three to four times in value, propelling Xu Jiayin to be one of the wealthiest people in Asia. As of June 2019, his net worth was reported as US$30.4 billion, making him the third-richest person in China. Personally, I am always surprised to which extend big players access debt to expand their business, make headlines in all media only to shake up global markets through spectacular defaults. The world’s most indebted developer must pay bond interest totaling $669 million in note coupons due through the end of this year. The next major bond principal payment hits in March, the first test of $7.4 billion of securities due in 2022.

Market reactions on September 20th 2021 were “interesting”, especially since the stock price in https://en.wikipedia.org/wiki/Evergrande_Group did suffer for a while, and the price level is back to levels from 2010. Wikipedia gives us some background of the company, and to some point it tells us a success-story. But then President Xi Jinping and the Communist Party’s Central Committee have laid out a plan (a 5000 word statement) for a ‘new era’ in which the party has better control over private businesses in China.

Alibaba Group Holding Ltd. pledged 100 billion yuan ($15.5 billion) over five years toward Xi Jinping’s “common prosperity” vision, becoming the latest tech giant to bankroll China’s broad aim to share the wealth. This is quite a turnaround. Previously, private business was not considered very earnest for party membership or influence, but it has gradually entered the heart of the regime…

https://www.mondaq.com/china/land-law-agriculture/89998/ownership-of-land-in-china. Evergrande is one of the largest property developers in China. But land is either subject to government ownership or collective ownership. In principle, municipal land is subject to government ownership and land outside cities is subject to collective ownership. However, one can obtain the right to use the land. Allocated land can be used only for a specific purpose and cannot be assigned. Though the default of a property developer and the consequences might not be directly comparable to historic events in the real estate business as we know them.

A new dimension, we referred to the Reddit community in our «Input 01-02-2021», is the impact of social media influencers, being on Facebook, YouTube, Twitter or Instagram, has taken an important turn. The recent financial phenomenon has completely revolutionized the way the industry now works. With some TikTok influencers now making up to $500,000 and surpassing their banker counterparts, it is clear that the nature of Wall Street is changing.

As an example Elon Musk, the founder of Tesla and SpaceX, has engaged in cryptocurrency and stock market trading while commenting in his Tweets. According to CNBC, a February 4 tweet from the tech billionaire caused the value of Dogecoin, a cryptocurrency inspired by a meme of a Shiba Inu dog, to surge more than 50%. In 2018, the Securities and Exchange Commission (SEC) charged Musk with market manipulation after tweeting that he was considering taking Tesla private; this tweet resulted in a 6% increase in Tesla’s stock.

Most of the influencers have no Wall Street experience, nevertheless their followers react on their comments. Reaching younger and new clients has always been a hurdle for finance firms, but with the new introduction to Wall Street influencers, this is no longer a problem.

We at Jacot Investment Management have our roots in investment management. Yes, we follow the latest market developments and even some tweets and from time to time some influencers. But we would never ever base our decisions on short term market gyrations Investment decisions should always been made according to a process combining relevant information, technology, and long-term experience. We pursue a consistent methodology for our clients to achieve their investment objectives irrespective of the latest market noises and report our results transparently Allocations-Tool.

As always we appreciate your reflections on our thoughts, and are looking forward to discuss different views

Best wishes for good health

Bjoern and the entire JIMAG Team

Input 17.05.2021

“The thing that doesn’t fit is the thing that’s the most interesting: the part that doesn’t go according to what you expected” Richard P. Feynman, American Physicist

Good day,

Global equities realized a positive performance since the start of 2021 and reached new all-time highs. The positive momentum was supported by good company news as earnings expectations were largely exceeded. So far almost 9 out of 10 companies have reported a positive earnings surprise and three out of four have reported a positive revenue surprise. This marks the highest percentage of S&P 500 companies reporting a positive surprise since tracking began in 2008. The earnings growth rate for the S&P 500 reached almost 50% and marks the highest year-over-year growth rate for more than 10 years. Despite this impressive numbers the valuation of the equity market in the US reached 21.6 times forward earnings. This ratio is above the 5-year average (17.9) and above the 10-year average (16.0).

Global bonds on the other hand realized a negative performance so far with yields and interest rates increasing substantially. The development was driven by inflation expectations that continued to rise and, in the USA, reached levels last seen in 2013. Raw material prices indicate further price pressure, as for example copper is quoted above 10,000 for the first time since 2011, crude oil rose again to 70 and grain prices have doubled compared to the previous year. Inflation was also the big buzzword of the reporting season. In their reports, companies made various statements on the subject due to logistics restrictions, rising input costs and general price increases.

Economic data confirmed the ongoing recovery. The US economy grew by over 6% in the first quarter thanks to high consumer spending. This dynamic could even intensify in the current quarter. The expansionary monetary policy has been confirmed until further substantial progress has been made to improve economic development, which refers primarily to the employment situation.

So far, financial market investors have shown little concern about a potential rise in inflation. On the one hand, the expectation dominates that the upward pressure on prices will be temporary. On the other hand, it is assumed that the companies will be able to pass on the price increases due to the strong demand based on the confidence that the economy will recover significantly as a result of further reopening measures.

For weeks, tensions have been building between Israelis and Palestinians in Jerusalem, with a confluence of recent events and longer-term trends leading to the latest violence. Israeli restrictions around holy sites during Ramadan; increasingly intense protests and violence on both the Israeli and Palestinian sides, with each side blaming the other for initiating; and a court decision, now under higher court review, to remove Palestinian families from an East Jerusalem neighborhood preceded this latest round of conflict — the most violent since the 2014 Gaza war. As has been the case many times before, the Israeli-Palestinian conflict will not settle into a frozen one, able to be cast aside by the international community. Rather, without active measures to address flashpoints and convince publics that peace with the other is possible, events could spiral out of control.

The recent attack on the Colonial Pipeline, a critical part of U.S. petroleum infrastructure, which hit critical national energy infrastructure may represent a new level of ransomware, but there is one aspect to the vulnerability exposed in U.S. defenses that is a reminder of what experts already knew: the federal government and private enterprise have struggled for decades to build a deeper relationship on cybersecurity to stay ahead of accelerating, and more advanced threats. hack raises a different set of issues, including government and industry debate over whether to pay the ransom demanded by hackers. As one of the consequences there will be global focus on strengthening cybersecurity through all the sectors.

Please challenge us with your view on the situation, since our way to reflect does only cover a part of a complexe theme.

Best wishes for good health

Bjoern

Input 01.02.2021

“I am always ready to learn although I do not always like being taught.”– Winston Churchill

Good afternoon

Since March 2020 all we are all  being challenged with new social patterns and digital behaviours – continuation of the 4th industrial revolution 4.0 – and limited travelling and personal meetings. Home office, distance learning, videocalls, e-commerce, initiated by the tech world of Silicon Valley , have taken  over and elements such as limited private invitations, outdoor activities – revival of the picnic  – as vital balancing elements have become the “new normal”.

https://finviz.com/ is a site  started  by Nik, my 16-year-old son, who created a smashing performance in 2020, being  part of the Reddit community WallStreetBets . I asked Nik what happened to NOKIA and BETHBATHBEYOND and through him I found the explanation:

In January 2021, New York markets had just fired up, and the investing world was tuning in for Thursday’s episode of the continuing drama: Legions of Robinhood Markets investors versus hedge-fund Goliaths. But within minutes, a shock wave invisible to the outside world rattled the mechanics of Wall Street — sending Robinhood rushing for more than $1 billion of additional cash. The stock market’s central clearing hub had demanded large sums of collateral from brokerages including Robinhood that for weeks had facilitated spectacular jumps in shares such as GameStop Corp.

The Silicon Valley venture with the wildly popular no-fee trading app came to a crossroads. It reined in the risk to itself by banning certain trades and unwinding client bets – igniting an outcry from customers and even U.S. political leaders. By that night, word was emerging that Robinhood had raised more than $1 billion from existing investors and drawn hundreds of millions more from bank credit lines to weather the storm.

When the history of this month’s stock mania is written, it may be a story of how retail traders set out from Reddit message boards to challenge Wall Street’s status quo — and ended up battering their beloved brokerage too. For weeks, Robinhood, with a mission “to democratize finance for all,” has been their trading platform of choice as they inflicted billions of dollars of losses on hedge funds by sending stocks that those firms had shorted into the stratosphere — a sort-of populist crusade into the staid world of finance.

Those juniors, Nik included, are  probably also too young to remember that a couple of years ago, in another troubled time  (the GFC, Global Financial Crisis), we,the “old guard”, also went through our GME episode…back then it was called Volkswagen. Let’s go back in time. The year is 2008, the world is falling apart and demand for cars plummets … autos are filing for bankruptcy left and right, but VW, despite its debt load and lack of business prospects, manages to survive  a few  quarters and post better-than-expected earnings making its stock the best outperformer of the sector but also the best short candidate. Flagship Hedge Funds (HF) start smelling blood and initiate short position in a name supposedly poised for bankruptcy. In reality, PORSCHE, at the time a frequent but unrelated business partner, had decided to seek more voting rights and control of the VW board and embarked on a buying program a couple of years back. VW continued to inch up through 2006 and 2007, going from about €30 in 2005 to over €150 by 2007, seemingly absent any outside reason ….and as the stock continued to grind “inexplicably” in the midst of the GFC, shorts intensified to balloon to 12% of outstanding shares (yes, I know it sounds ridiculous now). The trigger came on a Sunday night of October 2008 (it’s always on a Sunday night!) when Porsche disclosed owning 43% of VW and 32% via calls. Minor detail was that the German government also owned another 20% leaving the true available float to basically close to 0. When they woke up on Monday (don’t know if they slept though having had the entire Sunday to mull over their position), shortsellers caught off guard by this new supply/demand imbalance had no choice but to cover. VW rocketed to €900 in a matter of days, becoming the world largest market cap almost overnight (300b at the time, it also sound ridiculous now) with veteran HFs losing some $30b in the process. At a time when autos were at the brink of extinction, Porsche had effectively made more money trading stocks than selling cars. We are not talking about a forgotten video-games mall name that a crowd of retail day-traders decided to magically bring back to life. VW was THE jewel of the German crown, a 17% percent weight in the DAX (the equivalent of AAPL, MSFT, AMZN and FB combined in today’s SPX). Ask any market participant what he was doing the day of the VW infinity-squeeze … he will tell you without blinking. And then? Once the last short got covered, , the stock retreated back to its 2008-fundamental reality, lost 90% of its value ….and never really recovered. Today where TESLA’s market cap did exceed the peer as contrast – TESLA trades at 1200times earnings & zero dividends, VOLKSWAGEN at 12times and 2.7% dividend yield.

During my studies I was tought: «When interest rates are low, individuals and businesses tend to demand more loans. Each bank loan increases the money supply in a fractional reserve banking system. According to the quantity theory of money, a growing money supply increases inflation. Thus,low interest rates end to result in more inflation».

A new theory of interest rates, the Neo-Fisherian theory, predicts a low inflation rate due to a central bank’s low interest rate. After several years of near-zero interest rate policies and low and even negative inflation rates in the Eurozone and in the US, this theory gained momentum in academic circles. Indeed, central banks have had difficulty meeting  their inflation targets. In 2021, central banks will maintain   their ultra-loose monetary policies, even as  the global economy is expected to accelerate away from last year’s coronavirus-inflicted recession. In Bloomberg’s quarterly review of monetary policy, which  covers 90% of the global  economy, no major Western central bank is expected to hike interest rates this year. Only the ECB increased its emergency bond-buying program to 1.85 trillion euros ($2.3 trillion) in December and extended it through March 2022. The 500 billioneuro boost won broad backing in the Governing Council only because President Christine Lagarde conceded that not all of that amount necessarily needed to be spent.

Best wishes for a good, new and healthy week

Bjoern

Input 22.12.2020

“To be without some of the things you want is an indispensable part of happiness.”

Bertrand Russell

Not only our wellbeing…

According to a recent study by the London School of Economics it has been reported that wellbeing is the determining factor for happiness. The study, «The Origins of Happiness», concluded that most human misery is not due to economic factors but to failed relationships and physical and mental illness. Along these lines of reasoning, we must realise that the current pandemic not only threatens our wellbeing and our economy but also endangers our happiness.

…distractions and historic events…

As if the pandemic would not have been sufficiently threatening, we had to cope with more challenges this year.

Apart from some distractions, the elections in America could be perceived as historic but not because of the president but because of his vice-president being the first female, first black and first South Asian in this role. Her first statement will certainly be remembered: «but while I may be the first woman in this office, I will not be the last because every little girl watching tonight sees that this is a country of possibilities».

Significant events also happened in the financial markets. Losses in tremendous amounts accumulated in only a few days in the first quarter. We saw oil prices that settled in negative territory meaning that the buyer of physical oil had been paid to accept the delivery.

and memorable achievements…

Undoubtedly, we also saw memorable achievements in medicine. We have well-founded hope that a vaccine protecting people from the transmission of the virus might be available in due time. That would bring into view a potential end to the pandemic that battered economies and upended daily life worldwide

…we at JIMAG proceeded with our strategies and successfully launched two new investment modules.

In this special and historic environment, we at JIMAG proceeded with our strategies to efficiently manage investments and preserve capital in difficult times. After thoroughly analysing our assumptions and a lengthy research period, we successfully launched two new investment modules in the second half of the year. We are confident that these modules help our clients to navigate in these specials times as they provide a solution to realise equity like returns but with substantially reduced levels of risk or serve as an alternative for the cash management.

We wish you a peaceful Christmas season and a happy and above all healthy New Year.

Warm regards

Bjoern Jacot

Input 10.09.2020

“Correction does much, but encouragement does more” Johann Wolfgang von Goethe”

Good afternoon

Even before the coronavirus pandemic, many supply chains were under pressure due to the proliferation of e-commerce, increasing shipping and consumer expectations in terms of availability as well as constant geopolitical battles, such as, for example, Brexit and the US-China trade war. Then came the pandemic, which created a doomsday scenario for supply chains driven by travel restrictions, stay-at-home orders, massive fluctuations in demand and uncertain prospects. Although the projections are still uncertain, we expect three main trends to emerge that will lead to a faster shift to online from offline: more flexible supply chains, greater diversification and contingency planning. In addition, we believe that senior executives in many companies attach greater importance to this area. In our view, this will accelerate investments in several key supply chain technology areas. These include fulfillment technologies, supply chain planning, warehouse automation, supply chain and logistics visibility and last mile technologies. Although not typically considered as supply chain technologies, e-commerce platforms should also see a significant benefit – and many already have.

The US and China showed signs of de-escalation of the trade tensions as both sides reaffirmed their commitment to the trade agreement signed earlier this year (source: Bloomberg.com). In the latest announcement, the US discussed the steps taken by China to comply with the terms of the agreement, which were depicted to be improving despite not being on pace with the year-end goals. This improved understanding led to a constructive view on US and Chinese stock markets, moving equity indices, such as the S&P 500 Index SPX, up to reach new all-time highs. Chinese stock prices went up as well, with a recent period of stagnation but showing short-term signs of ticking higher again.

The Chinese equity space is no stranger to the trends in 2020, after all, it was one of the first areas internationally to rebound from their COVID-induced economic downturns. There are a variety of names within the Chinese technology sector that have shown improvement, as evidenced by the strength of funds oriented toward that area. One of the most valuable companies in China, Alibaba Group Holding ADR BABA, has advanced in recent weeks which speaks for a broader improvement of the Chinese technology and internet industry.

The measures taken against the corona virus were accompanied by increased volatilities and downside risks within the markets. To manage these risks, we combine our in-house expertise with best-in-class technologies, including the Nowcast technology of OpenMetrics (an ETH Spin-Off), which strictly relies on regularly and frequently measuring the current state of the markets and reacting according to those measurements. This in contrast to predictive models, which work on well-defined and stationary states only. Real life systems, such as the weather, might show such states, but in most cases not for more than a couple of days, even though the physical principles for the weather are solid and well-defined. In financial markets, such states which could be exploited by predicting future states, do not seem to exist outside of the high frequency domain.

The Nowcast approach is not based on such assumptions but can deal with erratic systems by always adapting to the current state. Therefore, we are achieving similar risk profiles as passive hedging strategies while realizing more of the upside.

This approach is becoming increasingly popular in the pension fund industry and forms the basis of our modular framework, which offers customized solutions for different risk profiles. A new module, based on OpenMetrics’ Nowcast technology, will go live in the coming weeks.

Extremely low or even negative yields erode the risk-free foundation of earnings. As a result, investors will be more exposed to fluctuations in market prices. Fixed income instruments might no longer efficiently fulfill their diversification function. If this environment persists, new approaches will be required to generate income while preserving capital. To achieve consistent returns, strategies based on alternative sources of income could be considered.

As with the Nowcast approach, the objective of such strategies must be to achieve consistent returns, as only stable returns allow accurate long-term forecasts of investment results. Using a systematic, non-predictive technique based on volatility premiums, a defensive investment strategy was provided to our clients to complement their multi-asset portfolios:

Please challenge us with your ideas and comments.

Best wishes

Bjoern

Input 22.07.2020

“Study the past if you would define the future.”

Confucius

Good afternoon

Looking back to the beginning of 2020, it started relatively smooth in the environment of low interest rates, tensions between China and the US, but ongoing global demand for food, energy,  consumer products etc,  but got heavily  interrupted by COVID lock downs around the globe. Home office, remote learning, online shopping, and 2m distancing created new patterns.

Financial markets collapsed in February ,  various margin calls needed to be executed. We learned that strategies with solid Swiss Private Banks included leverage, which became disastrous in the sell-off. They were days we oil futures prices traded negative and It became impossible to read the volatile markets, but definitely wrong to realize losses. Based on our cooperation with the ETH spin-off we monitor and assed markets daily, which is creating an additional level of confidence in combination with many years experience on market corrections

The graph below illustrates in a impressive way, what longterm oriented investing means, and that a crisis also can create opportunities

The orientation of the mandate is a clear focus on liquid equity-based investments, where we believe in long-term recovery and success. Dividends are creating additional income, which is not possible to generate in bonds markets and/or cash any longer.

By establishing the cooperation of the ETH spinoff Openmetrics we created a way to measure the conditions of the markets,

As mentioned before we notice and expect a radical shift of consumer behaviour; this forms part of our outlook 2020+:

Among other, German industrial production in May turned out worse than expected. Although the Federal Ministry of Economics is confident that the low point in the industry has been overcome, capacities are still clearly underutilized. The OECD is forecasting record unemployment averaging 9.4% in the industrialized countries by the end of the year. This would be the highest figure since the global economic crisis in the 1930s. The European economy is likely to suffer more than expected from the consequences of the corona crisis. The European Commission is forecasting an economic slump of -8.7% for the currency area in the current year.

Corporate debt continues to rise in the wake of the global pandemic. Many companies are currently taking various measures to reduce operating costs, for example by reducing staff. Only the massive money market policy of the central banks is currently able to prevent a major stock market correction or rising interest rates.

Sectors such as IT (e.g. MICROSOFT, INTEL) will face future demand on cloud solutions and remote communication, e-commerce (e.g. ZALANDO, AMAZON) will trigger challenges within logistics (e.g. DEUTSCHE POST, UPS) , automotive producers (e.g. BMW,PEUGEOT) can expect a boom for smaller cars, local manufacturing of various goods (machinery, fashion, etc.) will set a new trend, sustainable tourism instead of “discount travelling” will most likely prevail, and last but least – solid balance sheets are key for all companies. Our view is constructive.

Liquidity injected by the Governements, being immediate loans as almost everyone could apply for here in Switzerland, or actions by Central Banks will  keep interest rates at low levels for a long while to come, despite inflation for goods as food, energy etc. Asset class of Equity is expected to benefit of this scenario, where a risk/return for bonds and cash remains in disfavour.

We avoid private equity and other non liquid asset classes, even though some of them claim to have protective elements. Risks with yearly valuations are not assessable for us. Instead, we continue to believe in liquid equity-based investing with annualized returns rather than non-transparent IRR, although we might face almost hourly changes on prices and economic outlooks in various reports sent/shared in media and other channels.

We look forward to being challenged with your views

Best

Bjoern

Input 28.02.2020

„Panic is the sudden realization that everything around you is alive.“ – William S. Burroughs

Good morning

The news that the virus did reach and impact Italy and other parts of Europe last weekend, is causing global panic since.

On the financial markets we did reach a point, where valuations on dividend yielding equity are attractive, despite adjusted outlooks on earnings, but especially reflecting dividends and balance sheets versus negative yielding fixed income and cash. We suggest not to sell out, especially since we are not trading, but investing longterm. As example In our long only strategies “Stablized European Dividend Income” and “US Selection Cristalina” we did hedge part of the portfolio already in 2019 and are keeping a cash quota which we can place back at risk once the situation is getting more clear.

More people died from regular fluor natural disasters than has been the case to date with Covid-19, without this having had any significant economic consequences in the past. However, there is a possibility that the economic impact of the virus could be greater than previously expected. One of the reasons for this is that China‘s share of the global economy has grown continuously in recent years. However, at the moment it is difficult to quantify how much the growth slump in the Chinese economy will be. A possible scenario is, that China will only achieve a GDP growth rate of 3% this year – only half as much as originally planned, could result that the global economy is likely to grow by 2.8% in 2020.

1981: did Dean Koontz’ thriller predict the coronavirus outbreak? Readers share extracts from novel which chillingly refers to deadly viral infection named after Wuhan. The book also describes a virus that has an incubation period of just four hours, whereas coronavirus incubates for several days to two weeks. To the disappointment of conspiracy theorists, it turns out that in the first edition of The Eyes Of Darkness, the virus was originally called ‚Gorki-400‘, after the Russian city where Koontz originally wrote the bioweapons lab.

An Israeli expert in infectious disease recommends the authorities dial back a hard-hitting and economically damaging policy and ease public concerns about an illness whose risks seem similar to those of ‚regular‘ flu. The article “Time to Quit Fearing Coronavirus” is interesting reading: https://www.haaretz.com/opinion/.premium-time-to-quit-fearing-coronvi- rus-1.8593923

The Canadian epidemiologist Bruce Aylward, who heads the WHO mission team to China, said that he has seen a steep decline in newly-reported cases compared to the number when he first arrived in China two weeks ago. “I know the challenges with the statistics that come out of China sometimes with changing numbers and what we had to do is look very carefully different sources of information to say confidently this is actually declining“, he commented in this the article https://bit.ly/2SdyOj7 Slowdown of global activities is a fact, but at the same time we must reflect on our personal sustainable behavior; as example what kind of food we buy, where & how we travel, specific use of technology, hygiene in public and private, and many more common sense related processes.

Thankful regards

Bjoern

Input 10.09.2019

„Although we are currently not in an inflationary period, we are likely heading towards one“ – Dan Moskowitz

Good afternoon

Where you aware of this link, including the tabs on global energy consumption, US autosales and housing: https:// www.usdebtclock.org?

Sometimes it feels, that understanding economics in 2019 is fighting again windmills, where as this headwind consists of political tweets and the perception of endless increase of money supply. Please take a look on https://fred.stlouisfed.org/ series/M2SL

Looking at Consumer Price statistics, vide https://data.oecd.org/price/inflation-cpi.htm inflation hardly exists.. and central banks relaease, especially ECB under Mario Draghi’s period, „helicopter money“ and are issuing longterm bonds in order to finance their expenses. For most of american history, the longest bond maturity the US government offered was 30 years. But historically low rates have revived a long-simmering discussion about whether the US should issue bonds with even longer maturities, like 50 or 100 years. Austria sold a so-called century bond earlier this year with a mere 1.2% yield. Even serial defaulter Argentina sold a 100-year bond in 2017, though those buyers may regret it now.

Much of „public distribution“, despite negative interest rates in Europe & Japan, has not been visible, eventhough various statistics show expansion. Private household’s access to leverage is (luckily) limited, since banks have become much more restricted in issuing e.g consumer loans, based on „the Third Basel Accord or Basel Standards“, which is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk. It is intended to strengthen bank

capital requirements by increasing bank liquidity and decreasing bank leverage. The original Basel III rule from 2010 requi- red banks to fund themselves with 4.5% of common equity (up from 2% in Basel II) of risk-weighted assets. Since 2015, a minimum Common Equity Tier 1 ratio of 4.5% must be maintained at all times by the bank.

Although it seems that we are not close to that point, wider acceptance of cryptocurrencies in commerce could lead to a surge in inflation.

Several asset classes can perform in inflationary environments. A good summary can be found on https://www.inves- topedia.com/articles/investing/081315/9-top-assets-protection-against-inflation.asp, where as we at present scenario clearly favours the asset class of long-only liquid equity, so traded shares, preferably with a good market capitalization and solid, plus growing, dividend yields. Stabilized European Dividend Income Strategy as an investable example:

Our latest efforts, together with our strategic partner https://www.openmetrics.ch/aboutus do result that we are able to offer tailormade strategic AMC’s, based on investors Return/Risk expectations. OpenMetrics technology is based on latest research developed throughout almost a decade at ETH Zurich.All presented models and applications are based on this research and thus fully transparent to the users.

See latest publication:

T. Setz, STABLE PORTFOLIO DESIGN USING BAYESIAN CHANGE POINT MODELS AND GEOMETRIC SHAPE FACTORS, Dissertation ETH Zurich No.: 24754, (2018). https://doi.org/10.3929/ethz-b-000244960

In contrast to other common approaches, the BCP (Bayesian Change Point) model can be used without any adaptations (methodology or parameters) on all stochastic data.

STOXX Europe 600 (19 Industry Sectors) & Dynamic Base Portfolio (Euro- pean Bonds, Precious Metals) annRet 10%, annVol 9.6%

Please do not hesitate to getting in touch with us in case you wish us to explain our new idea more in detail, in additi- on to our traditional strategies with individual stocks or funds, based on our preference towards single stock selection.

Your feedback is, as always, highly appreciated! Best wishes

Bjoern

Input 21.07.2019

Good afternoon

„When everything seems to be going against you, remember that the airplane takes off against the wind, not with it“ Henry Ford

This quote applies in respect to what occurred on global equity markets during the past months; in December 2018 global equity markets collapsed based on low volumes, mounting negativism related to the US-Sino trade conflict and most probably some manipulations. We tried to hold on to our conviction of longterm investing as good as possible and the mandates did recover in line with markets. Year to date markets look fine with two digit recoveries. Nevertheless, one must be aware of the fact, that it has been an equalization of the negative Q4/2018.

The average annual return since adopting 500 stocks into the index in 1957 through 2018 is roughly 8% (7.96%)A good illustration can be reviewed on https://www.macrotrends.net/2526/sp-500-historical-annual-returns. Another good illustration on long term investing can be downloaded on https://bit.ly/3cRWlOE Short term acting mostly resulted into challenging results.

A momentous milestone lies just ahead: If the S&P 500 climbs another 4%, it will have doubled the peak reached in the previous bull market. Only three prior bull cycles have logged such a 100% gain from the prior bull peak: The great bull markets of the 1950s. the ’80s and the ’90s.

Jurrien Timmer, director of global macro at Fidelity Investments, has been tracking the current market path against those of three “mini-bear” episodes from recent decades. Each of these involved a serious market correction not associated with a U.S. recession which led to easier central-bank policies and a growth revival. The present instance is hewing fairly close to the average trajectory of those of 1994-95, 1998-99 and 2011-12.

No guarantees, of course, but if those patterns are a guide, this bull market would indeed reach twice the height of the last one.

A recent AQR paper argued that the lower risk of investing in private equity was largely an “illusion” and warned that the ravenous demand had destroyed any illiquidity premium that might have existed. Throw in high fees, and the paper reckons that private equity returns will average 3.9 per cent net of costs and inflation in the coming years — only a sliver above the expected US stock market returns. Given that their mounting pile of private investments will be immensely difficult to liquidate.

The Economist issue July 13th-19th 2019 „Riding High“, download or buy a version in print https://www.economist. com/leaders/2019/07/11/americas-expansion-is-now-the-longest-on-recordcontains, is valuable summer reading with various points which might impact today’s market and sentiment. Justified concerns of aging workforce, hoarded corporate profits, slowdown of productivity and the remarks that e.g. bitcoins are „no substitute for breakthroughs such as jet enginges or internet“ But also comments good news, refering that the economy may be less volatile (not the markets though..), based on solid bank balance-sheets in comparison to 2008 and a more globalised economy

which may reduce risk of inflation (and higher interest rates).

  • Digitalisation – the impact on supply chains are being compared to what steam and electricity had on manu- facturing. Just seen on e-commerce and blockchain related business models…
  • Italian politics – the personality cult, driven by daily tweets and Facebook posts around „il Capitano“ the nick- name of the new interior minister Matteo Salvini. In less than a month, Salvini, who admires Trump and Putin, has blocked refugee rescue boats and demanded a Roma census..
  • China’s fading role as workshop, describing the fact that cheap labour work is being transfered to Vietnam, but also Ethiopia, where H&M and Calvin Klein are taking benefits with labour cost of USD 26/month…

In summary we suggest to to focus on to liquid „long-only“-equity oriented strategies and to avoid fixed income in the present low interest environement.

Best wishes for a good summer

Björn

Input 26.02.2019

Good morning

2019 is the Year of the Pig, the 12th of the 12-year cycle of animals that name the years. According to Chinese myth, the pig is the last zodiac sign on the calendar because he overslept and arrived late to the party in which the order of the zodiac was determined. To be sure, there are many reasons to be cautious with respect to China. It is easy to ima- gine trade tensions reigniting or the economic data disappointing. But the outlook for China is still promising and the performance this year reflects that. After all, it is important to remember the symbolism of the Lunar New Year: With their chubby faces and big ears, pigs are often viewed as a symbol of wealth in Chinese culture.

Stock markets recovered well since December 2018; both China and the US have incentives not to escalate the con- flict and December’s market volatility in the US stock market has led to wider recognition that trade tensions could hurt domestic business confidence and employment.

Weather forecasts are made by collecting as much data as possible about the current state of the atmosphere and using understanding of atmospheric processes (through meteorology) to determine how the atmosphere evolves in the future. However, the chaotic nature of the atmosphere and incomplete understanding of the processes mean that

forecasts become less accurate as the range of the forecast increases. Financial market outlooks became similar, rea- ding many articles between September 2018 and January 2019. The accuracy of all “apocalyptic” economic scena- rios made it challenging to hold on to mid- & longterm horizon oriented positions.

As the dust settles, there is a silver lining. Even before the fourth quarter downturn, markets had been cheapening in valuation terms. Relative to consensus earnings forecasts for the next 12 months, US, UK, European and emerging market equities are valued at close to their cheapest levels for four to six years. There is a similar story when prices are compared to the previous 12 months’ earnings. Japanese equities have not been cheaper on either basis since the depths of the financial crisis. In the present environment of low interest rates we suggest to hold on to equity oriented strategies, and to focus on dividend yields versus fixed income. Markets remain unpredictable for sure – interesting reflections can be found within this link: https://bit.ly/2SeDu8s

The future of trade in Asia could depend heavily on what becomes of China’s expansive One Belt, One Road initiative, which calls for massive investment in and development of trade routes in the region. As Xi’s trillion-dollar development strategy has snaked away from the Eurasian heartland and into the South Pacific, western Africa, and Latin America, concern has grown. Many Americans fear that the Belt and Road Initiative is an extension of efforts by the Chinese Communist Party (CCP) to undermine the security and economic architecture of the international order. China’s gro- wing largesse, they worry, comes largely at the expense of international institutions and American influence.

The Chinese government has provided concessional loans for Pakistan government’s major transportation infra- structure projects, with a composite interest rate of around 2% in repayment period of 20-25 years. Projects under the CPEC, completed or under construction, amount a total investment of $18.9 billion. These projects should solve two major bottlenecks hindering economic development of Pakistan: lack of transportation infrastructure and energy

shortage. The Pakistani government has provided sovereign guarantee which hopefully will not backfire. “It is import- ant that the design of the projects be solid and excessive debts which cannot be repaid are avoided,” the IMF chief economist said. US Secretary of State Mike Pompeo said there was “no rationale” for an IMF bailout of Pakistan that pays off Chinese loans to Pakistan. Chinese officials have rejected criticism that the so-called China-Pakistan Econo- mic Corridor projects have burdened Pakistan with unsustainable debts. The article on http://www.cadtm.org/Is-Pakis- tan-falling-into-China-s is more critical than the Chinese officials version.

Your view on present developments is highly appreciated, and I would look forward to exchange ideas at our next personal meeting or chat

Best wishes,

Björn