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://www.dai.de/files/dai_usercontent/dokumente/ renditedreieck/181231%20EuroStoxx-Rendite-Dreieck%20Web.pdf. 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