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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:

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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.

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

Bjoern