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Chelton Wealth - Quanify GmbH

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Chelton Wealth offers investment management programmes to clients who are looking for alternative investment strategies. Covering a large spectrum of alternative strategies, Chelton Wealth offers investment solutions throughout market and economic cycles. It operates through regulated affiliated entities and partners based in the main financial centres. Chelton Wealth is supported by experienced investors and traders, as well as by investment consultants and developers of trading systems. Since inception, the company has built key strategic partnerships and works very efficiently with multiple vendors in the industry, successfully achieving to assure the four fundamental cornerstones for our clients to optimise their investment – performance and profitability: ✔ The utmost transparency and absolute absence of any conflict of interests ✔ The most reliable client – asset custodian conditions ✔ Direct access to strictly regulated and fair Interbank Market execution environments at the lowest transactional costs (No Dealing Desk intervention) ✔ The best performing trading systems and protocols. We partner with talented professionals in the industry who trade through prime bank liquidity providers and deploy state of the art technology. In addition, Chelton Wealth works with customers through every aspect of the process so that they may have a comfortable and beneficial experience. We are committed to helping all of our clients find the best strategy for managing and growing their capital and delivering unrivalled trading performance whilst focusing on reducing risk and sustaining consistent profitability over the long term. Chelton Wealth manages assets for institutional investors (including corporations, foundations, endowments and pensions), funds of hedge funds, family offices, high-net-worth individuals and recently also for retail investors.

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Oil in an investment portfolio

Article about Oil in an investment portfolio

A pension fund that invests more than 100 billion euros in bonds with negative interest rates has left raw material investments altogether this year. The fund lost EUR 4 billion this year on crude oil futures contracts. That is EUR 4 billion that is no longer being made up. Goodbye is final. In itself, it is positive that this pension fund realises that commodities cannot be a structural part of a portfolio.

Investing is harvesting risk premiums. At the beginning of this century, there was much discussion about the added value of commodities in an investment portfolio. There is no risk premium for commodities. Today’s oil price may be equal to the oil price in ten years’ time. The investor does not receive a dividend or coupon but has to pay for storage, insurance, etc. According to one of Keynes’ theories, market parties want to take over the risk from commodity producers, but require a risk premium to do so. Keynes’ main focus was on those commodity producers who did not want to or could not take this risk, but nowadays just as many buyers are also covering themselves against fluctuating commodity prices. Empirically, there is also little evidence of the existence of a structural risk premium. Unfortunately, at the beginning of this century, enough scientists were hired by the sellers of commodity investments who claimed the opposite. Due to the low or even negative correlation with other investments, the added value of investing in commodities is said to be high. By the way, this argument is present in almost every presentation of an investment bank trying to sell something new. Apparently, it still works.

What always helps with a pitch are rising prices. The rising phase of the commodity supercycle is a good time to sell investments in commodities. Commodity supercycles are more common, usually around wars. After all, they cause major shifts in supply and demand. This century was the starting point for China’s accession to the World Trade Organisation in 2001. In addition, investors have ensured that the peak of this commodity supercycle was somewhat higher than in previous cycles, with side-effects such as the Arab Spring and food riots in Mexico. Just before 2001, commodity prices were at an all-time low, resulting in hardly any more investment. That was the start of a pig cycle. In the case of raw materials, it is also extremely long. There are seven to ten years between the investment decision and the production of a mine or an oil field. The time to say goodbye to raw materials was 21 May 2014. Russia signed a 30-year contract with China for the sale of Russian gas. The price agreed between the two countries was less than half the market price. When the marginal buyer (China) and the marginal seller (Russia) agree on a new price, the market has no choice but to follow. At the beginning of 2015, the oil price had more than halved.

The best remedy against a low oil price is a low oil price. After the low oil price in 2015 and 2016, investments were reduced, but the cost flexibility in the oil industry was remarkable. Shale oil and gas could also be produced at much lower costs. The Corona crisis has a much greater impact on investments. This is because the energy transition is accelerating. Incidentally, this necessary acceleration is not possible without the cash flows, knowledge of large projects and a large number of engineers in the oil industry, but it is an illusion to think that we will soon be able to do without fossil fuels. However, the energy transition and the Corona crisis are causing insufficient investment. The pig cycle is repeating itself, and it is likely that higher environmental requirements this time will result in much higher cost prices for many raw materials. Moreover, world consumption will double in the next ten years due to the large emerging middle class in Asia, boosted in part by the RCEP trade deal, which may be even bigger than China’s accession to the World Trade Organisation. On top of that comes the central banks’ fast-moving money press. There are those who believe that inflation will rise in the coming years. This is not good for bondholders with negative interest rates, but rising inflation without rising oil prices is hard to imagine. The concept of a fixed-value pension seems to have been abandoned once and for all.

Chelton Wealth — Quanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management. If you would also like to be kept up to date with the latest news, please sign up here for our weekly newsletter. Would you like to know more about the possibilities? Then request a callback. We will contact you without obligation.

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The future of China after Trump

Article about The future of China after Trump

There are countries that welcome the departure of Trump and countries that would have preferred a different outcome. Canada, Mexico, France, Iran, Japan and South Korea would have preferred Biden. They either had a fight with Trump or they came to terms with Trump’s policy between two fires. Brazil, Russia, Saudi Arabia, Turkey and the Emirates would rather not see Trump go. For China, the change of leadership in the United States is a sum of pluses and minuses. There will no longer be a bilateral trade conflict, but there will be a permanent battle with the United States for the latest technology and more attention to human rights. China will therefore increasingly have to take its own course.

Since the Great Financial Crisis, China has become less dependent on the United States and the US dollar. The Chinese were shocked by the major influence of American banks on the financial system. China would do things differently and the burgeoning fintech industry seemed an excellent alternative. China quickly started to pay digitally. By scanning a QR code, digital even became the norm. Partly as a result of this, companies such as Tencent and Alibaba were able to grow. China wanted to limit the risks in the financial system. An additional advantage of all these digital transactions is that they are much easier to monitor than cash transactions. Beijing was also proud of national champions such as Alibaba and Tencent. That has changed in recent weeks. This was prompted by a presentation by Jack Ma at the Bund Summit in Shanghai, in which he flatly insulted prominent leaders in the politburo. As a result, Beijing imposed higher supervisory requirements on Ant Group, after which the Shanghai Stock Exchange decided that the IPO could not go ahead. After that, Beijing also came up with new rules for Alibaba and Tencent. Probably partly in response to Jack Ma’s earlier comments, but also in order to gain more control over these fast-growing internet giants. In the past, Tencent was supervised by means of computer games regulations (the previous big helmsman thought playing on the computer was just an undesirable pastime). Nevertheless, on balance, the listed companies in China are left untouched, certainly compared to the jungle of regulation in the Western world. What is new is that Beijing now also wants to take action against these monopolies. After all, they are just ahead of the Americans who have similar plans with companies such as Amazon, Google, Facebook and Apple. Ultimately, both China and the United States will leave the big tech companies largely intact, precisely because the battle between the United States and China is mainly in the field of technology.

In the new five-year plan, China is steering more towards independence, less towards dependence on the rest of the world. This is, of course, reinforced by Trump’s actions over the last four years and the effects of the Corona crisis on the world economy. On balance, China has emerged stronger from this struggle. The Chinese economy has grown rapidly in four years and is likely to overtake the American economy this decade. This is not the first time that China has emerged stronger from the crisis. That was in 1997 after the Asia crisis, in 2001 after the dotcom crisis and also in 2009 after the Great Financial Crisis. This desire for greater independence is speeding up the rebalancing of the Chinese economy. For many years, the country steered the typical Asian growth model, in which consumption was squeezed in favour of investment and where exports were completely controlled. Meanwhile, the share of consumer spending in the Chinese economy is growing, making economic growth more stable and predictable. Moreover, China no longer steers solely for economic growth but has various programmes that include a better environment, automation, robotisation, more emphasis on research and development, but also more influence in the region. Thanks to the Belt & Road initiative, all roads in the region lead to Beijing, fitting the new world power. Investors benefit from this, as long as they invest in parallel with Beijing’s long-term strategy.

In the pursuit of greater independence from the world economy, China wants to position the renminbi as an alternative to the US dollar. At present, China still controls capital flows with the rest of the world, something that is not desirable for a reserve currency. The digital renminbi introduced this year does, however, make it possible to open up borders in the field of capital too. After all, every transaction in the digital currency will soon be visible in Beijing. This digitalisation will not be possible without Ant Group, Tencent and Alibaba. It is, therefore, possible that investors will be just as frightened in the short term; in the long term, the interests of Beijing will be at stake here and it will be in their best interests.

Chelton WealthQuanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management. If you would also like to be kept up to date with the latest news, please sign up here for our weekly newsletter. Would you like to know more about the possibilities? Then request a callback. We will contact you without obligation.

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Image: Twitter/AFP/Getty


The largest trading block

Article about The largest trading block

Last weekend the 15 countries of the Asean together with Australia, China, Japan, New Zealand and South Korea signed the Regional Comprehensive Economic Partnership (RCEP), resulting in the largest trading block in the world. After almost ten years of negotiations, this is a further step in the further economic integration of the Asia-Pacific region. This further increases the importance of this region for investors. The consequences will be higher economic growth, more regional stability and converging interest rates. This will result in an increased inflow of foreign capital and a higher valuation.

The RCEP is similar to the start of the European Economic Community in 1958, the beginning of the common market in Europe. There is also a clear political dimension to this agreement. After all, the Committee on Economic and Monetary Affairs came into being without any help from either the United States or Europe. After Trump withdrew from the Trans-Pacific Partnership, this is China’s response. This trade agreement fits in perfectly with the Chinese Belt & Road Initiative: an extensive programme that is larger in scope than the Marshall Plan and which will soon lead all roads to Beijing. Whereas the Marshall Plan, NATO and the EEC all aimed to increase American influence in Europe, the RCEP is part of China’s strategy to gain more influence on the world stage. India and the United States will not be part of the RCEP. Economically much more relevant is that there will be more cooperation between the triangle of China, Japan and South Korea.

The RCAP creates a single market for 30% of the world’s population and the global economy. According to Johns Hopkins University, only this agreement will increase world income by USD 200 billion and add USD 500 billion to world trade by 2030, enough to compensate for all the losses of the US-Chinese trade war. The various economies in the region will become much more efficient by specialising in what they are good at, particularly in technology, production, the agricultural sector and the use of natural resources. Especially for relatively closed markets such as Japan, the positive influence of the RCEP is significant. The biggest winner, however, is China, which has also taken a big step politically and strategically. Just like China’s accession to the World Trade Organisation, this could ensure that the equity markets of Asia (and especially North-East Asia) will outperform the rest of the world in the coming years. The same also applies to Asian bond markets. With the Marshall Plan, NATO and the EEC, the Americans exported their low-interest rates to large parts of Europe. The same political and economic stability in Asia will ensure that interest rates in many countries will converge with those in China.

In a speech earlier this month, Xi Jinping said that after the RCEP, it is time to negotiate a new investment and trade agreement between China and the European Union. Furthermore, China would also like to see further economic integration between China, Japan and South Korea, if only because of the technological knowledge in this triangle. With the RCEP, the American container policy is also falling by the wayside. The United States’ Indo-Pacific strategy has ensured that the Asean countries have made a flight forwards via the RCEP. It is only by reviving the Trans-Pacific Partnership that the Americans may be able to limit the damage. Following the outcome of the US presidential election and the surprisingly well-functioning Corona vaccines, this trade agreement is yet another good news for investors this month and we are only halfway there. Many uncertainties are disappearing in a short period of time. Next year, the global economy will grow by 6%, helped by the catch-up demand due to the opening up of large parts of the services sector and, of course, fiscal and monetary support. Asia again has the best cards for further outperformance.

Chelton Wealth — Quanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management. If you would also like to be kept up to date with the latest news, please sign up here for our weekly newsletter. Would you like to know more about the possibilities? Then request a callback. We will contact you without obligation.

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Suganomics is Abenomics squared

Article about Suganomics is Abenomics squared

In September, Yoshihide Suga took over from Shinzo Abe, Japan’s longest-serving Prime Minister. As party secretary of the LDP, Suga was responsible for the implementation of Abenomics and a strong supporter of related reforms. In Japan, Suga is also known as ‘uncle Reiwa’. Suga revealed Reiwa as the name of the new imperial era. Everything indicates that with Suganomics the line of Abenomics is being continued but at a much faster pace. It sets stock market records in Japan. This is probably only the beginning.

Suga took office after an economic contraction of 28 percent in the second quarter. So it was time to stimulate the economy. With two of Abenomics’ arrows, fiscal and monetary stimulus, it is more of the same. Suga focuses mainly on the third arrow, that of reforms. In the 1980s, Suga helped privatise Japan Railways and has been a staunch advocate of market forces ever since. Immediately after taking office, it became clear that he also has three spearheads: digital transformation, reform of the financial system and more competition in the field of telecommunications. According to Suga, telecoms tariffs in Japan could be cut by 40%. Suga is known for delivering on his promises, not least because of his excellent monitoring of bureaucracy in Tokyo. The potential for reform in Japan is enormous. Certainly, in the services sector, foreign companies have hardly any access. As a result, productivity in that part of the economy is as much as 50% higher in the United States. If Suga succeeds in bringing productivity up to American levels in ten years’ time, then the Japanese economy alone will grow by 3% per annum over the next ten years.

Since the 1980s, hostile takeovers have been a global phenomenon, but not in Japan. A hostile takeover there has never been successful. That is going to change. Since 2019 there have been several attempts and leading names (Itochu and Hoya) have been involved. Now Nitori’s hostile bid for Shimachu is being outbid with a 30% higher bid from the Japanese DCM. Nitori is an example to many other Japanese companies. Akio Nitori is the founder of Nitori and a respected man in Japan. In the past, he was chairman of the employers’ organisation Keidanren and CEO of the conglomerate Orix. Following a good example, certainly in Japan. As many as half of the companies in Japan are below book value and there are several companies whose market capitalisation is lower than their net cash position. Japan is a paradise for hostile takeovers.

Next year there will be elections in Japan. If Suga performs well, which means, among other things, getting the Coronavirus under control, he will actually be elected as the leader. At present, there are about as many people infected with Corona in Japan as there are in Switzerland on a daily basis. Suga will also benefit from the postponed Olympic Games next year. Moreover, now that Trump is going to disappear from the battlefield, he will have to do less bidding between China and the United States. The Japanese stock market will benefit greatly from the economic recovery after the Corona crisis. After all, Japan is still seen as a warrant on the world economy. The Nikkei 500 index is at an all-time high, but the Nikkei 225 index still has some way to go, although it is also at its highest level since 1991. Apparently, Warren Buffett also sees bread in old Japan. The Japanese themselves invest more in Japanese shares. For years they ignored their own stock market and Mrs Watanabe — in Japan women usually manage family wealth — earned her money for a long time with carry-trades in different currencies, after first borrowing cheaply in Japanese yen. However, due to falling interest rates, she too now has to look for an alternative. Many Japanese companies seem to have been designed for a world after the Corona crisis. Circular, sustainable and robust are typically Japanese values. Strange that many investors are still weighing Japan down.

Chelton Wealth — Quanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management. If you would also like to be kept up to date with the latest news, please sign up here for our weekly newsletter. Would you like to know more about the possibilities? Then request a callback. We will contact you without obligation. Missed an article?

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For investors, China is more important than the European Union.

Article about For investors, China is more important than the European Union.

Many investors prefer domestic shares to foreign shares. Reasons for this are lower transaction costs, less currency risk, less dividend leakage or even a better hedge against domestic inflation. European investors often have a Europa-bias in which the terms Europe, the European Union and the eurozone are often used interchangeably. As a result, the weight of eurozone shares in the index is often heavily overestimated. This is also due to the fact that there are asset managers who consider it quite normal to hold half of the portfolio in eurozone equities. This is despite the fact that all euro area countries together have a weighting of around 8% in the MSCI ACWI index.

Europe’s weight in the world index is around 16%. More than half of Europe in that index is made up of countries outside the eurozone: the United Kingdom, Switzerland and the Scandinavian countries. The European Union’s economy is rapidly shrinking. At the end of last year, the European economy was still USD 18.3 trillion, but, thanks to a contraction of 7.6%, 16.9 trillion remains at the end of this year. As a result of the Brexit, the United Kingdom no longer counts and only 14.3 trillion remains. As a result, the economy of the European Union is now smaller than that of China, a country whose economy is growing from 14.4 trillion to 15.2 trillion this year.

The market capitalisation of the eurozone and Chinese shares was virtually the same at the beginning of this year, both just over USD 8 trillion. But China is one of the best performing stock markets this year and eurozone equities are struggling. This means that there is only USD 7 trillion left in the eurozone, but China is approaching the 10 trillion mark. That is not reflected in the MSCI ACWI index, where China has a weight of around 5%. This is because MSCI does not include all Chinese shares, for example, because they are not yet part of the Stockconnect, but also because MSCI wants to gradually increase China’s weight in the world index. If Hong Kong, and possibly soon Taiwan too, become an integral part of China, the weight in the world index will skyrocket. In addition, the correction for free float is nowhere greater than in China. The major shareholders in Hong Kong are the wealthy Chinese families and all too often the Chinese state on mainland China. Despite this, China will soon overtake the European Union in the MSCI ACWI index.

The focus on the eurozone all too often means an investment in shares quoted in euros. Two major European stock markets — Switzerland and the United Kingdom — are then unfairly ignored. Moreover, shares in the United Kingdom are valued at a historically low level, partly because of the Brexit and partly because of the British sector division. The chances of a relief rally like Brexit are increasing, with almost everyone sitting on underweight British shares. In Switzerland, there are large multinationals such as Nestlé, Roche and Novartis, companies that would not be out of place in any portfolio. Then there are the Scandinavian markets. The Danish stock exchange, for example, is one of the best-performing this year, with a plus of 23%, in stark contrast to the minus of more than 10% in the eurozone. Such a home bias is fine.

Europe’s home bias has cost a lot of money over the last ten years due to the strong outperformance of US shares. The risk for investors who are too heavy in Europe (i.e. more than 8% in the eurozone) is that the disappointing performance of European equities means that they do not want to adjust this now, for fear that they are dealing at the wrong time. As a result, they are now at risk of missing out on the major contenders for the next ten years, namely the Asian stock markets. Bear in mind that the home bias is mainly between the ears and make a rational assessment based on the fundamentals. At the beginning of this year, probably not a single European investor was underweight in eurozone shares, but many were underweight in Chinese shares, and that is eating away at the returns.

Chelton Wealth - Quanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management. If you would also like to be kept up to date with the latest news, please sign up here for our weekly newsletter. Would you like to know more about the possibilities? Then request a callback. We will contact you without obligation.

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The Divided States of America

Article about The Divided States of America

The Divided States of America

Today is the day. It is up to the American electorate to decide who will be the White House resident for the next four years. Will it be the current president? He has not been entire of impeccable behaviour for the last four years. Nor has his policy always received the full approval of his people. The last four years have been somewhat turbulent, to say the least. Or will it be the other candidate? Like the incumbent President, he has had his best years behind him and his life's journey has never been entirely flawless. What is more important in these elections, however, is what the two candidates stand for. More than ever in history, the United States seems to be divided into two camps that are gripping each other's throats. The mutual repugnance between the Republicans and the Democrats is so great that there is even talk of the Divided States of America.

Is this important for investors?

But how important are these elections now for investors? Every time elections are held in the United States, comparisons are made as to which party is better for the stock market. The policy of a president or his party in Congress naturally has an impact on the financial markets or certain sectors of the economy. It is very doubtful, however, whether the financial world is too concerned about the new occupant of the White House. It does matter to the man in the street and the mood in the world, but does it matter to the investor?

No, in fact, it does not

Assuming that the investor is only interested in the return on his assets, it does not really matter who becomes President of the United States over the next four years. That may sound a little crude, but a simple survey shows that investors among Democrats and Republicans were just as well - or badly - off in history. For example, the average annual return under a Republican president since 1900 has been 6.6% per annum. Let that be exactly the same for Democratic presidents. All the stories about Republicans who would be better for business and Democrats who scatter public money, in practice, it turns out that it makes no difference.

Trump and Obama

Another nice fact. The current President cannot be more different from his predecessor than one might imagine. But did that make any difference to the stock market? Under Obama, the technology and consumer durables sectors were the most profitable. Trump came and did things very differently, but what does it turn out to be? Technology and consumer durables are still the most profitable. And what turned out to be the worst sector to invest in under both presidents? Well, energy, that is. Would it really make any difference who will soon be the new president? For society, but for investors?

Blue Wave

At the time of writing, the fair seems to be in the process of a new rally. Tension about the approaching election results? Where then? Investors are also seeing the latest polls. For instance, Biden's lead over Trump is much bigger than Clinton's lead over Trump four years ago. And much more importantly, Biden is clearly ahead in a number of swing states. Even the Republican stronghold of Texas is faltering. However, investors are not only considering a Democrat in the White House, but also a Democratic majority in both the House of Representatives and the Senate. A so-called Blue Wave. That would pave the way for a very ambitious programme of support for the economy. In addition, a clear democratic victory would reduce post-election tensions over the outcome.

Too much attention

However, as has already been shown above, in the long term, it makes no difference to investors who become the new occupant of the White House. All the movements over the last few weeks have been short-term cat purr. This is important for traders, but long-term investors should shrug their shoulders about it. Measured over a full four-year period, it really does not matter who becomes President. Perhaps that is why too much attention is paid to it in the financial press. But I have to admit, I am now taking part in it myself.

Chelton Wealth - Quanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management. If you would also like to be kept up to date with the latest news, please sign up here for our weekly newsletter. Would you like to know more about the possibilities? Then request a callback. We will contact you without obligation.

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How Trump can still win

Article about How Trump can still win

Today the US GDP figures for the third quarter are published. Most economists expect growth of between 22% and 33%. The Federal Reserve, the system of US central banks, is also making its own estimates. The latest forecast of the Fed was a growth of no less than 37%, the highest in the history of the United States. Note: this is annualised growth compared to the previous quarter. Annualised means that growth is converted to a period of one year. This is not common outside the United States. Converted, therefore, the Fed’s forecast is a growth of 8.2%.

It has never happened before that an incumbent US president who stood for a second term was not re-elected when there was economic growth in the two years preceding the elections. At the same time, a recession in the two years preceding the elections almost always means that the incumbent president has to step down. This phenomenon gained in importance during the 1992 elections. In March 1991 Bush senior started a ground war in Iraq which increased his popularity to 90%, but just before the elections a year later his popularity had fallen to 64% and Bush was not re-elected. The main reason was the recession and the associated high unemployment. Bush tried to win the elections with his foreign policy but lost out on the economy. That was exactly what a Clinton campaign leader had set his sights on with the slogan ‘The economy, stupid’. Americans too often turn out to vote with their wallets. For Bush, Presidents Carter, Ford, Hoover and Taft suffered the same fate. On the other hand, there is a long list of presidents who were given a second term: Wilson, Roosevelt, Truman, Eisenhower, Johnson, Nixon, Reagan, Clinton, Bush junior and Obama. All because they had the economic tide with them.

In practice, it is usually referred to as a recession when two or more consecutive quarters shrink. That is the case this year. In the first quarter, the US economy contracted by 1.3% and in the second quarter by 9.0% (both figures are not annualised). This means that even with the growth of 8.2% in the third quarter, the size of the US economy is still smaller than at the beginning of this year. Recession literally means decline or setback, and in this respect, it can be said that the US economy is not yet out of recession. Trump likes to measure its policy from the development of the economy and the US stock exchange. The Coronavirus threw a spanner in the works. As a result, the elections now seem to be mainly about his approach to combating the virus. The reporting of record GDP growth may help him at the last minute. It is just a pity for him that more than 60 million Americans have already voted.

There is one president who has been re-elected, despite a recession in the two years prior to the elections. That is Calvin Coolidge in 1924. From May 1923 to June 1924, there was a mild recession. During the elections, the economy was already out of recession, the moment which, moreover, was the kick-off for the ‘roaring twenties’. An annualised growth of 37% could be an excellent starting shot for the new ‘roaring twenties’. But of course, Coolidge also had the very strong slogan: ‘Keep Cool with Coolidge’. Trump’s slogan is now ‘Keep America Great’. I would quickly add the word ‘again’ for a second term.

Chelton Wealth — Quanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management. If you would also like to be kept up to date with the latest news, please sign up here for our weekly newsletter. Would you like to know more about the possibilities? Then request a callback. We will contact you without obligation. Missed an article? No problem, just visit our MARKET BLOG


Low-interest rates increase inflation

Article about Low-interest rates increase inflation

The price/earnings ratio of equities in the early 1980s was extremely low, yet equities were not undervalued relative to bonds. Evidence is that, in the ten years since then, long-term bonds have been more profitable than shares. Even after the crash of 1987, equities looked cheap, but it was not as bad as bonds. Nowadays, the reverse is the case. The price/earnings ratio of equities is at the upper end of the range but compared to bonds, equities are cheap rather than expensive. Anyone with a portfolio of shares and bonds should look for an alternative to bonds, not to shares.

Interest plays an important role in the development of the stock market and the economy. The level of interest determines the cost of raising debt capital. When the interest rate is too high, companies stop investing and pay off their debts. The economy stops growing and falls into recession, or even depression, as was the case in the United States between 1930 and 1941 and in Japan between 1994 and 2012. When interest rates are lower than the return that can be made with them, debts rise. An equilibrium is reached when the marginal cost of debt is more or less equal to the marginal return. When the interest rate is much lower than the marginal return, debt rises so fast that it cannot all be invested in new assets. It is much safer than buying up existing assets with borrowed money. Chances are that this financial engineering capital will be wasted, as higher prices for existing assets do not have a positive effect on the economy. There is inflation, but not inflation according to the current definition. It is also called asset inflation.

An optimal environment for investors is that there is no destruction of capital by too high-interest rates, but also no destruction of capital by too low-interest rates. Too high an interest rate leads to recession or depression; when interest rates are too high, the downside of strong asset inflation is ultimately a financial crisis. In a recession, equities are vulnerable, but bonds benefit. After a financial crisis, the value of assets must be kept high because of over-indebtedness. Expensive assets mean low yields and in the search for yield, non-productive assets ultimately benefit as well. These are assets where the return is not determined by a coupon or dividend, but purely by what the madman gives for it. At the right level of interest rates, it is mainly growth stocks that benefit. Innovations are stimulated. Capital is available, but goes to innovative and therefore growing companies that can make just a little more return than existing companies or on existing assets. The chance of a recession is small because the interest rate is not high enough for that The interest rate is not too low either, so the chance of overheating prior to a recession is often small. Growth stocks also benefit from such an environment. A rising price/earnings ratio is therefore a signal of sound monetary policy and confidence in the future.

The Corona crisis marks a clear turnaround in monetary policy. A year ago, Modern Monetary Theory was still seen as extreme; now it has become almost mainstream. Monetary financing — financing the budget by printing money — is also widely accepted. Central bankers are no longer going to raise interest rates because there is inflation in the pipeline. Inflation is seen as the solution to a debt crisis. Interest rates remain low, even if inflation rises, if necessary with the promise of the central bank to buy up all bonds above a certain interest rate level. Too low an interest rate results in too much money, a sub-optimal allocation and even more asset inflation. At the end of the day, all the invested capital is actually consumed and, with a certain delay, it still creates real inflation. The economy overheats and the bubble bursts.

 


A new recovery plan

Article about A new recovery plan

The second Corona wave is causing unrest in the euro area. Measures to combat the virus are depressing economic growth, but the differences between countries are considerable. Vulnerable countries are hit much harder than strong ones, which can again create political tensions. The euro seemed to be saved for the time being by the first recovery plan, but a second recovery plan is inevitable. This also means that the final unity from the first half of the year will be put to the test.

The differences between European countries can be seen in the various purchasing managers’ indices. An index ranking above 50 indicates growth and clearly below 50 indicates contraction. Spain is again hit hard, with the index falling from 48.4 in August to 44.3 in September. France is doing only slightly better at 48.5, while the German economy continues to expand at 54.7. Europe as a whole is more likely to contract in the fourth quarter.

Spain is worst off in terms of Corona infections, with more than 300 per 100,000 inhabitants now resulting in the complete closure of the capital Madrid. But bars and pubs also remain closed in France. The economic impact of the measures is much greater in southern European countries than in the north. In Spain, the tourism sector accounts for around a quarter of the economy, including the effects on the cultural sector, shoppers and other leisure activities. Nor is it the case that these sectors had a good summer season in southern Europe. This means that there is an increased risk of companies getting into trouble and thus infecting other parts of the economy as well. Without measures from the ECB and the European recovery plans, a large proportion could collapse rapidly. In a black scenario, it is possible that half of the southern European companies will not survive this crisis. Incidentally, southern Europe is already starting in the winter sports areas, which are also facing a bad winter. The big question is whether the euro can survive such a black scenario.

European countries that focus on exports, such as Exportweltmeister Germany, are benefiting from the strong recovery in world trade. Indeed, the world outside of Europe is experiencing growth. In China, growth is so strong that the renminbi is gaining in value. Even in Brazil, consumer demand is once again above pre-Corona levels. The US economy is currently growing by more than 35 annualised. The recovery in the North is necessary to close the gaps in the South. But solidarity in Europe is wafer-thin. At the moment, the European economy is still supported by monetary and fiscal measures, but when the difference between winners and losers has become unbridgeable, the euro will come under further pressure. For home biased investors: remember that the euro area only accounts for around 10% of the world index. Look for investor happiness in the East, where economies have fully recovered from the Corona crisis.

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The Digital Euro

Article about The Digital Euro

Like the Chinese Central Bank, the ECB is also looking at a digital currency as an alternative means of payment. In mid-2021 the decision will be made and the ECB will decide whether the digital euro should be introduced. The main difference between a digital currency issued by the central bank and a cryptocurrency is determined by the government’s monopoly of power. A cryptocurrency is validated on a decentralised basis, which means that its value is equal to what the madman gives for it. A digital currency must always pass through the central bank, which has the task of monitoring price stability and can therefore also determine its value. The central bank is part of the government that can ban other (crypto) coins but can also force people to pay taxes in their own digital currency. There are so many advantages to a digital euro that, taken together, it can be seen as a major drawback.

The advantages of a digital euro

The costs of current payment transactions are high. In a digital environment, commercial banks are no longer required, because that is the main reason why people still have an account with a commercial bank. Every private individual and every business has an account with the central bank. Money laundering is impossible, and so a digital currency is an effective tool in the fight against crime, theft, corruption, illegal drugs, gambling, human trafficking, terrorism and extortion. At present, commercial banks still have to invest a great deal to monitor all transactions in the economy and risk large fines if they do not meet the strictest requirements. Soon the central bank, together with the tax authorities, will validate every transaction. Illegal immigration will fall sharply because, without official papers, illegal immigrants will have no income. Undeclared work will be a thing of the past for good. Tax evasion has become impossible, which not only saves a great deal of money in detecting tax evasion but also brings in a great deal more tax money, as a result of which tax rates can be substantially reduced.

Digital money is also good for the economy. It is now possible, in the event of negative interest rates, to take the money from the bank and put it in an old sock. In the case of a digital euro, this is impossible, which means that the interest rate can become even more negative in order to achieve the objective. The alternative is to give digital money a limited shelf life, forcing people to convert the money into consumption before a certain date. Owners of the digital euro will no longer be afraid of their bank collapsing, end of the deposit guarantee scheme. On top of that, given the billions that were needed to get the financial system back on track after the Great Financial Crisis, there will be even greater savings.

The disadvantages of a digital euro

The advantages are great but so far-reaching that it has become a disadvantage. There is no longer any anonymity surrounding payments. Everything is traceable. By means of payment transactions, the government gains a great deal of insight into things that people still see as private.

Nowadays, commercial banks can do that too, but there is almost always the possibility of paying in cash. The introduction of the digital euro will therefore have to be linked to sound agreements on the protection of privacy. Furthermore, an even more negative interest rate is not good for people’s savings behaviour. Moreover, people spend digital money more easily than cash, but with a negative interest rate, they will be penalised even more heavily for their savings behaviour. If people stop saving at a commercial bank, that bank will have to come up with another way to get money, probably in the form of a higher interest rate. Finally, if there is the risk of a cyberattack, all-digital money could disappear. However, in practice, these are rather sought-after objections. After all, a large proportion of payment transactions already go digital. Only the grey and black circuit will be unhappy with the digital euro.

Conclusion

For investors, the introduction of digital coins means a further reduction in costs. These lower costs increase economic growth and also reduce direct investment costs. Buying and selling securities will become simpler and everything can be done a lot faster. In addition, the potential investable assets will increase with the disappearance of the grey and black circuit. There will be more competition between commercial banks that want to attract assets at an attractive interest rate. Now that digital payments have rapidly become the norm as a result of the Corona crisis, the digital euro is also approaching. It can then contribute to a super-V-shaped recovery.

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Start of a new super cycle in raw materials

Article about Start of a new super cycle in raw materials

It is said that monetary policy has caused many bubbles (the Everything Bubble) since the Great Financial Crisis (GFC). There is at least one asset class that has not benefited from this. These are commodities.

Commodities are not a structural investment category. There is no structural risk premium. Keynes' theory of normal backwardation, in which the current price on the futures curve is structurally higher than the future price, is often protected. Empirically, this theory does not seem to be correct and Keynes' assumptions are not correct either. According to Keynes, commodity producers prefer a certain sales price and were prepared to pay a premium for this in the form of a lower price.

This may have been the case in the crisis of the 1930s, but almost a hundred years later, we can see that purchasers also have an equal interest in a certain purchase price, fuelled by strong price fluctuations as a result of speculation. Therefore, the market for raw materials does not always seem rational. For example, raw material prices often have several equilibrium levels. Take, for example, the price of oil. Many government budgets are based on that. In order to meet the budget when the price of oil halves, production has to be doubled. Perfectly rational from a budgetary point of view, but the theory of market efficiency can immediately be abandoned.

Raw materials are much more of an opportunistic investment category. In the past, there were regular super-cycles in which commodity prices rose for several years at a time, followed by a long period of falls. Therefore, the best remedy against low commodity prices is a low commodity price. Due to the time between an investment decision and actual production (sometimes as much as 7 to 10 years) in mining and oil companies, there is a long pig cycle.

The last cycle began at the end of the 1990s with oil prices below USD 10 per barrel, gold which had fallen only in price after the bubble in the early 1980s, and agricultural commodities which had reached their lowest level in the last 35 years. Low prices have increased capital discipline, for example in large mining companies such as Vale de Rio Doce (literally: freshwater valley, a very euphemistic name given the polluting activities) and BHP Billiton (formed in 2001 by the merger of Broken Hill Proprietary and Billiton).

An important variable was also China's accession to the World Trade Organisation in 2001. At that time, the Chinese economy was still following the typical Asian growth model, with high infrastructure investments financed by export earnings. Including the rapid urbanisation in China, the demand for raw materials rose sharply, at a time when low prices had given the incentive to invest for the time being but not for a few years previously. A large buyer was added, and these were institutional investors. For the first time in history, commodities were included on a large scale in institutional portfolios. They were helped by commodity investment sellers, who paid scientists for publications to convince investors of the added value of commodities in a portfolio. Rising commodity prices due to the imbalance between supply and demand took care of the rest. This makes it easy to convince investors. But a combination that could only end in a valley of tears. Commodity prices, therefore, halved during the largest bull market in equities. But as a result, commodities have not been as cheap compared to equities for the past 100 years.

It is quite normal for commodity prices to fall in the long term. Every time the price of a certain raw material rises, people adjust. A high oil price results in energy-saving measures and therefore less demand. For many raw materials, there are often cheaper alternatives. In addition, the high price makes extraction more and more efficient. Take, for example, the development of fracking and horizontal drilling. This has ensured that the United States has once again become the world's largest oil producer.

Nevertheless, everyone seems to be convinced that an ageing world population consumes less and that IT will ensure that the world economy will become less dependent on raw materials. Even without a recession, there are enough factors that keep the price of raw materials low. However, as has been said, the best cure for low raw materials prices is a low price of raw materials. Then there will be no investment and production sites will close down. The supply goes down. The assumption that the world's population is ageing and therefore consumes less is wrong. Global consumption will double in the next ten years due to the rapidly growing middle class.

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The British stock market is not the British economy

Article about The British stock market is not the British economy

When the British stock market falls, it is either because of Brexit or because the Coronavirus hit the British harder than the rest of Europe. Both statements are nonsense. There is no stock market in the world where so many multinationals are listed as in London. As a result, the British stock exchange is more than 80% dependent on developments in the rest of the world. The fact that the British stock exchange (-20%) lags behind the rest of Europe (-7%) is mainly due to the composition of the sector.

For example, the IT sector in the UK weighs only 1%, compared with almost 30% in the United States. The energy and financial sectors are well represented. Energy was 14.4% at the beginning of the year, compared with 4.3% in the United States. That makes quite a difference when such a sector halves in value. The financial sector weighed 20% in the UK at the beginning of the year compared with 10% in the US. In the US, the prices of banks and insurers fell by 20%, Europe-wide by 50%. Correcting for the different sector weightings and poor price performance of European financials, this year’s FTSE 100 stands at -3% and not -20%.

That — 3% for the British stock exchange happens to be equal to the return on the DAX, one of the better-performing exchanges this year. Now, the DAX has been a real laggard in recent years due to the diesel scandal, so that is a good thing. But the DAX is a reinvestment index, so the price return is lower. What is more, the DAX has no energy sector. At the same weighting for the Energy sector as in the UK, the DAX would be more than 7% lower. The DAX does have financials, but Deutsche Bank is a remarkable white raven with a positive return this year. Fortunately, the Germans were able to get Wirecard into the DAX just in time to reduce the return. On balance, the DAX performs worse than the FTSE 100.

There is also a stock exchange that benefits above-average from the sector division, and that is Denmark. The well-performing Pharmaceuticals sector accounts for more than half of the index weight. Denmark has no energy sector and the financial sector weighs only a few percent. What Denmark does have, however, are companies that score well in terms of sustainability, which is another important plus this year. With more than 20% profit, it is the best performing stock market this year.

The British stock market is well-positioned for a cyclical recovery of the world economy and the associated sector rotation. A sharp price correction in IT stocks will not hit the FTSE 100, but there are few exchanges with as many as 11 mining companies in the index. Together with the weighty energy and financial sectors, it appears to be the ideal stock exchange for the counter investor. Coincidentally, a deal on Brexit will have to be made in the next two weeks. If this is really what it is all about, then the shutters will be closed. There will be no more communication with the press. That is usually a sign that an agreement is about to be reached. We only know that the deal has failed when there are accusations from one side to the other.

After four years of Brexit negotiations, it seems impossible to predict the outcome. In such cases, the maxim that even the most unpredictable dictators are surprisingly rational when it comes down to it often helps. Accidents happen, but they are the proverbial exception. A deal between the UK and the European Union would be good news for the British stock market. Again, correlation is not the same as causality. It comes at a time when the excess of cyclical stocks on the British stock exchange is benefiting from the economic recovery of the global economy.

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The spectacular profits of the Swiss Central Bank

Article about The spectacular profits of the Swiss Central Bank

Safe haven of refuge

In times of turmoil in the financial markets, the Swiss franc is considered one of the safest havens of refuge. This is also the case during the current pandemic. Despite the fact that interest rates are nowhere else in the world as low as in Switzerland, huge financial flows found their way to the country of the snow-capped peaks. Swiss banks have had negative interest rates since 2014. It has not been able to prevent the franc from rising by 13% against the euro since then. The Swiss stock exchange has also been doing well for years. For example, the SMI index did not suffer a loss this year. The Dow Jones index, for example, recorded a loss of more than 8%. However, the popularity of the franc is giving the Swiss Central Bank a headache.

The SNB’s balance sheet

After all, the central bank must protect the Swiss economy. The strong franc damages the competitiveness of the exporting country. It also brings the monster of deflation closer. As such, the Swiss National Bank (SNB) is keen to keep the value of the franc under control. To this end, the SNB pursues a twin-track policy by means of negative interest rates and the large-scale purchase of foreign investments. The first has led to a negative interest rate of 0.75 percent. The second led to the swelling of SNB’s balance sheet to unprecedented proportions. Recently it reached a size of 950 billion francs. This has made SNB one of the world’s largest investors, not much smaller than, for example, the Norwegian State Fund.

Headaches

In relation to the size of Swiss GNP, the balance really stands out. The SNB’s balance sheet amounts to no less than 135% of GNP. By way of comparison, both the Federal Reserve and the ECB, despite their massive buy-back programmes, account for no more than 30% of the GNP of the United States and the European Union respectively. These figures really show the price that the Swiss have to pay for their — relative — independence. Switzerland is not part of the euro and is a relatively small economy. It raises many headaches for the monetary authorities.

Technology investor

During the coronavirus outbreak, the franc once again proved to be a popular refuge. It forced the SNB to make large-scale interventions on the currency market. In the first quarter, more than 38 billion francs were issued, in the second quarter more than 51 billion. Francs were sold in order to be able to buy foreign currency — mainly dollars and euros — and gold. The SNB now owns 1 000 tonnes of gold, worth 59 billion francs. However, its position in American shares is much more spectacular. With its enormous position in Apple, Amazon, Microsoft, Alphabet and Facebook, the SNB is one of the largest investors in technology stocks worldwide.

The spectacular rise in price

The fall in prices on the stock exchanges resulted in a loss of 38 billion francs in the first quarter. It will come as no surprise that the recovery in the stock markets in the second quarter resulted in a profit of 39 billion francs. The record profits on the Nasdaq will have filled the bank’s treasury ever since. That is good news for SNB shareholders. Fifty-five percent of the shares are held by various regional governments and banks in Switzerland. The rest is in private hands — 100,000 shares to be precise — and negotiable on the stock exchange. The share has been trading for years at a price of 1,000 francs. However, in the course of 2016 — when the SNB’s policy changed — the share price started to rise spectacularly, to a peak of over 8600 francs in the spring of 2018. The current exchange rate is 4800 francs.

Currency manipulator?

However, large-scale interventions and spectacular profits have also attracted the attention of the authorities in the United States. For example, the SNB has been put on the observation list of exchange rate manipulators. After all, Switzerland has a large current account surplus and a significant trade surplus with the United States. Switzerland is also accused of manipulating the exchange rate of the franc against the dollar. However, the SNB does not seem to be interested in the latter at all. It claims to be transparent about the interventions motivated solely by monetary policy and in order to counteract the adverse effects of too strong a franc on inflation and the economy. They are certainly not intended to give the country an advantage through undervaluation of the currency. The Swiss cannot do much else either. In recent years, for example, the SNB has become the most successful hedge fund in the world.

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Chinese resilience

Article about Chinese resilience

Weathering the crisis well

While the authorities in the United States and the European Union continue to struggle with the virus, corona seems to have been reasonably brought under control in most of East Asia. In relative terms, it could be said that this region of the world has weathered the crisis well. Especially in the region's most important economy, China. The rise of the Chinese currency - the renminbi - against the dollar by more than 5% since this spring is a result of this. Now you will say, the dollar has also fallen against the euro. That is true, but the renminbi also rose by more than 3% against the euro this summer. The pandemic seems to have accelerated China's advance on the world economic stage.

Better-than-expected economic figures

For example, industrial production in China increased by 5.6% in August compared with the same month a year ago. Investment in real estate was also 4.6% higher than in the same month last year. These figures were certainly better than expected, but are still due to some extent to the government's stimulus measures. The fact that even retail sales turned out better than expected and were 0.5% higher than last year was definitely a surprise. Indeed, consumer spending has so far been the weak spot in China's economic recovery. Consumers had not yet recovered from the blow of the pandemic and retail sales had fallen every month this year. So until last month.

Growth again

In the second quarter, Chinese GNP also grew by 3.2% after the fall in the first quarter. This makes China one of the few countries with a GNP that was higher in the second quarter than at the end of 2019. Bear in mind that the increase in consumer spending was not the result of large-scale state aid. This is in contrast to the United States and the European Union, where governments have kept citizens on their feet on a large scale with all kinds of support measures. In China, state aid was largely limited to the stimulation of industry.

Exports important

Exports play an important role in this Chinese growth story. Even before the outbreak of the virus, China was the most important workshop in the world and that has not changed. In fact, China's share of world trade has increased. A glance at a graph of Chinese exports shows that China's share of total world exports has increased from 14 to 16%. Trade war with the United States? Little of that is reflected in these figures. In particular, China appears to have exported electronics and medical equipment to the rest of the world. Partly helped by the fact that the lockdown restrictions in China were lifted as early as April, where they were still widespread in the rest of the world.

Trade surplus and rising stock markets

Partly as a result of these developments, the stock markets in China are higher this year. For example, the CSI 300 index stands at a 13% profit this year and the Shenzhen Stock Exchange - many technology funds - at a 26% profit. The Chinese currency, as has been said, has risen to a level that investors have not seen for a long time. For a dollar, we now receive only 6.79 renminbi. Another consequence of this Chinese advance is the ever-increasing trade surplus with the United States. Of course, as a result of the pandemic, China has not yet implemented 40% of its trade agreement with the United States. Nevertheless, the trade surplus with the United States has grown by 25% since the presidency of Trump to over USD 300 billion annually.

More tensions between China and the United States

So, despite all the rhetoric and pressure from the US President, not much has actually changed. In fact, the situation has been shifted even more to China at the expense of the United States. It will put even more pressure on relations between China and the United States. Whoever is going to become President will soon be in November. After all, in anti-China rhetoric, the Democrats are not inferior to the current President.

Chelton Wealth - Quanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management.

 


A quick recovery

Article about A quick recovery

Attractive unemployment figures

Last week, the US Bureau of Labor Statistics reported the figures on the US labour market. For example, considerably fewer people had applied for unemployment benefit than had been expected by analysts. More important, however, was the fall in unemployment. It had fallen to 8.4%, which was also considerably less than the expected 9.8%. For the first time since the outbreak of the corona crisis, it had fallen below 10%. Almost 1.4 million jobs were created in August, including in hotels and bars. Around half of the jobs lost earlier this year would have been ‘back’. During his election campaign, the President spoke of the ‘fastest recovery ever in American history’.

Some comments

Judging from the above figures, this statement seems correct. There are, however, some comments to be made. Firstly, the fall in the unemployment rate was mainly the result of a new census. Without this change, around 1 million Americans would probably have applied for benefits, as many as the month before. The unemployment rate would probably have been around 9.1%, not 8.4%. But that is not the main objection to too much euphoria about these figures. More importantly, one in two workers made redundant in the pandemic has still not found a new job.

Temporarily becoming permanent

In reality, more and more unemployment is proving to be permanent rather than temporary. For although unemployment is falling faster than expected, wages are rising faster and the number of hours worked is increasing, the number of Americans who have lost their jobs permanently rose by more than 500 000 in August. In July, half of the Americans who were temporarily laid off had already been unemployed for 15 weeks or more. In August, that figure had already risen to two thirds. The Federal Reserve, the American Central Bank, had already expressed serious concerns about this. The Fed no longer sees inflation as a priority, but the labour market.

Two trends

The pandemic has accelerated two long-standing trends. Smaller businesses — the backbone of the economy — are rapidly dying out. Meanwhile, the stock market is setting record after record, led by a number of giant technology companies. Do not forget that small and medium-sized enterprises in the United States account for 85% of new jobs and about half of the total workforce. A process that has been going on for decades as a result of globalisation and digitisation has accelerated during this pandemic. Fewer small businesses, fewer jobs and virtually no wage growth since the 1970s. Add to that the Amazonisation of retail (many small retailers have now disappeared) and the situation seems clear.

K-shaped recovery

Economists are already talking about a K-shaped recovery. The ascending line of the K would represent the technology sector and the descending line would represent the badly affected old economy. However, there is another way of looking at this. The ascending line stands for those who have a well-paid job and an equity portfolio. The downward trend is for the long-term unemployed and workers who have not had a wage increase for decades and who are constantly living with job insecurity. The President was elected four years ago partly because this situation has existed in the United States for longer than today. However, he seems to be focusing his policy on the K upward trend when he talks about the rising stock market and the ‘rapid’ recovery of the economy. As long as the Fed remains focused on a policy of low-interest rates and cheap money, this situation will not change.

Winners and losers

This is a situation in which more and more Americans are having to dig deeper and deeper into debt in order to survive. A situation in which a large part of the population has to live in constant economic uncertainty. A situation in which the difference between the winners and the losers in this crisis is widening. There is no broad-based economic recovery here. The winners of this crisis also have an interest in a ‘broader’ recovery. Otherwise, over time, they too will no longer be winners.

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The Stock Market does not care much about corona fear

Article about The Stock Market does not care much about corona fear

New record

Last week, the world’s most important stock index, the S&P 500, briefly touched its highest point ever. In the end, the index stuck just below it. This while the Nasdaq, for example, thanks to the many technology funds in this index, has long since surpassed the old top. Since this early spring, the stock exchanges have therefore largely or even completely recovered from the historical drop. A recovery that many experts observe with increasing astonishment.

Disconnected from the economy

After all, isn’t it true that the United States has a record number of unemployed, economic growth has not collapsed historically, the number of virus infections continues to rise and shares have not reached a valuation that we haven’t seen since the infamous dot-com bubble? It’s been singing around for a long time, the financial markets have become disconnected from the underlying economic fundamentals. Sooner or later, a huge blow will have to follow. Especially many new inexperienced investors seem to walk straight into the trap of an overvalued stock exchange with all the nasty consequences that entails.

Hard figures for nuance

But some nuance might be appropriate. Of course, shares seem historically expensive and with a possible flare-up the second wave of the virus seems little imagination needed to foresee hot autumn on the stock market. After all, aren’t the historically inferior months of September and October coming? In this context, it might be a good idea to bring in some hard figures that seem to speak a different language against all these predominantly gloomy sentiments.

Earnings results are not so bad

As a result, the flow of quarterly reports from the companies is coming to an end. In the United States, 83 percent of the companies in the S&P 500 have exceeded their profit expectations after all. And more importantly, 64 percent of the companies reported higher than expected sales. Of course, expectations were certainly not on the high side in connection with the corona crisis. At the start of the season, however, profits were still expected to drop by more than 43 percent, but so far this has not been as much as expected, with a drop of 33 percent. Another remarkable fact was that it was not the leading technology funds, but the industrial companies — naturally more sensitive to the economic cycle — that came out on top.

Interest curve

Not only were the operating results disappointing, but there was also some relaxation on the bond market. In the United States, for instance, interest rates on long-term government bonds rose for the first time in ages. This resulted in a rising interest rate curve. A sign that the more professional bond market is also experiencing a — at least small — economic recovery. Lately, it has become fashionable to worry about rising inflation. Especially in view of the enormous amounts of money that have been squeezed in the last couple of months. Despite the somewhat rising inflation, however, it is still clearly below the target of the central bank. Especially considering the fact that the US government has raised a record amount of money to be able to cover the sharp rise in deficits. Moreover, remember that real interest rates in the United States are still clearly negative.

Economic figures are not disappointing

The falling dollar would be a problem. Would it? For the American economy, a weaker dollar seems like a blessing. And also a sign that the stress on the markets has subsided. After all, doesn’t the dollar usually increase in value when the stock market gets tense? Another concern was the “disappointing” retail sales. When the automotive and petrol sectors are left out of these figures, however, that is not so bad. The Citi Economic Surprise Index, which measures macro-economic figures against expectations, also turned out to be vertical in recent months. Up, that is.

The sentiment of investors not so euphoric

And last-but-not-least, investor sentiment appears to be far from as furiously optimistic as is often assumed in the media. Only 30 percent of investors appear to be optimistic, historically far below what would be normal for a stock market that is “high”. On the other hand, the number of gloomy-minded investors is remarkably high given the stock market’s state of affairs. On the contrary, the Yale Crash Confidence index indicates a widely shared expectation among investors that they are warier of a crash than ever before. Something that puts the stories of the Robinhood Day Traders — a category of new investors who are not hindered by any knowledge of their savings into the stock market — into perspective. In other words, equities are historically expensive, yes. However, interest rates are historically low and the economic figures relativise the widely shared economic gloom among many experts. Perhaps 2020 has even more surprises in store for investors. And this time a little less gloomy.

Any opinions, news, research, analyses, prices or other information contained in this email or linked to from this email are provided as general market commentary and do not constitute investment advice. Chelton Wealth does not accept liability for any loss or damage including, and without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

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Do not write off the dollar yet

Article about Do not write off the dollar yet

Dollar drop

Since the bottom of March, the S&P 500 index has returned to pre-coronavirus levels. In the same period, the dollar underwent an opposite movement. The world's main currency lost 11% against the euro during this period. Such a fall in such a short period of time is remarkable on the foreign exchange market. After all, with a daily trade of 5000 billion dollars, the global currency market is much larger in size than, for example, the stock market. Most of this trade takes place in the US dollar and can have major consequences on the financial markets.

Reasons for the fall

See, for example, the rise in the price of raw materials quoted in dollars. Not only gold and silver but just about all commodities rose. Gold even recently recorded a New All-Time High. The fall of the dollar has attracted the attention of many analysts. The consensus expects further progress of the fall, based on the same factors which have been at the basis of the price fall until now. The fear of new lockdowns in the United States as a result of the rising number of corona infections, the damage this will have to the economy and the broad monetary policy of the central bank to support the economy and the stock markets. The budget deficit, which has risen to unprecedented proportions to 3400 billion dollars and government debt of over 132 percent of GNP, do not speak in favour of the dollar either.

Will the decline continue?

However, it is very questionable whether the dollar has begun to fall for a long time. The causes of the decline seem to be all coming to an end. For example, the increase in the number of new Covid-19 infections in the United States seems to be decreasing. The macro-economic figures in the United States appear to be falling. For example, most companies in the United States have so far reported better than expected results for the second quarter. And, not unimportantly, the interest rate differential between the United States and the European Union has narrowed considerably as a result of the Federal Reserve's generous monetary policy. On more than one occasion, the central bank has indicated that it does not think about a negative interest rate. A further reduction, therefore, does not seem to be on the horizon for the time being. Meanwhile, the most positive momentum resulting from the recently approved support package in the European Union has been incorporated into the euro exchange rate. On top of this, the number of contagions in the European Union now also seems to be increasing again. The relative advantage of the euro against the dollar is therefore declining.

Stress on the stock markets

Most important, however, is the role that the dollar keeps playing on the financial markets "when the going gets tough". Historically, the dollar invariably increases in value as soon as the stress on the stock markets increases. This was the case during the credit crisis and was again evident during the first phase of the coronavirus outbreak. The dollar reached its provisional peak exactly at the time when the stock exchanges were bottoming out worldwide. In the subsequent relaxation on the markets, the value of the dollar as a favourite refuge fell again. Other havens such as gold, silver and technology funds replaced it.

Safe Haven

In the long term, the huge budget and trade deficits will undoubtedly affect the dollar. However, the dollar's position on the foreign exchange market is still very strong. Bear in mind that a daily trade deficit of $1.6 billion is quite a bit out of proportion with a daily turnover of $5,000 billion on the foreign exchange market. According to the Bank for International Settlements (BIS), no less than 88 percent of daily currency trade runs via the dollar. Now that the stock markets are back to the level they were before the outbreak of the virus, the economic recovery is beginning to lose momentum and the infections in the European Union are starting to mount up again, it is not excluded that the dollar will soon regain its position as the world's most popular haven of refuge.

Any opinions, news, research, analyses, prices or other information contained in this email or linked to from this email are provided as general market commentary and do not constitute investment advice. Chelton Wealth does not accept liability for any loss or damage including, and without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

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Is there an alternative after all?

Article about Is there an alternative after all?

Corona Recovery Fund

This morning, after four days of meetings and negotiations, the European heads of government reached an agreement on the Corona Recovery Fund. The fund has a size of EUR 750 billion and will be made available to member states through grants and loans to promote economic recovery after the crisis. It is not the first stimulus plan to see the light of day in this crisis. For example, the Bank of America calculated that central banks have made a total of 150 interest rate cuts since the outbreak of the virus. In addition, central banks and governments have stimulated 18,000 billion dollars in monetary and fiscal stimulus. These measures have prevented a hard landing of the world economy. Despite the fact that the crisis is not yet over, the stock markets have shown an unprecedented recovery rally since the bottom of March.

Wall of money

Although investors are enjoying this rally, there is some unrest, especially among the authorities. For example, the Bank for International Settlements - the bank of central banks - warns against too much optimism in the financial markets in its annual report. The prices would be very far ahead of economic reality. The unprecedented "wall of money" seems to turn ancient economic laws completely upside down. For example, the actual abolition of interest rates is an important reason for the bustle at the entrance to the stock market. After all, there is no longer a serious alternative to investing in equities. Savings make people poorer and bonds are no way to build up a fortune.

Negative real interest rates

Although 0.6 percent interest is still paid on a ten-year US government loan, the real - inflation-adjusted - interest rate is now negative. After deducting inflation, the real interest rate in the United States is now 0.8 percent negative. Since 2012, the interest rate has not been so low. Now, low or even negative real interest rates are normally a reason for investors to seek refuge in the most popular precious metal, gold. This is also the case now. Recently the price of gold rose beyond 1800 dollars per 100 Troy ounces. A rate which has not been put on the boards since, indeed, 2012. The negative real interest rate then pushed the gold price to a top of 1900 dollars.

Good investment

Gold turns out to be a good investment this year. Where all the attention seems to be focused on the relentless advance of the Nasdaq, the price of gold does nothing less than that. Both are 20 percent higher this year. The large-scale support operations create a double feeling among investors. On the one hand, the stock exchanges list one All-Time High after the other, but on the other hand, the well-known ports of refuge such as government bonds and gold are strong. Already in the first half of the year, an amount of 40 billion dollars flowed into gold funds. This broke the record of 2009 - during the credit crisis - both in tonnage and in money.

Gold no longer ignored

Gold was often ignored by many - mainly professional - investors as an interesting investment because it does not pay interest or dividends. This argument has now disappeared. Savings accounts, bonds and several shares no longer pay out anything these days. Add to that the uncertainty about the virus. As a safe haven, the importance of gold is increasing. But there is more. Anyone who knows the laws of scarcity knows that when there is too much of something, its value decreases accordingly. So does money. Since the previous crisis, banknote presses running at full speed have added so much money that more and more investors are starting to worry about its value. And they are looking for assets that could keep their value, including gold.

S & P in gold

On the site of Macrotrends it is possible to get a graph of the S & P 500 index, not expressed in dollars but in gold. Thus, the world's most important index has risen from 1469 to 3251 points in twenty years since the turn of the century, an increase of 121 percent. However, in gold terms, the S&P 500 fell from 4.5 in 2000 (per 100 Troy ounces) to 1.78 now. Well, has the stock market risen this way in the last 20 years or has the dollar become worth much less now? And do you buy less and less index for that dollar? Investors who believe the latter are increasingly seeking refuge in gold.

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A first warning?

Article about A first warning?

A bull market in China

This was the headline of a story in the Shanghai Securities News last Friday. The Chinese state publication reported in the article that there are more and more signs that there is a healthy bull market going on in China. For investors a clear signal that the Chinese government has backed the stock market. It resulted in the largest daily profit on the Chinese stock exchanges in five years. The CSI 300 index - consisting of the 300 largest listed companies on the Shanghai Stock Exchange and the Shenzhen Stock Exchange - rose 5.7 percent on Monday. Last night, the index rose by a further 0.5 percent. As a result, this year's index stands at a profit of 14.68 percent.

Outperformance

With this price gain, the Chinese stock index beats the S&P 500 index by far. The Chinese technology index of Shenzhen also outperforms its American counterpart - the Nasdaq - with a 25 percent gain. The Nasdaq is expected to do 16 percent this year. As a result, the world's second economy seems to be the first of the major economies to emerge from the corona. The CSI 300 rose by 15 percent last week alone. Incidentally, the index has not yet returned to the old top-level of 2015. At that time, the CSI reached 5353 points, still 14 percent higher than the current level.

Better purchasing managers

Stock market prices are partly supported by the gradually improving macro-economic figures. For example, the purchasing manager's index for services - maintained by Caixin/Markit - rose to 58.4 last week. That was considerably higher than the low of 26.5 in February when the corona crisis still had China in its grip. A score above 50 indicates growth and 58.4 was even the highest in 10 years. Although the economy seems to be recovering, there is still room for caution. Unemployment, for instance, has been rising for five months and the Chinese consumption level is still far from the pre-crisis level. Even if corporate profits in China would rise by 10 percent in the second half of the year, they still remain below last year's level.

Liquidity driven

So the economy is recovering, but not yet back to its old level. In the short term, the very generous monetary and fiscal policies of the Chinese authorities seem to be a major driving force behind this rally. This spring, for instance, the central bank significantly broadened its lending opportunities to support an economic recovery. Local Chinese banks were granted a licence to trade in equities and the Chinese private investor managed to find his way back to the stock market. But Hong Kong brokers also report increasing foreign interest in investing in Chinese equities.

Substantial A/H premium

So the rally seems to be driven not so much by increasing company profits, but by a wave of new liquidity. The number of outstanding margin requirements - required when investors buy shares with borrowed money - has risen to USD 164 billion, the highest level since January 2016. It is also noteworthy that A/H premium, the difference in price between the same companies listed in Hong Kong and on the mainland, has risen sharply over the past month. The same shares are on average 35% more expensive on the mainland stock exchanges than in Hong Kong, which is more accessible to large international investors.

A new bubble?

Is this a new Chinese bubble? Maybe there is. But Chinese stocks are a lot less expensive than their American counterparts. For Chinese equities, investors pay an average of 15 times the profit. In the United States, investors have to pay 21 times the profit. Moreover, the current rally in Chinese equities is not much compared to previous rallies. In 2015 share prices doubled in nine months. In the 2006-2007 bull market, the index even increased fivefold. But when state media start recommending buying shares, investors should be wary. It's as if the Federal Reserve in the United States is saying it's time to start buying shares. This morning, the index peaked at 4796 points, only to drop more than 2 percent at the close. A first warning


Summer rally coming up?

Article about Summer rally coming up?

Sideways

The Nasdaq reached a new All-Time High yesterday. The S&P 500 index stands at a loss of only three percent this year. Investors are increasingly wondering to what extent the price rise since the corona bottom in March is justified. There seems to be no end in sight to the surprising recovery rally in the stock markets. Yet the reality is somewhat different. A look at the chart of the leading S&P 500 reveals that, on balance, this index has moved sideways over the past month. Yes, this week was a good one but followed a bad one. The week before that was a good one but followed a less good one as well. The return over the past month? 0.23 percent. Not really the result of an overly optimistic stock market.

The virus hasn't beaten yet

So with those price rises, it's not so bad lately. And that's not so strange. The market is actually stuck between two contradictory forces. Investors can read daily that the number of new corona infections in the United States is rising rapidly. Yesterday there were no less than 53,000 new cases. Meanwhile, more than a quarter of the global virus infections come from the United States, while the share of Americans in the world population as a whole is considerably lower. Investors see that the reopening of the American economy is slowing down. In fact, new lockdowns are taking place here and there.

Economy recovers

On the other hand, each reported macroeconomic figure appears to be better than expected. After consumer confidence - not unimportant in such a consumption-driven economy - turned out to be much better than expected yesterday, no less than 4.8 million new jobs were created. For the record, 2.9 million new jobs were expected. Unemployment fell from over 13.3 percent to 11.1 percent. In the European Union, the purchasing managers were higher than estimated. Something that has been going on in China for some time.

Correction in time

Witness the sideways stock market, investors seem to be trapped between these two opposing forces. That's not unhealthy. It gives the market a breathing space after the sharp rise since March. A correction does not necessarily have to take the form of a fall in prices. Correction in time is also possible. The latter seems to be happening now. The relative strength of the S&P 500 index, for example, has fallen from heavily oversold to a more neutral situation over the past month. As it were, equities become more worthy of purchase when they move sideways for some time. When the economy picks up during the period in question, prices become relatively more attractive.

Quarterly figures

In two weeks' time, the quarterly figures season will break loose again in the United States. The companies will present their results for the past second quarter. Expectations are very low. A profit drop of 43 percent is expected for the S&P 500 shares. However, these expectations are from a time when a longer-lasting crisis was still assumed. The rapidly recovering macro figures may point to something else. It might not be as bad as expected. Some companies came out early with their reports.

Summer rally

According to various studies, investor sentiment is on the dark side. In addition, both the government and the Federal Reserve have expressed their intention to come up with new stimulus measures when necessary. Moreover, keep in mind that the coming period until mid-July is historically a very good period on the stock market and hence the tasty recipe for an approaching summer rally. A summer rally? Have you gone completely crazy, do you think? Maybe, but keep in mind that the stock market is perverse and doesn't care what the majority of the right-thinking crowd expects. Scholarships don't go down until there's hardly anyone left who's negative. That moment hasn't come yet.

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Investors lost their compass

Article about Investors lost their compass

 Amazing rally

Since March, stock markets around the world have been on the rise again. The rally has been going on for more than three months now and leads to many people’s surprise and sometimes even disbelief. How can this rally be reconciled with the severe economic crisis and the resurgence of cases of infection with the virus, especially in the United States? The very broad monetary policy of the American central bank — the Federal Reserve — and other central banks worldwide is the main driving force behind this rally. Not only are interest rates kept at historically low levels, but central banks are also buying up huge amounts of bonds, mortgages and other securities. In fact, just like in Japan there is also yield curve control in the United States. The low-interest-rate is increasingly driving investors to the stock market.

There Is No Alternative

There is no alternative is the motto. Due to the low-interest-rates, there is no alternative left for investment in equities. A savings account is no longer profitable and in some countries even costs money. An investment in bonds also no longer contributes to any form of wealth accumulation. It is then not so strange that more and more investors are finding their way to the stock market. The Federal Reserve recently made it clear that it does not intend to raise interest rates in the coming years. In fact, they’re not thinking about it. The low-interest-rate should be a stimulus for the economy, but for the time being the money flows seem to end up on the financial markets.

Profit return

The rally has pushed the prices far higher. It can be heard everywhere that shares have become very expensive. For example, the ratio between the Nasdaq 100 index and the S&P 500 index has risen to 3.28. For the record, that is an equation of this ratio from the illustrious year 2000. Everyone knows what happened to the technology funds afterwards. The Nasdaq 100 has never rallied more than 45 percent in three months since the glorious 1990s. Are shares expensive? The valuation of an asset class is always relative. Compared to bonds, for example, equities are certainly not expensive. The profit return of the S&P 500 is currently 4.6 percent. Compare that with the return on a 10-year government bond in the United States of 0.63 percent. Or with the Fed Funds Rate of 0.08 percent. Compared to these alternatives, equities may even be spotty cheap.

Negative correlation

However, this is one side of the coin of broad monetary policy. There is another side. Professional investors such as insurers and pension funds, in particular, have such large sums to invest that good diversification is necessary. For example, a spread across shares and bonds used to lead to a reduction in risk. When economic conditions were less favourable, share prices fell, but so did interest rates. As a result of falling interest rates, bond prices actually rose. As a result, the loss of equities was partly offset by a profit on bonds. However, the historically low-interest rate seems to have put an end to this negative correlation. The interest rate on bonds is so low that they start to behave like equities. Equities and bonds are increasingly moving in the same direction.

Different risk management

If you are a private investor and you are fully in shares, you do not have an immediate problem. But think of insurance companies and pension funds that have generally invested more money in bonds than shares. Because of the low-interest rates, their risk management has suddenly become very different. Market risk has risen sharply. TINA makes these investors a floating boat on a wild ocean. There is something else on top of that. Because the only way to price risk was always to set one risk against the other. After all, every risk is relative. The valuation of equities could only be determined when compared to, for example, bonds or savings interest. When shares were cheap compared to bonds, you bought additional shares. Conversely, you sold.

Compass lost

The historically low-interest rate or the absence of a ‘natural’ interest rate curve has meant that there is no longer any method of pricing risk in the market. In other words, there is no longer a decent word to say whether equities are expensive or cheap. Investors have lost their compass with the de facto abolition of interest rates. That is worrying. After all, stock exchanges are currently nothing more than a large Titanic, sailing in a thick fog. Where does this end?

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Pandemic unleashes a copper rally

Article about Pandemic unleashes a copper rally

Gloomy IMF

The International Monetary Fund (IMF) estimates the damage caused by the coronavirus to the world economy to be greater than initially thought. The expected contraction for this year was adjusted by the fund from 3 to 4.9 percent. According to the IMF, the recovery in 2021 will also be slower than previously expected. Meanwhile, concerns about the sustainability of the trade agreement between the United States and China are increasing again. On top of that, the United States yesterday announced the largest number of new virus infections since the start of the pandemic. In Texas, California and Florida, the number of new infections reached a record. It just put a brake on the reopening of the economy in several states. The stock markets reacted not amused. The S&P 500 fell by 2.5 percent.

Dr Copper

After a series of better-than-expected macro-economic figures, the optimistic sentiment on the stock markets took a turn for the worse. Has the rally been over since the bottom of March? It doesn’t have to be. The copper price speaks a different language. The price of copper has been in the bull market for some time now and has already risen by 27 percent since the infamous March bottom. The copper price is usually followed with suspicion in the market. Copper is seen worldwide as a good indicator of confidence in the global economy. Indeed, due to its many industrial applications, copper has even considered the best indicator. At the stock exchange, people jokingly talk about Dr. Copper with a PhD in economics.

Main industrial metal

Copper is used in building constructions and piping. The metal is used for generators, video cards, water pipes and buildings. But also building electric vehicles, rolling out 5G and renewable energy requires large amounts of the red metal. Copper is the world’s most important industrial metal. The fact that the emerging economic power China is the largest consumer of the metal with consumption of half of the world’s entire production is even more indicative of the importance of copper. After all, China is still the world’s workshop.

Good predictor

In anticipation of the corona crisis, copper once again lived up to its name as a good predictor of the economy. In mid-January, the price of copper reached its peak for this year at $6300 per tonne on the London Metal Exchange, the world’s leading copper exchange. By the beginning of February, however, the price had dropped by 12 percent. There was still no sign of a corona outbreak on the stock exchanges, but the price of copper spoke a different language. Subsequently, the price of copper went along with the fall of all financial markets to set a bottom in March at a price of 4617 dollars. Since then, the copper price has been on the rise again.

Era of Copper

The world’s largest copper trader Trafigura is more bullish than ever. The virus has forced copper mines — many of which are in South America — to reduce their production. On the other hand, demand for copper is starting to rise again. For example, it was found that the new orders were not just a question of catching up, but were much larger. Several countries doubled their investments in red metal. It is estimated that demand will increase by 3.4 per cent a year over the next decade. It will increase the price significantly unless new sources of copper are found. The pandemic is called the starting shot for an “Era of Copper”.

Hard indicator

The large-scale government-supported green and digital stimulation programmes will drive a boom in demand for copper. Global investments in infrastructure — particularly in China — will also contribute to the demand for copper. The production of electric vehicles alone — now accounting for one percent of global copper demand — could soon account for 10 percent of total copper purchases. But, as already mentioned, the digitisation and greening of the economy will also promote the use of copper. Indeed: “Welcome to the copper era”. The price of copper is a “hard” indicator that should be taken seriously given its reputation as a predictor.

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Fed gives the stock market another push

Article about Fed gives the stock market another push

The long-awaited correction

After the surprising and spectacular rally of recent months, share prices suddenly started to fall last week. There were several reasons for this. The US central bank was rather gloomy about the economic outlook, institutions such as the IMF and the OECD even downright negative. New corona attacks in China and the United States came on top of that. The virus had almost been forgotten, but still appeared to be among us. Had investors perhaps put on a somewhat too rose-coloured pair of glasses and were they anticipating an economic recovery that might take a little longer? Whatever the real reason - after all, investors never mention the reason when they sell - the stock exchanges seemed to need correction. And so it happened. Yesterday, for example, the S&P index was 8 percent lower than last week.

Do not fight the Fed

The ink from the newspaper reports declaring the relief rally dead had not dried up yet or the prices suddenly started to rise again early in the evening. The Federal Reserve had just announced its intention to buy back corporate bonds. A measure with which the U.S. central bank once again raised a warning finger towards investors who had lost faith in the ongoing rally. "Do not fight the Fed" is the adage on the stock exchange. Experienced stockbrokers know that there is no point in going against this all-powerful player. Join the central bank or if you have no faith in the policy, stay on the sidelines. But don't ever argue with it. It almost certainly leads to loss.

Emergency loan programme

The Federal Reserve is deploying an emergency lending programme with which it has so far only invested money in Exchange Traded Funds, listed funds that invest in corporate bonds. Now the central bank chooses a more direct approach. The emergency lending program used, one of nine announced by the Federal Reserve since March to defuse the corona crisis has a capacity of $250 billion. To date, only USD 5.5 billion has been invested in these ETFs.

Individual corporate bonds

As of today, the central bank is also going to buy up individual corporate loans. Not all business loans are eligible. Issuing companies, for example, must have a minimum credit rating. In addition, there is a maximum term for the bonds. The number of bonds that will be bought on a daily basis has not been disclosed. The Fed also said that the pace could be slowed once the corporate bond market recovered. In the event of deterioration, the pace can also be increased if desired.

Are you all right?

One might also wonder to what extent the corporate bond market needs this support. For example, earlier announcements by the Fed already contributed to the recovery of both investment grade and high yield bonds. The index for the first has already reached pre-crisis levels. The index for high yield bonds, although not yet, is only six percent off. Not exactly a reason for great concern, one would say. The aforementioned $5.5 billion isn't exactly an impressive amount either. The central bank had already largely achieved its objective by means of a management by-speech.

Completely hopeless

Corrections on the stock market seem to have the life of overweight mice near a hungry aggressive cat: completely out of the question. The mice will continue to squeak, but the cat still rules on the trading floor.

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The dollar is the ultimate stress barometer

Article about The dollar is the ultimate stress barometer

Perfect barometer

At the turn of the year, one could get 1.12 dollars for one euro. In the last week of February, the corona crisis also spread to Europe and later to the United States. However, in March, at what must have been the low point of the crisis in retrospect, the dollar had risen to 1.06 against the euro. European investors in US assets saw the value of their investments decline, but the rise in the dollar somewhat eased the pain of the losses incurred. In the fourth week of March, however, the stock markets began a recovery that continues to this day. Meanwhile, the biggest losses have disappeared. The dollar is back at the level of the beginning of this year, 1.12. Once again, the dollar has proven to be the world's most important refuge in times of turmoil in the financial markets. Even more than gold, silver, the Japanese yen or the Swiss franc, the American currency is a perfect barometer for the temperature on the financial markets.

Biggest capital market

The reason for this is known. The American economy is still the largest in the world. But even more than that, the U.S. capital market is by far the most important in the world economy. For example, American shares make up as much as 65 percent of the MSCI World Index. There is not a country in the world that comes anywhere near it. More important, however, is the market for U.S. government bonds. If you are the largest economy in the world, you soon have the largest government debt. Without any competition, the market for US Treasuries is the most extensive and liquid market in the world. And partly for that reason also very popular with large professional investors when they want to put an amount of money safely away. Entering and exiting can be done for relatively little risk and at low cost.

Key currency

In the hierarchy of global investment, bonds are more important than equities. Even more important, however, is global currency trading. After all, that is where the largest amounts of money go. And you guessed it, the dollar is without any competition the most important currency on this earth. The worldwide use of dollars is almost five times as high as the actual share of the United States in world trade. So the dollar is also used outside the United States as a trade currency. The dollar is considered the key currency worldwide. This gives the United States its enormous economic power. It enables the United States to get deeply into debt - Greeks and Italians would pale into insignificance - and pay the bill to the rest of the world.

Huge dollar debts

This omnipotence of the dollar has also contributed to the fact that governments, banks and companies worldwide have financed huge amounts of their outstanding debts in dollars. Not only many emerging economies from the former Third World have a large part of their debts outstanding in dollars, but also many European companies and banks. After all, the dollar is much more reliable than their own currency, not to mention the euro. This heavy burden of debt in dollars always causes tensions on the markets in times of great financial turmoil. Banks and companies stumble over each other in times of crisis in their demand for dollars that their own central banks do not have enough in stock. Without a helping hand, many banks and companies would have collapsed during the previous crisis.

Lender of the last resort

That helping hand came from the U.S. Central Bank. After all, the Federal Reserve is the only one that has enough dollars at its disposal. And in case of a deficit, the central bank can easily print some new dollars. Something that happens on a large scale. Also during the current crisis, the Federal Reserve acted as the lender of the last resort. It provided other central banks with the necessary dollars via quickly set up swap lines. Dollar debts could be paid in this way without too high costs. In this way, the financial system could continue to function. Calm returned to some extent and the markets recovered. Meanwhile, investors could worry about easing the lockdowns and the time needed for a vaccine against Covid-19.

Outside category

However, this crisis made it even more clear than the previous one that there are many central banks in the world, but there is one of the outside categories. The governor of this central bank not only has to deal with a fickle president, but also has an exceptional responsibility: to keep the global financial system afloat in stormy times. It is the ultimate consequence of the dollar's key position in the global economy. For investors, it has become clear again in recent months, if there is one barometer of the temperature of the economy it is the dollar. The gradual decline of the dollar in recent weeks is a good sign.

 


Eurobonds, but different

Article about Eurobonds, but different

By Chelton Wealth on June 2, 2020

Unprecedented measures

The European Central Bank assumes that the economic boom of the pandemic will be much bigger than the downturn after the 2008 credit crisis. To deal with this blow, the Pandemic Emergency Purchase Programme (PEPP) was launched, a new bond purchase programme worth 750 billion euros. The ECB will meet again next Thursday and will decide whether this is enough or whether more will be needed. Meanwhile, the European Union ("EU") is not standing still either. For example, the EU member states decided earlier on stimulus measures of 540 billion euros. The proposed multi-annual budget of the EU will be adjusted in view of the crisis, amounting to a further EUR 1100 billion. On top of this, Merkel and Macron recently jointly proposed to launch an emergency fund of €500 billion. An amount on top of which the European Commission wants to add another 250 billion. That amounts to a total of just under 2400 billion euros. Clearly, the outbreak of the coronavirus has made the minds ripe for unprecedented measures.

Turn of Merkel

The Franco-German proposal for a recovery plan of 500 billion, supplemented by the European Commission to 750 billion, is causing a particular commotion. With this plan, Germany is making a startling 180-degree turn. For a long time, there was disagreement in the EU as to whether this extensive support should take the form of loans or donations. The main victims of the pandemic are the southern Member States such as Italy, Spain and Portugal. The lenders are mainly the more wealthy north: The Netherlands, Germany and the Nordic countries. Until recently, Germany was in the thrifty camp: any form of aid would have to be repaid sooner or later. There could be no question of donations. So Chancellor Merkel made a remarkable turn with the recent proposal. However, the remaining "miserable four", the Netherlands, Austria, Sweden and Denmark have not yet given up the struggle.

Debt change

Eurobonds issue joint bonds guaranteed by the Member States. Debt is actually mutualised. Given the considerable differences in financial soundness, this would in practice amount to a large-scale transfer of funds from north to south, from rich to poor. It is not surprising that precisely those countries that have made substantial cuts since the previous crisis in order to restore some order to their public budgets are vehemently opposed to this. It is also not surprising that precisely those countries where such austerity measures have been largely omitted now lack the scope to provide state aid. Hence the appeal to the EU's richly stocked greenhouses.

No Eurobonds

Italy and Spain are thus strongly in favour of Eurobonds. The "miserable four" and Germany do not. The term Eurobonds is therefore anxiously avoided in Merkel's and Macron's joint plan. It would offend the thrifty German voter - who is not a great advocate of all sorts of European antics that affect his savings anyway - against it. No, wherewith Eurobonds the member states guarantee repayment, with this new plan it will be Brussels. In fact, the EU budget is being used as a kind of lever. The blame will lie with the European Commission. According to Merkel, this construction remains within the existing EU treaties.

The reddest of every conceivable red line

However, the resistance of the "miserable four" to this joint guilt remains. It is nothing more than the red-most of every conceivable red line that must never be crossed. After all, in the end, there is a transfer from the rich north to the poor south. The thrifty countries are now being called to account for their lack of solidarity and humanity. Countries like Italy and Spain openly question whether membership of the EU still makes sense in this way. Now the absence of the most thrifty of all, the United Kingdom, is avenging itself. Behind the broad British back, smaller countries like the Netherlands could invariably hide behind their identical frugal views, without being called to account.

Eurobonds that may not be called Eurobonds

Eventually the north and south will find each other. For example, the thrifty will agree to some form of support in the form of donations to the severely affected south. But on predetermined conditions. On the other hand, the creation of Eurobonds for a number of countries in the EU is still a step too far. It would do too much harm to the euro-critical voters in the northern countries. Using the crisis to push Eurobonds through could eventually cause the EU to burst.

An outcome though

Eurobonds would also be a solution for the creation of a large European capital market. It would finally enable the EU - after all, the world's largest economy by size - to compete seriously with those damned Americans. After all, the size of their capital market constantly enables the Americans to go deeper and deeper into debt and pay the bill to the rest of the world. In China and Russia, they hear the authorities grunting about it, in the EU they seem to be less concerned about it. The fact remains that part of public opinion in the EU is not yet ready for Eurobonds. Pressing these bonds through with force would inevitably lead to chunks. So detours are constantly being made in the EU in order to achieve the same goal. For example, the ECB buys unlimited bonds without a fixed key and Merkel and Macron launch "Eurobonds", which are not allowed to be called Eurobonds. To be continued.

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Never say never

Article about Never say never

Two different stories

Since the bottom of March, the S&P 500 index has already risen by 32 percent. Lockdowns are being eased everywhere and the economic figures are gradually becoming less bad. The economy will certainly not flourish in the short term as in the period before the outbreak of the virus, but seems to have left the worst phase behind. Is the relief among investors justified? That is the question. After all, the bond market speaks an entirely different language. After the interest rate on 10-year government bonds in the United States reached an All-Time Low of 0.54 percent in March, it has hardly risen since then. The current interest rate on US Treasuries is 0.69 percent. The market is even taking into account a possible further lowering of interest rates by the Federal Reserve Board.

Bonds go their own way

So shares and bonds tell a different story, which is strange. In the past, rising interest rates invariably meant disaster for equity investors. Conversely, a fall in interest rates was greeted with cheers. However, this has not been the case since the financial crisis of 2008. Once interest rates are close to zero, any increase is more likely to be seen as favourable. It indicates a return to a more normal situation. Thus, since the credit crisis, interest rates and equities have always moved in the same direction. Rising share prices were accompanied by rising interest rates. During the recovery since March, this is suddenly no longer the case.

Inflation forecast drops rapidly

What is the bond market trying to tell us? That inflation will remain low for the time being. In fact, deflation is not even out of the question. For how else can we explain that 30-year government bonds in the United States yield only 1.3 percent? When the US economy was still flourishing before the crisis, the central bank already struggled to keep inflation at a level of around two percent. It is therefore not surprising that now that the economy is going down considerably, inflation is also falling rapidly. The inflation forecast for the next 30 years is only 1.1 percent.

Inflation stayed away

The market thus ignores the many experts who chorus the fact that the coming economic recovery will boost inflation. The enormous amounts of money pumped into the economy worldwide should inevitably lead to a degree of monetary devaluation. And that would oblige the central banks to raise interest rates again after a while. It could. But that was also claimed last time when the central banks tried to combat the credit crisis with large-scale financial injections. With all their might they tried to raise inflation to two percent. But inflation stayed away.

No price increase

And now what? Unemployment is running high everywhere. So there will be no collective wage increase for the time being. The commodity index is at an all-time low. The corona crisis has only accelerated the deflationary process of digitisation of the economy. In their fierce struggle for survival, companies will lower prices rather than raise them. Where should this price increase come from? In the United States, current inflation is currently no more than 0.3 percent.

Bull market not yet over

It could well be that this inflation wave, which many expect, will not happen for the time being. In fact, a general decline in prices - deflation - is more in line with expectations. The Federal Reserve is vehemently opposed to the negative interest rate policies of other central banks and says it will never do so. "Never say never". Bond investors in the United States outperformed the stock markets this year. Maybe the already 39-year-old bull market in bonds is still not over.


American housing market resilient

Article about American housing market resilient

By Robert J. Teuwissen on May 19, 2020

House index

This week in the United States several figures are reported on the state of the housing market. Today, for example, the number of building permits and houses under construction. Together with the labour market, the housing market is the most important pillar of the U.S. economy. The state of the housing market can, therefore, provide a good insight into the state of this economy. Yesterday, the NAHB (National Association of Home Builders) published the monthly Housing Market Index, a reflection of sentiment in the construction industry. In the month of May, the index rose to 37. In April it was still 30. That was better than analysts had expected. Also noteworthy was the increase in the average price for a house of one percent compared to the same period last year.

Striking calmness

This relative calm in the housing market is striking. In the month of April alone, twice as many Americans lost their jobs as during the entire credit crisis. One-third of the tenants defaulted on their rent. Retail sales collapsed completely. The economy contracted and went through an extraordinarily tough second quarter. A sharp collapse of the housing market would then be in line with expectations. Nothing could be further from the truth. For example, the number of applications for new mortgages has risen sharply since the start of the crisis. Google registered more searches for a "new house" than before the outbreak of the pandemic.

Cares Act

Why is the housing market holding up so well in all this economic violence? Part of the explanation is temporary. For example, many homeowners, despite their inferior financial situation, are not immediately under pressure to sell, as was the case during the previous crisis. Far fewer owners are "underwater" because they had to contribute more equity as a result of the previous crisis in order to qualify for a mortgage at all. The quality of outstanding mortgages is also higher as a result of the stricter regulations. And should the water still rise to the lips, this time there is the Coronavirus Aid, Relief and Economic Security (Cares) Act. This law, passed in March, gives homeowners up to six months deferred payment, with the option for another six months. This grace period is extremely effective in flattening the curve. A wave of house evictions like during the previous crisis is not (yet) in evidence this time. By the way, the postponement does not mean adjustment. At a later stage, homeowners will still have to pay their debts.

Historically low-interest rates

The historically low-interest rate is also an important pillar of the housing market. For example, the interest rate on 3.3-year mortgages is only 3.3 per cent and, for the first time in history, threatens to fall below three per cent. Especially when the interest rate on 10-year government bonds remains at their current level of 0.7 percent. On the other hand, however, mortgages are much more difficult to obtain. The Credit Availability Index is at its lowest level since 2014.

Shortage of available houses

Another reason for the striking resilience of the housing market is the shortage of available houses. The current housing supply simply does not match the demographic structure of the population. For example, a large group of no less than 72 million millennials (ranging from 24 to 39 years of age) are approaching the point at which they would like to purchase their own homes. However, the United States is massively underdeveloped. A situation similar to the years after the Second World War seems to have arisen. In any case, it will not have a negative impact on the house price. In California, there were already more viewers for a house than a year ago.

More figures

Developments that may help the housing market in the world's largest economy to hold up reasonably well this time. Of course, everything depends on a possible return of the virus. And the possible thump that the economy may then have to endure. But for now, the US housing market has held up reasonably well and the dip - which wasn't too deep - seems to be behind us again. For instance, the S&P Homebuilders Index (XHB) has risen 57 percent since the bottom of March. Today the number of houses under construction and the number of building permits issued are published. A sharp drop is expected by analysts. If we can believe yesterday's report of the NAHB, that might have been the bottom.


It is your turn, consumer

Article about It is your turn, consumer

It's your turn, consumer

By: Robert Jan Teuwissen - May 8, 2020

Mass unemployment and rising stock markets

More than 30 million people in the United States have been made unemployed since the coronavirus outbreak. Companies are reporting sharp declines in profits or even losses. The economy will contract sharply in the second quarter. And the stock markets? They're rising. However, the NASDAQ, where all major US technology funds are listed, defies description. In the middle of this crisis, this index is simply in the plus for the year.

A glorious recovery?

The reason for this stock market optimism is easy to find. As always, the stock market is ahead of the real economy. Substantial contraction? Doesn't matter. It's about the state of the economy in six to twelve months. And by then, at least the beginning of a recovery from this severe economic malaise is expected. Given the huge financial injections from governments and central banks into the economies worldwide, that is certainly not a bolted assumption. Still, you can take a horse to the water, but not force it to drink. And that horse, that's the consumer.

The consumer has to do it

Because only when consumers regain confidence in the future and start spending again as they did before the crisis is a serious economic recovery possible. No less than 70 percent of the world's largest economy - that of the United States - consists of private consumption. And in the rest of the western world that is not much different. Chinese consumers are also increasingly asserting themselves.

Recovery is not self-evident

And recovery to old consumption habits is not easy. For example, recent figures show that consumer confidence in both the European Union and the United States has completely disappeared. The consumer confidence index in the United States even dropped to 86 points in April, a drop of almost 30 percent compared to March. It was not only consumer confidence that fell sharply. Consumers also put this lack of confidence in practice. Spending fell by 8.7 percent, the largest decline since the Second World War.

No buffers

When many people lose their jobs and the rest are afraid of the same thing, such a collapsed spending pattern doesn't seem so strange. Bear in mind that half of Americans do not have any savings. So there are hardly any buffers to absorb a little misfortune. Spending on travel, catering, leisure and other less essential things then soon comes under pressure. The government, therefore, tries to support its citizens with stimulus cheques of 1200 dollars per person, rising to 3400 dollars per family of four. The American savesHowever, money has hardly been spent so far. Credit card companies report a large decrease in the use of credit cards. The American appears to be doing something he hasn't done for a long time. He has started saving. Savings seem to rise to levels not shown for a long time. On the one hand understandable and sensible. On the other hand, the American economy runs on the exuberant spending pattern of the average consumer. As long as those expenditures do not recover, there can be no serious recovery of the economy.

Psychological consequences

And we'll have to wait and see. Because this crisis has not only economic but also psychological consequences. The question is whether the many over-65s - accounting for 20 percent of all expenditures - will ever return to their "normal" spending pattern. Will they travel and visit restaurants as before? And museums? Just the question. And will life ever be the same as it used to be? China is a good example. Consumers are allowed to do almost anything there again but remain very cautious in their consumption behaviour. Something that foreign multinationals active in the country in particular unanimously agree.

Not less, but different

By the way, it is not said that the spending pattern as a whole will decrease. In any case, it will change in composition. A process that had been going on for years - the digitisation of society - has gained momentum. Online shopping, having meals delivered, meeting remotely and making fewer unnecessary journeys, it could well be permanent. According to administrators of large technology companies, digital development has accelerated as a result of the crisis. What would normally have taken two years now happened in two weeks? Something for investors to take into account.

Chelton Wealth - Quanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management. If you would also like to be kept up to date with the latest news, please sign up here for our weekly newsletter. Would you like to know more about the possibilities? Then request a callback. We will contact you without obligation.

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Banks, from problem to solution

Article about Banks, from problem to solution

The Great Recession

Twelve years ago, the world entered a severe financial crisis. The Great Recession was a fact. Banks had done their devastating work with unbridled lending and risky investments in the hunt for even greater returns and profits. Their failing policies contributed to a wave of bankruptcies, unemployment, economic contraction and sharply lower house and share prices. Authorities around the world had to take firm action. In order to save the economy, the banks had to stay afloat. Contrary to the population's sense of justice, large amounts of taxpayers' money flowed into the banking system worldwide.

Twelve years later

Balance sheets were strengthened, regulations were tightened and unrestricted lending was curbed. Banks survived, but at a not inconsiderable price. We are now 12 years on and the world is once again in the grip of a crisis. This time the threat comes from outside, but once again the financial system is being tested to the limit. Global lockdowns have shut the economy down everywhere. The economic damage is on an unprecedented scale.

Necessary link

With fiscal and monetary policies of unprecedented proportions, the authorities around the world are trying to save the economy from total collapse. Although the money comes from the central banks and the taxpayers, the banks are crucial in these operations. They are the necessary link through which the money finds its way to the affected businesses and citizens. The credits are directly or indirectly guaranteed by the state.

From cause to solution

Of the cause of all the misery in 2008, banks have now become part of the solution. However, in order to fulfil this role, their resilience is being tested more than ever. Because get on with it. They already have their backs against the wall because of historically low-interest rates and increasingly far-reaching government regulations. The economic contraction is also expected to break post-war records this quarter. Companies will go bankrupt, repayments will not be paid, people will lose their jobs and will no longer be able to pay their mortgages. Banks are now in the process of making their provisions, but the uncertainty about the virus raises strong doubts as to whether it will be sufficient.

Strong enough?

Of course, the banks are much better off than 12 years ago, but are they strong enough? Investors think it's theirs to witness the sharply declining stock market prices of bank shares. Dividend payments are being withheld. Poach pots filled to the rim. Credits are guaranteed and rules relaxed. Last week, the European Central Bank took another measure to support the banks in their serving role. Banks that provide targeted credit to citizens and businesses can borrow from the ECB at an interest rate of minus one percent. There will also be pandemic loans for smaller banks, without special conditions.

Subsidy

These negative interest rates are in fact a direct subsidy to the banks. According to the ECB, no less than 3000 billion euros in loans will become available to banks. It is a form of monetary policy that other central banks - such as those of the United States and Japan - have not yet dared to implement. Clearly, this crisis is being fought too hard and the banking system is the weapon with which the authorities will fight the enemy - an economic collapse.

Are investors wrong

The stock market prices of, for example, UBS and Credit Suisse show that investors do not yet have that much confidence. They could be mistaken about the firmness of the authorities and the resilience of the banking system. In any case, that's what we assume. We have to assume that, or rather. Because otherwise there is a chance that this crisis will turn out to be something more than a Great Recession.

Chelton Wealth - Quanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management. If you would also like to be kept up to date with the latest news, please sign up here for our weekly newsletter. Would you like to know more about the possibilities? Then request a callback. We will contact you without obligation.

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The crisis makes Big Tech even stronger

Article about The crisis makes Big Tech even stronger

Avalanche of bad news

Every day, investors get an avalanche of bad news poured over them. The economy collapses, corporate profits evaporate, unemployment rises to record highs and national debts rise sharply. In amazement, investors and analysts look at the stock prices on the boards. How is it possible that, for example, the measure of the American economy - the S&P 500 index - only 11 percent is at a loss in the middle of what has already been called the worst economic crisis since the 1930s?

The Big Five

Below the surface, however, there is more going on. When the five largest companies are filtered out, the drop in the index suddenly turns out to be much bigger. These five shares together account for more than 20 percent of the total market capitalisation of the index. It is no coincidence that they are all five technology companies. Microsoft, Amazon, Alphabet, Apple and Facebook together are largely responsible for this relatively limited loss of the index.

Nasdaq 100

For example, the Nasdaq 100 index - in which the five are even more strongly represented, accompanied by other strong technology funds - appears to be in the plus this year. Yes, in the midst of this severe crisis, the technology index is on the upside. Online retailer Amazon and data centre Equinix even recently realised a new All-Time High, while other tech funds are not far from there. Now this Nasdaq 100 index has an impressive track record anyway. This index has never had a losing year since the previous crisis - the one of 2008.

Quality comes first

Where usually in times of crisis quality comes to the surface and the air is blown hard from overvalued shares, we now see a striking phenomenon. Where banks, insurance companies, oil companies and producers of consumer goods have lost up to half of their value, many "overvalued" tech funds remain nicely located. In fact, a number of them are continuing to rise, in the face of all the crises.

Creative destruction

Here is what the Austrian economist Joseph Schumpeter once so beautifully called "creative destruction" at work. Capitalism is characterised by regularly recurring periods of decline. In such a period of crisis, it says goodbye to outdated production methods and business models. New, innovative companies and production techniques take their place. A crisis is in fact nothing more than a necessary clean-up of the outdated system. In every crisis, the foundation is laid for a new ascending phase.

Digital acceleration

And that's exactly what we're witnessing right now. Microsoft Teams enables meetings from home, Amazon keeps the business running during the lockdown, Google makes anonymous location data and travel movements of users available to governments to combat the virus, Equinix enables the storage of all the increased data traffic and Nvidia stimulates the further development of artificial intelligence. Big Tech suddenly proves to be very useful during pandemics.

Huge cash buffers

During the corona crisis, the digital economy turned out to be just as vital as, for example, the energy supply. The fact that the tech giants also have huge cash buffers will only speed up this process. Cash not only enables them to get through this crisis unscathed but also - now that prices have fallen sharply - to take over other companies and thus further strengthen their own market position. Quarterly figures This week, the major technology funds will present their figures for the past quarter. Given the high expectations and the better than expected prices, it cannot be ruled out that the results will disappoint investors somewhat. But even a price correction will turn out to be no more than a new buying moment as this crisis is laying a new foundation for a new upward trend.

Chelton Wealth - Quanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management. If you would also like to be kept up to date with the latest news, please sign up here for our weekly newsletter. Would you like to know more about the possibilities? Then request a callback. We will contact you without obligation. 

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Powell saves the market

Article about Powell saves the market

A new report from the BIS

The Bank for International Settlements (BIS), i.e. the bank of central banks, recently published its latest report. Now the BIS is an authoritative institute that, partly because of its position, has a good insight into the ins and outs of the financial world. Because of their position, they generally know more than you and I do. In the last decade, for example, the institute already warned of the possible outbreak of a credit crisis. This time the BIS came up with an astonishingly detailed description of the situation on the stock exchanges in the recent period. According to the BIS, the financial markets have been on the brink of collapse. And not for the first time.

Whatever it takes

In 2012, the Governor of the European Central Bank saved the financial world from a possible collapse with his now-famous statement "whatever it takes". It will probably never be confirmed but Mario Draghi did not speak these winged words on his own initiative. According to strong rumours, the assignment did not come from one of the European capitals either, but directly from the White House. There sat someone who got quite the jitters from the fact that the European economy seemed to sink completely into an ever deeper swamp. The lines between the power of the earth are short, very short sometimes.QE4In recent weeks, the US central bank, the Federal Reserve, announced far-reaching support measures. With this, QE4 has officially been launched. Not only was the interest rate lowered to zero, but the central bank is also going to buy up government and mortgage bonds on a large scale again. This time, however, the Federal Reserve goes further than previous times. Corporate bonds and Exchange Traded Funds are also part of the package. Bridging loans will become available for states and cities, loans will be granted to small and medium-sized enterprises and last but not least, the central bank will expand its repo operations abroad. An unprecedented stimulus package not comparable to previous support packages.

International repo operations

These international repo transactions, in particular, are crucial. There is too little room to elaborate on them here, but one can assume that in this situation the Fed operates as the lender of last resort. Without the Fed, consumers in several European countries would have gone to the ATM without the Fed. The deeper the crisis, the greater the shortage of dollars worldwide. A nice indicator of this is the exchange rate of the dollar. It rises as the crisis increases in size and vice versa. It is for this reason that the dollar is probably the safest refuge in times of unrest. Once again.

Mario did it before

Anyway, with his unprecedented support operation, the Federal Reserve has done what Mario Draghi did to them eight years ago. The minutes of the Federal Reserve showed how much the central bank was concerned about the condition of the American economy in particular. An unknown and vicious virus was able to uncover its shortcomings. Initially, Powell's measures met with a great deal of incomprehension among analysts and investors. Why bring such heavy artillery into position? Now it turns out that the central bankers knew very well what they were doing. They did the right thing.

Powell

Powell seems to have saved the financial world from imminent destruction. As far as we know, the central banker doesn't wear a mouth cap yet, but his actions are remarkable. Originally he made his appearance as a rather colourless figure, but in the meantime, he has grown into someone capable of very great deeds. Brave and decisive. But what are the consequences? The central bank's balance sheet has swollen to 6200 billion dollars. And that's probably just the beginning. In fact, the United States has gone into monetary financing. The debts of the United States are rising to historic highs and are being bought up by the central bank. The steam is coming out of the money presses. Who's going to pay this bill?

Chelton Wealth - Quanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management. If you would also like to be kept up to date with the latest news, please sign up here for our weekly newsletter. Would you like to know more about the possibilities? Then request a callback. We will contact you without obligation.

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Reaching higher with another award

Chelton Wealth keeps reaching higher levels of quality and our hard work is constantly being rewarded.

Our most recent achievement is another award from BarclayHedge!

Chelton Wealth has ranked number 3 in the Currency Traders Managing More Than $10M category for October 2019.

We are very proud of this award and hope to continue providing you, our investors, with performance and quality service.

You can find out more about the award here https://cheltonwealth.com/awards/

Interested in finding out more about our managed accounts, request a demo from the Chelton Wealth team here https://cheltonwealth.com/contact/

Team Chelton Wealth


Martin Signer activities: Managing Director, IR, test, Testing, Testing, Participant, Partner, Media partner, Media partner, Event manager, Events, Tester, Event listing, Tester, IR, IR, Test, Managing Director, IR, IR, IR, IR Partner, Partner, Employer, IR, IR, IR, IR, IR, IR, IR, IR, Managing Director, Managing Director, IR, IR, IR, Promotion, Promotion, Promotion, Promotion, Promotion, Promotion, Promotion, Promotion, Promotion, Promotion, Promotion, Marketing, Marketing, Marketing, Marketing, Events, Marketing, Marketing, Marketing, Marketing, Marketing
MartinSigner
11 months ago

Very interesting article

Recognition award for excellence Top 10, September 2019

Article about Recognition award for excellence Top 10, September 2019

We are pleased to announce that Chelton Wealth has been featured in BarclayHedge's Monthly performance rankings. Chelton Wealth has ranked number 5 in the Currency Traders Managing More Than $10M category for September 2019.

BarclayHedge offers performance rankings on 17 hedge fund categories, including Fund of Funds.

For more than 30 years, BarclayHedge has been the benchmark for Alternative Investment data and indices. It is recognised as an industry-leading Alternative database assisting investors to analyse the performance of more than 6,900 hedge funds and managed account programmes worldwide.

To find out more about our performance, please request more information https://cheltonwealth.com/contact/

To see our awards, please visit https://cheltonwealth.com/awards/


Top performing CTA Past year ending June 2019

Article about Top performing CTA Past year ending June 2019

We are pleased to announce that Chelton Wealth has been featured in the quarterly publication, Barclay Managed Funds Report (BMFR).

Chelton Wealth ranked as a Top 20 CTA performer in the ''PAST YEAR'' category for 1year ending June 2019

.For more than 30 years, BarclayHedge has been the benchmark for Alternative Investment data and indices. It is recognised as an industry-leading Alternative Investment Database assisting investors to analyse the performance of more than 6,900 hedge funds and managed account programmes worldwide.

Please visit our website for more information or request a detailed factsheet of our programme(s). www.cheltonwealth.comTel. 41 44 586 5051 or email support@cheltonwealth.com


Recognition Award for Excellence

Article about Recognition Award for Excellence

We are pleased to announce that Chelton Wealth has been featured in BarclayHedge's monthly performance rankings. Chelton Wealth has ranked #3 in the Currency Traders managing more than $10 M category for June 2019.

For more information, please visit our website: www.cheltonwealth.com

Email: info@cheltonwealth.com Tel. +41 44 586 5051


Fund peak Top 5 Year to date and Top 5 Sharpe Ratio

Article about Fund peak Top 5 Year to date and Top 5 Sharpe Ratio

We are pleased to announce that Chelton Wealth's Currency Alpha Program has been featured in Fundpeak as  #5 place in the ''Top 5 Year to Date'' category.

The Chelton Wealth's Alternative I Program reached the #2 place in the  ''Top 5 Sharpe Ratio'' category.

Fundpeak is a Managed Futures database platform which connects managed futures fund managers with investors and provides under-laying data for informed investment decision and ongoing performance monitoring.

To find out more about us and receive our track record in your inbox, please sign up here https://cheltonwealth.com/contact/ or call +41 44 586 5051, email: support@cheltonwealth.com

 


Top 20 CTA Performer in the Past Year category

Article about Top 20 CTA Performer in the Past Year category

We are pleased to announce that Chelton Wealth has been featured in the quarterly publication, Barclay Managed Funds Report (BMFR). Chelton Wealth ranked as a Top 20 CTA performer in the ''PAST YEAR'' category for 1st quarter 2019.

For more than 30 years, BarclayHedge has been the benchmark for Alternative Investment data and indices. It is recognised as an industry-leading Alternative Investment Database assisting investors to analyse the performance of more than 6,900 hedge funds and managed account programmes worldwide.

Please visit our website for more information or request a detailed factsheet of our programme(s). www.cheltonwealth.com

Tel. +41 44 586 5051 or email support@cheltonwealth.com

 


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Zack Arnold activities: Co-Founder of The Perfect Jean

Zack Arnold

Co-Founder of The Perfect Jean at The Perfect Jean


Nick Lai activities: CEO & Founder at Fincrew

Nick Lai

CEO & Founder at Fincrew at Fincrew


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