Latest publications
Market Comment August
14.9. 2023
Richard Feynman said, we are trying to prove ourselves wrong as quickly as possible, because only in that way can we find progress. How ironic. The guidance TardaGrada was providing this year was good, while the execution was bad. This year’s lesson learned is to adapt the strategy’s guidance with more discipline. While last year, the information TardaGrada provided fit external research to a larger degree, this year it did not match at all. Unfortunately, disebelieve was the choice, resulting in a deceiving performance. The amount of bearish research during the first six months of the year led to the believe, that protecting capital was more important than taking risk, eventhough the strategy disagreed. Feynman also said, don't pay attention to "authorities," think for yourself. Following this sholarship, the allocation process has been refined and any external research will be abandoned. The “candidates buy list” has been subdivided for each sector to attain a better overview and selection process. Most importantly, targets for longer timeframes will get a higher weight than short term targets. TardaGrada did a little bit better relative to benchmarks, but still underperformed the HFRX Equity Hedged Index, due to the strength of the US-Dollar. Best performers were the Physical Uranium Trust (+ 15.81%) Civitas Energy (+ 9.83%) Medmix AG (+ 8.45%) and Cameco Corp. (+ 7.85%). Worst performers have been Ivanhoe Mining (- 14.02%) Antofagasta (- 13.68%) and Glencore (- 11.09%). Exposure into the weakest performers has not exceeded 1.00% of AUM in each of the holdings. Largest changes in asset allocation were made in the consumer staples sector, were exposure was cut to 1.96% while exposure into the energy sector has been increased to 7.30%. Total long positions increased slightly to 63.70% while equity net exposure (excluding Gold, Silver, Uranium and Bonds) stands at 13.89%. Beginning September, the portfolio got rid of the remaining bond exposure. The US economy is much stronger than expected, and treasury bonds can’t outperform within this framework. While most market participients expect a weak equity market in September, pre-election seasonality does not agree. In addition, TardaGrada can’t produce significant downside for US equities, while the situation in European markets looks a bit more fragile. Net exposure in the portfolio will remain tight and we can’t rule out that equity indices will show a distributive character during the month of September, also know as a top building process.
Market Comment July
9.8. 2023
Once again, passive investors are dominating the market. Index investing, by definition, overweights whatever is most overvalued and underweights whatever is most undervalued. Passive investors don’t care about valuations. This is resulting once again in a bifurcated market, where the big money flow is not smart money, but big passive investors. Oscar Wild once said, “a cynic is a man who knows the price of everything, and the value of nothing.” The quote fits perfectly todays biggest passive investors. The capital that is trading in the market are passive flows, index flows, ETF flows. On top of that, there are the algorithms, which are trying to find out what the big money trades, reinforcing the passive trade, neglecting valuations as well. This is resulting in a massively overvalued technology sector, leading to a concentrated index portfolio, where seven stocks make up 50% of the Nasdaq index, and 10 stocks make up more than 30% of the S&P500 index. Both do not represent well diversified portfolios anymore - still the flow into passive strategies seems relentless. While most investors truly enjoy the ongoing party, there is a geopolitical development unfolding, which will affect financial markets in the coming years, but currently gets ignored by most. The isolation of Russia from the global economy has resulted in a commodity trade outside of the US-Dollar. What started with China and India buying commodities from Russia in their own currencies, seems to spread across the emerging markets space. The BHP Group is now trading iron ore in Remimbi and other big commodity producers will have to follow suit. The Chinese have prepared for this a long time ago. The Shanghai Gold Exchange is trading Gold against the Chinese currency since 2002. Emerging Markets used to have the inconvenience, that they had to buy commodities in US-Dollars, hence having the obligation to hoard or buy US-Dollars to trade commodities. Those days will soon be numbered. Brazil is the latest country that has improved its trade relations with China, especially in the grain sector, and the odds are high, that they will not trade in US-Dollars as well. The privilege, the United States enjoyed for over 80 years, owning the world reserve currency will be harmed. This will have implications not only for the currency, but also for the US Treasury Bond Market. The US could lose a big privilege, it never handled with humility. If the global demand for US-Dollars and US Treasury Bonds drop simultaneously, it will have far-reaching consequences. As the mountain of debt is skyrocketing, fueled by the coming election, the US will need creditors more than ever before. To finish on a more positive note, the US economy is doing much better than economists have predicted. The pre-election cycle should remain supportive. In Europe, things look a bit different. Uncommonly, Germany could become the achilles heel of the European Community. The pent-up demand is keeping most large companies in a pretty good shape, the question is for how long.
Market Comment June
10.7. 2023
The performance during the past month was once again deceiving, to say the least. The main reason was the strong underperformance of bonds, gold and silver versus equities, as well as the renewed weakness in the US-Dollar. The next couple of weeks will be crucial, as the macro framework will have to show its true color. Either the market will turn back into a reflation trade, meaning bonds and the US-Dollar will remain weak, which would prevent equities, especially in the US, from a large pull-back, or else, the economy starts to weaken, which would favour bonds and defensive sectors. Nevertheless, a reflation trade will just renew troubles in the banking sector, as a weak bond market will inflict more pain to the credit on balance sheets of banks. A recession, which nobody wants, would be much better for the economy in the medium term than a renewed reflation trade. The key problematic is that if the bottom of the current disinflation cycle is too high, we will move already with the next reflation cycle into a set-up where the whole situation in financial markets can get out of control. During the next couple of weeks, the US-Dollar will be the ultimate guide, for which macro scenario the market is going for. Best performers in the portfolio were APi Group (+ 20.62%) and Medmix AG (+ 17.08%), followed by Cameco Corp. (+ 9.79%). Worst performers have been Fevertree Drinks (- 10.04%), Wheaton Precious Metals (- 6.88%) and Burckhardt Compression AG (- 5.75%). The weakest performers have been cut to a minimum allocation for some time. Currently, the portfolio is not positioned for an early reflation trade. Once the macro picture becomes clearer, it will be adjusted. Gold still owes us a last sell-off, but it held up surprisingly well during the last rise in interest rates. The weakening US currency may have helped. If it is a valid candidate for both macro scenarios remains to be seen. As the current outlook is unclear, the portfolio refrains from taking any large bets. Outperforming stocks remain hard to find. The market remains dominated by a few mega large caps, which help the technology - and the consumer discretionary sector to outperform. The industrial - and materials sector are improving versus the overall market, so the strategy will be scanning for opportunities. All other key sectors – utilities, consumer staples, healthcare, financials and energy continue to underperform. A truly lean meal for portfolio allocation.
Market Comment May
9.5. 2023
While central banks are trying to cool down the economy with rate hikes, governments continue to provide support via fiscal stimulus. The US is running a record budget deficit, due to discretionary spending, and both parties running for election in 2024, need a large budget for their election campaign. The debt ceiling in the US has been removed until 2025. Japan continues its yield curve control and China is stimulating via tax excemptions and rate cuts. Government initiatives like “the Inflation Reduction Act” in the US, or the “Gaspreisbremse” in Germany are supporting the economy. In addition, it looks like the “helicopter money” thrown at consumers during the pandemic is still not fully spent. The pent-up demand created by the pandemic proves to hold up longer than expected. While market observers might be surprised by the resilience of the economy facing sharply rising rates, the above observations may present an explanation. Excessive monetary policies initiate two processes – inflation and excessive risk taking, which becomes an integral part of the financial cycle. In 2020 and 2021, central banks engineered an unprecedented monetary acceleration. To subdue inflation running far above its target, central banks actions caused an unprecedented monetary contraction, which in turn, begun to increase the potential for significant failure among the reckless ventures originated from 2020 to early 2022. So the question remains, can governments counter the central bank’s destabilizing actions? With the increasing amount of debt, the ability to stimulate further will be reduced. The effectivnes of debt building to create GDP growth diminishes. However, the liquidity provided during the pandemic still outweights. During the second half of May, which usually provides bearish seasonality, we have witnessed a vertical acceleration in the technology sector, provided by the surge in interest for AI companies, to valuations we have rarely seen. Never, a company of the size of Nvidia has reached such extreme valuations, not even during the Y2K dot-com bubble. Despite rising rates, we are witnessing a P/E expansion and once again, the US stock market is dominated by a few mega large caps, lifting the year-to-date performance of the S&P500 to 8.86%, while the equal weighted S&P500, which is removing the capital weighted returns, is trading down 1.43%. We mentioned the echo bubble theory in the Feburary report. In the meantime, commodities remain in a bear market and treasury yields continue to trade sideways in a highly volatile fashion, making it difficult to make a prediction for the coming months. Our expectations are, that sooner rather than later, the economy will slow down, which leads to the conclusion that buying bonds at current levels will provide a better risk reward than equities. It could be, that interest rates are trading in a larger distribution, which would produce a lower downside target, once the top is completed.
New Joiner
May 2023
We are happy to announce the joining of Olga Hönigschnabl. With over 20 years of experience on financial markets, she will add valuable insights and know-how to our team.
Market Comment April
16.4. 2023
Norges Bank Investment Management interviewed Stan Druckenmiller, former Partner of George Soros and co-manager of the Quantum Fund from 1988 – 2000. He replaced Victor Niederhoffer, a brilliant hedge-fund manager and statistician. Both Niederhoffer and Druckenmiller are famous for their outstanding track record in investing. Despite his 45 years of experience, Druckenmiller says, he has never witnessed a similar framework for investors, and the current economic landscape looks like a movie he has never seen. A lack of great investment opportunities keeps him from placing big bets. Meanwhile, Victor Neiderhoffer made an interesting observation. Since 1996, we have seen only 8 years, where the S&P500 and Bonds have traded up during the first four months of the year. Unsurprisingly, it was during times of money printing, from 2010 until 2017. All years ended in positive territory. Surprisingly, that 4-month pattern exist also this year. With only 8 observations all clustered form 2010 to 2018, the margin of uncertainty great. If we blend in another statistic, that says pre-election years are the most bullish for equities, the outlook should be even better but peculiarly, it is not. Looking at pre-election years within the cycle of the past decade, 2011 and 2015 were volatile, ending the year with only small gains of 2.11% and 1.38%. Statistically speaking, if repeating the pattern, we will close the year up, but down from the 8.59% the market ended in April. Currently, we witness an unseen velocity of interest rates hikes, coupled with geopolitical tensions, a post pandemic high inflation economy and a fragile US regional banking sector. Looking at that framework, it is not hard to believe that Cenrtral Banks are closer to cutting rates than most professional investors believe. The first cracks in the economy are seen within the regional banking sector in the US, and the bond market, as well as crude oil, are seing things that are not there, or not here yet. The bond market is telling the FED to cut rates, instead of hiking them further. Crude Oil is trading exceptionally weak, despite OPEC interventions and historically low US inventories. Bonds have been trading relatively strong, despite resilient inflation numbers. Still, by the end of April, hedge funds have extended their short positions in 5-year and 10-year Treasuries futures to historic levels. Investors should remember another statistic, one of the most reliable of the past decades. Central Banks hike and cut interest rates too late. This is resulting in the recurring boom and bust cycles we have seen for decades. The coming months are infamous for weaker seasonality for equities. While the first quarter earnings season was a reason to buy all companies that provided better than expected earnings, the coming months may provide a reason for investors to believe, that we are heading for a worse than expected future.
Market Comment March
15.3. 2023
Volatility picked up in March, as the market witnessed two bank runs, that did not bode well for risky assets. The failure of a Silicon Valey bank and Credit Suisse spooked markets and the trouble at those two financial institutions were quite exceptional. SVB Financial Group’s customers withdrew USD 42 billion from their accounts in one single day. That's USD 4.2 billion an hour, or more than USD 1 million per second for ten hours straight. It resulted in the biggest bank run in US history. In the case of Credit Suisse we currently don’t know the exact numbers. While the source of trouble resulting in a bank run usually is a lack of confidence by depositors, the failure of SVB Financial Group is the result of clients realizing, that they can earn more interest in the money market, than on deposit accounts in the bank. Meanwhile, the National Bureau Of Economic Research in the US reported, that the U.S. banking system’s market value of assets is USD 2 trillion lower than suggested by their book value of assets. If held to maturity, those losses are not relevant, but if a bank needs an excessive amount of liquidity, those losses have to be realized. To avoid this, the FED openend the Bank Term Funding Program, as well as the Discount Window Lending, where banks receive liquidity, for the full amount of the bond held on the balance sheet. Unfortunately, interest rates to be paid on those loans are 5%. A bank using those programs will face exploding interest rate costs. The program can keep a bank from going bankrupt immediately, but it is moving it to a Zombie Bank. The Fed has prevented a bank run from spreading, but there is a systematic problem within small banks, revealed by the recent events. Regional Banks have only 29% of cash and securities available for the funding programs. Loans make up 65% of assets, and those loan portfolio’s are loaded with commercial real estate credits. CRE credits are currently what worries Wall-Street. If clients continue to remove deposits from regional banks, the odds are high, that we will see more bank failures this year, revealing the true value of CRE credits. The collaterals at large banks have higher quality, credit portfolios are safer. While there is no life threatening situation in the US for large banks, profitability will certainly suffer. The uncertainty emerging from the events described above has led to a massive drop in interest rates for Treasury Bonds. Lower interest rates coupled with the liquidity injection from the Central Bank has led investors back into risky assets, especially so called “long duration assets” which can be mostly found in the Nasdaq Index. While the Russell 2000 lost 4.81% during the month of March, the Nasdaq 100 gained 9.25%. Equity markets could again profit fromstrong seasonality for the next couple of weeks, while riding the wave of the pent-up demand is coming to an end.
New Joiner
March 2023
We are happy to announce the joining of Mag. Robert Cup. Robert is a Certified Financial Planner (CFP®) with over 20 years of experience in private banking, he will add valuable insights and know-how to our team.
Market Comment February
2.2. 2023
Ruchir Sharma, chair of Rockefeller International, wrote in an article for the Financial Times, that equity markets are trading in an echo bubble. The market echo is just like an audio echo that repeats and diminishes over time. Serial disappointment kills the faith. In the last 10 bubbles there have been an average of four echoes. The largest echos, which saw a 30.00% price gain on average, lasted three months and were then all given up. On a more positive note, economic data released in February was much better than expected. Job reports and Purchasing Manager Indices are showing a picture of a resilient economy in the US, as well as in Europe. Furthermore, inflation data was stronger than expected, prompting several Fed officials to warn of a potential higher terminal Fed funds rate for the cycle, which investors expected to rise to roughly 5.4%. Still, the odds are for only a 0.25% rate hike during the next Fed meeting on the 22nd. of March. If we would calculate the Fed funds rate according to the Taylor Rule, the appropriate terminal rate should currently stand at 8.00%. It could well be, that Central Banks are not very honest at the moment, claiming that their main goal is, to bring inflation back down to 2.00%. During the last rate hike cycle from 2004 – 2007, the largest debt was held by US consumers and US financial corporations. Due to a complicated shadow banking system, the Fed was not able to fully understand the amount of leverage running in the system. Today, the situation is different. While the debt situation looks better for the consumer and the financial sector, the debt burden has moved to Governments balance sheets, to an extend we have never seen before, while non-financial corporations debt levels have moved to alarming levels. While households and the financial sector have deleveraged, they are certainly far from being at confortable levels, but a crisis emerging from those two components of the economy, seems pretty low. The most uncofortable part is run by Governments, which also tend to influence Central Banks. The resilience of the global economy against rising interest rates may come as a surprise for some, but ultimately, most companies are currently working off order backlogs created by bottle-neck issues and lock-downs. This accordion effect may last for another quarter, but in the end the high level of interest rates and debt, will bite into the economy, sooner or later. Seasonality may be the most comforting factor for investors in the current year. Pre-Election Years have given investors a positive full- year return during the past 100 years with two exceptions, 1931 and 1939. The current year is following seasonality pretty well. If correlation prevails, we should see positive returns for equities during the months of March and April. This does not mean though, that equities can avoid high volatility until the end of the year.
New Joiner
February 2023
We are happy to announce the joining of John Lochrie. With over 30 years of experience in Private Banking division, he will add valuable insights and know-how to our team.
IT Partnership
2.2. 2023
Clavis Partners AG includes Investment Navigator
Investment Navigator offers financial institutions around the world modular technology-driven solutions as well as holistic consultancy services to add value to advisory and distribution processes.
Next to the Product Navigator, our Clients benefit from a cross-border service navigator in collaboration with KPMG and and an enhanced Investment Navigator for Funds.
New Joiner
January 2023
We are happy to announce the joining of Dipl. Ing. Andreas Tosner. With over 20 years of experience in Swiss Private Banking, he will add valuable insights and know-how to our team.
Performance
2.1. 2023
TardaGrada Strategy Performance 2023
With a net performance of 23.00% our long-short mixed asset strategy outperformed the MSCI World by 42.46%.
Since 2020 the daily liquid TardaGrada Strategy could return a combined 57.93% in Swiss Francs.
Market Comment January
10.1. 2023
There is a strong agreement among investors, that equity markets had a surprisingly good start into the new year. While the mood in 2022 was dominated by recession fears, selling undeserved equity overvaluations and raising fears of Central Banks overtightening, 2023 is showing a spirt of Goldilocks in Lala Land. The current narrative is, that inflation will recede rapidly, and growth will once again accelerate, enabling markets to remain in the bull market of the past decade. The ongoing weakness in the commodity space is supporting the view, that inflation, after all, is transitory and was only a bad dream. Investor’s behavior continues to be driven by fear and greed, despite the knowledge that emotions are leading to bad results, especially, when it comes to investing. Fact is, that the largest combined monetary and fiscal experiment in history is ending and a major growth slowdown is coming to the US and Europe. The structural imbalances in the commodity space remain in place and could get even worse during this decade. For most of the past decade, unusually easy monetary conditions allowed a bevy of zombie companies to expand to near biblical proportions. It will take much more time, to uncover them all, and in the end, remove them from financial markets. We are living in a very complicated world. A good comparison, how difficult a macro trade can be, is the crowd of professional investors in 2005, which firmly believed, that the US Housing Market will crash, latest in 2006. Having been 18 months into that short-trade, the average loss of a Hedge-Fund, betting against the Housing Market was around 35.00%. A silver lining on the investment horizon was the February meeting of the US Central Bank which hiked interest rates only by 25 bps., reducing fears of overtightening. Despite having the FED Fund Rate far below the current inflation rate, Jerome Powell thinks, a slower pace in rate hikes is warranted. Time will tell. Usually, you can’t have the cake and eat it too, meaning, saving the economy while killing high inflation has never been achieved by a central bank. The strong performance of equities in the current year can be mostly attributed to valuations. During Q4 2022, a lot of sectors were priced for a recession. Now that recession fears are receding, valuations are on the rise again. It will be a complicated year for investors. The odds are high, that some cyclical parts of the stock market have been punished too hard last year and that the economy will do better for longer, than most expect. Believing that financial markets will return to the Goldilocks-era of the past decade is probably wrong footed. As Howard Marks wrote in his December Memo: The world of investments is witnessing a sea change, which will have a substantial impact on returns and the way people will have to invest in the coming years.