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Market Comment April

16.5. 2024

The hardest part about investing is the waiting. As Charlie Munger of Berkshire Hathaway said,“The big money is not in the buying and selling but in the waiting. During the month of April, the financial media revealed Berkshire’s asset allocation, and according to the 10-Q documents, since March 2024 liquid assets grew from 153 billion US Dollars to 189 billion US Dollars, representing more than 30% of Berkshire’s portfolio. Financial experts quickly turned to the conclusion, that the Oracle of Omaha is expecting a market crash, and that Warren Buffet has turned exceptionally bearish. The Buffett Indicator, the ratio between the US stock market value and the annualized GDP stands at 204.7% about 2.0 standard deviations above the historical trend line, marking a new record high. According to the statistics laid out, it is obvious that we should take our money and run far away from risky assets. Unfortunately, it is more complicated. First, Warren Buffet is making a lot of money with cash, approximately 2.4 billion dollars per year risk-free. Second, Berkshire Hathaway is facing another issue, which is, that Warren and Charlie preferred to make large bets on a few companies. With over 500 billion US Dollars of assets under management, a highly concentrated portfolio becomes problematic, as a 10% investment equals half of the value of UBS. When Charlie Munger, the vice chairman of Berkshire Hathaway and, in Buffett’s words, the architect of its business philosophy, passed away just before his 100th birthday late last year, it was clear that the world is witnessing the beginning of the end of an era. There is a very high probability that Berkshire’s assets will be managed differently going forward. For the time being, Berkshire’s portfolio will be a 65/35 stock bond portfolio and Warren Buffet can wait. For the rest of the world, performance remains the ultimate pressure cooker for portfolio managers and equity markets remain in pretty good shape. While the US market remains in a corrective pattern, the odds are increasing, that we won’t see a large correction in the next couple of weeks. Valuations remain high, but equity valuations are simply a sentiment indicator, representing investors' willingness to pay for future returns. As the financial community keeps a positive view of the global economy, valuations remain high. While for long-term investors, a buy-and-hold strategy through an equity index may represent from current levels pure insanity, neither valuations nor the Buffet Indicator may be helpful to make investment decisions in a shorter time frame. Maybe valuations rise even further, and the Buffet Indicator will go to even more extreme levels in the next couple of months. As previously mentioned, the technology sector has lost its leadership during the past two months. But as other sectors started to perform well, the overall market remains in good shape. Especially earnings have been the main reason for the market’s resilience which represents a major supportive factor. While Warren can wait, most investors simply can’t.

Market Comment March

14.4. 2024

The last six months provided excitement of the virtues of simply staying invested in equity market at all times, as timing market moves makes no sense, given market whims and behavioral biases The bullish run in major stock indices has been persistent in 2024 leading to glorious extrapolation of the past Price targets for the S&P 500 getting hiked in the financial press, with some pundits claiming the index will reach 7000 or even 10000 points in the next couple of years A financial podcast suggested, the German Dax will reach 40000 points in the next five years New price highs above the 2021 bull market peak have markedly swelled bullish sentiment Analyst types are now rushing to make insanely bullish projections for equity indices This bulge of optimism is a warning sign, that caution is warranted At the same time, it is worth mentioning that adjusted for inflation, most equity market indices have barely broken previous all time highs During the past 6 months, a resilient economy and abundant liquidity, as previously mentioned, from all kind of sources, coupled with the hype in artificial intelligence, have been the main driver for rising stock prices While some companies, especially Meta, continue to hail the AI future, we find it mostly delusional Mark Zuckerberg in an interview explained, how AI can fix everything, from incurable diseases to climate change Currently, the CEO of Meta could provide only one example, how he uses AI He uses it for his toaster The USD 17 billion capex of Meta that went into Nvidia chips spending has not been deployed into the company’s operations Some analysts claim that the energy infrastructure in the US is currently not sufficient to provide enough energy One could come up with the conclusion, that we are seeing overinvestments in the tech sector and not enough spending in energy and infrastructure projects The market may have started to agree with the latest, as the technology sector started to underperform, while the materials and energy sector began to outperform Number crunchers suddenly realize that the infrastructure needed to implement AI, will demand a stunning amount of Copper While the hype in ESG has waned, it is resilient and commodity investments remain unloved This could lead to a scarcity in some commodities as production cannot keep up with demand US data centers are expected to grow by 50 until 2030 If so, we will witness an unprecedented rise in demand for electricity Meanwhile, the global debt burden continues to grow, especially in the US, where the government continues to project an annual budget deficit of around 6 If the US Central Bank is unable to cut rates substantially, it will lead to interest payments of USD 1600 billion in 2024 The resilience of inflation will become a problem ..“Higher for longer” will also mean, that the Commercial Real Estate Market, as well as Regional Banks could get hit again The Bank Term Funding Program has ended, and the Repo Facility is almost empty While the global economy remains in a good shape, the next couple of months could bring us the market volatility the “buy and hold” crowd has avoided since October According to our research, liquidity has been mostly drained from the system, which could lead to a bumpy road for equity markets in the next couple of weeks The Presidential Election Year Cycle agrees with this Nevertheless, there are no signs that the market sees a recession in the foreseeable future.

Market Comment January

17.2. 2024

Equity markets continue to grind higher, with fewer and fewer stocks participating in the rally Barrons’s magazine recently noted that the technology sector now accounts for a record 30 00 of the S&P 500 benchmark index, more than the next two largest components combined (healthcare and financials) UBS commented, that perceived changes in technology are often associated with an equity bubble and according to their research, five out of eight pre conditions for being in a mid cycle bubble are met While there was a consensus call for a recession coming either in 2023 or 2024 we are now receiving a consensus call for a “soft landing”, also known as a minor economic contraction, that will not lead to a recession Despite policy errors, policymakers have got away with their mistakes, thanks to fiscal stimulus, but their luck may eventually run out If there is further demand destruction from tight monetary policy, we are perhaps more likely to see aggregated ( job losses In the extreme, this could set off a true recessionary dynamic While the FED prepared markets around year end for rate cuts, recently high inflation data has removed expectations, that central banks will be able to cut rates before summer This could also create further potential for pain in the residential property market as well as for small and medium sized companies, which are facing a maturity wall that could squeeze profits To secure the soft landing, central banks might need to cut interest rates soon to head off these problems Recent consumer and producer price data do not justify an easier monetary policy, according to central bank’s inflation target Still, we see two options for 2024 A rangebound market until beginning Q 3 or a relentless melt up into 2025 With the current data there is a high probability that for equities, he best is yet to come Longer term, there are strong secular headwinds that sooner or later will take their toll The high level of debt, stubborn inflation as well as unfavorable demographics will start to weight on the US economy Short term, a recession would have unfavorable dynamics for the US government debt situation On average, the US deficit increased by 7 00 during recessions As the US is already running a 6 00 deficit, a 13 00 annual budget deficit from 2025 27 would increase the debt/GDP ratio from the current 124 00 to 146 00 catapulting de government debt situation into uncharted an unsustainable territory In short, the US cannot afford a recession

New Joiner

January 2024

We are happy to announce the joining of Sofya Aslanyan.

Sofya is our right hand in all administrative areas, and she continues to develop her organizational talents.

Read more about our team
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New Joiner

January 2024

We are happy to announce the joining of David Oganov.

David's areas of expertise include portfolio management, business planning, and market analysis. He will add valuable insights and know-how to our team.

Read more about our team
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Market Comment December

19.1. 2024

Beginning 2023 the outlook for the economy was bleak, as investors expected that the rise in interest rates will put pressure on the economy and recession calls dominated the financial media During the second half of the year, the substantial increase in fiscal spending, together with an escalating interest in “Artificial Intelligence” investing, helped especially the US stock market to extend its gains, notably during the last two months of the year Fiscal spending kept the global economy from falling into a recession and in the end, the Bank of Japan continued its yield curve control, supporting global liquidity At the end of 2022 the average price target for the S&P 500 provided by 18 investment banks for 2023 was around 4100 while the market managed to close at 4770 Bill Miller once said 100 of the information you have about any business reflects the past, and 100 of the value of that business depends on the future" Witnessing a resilient global economy and falling inflation, economists are now able to paint a much rosier picture Most investment bankers now have a year end price target for the S&P 500 of around 5100 matching bottom up estimates by equity analysts for the index of USD 242 44 implying a 13 gain year over year It looks like 100 of the information we have now is positive, leading to a positive outlook Obviously, the current framework is vulnerable to disappointment The cyclical bear market, that has started in 2022 needs a classic ending, which would mean, that we will see a panic sell off during the current year With high expectations, the odds for such an event are pretty good Nevertheless, a negative surprise would build the base for a cyclical bull market that could last until the first quarter of 2026 Longer term, our assessment remains the same In the US, the post 2009 secular bull market is in the early stage of reversing The secular trend determines the character of the primary trend, which is obviously important for investors Currently, there are cyclical forces that help equities to avoid entering a secular bear market The US Central bank wants to avoid a recession, some say, for political reasons The fear of a renewed presidency by Donald Trump is on the rise Some FED members clearly stated that they do not wish Donald Trump to be the next president The ruling party never won a presidential election when a recession occurred during an election year Both the government through fiscal spending, and the Federal Reserve by promising lower rates seem to join forces to avert Donald Trump, whatever it takes Any negative development in the economy, will lead to extensive stimulative efforts by Central Banks, which in the end will turn out to be inflationary once again

Market Comment November

19.12. 2023

The market celebrated a stunning rally, with an extraordinary performance for the month of November A comparable November strength has not been registered for over 70 years Weaker than expected economic data, which confirms the “bad news is good news” trade, helped to propel both bonds and equities Even more surprising, despite a slowing economy, investors started to bet on cyclical sectors like consumer discretionary and semiconductor companies Falling inflation additionally fueled investors’ confidence The economy, as well as earnings are not important right now as the main attention is on interest rates While lower increases in prices may be a good thing, one must ask what price tag investors will pay for it Currently, there is the believe that falling inflation will be accompanied by continuous growth In the current economic environment though, the price for falling inflation should be less growth Worth noting that the trend in continuing jobless claims is slowly trending higher, confirming that US workers who have lost their jobs, are increasingly having difficulties to get hired again With a loss of more than 20 from its November high, crude oil remembered traders why its market is called the “widow maker” While OPEC+ tries to stabilize the price, speculators who bet on a geopolitical oil price spike got badly burned, and now are weighting on the market US oil exports continue to rise, compensating the cuts of the cartel Lower energy prices impacted the US consumer positively It is surprising, that despite the favorable environment the “buy now pay later” business practice was strong during the past months The same applies for the US government The US Federal Budget Balance for November showed a deficit of 314 billion US Dollars, an impressive number, but still only the third largest monthly deficit of the year Higher interest rate costs, for now, seem to have little impact on the spending behavior in the United States Another surprise was the strength in European equities measured by the STOXX 600 Index On a currency adjusted basis, it performed 0 46 better than the S&P 500 Strong moves in equity markets always lead to pressure on portfolio managers, especially as the year comes to an end As the exuberant mood continued beginning December, one must ask if 2022 was just minor correction in the longest bull market we have ever seen, or if the market is delivering another bad surprise in 2024 The current short term setup for equities remains bullish although very extended The Presidential Year Seasonality is showing a rollercoaster market with a negative bias until the month of May While it is clear that investors currently fear to miss out futures gains, from current levels, the risk reward for both long duration bonds and equities is poor

Market Comment October

13.11. 2023

As if the rise in interest rates and much uncertainty about the future of the global economy were not enough, the world was hit by another global shock, as Hamas terrorists attacked Israel, leading to a massive escalation of a conflict that has been going on forever. However, financial markets did no care much after all. During the cold war 80’s, there was a joke among traders: A newscaster reports, ‘The Russians launched ICBMs at America this morning, causing the stock market to plunge, but it rebounded sharply in the afternoon on a rumor that the Fed might cut the discount rate.’ While this may be a bad joke, it is very much fitting present times. Investors have been conditioned to ignore geopolitical risk. Interest rates remain the key driver for investment decisions. As the US 10-Year Yield hit 5%, Fed Chair Jerome Powell communicated, that the Central Bank may have done enough, sparking a huge risk-on rally in financial markets. Obviously, Mr. Powell has once again no clue were inflation is heading, but he needs to protect the Shadow Banking System. The regional banking crisis, that took place in March 2023, happened 4 months after the first big sell-off in treasury bonds. The month of October has inflicted even more losses to bond holders. Mr. Powell fears the fragility of the financial system much more than inflation. Unfortunately, he can’t have the cake and eat it too. November has shown how problematic the financing of the US debt will become in the coming years. Absent of a recession, the market is not willing to absorb the supply of US government debt, especially on the long end of the yield curve. Long duration, despite the big rise in yields, remains hard to sell. A recession would be a welcome remedy to change this, but it will increase credit risk on lower quality, which would lead to other problems in credit markets. The financial world remains a fragile place. While overshadowed by an increasing amount of risks, there is blindfolded confidence, that the market will enjoy a year end rally, as it mostly does during the months of November and December. Crude Oil continued to fall sharply during the first week of November, ignoring geopolitical risks as well. Having sold down the Strategic Petroleum Reserve and having adopted a policy that discourages drilling for oil, the U.S. has left itself quite vulnerable to higher oil prices. Globally, storage is at a multi- year low. Maybe Crude Oil is anticipating a weak economy, but the supply side does not look strong. We are heading for a great buying opportunity for sure. Looking at the long term trends for European- and US equity markets, there are clear signs, that we are leaving the bull market that has started in 2009. While the situation maybe less clear for the US stock market, Europe should be heading for a bad surprise, especially France. The US election year seasonality is showing a very difficult investment environment during the first two quarters and the chaotic situation on Capitol Hill is breathtaking.

Market Comment September

10.10. 2023

Never in the history of the US republic have US Treasury returns been negative 3 years in a row, writes Bank of America. The investment bankers analysed data going back until 1787. Looking at the current sell-off in Government Bonds, the odds are rising that we are heading for this unprecedented event. Rising yields, especially on the long end of the yield curve, are putting pressure on long duration assets. Equity valuations can’t defy the quick rise in interest rates. While earnings have been better than expected, equity prices have risen faster than earnings, leading to a P/E expansion, which does not make sense during times of rising rates. Earnings reports are just around the corner which will mark the next test for valuations. October is an infamous month for volatility and sharpmarket corrections and ultimately a good time to take risk. Unfortunately, October of 2018 is an intense flashback for investors as it marked only a pause in an incredible sell-off in equities that lasted until the year-end. Then, the culprit was Jerome Powell who believed overtightening monetary policy would be not problematic. From a trading aspect, buying October 2018 was good for an 8.26% rally, but from there the market dropped 16.78% into year-end. The FED needed to adjust monetary policy to calm financial markets. Today we could argue, that the US Central Bank is once again getting too restrictive. Currently, US Treasury Bond markets gets supply from the reduction of the balance sheet (FED), the increase in debt (Treasury), Hedge Funds short selling and China, which continues to unload US Government bonds. On the buy side, we only have Asset Managers and Institutional Investors. The market must show a price attractive enough to get more buyers stepping up to the plate. According to TardaGrada, unfortunately, there is a lot of room to run when it comes to the US 10-Year Treasury Yield. 5.10% is conservative price target. A fast move above 5% could be viewed as capitulation of the bond holders and mark the end of the current sell-off. Equities and commodities will certainly have some problems dealing with this. It is clear that we are heading towards an endgame in a cyclical bear market for bonds. Bear markets usually end in a dramatic way. As a general rule, buying Treasury Bonds after the last rate hike is a good and safe trade. Unfortunately, markets still expect at least one more rate hike until the end of the year. Either the bond market has to be saved by the Central Bank, or weak economic data. Worth mentioning that the Bond Volatility Index MOVE has surged over 40% during the month of September. An other interesting observation is the fact, that the Equal Weighted S&P500 Index turned negative by the end of the month, underperforming the S&P500 by more than 12.00%. The same goes for the NYSE Composite Index, trading down 0.75% beginning October.The reason is the relative strength of large mega caps - the last men standing in the US stock market.

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.

Read more about our team
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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.

Read more about our team
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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.

Read more about our team
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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.

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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.

Read more about 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.

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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. 

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