Category: EMR

EMR November 2025

Dear Reader

In this EMR, we would like to emphasize that the economic and investment environment has never been as complex and contradictory as it has been in recent years, and particularly in 2025. In our view, the current economic reality is unprecedented, while a new “ideological worldview” is shaping global politics and economics through self-appointed “dictators.” These developments are a cause for great concern, especially among quantitative economists. This is not primarily a question of economic reality, but rather a political issue.

In other words, we are currently facing a welfare dictatorship that has nothing to do with an interpretation based on the examination of concrete facts. The trend in stock market indices is truly revealing, as the following chart implicitly shows.

The stock index chart, in their respective currencies, shows two distinct growth paths, linked by a significant correction phase. The first growth path covers the period from early 2020 to early 2023, while the second covers the period from early 2023 onwards. Growth rates are similar, but deviations are significantly more pronounced in the second period. Are there reasons for this disparity? The outperformance of technology indices is indeed significant. It is surprising that the growth patterns of the indices shown are somewhat coordinated, de-spite significant differences between markets. At this crossroads, we ask our-selves: What could be the reasons for the differences highlighted in the chart above? At least in the case of US indices, this cannot be attributed to negative expectations about economic activity, but rather to the effects of potential technological growth.

In 2022, the main deterministic factors were fears of an impending economic slowdown, high and widespread inflation, and the unpredictable impact of the war in Ukraine, which disrupted trade and drove up energy and food prices.

The political and social actions and reactions of the US president are also sig-nificant and destabilizing factors for the stock and currency markets. It is wor-rying that the focus is mainly on trade that primarily benefits the US. The re-percussions on Europe and the rest of the world are given little consideration, both in terms of economic activity and the security of local infrastructure. President Trump’s intention is primarily to benefit the US economy, regardless of the impact on trading partners. From an investment perspective, this policy mainly affects foreign trade trends, while commentators remain focused on interest rate regulation to combat inflation.

CRITICAL FACTORS FOR THE OUTLOOK

From the complex political situation and Trump’s nationalistic intentions, as can be implicitly inferred from his mercantilist focus, we draw the following conclusions:

Sectoral growth prospects:

The prevailing opinion seems to support the hypothesis that the most sig-nificant deviations in forecasts are due to the effects of growth in foreign trade and private consumption. This assessment is mainly due to the tax increases introduced by the Trump administration. In our view, there is no doubt that the sometimes absurd tax increases will contribute to nega-tive growth forecasts and price increases, regardless of the measures taken by central banks and, in particular, the decline in consumption by the general public.

Inflation expectations and interest rate cuts:

Not a day goes by without negative comments about inflation or inflation expectations. The fact is that the White House has repeatedly urged the Federal Reserve to lower interest rates, and will likely continue to do so, in order to stimulate economic growth and keep inflation under control. With all due respect, we disagree with these specific requests from the White House, as well as with the widespread and constantly reiterated “opinion of the majority of the public.”

We believe that the policy measures taken by the current US administra-tion cannot be determined solely by interest rate cuts. We are of the opinion that the tax burden cannot be resolved primarily through lower interest rates, given that the reduction in import prices at this time has little to do with the Fed’s measures. Foreign producers will seek to diver-sify their exports from the US to other countries, while at the same time seeking to reduce imports from the US.

Risk of Recession:

There is no doubt that the risk of recession is currently high and rising. The impact is not primarily on international trade, but on consumer spending. The political repercussions will be and remain the main source of great concern.

GROWTH PROSPECTS

According to our analysis, economic growth prospects have once again lost some of their recent momentum. We believe that this loss of momentum is mainly due to contradictory policies, which indicate a growing political trend toward an “increasingly closed market environment,” representing a dangerous shift toward isolationism. In such a political environment, it is unlikely that the policies implemented will produce the necessary and desired economic benefits, either for the United States or for its foreign counterparts. The question we are unable to answer at this time is when the US administration will initiate a reversal toward a more democratic environment. The current wave of “American nationalism” is not producing the expected economic benefits, either for the US fiscal authorities or for the foreign nations for which it was intended.

In our view, it seems rather obvious that, at this point in time, interest rate cuts may not be the optimal stimulus for economic growth, as the feared negative effects mainly concern consumer spending and international trade. A reduction in “valuable and necessary” imports of goods and services, achieved through tax increases by the importing country, does not necessarily encourage consumers to spend more, while price increases risk reducing the supply of essential foreign goods taxed by the importing country: the United States.

Furthermore, it seems rather obvious that, at this point in time, interest rate cuts will not stimulate economic growth in the country applying them, when the negative effects mainly affect consumer spending and international trade.

PERSONAL ASSESSMENT

The real question is what impact the scenario described above could have on asset allocation. Below are our assumptions and conclusions:

• It can be assumed that economic and financial uncertainty will persist for some time to come.
• The repatriation of capital investments from abroad should reduce the uni-verse of international investments.
• At present, we believe that economic and financial uncertainty is likely to endure for some time, unless the US president changes his mercantilist stance.
• We still wonder why public opinion continues to focus on interest rate adjustments to curb inflation and promote economic growth.
• Considering the potential impact of President Trump’s fiscal policy, we conclude that it will force leading companies to evaluate and reconsider the consequences of transferring various products from abroad to their home countries, bearing in mind that this could lead to higher costs, which will further push companies to automate processes in order to reduce costs.
• Contrary to our recent expectations, we are currently focusing on our do-mestic market, Switzerland. Step by step, we will also make consistent ad-justments in favor of European markets and significantly underweight the US market.

OUTLOOK

At this point, we believe that the decisive factor for current forecasts is the inflationary impact of Trump’s fiscal mania. We therefore do not share the view of the vast majority of analysts that monetary policy measures are and should be the most promising path to economic growth. Given the dramatic inflationary impact of Trump’s fiscal policy, we do not see how monetary poli-cy measures by the Fed or any other central bank can or should be the main determining factors.

Our current assumptions are based on the following premises: contrary to our recent expectations, we are currently focusing on our domestic market: Swit-zerland. Step by step, we will also make consistent adjustments in favor of European markets and significantly underweight the US market.

• Our currency forecasts favor the CHF, EUR, and GBP, less so the JPY, and even less so the USD. We are concerned about the continued “devaluation” of the USD in line with Trump’s absurd fiscal policy and the US government’s “anti-Fed” stance. At this point, we wonder whether it is appropriate to hedge equity exposures against their respective USD currencies.

• We have no doubt that international investors could avoid the US market in response to the US president’s absurd fiscal policy and instead favor European markets and, to a lesser extent, the Japanese market. At this point, we won-der whether it is appropriate to hedge equity exposures against their respec-tive currencies in USD.

Dear reader, we would appreciate your informed opinions.

EMR October 2025

Dear Reader,

Historically mercantilism was a “state-controlled economic policy” from the 16th to the 18th century. Its aim was to strengthen the economic power of the state and accumulate national wealth, primarily through a positive trade balance as well as the accumulation of precious metals. The system was characterized by massive state intervention, such as the promotion of domestic manufacturing and the protection of domestic production through high import duties.

The effects, outlined above, clearly describe the current policy of the Trump administration, which consists of high import tariffs on a country-by-country basis. The current objectives can be described as an active trade balance with the primary goal of improving the trade balance and thus strengthening the national economy. In ióther words, with the recent actions of president Trump we assist to an absurd mercantilist revival, through the maximization of exports and/or the minimization of imports, by means of considerable taxation, varying from the various partner countries but primarily in favor of the United States.

Fact is that the trade balance, as we all know, is not a complicated concept, given that it is simply the difference between what a nation exports—both as goods and/or services—and what it imports. If the former amount is greater than the latter, we register a surplus—otherwise a loss.

Trumps concept and actions aim to reduce a further current accounts deficit or to reach a current accounts surplus. In addition it includes measures aimed at accumulating monetary reserves by means of a positive balance of trade, without taking into account the repercussios on the trading partners. The current attention to the mercantilist theory varies in sophistication from one writer to another and at the same time it evolves significantly.

Fact is that mercantilism promotes state regulation of a country’s economy in order to strengthen the power of the state at the expense of rival national powers. Disunity is the dangerous result of current policies. The current economic environment is generally defined or considered to be rather unique. Beeing interested in the relevance of developments, both current and long-term, we are aware of factors that are not adequately addressed in press reports and also in recent studies. We like to remember that price trends, as demonstrated by long-term data available in the United States, tell a story of constant change, sometimes minor, sometimes dramatic, and sometimes difficult to assess coherently. Therefore, we should bear in mind that inflation is a persistent problem, one that we may have to deal with, not only in the immediate future, but also longer term.

In other words, as stressed e.g. in the FRBSF Economic letter of September 2, 2025 “Recent surges in trade policy uncertainty highlight the fragility of global supply chains, prompting businesses to consider reshoring—moving production from abroad to domestic locations. Reshoring can be costly, creating incentives for businesses to automate. Evidence suggest that businesses facing heightened trade policy uncertainty in industries more exposed to international trade reshore more and automate more than those that are less exposed to trade. Automation appears to help mitigate the otherwise negative effects of trade policy uncertainty on production and labor productivity.”

What may be the implications for our asset allocation is the real question, isn’t it? Below we will present our expectations.

PERSONAL ASSESSMENT

From the rather complicated situation described above, we draw the following conclusions:

1. Economic and financial uncertainty is expected to persist for a rather long period of time.
2. Currently, the two most important and decisive economic sectors are “foreign trade” and the “U.S. repatriation of capital investments from abroad”. Thus, we somehow are in contradiction with the current focus on interest rates as the primary determinant. In addition we assume that these developments might persist for a rather long period of time.
3. Consequently, we wonder why the overall public assessment remains focused on interest rate adjustments to curb inflation and promote economic growth. Meanwhile, investors are asking themselves how long Trump’s disastrous nationalist stance is likely to last and what the consequences might really be.
4. Asking ourselves what the implications of the Trumps taxation might be, we primarily retain that they will forse businesses to consider the impacts of reshoring of variouss products from abroad despite knowing that it might be a costly exercise, forcing businesses to automate in order to reduce costs.

We are somewhat concerned that this environment could fuel trade policy uncertainty (TPU), an index developed by Dario Caldara, Matteo Iacoviello, Patrick Molligo, Andrea Prestipino and Andrea Raffo at the Federal Reserve Board. In other words, this attitude is synonymous with deglobalization, which will eventually require an adjustment in production lines. Its impact on export and import growth, and therefore on real economic activity, is likely to be significantly greater than the demand for interest rate adjustments by monetary authorities.

REPOSITIONING AND AUTOMATION

The phase of dismantling trade barriers and the willingness to increase economic integration have reached a decisive crossroads. The tariff measures recently implemented by the Trump administration speak volumes. Isolationism is returning to the spotlight.

OUTLOOK

At this juncture, we believe that the determining factor in the current forecasting exercise concerns the inflationary repercussions of Trump’s fiscal mania. Therefore, we disagree with the vast majority of analysts who believe that monetary measures are the most promising course of action for economic growth. We do not see how monetary actions by the Fed, or any other central bank, can be the primary deterministic actions, given the dramatic inflationary impact of Trump’s fiscal stance.

We base our current assumptions on the following premises:

• Contrary to our recent expectations, we currently prefer to focus more on our domestic market: Switzerland. Step by step, we will also make consistent adjustments in favour of European markets and significantly underweight the US market.
• Our currency expectations favor the CHF and EUR, less so the JPY, and even less so the USD. We are concerned about the persistent “devaluation” of the USD in line with Trump’s absurd fiscal policy and the US administration’s “anti-Fed” stance.
• Somehow, we persist to disagree with the assumption that interest rate cuts in the United States should be considered the main driver of economic activity. It is a known fact that the focus of economic policy is centered on increasing import taxes, boosting fears of inflation.
• We have no doubt that international investors, in particular, could avoid the US market and favour European markets instead, and to a lesser extent the Japanese market, in response to the US president’s absurd fiscal policy.
• At this point in time, we wonder whether it would be appropriate to start hedging equity exposures against their respective currencies in USD.

Dear reader, we would really appreciate to know your coherent assessment?

EMR September 2025

Dear Reader,

The current economic environment is generally defined or considered to be rather unique, despite there being a long history of change. Being interested in the relevance of developments, both current and long-term, we are aware of factors that are not adequately addressed in press reports and recent studies. We like to remember that price trends, as demonstrated by long-term data available in the United States, tell a story of continuous change, sometimes minor, sometimes dramatic and difficult to assess. Therefore, we should bear in mind that inflation is a persistent problem, one that we may have to deal with not only in the immediate future.

What can be inferred from the US CPI inflation chart, considering that the average inflation rate for the period from 1872 to the present amounts to 2.37%, with a maximum of 17.84% and a minimum of -10.94%? Let us emphasize that the overall average trend—dotted line—has been slightly rising, while the recent trend (since 2000) indicates a significant slowdown.

Furthermore, it should be noted that the rate of change has been significantly higher in the period prior to 1870 than in the period thereafter. The graph also shows that the overall deviation for the period between 1980 and the early 1960s has been fairly modest.

The inflationary trend since the late 1970s has been surprisingly “moderate.” Without going into details about inflation trends, since the late 1970s we note a downward trend compared to the previous period. The reasons for this are not easily quantifiable, aren’t they?

Without examininsg the develomenats of inflation trends in other countries and currencies, to answer the above posed question, let us summarize key events that, so far, have had – and still might have – a decisive impact. Although the following list imight not be exhaustive, we believe it to be quite significant for the current forecasting outlook.

1. On January 20, 2025, Mr. Trump was inaugurated as president of the United States for a second non-consecutive term.
2. On April 9, 2025, he announced the suspension of customs duties for a period of 90 days, with the exception of China.
3. On April 17, 2025, he attacked Fed Chairman Powell with the statement, “When he leaves, it will be too late.”
4. On May 8, 2025, he signed a trade agreement between the United States and the United Kingdom.
5. On May 11, 2025, China and the United States signed a 90-day suspension
6. On May 16, 2025, Moody’s downgraded the United States’ rating from “AAA” to “Aa1.”
7. On May 23, 2025 Mr. Trump announced 50% duties to Europe.
8. On June 21, 2025 the U.S. bombs sites of Iran for uranium enrichment.
9. On July 8, 2025 Mr. Trump extended the deadline for new agreements to August 1, 2025 (e.g. tariffs on copper of 50% and also 200% tariffs on pharmaceuticals).
10. On August 7, 2025, he did not “chair” the meeting with the high-level Swiss delegation at the White House.
11. Meeting in Alaska, August 15, 2025, between US and Russian presidents, Donald Trump and Vladimir Putin, was billed as a promising step towards peace in Ukraine. According to press information no ceasefire and an invitation to Moscow, were announced! The meeting yielded more questions than answers.

Now let us ask ourselves what can we deduce from the long-term U.S. inflation chart, taking into account the above listed developments regarding the economic outlook and financial market trends?

BETWEEN PAST AND FUTURE

The current political and economic environment is quite complex, making it difficult to assess with a high degree of certainty and precision. Even a fairly simple analysis of price changes reveals that, on many occasions, we have faced economic and social contexts that were difficult to predict. Price inflation, as we all know, has been a persistent and challenging problem, one that we may continue to face. not only in the near future, but also in the longer term. In the economic literature, we have found specific phases, that began in a very similar way to what is happening now. The phases that come to mind indicate similar starting points and, at times, divergent paths, known as stages. A “simple” review of price changes shows, as implicitly illustrated in the chart above, that we have almost always faced considerable difficulties in forecasting. We therefore assume that price inflation could persist and, with the active support of President Trump, could be a serious forecasting obstacle not only over the short term but also in the longer term. In the economic literature, we find certain phases that begin very similarly while leading to different outcomes. At this point, we would like to point to four main phases, illustrating current forecasting difficulties:

• A first phase might be defined as a phase of “quiet beginnings, and also of slow progress”.
• A second, slightly different phase, is characterized by the “overcoming” of previous price limits. The contextual and deterministic factors were wars and/or changes in the system of government, as well as drastic increases in the prices of raw materials such as crude oil.
• A third phase concerns the hypothesis that “price changes are due to inflation expectations,” i.e., changes in long-term trends. A particular limitation concerns the assumption that investors believe that the trend may require an expansion or contraction of the money supply. At this stage, the rate of change in the money supply is considered the relevant indicator which, in due course, would confirm to some extent the assumptions of an increase/decrease in inflation. In this context, economists refer to financial market instability.
• Finally, the fourth wave “peaks and breaks down with shattering force”, with dramatic consequences, including recessions and political change

It should be borne in mind that each phase had significant social consequences and that each price trend exhibited common wave structures of varying duration and scope.

Implicitly “visible” in the above shown chart are also the respective effects on the medium-term inflation outlook.

Currently, as in the past, there will be social and economic disparities also on a country-by-country basis. Even today forecasters should seriously consider the implicit impacts on the asset allocation exercise.

 

The recent meeting between US and Russian presidents, Donald Trump and Vladimir Putin, in Alaska was billed as a vital step towards peace in Ukraine. As we see it, without a ceasefire and an invitation to Moscow, the meeting has yielded more questions than answers.

OUTLOOK DETERMINANTS

At this crossroads, we believe that the determining factor in the current forecasting exercise concerns the inflationary repercussions of Trump’s fiscal mania. Therefore, we disagree with the vast majority of analysts who believe that monetary measures are the most promising course of action for economic growth. We do not see how the monetary actions of the Fed, or any other central bank, should be the primary deterministic actions, given the dramatic inflationary impact of Trump’s fiscal stance. The meeting between the US and the Russian presidents, D. Trump and V. Putin, in Alaska, can be billed as a vital step towards peace in Ukraine. With no ceasefire and an invitation to Moscow, the meeting has yielded more questions than answers.

EXPECTATIONS

Our specific assumptions are based on the following setting:

1. As in previous EMRs, we persevere in favoring primarily investments in our home market: Switzerland followed with coherent judgement by investments in Europe and a significant underexposure to the USA.
2. Our currency expectations continue to favor the CHF and EUR, less so the JPY, and even less so the USD. We are concerned about the persistent devaluation of the USD in line with Trump’s absurd fiscal policy and the US administration’s “anti-FED” stance.
3. Somehow, we disagree with the assumption that interest rate cuts in the USA ought to be viewed as the primary motor of economic activity. The center of economic policy is set on “increases in import-taxation” boosting fears of inflation.
4. In our opinion, investors will avoid the US market, favoring the European markets and, to a lesser extent, the Japanese market, as an appropriate response to the absurd policy of the US president.
5. At this point, we wonder whether it would be appropriate to start hedging equity exposures against their respective currencies in USD.

Dear reader, we would really appreciate to know your coherent assessment?

* Mark Twain

EMR August 2025

Dear Reader

What can be deduced from the performance of selected share indices for the recent past and the foreseeable future is, at this crossing, the real question, isn’t it?

In order to answer the above quoted question, let us first summarize which key events we define as having been deterministic. The list may not be ex-haustive, nevertheless we still consider it meaningful.

1. For the first time, on January 20, 2025, Mr. Trump was installed in the White House.
2. On April 2, 2025, Mr. Trump announces duties to the world
3. On April 9, 2025, he announces the suspension for the duration of 90 days of duties, excluding China.
4. On April 17, 2025, he attacks the chairman of the FED, Mr. Powell, with the statement “When he leaves it will be too late”.
5. On May 8, 2025, he signed a trade accord between the USA and the UK.
6. On May 11, 2025, China and the USA signed a 90-day suspension.
7. On May 16, 2025, Moody’s downgraded the rating of the U.S. from “AAA” to “Aa1”.
8. On May 23, 2025, Trump announced 50% duties to Europe.
9. On June 21, 2025, the U.S. bombed sites of Iran for uranium enrichment.
10. On July 8, 2025, Trump extended the deadline for new agreements to Au-gust 1, 2025, (e.g. tariffs on copper of 50%, and also 200% tariffs on pharmaceuticals).

In addition, let us ask ourselves: What can be deduced from the chart of Eq-uity Indexes, expressed in local currencies? Is it primarily the unexpected “superb performance” of the German DAX index, while keeping in mind its currency developments? So far, the weakest indexes have been the NIKKEI, followed rather closely by the DJIA, and the NASDAQ, as well as the SPI. While most commentators are focused on the astonishing – to say the least – policy of the US president, one might face a dilemma analyzing the economic environment.

A further surprising result is shown by the poor performance of the so-called economic fundamentals, which, to us, appear to be misplaced by the so-called instantaneous arbitrage. If share indices represent the “new” funda-mentals, then one could conclude that real economic facts, such as economic activity, are currently being “played off” by the short-term or instantaneous return of capital.

Another contextual puzzle, as implicitly shown in the above shown chart of the USD/CHF developments, refers to the deterministic repercussions of currencies. While the chart on equity indexes describes the growth trend of each index, the currency chart speaks of sizeable volatility on a month’s end basis. The real question at this crossing is: Why is there such a disparity in the specific trends of equities and currencies?

Contextually, we argue that the fundamentals, at least for the short-term outlook, matter less and less. In other words, they represent specific difficulties in defining a rewarding investment outlook.

OUTLOOK DETERMINANTS

Should our assessment assume that the fundamentals (Consumption, Business Fixed investments, Government outlays and international trade) are no longer in the driver’s seat of the developments of coming months and quarters, then we must reckon with increasing difficulties for Central Banks.

The main difficulty to be assessed relates to the outcome of the Trump administration’s ambiguous policy of erratic and at times absurd taxation versus the needs and requirements of the Federal Reserve in managing interest rates. The relevant question relates to the likelihood of a recession not only in the US.

Contextually, we can also ask ourselves the following: What is the risk for investors, given that the stock market, at least in the short – to medium term, may become more of a race against the “signal” than a reflection of the real value of a specific stock and/or index. In this context, the price of a stock looks more like an algorithm than of a human valuation. Therefore, investors need to understand whether it is more important to them how much they gain, or lose, than the ultrafast robots. In this context, we face a difficult question: “Do we understand what it means to play in a field where it is not the invisible hand of the economy that controls the situation, but the ultra-fast hand of a software program?”

PERSONAL ASSESSMENT

As long as Mr. Trump is “free to act and react to his own opinion and stance” the outlook remains hardly quantifiable. Coherently, we persist in setting the investment focus on our domestic equity market, Switzerland, particularly taking into account the traditional revaluation of the home-currency and the dramatic, expected further devaluation of the USD.

INVESTMENT CONCLUSIONS

International diversification will need to be discussed and implemented in accordance with each client’s expectations, tailored to their risk aversion.

Suggestions are welcome.

EMR July 2025

Dear Reader,

DEBT AND INVESTORS

Factors worrying investors do not seem to concern the ups and downs of stock indices, the price of gold or even the price of oil, but rather the yields on interest rates (e.g. the yield on 10-year government bonds), which are mainly due to the policies of the Trump administration. This is where the de-terministic lines cross in terms of confidence, liquidity and, above all, the sus-tainability of the economic system and the financial system in particular.

At this point let us recall when the Trump presidencies took place. Donald Trump was first inaugurated on January 20, 2017, as the nation’s 45th presi-dent and his presidency ended on January 20, 2021. Joe Biden served as his successor. Trump was then elected for a second, nonconsecutive term in 2024 and assumed the presidency again on January 20, 2025, as the nation’s 47th and current president.

Examining the graph of 10-year government bond yields for the period since March 2005, we see that the downward trend bottomed out with the election of successor, Joe Biden. Since Biden took office, 10-year government bonds yields have risen rather differentially. U.S. and British rates have outpaced German, Swiss, and Japanese rates, implying a differential impact on a na-tional basis. Readers might recall that trend differentials are indicating an un-stable outspeaking of a high level of forecasting uncertainty.

We should bear in mind that the economic situation in the years 2006 to 2008 has been strongly determined by the outbreak of the global financial crisis and the corresponding impact on the global economy. The crisis, which began in the United States with the bursting of the real estate bubble, had far-reaching consequences for the financial markets and the real economy throughout the world.

Examining the chart of 10-Y Govt. bond yields and taking into account that the recent spread is primarily due to the risky U.S. policy, focused on taxing U.S. imports, thus disrupting fiscal policy, not only at the U.S. level, but also on a global scale. The U.S. financial deficit must be financed, which in the long run leads to the potential for sharply rising interest rates. Markets evidently fear the servicing of this debt, interpreting it as a systemic macroeconomic problem that the current U.S. administration cannot or will not handle. At this crossing we are somehow worried by the politically induced calls of analysts and politicians to request additional interest rate increases. We should not forget to examine the developments of the equity indexes for the period since e.g. 2008. Actually, this is what we are interested in, in the following chapter.

SUGGESTIONS FROM US & SWISS REAL GDP & COMPONENTS

The graphical representation of the quarterly whereabouts of real GDP and main components, in Switzerland and the USA, shown in the following charts is indeed telling. The discrepancies must be taken seriously, with regard to the short- and medium-term outlook. Turning our attention to recent quarters, mainly as a result of the Trump administration’s taxation policies, we find that most forecasters are concerned with the recent developments. The shown real GDP data speak volumes, particularly in terms of the misrepresentation of the policies pursued by the US administration.

The data portrayed in the chart of US GDP and components, undoubtedly point to the primarily impacts of exports and imports and partially also on fixed investments, specifically in Q1 2025. Let us ask the reader to examine the growth rates of GDP, Consumption (C) and Government spending (G) for the US as compared to Swiss developments.

While the focus in the media is set on interest rates expectations and corresponding reactions on the currency front, in both charts, we see the impact of international trade, which is mainly due to Trump’s erratic tax imposition, as the primary determinant of the current economic whereabouts.

Surprising is the increase (!) in imports (M) in the first quarter of 2025 for both Switzerland and the United States, especially when compared to the limited increases in 10-year government bond yields. Looking at the graphs of Swiss and U.S. economic activity, we see an extraordinary dependence on international trade, that is, exports and especially imports, conditioned by the U.S. administration, predominantly visible in the first quarter of 2025. We wonder why on earth, we feel so alone in assessing the economic environment on the basis of international trade, instead of following the herd, which focuses its rationale mainly on interest rates to counter inflation as the main determinant of economic expectations and thus economic activity in the coming quarters. Of course, we will certainly see some developments in fixed investment and U.S. interest rates in the coming quarters, but not as the most crucial determinants.

OUTLOOK DETERMINANTS

Forecasting is a challenging exercise, determined primarily by specific assessments of the political, economic and social environment, based mainly on hard data. Currently a further difficulty concerns the whereabouts in the Middle East. The setting is currently really difficult to quantify.

While most analysts set theirs focus on inflation vs. interest rate changes as well as currencies ups and downs, we set our focus in the components of real GDP and particularly on exports and imports of goods and services.

PERSONAL POINT OF VIEW

The next months and quarters remain hardly quantifiable. Coherently, we persist in setting the investment focus on our domestic equity market, particularly taking into account the traditional revaluation of the home-currency and the dramatic, expected further devaluation of the USD.

INVESTMENT CONCLUSIONS

International diversification will need to be discussed and implemented in accordance with each client’s expectations, tailored to their risk aversion.

Suggestions are welcome.

EMR June 2026

Dear Reader,

TIPS FROM SHARE INDEXES

Not a day goes by without President Trump, or another American political leader making a specific, relevant and/or surprising statement. Just think of the absurd export/import tax proposals, which began with the introduction in the United States of the import of certain goods from Canada, Mexico, and China starting in April 2025. Politicians and the media in general comment on announcements that are economically nonsensical, to say the least, without so far contributing to a promising scenario for inflation and inflation expectations, nor for economic activity in general or for the stabilization of currencies.

At this point we propose to examine recent developments by means of specific stock and currency indices, for the period between April 22, 2024 and May 30, 2025, recalling that the all-time low occurred on April 24, 2025.

Looking at the data – of daily closing values of selected stock indexes – at first glance, one might be somewhat puzzled by the deviations shown in the chart above. Consistently, we believe that it is worth examining what the recent developments disclose. The data confirm that the leading economy, the U.S. market, is governed by growing fear of instability, whether political, social, revelatory or simply schizophrenic actions and reactions. In particular, we accept the following as plausible:

• The period leading up to Donald J. Trump’s inauguration as president of the United States on January 20, 2025, is characterized by significant disproportions among the various indices in terms of levels and trends.
• The phase following Trump’s recent inauguration is even more volatile than the previous one!
• To be able to assess recent developments, we analyze the highs and lows of each phase. The first phase, which runs from April 22, 2024, to January 17, 2025, shows significant developments from index to index, both in terms of explicit levels and respective trends. The developments speak of significant disparities, both in the medium and in the longer term. The trends of most indices indicate sideways fluctuations. The SPI is the best performing index along with the NASDAQ. However, the two indices have reacted differently to the determinants. The SPI rose by 33.1% mainly due to the attractiveness of the Swiss franc, while the NASDAQ’s performance (+24.3 %) has mainly been driven by technological innovation.

The second phase highlights – so far – President Trump’s actions from January 20, 2025 and May 20, 2025. The chart points to specific factors driving each index. Volatility is significantly more pronounced than in the first phase. In addition, the chart shows greater disparities between the indexes before and after March 2025.

OUTLOOK DETERMINANTS

We believe that at this time there are two main factors determining the outlook. The first factor relates to the danger of an economic recession, both in the United States and in other countries, while the second relates to the loss of the triple-A status of U.S. bonds, which exacerbates fears and the cost of refinancing U.S. debt. In this EMR, we ask ourselves what the relevant consequences are that determin the economic outlook and the possible reactions of equity markets.

The recent developments confirm that President Trump is not known for consistent and relevant policy decisions. As we all know, he has announced high taxes on imports of goods, e.g., from Canada, Mexico and China, and many other countries, and then reduced them one after another. Meanwhile, many of his decrees have been changed or cancelled. The reasons for these changes are the real puzzle, according to which we believe both the economic outlook and the focus on U.S. government bond interest rates will change. These changes are and continue to remain deterministic, as we believe they will change both the economic outlook and the deterministic impact on interest rates and inflation and inflation expectations on the position of government bond rates.

The absurd import tariff interventions by various U.S. trading partners, have shifted the focus on economic growth from domestic activity to international trade, with a devastating impact on domestic bond rates and, in due course, on financial instruments. The contextual fact is that Moody’s, until May 19, 2025, has refused to remove the triple “A” rating from sovereign debt, the last of the so-called Big Three! An ominous signal regarding U.S. sovereign debt. This attitude could be interpreted not only as a significant signal to President Trump himself, but also to his Administration.

In a decision that could affect U.S. and global financial markets, Moody’s has downgraded the credit rating of the United States. The reason is the $36 trillion national debt and the Trump administration’s plans for new tax cuts, which are only partially covered by those for health care, ecological change and social welfare. The absurd interventions in the form of import tariffs by various U.S. trading partners have, in our view, shifted the focus of economic growth from domestic activity to international trade, with a devastating effect on domestic bond yields.

As is well known, the “higher” tariffs have a similar effect to an additional tax and primarily hinder personal consumer spending and, with a time lag, business investment and government spending as well as international trade.

PERSONAL POINT OF VIEW

The Trump administration, so far in 2025, has relied on tariffs of imported goods as a means of economic management. Clearly these costs, must be expected to increase consumer and business prices. Therefore, tariffs are expected to have an impact on overall inflation, primarily impacting, in due time, consumer and business fixed investment spending. In the current forecasting exercise this policy requests the exact quantification of how much consumption and/or investment imports contribute to overall inflation, taking the respective possible actions / reactions by the FED into consideration.

Similarly to the consumption spending impact of tariffs, one ought to assess also the import content of different types of equipment used in the U.S. production process as well as the possible repercussions on and of exchange rates. This due to the fact that domestic markups tend to be smaller for investment goods than for consumer goods, making, as one might assume, the import content of the respective costs much larger.

INVESTMENT CONCLUSIONS

Currently we view the following factors as the primary determinants of a most promising investment outlook:

1. The whereabouts of inflation is and remains the primary determinant for a promising investment approach. We assume that the inflation trend will continue to have a deterministic influence on imports and exports of consumer and capital goods. Furthermore, we assume that prices for capital goods will remain significantly stronger, i.e. deterministic, than prices for consumer goods exports. We have no doubt that our expectations should play a deterministic role in asset allocation.
2. The developments of the trade balance are a further deterministic element of economic activity, particularly regarding consumer and investment.
3. While monetary actions and reactions of the U.S. and foreign Central Banks are generally viewed as the most promising and determining anti-inflation factor, we assume, in the current phase, that the primary means to control inflation and interest rates ought to be a return to “political normalcy” by the US President.
4. What is definitely trend deterministic is a more coherent policy by the U.S. President, via a limitation of interference in the economic and fiscal policy, including more international cooperation, in other words, less America First policy, and more economic interplay.

Our specific assessment continues to speak, at least for Swiss franc investors, of a significant over-exposition to Swiss instruments and the Swiss franc.

Suggestions are welcome.

EMR May 2025

Dear Reader,

BACKGROUND

Before considering the economic effects of the extraordinary events of the 100 days of the Trump administration it is useful to review the politics behind the moves. President Trump is a man in a hurry, because he believes that he was significantly hampered in his first term, 2016 – 2019, and he is aware that the Republican Party is likely to lose its majority in the House of Representatives in the coming midterm elections, less than two years away. The traditional road map or an agreement in tariffs involves many months – sometimes years – of meetings by respective trade representatives, followed by a compromise, that may not satisfy all parties. Based on his limited time frame, President Trump chose to promulgate punitive tariffs and apply them immediately. This has the effect of getting everyone‘s attention and then permits him to scale back the tariffs on trade talks come to a satisfactory conclusion. The most interesting concept was his idea of reciprocal tariffs, whereby he claims that if the exporting county reduces its tariffs on US goods to zero, he will reduce American tariff to zero as well.

There is no assurance that this tariff strategy will work. Most countries seem to agree with customs negotiations. The paradox is that by a significant upheaval in the equity and debt markets – both domestically and overseas, President Trump could arrive at a genuinely free-trade global marketplace much sooner than anyone could have expected. That is the plan. In the meantime, we can expect the volatility to continue at rates we have not seen in a generation.

In early May 2025, President Trump, once again, backtracked on his earlier decision to tax several countries, announcing a 90-day suspension of his decision to introduce universal tariffs designed to affect goods and services from more than 150 countries. However, he left unchanged, the previously introduced 25 percent duties on steel and aluminum from Europe and lowered duties on goods and services exported from Europe to 10 percent. At the same time, he increased duties to 145% on goods from China, but excluding smartphones and computers. However, these tariffs have recently been reduced again to 30% and a 90-day moratorium has been agreed. China reduced its tariffs from the announced 115% to 10%.

The announcements of the above-mentioned, contradictorily applied measures, have had and continue to have a major impact on equity markets, including the US itself. The recent interventions by the US president have had a deterministic impact and, are likely to continue to reduce total factor productivity (TFP). We emphasize this aspect as currently it is not openly discussed, although in economics several factors can be identified as boosters of productivity, defined as output per hour.

In today´s context we find that labor productivity does not rise over time because workers do not have more and/or enough capital to work with, nor due to lacking and/or costly supply of imported goods and services, as much as due to unilateral and as much as due to one-sided political perilous decisions. In publicly made comments we find no clear explanation of the negative repercussions of the policy decisions by President Trump on US domestic economic activity. Therefore, let us stress and keep in mind that the policy is determined both by domestic and foreign factors; impacting economic growth via a specific lack of “induced costly” capital. In addition, US productivity does not grow over time, solely or primarily due to lacking and costly imports, but due to higher “home-made” taxation.

A further aspect, rather difficult to be assessed, concerns the impact of negative repercussions on productivity as a consequence of Trump’s taxation of compulsory imports of specific goods. Contextually, we find no assessment of the negative repercussions on domestic economic activity, and particularly on productivity. These developments do not portend a flamboyant economic recovery in in the coming quarters.

What do the daily closing data of selected equity indexes, portrayed in the following Chart, tell us about the markets´ valuations of the current political and economic outlook? Any suggestions?

The chart starts one day prior to the U.S. presidential elections of November 5, 2024. Examining closely the respective ups and downs of the shown indexes, expressed in the respective currencies and indexed to 1 on October 2024, the following may be deduced:

a) Overall, the ups and downs follow similar movements, with varying shorter-term disparities.

b) The DAX-index is shown as the overall outperformer.

c) The overall underperformers have been the NIKKEI index, followed by the NASDAQ and the SX5P indices. The disparities stress the incongruent sectoral content of each index!

d) The only index that did not lose ground, since the beginning of the period under consideration, has been the DAX-Index. De facto it is the only index that did not lose ground during the period following the Trump’s Tax-announcements.

The differential growth rates of the studied indices are astonishing indeed and at the same time quite problematic. Do these differences indicate an important and peculiar functioning of the individual national indices?

OUTLOOK

This raises the question of how to respond to the measures and decisions that are likely to be taken by President Trump in light of the unstable socio-economic situation. Would it not be much more promising to analyze the reactions of the various markets in accordance with the political and social influences of total factor productivity (TFP)? In the current context, these influences call on us to focus on innovative investments. While the focus in the US is on controlling foreign trade, we in Europe, and particularly in Switzerland, should focus on the use of ICT (information and communication technology), which contributes significantly more to labor productivity through capital deepening. We consider the focus on “taxes” to be a political stance that is unlikely to be successful, as it does not promote productivity through capital deepening. The information we gather from relevant US commentary suggests that foreign investment in the US is increasing, while it is rather difficult to find employers. The medium-term outlook does not seem to support the US government’s tax policy.

Given this situation, we are leaning toward an investment approach that under-weights US equities in favor of domestic equities and, selectively, equities from Eu-rope and Asia.

In terms of currencies, we are pursuing an approach with an overweight position in the Swiss franc and a slightly lower exposure to the euro and pound sterling. We also expect volatility to remain very high, depending on the unpredictable policies of the White House.

Suggestions are welcome.

EMR April 2025

Dear Reader

SETTING

In our EMR March 2025, we dealt with the inappropriate stance taken by President Trump, imposing new tariffs on imports from Canada, Mexico and China, although, as announced in the meantime, these may not be implemented, as announced! In the present EMR, we set the focus on the implications of the measures, i.e. the impacts on economic activity, in order to make appropriate financial investment decisions. Of particular interest here are the economic laws, according to which demand falls or rises when the price of a particular resource, product or commodity changes. On the supply side, the opposite effect is postulated.

Contextually, we ask ourselves what the implications might be regarding the supply and/or the demand side. Fact is, that the demand principle states that demand falls when the price of a particular resource, product or commodity rises. Coherently, on the other hand, demand increases when prices fall. Taking the publicly known decree of the US government to levy specific taxes on the countries quoted in the above paragraph, we assume that prices for the specific goods will rise in the country levying the tax, the USA, while supply is likely to remain stable or even be reduced.

In the meantime, President Trump has signaled the reversal of his “logic” by announcing that he will suspend tariffs against Mexico from March 7, 2025. Despite this “glimmer of hope”, the US President announced two more tariff hikes to begin in April.

When reviewing the “politically induced” price announcements, we should not ignore the respective impacts on corporate fixed investment and consumer spending in the country levying the taxes. Specific reactions can be alleged in the following chart of selected equity indices. For comparison purposes, we have indexed each index to 1 as of January 2, 2020. We kindly ask the reader to take note that the indices are denominated in the respective country’s currency.

What does the chart highlight, any suggestion? To improve comparability let us set the focus on the following determinants:

• 2020: Outbreak of Covid.
• 2021: Signs of recovery, climate change, competition between China and USA.
• 2022: Start of the Russian aggression against Ukraine.
• 2023: End of Covid.
• 2024: US tax impositions to Canada. Mexico and China.
• 2025: Actions and reactions to tax increases, and particularly the nomination of Stephen Miran as Chairman of the National Economic Council (in charge since March 2025).

We ask ourselves, which of the above mentioned factors might or ought to be used while forecasting the whereabouts in the ongoing year 2025? Well, taking the multiple explanations into serious consideratation we come to the following conclusions:

The example concerning Canada, Mexico and China is really helpful, as an inflation determinant both in the tax-levied countries as well as the leving country itself, the USA.

Consequently, we view the path of the growth oulook or exports f. impoorts of goods and services as a highly deterministic factor. The growth rate e.g. of Swiss exports has exceeded that of imports for almost the entire period, while accompanied by persistent volatility. The growth rate of US imports has increasingly outpaced that of US exports, especially in the last 10 years.

In addition, the different trend developments of the respective currencies should also be analyzed more closely.

At this point, one may ask what these trend differentials mean for interest rates as well as currency management of the respective monetary authorities?

EXPECTATIONS

We believe that the year 2025 will be dominated by recessionary developments. Why, you may ask? We present our best guesses below.

Without a turnaround in the taxation of raw material imports by the USA, it must be assumed that there will not be significant economic growth improvement in the tax imposing country, if the price of “primary raw materials” continues to be politically increased. Higher “import costs” lead both to higher inflation in the country levying the tax and consequently also to a slowdown in consumer and investment spending.

Furthermore, we note that the US administration has highlighted a plan to weaken the USD, for countries with high USD currency reserves, such as Switzerland. This plan is indeed threatening, as it determines both the economic growth path and the function of the USD as a reference currency. Its main function ought to improve financial stability by allowing investors, traders and governments to compare and assess the value of currencies, while promoting international trade and thus economic growth both in the country where the tax is levied and, in the country, levying the tax. The negative impact of Trump’s “America first” stance is expected to make the economic environment even more difficult, making it really hard to determine the right value of goods and services.

CONSEQUENTIAL PERSPECTIVE

Clear signs of disagreement with the White House’s “official” position were given by the FED, which kept interest rates unchanged (March 19, 2025) at 4.25% to 4.5%, and the SNB which – on March 20, 2025 – reduced the interest rate by 0.5% to 0.25%, indicating the approaching end of 0% for Switzerland!

A further indication of incongruent development might be deduced from the relationships of the gold price in USD and/or the Euro respectively the Swiss Franc in USD, as shown in the following chart, clearly stressing the impact of Covid and of the Russian invasion of Ukraine. What about the price of gold as an indicator of coming change?

We wonder what the implications of “America First” will be. Considering that politicians are calling the shots, a first indication of investors’ deterministic interest is that they may continue to seek “safety” regardless of Mr. Trump’s jargon and absurd impositions – as of recently. In other words, they will continue to be driven by safety. This leads to a high level of interest in gold exposure driving the gold price ever higher, as the chart above shows.

Other highly deterministic, emerging factors are the changes in export and import prices depending on the US government’s tax revenues and the corresponding impact on economic activity, i.e. primarily on corporate fixed investment and consumer spending. The respective effects on economic activity, consumer and investment spending and international trade cannot yet be quantified with sufficient accuracy. We fear that the learning effect of politicians may be slow to materialize. So the real question is: How can a potential financial crisis be contained or prevented?

In such an environment, we tend to focus primarily on our own domestic market and our own currency.

Suggestions are welcome.

EMR March 2025

Dear Reader

In addition to the frightening Russian aggression against Ukraine, President Trump issued three executive orders on 1 February 2025. With these, he instructed the United States to impose new tariffs on imports, all of which are due to come into force on 4 February 2025:

• Canada (25%), to combat the flow of illegal drugs and illegal migrants across the northern border.
• Mexico (25%) to tackle a similar flow of illegal drugs and illegal migrants across the southern border, and
• China (10%), um gegen die Lieferkette für synthetische Opioide in der Volksrepublik China vorzugehen.

One exception is that Canada’s tariffs will be capped at 10% on fossil fuels. The orders provide that the President may raise tariffs further if Canada, Mexico and China retaliate. The resulting tariffs will affect energy, metals, chips and pharmaceuticals. The threat has been made to impose tariffs on other countries as well. This policy represents a very peculiar, unprecedented international ‘trade war’.

The repercussions on politics and the worldwide economy were not long in coming. An increasing number of analysts is aware that a prolonged trade war will have negative consequences, not solely for the addressed countries, but also other countries as well. What can be affirmed at this point in time is that the imposition of tariffs will potentially lead to higher costs, disrupted supply chains and a rather unquantifiable loss of jobs, both in the affected countries as well as in the imposing country, the USA. Based on our long-standing experience, we must assume that tariffs of this magnitude will, in due course, make both imports and domestically produced goods more expensive. The inflationary process continues! It is indeed surprising that President Trump himself acknowledged that his policy could have negative consequences for American consumers. Wow! We can ask the pertinent question: why did he do it anyway?

Fact is, that shortly after Trump´s announcement Canada announced retaliatory 25% tariffs on US goods. This reaction confirms the assumption that imposing tariffs on most important trading partners calls for retaliation. In the meantime, most analysts as well as the large public have started to argue that tariffs will, in due time lead to potentially much higher costs, disrupted supply chains and the loss of jobs. One may ask: Should this be the main goal of the leader of the world’s largest economy? This setting does not speak well for national and international investments. Fact is that the impending changes in the economic, social and political environment speak for lower economic growth, calling into action Central Bankers. Since the presidential announcements on the imposition of tariffs they face a dilemma between fighting inflation or propelling economic activity. In our previous EMRs we have argued that this is a tricky decisional context, we have never experienced before i.e. either fighting inflation independent from the outcome of economic activity or reducing the cost of investments in order to propel economic activity. This setting is highly difficult to quantify in terms of a promising investment attitude.

As investors, we are faced with a scenario contradicting the longstanding attitude of central bankers, i.e. to keep inflation low and stable. Now, the outlook requires taking into account higher costs, representing a reversal of the policy in place since World War II, when a specific goal of the monetary authorities was a sustained attempt to reduce trade barriers – between trading partners – in order to promote growth and prosperity. Recent developments speak of a dramatic reversal, the consequences of which are, at present, difficult to quantify with acceptable certainty.

DETERMINISTIC ENVIRONMENT

At this crossing, let us repeat that the current outlook is rather difficult and tricky to quantify with sufficient accuracy, and this preponderantly due to the attitude of President Trump´s “America First” policy. What has to be congruently taken into serious consideration is the possible retaliation from Canada, Mexico or China and other nations. They will likely result in even higher tariffs. At the same time, even the promoter of higher costs will, in due time, experience adverse consequences for their consumers! Let us recall that “Ever since World War II, the key development in trade policy has been the very gradual but persistent reduction in trade barriers, interrupted only by brief spats among major trading partners”. But with Trump’s inauguration, the largest economy in the world is slated to start imposing large tariffs on its most important trading partners, a policy decision that has begun to lead to reprisals promoting a surge in trade protectionism around the world. This new setting points clearly to negative repercussions on consumer and investment spending as well as international trade. In economics it is generally accepted that tariffs make both imports and domestically produced goods more expensive. In due course import prices must be expected to increase the rate of inflation both as a consequence of rising imports as well, in due course of domestically produced goods.

The expected rise of inflation calls for Central Banks action and reaction. At this juncture, as investors, we have to ask ourselves which steps will e.g. the FED take to mitigate the negative impacts both on the domestic as well as the foreign trade prospects.

PERTINENT ASSESSMENT FOR 2025

In line with the scenario outlined above, we expect higher inflation rates at least in the short to medium term, both in the US and in most advanced economies. A tricky and congruent deterministic effect will concern the respective actions/reactions of the respective monetary authorities.

Assuming, as most analysts do, that Central Bankers might continue to fight inflation through interest rate adjustments, we all will be confronted with sizeable repercussions on the respective currencies. Deterministic factors, not easily and adequately quantifiable with sufficient precision, refer to the impacts of Trump’s tariff impositions and the corresponding actions and reactions of “supplier countries.” In context, let us emphasize that in a contextual commentary, the Wall Street Journal called the aggressive tariff policy “the stupidest trade war in history”.

Fact is that supplier countries, targeted by the Trumpian tariffs must (a) either try to keep their export prices unchanged, i.e., accept a reduction in consistent profits, or (b) defend their share of exported volumes by accepting both reduced prices and reduced unit profit margins.

No sooner did the threat of worldwide tariffs sink in – in normal Trumpian negotiation style – than President Trump announced that the US government will match any tariffs charged by countries for American imports, with the promise that, if the counties concerned reduced the tariff on American import goods to zero, the United States would abolish their tariffs, also. This offers the prospect of tariff-free world, apart from China, Canada and Mexico. If those three countries complied with the demands against illicit drug importation and stemming the flow of illegal migrants there is implied the prospect of tariff relief thee, also.

CURRENT EXPECATIONS

What can be inferred from the above assessment speaks of unprecedented forecasting difficulties, due to the perception of an ongoing economic i.e. trade e monetary determined environment, be it due to the continuing Russian war against Ukraine as well as the Trumpian tariffs war. Investors face a difficult environment speaking of limited possibilities of diversification between countries as well as currencies.

As Swiss investors, we tend to take the following approach:

Maintain a greater exposure to the domestic market. In other words, we fear the potential for large currency losses.

Maintaining a high level of exposure to sectors such as technology and the financial industry, where we enjoy a certain advantage, regardless of “foreign” political influences. Certainly, at this crossroads we cannot quantify with sufficient certainty what the new US administration will de facto undertake, due to its focus of its “America First” policy.

In the current environment we focalize our currency exposure on the CHF, as we are not able to anticipate the actions and reactions of the current U.S. administration, as well as the reaction of Japan and European economies. The European Central Bank’s policy also remains difficult to assess.

Suggestions are welcome.

EMR February 2025

Dear Reader

To some extent, we are all aware of the impact of election years, not only in relation to the United States, but also in European markets and Japan. Consequently, we consider the current environment to be particularly challenging in terms of the short to medium-term outlook for equity markets.

The past two rounds of the U.S. presidential election have been truly surprising. Donald Trump played and continues to play a decisive role, not only for the US stock market, but also for other stock markets.

In the present EMR, we will focus on the performance of stock indices that we consider particularly important. In the chart below the respective indices are indexed to January 3, 2020, to make comparability clear and understandable.

The graphical representation of the selected share indices displays two similar developments:

• The first rises from the beginning of January 2020 to around the end of 2021 / beginning of 2022 while
• The second rises from late 2022 / early 2023 to late 2024 / early 2025.
• The specific periods of growth/correction require special attention, as the corresponding rates of change vary greatly from index to index.

Contextually we can ask ourselves how the indices might behave in 2025. From a trend perspective, the performance of the individual indices – in the respective reference currency – is quite similar. The commitment to technology is really remarkable. It is noticeable that both the uptrends and the short-term corrections correspond relatively well. The respective shares of technology content vary considerably over time. The worst performing indices are the FTSE100 and the SPI. Overall, the performance of the European indices is the worst. A consistent comparison should also focus on the respective currency fluctuations, as the rises and falls are considerable in each case.

At this point in time we believe that the economic performance of individual countries is difficult to assess with significant precision, when compared to the outlook concerning the United States. Particularly tricky and difficult to assess – is and will be – the impact of highly deterministic tech stocks in relation to business fixed investment and consumer spending.

One specific and deterministic impact, which goes mostly unnoticed, concerns the trend change in productivity. An almost unnoticed “fact” is that U.S. entrepreneurs invest more in the future than European and/or Asian entrepreneurs. What does this attitude imply about investment allocation? As Swiss investors, we continue to prefer CHF investments over EUR and USD investments. However, a thorny issue concerns the Trump administration’s “heralded” America First policy, which calls for increasing and maintaining investments in the United States. Why, one must ask? Well, the repatriation of production lines is already visible in imports of goods and services, for example, from China.

We have been told time and again, that Central Banks should further cut interest rates in order to stimulate economic activity. In our most recent economic reports, we somewhat disagreed with these requests and expectations. Our assumption has been, and continues to assume, that the measures taken by central banks will help determine the direction of the economy and consequently to some extend also the performance of the stock markets. At this juncture, we kindly ask the reader to take a closer look at the chart above. What we are after is why are the reactions, e.g. of the indices expressed in EUR, so significant different over the both examined periods of growth and contraction? Contextually we ask ourselves also in connection with this, we also ask what we can expect for the year 2025 with regard to the DAX, the CAC40 and the FTSE100 compared to the American and Swiss indices.

At the same time, we are asking ourselves how the central banks’ interest rate measures are curbing inflation. However, the impact of inflation on wages is a constant puzzle. We fondly remember the great economist Milton Friedman’s statement of so many years ago that wages always follow inflation. The data for the period from 2021 to today speaks the language of Friedman, doesn’t it?

SUMMING UP. WHAT DO WE EXPECT FOR 2025

Given the political, economic and social environment, the outlook for 2025 looks like a “very complicated and rather difficult task,” does it not? Are we still of the opinion that inflation is the main enemy of policymakers and/or investors and therefore should be eliminated or at least contained, or do we begin to look at which economic sectors promise better results?

In the event that the authorities remain focused on fighting inflation through interest rate management, the outlook for returns remains rather subdued. Why, one may ask? In times of war, the continuing Russian invasion of Ukraine, and similarly absurd developments in the Middle East, one might wonder how changes in interest rates might reduce the price of crude oil, especially in Europe? We should not forget that two of Europe’s largest economies (France and Germany) are going through a very tangled political situation, namely a serious lack of economic, social and political leadership. We view this context as quite problematic, if not dangerous.

Should investors start focusing on sectors such as technology, and financial industries, as has been and should continue to be the case in the US, then the outlook might significantly “brighten”. Certainly, at this crossroads we cannot predict what the new US administration will really undertake, as the possibility of an America First policy is at the forefront.

Despite all the forecasting difficulties in timing, as Swiss franc investors. we prefer our home market, primarily for currency reasons. We assume that the CHF will continue to be in high demand.

International diversification speaks, in line with the technological developments once again for investment in the USA.

Regarding the EUR and GBP exposures, we persist in being somewhat concerned about the political uncertainties especially in France and Germany.

Suggestions are welcome.