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Change is in the Air

EMR November 2023

Dear Reader

TOUGH OUTLOOK

It is well known that the IMF has issued a specific warning, namely that “financing the fight against climate change, only by means of incentives, seriously risks putting states” budgets in crisis. The IMF warning makes explicit reference to competition in the context of the energy transition campaign, and in particular to the U.S. Inflation Reduction Act (IRA), of August 16, 2022, which in hindsight has much more to do with fighting against inflation than with climate change.

This very important caveat leads us to examine the relationships between inflation, interest rates, and stock indices to be able to present a likely or possible outcome in terms of investment diversification. The following chart indicates significant differences.

Labeling: DJIA = Dow Jones Index; iS = 3 months interest rates; iL= 10y Govt Bond yields; Pdot = Consumer Prices; ls = left scale, rs = right scale.

OUR ASSESSMENT

The graph based on long-term series indicates a complicated period. We would like to highlight that the outlook continues to be driven by a high degree of uncertainty and therefore it is very complex and difficult to define precisely, especially in the short to medium term. Monetary authorities remain primarily concerned with restoring price stability, while in our view there should be a much greater focus on international trade and the corresponding impact on consumption and investment spending (private and public). Recent actions and reactions by governments do not seem to have been very appropriate, do they? Against the background of the change in sourcing of electronic products (chips and their manufacturing content), we are called upon to carefully analyze the “cost-benefit” ratio of the threat of protectionism, especially also because of Russian aggression in Ukraine and fratricidal wars in the Middle East and elsewhere. Moreover, we should evaluate this complicated scenario not only against the backdrop of China’s loss of productive power, but also against the backdrop of the expected and much-needed turn in favor of free market economies. Recent real GDP data in the U.S. (Q3 2023) clearly point in this direction. Important issues in this context are undoubtedly the “subsidy war” related to the Inflation Reduction Act (IRA) and the rather worrying rise of government debt to unsustainable levels, with perhaps one particular exception, that of Switzerland. Compared to the EU countries and the United States, the relationship in Switzerland is rather limited.

In this context, we ask ourselves what this reversal towards “domestic production” might imly for international investment diversification. Any suggestions?

Dramatic changes in the production process are in the air. We expect an increasing focus on domestic content, especially in the technological environment. However, this trend-reversal is not expected to evolve at high speed. This will be a determining factor in the long run. A second aspect we see will be the found in the evolution of labor markets, a change in trend from production offshoring to relocation to the local markets. Although this change may not be felt in the short term, it will have an impact on employment, especially in the field of technology. There is no doubt in our mind that international trade can modify the expectations of economic growth of those countries that are willing and able to finance new investment factories. Moreover, free trade will have to, increasingly, take into account the fact that it will move from being a promoter of the economy into second position, after local production. The well-known and much-vaunted virtues of global free trade in capital and goods as engines of economic growth will have to be consistently changed and adapted.

DETERMINISTIC RELOCATION

In the context of the expected shift in production, we focus on the following three factors, which we consider to be highly deterministic means of profitable investment allocation:

1. The relocation of production from abroad to the home markets or shores.

2. The deterministic importance of the availability of domestic inputs relative to imported inputs; and

3. The availability of domestic developped and produced technologies.

Recently, we have witnessed a deterministic revision of the importance of domestic versus imported production. Costs and benefits are more and more evaluated from the perspective of increasing protectionist interventions. In the international competition of free markets, the advantages and disadvantages are increasingly evaluated dynamically rather than predominantly statically. These shifts are increasingly seen as a reassessment of the concept “cheap” is no longer as deterministic as “on-time availability.”

A second aspect relates to the “content” of the means of production. The “low-cost production countries” began to raise prices and/or introduce specific costs. Production in China was defined as profitable compared to local production. In the context of the IRA mentioned above, the U.S. determined that production quotas were essential because computers could not function as expected without certain components that were only available in the U.S. The IRA was a major step in this direction.

The third aspect, which may be the most determinative, relates to the availability of domestically developed and produced technologies, i.e. an increased focus on domestic production. In terms of economic activity, we expect a significant impact on consumption and investment spending as we face, in a sense, a resurgence of protectionism. This trend is clearly visible with regard to the production of electric vehicles, but not exclusively so.

IMPACTS ON INVESTMENT POLICY

Currently, investors expect further, moderate, interest rate hikes as well as further exchange rate adjustments. As Swiss investors with a relatively high home bias, we continue to expect the CHF to outperform the EUR, USD and GBP as well as the YEN.

Economic activity is likely to remain subdued despite recent interest rate hikes, mainly driven by consumer spending. In addition, we are concerned about the weakness of the European economy, mainly due to German weakness, and the ongoing difficulties in China.

Nevertheless, stagflation is currently assumed. The global economy is suffering from a weak economic outlook and inflation that is difficult to control, especially through further interest rate hikes. Moreover, a growing number of analysts are asking: How can inflation be reduced, primarily by further interest rate hikes? Our answer, as expressed in previous EMRs, requires a rapid reduction in certain imports – especially crude oil and gas and an increase in domestic production of essential goods. The arguments outlined are our main reasons for focusing on investments in our local market, especially into account the expected and feared currency changes and also the technological developments triggered by an increasing focus on domestic activities.

Although the impact of political changes should mainly affect the medium to long-term outlook, we believe it will be imperative to closely monitor any feared economic recession. At this point in time, our outlook is also determined by the outcome of the war between Russia and Ukraine.

Behind the recent political, economic and social developments, which speak of a destructive competition, there seems to be an increasingly negative future, the so-called “chip war” (between the United States, China (including Taiwan and other manufacturers not only from Asia, but also from Europe). A further example is the electric car market. The graph on interest rate differentials points to an imminent reversal, doesn’t it?

Comments are welcome.

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It doesn’t have to be that way

EMR October 2023

Dear Reader

CURRENT SETTING

Assessing the main determinants of economic developments has become extremely difficult, both in terms of duration and cyclical importance. As repeatedly pointed out in previous EMRs, we would like to state once again that the available long-term data, e.g., those on U.S. GDP, really seem to support our view that the outlook is not primarily as expressed by main stream analysts.

In order to explain what we mean; we kindly ask the reader to examine the following chart and accompanying table of US real Gross Domestic Product for the period 1947 to 2023. What we discover is puzzling indeed and at the same time highly revealing.

The chart on the levels of the major components of real GDP show the following:

1. Real consumer spending has been sitting, all along, in the driver`s seat, although its contribution to overall growth activity points to a slightly less pronounced growth performance, as compared to overall GDP. Contextually shouldn`t we speak of some weakness?

2. All other components seem to haven`t contributed much to overall economic activity; representing an astonishing development!

From the chart it can be deduced that the largest contribution to long-term GDP growth resides with consumer spending. Nevertheless, the chart points to an overtime less important average contribution. Overtime Consumer spending has tended to be less pronounced, that is, less propulsive. The divarication grew over-time. The growth differential is evident in the graph, while all other components of GDP seem to make only marginal contributions. Whether this assessment is “right” or “wrong” as a measure of the respective levels is at this time the appropriate question, is it not?

At this crossing we ask ourselves what this analysis implies both for the short as well as the longer-term outlook. Is the “level-comparison” the appropriate measure or are there other ways to assess the outlook?

For simplicity let us define the various variables in the Chart and Table: GDP stands for Gross Domestic Product. C for Consumer Spending, I for Investments, X for Export, M for Imports, and G for government Spending.

In US real GDP Table 12

Examining the chart and the table on US GDP & Components over the period since 1947, we wonder which component of U.S. GDP has really contributed most to overall growth? What can be inferred – both from the chart and the table – regarding the specific longer-term as well as shorter-term developments, in connection with the implemented policies on a worldwide scale?

Which component of GDP ought to get specific attention regarding the near-term outlook, most specifically in conjunction with monetary finetuning. A prima vista, on a level basis, as shown above, consumer spending speaks a clear language, doesn´t it? Nevertheless, we ask ourselves: Is this a correct way to analyze the most probable outcome, or are there other more important factors that ought to be taken into serious consideration? Yes we do, there are other telling variables. Interpreting the official data on US GDP and its main components requires a special focus of the developments of the international data set and particularly of imports and significanltly less so towards conumer spending. The calculated growth developments show, for the period since 1947 to an overall growth ratte of 6138 percent; 752.2 percent since 1980, 102.2 percent since 2000, and 14.3 percent since 2020.

The highest growth rates are to be found in imports and exports, followed by consumer spending! Nevertheless the policy approach remains intrinsically focused on further interest rate increases to reduce demand pressures, and with it inflation. Funny assumption is`t it? Foreign trade stands signficantly more for supply growth determinants of future policy developments and targets. We wonder why the focus continues to be set on local demand?

We persist in disagreeing with the widespread public assessment, that inflation can be managed via demand constraints. Recent developments clearly speak of rising electricity costs, rising transportation costs, rising gas prices, rising health care and insurance costs, and also a rising need to re-patriate some production lines (primarily in the technological field), etc., all determinants that focus mostly on domestic policies while inflation continues to remain primarily supply side determined.

EXPECTATIONS

In this intricate period, our scenario remains mainly determined by uncer-tainty and is therefore difficult to be implemented especially in the short to medium term. Monetary authorities are mainly concerned with restoring price stability.

INVESTMENT POLICY

At this time, investors expect further interest rate hikes as well as further exchange rate adjustments. As Swiss investors, with a relatively high home bias, we continue to expect the CHF to outperform the EUR and USD. In addition, we are concerned about the weakness of the European economy, which is largely due to German weakness, and the ongoing difficulties in China.

Nevertheless, the current assumption, concerns stagflation. The global economy is suffering from a weak economic outlook and inflation that is difficult to control, especially by means of rising and rising interest rates. A growing number of analysts are asking themselves how inflation can be re-duced primarily on the basis of further interest rate increases? Our answer, as also expressed in previous EMRs, requires a rapid reduction in specific imports – especially oil and gas – and an increase in domestic production of vital goods. The expressed arguments are our main reasons to set the main focus on investment in our local market, especially taking into account ex-pected-feared currency changes and, also, the technological developments that will be triggered by an increasing focus on domestic activities.

Although the impact of policy changes might affect mainly the medium- to long-term perspectives, we believe that it will mandatory to monitor a feared economic recession. At this stage, our outlook continues to be de-termined also by the outcome of Russia’s war with Ukraine.

Comments are welcome.

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The Buridan Donkey

EMR September 2023

Dear Reader

What has the “Buridan Donkey Paradox” to do with today`s economic assessments? Well, it stands for “when choosing not to choose becomes a bad choice”. It is a figure of speech referring to someone who, when faced with two equally valuable alternatives, does not make up his mind to choose one of them.

Examining the current investment setting, we are faced with an increasingly intricate and highly deterministic policy choice. Should we analyze the current outlook primarily from the demand side or the supply side? The public debate is undoubtedly preponderantly focused on the demand side. Even representatives of Central Banks overwhelmingly favor the demand-side approach. The sequence of interest rate hikes undertaken since mid-2022 speaks volumes, doesn`t it? The thorniest question to be answered, regarding the current “policy setting”, concerns expectations of an imminent adaptation, or possibly a reversal of monetary policy actions in order to avoid a feared economic recession?

On the supply side, the argument points to a growing need to explore new avenues of corporate finance. The requests are rather independent from the availability of liquidity or further monetary actions, while they increasingly point to new and growing needs of a changing economic environment.

So far, the outcome of this rather difficult assessment remains focused, preponderantly on a further reduction of the rate of inflation and, on the other hand, on hopes for an upswing in economic activity, which should result, in due course, also in further significant currency adjustments.

The dilemma can be implicitly derived from the chart of Swiss and U.S. inflation. The respective series are indexed to 1 for each specific cycle trough of US real GDP. The series portrayed in the chart show that, so far in the current cycle, inflation has fared better than for the cycles beginning in July 1980 as well as November 1970 and also March 1975.

CAUSES OF INFLATION

We cannot fully subscribe to the widely held view that the current economic setting ought to be primordially analyzed as a function of the “demand side” of the economy. Clearly, both consumer spending and business fixed investment as well as the respective balances of trade have required the known actions/reactions by the monetary authorities.

It is a known fact that both the Covid pandemic as well as the Russian war in the Ukraine have had, and continue to have a significant impact on the rate of inflation, economic activity as well as on currencies. We believe that these deterministic factors can hardly be managed solely by means of higher interest rates. In addition, the impact on international trade, as well as, the reorganization of economic transfer channels is hardly manageable by ever-higher interest rates.

We are not alone in assuming that inflation could persist regardless of monetary policy measures, and not only because of actions and reactions by Western economies. There are also increasingly explicit negative effects in the Chinese economy.

We assume that the monetary authorities ought not to be expected to remain prisoners of the metaphor of the Buridan Donkey. They will have to take the recessionary dangers into consideration. In other words, we would argue that, from now on, interest rate increases ought to be more moderate and coordinated with measures supporting a revival of economic activity. We assume that before long the focus will increasingly be on measures of revitalization of the domestic economic activity, while reducing the dependence on centralist states.

What can be argued at this time is, that a policy focused primarily on the demand side, will somehow yield to supply side economic measures. In other words, the focus will gradually be set on wider range of economic determinants, like domestic economic activity, international trade competitiveness as well on economic policy coordination, focusing both on the demand as well as on the supply side. Therefore, the future policy focus ought to be both on the needs and requirements of the production sectors in order to prevent shortages in the supply of goods and services.

EXPECTATIONS

The above-described environment speaks of a high level of uncertainty. The combination of monetary finetuning with a flexible supply management will require coordination both domestically as well as internationally, i.e., among the free economic countries.

EFFECTS ON INVESTMENT POLICY

Our scenario might be viewed as intricate and difficult to be implemented, especially over the short-to-medium-term horizon.

However, assuming that the domestic activity might stand to profit most, this would imply a specific focus on the domestic market, also taking into account the possible currency swings, and most importantly also technological change, induced by an increasing focus on domestic independence.

While the impact of the policy change will primarily determine the medium-to-long term outlook, we deem it necessary in order to prevent a collapse in the rate of economic growth, which we forecast as mostly driven by domestic activities. The outlook will also continue to be impacted by the outcome of Russia`s war against Ukraine.

Comments are welcome.

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Evolutionary leadership

EMR July 2023

Dear Reader,

A detailed and specific assessment of the current global economic environment remains a major challenge, especially given the difficulties of reliable forecasting, which still has to rely on lagged data sets. In this context, two causes are particularly instructive. The first concerns visible anti-Americanism versus growing support for China and Russia, in particular. This can be explained by the specific commitments of various governments and also by the systematic support in favor of global corporations. In other words, there is a clear trend toward a left-wing political positioning that is in opposition to the democratic economic concept of free trade. The second reason also argues for the end of a politically conditioned focus on cheap imports. Considerations in this regard are clearly to be found in the reversal of the world situation that has taken place since the end of the Second World War.

A concrete assessment of the near future remains a cause for great concern. The main arguments for our rather pessimistic view of the current situation are to be seen as consequences of the financial crisis of 2008-2009 and the Covid 19 pandemic, which highlighted the fragility of supply chains. These developments persist in being mainly politically motivated and not so much to do with economic constraints. In addition, fears of recession were and are seen as a consequence of the Russian military’s invasion of Ukraine. The Russian invasion of Ukraine has shown everyone, how vulnerable the risk of overdependence on undemocratic regimes is. These developments call for a new industrial strategy, especially in the area of technological economic innovation. This setting is due in particular to the relative commitments and systematic support of the respective governments for globally active companies. In other words, there is a visible and discernible trend toward a left-wing political stance as opposed to a democratic, free-trade approach to entrepreneurship.

From the current overview it can be deduced that a new industrial structure is required, taking into account geopolitical needs and requirements. The promotion or punishment of companies should not be the task of politicians, as is implicitly the case in “dirigiste” states. In general, and especially in the area of “private enterprise”, which is of particular interest to us, the transfer of sensitive technologies to countries with hostile regimes such as Russia and China should no longer be so strongly encouraged.

THE CURRENT FRAMEWORK

The originally internal slogan from the 1992 Clinton campaign sums it up: “It’s the economy, stupid”. While the focus is increasingly on a modern and innovative industrial strategy, repatriation is currently a very hot topic. It is about maintaining and expanding domestic production lines, especially in the field of new technologies, in harmony with nature and the environment. Therefore, what is necessary and required, is a shift from public to private investment, i.e., a de facto “repatriation” of the production of strategic goods and services.

Focusing on economic growth is no longer sufficient. Rather, it is imperative to focus dynamically and continuously on the core areas of the economy. This assumption speaks of a trend reversal towards a newer innovation capability. Another feature implicitly calling for a trend reversal, points to the significant economic impact of the failure of “economic integration and cooperation” in the free world. This due to the fact that it has not made countries more peaceful and cooperative. In this context, we again find two relevant explanations. Primarily, European anti-Americanism, and secondly, China’s policy of continuing to subsidize various aspects of the economy, without ever considering the impact on other nations. This behavior is called “erosion of competitiveness” and is usually a determining factor in specific sectors of the economy. These tendencies are particularly evident in the Russian invasion of Ukraine.

Another aspect that ought not be underestimated concerns the rise of individually feared, politically motivated interdependencies in supply chains not only for semiconductors but increasingly also for medical devices; all interdependencies that might be useful for geopolitical domination, including the mastering of inequality. The interdependencies we have witnessed in the recent past are not very helpful in drawing concrete conclusions about the future course of economic activity and, by extension, profitable investment policies.

INVESTMENT APPROACH

Even if the above-mentioned difficulties are not exhaustively listed, it is necessary, in due time, to review the criteria for future developments of economic activity, as they may concern, among others:

  • the policy of regressive tax cuts,
  • the reduction of public investment,
  • the reorganization of corporate focus,
  • the possible reversal of corporate concentration and
  • the management of domestic and foreign interest rates.

IMPLICATIONS FOR INVESTMENT POLICY

If our analysis of the current situation is accurate and credible, then the near future may be characterized by a much stronger sectoral bias than has been the case in the recent past; with an emphasis on country selection. Therefore, it is not a “domestic bias” versus a “foreign bias” but a “sectoral bias” that should be the determinant and motivating factor. A promising investment policy should therefore focus more on selecting the most prospective sectors of the economy. This approach could be called “crowding out public investment.” In other words, the future focus should be primarily on private investment, even though we may have to deal with widespread anti-entrepreneurial attitudes in the media.

Comments are welcome.

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Swiss Environment

EMR June 2023

Dear Reader,

Due to the recent economic turmoil and diverging developments in the equity and foreign exchange markets, the economic environment in Switzerland, as in most other democratic countries, requires special attention. According to the latest press release of SECO (State Secretariat for Economic Affairs) of 30.05.2023, the economy is not yet in a recession compared to e.g. Germany. At the same time, Seco forecasts modest growth for 2023 and 2024, albeit at lower growth rates. The available data indicate a non-negligible economic resilience. The difficult international environment has slowed both manufacturing output and exports. Domestic demand, on the other hand, grew robustly, despite rising real import prices, especially in the energy sector. The available data show a non-negligible economic resilience. The challenging international environment curbed manufacturing output as well as exports. Domestic demand, on its part, showed robust growth, in spite of real import price increases, particularly in the energy segment.

Examining the developments, as portrayed in the chart of Swiss real GDP, one can deduce the following:

1. The worst correction of the indexed real GDP, Q1 1981 = 1, took place in the second quarter of 2022!

2. The overall average change over the period 1981 to end 2022 amounts to 1.75%, compared to 0.82% in Q4 2022. It is worth noting that, compared with developments during the 2008-2009 financial crisis, the recent correction had a noteworthy, differential impact on real GDP. Investors should seriously consider the hoped-for or feared impact of the upcoming turnaround in favour of domestic production. The aim is to restore competitiveness in key technologies while increasing local production and productivity.

3. Noteworthy – in terms of forecasting relevance – is the comparison of the quarterly rate of changes vs. the yearly changes.

4. At this point, we advise investors to seriously consider the implications of reversing the trend in favor of domestic production in order to regain competitiveness in key technologies as part of the reconstruction process. Under the current circumstances, we ask ourselves what are or could be the main effects of today’s investment policy?

For simplicity, we focus here on the following two periods, i.e., between 2007 and 2009 and developments since 2019. We believe it is worthwhile to look at the sequence of the two crucial periods to draw appropriate conclusions for future asset allocation. Here are our key findings:

a) We believe it is advisable to closely examine the feared effects of a reversal in favor of domestic production in order to regain competitiveness in key technology stocks and rebuild local production and productivity.

b) The intervals between each “high” and subsequent “low” do not represent uniform fluctuations, neither in size nor in strength.

c) The variance of the individual growth phases (positive or negative) differs significantly from each other, both when evaluated on the basis of the respective index level and when adjusted to “1” on October 10, 1998.

d) In addition, it should be noted that the duration of the “correction phases” differ significantly from each other in both duration and extent.

e) The recent correction phase, due in particular to the Covid 19 pandemic and even more so to Russia´s war against Ukraine, has had and continues to have a devastating impact on international trade and on energy prices (both for crude oil and gas and for various industrial products). The associated price increases have led (and continue to lead) to price increases in consumer and industrial goods, due to the reduced availability of energy compared to all previous critical periods. The current environment is very difficult to adequately quantify in terms of the impact on asset allocation.

f) The time spans between a high and subsequent low do not all reflect coherent fluctuations, either in magnitude nor strength. Nevertheless, the data suggest increasingly large differences (between highs and lows). The magnitudes of the individual growth phases (positive and negative) differ significantly.

g) In the current correction phase the public attention remains focused on monetary policy, especially with regard to the expectation of higher interest rates. The fact is that the outlook for the financial environment is not easily comparable with developments in past decades. What the future demands is that various dislocations have created or will create a new need, namely the urgency for “greater strategic autonomy” in many sectors of democratic economies. In this context, the possibility of “repatriation” of production in the semiconductor sector, i.e., in the field of technology, should be increasingly considered. At this stage, the question arises as to what kind of economic leadership we are dealing with.

h) The periodicities between a high and subsequent low do not all reflect coherent fluctuations, either in magnitude or strength. Nevertheless, the data suggest increasingly large differences (between highs and lows).

i) While the current correction phase is primarily explained by rising consumer goods and energy prices, the public’s attention remains focused on monetary policy, especially with regard to the expectation of higher interest rates.

j) While the current correction phase is largely explained by rising consumer goods and energy prices, the public’s attention remains focused on monetary policy, especially with regard to the expectation of higher interest rates.

The thorny question that many analysts, and especially financial experts, are asking is, “How were we prepared in the face of this vulnerability?” Or, more proactively, “How are we preparing ourselves for the next phase of economic growth?” The fact is that the outlook of the financial environment is not easily comparable to the developments of past decades. What the future demands is that various dislocations have created or are going to create a new need, namely the urgency of “greater strategic autonomy” in many sectors of the democratic economies. In this context, the possibility of “repatriation” of production in the semiconductor sector, i.e., in the field of technology, should be increasingly considered. What economic leadership are we facing at this time, is the real question.

USA: GDP TRENDS

In most cases the outlook for the stock market can be predicted on the basis of real GDP growth and growth expectations. The following chart shows the evolution of economic activity in the United States since 1947. The data suggest that this might not be an easy task, as three distinct phases are implicitly known: the first from 1947 to 1984, the second from 1984 to 2018, and the third from 2018 to the first quarter of 2023. We emphasize that the current cycle (defined as the period starting in 2019) is the weakest and most volatile phase of them all.

PROSPECTS

We continue to believe that the economic outlook is difficult to quantify and yet remains deterministic, as illustrated by the two stock indices shown in the chart: “DJIA & SPI indices”. Again, we believe that the economic outlook should be analyzed in terms of external trade developments and the respective impact on consumer and capital spending. Accordingly, energy prices and especially the Russian war in Ukraine remain crucial. The most difficult question is how long the Russian war in Ukraine will last. This is definitely a sensitive issue, as it could remain an important determinant of inflation, which in turn and due course ought to influence central bank policy. We believe that consumer and investor expectations and activity will continue to be critical to central bank interest rate actions and reactions. This is definitely a thorny issue, which is hard to forecast with sizeable precision.

IMPLICATIONS FOR INVESTORS

We continue to expect several quarters of weak economic activity. Howev-er, a recession cannot and should not be ruled out, given the unquantifiable consequences of the Russian war in Ukraine and the associated impact on inflation and inflation expectations, as well as the interdependence with in-terest rates and related policies.

In the short term, despite rising volatility, we continue to view equities as promising, compared to fixed-income securities. After further interest rate hikes, a rebalancing may emerge over time. On the currency front, we continue to favor our local currency over the USD and EUR. The most promising investment advice one can give is to focus on high quality.

Comments are welcome.

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Crisis comparisons

EMR May 2023

Dear Reader

One of the most frequently asked questions we are getting concerns the status of the current financial turmoil, compared to previous corrections as regarding stock indices. In our opinion both the following graph and table comparisons are very telling.

From the graph and the table we can deduce that the current crisis is the worst since the Black Friday of October 25, 1929. Equally, it is worse than the 2008-2009 financial crisis. Under these circumstances, we should ask ourselves what are or could be the most important effects on today’s investment policy.

For simplicity, we focus on the span between the 2007-2009 and the developments since 2019. It may be worthwhile to look at the sequence of the two crucial periods in order to draw appropriate lessons for the future. Here are our key findings:

  1. The periodicities between the respective “high” and the subsequent “low” do not represent coherent fluctuations both in magnitude and strength.
  2. The variance of each individual growth phase (positive or negative) differs significantly from each other, both when evaluated on the basis of the respective index level or when adjusted to “1” on October 10, 1998.
  3. It should also be borne in mind that the duration of the “correction phases” varies greatly from one phase to another, both in terms of duration and scope.
  4. The current correction phase, due in particular to the Covid 19 pandemic and—even more so—to Russia’s war against Ukraine, has had and continues to have a corresponding impact on international trade and on energy prices (both for crude oil and gas and for various industrial products). The associated price increases have led (and continue to lead) to immeasurable price increases in consumer and industrial goods due to the reduced availability of energy, compared to all previous critical periods. The current environment remains very difficult to adequately be quantified in terms of asset allocation.
  5. The periodicities between a high and the subsequent low are not all expressions of coherent variations in magnitude and strength. Nevertheless, the data suggest increasingly large differences (between high and low).
  6. The amounts of the single phases of growth (positive and negative) vary significantly from one another.
  7. The length of the negative corrections varies significantly, both in terms of duration as well as intensity and size.
  8. The current correction phase is mainly explained by rising prices for consumer goods and energy, although public attention continues to be focused on monetary policy, especially with regard to the expectation of higher interest rates.

The thorny question on the minds of many analysts and especially financial experts is “How were we equipped in the face of this fragility” or, in more proactive terms, “How do we equip ourselves for the next phase of growth?” The fact is that the current financial environment is not easily comparable to the developments of past decades. What the future demands is that various dislocations have created or are going to create a new need, namely the urgency of “greater strategic autonomy” in many sectors of the economy. In this context, the possibility of “repatriation” of production in the semiconductor sector, i.e., in the field of technology, should be increasingly considered.

USA: GDP DEVELOPMENTS

Normally, the outlook for the stock market may be forecast as a function of growth and prospects of real GDP. The following chart shows the developments of economic activity in the USA since 1947. The chart indicates that it might not be an easy task. The chart points to three distinct phases: the first from 1947 to 1984, the second from 1984 to 2018, and the third from 2018 to Q1 2023. Let us emphasize that the current cycle (defined as the period starting in 2019) represents the weakest and strongest market growth phase.

PROSPECTS

We continue arguing that the economic outlook remains deterministic, as implied by the two stock indices shown in the chart: “DJIA & SPI Indexes”. We sense that the economic outlook should, once more, be examined in terms of the developments of foreign trade and the specific repercussions on consumer spending and investment spending. Accordingly, energy prices and, above all, the Russian war in Ukraine remains deterministic. The most difficult question concerns the duration of the Russian war in Ukraine. This is definitely a tricky question, as it could remain a most important determinant of prices, which in due course ought to influence central bank policy. Consumer`s and investor`s expectations and activities are taken to remain deterministic, subject to the Central Bank`s interest rate actions and reactions.

IMPLICATIONS FOR INVESTORS

We continue to expect a few quarters of weakish economic activity. Howev-er, a recession cannot and should not be ruled out due to the continuation of the Russian war in the Ukraine and the respective impacts on inflation and inflation expectations, as well as the interdependence with interest rates and corresponding policies.

Over the short term we continue to view equities, despite increasing volatility, as promising compared to fixed income securities. A switch may be on the cards for the period, following further increases in interest rates. On the cur-rency front, we continue to prefer our local currency over the USD and EUR. The most promising investment advice that can be given is to focus on HIGH QUALITY.

Comments are welcome.

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Disturbing Developments

EMR April 2023

Dear Reader,

On March 10, 2023, the U.S. “Silicon Valley Bank” (SVP) faced significant capital withdrawals from its customers, marking the beginning of a new financial crisis. It represents the beginning of the withdrawal of funds from a relatively small bank. Markets around the world panicked. The rather unexpected development coincided with massive interest rate hikes by various central banks. A second U.S. bank – First Republic Bank (FRC) – followed suit. Credit Suisse, Switzerland’s second largest bank, came under fire and was then taken over by UBS. Huge amounts of emergency money – mainly from central banks and government agencies, as well as a few powerful players – stemmed the emergency bailout. The contextual question relates to the reaction of the stock markets?

We deem it useful to examine the actions and reactions of a selected group of stock indices. In the chart, the reader finds information about the trend and the respective highs and lows of each shown stock index. The series are indexed to December 24, 2022 equal to 1.

We have no doubt that volatility will persist given the uncertainties surrounding other potential bank failures and the hoped-for outcome of the UBS merger and any reorganization of the giant Swiss bank.

FACTORS OF INFLUENCE?

A basic prerequisite for an effective solution to the complicated environment is a coordinated effort in the financial and foreign exchange markets. Such an effort is necessary to calm the highly speculative environment and avoid a full-scale recession. The much-discussed arguments depend on the particular viewpoint of the public or private entities involved. Will the economic outlook be primarily demand-driven or supply-driven? If one compares the outlook for the U.S. with that for Europe, one encounters highly contradictory perceptions. There is no doubt that the upturn in the USA will be demand-driven rather than supply-driven. Critics are vociferously calling for the “repatriation” of production, for example, to reduce dependence on China and thus boost domestic incomes and consequently consumer spending. The goal is nothing less than regaining independence from autocratic, anti-democratic production units. In the short term, this would mean a possible increase in inflation. In a way, such a scenario would contradict the Fed’s anti-inflation policy. In Europe, the recovery remains supply-driven due to the heavy dependence on crude oil and gas imports from Russia.

At this crossroads, we should not forget that the U.S. government is in charge, while Europe is dependent from a despotic personality. This constellation merely implies that the fight against inflation through higher interest rates in the U.S.A. could not easily apply to Europe as well.

The analysis of the potential development of economic activity as it results from the available real quarterly gross domestic product (GDP) data for the U.S. is very revealing in some respects. So far in the current cycle – starting in Q4 2019 – the absolute bottom (for now) was reached in Q2 2020! Since then, GDP has recovered somewhat, but based on available data, this is the weakest absolute recovery since 1940. We wonder why this whereabouts have not yet worried analysts. Why was no attention paid to it either before the banking crisis or afterwards?

WHERE STOOD THE SUPERVISORS?

The short- and medium-term outlook is always difficult to quantify. Facts and actions by governments, financial authorities and the banking institutions themselves remain difficult to assess. There was, and to some extent still is, a great ambivalence between knowledge of what is happening and consistent interpretations.

It is interesting, revealing and significant that the focus was not so much on the big players, but on the Swiss financial system, which led to the merger of “CS” with UBS. A development that not only led to the demise of Credit Suisse, but above all brought into focus the poor functioning of international and national supervision. Such an approach was in clear contradiction to what had always been required for any Swiss or foreigner operating in Switzerland. One concrete consequence was a massive loss of confidence at the global level, which was primarily due to risk management that can be described as illegal and thus punishable. At this point in time, we do not want to and cannot place the blame primarily or exclusively on Swiss supervision. The disaster has much more to do with global supervision than with the supervision of the country to which Credit Suisse belonged.

CONSEQUENCES

The failure of Credit Suisse is an event that will be hard to forget. It shows us, among other things, that the supervisory approach can no longer be required primarily of local supervisors when business is conducted on a global scale. We wonder what the specific supervisory arrangements will or should be (not only) for Maxi – UBS. What has always been known, but for a long time deliberately kept in the background, is now a clear and glaring reality, namely that the financial market is no longer a national market, but a global market for which the same rules of protection should apply everywhere.

There is no doubt that the current financial market turmoil will have an impact on employment, consumer and investment spending, international trade and currencies. It is clear that international coherence must be restored at the expense of the gains of a few market participants.

DETERMINANTS OF THE PROSPECTS?

In our view, country by country demand for domestic goods and services should restrain international trade. We firmly believe that in such an environment, price increases, should be restrained. This expectation of ours, together with the Russian war against Ukraine, assumes a trend toward domestic production and consumption. In the short to medium term, international trade does no longer appear to be in the driver’s seat. Such an environment is a harbinger of increased volatility on both the quantity and price fronts, including currencies.

In particular, we expect a few quarters of slowing economic activity. However, a recession cannot and should not be ruled out. At the moment there are several deterministic elements that are rather difficult to assess. The first remains the continuing invasion and war against Ukraine, followed by the trend of rising interest rates by monetary authorities to combat rising inflation. Another difficulty is the trend of “repatriation” of productive capacities, with the related repercussions on the currency front.

IMPLICATIONS FOR INVESTORS

The recent constellation indicates ambivalent expectations regarding economic growth and central bank interest rate operations. Originally, there should have been a growing trend away from import dependence and a significant increase in domestic production, not only of technological goods. With this approach, a significant increase in demand for locally produced goods and services could have been expected. The shift to increased domestic production would have required a slightly different monetary policy than that recently adopted. More domestic investment would have led to higher employment and wages, with a somewhat different result. But as we all know; the outcome is quite different and complicated.

In the short term we continue to view equities, despite increasing volatility, as promising compared to fixed income securities. A switch may be on the cards for the period, pointing to rising interest rates. On the currency front, we continue to prefer our local currency over the USD and EUR. The most promising investment advice that can be given is to focus on HIGH QUALITY.

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Change is in the air

EMR March 2023

Dear Reader

Industrial transformation, i.e., the change in the growth pattern of the last 20 to 30 years, is once again taking place at a rapid pace. Well, our search for evidence on the position of the global economy, and by extension the financial markets, led us to the Inflation Reduction Act of 2022 (IRA), passed by the U.S. Congress and signed into law by President Biden on August 16, 2022. Astonishingly enough, it goes almost unnoticed in the media. Now, one may ask what the scope of this act may be? Well, it is a law primarily aimed at curbing inflation by reducing the deficit and investing in domestic energy production while promoting clean energy. Among other things, the enacted legislation is expected to raise $738 billion and authorize $391 billion in energy and climate change spending and $238 billion in deficit reduction. Although the expected impact on inflation is somewhat controversial, it still indicates some economic progress. Indeed, the goal is to make substantial public investments in social, infrastructure and environmental programs throughout the country.

From this ambitious program, one can infer the implicit intention to promote domestic economic activity. In other words, this legislative text favors domestic investment, which in due course will also mean a reduction in certain imports. Certainly, it will take some time for this to become apparent in practice, but it nevertheless requires careful and continuous analysis of foreign trade.

The said act implies “regulation” with the specific aim of balancing/protecting the local competitiveness of the national market from the oligopolistic aggressiveness of mainly multinational technology corporations and especially nations like China. The “act” presupposes an initial reaction by the governments of democratic states and thus a clear response to the Russian invasion of Ukraine. At this juncture, it is worth mentioning that the EU faces similar difficulties as the US, namely rising import prices. A key difference between the U.S. and Europe, especially the EU, is the lack of “decision-making power,” which is still based on the authority of the respective national authorities. In addition, it should not be forgotten that the EU also decided to suspend state aid regulation with the Temporary State Aid Framework of March 2022. Strangely enough, the focus was mainly on Germany.

In the table and graph we show e.g., the SECO’s (State Secretariat for Economic Affairs) outlook in order to illustrate the specific interrelationships.

CONSEQUENCES

The annual data and forecasts tell us that the U.K. and U.S. real GDP growth rates were the highest in 2021 and 2022, while the other countries’ data were significantly more modest. The Brexit decision is somewhat visible in the UK GDP data. The Covid-19 years and recent actions on interest rates by central banks to reduce inflationary pressures are visible in the GDP data of the countries shown.

Recent weeks have witnessed a certain revival of optimism, albeit accompanied by understandable caution, especially in financial circles. This seems to be supported by an increasing number of macroeconomic signals, as evidenced by the recent “modest” increase in the benchmark interest rate by just 0.25 percent, which is a clear sign of the approaching end of the rate hike cycle.

The risk of recession is slightly decreasing, mainly due to the explicit willingness to give extensive support to fixed investment by local enterprises. In the context, there is talk of “repatriation” of production of technological goods, to reduce dependence on imports, from the Far East. The Seco data are really telling. We are often told that the rise in the consumer price index must be controlled by raising interest rates. The U.S. Federal Reserve took the lead and raised interest rates significantly. Other industrialized countries have followed suit. At this point, we would like to point out the potential impact of rising prices on asset allocation.

Nominal interest rate increases—such as those recently induced by central bank measures—argue in favor of exposure to fixed-income securities. This, due to the fact that increases in interest rates usually open up opportunities to earning money on fixed-income securities. However, there is also the risk of loss in times of rising inflation. It is necessary to check whether future real interest income is higher than the cost of inflation. If this is not the case, the risk of loss would have to be assessed. At this stage, we continue to favor investing in equities. Particular attention needs to be paid to various sectors such as technology and chemicals, with volatility to be closely monitored.

The fact is that the financial markets play an important role in the fluctuations of business cycles. Given that the current tightening policy could continue for some time, we think it is quite difficult to predict exactly which sector of the economy should be overexposed or underexposed and in which time frame. However, we consider the Russian invasion and war on Ukraine to be the most specific determinant of a worthwhile asset allocation. Geopolitical tensions aside, the impact on international trade and thus consumption and investment will need to be carefully monitored. In terms of international diversification, one should seriously consider the possible divergencies (STDEV) of the leading currencies in the following chart.

FOCUS ON SWITZERLAND

The Seco data on the primary sectors of the Swiss economy—see following chart—are telling indeed. Often, we are told, that the increase in the Consumer Price Index must be controlled via higher interest rates. The Federal Reserve Board has taken the lead in strongly pushing interest rates up. Other industrialized countries followed in a similar manner. Here, we would like to point to some other factors responsible for the increases in prices.

CONSEQUENCES

Undoubtedly, the Russian invasion of Ukraine will force the economies of the free world to reduce their dependence on autocratic, pro-communist countries as quickly as possible. This is bound to entail a return to local production of many goods and services and an orientation toward other producers of oil, gas, etc. First signs of this change are visible in the U.S. technology industry. See: Chips Act , in which special attention is given to short-term inflationary pressures and thus to the specific responses of central banks.

In Europe, too, there are proposals that go in the same direction, although there are still differences from country to country. There is no doubt that the invasion of Ukraine is a sign of an increasingly inevitable “de-globalization.”

Geopolitical tensions aside, the impact on international trade, and thus on consumption and investment, needs to be carefully monitored. The dreaded volatility of energy and gas prices will remain a source of confusion, both in terms of economic growth as a function of inflation, and in terms of the ups and downs of international trade, which currently speaks of continued volatility, and not just in the financial markets.

There is a further serious difficulty: the increasing and high indebtedness of countries, companies and the general public. Fortunately, the current situation does not resemble that of the late 1970s, when Paul Volcker, chairman of the FED, was forced to intervene aggressively to fight inflation.

In terms of international diversification, one should seriously consider the possible developments of the leading currencies.

OUTLOOK 2023

The above-outlined environment clearly indicates a dramatic change in the environment. Until recently, the focus was on fighting inflation; now the focus is much more on “repatriating” production. This is evident, for example, in the stimulus proposals [Inflation reduction ACT (IRA), Chips and Science Act, and Bipartisan Infrastructure Law]. Thus, the focus is clearly on renewable energy, semiconductors, and infrastructure, i.e., promoting local economic growth while reducing dependence on foreign manufacturers.

In both the United States and Europe, economic policy is no longer primarily focused on fighting inflation, but rather on rapidly renewing the domestic manufacturing sector to reduce dependence on imports from foreign manufacturers. This, if implemented coherently, would lead to a significant increase in local employment and economic activity. The specific objective is, among other things, to reduce dependence on China.

At this stage, our forecasts can be considered somewhat more optimistic than those currently circulating in the press. To some extent, our assessment is confirmed by a contradictory political attitude that is no longer so much determined by “cheaper producers” as much as by the “free market” or, at best, by an egalitarian mixture of both approaches.

FINDINGS FOR INVESTORS

Assuming that investment growth will replace government spending as the main determinant of future economic activity, one needs to look beyond infla-tion expectations and trends to define a successful investment approach. Therefore, we argue as follows:

  • The era of runaway inflation is almost over; more attention needs to be paid to price stability.
  • If the assumption is correct that inflation will not rise as strongly as it has recently, fixed-income investments should become somewhat more attrac-tive, at least in the short to medium term.
  • A reduction in dependence on autocratic countries, combined with a not in-significant increase in domestic production, would stimulate optimism in fi-nancial markets.
  • We continue to believe that the CHF remains promising, as does the USD.

Comments are welcome.

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Turning Points in 2023?

EMR January 2023

Dear Reader

ENVIRONMENT 2023

At the beginning of the new year, we may ask ourselves which of the following statements may be considered correct and thus a valid indicator of the most likely future developments:

  1. Is significant inflation acceleration, plus 4% or more, a negative for the equity markets?
  2. Is significant decrease, minus 2% or more, a positive for the equity markets?

Bevor answering the two above posed questions let us portray the historic developments of the leading economy, the USA, as shown in the chart.

What does the historic representation of the yearly average changes of the DJIA and the yearly rate of change of the US Consumer Price Index tell us? Our interpretation of the graph shows several interesting things:

  1. The analysis of the annual rate of change indicates that changes in the DJIA are much more volatile than for the consumer price index.
  2. Both the development of the inflation rate and that of the DJIA, before 1945 and since 1945, differ considerably from those of the preceding period. This makes predicting future developments – for both indicators – somewhat more difficult than generally assumed.
  3. The rather contained inflation rate swings since 1980 do not point to a significant growth in the equity index.

After a thorough analysis of the diagram, we come to the following conclusions:

First, we note that the actual annual changes in the inflation rate are less volatile than those in the DJIA index. This suggests, in our view, a deterministic distinction between the two categories under consideration. In other words, the respective trends are not primarily determined by the same factors for the DJIA and the CPI-Index.

So far into the current cycle, inflation has not (yet) risen as in the late 70’s nor in the previous cycle. The real question at this time is which of the two series used here will be the deterministic factor: the DJIA or the CPI? Any suggestions?

OUTLOOK 2023

Recalling the various expectations and taking into account the available hard facts as compared to the known developments in 2022 as a starting point, we firmly believe that the outlook for 2023 remains characterized by known and also imponderable features. The challenging question to answer at this time concerns, first of all, the hoped-for end of the disastrous Russian invasion of the Ukraine. This “hoped-for return to normalcy” would undoubtedly lead to lower crude oil and gas prices and, as a result, would also lead to a reduction in fears of persistently high inflation and would consequently encourage the inflow of much-needed technological inputs. The result would be a significant pickup in economic activity, instead of the recessionary outcome currently feared.

For Central Banks, this would imply a deterministic reduction in recession fears and the abandonment of restrictive monetary policy. This, in turn, would promote an economic recovery that should boost stock markets and, to some extent, fixed-income investment as well. High inflation rates historically have been associated with financial losses, as they have also been in the recent past. History teaches us also, that patience is a promising attitude, especially when the causes of inflation are due mainly to factors that are not so much monetary as economic or even worse political.

FINDINGS FOR INVESTORS

Assuming that the Russian invasion of the Ukraine is unsuccessful, it can be assumed that Russian oil and gas supplies will slowly increase, which should tend to reduce the inflation rate. This makes it unlikely that domestic banks will continue to push interest rates up, as they have done recently. In other words, the appeal of fixed-income securities may be limited to the next few months of 2023. However, we believe that the appeal of fixed income is likely to be limited to the coming quarters, limiting the appeal of equities in the first quarters of 2023.

Our assessment depends largely on the size and length of the expected economic slowdown, which, in turn ought to bring inflation down. The necessary and sufficient condition for this to happen, is that inflation begins to fall in line with the decline in energy costs. In any case, special attention should be paid to currency fluctuations when diversifying internationally. Highly indebted companies should be avoided. As Swiss investors, we continue to prefer the local market, at least until the end of the cyclical interest rate increase will manifest itself. In any case, in the international diversification process, special attention should be paid to currency fluctuations. Highly indebted companies should be avoided. As Swiss investors, we continue to prefer the local market, at least as long as the end of the interest rate cycle is in sight.

We wish you all A HAPPY NEW YEAR

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SUPPLY VS. DEMAND?

EMR November 2022

Dear Reader

ENVIRONMENT

Both the Covid-19 pandemic and Putin’s war against Ukraine are increasingly determining economic analysis, both in the short and long term. Also going almost unnoticed by the public debate are the consequences of “digital nomadism” and, in particular, the tax consequences of the migration of highly qualified professionals who take advantage of the opportunity to work at a computer in places where taxes are low.

DEMAND VS. SUPPLY ANALYSIS

As a result of both the Covid 19 pandemic and the war against Ukraine, two specific and deterministic aspects can be found regarding the short- to medium-term economic outlook. Monetary authorities have emphasized a policy of “extraordinary” monetary tightening to combat inflation, i.e., unprecedented increases in interest rates, as evidenced by the recent trend in the federal funds rate relative to developments since 1955. See table and chart.

FOMC Meeting DateRate of Change (bps)Federal Funds Rate
Sept 21, 2022+ 753.00% – 3.25%
July 27, 2022+ 752.25% – 2.50%
June 16, 2022+ 751.50% – 1.75%
May 5, 2022+ 500.75% – 1.00%
March 17, 2022+ 250.25% – 0.50%

Indeed, it is instructive to elicit the logic behind policy responses. As far as policy adjustments are concerned, we face a real dilemma. Are the actions and reactions in curbing inflationary conditions more supply or more demand-driven?

By even superficially reading newspapers, listening to the radio or watching television, we find that the focus is on “demand.” Why is that? Well, Central banks are pushing interest rates sharply up to contain rising inflation. Thus, when interest rates are raised quickly and sharply, one must assume that the goal of containing rising inflation is to reduce demand, especially of business investment (i.e., fixed investment, construction activity, and net exports). At this point, it is worth recalling that the recent rise in prices in all major economies is not primarily due to an increase in demand, but to a sharp reduction in the supply of essential economic goods. More specifically, prices are being driven up by “policy-induced” cuts in crude oil and gas exports, primarily by Russia. Recently, there has also been a significant decline in imports of engineering components from China. It is a fact that the countermeasures taken by the EU and the U.S. should also be taken seriously.

We are currently facing a new phase in the economic cycle. The positive trends of the period prior to the advent of the Covid-19 pandemic and the invasion of Ukraine have turned into a restrictive phase, particularly in the area of procurement of vital goods and production components. In our view, this emerging change requires a radical rethinking of the economic behavior. This should entail a rethinking of the interdependencies between the economy, finance and monetary policy. In other words, it is not about inflation per se, as much as on rapidly improving the supply of key intermediate goods and products.

However, if we assume that policy should focus on supply-side rather than demand-side constraints, as has been the case recently, then we can assume a dramatic policy-driven shift away from rising interest rates toward improving domestic supply, with more emphasis on the local investment sector. What we can envision is a shift back in the production of intermediate goods and change in energy supply. This readaptation would require a shift away from “cheaper” imports to increasing domestic production. The focus should (and will) be on improvements for the local investment sector to the detriment of imports.

FINDINGS FOR INVESTORS

A closer look at the current environment shows that the focus is on raising interest rates to coun-ter inflationary pressures. The actual determinants of current inflation are almost ignored. As-suming that the rise in inflation is mainly due to factors (such as Covid-19 and especially the in-vasion of Ukraine and China’s threat to invade Taiwan), the rise in crude oil, gas and food prices would increase dramatically beyond the normal supply and demand trends. Therefore, the focus should rather be on how to solve the bottlenecks in the supply.

In October 2022, there were increasing calls from international institutions to slow the pace of monetary tightening because of the unexpected impact on exchange rates, as shown in the charts on currency and NYMEX.

It should be considered that the U.S. dollar increasingly tends to mimic crude oil and gas price trends. These similarities portend an imminent reversal in the fight against inflation. Thus, one may wonder whether the phase of interest rate hikes by central banks is coming to an end. Re-markably, so far, calls for moderation of the pace of monetary policy have not increased. An im-portant reason for a probable reversal of interest rates is given by the voices of international in-stitutions, speaking of an impending recessionary phase.

In the current economic policy environment, it is tricky to draw conclusions about a promising asset allocation. We believe that the Swiss investor should continue to focus primarily on the do-mestic currency market (and also the US dollar), as a positive development can be expected here. Secondly, we believe that it is premature to invest in money markets and/or fixed income instruments, at least as long as the high interest rate phase persists. Thirdly, it is necessary to quantify, as precisely as possible, the depth and duration of the much-touted recessionary phase. For our clients in particular, it seems advisable and necessary to assess the impact on the real estate market. An undoubtedly arduous task not only for the experts at Swisschange.

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