First and foremost we hope that you and your loved ones are healthy and safe. We currently find ourselves in unprecedented and historic times. In addition to being stressed by the plummet of the stock market, we are all going through personal struggles and the fear of the unknown related to COVID-19. We are worried about the health of our family and friends and have to adapt to working from home while often simultaneously home school our kids. Every aspect of our lives has been turned upside down. We are feeling with you and wish you good health and optimism during these uncertain times!
If you thought the last quarter of 2018 was wild, you might have to row back now… so do we! In four weeks only, stock markets were down over 30%. It was not because of government debts nor was it caused by the historically low interest rates but because of a virus that has the power to force whole countries into a standstill. Additionally to the stock markets, safe haven investments like precious metals suffered too. In summary, no asset class endured this crash without a dip. However, after all, we could experience a countermovement in the week of March 23 and the week after. This was driven by the stimulus programs of various governments. In our perspective, we did not see the bottom of the crises yet. Reason for that is that the stimulus programs are good and important but will not prevent the economy from suffering strongly from this crisis. Getting money into the system but not allowing people to spend it in restaurants, bars and other currently closed institutions will not solve the problem. We therefore believe that after all there will be a wave of companies filing for bankruptcy within the second and third quarter of the year. We furthermore do not yet have proper information about the profit collapse that occurs in this situation. Therefore, we feel that there will be another drop in markets as soon as the outcome of this situation is more predictable. We do already have first signs that give an implication about how bad this can get. Norway as an example reported the highest number (11%) of unemployment since World War II within a week. Also in the U.S. claims for unemployment went through the roof. Within a week the number went up to 3.3 Mio. from about 260’000 the week prior.
It is no secret that equities performed badly in the first quarter. We are glad that we started to work with stop losses in mid-2018. This prevented us from occurring huge losses. However, selling an investment is one part; the other part is to find the right moment to get back into the market again. If you do not find the right moment to get back in, it will be quite difficult to catch up the losses that already occurred and triggered the stop losses in the first place. The investment team therefore is looking out for new and suitable investments in industries that suffer the least in the current environment. In our discussions, we concluded that telecommunication companies will navigate the current situation quite well. We also still stick to our former criteria, which are a stable balance sheet and a high dividend yield. Especially the dividend yield in many cases is questionable at the moment. That is why it is important to look back and see if the company in question has a track record of stable dividend payments even during crises. However, we are not all about conservative low volatility investments. Since we are bullish on precious metals after all, we are also bullish on mining shares. If you observed them lately, you have observed that they were quite volatile. They are an investment vehicle, which leverages the prices of precious metals. For further details about our view on precious metals have a look at the section below.
If Gold is Doing Its Job, Why Are Spot Prices So Low?
The COVID-19 pandemic and ensuing market sell-off have shown that gold is still viable after 5,000 years. But despite gold’s history, many investors still do not understand it. Gold’s performance over the past couple of weeks and over the past five to 10 years has been described as both weak and incredible. Here’s why… Read full Article
Even government bonds of developed countries, as the embodiment of conservative investments, had in some cases a hard time lately. Swiss Government Bonds, which are synonym for secure investments, even lost value too. However, they still have a negative yield to maturity. Therefore, there might be some opportunities coming up to find bonds with an investment rating and a good yield to maturity. On the other side, it is important to look ahead of the current situation and try to foresee the possibility of these issuers to be downgraded. Due to the huge stimulus programs established by governments and central banks, the risk for companies to go bankrupt in the near future became smaller, but nevertheless it is still possible. Since the main benefit providing to our clients is global diversification within their portfolios, there is always the question about which foreign currencies will perform best. As an example: if we make an investment that performs 10% but have at the same time a currency loss of 10% against the US dollar, the only one who made money out of the investment is the bank. Therefore, it is important to have a wider perspective of the currencies and their development. In the current crises, we saw the US dollar lose quite some value in the beginning but then slashed back with strength before weakening again. However, having a closer look at the current situation with these stimulus programs especially the one in the U.S., which has a size of around 2 trillion US dollar, we feel that it is in no one’s interest to have a strong US dollar in the future. This makes us believe that there will be an intervention from different central banks to take measures in order to weaken the US dollar. Bloomberg mentioned in an article on March 15: “In coordinated statements on Sunday, the Fed, Bank of Japan, European Central Bank, Swiss National Bank, Bank of Canada and Bank of England said they would use their swap lines to support the international supply of the world’s reserve currency. They added a weekly offering of dollars over a longer maturity, and reduced the cost of the facility.” We strongly believe that safe haven currencies such as the Swiss franc and Japanese yen are going to get even stronger during these uncertain times.
As though it was not enough that the world is standing upside down because of COVID-19, Russia and Saudi Arabia started a fight over oil production. This brought the oil price back to the same levels as in 2002. There are already voices stating, that there will not be a solution to this. If that is true, we will see a much more volatile oil price in the future. This development did affect oil producers, refineries and other companies connected to the oil price heavily. On the other side, it can help oil consumer companies to raise the margin on their products. However, in the current situation the oil fight is not beneficial since it brings even more insecurity into the markets. Lastly coming to our favorite topic: precious metals. We first have to say that the prices are not at the level they are supposed to be. However, after having a closer look, we are not worried about this. Prices of precious metals fell due to investors who had to sell their holdings to cover their losses and debts resulting from speculative stock investments. Having a look on the financial crisis in 2008, you will discover that the gold and silver prices did fall back too. However, afterwards precious metals outperformed the markets by miles. We find ourselves in a situation where people have lost much money. They want to get it back badly, so they are willing to take risks that do not match their risk capacity. Exactly this behavior is the reason for the short three-day rally we observed last week. It is the fear of missing out. Of course, we are not immune against that fear. However, looking out for facts that show us the “go-sign” for getting back into stocks, there is no reliable data available. However, if there is another drop coming up at the markets, people will go crazy again and this is the moment when all speculators already sold their position in precious metals, which in our perspective will lead to rising prices. At this point of time, there will not be any resistances for the gold price to climb above the level of USD 1700 per ounce. If that happens other investors will be upset to have missed the move and look out for the second metal serving as a safe haven investment, which is silver.
We are an independent Asset Manager, registered with the SEC in the U.S. and are located in Zurich. We are associated with several first-class private banks in Switzerland, Liechtenstein and Austria, which act as custodian banks for our client’s accounts. Learn More here.
