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Check-Up 2-14 Englisch-05 CHECK-UP CLIENT INFORMATION OF PRIVATBANKIERS REICHMUTH & CO, INTEGRAL INVESTMENT MANAGEMENT CH-6000 LUCERNE 7 RUETLIGASSE 1 PHONE +41 41 249 49 49 WWW.REICHMUTHCO.CH MAY 2014 EDITORIAL THE PROFIT IS IN THE PURCHASE PRICE In recent years, the financial world FEW ATTRACTIVE BUYING OPPORTUNITIES AT PRESENT has been preoccupied with crises and how to deal with them, and a typi - ne year ago, controls on the move - Buy low, sell high cal trial and error process has en - Oment of capital were introduced for As the saying goes, the profit is in the sued. There now appears to be some - the first time in the Eurozone, namely in purchase price. Investments bought cheap thing of a fresh dawn emerging for Cyprus. A new bank bail-in model was are more likely to turn a profit than the banking sector, and the ground also tested at the same time, which tar - ex pensive ones. However, equities are rules for the future are becoming geted client deposits. This model has usually only cheap when things don't clear er. Although we take little plea - since been declared as the future stan - look so good. This was the case in Italy sure in what in some cases is excessive dard for bank bail-ins in the Eurozone. a year ago, but today more so for Russia regulation, we are nonetheless pleased Fast forward twelve months, and there or the emerging markets. In such a phase, to see this degree of clarity. After all, is jubilation as Greece returns to the ca - the risks are undeniable, but as long as this is essential if we are to be able pital market, issuing a new 5-year bond the problems are common knowledge once again to focus our services with a yield of under 5%. And this not and the weak hands are flushed out of strictly on the needs of our clients, even two years after private investors the markets, this is often an attractive without having to continually won - had 'voluntarily' taken a 90% haircut on entry point – particularly if there is no der what might be reinterpreted ret - their assets. Greece's debt burden is ne - fundamentally negative change in the roactively in the future. vertheless still at 175% of its GNP, general environment. around 70% higher than before the fi - We see less progress being made when nancial crisis in 2008. Against the back - Positive PMIs it comes to tackling the sovereign debt drop of the rescue packages, investors While the economy in the US seems to problems. These continue to hold the apparently believe the promises being be faring better, Europe is stagnating, central banks in their thrall, and the made by countries and central banks. China is sluggish, and Japan is experi - trial and error process is still ongoing menting. Purchasing managers indexes here. For us as your private bankers, Money burning holes in pockets (PMIs) are a popular yardstick for gau - our biggest challenge lies in identify - This poses a dilemma for value-oriented ging where the economy is heading. Val - ing the implications of this process, so investors. Although the numerous state - ues in excess of 50 indicate that things as to ensure the greatest possible cer - ments and promises have had an effect are on the up. This chart shows that neg - tainty in achieving your investment on the financial markets, do you really continued on next page objectives. see any viable solutions going forward? One year ago, Italy had no government, the expectations of its economy were CONTENT low, and likewise the valuations of the n3 The Big Picture n3 «Portfolio of the Future» Italian stock market index. The euro and n4 Investment Policy a possible exit hung over Italy like the n5 Market Outlook sword of Damocles. Since then, Italy's n6 Swiss small & mid caps in high demand Jürg Staub stock market has gained 50% and yields n7 Hedging strategies for equity investors General Partner on Italian government bonds have fallen . n8 Change is the only constant MAY 2014 / CHECK-UP s n o measure this risk with the traditional i t MSCI WORLD AND PURCHASING MANAGERS INDEX a l u c l a Indexed, 01.01.1996 = 100 yardstick of volatility. It's common c n 240 w o / g knowledge that profit lies in the pur - r e b 220 m o o l chase price. This is easy to understand B : e c r u 200 o intuitively, but most people still feel more S 180 comfortable following the crowd and want confirmation before making a move. 160 However, buying something that is 140 already expensive in the hope of being 120 able to sell it at an even higher price is 100 pure speculation, and often misfires. PMI USA 46 54 55 55 55 49 47 56 58 51 44 43 45 54 52 49 60 61 57 52 55 52 51 53 49 50 33 46 55 56 58 57 53 51 50 53 57 Price corrections or price bubbles PMI CH 47 46 50 56 59 55 51 53 63 64 59 47 41 49 46 44 54 58 55 52 57 64 67 63 62 54 36 41 56 64 62 53 50 48 50 51 55 In the current environment of highly ac - 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 tive central banks and increasing state ative PMI values (below 50) mostly mean tually all markets – bonds included – in - interventionism, we gauge the risk of attractive purchase prices for equities, to speculative markets. corrections as being roughly as high as and vice versa. The index is currently the risk of a price bubble forming. Given po sitive. Although this is good news Is wealth still mobile? the glut of money and interest rates with regard to economic performance, it Government debt is a deferred tax. around zero, people are desperately see - is not necessarily positive for the equity Wealth can move from one place to ano - king investment opportunities. Almost markets. Looking to the past, it was ther, and is therefore not as easy for go - all of them are currently backing equi - mostly better to invest in equities when vernments to tax as real estate, for ties, this despite the fact that many val - the PMI values were in the red. example. The impending introduction of uation methods indicate this is a rela - the automatic exchange of information tively expensive market. That said, equi - Anything but deflation is aimed at changing this. And if other ties seem a better option than bonds There are increasing calls worldwide for countries follow the US lead and tax since they at least offer the prospect of monetary policy to become even more their citizens wherever they are in the real value preservation, even in an infla - expansionary to prevent possible defla - world, then these citizens' wealth would tionary environment. And they are ex - tion. Deflation is only dangerous if debt suddenly be as immobile as houses. posed to less of a restructuring risk than lies in the hands of private individuals, This would of course make wealth ea - bonds. Even in the event of a renewed fi - since the latter are seldom able to play sier to tax. We believe the more correct nancial or sovereign debt crisis, they for time. However, since the financial cri - approach would be to reduce excessi - would be the better instrument, although sis it is states that are the biggest debt - vely high sovereign debts through re - prices would fall sharply to begin with. ors and they have many means of mak - structuring. This would affect the inves - After all, with equities you have a share ing adjustments, as the example of Ja - tors concerned, but would also pose in a company that produces products and pan has shown. Southern Europe is more of a threat to the system given the services, particularly when they are not caught up in deflation because of the key role of government bonds for banks, hampered by state interventionism. EUR. Since unemployment in southern insurers, and pension funds. The taxa - Keep some cash at hand so that you can Europe is much higher than it was in Ja - tion option is thus becoming increasin - take advantage of share price correc - pan, the former is scarcely likely to be gly probable, in addition to higher infla - tions. Over the long term, the profit is al - able to handle deflationary pressure as tion. ways in the purchase price. easily as Japan for so many years. Expensive financial markets A world without interest Looking at the opportunities for inves - When interest rates are at zero, invest - tors at present, you quickly see that ma - ment success hinges solely on price mo - ny asset classes are expensive, real vements. People who bet on price chan - estate among them. If prices rise more ges used to be called speculators. The quickly than earnings or profits, then current zero interest rate policies of the the risk of a correction increases. Ho - Christof Reichmuth major central banks have thus made vir - wever, it is now no longer possible to General Partner 2 CHECK-UP / MAY 2014 THE BIG PICTURE OUR SCENARIO ANALYSIS IN A NUTSHELL CONSENSUS STAGFLATION THE DEBT CRISIS IS OVER DEFLATION Time heals all wounds Chances abound in Europe Back to recession Growth continues to pick up slightly in Growth remains low in the industrialized Most emerging markets return to their Growth does not recover. Reforms fail to the US, EU, and Japan, and takes a turn countries.
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