Review & outlook
October 24
Dear Investor
The current outlook for the global economy is not too rosy, so it comes as a surprise everywhere that equity markets are still able to maintain an historic high. The simplest explanation lies with small investors, who are counting on a substantial cut in key rates from the central banks, which in the past has usually led to a sharp upward trend on the financial markets.
The risk that this ‘dream scenario’ will not play out again this time is one that should not be underestimated, however. Time and time again over the past two years, we have mentioned the major geopolitical risks around the globe in this letter. This time too, the situation has continued to deteriorate dramatically. The Middle East is a gigantic powder keg, and in Ukraine winter is approaching and none of the warring parties is currently prepared to enter into even the smallest of compromises in order to bring about a peace settlement.
The upcoming US elections in November will likely be a major challenge for the financial markets. Neither of the two US presidential candidates has touched on the ‘debt issue’ in their campaign messages. Even though the outcome of the election is still wide open, it is becoming clear that neither of the two governing parties has a solution to the debt problem. The campaign promises already communicated, of assistance for the underprivileged population or even tax cuts for the rich in the event of a Trump government, will increase budget deficits significantly in the future and the Federal Reserve will therefore be making avid use of the printing presses, causing debt levels to rise further.
Even if interest rates around the globe are cut further over the coming months in an effort to bring fresh momentum to the ailing global economy, we need to be aware that, over the longer term, debt can only be brought down by inflating it away. For the only remaining way out of the debt trap is higher inflation. Government debt declines in value as a result of higher price rises and the purchasing power of individual currencies is further reduced.
Central banks have long realised this and have therefore invested more of their central bank reserves in gold. Gold has survived all ‘financial crises’ over the last 5,000 years and always retained its purchasing power. We have been discussing such a scenario for a long time now and have increased our investments in precious metals dramatically over the past few years. In Swiss franc terms, the gold price has risen by 30% since the beginning of this year. As a result, precious metals investments have been a main driver of our portfolios’ very gratifying performance this year.
In view of the considerable uncertainties, we remain extremely cautious in our investment policy. We have confidence in our broadly diversified investments in sound companies and continue to hold our heavily overweight investments in precious metals.
We wish you and your families all the best and please do enjoy the autumn.
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