Our economic world view and investment philosophy
Less is more: In the daily flood of news and its apparent complexity, the important issues can easily be lost in the mix. That is why we monitor long-term trends in the global real estate and capital markets and break it down to the essentials: money supply, economic performance and prospects.
Government debt must continue to be funded – the result: sustainably low interest rates
Debt is rising relentlessly in all industrialized countries around the world. It is highly unlikely that the debt will ever be paid off. Ultimately, there are two ways to permanently finance public debt: massive cuts or permanently low interest rates. Every central bank wants to postpone an unavoidable, painful debt relief as much as possible. It is therefore unlikely that the low interest rate situation will change soon – to date, neither the US Federal Reserve nor the European Central Bank (ECB) have hinted at ending their expansionary monetary policies anytime soon.
Economic development is subdued
The extremely lax central bank policy is coupled with global currency devaluation. The weaker a currency the better the current account balance through exports, so goes the theory and conventional wisdom. However, economies are adapting to competition: in the long term, this will not work. There will probably be no winner in this race.
Huge mountains of debt, aging industrial societies and structural problems in major emerging markets are dampening the global economy. Thus, we should say goodbye to strong growth rates of the past. The world’s economy is only promising muted growth.
Real inflation is asset price inflation that continues to drive real economic assets long term
The money supply of the major currencies (M3) is clearly rising towards utopian levels and increasingly disproportionate to economic performance. The steady increase in real inflation* has little impact on current account balances or consumption. As an asset price inflation, however, real inflation* has an impact on material asset prices. For real estate, this translates into sustainably rising values and rents.
* Rule of thumb per country: real inflation rate equals growth of money supply (M3) minus economic growth (GDP)
The banking system is fragile – deposits are not really safe
Banking crises have always existed in the major industrialized countries. In the most recent one, experienced by EU member state Cyprus in 2012, assets in excess of EUR 100,000 were simply expropriated. The crisis has shown that money in the bank – so-called bankroll or credit – is ultimately a risky claim against a bank, which in turn can go bankrupt. Today, the vast majority of money is in circulation as a receivable from third parties (e.g., banks). In the event of a bank crash or economic crisis, most of it will be lost; so-called deposit insurance, both the legally mandated and voluntary type, can and will not suffice.
Money is not a "real" asset
Cash is the only form of money that is 100 % safe and available anytime. Everything else is merely risk claims associated with third parties like bank or customers. The creditor bears the risk of insolvency of these parties. Cash exists much less here than “in orbit". For example, according to the ECB, the cash circulating in the EU is only about 10 % of the total M3 money supply.
Real assets generate a return. Money generates this only by incurring investment risk. You cannot eat and drink money, use it to get around or live in it – and no money is guaranteed as safe by any central bank in the world. With money you can create value, a "worthy" asset, or acquire something in return. Money is only worth what someone is willing to give for it. This willingness is based on confidence in the respective currency, and this faith – like the money itself – fluctuates.
Government bonds: Those left behind stay behind
Even government bonds as claim against states do not ultimately make a secure asset. State bankruptcies and currency reforms have always existed. The inevitable credit crunch will come. The only question is when. Bonds are “lent” or “parked” money that can be used to secure assets only with the appropriate calculation.
Our answer to zero interest rates and a fragile financial system: Robust investment
We believe that the environment described requires a robust investment strategy that follows clear rules, considers different asset classes, and is not related to the past. For any investment decision the risk-reward ratio is relevant. Price and value fluctuations are not in themselves dangerous: They can offer long-term investors attractive opportunities.
Creating valuable assets: Real economic values are convertible in every currency
In our view, first-class equities should make up a part of a broader portfolio, including shares of companies that generate reliable profits, grow sustainably, are globally positioned and have little debt.
In turn, real estate makes it possible to simultaneously generate two different types of income: on the one hand, by creating current income via renting or leasing – on the other, with the potential sale proceeds generating a second cash flow.
Zinshaus properties stabilize the portfolio – when properly chosen, better than any other asset class
Commercial real estate is considered to be riskier compared to residential real estate, as it is subject to economic fluctuations and cycles down to the local level. Living, like nutrition, is a constant and basic human need. Zinshaus properties therefore provide the safest value flows, regardless of their currency. When properly chosen, they stabilize the portfolio even better than any bond or precious metal. They serve as insurance against the known and unknown risks of the financial system.
Our investment philosophy: stabilize and multiply assets!
Thus, we stand for a multi-asset approach: to create, protect and increase assets as much as possible by dividing them into different investment classes. To build up and hold investments long-term, you should spread them across different asset classes, securities and currencies. An asset portfolio must be guided by five major principles: diversification, flexibility, quality, solvency and value. Depending on your risk appetite and expected return, your wealth management strategy should formulate a strategy and goals for each asset class of your choice, and structure the asset portfolio pro-rata, and monitor and manage it for each asset class. As a rule, the greater the risk, the higher the return – and vice versa. In the case of a major "accident" (e.g., bank crash), a sufficient part of the assets should be preserved.
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