The market at a glance: Don't know why.

A bit of softness in this brutal world, this is what we needed for May. Our pick for the newsletter is “Don’t know why” by Norah Jones. A haunting tune, smooth harmonies, and the silky voice of Norah… The song released in 2002 is a jazz-pop gem, a true invitation to introspection. Why did we choose this quiet tribute to romantic indecision? Which market muse didn’t show up?  

The missing lover is Recession. The one economists have fallen in love with and seem to be calling since 2022, didn’t come —at least if you trust common economic measures. Yet, all the forward-looking economic indicators one can possibly look at to predict it is coming are clear: It should be here! So, what could be the reasons for this no-show? 

There are a couple of reasons that come to mind:

• The most popular among financial professionals is that it has not come yet. It is just a matter of time. Indicators don’t lie. Central banks can’t hike rates that fast to curb inflation with impunity. If you make it difficult for consumers, businesses, and governments to borrow, this must have consequences for the economies. And the effects are dose-related even if there are lags, so this level of hiking implies a significant economic slowdown.

• The second reason, that contradicts the first, is that central bankers know what they are doing: they can engineer a soft landing, i.e., slow down the economy just enough to cool inflation but avoid recession. Central banks are usually accused of all evils by investors, but they employ an army of PhDs, economists, and strategists who leverage an immense amount of data most investors can only dream of, to closely monitor the economy. They must have some sort of plan, right? And one that, apart from a couple of poorly managed banks and businesses failures, could work.

• A third reason that could be argued, is that maybe a recession is already here, or it will come but not under the traits we expect. A recession is defined as a pronounced, persistent, and pervasive decline in aggregate economic activity. What if it is not pronounced and pervasive but persistent? Is it hard to imagine for example a prolonged period of weaker growth and muted returns with parts of the economy operating at different speeds? That’s sort of what the markets are discounting now. The lover finally came back, but time did its work —a few kilos and wrinkles here and there, but love is eternal, right?

Between these three scenarios, our heart sways but you know our philosophy: Our job is to adapt, not to forecast. We like the third reason because it is less consensual, but we prepare our portfolios for the likely occurrence of the three. This means 1) keep exercising critical judgment, 2) avoid staying underinvested if there is no good reason for that, and 3) reallocating the capital to the assets that show the greatest potential. 

Demystification room: One on tokenization

One of the basic purposes of any financial system is to reallocate capital from those who have it and don’t need it to those who have an economic use for it. The problem is more complicated than it seems because wants and means don’t always coincide. Imagine on one side a company that needs to raise CHF 100MM and on the other side, 100MM savers that could invest 1 CHF. To match the two parties, you need four necessary mechanisms:

• A mechanism to group buyers

• A mechanism to split the amount for sale into smaller lots

• A mechanism to transfer the ownership rights

• A mechanism that allows buyers and sellers to exchange the asset later on (resale)

There are many ways to perform those operations. Today, you can buy a share of Apple on a stock exchange via a broker and keep it in a custody account. 

Tokenization is another one. It is the process of digitizing assets as tokens that can be moved, stored, or recorded on distributed ledgers. The tokens represent both the economic value and the rights of the assets. Pretty much anything (from fractions of companies to pieces of art, to real estate to intellectual properties, etc.) can be tokenized. 

The concept of tokenization itself is old (exchanging gold against bills in the nineteenth century was already a form of tokenization), but blockchain is taking it to the next level. And with it a cohort of benefits and risks: More transparency, increased access, and real-time settlement, on the one hand, and security, liquidity, and fragmentation risks on the other hand. 

Let’s talk about wealth

This newsletter is about investment and music. We, Alpian —a bank that takes its name from our dear mountains— believe that wealth goes beyond money, and we found another way to mix the two concepts on a larger scale:

By becoming one of the main partners of Verbier Tourisme: Alpian | Verbier – Val de Bagnes | Office du Tourisme

As part of this partnership, we are pleased to inform you that Alpian will also be present at the Verbier Festival to be held from 14 July to 30 July. This event aims to bring classical music to the heart of the Swiss Alps. 

We would like to take this opportunity to invite you to visit us on 22 July at the Alpian lounge within the Verbier Festival. It will be an opportunity to meet us in person, get to know each other, and spend a day together with the chance to try paragliding, or win a night in a hotel in Verbier.

All this is wealth beyond money, and together we support the art and culture of the Swiss territory in a magical and evocative setting. We look forward to seeing you in Verbier!

Find out more about Verbier Festival.