Newsletter dated February 23, 2017

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Major indices continued to rally to new record levels. Mainly U.S. indices traveled into uncharted territory, helped by a round of robust economic data and ongoing optimism that President Donald Trump will cut corporate taxes. Bigger-than-expected rises in retail sales and consumer prices in January reinforced confidence that the economy is growing at a solid pace following the strongest quarterly corporate earnings growth in over two years. Trump repeatedly said he would lower taxes substantially and simplify the tax code.

And investors did not get nervous when Federal Reserve Chair Janet Yellen confirmed before the House Financial Services Committee that the U.S. central bank was on track to raise interest rates at an upcoming policy meeting. Obviously they are confident enough about the fundamentals.

In contrary Federal Reserve policymakers have shown considerably uncertainty in their planned timing of this year’s interest rate hikes because of a lack of clarity on the new Trump administration’s economic program. According to the recently published Fed minutes, “participants again emphasized their considerable uncertainty about the prospect for changes in fiscal and other government policies as well as about the timing and magnitude of the net effects of such changes.”

Speaking about uncertainty, the Bank of England is unlikely to predict the next financial crisis, according to one of the central bank’s leading policymakers, who said economic models were unable to provide flawless forecasts for the UK economy. He told Members of Parliament in a debate on economic effects of Brexit: “We are probably not going to forecast the next financial crisis, or forecast the next recession. Our models are just not that good.”

Erwin Lasshofer and his INNOVATIS team welcome both the straightforward analysis of economic reality of uncertainty by leading economists and the existence of uncertainty in financial markets itself. Uncertainty and risk aversion are the foundation of superior returns for investors willing and capable to take some risk. We tailor for our investors products with exactly the type and amount of risk that meets their needs. In a Managed Account we design, pick and manage a portfolio of structured notes with superior balance of high returns and low risks for our clients.