Annual report 2025
Anyone who knows or has followed the history of Donald Trump in broad brush strokes can hardly claim to be surprised. His mentor at a young age was Roy Cohn, his father’s lawyer. Fred Trump amassed a considerable fortune as a property developer in New York. What is remarkable is how his son manages to play with the world as if it were a puppet show.
Roy Cohn enthusiastically represented mobsters in court and willingly allowed himself to be bought by gangsters. He also represented the Trumps in legal disputes and gave young Donald three pieces of advice that continue to shape the life of the sitting American President today. First: “Never admit that you are wrong, even if you are clearly guilty.” Second: “Always attack your critics aggressively and strike back instead of going on the defensive.” Third: “Never show weakness, but demonstrate strength and dominance – whatever the cost.”
«I'm not interested in the law, I want the name of the judge.»
Donald Trump has internalised Roy Cohn’s advice and implemented it to perfection over the course of his life – in his business world as well as in politics. One might say that these attributes are nothing new in heads of state, as we know that the majority of the world’s countries are ruled by dictators. The ‘only’ new thing is that Trump has managed to become dictator, or at least would-be dictator, in one of the most respected democracies in the world, the United States of America.
«Dictators don’t create dictatorships, the herds do.»
Trump fired Erika McEntarfer, Commissioner of the Bureau of Labor Statistics (BLS), at the beginning of August for presenting labour market data that did not suit his taste. “We need accurate job numbers. I have instructed my team to fire the Biden-appointed commissioner immediately,” Trump announced on his Truth Social platform, claiming that the published data was “a total fraud”. In the spring, Trump had frenetically celebrated the labour market data released by the same BLS head. McEntarfer’s successor is Erwin J. Antoni, a confidant of the President. Trump doubled down on Truth Social: “Our economy is thriving, and E.J. will make sure the numbers released are HONEST and ACCURATE.” The crude twisting of the truth by the ‘most honest’ man on the planet might also be summarised as follows: don’t trust any statistics that you haven’t faked yourself.
«This is the kind of thing you would only expect in a banana republic.»
Trump is synonymous with power, self-promotion, egomania and chaos. This was on show in April last year when he spooked the global capital markets with his announcement of a unilateral and haphazard tariff regime. But he was then forced to retreat, as so often with his announcements and threats. This browbeating and backpedalling by Trump earned him his very own stock market acronym, the TACO trade: “Trump Always Chickens Out”. Trump is the personification of unpredictability for politicians, investors and countless people around the world.
«The longer I live, the more I am convinced that this planet is being used by other planets as an insane asylum.»
A pleasing year on the equity market, despite chaos and uncertainty
Back in January, who would have bet on a positive stock market year, knowing that the U.S. president would dictate tariffs to his partner countries on a scale last seen in the world a century ago? Hardly anyone. A more likely prediction would have been a crash. And although it did not materialise, the capital markets still experienced some very turbulent times over the course of the year. Aside from the insane tariff regime, the long-running war in Ukraine, the Gaza conflict and the U.S. attack on Iran’s nuclear facilities negatively affected the markets over the course of the last twelve months. The saying that ‘political stock markets have short legs’ proved once again to be true. On 2 April – the self-proclaimed ‘Liberation Day’ – Trump surprisingly announced a tariff regime that would ravage the global economy. The shock waves sent the global equity markets into a short-lived tailspin, but the slump was not sustainable and the market soon started to recover. History repeated itself on Friday, 1 August. Trump signed an executive order with sweeping tariff hikes on imports from around 66 countries, which were slated to come into force from 7 August 2025. Market experts predicted nothing short of a equity market crash of between 10 and 15 per cent for Monday, 4 August. It failed to materialise – to the befuddlement of countless analysts and gurus. Although the markets started with losses of 1 to 2 per cent, they had been recouped by the end of the same day. It is perfectly understandable to us why our clients often ask for our opinion on the impact of Trump’s erratic policies on the capital markets. But from an investor’s perspective, it is largely a waste of time to concern ourselves with farcical politicians.
«The stupidity of governments should never be underestimated.»
It is doubtful whether Trump’s policy will ultimately be to the benefit of American citizens in the face of all these conflicts. One sign that the land of unlimited opportunity (and impossibility) has already been damaged is the U.S. dollar, which has experienced a massive erosion in value and confidence over the past twelve months. In the first half of the year, the dollar lost more than at any time since 1973, when then President Richard Nixon abolished the fixed exchange rate system that had shaped the post-War era. From the viewpoint of a Swiss or German investor, the seemingly attractive returns presented by the MSCI World Index and the U.S. S&P 500 Index – until the end of November at least – are therefore largely a mirage.
«I am amazed at how much astonishment Trump is causing in Europe: we already knew him from his first term of office.»
The NZZ newspaper headlined in its issue of 9 July 2025: “Trump’s tariff policy plunges German exporters into crisis – exports are at their lowest level for over three years.” This sobering economic outlook contrasts with the astonishing performance of the German DAX Performance Index, which had advanced by around 20 per cent by the end of November. The DAX was indeed the real high-flyer among the Western equity markets last year. The outstanding performance of the German equity market is primarily driven by the brilliant development of the defence company Rheinmetall and the strong performance of the Deutsche Bank and Commerzbank stocks. Rheinmetall has achieved a fourteen-fold increase in its share price since the outbreak of war in Ukraine. It is surprising to note that defence stocks have not only become socially acceptable, but have even mutated into a trend segment. ESG (Environmental, Social, Governance) or sustainable investing was the dominant theme in the investment business just a few years ago. Since the war in Ukraine and Trump’s presidency, ESG has receded into the background and disappeared into oblivion for many financial institutions and their clients. Our esteemed clients are aware of our preference for a comprehensively sustainable world, but that we have consistently adopted a realistic and fact-based stance concerning the impact of sustainable investments – and this has not changed. At the same time, we have always been cautious of or even opposed to buying equities in defence companies. So while we were confronted with the question of “Are you doing enough in the area of sustainable investments?” just a few years ago, we are today more likely to hear “Why don’t I have any Rheinmetall in my portfolio?”. We have our difficulties with this ‘back and forth’ policy. A steady rather than a fickle approach to this complex topic matters deeply to us – and this applies equally to investments in major bank equities. Having been the equity market’s problem children for many years, they have recently experienced a resurgence. We will carefully monitor further developments. But we will remain cautious as long as international banking groups find themselves confronted with regular lawsuits and fines.
«No advance is as difficult as the return to reason.»
At the end of November, we were very satisfied with the performance on behalf of our clients, even though a few individual securities left us disappointed. We are also aware that the performance achieved for our German clients has not kept pace with that of the DAX over the past two years. This is the price of the internationally well-diversified portfolio policy that we have consistently maintained. Unlike many of our competitors, we do not abandon our principles just because there has been another change in fashion. After all, we are absolutely convinced that we will again experience years in which German investors will be relieved to know that their portfolios are internationally diversified. We have experienced this many times in the past. It was the U.S. equity market that outperformed and outshone everything in 2024, and the German market in 2025. One market is always the best – but no-one can know in advance which one it will be in the year ahead.
Artificial intelligence (AI) – A technology conquers the world
The Chinese AI start-up DeepSeek caused the equities of American AI technology companies led by Nvidia to plummet at the end of January last year. Influential tech investor Marc Andreessen took to the social media platform X to call DeepSeek “one of the most amazing breakthroughs I’ve ever witnessed.” It was the ‘Sputnik moment’ for AI, Andreessen wrote, referring to 1957, when the Soviet Union sent Sputnik-1, the world’s first satellite, into orbit. The fear spread around the world that even with its very low development costs, DeepSeek might work more efficiently than models by the established American AI providers. These fears have since proved unfounded, and the major U.S. tech companies centred around Meta, Microsoft and Nvidia are enjoying phenomenal growth in revenues and profits. However, the DeepSeek case laid bare the fragility associated with the high valuations of certain tech equities.
«AI might bring such fundamental change to our economy that the high investments in this technology and the eye-catching equity valuations will turn out to be entirely justified. This is not my personal belief, but I’ve been wrong so often in the past that I no longer place much stock in my own opinion.»
The western ‘The Magnificent Seven’ by John Sturges dates back to 1960. The film tells the story of seven gunslingers who defend their Mexican village against a vastly superior horde of bandits. Four of the seven heroes die, despite defeating the bandits. Today, the Magnificent Seven are the equities of the famous companies Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. In his article entitled ‘The Magnificent Seven are out of step’ from 28 August, CH-Media business journalist Daniel Zulauf asks whether the fate of the gunslingers might sooner or later befall one or a few of today’s equity market ‘heroes’. Indeed, the Magnificent Seven are no longer a homogeneous group. Car manufacturer Tesla, for instance, is grappling with a number of problems, while Meta, Microsoft and Nvidia are breaking records. Nvidia is the absolute high-flyer, which we ‘unfortunately’ do not hold in our equity universe. The equity is very highly valued and the company is heavily dependent on how Meta and Microsoft invest in AI. The two groups are responsible for around 40 per cent of Nvidia’s total revenue, which makes the company vulnerable. Chinese clients account for another 13 per cent of the revenues generated by the graphics processor and chip manufacturer. The political risks there are above average.
«There is nothing so disturbing to one’s well-being and judgement as to see a friend get rich.»
A study published by researchers at the Massachusetts Institute of Technology (MIT) in the U.S. shows that the AI sector cannot achieve unlimited growth, either. The scientists found that 95 per cent of all AI pilot projects launched by companies fail. Many managers seemingly rely on the wrong strategies and implement AI software that is difficult to integrate into operational processes. Some experts are also concerned about mutual investments between AI giants. OpenAI buys computing power from Oracle and graphics processors from Nvidia. For its part, the world’s largest chip manufacturer has announced an investment of USD 100 billion in OpenAI. Almost at the same time, OpenAI announced it had placed an order worth billions with AMD, Nvidia’s biggest competitor. Interdependence within one’s own ecosystem is naturally fraught with risk.
«Don’t succumb to greed. Remain aware that we are most likely dealing with a bubble.»
In his Big Picture, the respected journalist from The Market, Mark Dittli, uses the example of Microsoft to provide an impressive illustration of how the company’s equities have developed since the turn of the millennium. Unlike many other companies, the tech group was not a figment of the imagination during the dotcom bubble of the late 1990s, but rather “an established, highly profitable group with a monopoly-like market position.” The bubble burst in March 2000 and the U.S. economy fell briefly into recession. Meanwhile, though, Microsoft managed to increase its profits year after year as if nothing had happened. “Microsoft even weathered the financial crisis of 2008/09 with ease,” writes Dittli, pointing out that the software company increased its earnings per share almost eightfold between 1999 and 2012. But what happened to Microsoft’s share price during this period? You might be astonished: from 2000 onwards, the share occasionally lost more than 75 per cent of its value and took many years to return to its previous heights. During this phase, the price/earnings ratio of Microsoft shares fell from over 70 to below 10, as investors turned away from tech equities, preferring instead to benefit from the boom in commodity stocks. So what conclusion can we draw from this? It is conceivable that the AI boom will continue for years to come and that the leading companies will successfully increase their profits. Nevertheless, the prices of equities might drop significantly in the context of a valuation correction, meaning that shareholders would have to endure a prolonged dry spell despite positive company figures.
«Investing in the index exposes you to a concentration risk that is without historical precedent for broadly diversified investors.»
Technology stocks have an enormously high weighting in the U.S. indices, which has been built up pro-cyclically in the recent past. This harbours considerable risks. We will, of course, continue to invest in leading AI companies such as Alphabet and Microsoft, as well as suppliers such as ASML. Standing on the sidelines and missing out on huge opportunities in a changing world is not a smart option – but we will always invest with controlled risks.
Headwinds for quality-oriented value investors
At the time of writing, the performance of Hotz compares favourably with our competitors and the global market index MSCI World. However, the spread among asset managers is extremely high. Anyone who held a significant proportion of gold or a high proportion of technology stocks in their portfolio in the past year comes out on top. The five shares Alphabet, Amazon, Apple, Microsoft and Nvidia alone represent a weighting of over 30 per cent in the American S&P-500 index. It has been six decades since we last witnessed this level of concentration. This is a challenging environment for conservative and broadly diversified investors. For once, Berkshire Hathaway, the investment company owned by the legendary 95-year-old Warren Buffett, is facing considerable headwinds. Since the Oracle of Omaha announced his withdrawal at the beginning of May, his investment vehicle has lagged considerably behind the broad-based index. Moreover, Swiss and German investors will suffer a significant dollar loss.
Swiss small & mid caps have shown a disappointing performance over recent years. Having previously benefited greatly from a risk premium in this share category, some companies in the sector have increasingly turned out to be ‘problem children’. In response, we will gradually reduce the segment of equities with low market capitalisation and limited liquidity.
Temporary headwinds can be overcome, even if they are unpleasant. History teaches us that abandoning a strategy with a proven track record of success in favour of a pro-cyclic switch to fashionable, hot and highly valued equities is unwise. Let’s not forget that in both the 9/11 new economy crisis from 2001 to 2003 and the financial crisis from 2007 to 2009, as well as in 2022, when global interest rates rose sharply and exchange prices fell, our returns exceeded those of the relevant benchmarks and many of our competitors by 8 to 10 percentage points. Excesses are temporary and it is only a matter of time before the mood shifts and euphoria gives way to sober reflection. We will stick to our conservative strategy.
Nestlé – from bond alternative to high-risk investment?
There is no doubt that Nestlé is grappling with some issues. Among other things, the food group is suffering from weak growth, fluctuation on the Executive Board, disappointing acquisitions in the healthcare sector and general pressure on margins. Let’s not forget that Nestlé reached a high of around CHF 127 at the end of 2021. Negative interest rates prevailed on the bond markets in the wake of the coronavirus crisis, prompting many investors seeking an alternative to bonds to buy Nestlé shares, which are viewed as conservative and offer a dividend yield of around 2.4 per cent. At the time, we took a critical stance to this trend, as Nestlé stock is ultimately not an infallible bet, but rather an equity with opportunities and risks. Since reaching its high, the share has lost more than 40 per cent of its value and is now viewed by some analysts as a risky stock that a few are advising to sell. We believe this opinion is exaggerated. With a share price of CHF 80, the dividend yield alone is 3.8 per cent. Annual profit should continue to reach around CHF 10 billion. In our view, it is only a matter of time before Nestlé is again viewed favourably by investors.
«The intelligent investor should not make the mistake of buying a stock because its price rose or selling because its price fell.»
On 12 and 13 June, we will be celebrating our 40th anniversary with our value-oriented asset management company in St. Gallen, where our story began in 1986. Despite – or perhaps thanks to – our 40 years of capital market experience, we occasionally feel as though we have become rooted in our old ways. While the prices of privately mined cryptocurrencies – which have no intrinsic value whatsoever – are skyrocketing, companies such as Nestlé suffering a temporary bout of weakness are being left behind. It goes without saying that this will not prompt us to switch allegiances and embrace the beliefs of the digital devotees.
Out of private equity
Several cantonal and regional banks in Switzerland have been holding detailed talks with leading private equity providers for some time. The aim is to make this illiquid and often opaque asset class – which is extremely lucrative with regard to its fee structures – attractive to medium-sized and smaller clients. Until now, private market investments were only accessible to institutional investors such as pension funds or insurance companies and very wealthy private clients. For some time now, the private equity sector has been offering specific, semi-liquid funds known as ‘evergreens’ in order to attract a wider audience. The question is: does this really make sense for investors?
«I don’t currently see any systemic risks in the non-banking sector, but the potential is there. Many areas such as private equity and private debt have never experienced a real interest rate cycle. We do not know how resilient to crisis they actually are.»
The mercilessly frank article “Pension funds want out of private equity” was published in the Handelszeitung newspaper on 18 September. Stephan Bereuter, Chief Investment Officer and Head of Asset Management at the pension fund of the Migros retail group, is quoted as saying: “We are not making any new investments in private equity and are allowing the last positions to expire.” The largest Swiss pension funds, the Swiss Federal Pension Fund Publica and the BVK Pension Fund of the Canton of Zurich, also eschew investments – or have divested any holdings – in private equity due to a lack of transparency and excessively high fees. The Nestlé pension fund is reportedly examining a reduction in this asset class as well.
«A large part of the return goes to the manager, but the investor bears the financial risk.»
Romano Gruber, Managing Director of the consulting firm PPCmetrics, confirms that pension funds are becoming increasingly critical of private equity: “There are clients who are considering or implementing a reduction as part of their investment strategy review.” In fact, an analysis by PPCmetrics indicates that the total fees for private equity constructs amount to around 6 per cent annually. It is obvious that with such exorbitant fees, little is left over for the clients. Private equity companies are keen to refer to the so-called IRR (Internal Rate of Return) in their return figures and claim that they achieve annual returns of 10 to 25 per cent. In December 2024, Ludovic Phalippou, Professor of Finance at the prestigious University of Oxford, published the article “The Tyranny of IRR: A Reality Check on Private Market Returns”. The academic, who literally describes IRR calculations as “bullshit”, used the article to demystify private equity returns. Viewed in the sober light of day, the net annual returns of private equity are lower than those of listed shares.
“It is fascinating that so many people are happy with an over-reported performance that doesn’t reflect reality. The consultants are happy, the pension fund managers are happy and the trustees are happy. Everyone is happy and the only ones who should be unhappy are the beneficiaries.»
Finanz und Wirtschaft reported in July that the private equity provider Partners Group is unable to offload its involvement in the energy service provider Techem. Apparently it is a ‘shelf warmer’. After all sales efforts had failed miserably, Partners Group is reported to have simply – as if by magic – moved the investment from its private equity division to its infrastructure division. Only a cynic would see something fishy in this. Techem is not an isolated case. The markdowns on many companies acquired by private equity firms reach up to 30 per cent of their acquisition value. According to the rating agency Moody’s, around 17 per cent of private equity-owned companies went bankrupt between 2022 and 2024 – double the number of ‘normal’ businesses. It is astonishing that the private equity crisis has come at a time when the economy appears almost carefree. The question is: are private equity providers seeking to solve their current problems at the expense of ‘stupid’ private investors? And what would befall the sector if a change in economic mood were to occur?
«I have been in the private equity industry for 30 years and have seen a number of crises, such as the burst of the dotcom bubble in 2001 and the major financial crisis in 2008. But what we are currently experiencing is certainly the sector’s most protracted and profound crisis.»
The UBS House View, Investor’s Guide issue from last July has the captivating title “Measures in the midst of uncertainty”. The only remaining major Swiss bank uses the article to address the question “What is the right allocation in alternative investments?”. UBS recommends that its clients allocate 20 to 40 per cent to the private markets and 8 to 12 per cent to hedge funds. You know our opinion on these high-margin and opaque products: the only people who can issue this kind of recommendation are those who centre their efforts on their own bonus instead of the interests of their clients.
America’s debt is becoming a global problem
The global acceleration in sovereign debt concerns us even more than geopolitical tensions. Although we are neither in a recession nor an economic slowdown, governments are spending money far beyond their means – seemingly without any care for austerity.
«I, however, place economy among the first and most important republican virtues, and public debt as the greatest of the dangers to be feared.»
Japan has long led the world in terms of debt, whose level has now reached an astronomical 240 per cent of gross domestic product (GDP). The Land of the Rising Sun is continuing to groan under the real estate and equity market collapse that came hard on the heels of an unprecedented boom in the late 1980s. Trailing Japan are the notoriously indebted Greece and Italy with figures of 155 and 135 per cent, respectively. France has a debt level of 116 per cent and has, on 16 occasions in the last 18 years, exceeded the permitted Maastricht deficit cap of 3 per cent. Indeed, the budget deficit seems likely to have reached almost 6 per cent of GDP last year. The interest rate risk premiums on French government bonds have risen alarmingly as a result. Germany, with 64 per cent, and Switzerland, with 38 per cent, are the choirboys in regard to total debt. What makes this inglorious ‘world ranking’ particularly concerning is the fact that the United States of America is advancing to the top of the table in leaps and bounds – with its debt already exceeding 120 per cent of GDP. Published in 2010, the renowned American economists Carmen Reinhart and Kenneth Rogoff use the paper “Growth in a Time of Debt” to propose the rather controversial thesis that a threshold of 90 per cent is dangerous territory and that government debt has a negative impact on economic growth.
«A deficit means you have less of a thing than if you actually had nothing at all.»
With his self-proclaimed “Big Beautiful Bill”, the confrontational U.S. President Donald Trump made an election promise that includes lower taxes, higher defence spending, better border protection and more deportations. The promise is risky, perhaps even irresponsible, because America’s spending spree is built on credit. It is therefore reasonable to assume that last year, the debt level grew by another USD 2,000 billion or an incredible 7 per cent of GDP. The fact that this has become possible in a buoyant economic climate only makes matters worse.
«Politicians like to spend money. It is much easier to accumulate debt than to reduce it.»
U.S. debt totalled USD 1 trillion in 1980. This sum has since grown to USD 36 trillion. Since the turn of the millennium, liabilities have skyrocketed from 55 per cent of GDP to over 120 per cent of economic output, meaning that Americans spend USD 1,200 billion a year on interest payments alone – over USD 3 billion a day. Before the Covid crisis, U.S. paid just USD 1 billion per day in interest service. According to Carmen Reinhart, debt servicing already accounts for 12 per cent of the U.S. budget – by far the highest proportion among Western countries. It is therefore no coincidence that in May last year, Moody’s became the third influential rating agency after Standard & Poor’s (2011) and Fitch (2023) to withdraw the USA’s top rating and downgrade its creditworthiness.
«The mother of all debt crises could materialise some time this decade or next.»
The USA’s notorious twin deficit – the combination of a government deficit at home and a current account deficit with other countries because imports exceed exports – is unsustainable in the long term. There is a lurking risk of a ‘Liz Truss shock’. Let’s not forget that when the then British Prime Minister announced tax cuts in 2022, interest rates on bonds exploded uncontrollably on the capital market. Overnight, investors lost confidence in the UK’s creditworthiness, forcing Liz Truss to resign shortly after taking office. Something similar happened with U.S. interest rates when Donald Trump announced his bizarre tariff plans in April last year. The prices of credit default swaps on treasury bonds shot up, forcing Trump to shelve his plans due to pressure from the capital markets. Just how sensitively the capital markets respond to statements made by politicians was demonstrated once more in early July in the British parliament. During a speech by Prime Minister Keir Starmer, the cameras panned to his Chancellor of the Exchequer Rachel Reeves, who favours a sound budget and sustainable public finances and was in tears for fear of her imminent sacking. UK bond prices collapsed instantaneously – foreshadowing a repeat of the ‘Liz Truss shock’. These two examples demonstrate the fragile responses of capital markets when investor confidence collapses – and the case of Greece in 2012 was no different. Ray Dalio, founder of the world’s largest hedge fund Bridgewater Associates, puts it in a nutshell when he says: “We should be afraid of the bond market.”
«I used to think that if reincarnation were true, I would want to come back as president, pope or a baseball star. But now I would like to be reborn as a bond market: the bond market can intimidate anyone.»
What are conceivable long-term scenarios for the USA to escape this fraught situation? The obvious solution would be austerity measures and benefit cuts. Experience has shown that these projects ultimately fail due to the unwillingness of politicians to follow through on their flowery campaign promises. And once a decision has been reached to spend money, it is difficult to reverse. It is far easier to use financial repression to ease the strain on the budget. This is achieved by firing up the printing presses to create cheap money and artificially low interest rates. The inevitable hikes in inflation cause the real value of the debt to shrink and reduce the purchasing power of citizens. This is tantamount to gradual public expropriation. From this perspective, inflation acts like a stealth tax. Americans have long-standing experience in the deployment of financial repression. Although the country’s debt level reached a record 120 per cent at the end of the Second World War, it had fallen to 35 per cent by 1980. During this time, bondholders systematically lost money in real terms. In times of financial repression, investors can protect themselves most efficiently with real value investments, which primarily include equities. This will remain unchanged going forward.
«The dollar is our currency, but it’s your problem.»
The Japanese central bank (BoJ) has been pursuing financial repression for around three decades with interest rates that are far below inflation. Its aim is to protect the dramatically indebted state apparatus – a nightmare for savers who face a dramatic devaluation of the yen. Jerome Powell, Chair of the U.S. Federal Reserve, will step down from office in May 2026. For his part, Donald Trump is likely to exploit an accommodating successor at the helm of the Fed to pursue the goal of gradually devaluing the U.S. dollar. The vast trade surplus held by foreign creditors – from Japan and China first and foremost – would then be worth less. Basically, this race to devalue began last year with the loss of confidence in the dollar.
«By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.»
At some point, the United States of America will have to consider debt restructuring programmes if it continues to run up debt at the current rate – for example by extending the terms of its obligations. One scenario – albeit one whose ramifications we would be loath even to envisage – is a credit default by the world’s most powerful economy. A bankruptcy of the U.S. government would have a devastating impact on the stability of global financial markets – the demise of a major international bank would be a piece of cake in comparison.
«Partial bankruptcy is therefore unavoidable. The only question is when it will be implemented.»
There are two factors that embolden us to believe it will not come to that. Firstly, the economic power of the USA: the world’s largest and strongest economic power accounts for around a quarter of the global gross domestic product. Numerous companies that are among the world’s champions, particularly in the technology sector, are based in the United States of America. This inspires confidence among creditors that the USA can carry an above-average debt burden. The country will be able to tackle and solve the problems if the capital markets force a response. Adding to this is the fact that the USA has managed to establish the American dollar as the world’s reserve currency to this day, despite many critical voices. From today’s perspective, it is hard to imagine that this will change in the foreseeable future.
«Market rebellion can lead to the currency’s abrupt devaluation. A dollar crash is possible.»
Secondly, the vast fortunes of the American super-rich: published annually by the insurance company Allianz, the Global Wealth Report indicates that the average per capita net assets of Americans will be around CHF 300,000 at the end of 2024 – after deducting private debt. That is unrivalled. With average net assets of around CHF 250,000, Switzerland is ‘only’ in second place. The USA is home to more billionaires than any other country. With this in mind, it is reasonable to take a closer look. The U.S. government is around USD 36 trillion in debt. By contrast, the combined wealth of American citizens is estimated at USD 180 trillion. After deducting private liabilities consisting largely of mortgages, this results in net assets of around USD 160 trillion. In other words: the country would be debt-free if Americans were to transfer just under a quarter of their assets to the state as a ‘reorganisation tax’. This is merely a mind game, but sooner or later the wealthy will not be able to escape plugging government deficits in the form of higher taxes. In the end, the painful recovery of the U.S. national budget will likely be fuelled by a combination of various measures.
Stablecoins as saviours of ailing public finances?
Politicians have never been at a loss when it comes to generating creative ideas to fool the public into believing that they have the right recipe for curbing national debt. The latest idea comes, unsurprisingly, from U.S. President Donald Trump. His self-proclaimed Genius Act is intended to establish a legal framework to promote the establishment of stablecoins as private, digital currencies. Stablecoins are pegged to a currency such as the dollar and replicate it one-to-one. But they are controversial due to their use in shady deals and money laundering. Issuers of stablecoins mainly turn to short or long-term government bonds (Treasury bills and bonds) to hedge their digital currencies. The best-known stablecoin is Tether. The Genius Act is intended to trigger a “revolution in the financial market” and reduce the U.S. national deficit. With all due respect, it is hard to understand how this is supposed to work if one draws on simple common sense. How on earth are debts supposed to evaporate simply by creating an additional ‘asset’?
«The stablecoin sector is not well regulated, and the fact that you have to call something stable in name says a lot.»
The protagonists are likely hoping that the increased purchase of American government bonds to collateralise the stablecoins might reduce interest rates and, as a result, the debt burden. It is doubtful that this magic trick will work. Rather than ingenious, it seems to be a dangerous concoction of arrogance and insanity. To be fair, it is important to note that stablecoins may well have a future as a digital and state-sanctioned means of payment. The EU, for example, intends to issue a centrally controlled stablecoin via the European Central Bank. It would then compete with the activities of private issuers.
Donald Trump transformed from Saul into Paul when it came to cryptocurrencies and launched his own coin early last year as a ‘genius way’ to boost his personal fortune – at the expense of many fans who incurred considerable losses. He has invited the most loyal fans with the largest number of Trump coins to a private dinner. This is how politics currently works in the United States of America.
«Ultimately, this is a kind of Ponzi scheme in which a small number of people earn considerable profits at the expense of those who enter the crypto market later on.»
Oliver Kahn, former star goalkeeper of FC Bayern Munich and the German national football team, was the guest of honour at the 13th Münchner Vermögenstag (Munich Wealth Day) organised by V-Bank (where many of our German clients hold their securities accounts) on 27 June. He held a talk entitled “New investment opportunities with tokenised securities using the example of growth capital for football clubs.” Sounds exciting. Who knows, perhaps the former German football god will soon be nominated for the next Nobel Prize for Economics – on the same stage as Donald Trump, who has his eyes set on the Nobel Peace Prize.
Gold as an alternative to the dollar?
Gold has been experiencing a veritable boom for around three years. From the beginning of January 2023 to the end of November 2025, the yellow metal gained an outstanding 102.5 per cent cumulatively in the Swiss franc reference currency. In comparison, Swiss equities (Swiss Performance Index SPI) rose by 28.5 per cent and Swiss bonds (Swiss Bond Index SBI) by 14.1 per cent. In view of the global challenges, the rampant national debt of the USA and the ludicrous policies of its incumbent president, investors are increasingly eyeing gold as an alternative to the U.S. dollar.
«The fame of some contemporaries is linked to the stupidity of their admirers.»
Gold purchases by central banks have risen sharply, especially since Russia launched its war of aggression against Ukraine. This is due in particular to the fact that the G7 states, led by the USA, froze Russia’s foreign currency reserves after the outbreak of war. Some monetary authorities subsequently realised that their own reserves, which are primarily held in U.S. dollars, could be used as geopolitical leverage. It is therefore not surprising that the central banks of China in particular, but also those of India, Poland and Turkey, are increasingly involved in buying gold. The precious metal is held to protect against crises.
It is worth noting that the sharp rise in the price of gold has been accompanied by a simultaneous increase in real interest rates on U.S. Treasury bonds. In the past, the price of gold regularly tended to weaken when real interest rates rose, as this increased the attractiveness of fixed-interest securities. This emphasises that the gold bull market of recent years differs from previous patterns and is built on a solid foundation.
We firmly believe that gold definitely has its place in an investor’s overall assets. And there are good reasons for this. For a long time, gold played an important role in the monetary policy of the international community. Foreign exchange reserves were tied to gold until the abolition of Bretton Woods. Gold plays an important role in the jewellery industry as well and is therefore an economic factor. Unlike cryptocurrencies, which people can simply whip out of a hat or a digital network in any quantity, gold is also limited as a raw material, despite all the attempts by alchemists who used all kinds of chemical processes to produce gold in the Middle Ages.
Erwin Heri, Professor of Finance at the University of Basel, uses his Fintool video from 16 May 2025 to chart the long-term return on the most important investments for the period from 1800 to 2024. While gold yielded an annual return of 0.7 per cent on a real, inflation-adjusted basis and in the reference currency USD, bonds yielded 3.2 per cent and equities even 7.0 per cent annually. These are monumental differences. Viewed in the very long term, the return on gold was therefore not significantly higher than inflation.
«Gold is dug out of the earth somewhere in the world. Then we melt it down, dig a new hole, fill it up again and pay people to guard it. Anyone watching us from Mars would be scratching their head.»
To be fair, gold was fixed at USD 35 until 1971 and the dollar was pegged to this price. It has only been exposed to free market fluctuations since Bretton Woods came to an end. Following the abolition of the gold standard, gold rose sharply in value before entering a protracted slump, only to start to return resurgent in the wake of the financial crisis and after the outbreak of the war in Ukraine. A fair long-term comparison between equities and gold therefore covers the period from 1971 to 2025, during which gold was exposed to free market forces. The comparison then looks like this: while gold has gained 5.7 per cent annually in nominal terms (3.5 per cent in real terms) over the entire period of around 55 years in the Swiss franc as reference currency, Swiss equities have achieved a plus of 7.8 per cent annually (5.6 per cent in real terms). Gold undoubtedly has its place in the investment world. But it is important to avoid overestimating the long-term return on gold, which is why we would keep its share in total assets rather small. In summary, we believe that gold is the better bitcoin, but equities remain the better gold in the long term.
Swiss investors do not need foreign currency bonds
It makes little sense to invest in higher-yielding foreign currency bonds from the perspective of a hard currency country like Switzerland. Corresponding currency losses wipe out more than just the interest rate advantage abroad, as the British professors Elroy Dimson (Cambridge University), Paul Marsh and Mike Staunton (both at the London Business School) impressively demonstrate in their UBS-published Global Investment Returns Yearbook. Accordingly, Swiss bonds generated the highest real return in a global comparison between 1900 and 2024, at 2.2 per cent annually adjusted for inflation. Although nominal interest rates in Switzerland are systematically among the lowest in an international comparison, real yields are the highest. This is due to the different inflation and currency trends in the various countries. Because inflation is notoriously low in Switzerland and the Swiss franc is the world’s hardest currency, the currency-adjusted yields on Swiss bonds are higher in the long term than in any other country in the world. It follows, therefore, that Swiss investors do not need foreign currency bonds to diversify their portfolio. On the contrary: foreign currency bonds unnecessarily exacerbate the fluctuation risks of a securities portfolio and lead to higher tax burdens for private investors due to the greater interest income, which is subject to taxation in Switzerland, although currency losses cannot be deducted for tax purposes.
«I don’t want to be a greedy banker any more» – the Credit Suisse Tuna Bond Scandal
Do you remember the Credit Suisse Tuna Bond Scandal? In 2013, the defunct major Swiss bank extended a loan of USD 1.3 billion to the southern African country of Mozambique. The aim was to enable the government to purchase a tuna fishing fleet in order to create jobs and growth through fishing. Andrew Pearse, a native of New Zealand, was responsible for this deal at Credit Suisse. The deal turned out to be a monumental case of corruption in which ministers, secret service agents and CS bankers – most notably Pearse himself – were bribed. Several hundred million dollars seeped through obscure channels and into the pockets of the fraudsters. Although the designer of the fleet was on a Credit Suisse blacklist and was known as a ‘master of kickback’, Pearse dictated only these words to his CS colleagues: “Just get him out of the picture.” The bank’s compliance department was apparently duped easily into rubber stamping the loan. With an interest rate of 9 per cent, the people in charge probably placed greater stock in the potential earnings than the risks. This is astonishing, as Transparency International rates the risk of corruption in Mozambique as ‘very high’.
«I now want to prove that even a formerly greedy, immoral banker is capable of doing good.»
The story ended in disaster for Credit Suisse, pleading guilty to money laundering. The bottom line for them was a loss of USD 1 billion. The loan also turned into a nightmare for Mozambique. The country slipped into national bankruptcy, while the tuna fleet in the port of Maputo is rusting away unused. And what happened to fraudster Andrew Pearse, who was banned for life from working in the financial industry by the UK Financial Conduct Authority (FCA)? According to media reports, he works from Monday to Thursday at his clearance company Waste Not Group, disposing of old sofas. On Friday, he makes himself useful at the Foodcycle street kitchen in Wolverton, near London, where he peels carrots and serves hot vegetable soup to the homeless. What a happy ending to the dismal story of a corrupt banker: at least the customers at his alleyway kitchen can expect decency and morals from Andrew Pearse.
Tax challenges
We are regularly approached by clients with questions about tax issues. They relate to various aspects of Swiss or foreign taxes, for instance “Do I have to pay tax if I give shares or a property in Switzerland to my daughter living in France?” or “How high is my exemption for U.S. estate tax?”
«Everything you say should be true. But not everything that is true should be said.»
Often these questions are complex and require specialists, as the answers may be completely different depending on the family situation and domicile of the giver, testator or beneficiary. Moreover, the amount and the tax laws applicable in the various countries significantly influence the relevant calculations. True to the old adage “Cobbler, stick to your last”, we are very aware of the areas in which we are your specialists. These include all questions relating to your investments. But we also know which topics we would prefer to leave in the hands of other specialists. So we recommend that you consult competent experts if you have any questions about tax issues such as the complex U.S. estate tax.
Communication with our clients
Individual clients occasionally ask us why, in times of equity market crisis, we do not communicate proactively and promptly about current events around the world and specifically about the financial markets. The question is absolutely justified, especially as a fair number of our competitors do precisely that. Over the years and decades, we have discussed this topic on various occasions in our management bodies and have always come to the clear conclusion that we do not want to go down that path. So what are our reasons?
«There are some who gain from their wealth only the fear of losing it.»
It gets hectic on the capital markets in times of stock market crisis. Things often come thick and fast on a weekly or even daily basis. A good example is the setback on the equity markets that took place last April. The surprise announcement of arbitrary tariffs by U.S. President Donald Trump sent stock and bond markets plummeting around the world. Of course we could have commented on and evaluated these events in a letter to our clients. But how would you, our esteemed clients, have benefited – which is all that matters to us? Very little: under pressure from rising interest rates – a massive burden for the already heavily indebted U.S. government – Trump capitulated just a few days later and put the announced tariffs on ice, allowing the markets to recover quickly. The information we might have sent to our clients just a few days earlier would then have been obsolete, and most likely we would have felt compelled to follow up with another assessment just a week after our first. In extreme cases – and they are not at all uncommon in stock market crises – this would have prompted us to send you numerous informative letters inside of just a few weeks. In our view, this approach makes no sense, as it fuels even more uncertainty and hectic responses.
«What Trump does and says is completely meaningless for an investor with an eye on the long term and global diversification.»
We are asset managers who think and act in the long term. Short and medium-term forecasts or short-term trading are anathema to us. Strong nerves, a steady hand and discipline are particularly important in stock market crises. And these things are only possible if you refuse to allow market turbulence to drive you crazy. Basically, we believe that this is the most important advice in any stock market crisis: adhere to the long-term investment concept and, whenever possible, take advantage of countercyclical opportunities – like in April last year! When a slump occurs on the equity markets, it is the primary task of our portfolio managers, adopting a systematic and countercyclical approach, to buy shares for new clients whose portfolios are being built up. Countercyclical rebalancing is performed for clients with fully invested portfolios. This involves selling some high-performing securities to take profits, while making additional purchases of securities that have tended to be weak. The same applies at the sector level. In addition, during periods of weakness, equities are bought in mixed portfolios at the expense of bonds – and vice versa in bull markets. Anyone who believes in the importance of acting with haste in turbulent times is mistaken. Hectic and often ill-considered trading usually costs returns. In our experience, it does not matter in the long term which client portfolios are managed a little earlier or later in hectic times. Given that we, like all experts, do not have a crystal ball and cannot predict the short-term development of the markets, it is ultimately pure chance whether we buy or sell lower or higher in individual cases.
Our team’s focus during stock market slumps is on the consistent implementation of our countercyclical investment philosophy. So it doesn’t mean that we are inactive if you fail to hear from us in turbulent times. On the contrary: we are busy keeping our hands steady and doing exactly what we promised you. This is much more beneficial in the long term than having to deal with irrational decisions made by powerful politicians or attempting to engage in short-term timing. Sooner or later, this is doomed to fail. Those who try anyway will generally – spooked by negative headlines – adopt a pro-cyclic approach and sell their equities at inopportune times. We have experienced this time and again in the almost 40 years of our existence. Those who succumb to nerves in turbulent times choose inauspicious moments to sell and often at rock-bottom prices.
«We will reduce drug prices by 100 per cent, in some cases even by 300 per cent or more.»
We will continue to inform our clients every six months about global investment activity and our position on the financial markets. Of course, you are also welcome to ask us or your customer advisor for an assessment at any time. We are always at your disposal. In essence, though, our response in phases of market crisis will always be and remain the same: keep calm, steady your nerves, block out the noise of the capital markets and politics as much as possible and, where possible, suppress the herd instinct and seize countercyclical opportunities to buy equities or rebalance your equity allocation.
For the New Year 2026, we wish you and your loved ones all the best, and above all, good health. We would like to thank you for the trust you have placed in us and look forward to working with you in the future.
With kind regards, on behalf of the entire “Hotz Team”. Yours,
Dr. Pirmin Hotz
