Redefining 60/40 Portfolios

Crescat Capital Research Letter & Performance Update

We believe conventional investment strategies are poised to undergo a significant restructuring, placing a prominent emphasis on investments in hard assets. As illustrated in the accompanying chart, the valuation history of 60/40 portfolios unfolds through extended cycles, and we are currently experiencing another critical juncture in this dynamic. In August 2021, the combined valuation of overall equities and US Treasuries …

A Clarion Call to Macro and Value Investors

Crescat Capital Research Letter & Performance Update

I am writing this personal letter to Crescat’s clients and followers ahead of our regular monthly research letter to literally pound the table on what I believe is one of the best times to deploy capital to Crescat’s strategies in our firm’s history. The set-up is the most exciting macro and value combination play on both the long and short …

Violent Repricing

Crescat Capital Research Letter & Performance Update

There is a high probability of a recession in the next twelve months according to the NY Fed’s statistically significant yield-curve inversion model. One wouldn’t know it by looking at risk premia across equity and credit markets. Sub-investment-grade corporate bonds are just one area where there is a glaring imbalance. As one can see in our model below, in the …

Monetary vs. Fiscal Dissonance

Crescat Capital Research Letter & Performance Update

Monetary and fiscal authorities are currently running what we believe are unsustainably divergent policies. The simultaneous rise in the cost of debt by central banks and their deliberate reduction of balance sheet assets is entirely incongruous with the exponential growth in government debt. Following the COVID era, we have entered a period of fiscal dominance among major developed economies. Hence, …

Three Overriding Macro Themes

Crescat Capital Research Letter & Performance Update

Dear Investors: At Crescat, we have three overriding, high-conviction macro themes supported by our independent research and proprietary models that we believe are poised to unfold in rapid succession over the short and medium term: We see highly overvalued long-duration financial assets as ripe for a second major leg down due to the rising cost of capital and the imminent …

Gold: A Far Superior Alternative

Crescat Capital Research Letter & Performance Update

The US debt ceiling issues likely present a much greater risk to financial markets than currently perceived by investors. Although prior concerns related to this matter have proven to be mostly peripheral, today’s set of circumstances is different. The possibility of a technical default looms once again, however, our main concern is the potential macroeconomic consequences following a resolution between …

Whistling Past the Graveyard

Crescat Capital Monthly Research Letter, Research Letter & Performance Update

US policymakers continue to act as if they have the stability of the financial system, the economy, and consumer prices under control. Instead, their ongoing deficit spending and debt monetization since the 2008 crisis have created a trifecta of macro imbalances: Historic overvaluation of long-duration financial assets; Systemic solvency problems posed by excessive leverage; and Embedded structural inflation. This unholy …

Loosely Tight Conditions

Crescat Capital Research Letter & Performance Update

The last 12 months have marked one of the steepest Fed rate-hiking cycles in history. Meanwhile, financial conditions remain too loose for secular inflationary forces but too tight for financial assets near record valuations. If this is the beginning of another multi-year period of higher-than-average cost of capital, overall equity markets are yet to reflect these changes in fundamental multiples. …

Mispriced Inflation

Crescat Capital Research Letter & Performance Update

In our view, inflation is the most mispriced macro variable in markets today. CPI growth is 5.1% higher over the last two years, but five-year forward inflation expectations are essentially unchanged. Based on our analysis, structural forces are likely to keep the annual growth rate in consumer prices elevated for much longer and substantially higher than currently priced into markets. …

Mining Industry Renaissance

Crescat Capital Research Letter & Performance Update

We believe we are at a key inflection point for the precious metals industry today. The overwhelming social pressure to adopt the green revolution, renewable energy technologies, and electrification has forced the gold mining industry to shift its capital and attention to so-called “critical” metals. Consequently, there has been a declining interest from major mining companies in deploying capital to …

Recession Looms

Crescat Capital Crescat Updates, Research Letter & Performance Update

Recession Highly Probable The percentage of inversions in the US Treasury yield curve just breached the critical 70% level last week. As Tavi Costa’s research at Crescat shows, every breach of this threshold in the history of the data back to 1970 has led to a near-term recession.     Buy Gold/Sell Short Stocks Furthermore, Mr. Costa’s work has identified …

The Golden Era of Macro Investing

Crescat Capital Research Letter & Performance Update

The wheels are coming off the global economy. The painful increase in cost of debt in combination with the relentless appreciation of the US dollar and tightening of monetary conditions have exposed long-standing macro imbalances. These forces are interconnected, self-reinforcing, and in our opinion completely unsustainable over the long run. Ultimately, policy makers must restore a financially repressive environment. Allowing …

Seeking Value, Avoiding Bull Traps

Crescat Capital Research Letter & Performance Update

In Crescat’s analysis, it is still way too risky to buy the dip in mega-cap tech stocks. Valuations are still higher than the PEAK of the dotcom bubble as we show in the two charts below. There is substantial downside ahead based on the comparison to the early 2000’s tech bust at its washout point. Our first chart shows the …

Sell Big Tech, Buy Explorers, Hedge with Yuan Puts

Crescat Capital Research Letter & Performance Update

The Crescat Global Macro Fund was up 2.9% net in August and 38.8% net year to date. Mega Cap Growth shorts were the best performing theme overall generating a 2.3% absolute return to the fund while the S&P 500 was down 4.1%. The Long/Short and Precious Metals Funds were also up in August. All Crescat strategies have outperformed their benchmarks …

A Vicious Stagflationary Environment

Crescat Capital Monthly Research Letter

Today’s restrictive Fed policies in a rapidly deteriorating economy are the preconditions for a steep recession. Contrary to the unprecedented monetary and fiscal support we had following the last economic downturn, we are currently experiencing a major withdrawal of liquidity at a time when corporate fundamentals are starting to contract. Despite the deepest yield curve inversion in decades, the Fed …

Back Up the Truck

Crescat Capital Monthly Research Letter

The recent pullback in commodities is a gift. It is allowing Crescat and our investors to secure even more of the world’s future critical resources at ultra-cheap valuations ahead of a new secular bull market. That is exactly what we have been doing, and it is already bearing significant fruit performance-wise in July. While commodities have sold off sharply recently, …

The Rise and Fall of the Consumer

Crescat Capital Monthly Research Letter

After experiencing the largest government-financed consumption boost in history, household demand for goods and services is poised to fall off a cliff. The US economy simply cannot handle the Fed’s continued monetary tightening. This is the onset of a vicious stagflationary environment. The unprecedented combination of excessive debt, the bursting of speculative asset bubbles, and the persistence of inflation due …

May Performance Estimates

Crescat Capital Performance Update

Crescat’s May performance was negatively impacted by to the downturn in the precious metals markets. The pullback was caused by declining medium and long-term inflation expectations during the month. This was all due to continued market apprehension over the Fed’s planned interest rate hikes. General market perception today and aversion to precious metals, in our opinion, is no different than …

May Research Letter – Too Soon

Crescat Capital Monthly Research Letter

Too Soon to Buy the Dip, Unless It’s Commodities The valuation of the Wilshire 5000 US Total Stock Market Index reached a historic high of 207% of GDP in 2021 in the wake of the Covid-19 stimulus and record corporate earnings. We are now entering what in Crescat’s analysis is an inflationary recession. The index is off 15% from its …

April Performance Estimates

Crescat Capital Performance Update

The Crescat Global Macro Fund delivered a great month in April, up 10.2%, during a broad selloff in the US equity market with the S&P 500 and Nasdaq 100 indices down 8.7% and 13.3% respectively. Our US dollar versus Chinese yuan long call options, equity short themes, and high yield bond put options delivered the bulk of the profits as …

A Plethora of New Macro Trends

Crescat Capital Monthly Research Letter

We are currently experiencing profound changes in the global economy that are likely to unleash a plethora of early-stage secular trends in a new inflationary regime. These are long-overdue structural shifts powered by decades of easy money policies and record levels of debt-to-GDP among developed economies: Governments and central banks to seek high-quality international reserves in attempt to restore the …

Crescat Thrives in Market Turmoil

Crescat Capital Performance Update

We are excited to report that Crescat has delivered strong absolute and relative performance across the firm year to date as financial markets have been in turmoil. Crescat’s flagship Global Macro Fund is up an estimated 25.6% net year-to-date through March 18. In comparison, the S&P 500 is down 6.1% while the HFRX Global Hedge Fund Index is down an …

February RESEARCH LETTER – A Trifecta of Macro Imbalances

Crescat Capital Monthly Research Letter

For the first time in history, the US is experiencing a confluence of three macro extremes all at once: High government debt to GDP like the post-war 1940s Excessive stock market valuation on par with 1929 & 2000 bubbles A resource-driven inflationary crisis environment comparable to the 1970s Any one of these three economic states endangers the health of markets …

December Performance Estimates

Crescat Capital Performance Update, Videos & Interviews

The Year of the Great Rotation Welcome to 2022. More than ever, we believe it is time to get out with the old and in with the new. At Crescat, we believe investors today face a twofold problem: The imperative to not get sucked into a financial asset bubble destined to implode. The need to outpace structurally rising inflation. Starting …

DECEMBER RESEARCH LETTER – Pipe dreams and ponzi schemes

Crescat Capital Monthly Research Letter

Pipe Dreams and Ponzi Schemes Normally, as part of the creative destruction process in economic downturns, the financial system gets purged of excesses. In the subsequent recovery, the health of the economy is restored in a natural way as new leadership arises from sectors and industries that are inherently different from those of the prior expansion. In the wake of …

December Research Letter and Performance Update – Software is the Tell

Crescat Capital Monthly Research Letter, Performance Update

Equity Market Warning The recent weakness in the broad US equity market is being masked by the outperformance of mega-market cap companies that remain near record valuations. With that in mind, it is remarkable to us how the NASDAQ Composite is just 2.6% from all-time highs while only 35% of its members are above the 200-day moving average. Such a …

November Research Letter – The Catalyst for The Great Rotation

Crescat Capital Monthly Research Letter

The Catalyst for The Great Rotation Based on the firm’s current equity and macro models, and our investment team’s analysis, we believe we are in the explosive first wave of an inflationary cycle in the US and globally that will elevate consumer prices at a much higher annualized rate and for significantly longer than priced into financial markets today. The …

The Macro Case for Precious Metals

Crescat Capital Macro Research

Where are we in the precious metals cycle? There is no shortage of questions on why gold has significantly underperformed during such an ideal macro setting. Let’s start by looking at the usual fundamental trends of this industry as part of prior historical cycles. Gold and silver stocks have never peaked at historically undervalued levels. Miners are now trading at …

OCTOBER RESEARCH LETTER – A MACRO REGIME CHANGE

Crescat Capital Monthly Research Letter, Videos & Interviews

We are experiencing a macro regime change that is an abrupt reversal of a four-decade trend of disinflation in the most financially repressive moment in history. With the largest imbalances yet in both overall debt to GDP and financial asset valuations, the levitation of the entire equity and fixed income markets, and the stability of the economy, have become dependent …

September Performance Estimates

Crescat Capital Crescat Updates, Performance Update

The Psychology of Inflation Today’s macro environment is indeed very different than any other period we have experienced in the last four decades. Inflation is infiltrating the mindset of US households in a way not seen since the wage-price spirals of the 1970s. Prices for the goods and services that individuals require to meet basic needs have been increasing at …