The Rise of Hard Assets

Crescat Capital Research Letter & Performance Update

The Rise of Hard Assets In essence, our investment approach focuses on identifying significant macro trends and strategically positioning ourselves to capitalize on them, primarily by targeting highly inefficient market segments that have historically been mispriced relative to the potential economic shifts we anticipate. Given the current context of one of the most undisciplined monetary and fiscal environments in history, …

Making the Most of the New Gold Cycle

Crescat Capital Research Letter & Performance Update

There are three supporting themes driving our conviction that the timing for investing in gold, silver, copper, and other metal exploration stocks has never been more compelling: In our analysis, the unsustainable debt and government deficits in developed economies make inflationary pressures intractable and fiat currencies more susceptible to debasement than they have been since the 1970s. We believe there …

A Financially Deglobalized Era

Crescat Capital Monthly Research Letter, Research Letter & Performance Update

Since the early 1980s, the global economy has rejoiced in a long period of significant cooperation among nations in supporting each other’s government financing needs. However, given the growing escalation of geopolitical tensions and the unraveling of longstanding trade partnerships, we believe that the present circumstances are likely to signify the end of an era defined by financial globalization. With …

A Macro Shift at Hand

Crescat Capital Research Letter & Performance Update

Valuation extremes combined with macro inflection signals provide generational opportunities to position opposite the crowd for potentially large gains. At Crescat, we live for such times. We continue to believe we are on the cusp of a rare macroeconomic shift, like in 1972 and 2000, where a monumental investment setup exists on both the long and short sides of the …

Buy Low, Sell High

Crescat Capital Research Letter & Performance Update

The current macro environment across global equity markets presents a sharply divided investment setup for 2024 and the remainder of the decade. While our concerns are fueled by the pervasive speculation in the US stock market, there also exists a parallel narrative where long-neglected economies present themselves with exceptional value and promising growth opportunities. Utilizing Warren Buffett’s preferred valuation indicator, …

A Profusion of Recession Indicators

Crescat Capital Research Letter & Performance Update

A Profusion of Recession Indicators Despite the growing popularity of the soft-landing narrative, the current scenario presents a multitude of macro factors forewarning a major recession. The dangerous disconnect of highly inflated valuations of financial assets within a market environment substantially different from the easy money conditions of the past few decades defies logic. With the US economy teetering on …

Something More Has to Give

Crescat Capital Research Letter & Performance Update

Investors in US Treasury bonds have experienced extraordinary losses in the post-Covid stimulus era as evidenced by the iShares 20+ Year Treasury Bond ETF (Ticker: TLT) which is down 47% on a total return basis from its August 2020 high. Such a large drawdown in a supposedly safe asset class led to several bank failures in early 2023, but the …

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 …

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 …

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. …