China's Credit & Currency Bubble and the Opportunity in Precious Metals (w/ Tavi Costa & Max Wiethe) | Summary and Q&A

TL;DR

Tavi Costa, partner and portfolio manager at Crescat Capital, discusses the current market sentiment, the global macroeconomic outlook, and the potential opportunities in the precious metals market.

Key Insights

• 🧑‍🏭 Crescat believes that liquidity from the Federal Reserve and fiscal stimulus are currently supporting market sentiment, but questions the sustainability of these factors.
• 🇭🇰 The firm sees potential in buying gold and selling stocks, especially against overvalued currencies like the Chinese yuan and the Hong Kong dollar.
• 😮 Crescat has a bearish outlook on the Chinese credit bubble, expecting a devaluation of the yuan. The firm believes that gold will continue to rise in this scenario.
• ☠️ Fiscal stimulus plays a more direct role in intervening in the markets than monetary stimulus. Crescat sees the need for continued government and Federal Reserve support to suppress long-term rates and maintain support in the markets.
• ✋ Valuations in the equity markets are currently at all-time highs, while liquidity is being withdrawn, raising concerns about the sustainability of these valuations.

Transcript

hello everyone and welcome to real vision live for real vision i'm max weethy today we're joined by tavi costa the uh partner and portfolio manager at crescott capital uh tavi thank you for joining us today max thanks for having me appreciate it to the bank to the bank all right it's great to have a brazilian on i took a little bit in college and y... Read More

Questions & Answers

Q: What is Crescat Capital's focus in the current market environment?

Crescat Capital focuses on building systematic macro and fundamental equity models, developing macro themes that guide portfolio construction. Currently, the firm has three high conviction themes: the China credit and currency bubble, the global economic downturn, and the precious metals market.

Q: How does Crescat view the impact of monetary and fiscal stimulus on the market?

Crescat believes that the market sentiment relies heavily on liquidity from the Federal Reserve and fiscal stimulus. However, there are concerns regarding the sustainability of these factors, as profit margins are falling and capex estimates aren't improving. Crescat sees potential in buying gold and selling stocks, particularly against overvalued currencies like the Chinese yuan and the Hong Kong dollar.

Q: What is the outlook for the Chinese credit bubble and its impact on global markets?

Crescat has a bearish outlook on the Chinese credit bubble and believes it could result in a sharp devaluation of the yuan. China's credit situation, along with macro indicators such as declining freight traffic and personal mortgages, suggests an impaired macro environment. Crescat sees opportunities in shorting the Chinese currency and believes gold will likely rise in this scenario.

Q: How does Crescat view the impact of fiscal stimulus on equity markets, particularly in the US?

Crescat believes that fiscal stimulus plays a more direct role in intervening in the markets compared to monetary stimulus. However, there is a concern over the withdrawal of liquidity, with recent declines in the Federal Reserve's balance sheet. Crescat sees the need for continued government and Federal Reserve support, particularly in the corporate bond market, which could drive gold prices higher and equity markets potentially lower.

Summary & Key Takeaways

• Tavi Costa is a co-portfolio manager at Crescat Capital, a global macro hedge fund. The firm manages four strategies, including a global macro hedge fund, a long-short hedge fund, and two other separate managed accounts.

• Costa focuses on building systematic macro and fundamental equity models, creating macro themes that guide the portfolio. Currently, the firm has three high conviction themes: the China credit and currency bubble, the global economic downturn, and the precious metals market.

• Costa believes that the macro environment is severely impaired, with falling profit margins and no improvement in capex estimates. He sees the bullish sentiment resting largely on liquidity from the Federal Reserve and fiscal stimulus, but questions the sustainability of these factors. Crescat is a proponent of buying gold and selling stocks, especially against the most overvalued currencies like the Chinese yuan and the Hong Kong dollar.