Guests: Kevin Smith is the founder and CIO of Crescat Capital. He has been the portfolio manager of Crescat’s three investment strategies since their respective inceptions. Prior to founding Crescat, he worked as a financial advisor with Kidder Peabody. Tavi Costa has been an analyst on Crescat’s investment team for more than five years with a focus on global cross-asset research. Tavi built Crescat’s macro model that identifies the current stage of the US economic cycle through a combination of 16 factors. His research has been featured multiple times in financial publications such as Bloomberg.
Date Recorded: 4/12/19
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Summary: In episode 152 we welcome Kevin Smith and Tavi Costa of Crescat Capital. Kevin kicks off the conversation with an overview of Crescat’s approach, the long-only strategy, long/short equity hedge fund, and Global Macro Fund.
Tavi then gets into high equity market valuations, their macro model that has timed well in backtests with previous market peaks and troughs in the tech and housing bubbles, 15 countries with 30-year bond yields below the Fed Funds rate, and demand for U.S. Treasuries and the U.S. dollar. Kevin follows up with some comments on implementation and expressing these views in their portfolio, and why they continue to trust their process and remain net-short equities.
Next, Tavi gets into Crescat’s thesis on China and the potential credit bubble, and the vulnerable Chinese currency as a result.
Meb then asks about Crescat’s bullish thesis on precious metals. Kevin discusses that trade’s role in the portfolio, and its place as a theme in the global macro fund, which includes, a short equity theme, long precious metals theme, and a short Chinese Yuan theme.
Meb asks the pair to get into some of their other themes that stand out as opportunities. Kevin links the Canadian housing bubble and Australian debt crisis themes to China and Chinese capital outflows. He also covers some longs as part of their cybersecurity theme such as Palo Alto Networks.
Meb shifts by asking about what investors should takeaway from Crescat’s thinking, Kevin adds that people should think about more tactical asset allocation, become increasingly defensive, and consider some alternatives. Tavi adds that investors may want to consider cash, precious metals, and perhaps some Treasuries.
As the conversation winds down, Meb asks about anything else they consider that isn’t covered widely in the media or by investment managers. Kevin discusses consumer confidence, and Tavi adds twin deficits and an alternative view of beta.
All this and more in episode 152.
Links from the Episode:
- 0:50 – Welcome and introduction to Kevin Smith and Tavi Costa
- 1:21 – Origin story of Tavi and Kevin, and how it led to the formation of Crescat Capital
- 3:24 – Crescat’s view of the world today
- 6:07 – How do they look at valuations
- 9:11 – How they express timing factors in their investment strategy
- 11:42 – Thesis on China
- 17:17 – Trade catalysts
- 19:26 – Chance of an orderly wind down
- 24:19 – Why precious metals are an interesting area for investment
- 25:45 – Comparing precious metals to the underlying equities
- 26:35 – Interesting areas they are examining
- 31:18 – Strategy for implementing their ideas
- 33:19 – Bubble in utilities
- 34:34 – Battle of Safe Havens
- 35:32 – What people can take away from their thinking
- 41:29 – Factors that may be less known or used incorrectly
- 46:12 – Anything that gives them pause when it comes to their investing thesis
- 48:35 – Most memorable investment
- 53:48 – Connecting with Crescat: http://crescat.net/, firstname.lastname@example.org, twitter; @crescat_capital @crescatkevin @tavicosta, YouTube
Transcript of Episode 152: