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‘An Insane Excessive Stock Market Bubble Today,’ Current Overvaluation in the Market

Source: Streetwise Reports   09/16/2021

In a Sept. 3, 2021 broadcast, two Crescat Capital representatives discussed the current macroeconomic…

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This article was originally published by Streetwise Reports

Source: Streetwise Reports   09/16/2021

In a Sept. 3, 2021 broadcast, two Crescat Capital representatives discussed the current macroeconomic environment. Portfolio Manager, Tavi Costa, highlighted the bearish part of the picture along with investment opportunities with bullish potential. Chief Investment Officer, Kevin Smith, presented evidence of an overvalued equity market and noted what that means for the precious metals sector.

Crescat Capital Portfolio Manager, Tavi Costa, began the briefing by pointing out some macroenvironmental factors that support a bearish outlook on the markets today.

One concern, Costa said, is the weakening of the Chinese economy because Crescat Capital likes having hedges in Chinese currency. This downtrend in China is evidenced by the non-manufacturing Purchasing Managers Index, which is at a level below what it was during the global financial crisis.

As well, banking stocks have been steadily declining, with some having already plummeted. Also affected are domestic companies such as Evergrande Real Estate Group, but not large conglomerates. Costa attributed the current scenario to the Chinese Community Party’s recent crackdowns on domestic companies. 

“We think the People’s Bank of China is going to come to rescue the economy, and at some point we’ll see a devaluation of the yuan,” Costa added.

Also of concern, Costa said, is the five-year cyclically adjusted earnings yield of the Standard and Poor’s 500, which is near all-time lows, even lower than it was in 1929 and 1937. Every time it has been so severely down, “the following years have been very painful for equity investors as a whole,” he added. During those five or so subsequent years, the return was about –50% on average.

Inflation is another macroeconomic factor impacting how Crescat Capital invests, and Costa said there are signs that it is going to increase. One indicator is that U.S. governmental debt and the net worth of individuals are increasing in tandem. This suggests fiscal policy targets the bottom 50% of earners, (proven in part by the recent 27% increase in food stamps, the biggest in history), and this worsens the inflation situation.

Costa said another indicator is current supply chain problems — of which U.S. car inventories are one example. He pointed out that reduced auto supply began before the COVID-19 pandemic, suggesting the problem is more complex than simply being caused by the effects of the pandemic. Thus, it will likely take longer than people expect for car supply to return to its previous strong levels, and that, too, will negatively affect inflation.

Given the current macroenvironment, Costa elaborated, Crescat Capital’s current investing approach is to have some shorts, to have some put options on the Chinese and Hong Kong dollar, and to be long commodities.

One of the best opportunities in commodities now, according to Costa, is precious metals, and thus, Crescat Capital remains focused on them. Today, gold and silver companies are the cheapest, even among commodity producers.

Precious metals firms have excellent free cash flow growth and little debt relative to their assets. Their operating expenses are increasing at a slower pace than those of other commodities.

“So, clearly, this is a better picture than others,” Costa added.

As for gold, Costa said, following the monthly candle of reversal last month, the price is expected to increase. With respect to silver, the price appears to be starting to break out.

Next in his overview, Crescat Capital Chief Investment Officer, Kevin Smith, provided evidence of the current overvaluation in the market.

“What we have is an insane excessive stock market bubble today,” he asserted.

First, Smith compared, in terms of their percentage of gross domestic product (GDP), today’s top five market cap stocks — Apple, Microsoft, Amazon, Alphabet, and Facebook — which rose to the top five at the peak of tech bubble. Today’s top quartet comprises 37% of GDP, a 54% increase over the percentage in 2000.

“The fundamentals of today’s top five and other tech companies, they look fantastic, but when you project these growth trends and momentum trends and stock prices out at a point where this growth inflection is likely to wane, it’s a big mistake,” Smith said.

At the same time, hedge funds are record long, retail sentiment is record bullish, and investors are long stocks, he added. 

The overall U.S. market shows a similar picture, Smith noted. Total U.S. equity market cap to GDP was 1.2 in 1929 during the stock market bubble and then about 1.5 during the dot-com bubble. Today, it is about 2, suggesting another bubble.

crescat capital 36 2

Another indicator a bubble exists is the record low Goldman Sachs Financial Conditions Index. This metric mostly measures interest rates on the 10-year yield, which are incredibly low, and corporate credit spreads, which are extremely tight.

The bottom line, Smith said, is that “we think we’re in a renaissance age for a new rush of money into the precious metals industry with the macro setup that we have — overvalued stocks, undervalued commodities, undervalued precious metals, bubbles, and cryptocurrency.”

Accordingly, in its Global Macro and Long/Short Hedge funds, Crescat Capital is long commodities and precious metals:

“And we are not afraid to be short stocks in the funds,” Smith said.

Regarding Crescat’s precious metals exploration portfolio, it contains 90 companies focused on making high-grade metals discoveries. Geologist and Crescat Adviser Quinton Hennigh discussed 10 of the stories later in the briefing.

“When you add it all up, among our 90 companies, we have over 300,000,000 target gold equivalent ounces of precious metal in the ground,” concluded Smith. “This is truly incredible because of the value opportunity that we have today with the setup in the industry, to be able to come in and acquire big stakes in companies, between 5% and 25% stakes.”

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Streetwise Reports Disclosures:

1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor/employee. He/she or members of his/her household own securities of the following companies mentioned in the article: None. He/she or members of his/her household are paid by the following companies mentioned in this article: None. His/her company has a financial relationship with the following companies referred to in this article: None.

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Important Crescat Disclosures Provided by Crescat Capital 

Please read Crescat’s important disclosures.

Nothing herein should be construed as personalized investment advice or a recommendation that you buy, sell, or hold any security or other investment or that you pursue any investment style or strategy.

Case studies are included for informational purposes only and are provided as a general overview of Crescat’s general investment process, and not as indicative of any investment experience. There is no guarantee that the case studies discussed here are completely representative of Crescat’s strategies or of the entirety of its investments.

Crescat has compiled its research in good faith and while it uses reasonable efforts to include accurate and up-to-date information, it is provided on an “as is” basis with no warranties of any kind. Crescat does not warrant that the information on this site is accurate, reliable, up to date or correct. In no event will Crescat be responsible or liable for the correctness of any such research or for any damage or lost opportunities resulting from use of its data.

You should assume that as of the publication date, Crescat has a position in the securities discussed and therefore stands to realize significant gains in the event the price of security moves. Following the publication date, Crescat intends to continue transacting in the securities, and may be long, short, or neutral at any time.

 











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Precious Metals

Stocks, Bonds, Bitcoin, & Bullion All Bid As Billionaire Tax Threat Builds

Stocks, Bonds, Bitcoin, & Bullion All Bid As Billionaire Tax Threat Builds

First things first, when is a wealth tax not a wealth tax?…

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Stocks, Bonds, Bitcoin, & Bullion All Bid As Billionaire Tax Threat Builds

First things first, when is a wealth tax not a wealth tax? When Janet Yellen says so…

The proposal under consideration from Senate Finance Committee Chairman Ron Wyden (D., Ore.) would impose an annual tax on unrealized capital gains on liquid assets held by billionaires, Treasury Secretary Janet Yellen said Sunday on CNN.

“I wouldn’t call that a wealth tax, but it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals and right now escape taxation until they’re realized,” Ms. Yellen said.

But House Speaker Nancy Pelosi told CNN:

“We probably will have a wealth tax.”

But markets either a) don’t believe a word of it (given the relationship between all these billionaires as benevolent overlords of the political class), or b) don’t give a shit as The Fed will always be there…

And nowhere is this craziness more obvious than here. While Trump’s SPC (DWAC) stalled today (after rallying 800% in 2 days), TSLA and BKKT took over the crown of momentum-driven insanity kings

TSLA topped the trillion-dollar market-cap level for the first time (TSLA was up more than 1 GM today) on headline about HTZ ordering 100,000 TSLA vehicles…

Surpassing FB (ahead of tonight’s earnings) to join the ‘cuatro comas’ club…

Source: Bloomberg

All on the back of a massive gamma bomb.

@Stalingrad_Poor exclaimed:

“TSLA call options strikes up $10,000 in a single day. I’ve never seen this in my life”

NOTE: If unrealized gains are taxed as income (as several Democrats have indicated), Elon Musk would face a $30 billion tax bill for his gains this year!!

And BKKT soaring over 160% on its partnership with Mastercard on crypto rollout…

Bitcoin and Ethereum were both up today on the Mastercard news (and Neuberger Berman has linked up with BlockFi).

Bitcoin topped $63,500…

Source: Bloomberg

And Ethereum rallied back above $4200…

Source: Bloomberg

All the major US equity indices were higher today, led by Nasdaq and Small Caps. The Dow lagged but still closed green…

Record intraday (and closing) highs for The Dow and S&P today.

On a side-note, the S&P/TSX Composite rose again today – a record 14th straight daily gain (a record that stood for 102 years)…

All thanks to yet another major short-squeeze….

Source: Bloomberg

Utes and Financials lagged today while Consumer Discretionary and Energy ripped…

Source: Bloomberg

Treasuries were mixed today with yields lower across the curve aside from 30Y…

Source: Bloomberg

The yield curve (5s30s) steepened back into its recent range…

Source: Bloomberg

The dollar rallied on the day to the top of its recent narrow range…

Source: Bloomberg

WTI hit a new 7-year-high today above $85 before fading back into the red…

Gold jumped back above $1800…

Real yields dropped a little today, leaving room for a considerable move higher in gold still (to around $2000)…

Source: Bloomberg

Finally, the level of “greed” in the market is back at 2021 highs…

Source

“probably nothing” – oh and don’t forget that the last time capital gains taxes were hiked significantly was 1987 (from 20% to 28%) and that didn’t end so well eh?

Tyler Durden
Mon, 10/25/2021 – 16:00



Author: Tyler Durden

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Economics

Crypto news: BlockFi partners with $437 billion investment fund; EY sponsors Chainlink ‘hackathon’ event

Cryptocurrency lending firm BlockFi has partnered with Neuberger Berman to offer crypto-based products to the US investment manager’s customers. BlockFi,…

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Cryptocurrency lending firm BlockFi has partnered with Neuberger Berman to offer crypto-based products to the US investment manager’s customers.

BlockFi, along with Celsius and Nexo, is one of the crypto industry’s big three lending services. It made the announcement on  Monday and revealed the joint venture will include the development of exchange-traded funds (ETFs) and “other traditional structures.

The partnership’s products and strategies will be formulated and delivered by a newly created entity called BlockFi Nb.

With the Mastercard and Bakkt collab news barely a day old, it seems we’re in institutional crypto adoption season, although that’s pretty much been the case for the past 12 months.

“We are witnessing a significant shift in investor sentiment towards digital assets, and we believe that digital assets should be considered in modern portfolios,” said Greg Collett, president of the joint venture.

Neuberger Berman is a New York-based, 82-year-old independent investment management firm that looks after US$437 billion in client assets as of September 30. The firm’s main holdings reside in equities, fixed income, hedge funds and real estate.

 

Also making news: EY, Chainlink, GBTC, Uniswap, Rand Paul

• “Big Four” accounting firm Ernst & Young is sponsoring the Chainlink Fall 2021 Hackathon, running until Nov 28. The event gives crypto startups pitching opportunities with VCs.

• Grayscale’s GBTC (which is as close to a Bitcoin ETF as you’ll get in the US without actually being one), delivered better returns last week than the market’s new BTC ETFs.

• Decentralised exchange Uniswap is set to gain more exposure. Swiss digital asset issuer Valour is launching the first ever exchange-traded product (ETP) tracking the UNI token.

• US Republican Senator Rand Paul has stated that he thinks it’s possible Bitcoin could become the world reserve currency if more people lose faith in governments.

 

 

 

The post Crypto news: BlockFi partners with $437 billion investment fund; EY sponsors Chainlink ‘hackathon’ event appeared first on Stockhead.


Author: Rob Badman

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Economics

Oil in wait-and-see mode, gold moves up

Oil consolidates at the highs Oil markets probed the upside overnight, helped along by another large spike in natural gas prices. However, oil lacked the…

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Oil consolidates at the highs

Oil markets probed the upside overnight, helped along by another large spike in natural gas prices. However, oil lacked the momentum to maintain those intra-day highs as the US dollar started strengthening. With a lack of new headline drivers to sustain the moves. Brent crude finished 0.28% higher at USD 85.95 and WTI finished 0.50% lower at USD 83.75 a barrel, having traded as high at USD 85.35 intra-day. Asia has adopted a wait-and-see approach this morning, possibly on China nerves, leaving both contracts almost unchanged.

The US API Crude Inventories will be oil’s next volatility point, with a low print likely to lead to more price gains. However, the price action overnight does suggest that short-term upward momentum is waning as the trade gets ultra-crowded and the RSI indicators on both contracts remain overbought. Another 3 million barrel jump in inventories could spur some short-term long covering and see oil’s long-predicted sharp move lower finally occur to wash out some of the weak speculative longs. Once again though, I will reiterate that the overall environment for oil remains very constructive and any sharp sell-off is likely to see an equally sharp recovery. Of the two, WTI looks more vulnerable as it is more heavily traded by specs and Brent crude is more aligned to the international physical market.

The overnight highs at USD 86.70 and USD 85.40 a barrel for Brent and WTI form initial resistance. Trendline support at USD 83.40 and USD 79.70 a barrel should be the limit for any downside correction. Only a daily close below those levels suggests a deeper correction is possible.

Gold’s price action remains constructive

Gold staged another impressive rally overnight and there is no doubt that its price action is becoming more constructive towards further gains. Gold rose 0.85% to USD 1807.80 an ounce before some long-covering saw it fall 0.25% to USD 1803.20 an ounce in Asia. The rally is made more impressive by the fact that the US dollar has continued strengthening against the major currencies overnight. In contrast, US bond yields eased across the curve, and it looks like gold is taking its cues from them for now.

Gold has now recorded a daily close above USD 1800.00, and more importantly, the 100 and 200-day moving averages at USD 1793.50 and USD 1790.25 an ounce. One must respect the price action in these circumstances, especially when it appears not to be driven by fast-money gnomes. Therefore, gold has formed a nice layer of support between USD 1790.00 and USD 1800.00 now followed by USD 1780.00 an ounce. Initial resistance is at USD 1814.00 followed by the formidable zone of daily highs between USD 1832.00 and USD 1835.00 an ounce.

Gold continues to slowly but surely, form what appears to be the second shoulder of a longer-term inverse head and shoulders pattern. In the bigger picture, a rise through USD 1835.00 an ounce, would trigger the multi-month inverse head-and-shoulders technical pattern and swing gold’s outlook back to positive, targeting a move back above USD 2000.00 an ounce.




Author: Jeffrey Halley

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