According to Tavi Costa of Crescat, this could be the trade of the century.
A little over a year ago, investors would have found it difficult to make a safety play amid a roaring, record-setting stock market. But now, Newsmax reports that after several major crashes in both the U.S. and global equity markets and multiple recessionary signals, it seems as if we are a decade removed from the high-flying stock market of 2017.
According to Crescat Capital, a hedge fund with $50 million in managed assets, the bearish trend in stocks is just starting to pick up steam. Speaking to Bloomberg, Tavi Costa, a global macro analyst at Crescat, explained why buying gold and selling stocks at this stage could be the trade of the century.
The strategy could hardly be called “buying low”, since gold prices have notched impressive gains over the past few months. According to the Newsmax article, the metal’s movement after the dip below $1,300 was perhaps the most telling show of strength, as gold recaptured the important resistance level almost immediately and has held above it ever since.
Yet Costa thinks prices could soon explode as the market slowly moves towards a recession. Newsmax writes that Costa is far from being the only analyst with such an opinion, with many other experts pointing to numerous red flags that may be hinting at another crisis. For some, the biggest tell-tale has been the Federal Reserve’s persistent rate-hiking policy, as nearly every tightening cycle in the U.S. has culminated in a recession.
To Costa, the action in the stock market is a more captivating indicator of what’s to come, reports Newsmax. The strategist cites corporate insiders who have been dumping stocks even as officials reassure investors that the markets are in a good spot.
In a recent note to clients, Crescat said that the current bout of mass-selling in the stock market is the third of its kind in the past two years. The fund’s analysts believe that equities won’t be able to handle another such stretch, and that the stock market bubble is ripe for bursting.
Costa dismisses this year’s brief rebound in stocks as a mere bear-market rally and warns investors not to lose sight of the bigger picture. Besides stocks, Costa also pointed to a remarkably high distortion in the Treasury yield curve. The last two such occurrences quickly translated to bursting bubbles across numerous asset classes, reports Newsmax.
Although Costa noted that the consensus is pointing to a recession in 2020 or 2021, his firm believes that a crisis is much closer. Crescat was among last year’s top performers, with one of its branches returning 41% over the 12-month period.
Crescat’s plan for this year is straightforward: the firm will base the bulk of its strategy on shorting stocks and going long gold. More specifically, Crescat plans to buy gold in yuan terms, likely due to the Chinese government’s efforts to bolster its economy and currency, which should act as a tailwind for gold on its own.