Today, I have a special edition lined up for you.
I have done my first ever UK Uncensored podcast.
My guest is Otavio “Tavi” Costa, co-fund manager at American hedge fund Crescat Capital.
Many of you will already be familiar with him and Crescat through reading my work, as I have often shared his fantastic charts and insights with you. The firm’s quarterly letters are top of my reading list for any investor at the moment.
In March 2020, two of Crescat’s four funds made incredible 35% and 40% returns.
In 2018, Crescat was the best performing US hedge fund for the year, and since its inception almost 20 years ago, it’s in the top 2% of large-cap value funds for “alpha” (added value above the market return through skill), and in the top 4% for annualised returns.
And I think the best is yet to come.
You see, in 2008, we heard about The Big Short, in Michael Lewis’ excellent book, and the film.
This time, we have a new potential entrant into Lewis’ library, as Crescat has taken three high conviction positions in what it calls “The Trade of the Century”.
This is a three-legged strategy which involves shorting the most overvalued US equities, going long precious metals and miners, and shorting the Chinese and Hong Kong currencies.
In its most simple form, the trade goes long gold in the Chinese renminbi currency while shorting stocks.
Using various in-house valuation models, Crescat perceives American equities to be as overvalued as they’ve ever been, and has built up a book of short positions in the worst of them.
Tavi and Kevin Smith, his co-fund manager, are very bullish on the precious metals industry – gold, silver, and (especially junior) miners. They have even brought in a leading geologist and precious metals exploration expert in order to do some positive activist investing in micro-cap companies in the sector.
The third leg of The Trade of the Century is to short the Chinese currency. This can also take the form of going long gold in renminbi, the currency which has devalued the second most globally in the last five years. This is based on the extraordinary debt bubble that has grown in China based on unsustainable growth, which cannot go on forever.
Tavi outlines the reasons and methods which underpin this tripartite trade, which is expressed through four funds that Crescat runs.
As a huge fan of Crescat and Tavi’s work, I reached out to see if he’d be willing to speak to me to share it with you all, and he very kindly said yes, so without further ado, here’s our conversation.
Make sure you listen right to the end, as we cover my favourite ever chart, on a topic that we at UK Uncensored feel rather strongly about. Just click here to watch or on the video below. Enjoy!
Well, I hope you enjoyed that as much as I did….
It was pretty high-level stuff – you can see Tavi and Crescat have built their ideas and models from the ground up through a seriously refined understanding of the workings of economies and markets.
I have no plans to install any kind of regular podcast – head over to Boaz Shoshan’s podcast for regular Southbank Investment Research insights – but I felt that we could all really benefit from hearing from Tavi right now.
Until then, please send any feedback on this one to [email protected].
And if you would like to see more of his work, here are some links:
Their latest quarterly report is especially worth a read I’d say. Up there with Howard Marks’ memos in my must read immediately email folder every time it comes in.
Have a great weekend everyone and see you Monday,
Editor, UK Uncensored
PS James Allen over at Exponential Energy Fortunes has been doing a fantastic job of late, recording gains of 400%, 600% and 800% on three recent investments. It’s been a pleasure to work closely with him covering these stocks.
He’s done it by focusing all his attention on one thing – the energy transition – and finding the very best companies which are benefiting from the unprecedented social, political and financial tailwind which the climate emergency has behind it.
To find out what people who’ve subscribed think about it, and to see if it might be for you,