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Tavi Costa: Central Banks Preparing for an Inflationary Decade Ahead

Tom welcomes back Tavi Costa of Crescat Capital to the show.

Tavi discusses how gold prices are struggling after hitting new highs in 2020. Gold’s recent history appears to be one of consolidation. The year-over-year CPI is demonstrating that gold is keeping up with inflation and will eventually break out. Gold did front-run the inflation expectations but we should soon see a higher low. This seems to be the beginning of an inflationary decade and policymakers appear clueless regarding the impact of stimulus programs.

The crypto markets are a parallel world being built of libertarian ideals. He believes central banks and governments are going to have to return to some sort of anchor. Gold will likely fit that role. Cryptos are here to stay but their impact on the economic system remains uncertain. We’re going to see an evolution and it’s important to separate the technical benefits from the rampant speculation. Eventually, the metals and commodities will lead the market. There are signs of a looming shift in the broader markets.

Natural resource projects are not getting the attention they deserve and universities are not teaching students geology. There has been a misallocation of capital when compared with the tech sector. Oil is also a sector that is lacking in capital spending.

The United States and China are the world drivers of growth. China is currently having several problems around commodities due to rising prices. China has massive levels of debt not unlike other developed countries.

Tavi expects further food inflation which is not reflected in the CPI. Food prices are concerning to lower classes and will influence policymakers along with their fiscal policies. Most market participants today have not lived through inflationary periods.

Energy companies are having a hard time being productive in the current global economy and economic policies. However, they are inexpensive and energy demand will continue. He remains bullish on oil and natural gas.

Tavi discusses the outlook for bonds and yields. Bonds can be a good hedge and people should look at the 1970s where ten-year yields rose along with gold.

Lastly, Tavi discusses what they look for in the juniors along with some of the risks.

Time Stamp References:
0:00 – Introduction
0:35 – Precious Metal Signs
4:00 – Gold Versus CPI
7:54 – Cryptos & Markets
11:55 – Under Owned Investments
13:44 – Oil & Rig Counts
14:52 – Institutions & Inflation
17:52 – Evergrande Contagion?
21:24 – Inflation Expectations
23:35 – Commodity Inflation & Ag.
25:08 – Macro Energy Thesis
28:09 – Powell, Taper, & Bonds
34:36 – Hedging Miners
38:58 – Deep Value Criteria
42:29 – Wrap Up

Guest Links:

Talking Points From This Episode:

  • Thoughts on the gold markets and their recent history.
  • Inflation and golds performance in this environment.
  • Crypto speculation and an eventual speculative shift back to gold.
  • Commodities and impact on China

Otavio (“Tavi”) Costa is a Member and Portfolio Manager at Crescat Capital and has been with the firm since 2013. He built Crescat’s macro model that identifies the current stage of the U.S. economic cycle through a combination of 16 factors.

His research is featured often in financial publications such as Bloomberg, The Wall Street Journal, CCN, Financial Post, The Globe and Mail, Real Vision, and Reuters. Tavi is a native of São Paulo, Brazil, and fluent in Portuguese, Spanish, and English. Before joining Crescat, he worked with the underwriting of financial products and international business at Braservice, a large logistics company in Brazil.

Tavi graduated cum laude from Lindenwood University in St. Louis with a B.A. degree in Business Administration with an emphasis in Finance and a minor in Spanish. Tavi played NCAA Division 1 tennis for Liberty University.

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