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Tavi Costa: Has Gold Lost Its Safe Haven Status?

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

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Tavi believes we are witnessing an unprecedented economic environment. One with massive withdrawal of liquidity from central banks and developed economies. Interest rates and bonds are collapsing across the entire curve. The dollar’s move up has also been relentless. What is occurring is unsustainable. Tavi discusses how the world’s economies have fallen into three different categories.

Labor markets are likely the next sector to be impacted, and it will be more severe than the Fed expects. During the 1970s, after two years of high inflation, the labor market was hit hard. We may be seeing the beginning of this with jobless claims and layoffs. Savings rates are at historical lows, while mortgage costs are rising. Things are likely to remain in a fragile state indefinitely.

Tavi believes a blow off in corporate debt will be necessary to see a policy change by the Fed. Credit spreads are still sub two percent. We have yet to see the risk of default be priced in the market. Many tech equities are near March 2020 lows, and there are likely to still be some big flushes in the market. There is quite a bit of opportunity in resources given what is happening now.

There is a lot of going against the oil markets today, and the economy is now in contraction. Prices are reflecting tightness in the available supply. The energy sector has some good values and investors should consider holding a basket of commodities. Value investors should also be looking for sectors that have a lot of negative sentiment.

We’ve seen a secular decline in geosciences enrollment across the globe. This will affect natural resource companies.

Gold continues to hold up quite well when compared with most sectors. We’re entering a different regime that favors tangible assets. Numerous correlations that used to be meaningful no longer work. Developing countries like Brazil are performing better than the West. Commodity led economies will be key in coming years as the balance of global power change.

Tavi cautions that a total breakdown in markets is coming and that impact everything. Look for value and shift your portfolio as necessary. The buy the dip mentality which has worked in the past is probably a bad plan. Be careful with technical oversold indicators, as the fundamentals indicate a trend lower. Macro factors will likely be more important in the next phase of the global economy.

Time Stamp References:
0:00 – Introduction
0:49 – The Macro Picture
5:18 – U.S. Job Numbers
9:08 – Corporate Earnings
13:18 – Recession & Deficits
17:46 – Energy Thoughts
22:00 – Basket of Commodities
26:09 – Energy & Metals Cycles
29:30 – Producer Margins
37:32 – Correlations Breaking
41:36 – Silver & Price Spike
45:27 – Crescat Funds
49:17 – Wrap Up

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Talking Points From This Episode:
► The global macro picture and why volatility will persist.
► Energy markets outlook and the importance of holding a basket of commodities.
► Patterns are shifting and many correlations are no longer useful.
► Protecting and building wealth in this environment.

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 regularly featured 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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