Otavio (Tavi) Costa
@TaviCosta
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Macro investor. Native of Sao Paulo, Brazil 🇧https://t.co/YApL3RgjR8
Joined June 2014
Today, a new set of structural pressures has brought the US dollar to a critical juncture. Thread 👇👇👇
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So, the US government not only sold its oil reserves, but it also decided to sell its sour crude rather than sweet. To be clear:. The current US refinery infrastructure *requires* sour crude to operate. This is the whole reason why despite the US being the largest oil producer
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Buying conditions for houses just declined to the lowest level in history.
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Meanwhile. China continues to dump US Treasuries. Their holdings just reached new decade lows.
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Truly remarkable. Nasdaq is just 2.6% from all-time highs while only 35% of its members are above 200-day moving average. Such breath deterioration only happened at the peak of tech bubble. Beware of times when the generals lead but the soldiers don't follow.
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Fair to say that consumer confidence in China has completely collapsed.
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QT ended up being transitory. The Fed's balance sheet is now on a V-shape recovery
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The Fed is trapped. Let’s dive in deeper. Thread 👇👇👇.
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It’s official. The US Treasury curve is now more than 70% inverted. In the last 50 years of history, every time we have surpassed this threshold a recession followed. We are now at 76% with the Fed still hiking rates and doing QT.
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US state and local governments just experienced the worst decline in income tax revenues ever recorded. This was the second steepest year-over-year percentage decline in history, with only the GFC having a worse outcome. Note that Federal tax receipts are also dropped again,
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"Nothing good happens below the 200-day moving average." . — Paul Tudor Jones
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The wheels are coming off the global economy. Here is where I think the market is heading. 👇👇👇.
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For the first time in history, the US is experiencing a confluence of three macro extremes all at once:. ▪️ The debt problem of the 1940s.▪️ The rising inflationary environment of the 1970s.▪️ The excessive financial asset valuations of the late 1990s. Thread 👇👇👇.
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Microsoft still has a higher market cap than the entire Energy sector in the S&P 500 today. Keep in mind:. Exxon *alone* produces just as much annual free cash flow as $MSFT today. And no, this is not just a specific case with $XOM. All the energy companies in the S&P 500 are
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An unprecedented $8.2T of US government debt will be maturing in the next 12 months, or 1/3 of the total Treasuries outstanding. That is 3.5x more than what was net issued so far this year. Keep in mind that the fiscal deficit next year would also require at least another $2T
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Interesting fact:. Last time silver went up as much as today was November 2008. That was the bottom and silver went up 400% in the next two and a half years.
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October 1929:. S&P 500 plunged 34% in a month. In the next 2 days, a wild relief rally of 18% followed. Then, stocks plunged another 26% in the next 13 days. Eerie resemblance.
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The US continues to dump its Strategic Petroleum Reserve like there is no tomorrow. The government is now down to 33 days worth of oil supply at its current implied demand. That is one of its lowest levels in history.
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Puzzling. With a $3 trillion market cap, Microsoft is twice the size of the entire energy sector in the S&P 500, which generates double Microsoft’s annual free cash flow.
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Corporate earnings have been trending in an upward channel for 70 years. Every time profits reached the upper band of this range, an earnings recession followed. At peak levels, we are at a critical juncture once again. This is an important consideration, particularly at
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Gold above $2,000/oz, now repeat after me:. Triple tops never work.
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Markets driven by euphoria never end well. Warren Buffett is not an idiot. Fundamentals matter.
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Corporate bonds now yield only 0.12% above the Fed Funds rate. The lowest level since 2007, preceding the Global Financial Crisis. Every time credit spreads were at historically suppressed levels, a hard-landing scenario followed. Perhaps this time is indeed different,
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This chart has to be the big elephant in the room. The recent collapse in Treasuries is yet to impact equity markets that continue to defy gravity at historically inflated valuations, particularly the big tech companies.
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The last 21 times Nasdaq had an intraday reversal of +5% happened during brutal bear markets.
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Corporate bonds now falling as much as they did in the March 2020 crash. Back then, the Fed was forced to step in. This time, all we hear is the opposite. If this decline continues, either the tightening cycle will need to be reversed or we're about to see some real issues.
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Call me crazy but I believe we are in the process of forming a major double top on Nasdaq. Valuations don't grow to the sky and the inflation problem is far from over. Today's weakness in megacaps despite the Fed pivot is the tell.
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There are clearly not enough people paying attention to this. Brazilian equities are on the brink of breaking out from a 15-year resistance. Historically undervalued stocks with technical momentum and strong macro tailwind as a resource-rich economy. Opportunities like these
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Oh boy. Now it's official. Commodities just poked their head out of a 12-year resistance. Major changes in the macro landscape likely ahead. This is indeed inflationary.
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Silver officially closed above $30 for the first time in over a decade. Game on.
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This chart is concerning. When adjusted for money supply, Nasdaq is currently re-testing the levels reached during the tech bubble of 2000.
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Where are we in the precious metals cycle?. There is no shortage of questions on why gold has significantly underperformed during such an ideal macro setting. Here is thread 👇👇👇.
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Dollar lower, hard assets higher. We are at a key turning point in history and a global rebalancing is now unfolding, in my view.
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As inflation decelerates investors will think it's the end of it. Not my view. This is a structural problem caused by secular forces:. ▪️ Wage growth.▪️ Commodity shortages.▪️ Reckless fiscal spending.▪️ Deglobalization. Inflation develops through waves, we just saw the 1st one
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The debt ceiling issues present a much greater risk than currently perceived. Although prior concerns have proven to be mostly peripheral, today’s circumstances are quite unique. To be clear:. The main problem relates to the potential consequences after an agreement. 👇👇👇.
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A reminder that back in the Global Financial Crisis over 150 banks went out of business. Today, 4 failures already equate to nearly the entire amount of assets financial institutions held during the banking crisis issue of '08 and '09. If you are asking yourself whether the Fed
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The US will need to refinance almost half of its national debt in less than 2 years. Let's not forget that interest rates were at 0% just 15 months ago. Wait until these debt instruments need to be rolled over at 5% rates. One thing is true:. None of us own enough hard
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BOE joins Japan. We now have three groups. ▪️The ones suppressing rates at the cost of their currency: Japan & BOE. ▪️The ones protecting their currency and at the cost of their bond market: US & Brazil. ▪️The ones letting their currency and bond market collapse: ECB & others
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To put it bluntly:. We have never seen the market bottom with 60% of the Treasury curve inverted.
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The Fed only raised rates by 75bps and this Venture Capital index already declined -52%.
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This chart is wild. Ask yourself:. What does Buffett know that I don't?. H/t @RonStoeferle
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This chart has never been so relevant. The macro case for hard assets is the most compelling I have ever seen.
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I keep looking at this chart and asking myself. Who is lying?. The answer is becoming increasingly evident. Treasuries are breaking a key support today and are likely headed much lower. It is worth noting the recent government announcement about issuing an additional $1.85
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US versus Chinese equities — two diverging narratives.
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Gold has nearly doubled in value since The Wall Street Journal declared that the metal had lost its reserve status in September 2022.
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Just math. Global stocks lost about $20T in value so far. The real damage, including all other assets, is probably closer to $50T. Add a $13T dollar shortage problem globally. You think $6T of money printing & broke governments will fix this?. I will take the other side.
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This remains the most important macro chart of this decade. Parts of this investment thesis are already playing out:. ▪️The growth to value transition.▪️Failing 60/40 portfolios.▪️Commodities supercycle.▪️Peak cheap energy prices.▪️The bursting of speculative .▪️Expensive Tech
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Let's put this CPI number in perspective. Here are some price changes since January 2021:. Nat gas +81%.Oil +66%.Agricultural commodities +24%.Rent +13%.Used car prices +44%.Gasoline +36%.Cattle prices +20%.Lumber +15%.Coffee +92%.Hotel Prices +37%. Then, today:. CPI: +7.5%
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Oh boy. What a close for gold. Right above major resistance. Game on.
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Now it’s official. Gold just had a quarterly close at record levels, likely marking the beginning of a secular bull market. This is indeed one of the most exciting times to be a precious metals and commodity investor that I can recall. Game on.
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The S&P 500 just closed at record levels, yet only 1 out of 11 sectors made new highs today — Technology. The disconnect becomes more evident when considering the 5-year performance across different sectors. Tech Bubble 2.0
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The US government interest payments on the Federal debt are now higher than the annual defense spending. This is likely the initial stages of a trend, and if no solutions are implemented, other components of the fiscal agenda may soon be constrained by the escalating cost of
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Crazy. You think stocks already fell too much?. Total market cap to GDP is just now retesting the peak of the housing bubble levels!. This puts into perspective. We truly were at absurd valuations.
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The most erratic energy policy in history. Period. Now down to 28 days worth of Strategic Petroleum Reserve.
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Gold approaching $2,000/oz again, now poised for a historical break out that could mark the beginning of another long-term cycle. Ray Dalio put it succinctly:. "If you don't own gold, you know neither history nor economics"
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And it’s official……. Corporate bonds now yield less than inflation expectation for the first time in history. BRRRRRRRRRRR.
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It's all fun and games until stocks reach absurd valuations at the peak of the business cycle.
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The spread between 2 vs. 30-year yields just turned positive. Last time this happened from deeply inverted levels was in late 2000, right after the S&P 500 also marked a double top that resulted in the tech bust.
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The ratio of Nasdaq 100-to-Russell 2000 is now retesting the peak of the tech bubble levels. This situation, similar to today, where smaller companies perform poorly compared to large-cap companies, was a critical precursor of the tech bust. An important reminder:. It's not all
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This is what I believe to be one of the most important breakouts in history. Here's a reminder:. When adjusted for money supply, gold prices remain 75% below their peak levels reached in 1980.
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Another significant selloff in Treasuries today, which are now on the verge of a breakdown from support. The chart below is a reminder of the unsustainable divergence between rising yields and the historically inflated valuations of today’s equity markets. In my view, Today’s
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This is undoubtedly the best-looking chart I've seen in my career. One of the most important macro developments unfolding as of late. If you ask me, the silver rush is just getting started.
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Brazilian equities have officially closed above a 15-year resistance on the monthly chart. This resource-rich economy is likely experiencing the onset of a longer-term macro trend. Keep in mind that the valuation of Brazilian businesses remains at one of the most undervalued
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Commodities are on the brink of a 12-year breakout. To be loud and clear:. This would be very inflationary.
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Tell me the last time US stocks had a 30% drawdown and credit spreads stayed sub 200 basis points…. I will answer…. Never happened. A blow out in corporate default risk is the next chapter to unfold.
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The rise and fall of the consumer. Household demand for goods and services is poised to fall off a cliff. The US economy simply cannot handle the Fed’s continued monetary tightening. This is the onset of a vicious stagflationary environment. Here is a thread 👇👇👇.
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One thing I learned in life. There is no such thing as a triple top.
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Buy low and sell high. Natural gas is currently re-testing the lows of its prior 7 major bottoms. If you ask me, time to step in.
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A total bloodbath in Treasury notes, bonds, and mortgage-back securities again:. Here is a reminder that these instruments account for over 80% of the Federal Reserve's balance sheet. If they were to be reevaluated using a mark-to-market methodology, the Fed's assets could be
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The world is experiencing a real-time history lesson on the significance of gold.
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Financial conditions are too loose for inflation but too tight for financial assets near record valuations. If this is the beginning of another decade of higher-than-average cost of capital, equity markets are yet to reflect these changes in fundamental multiples. Thread🧵. 👇.
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The Spanish flu of 1919 serves as a roadmap for the current macro environment. Thread 👇👇👇.
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The silver story is much greater than a squeeze. It's about fiscal imprudence. Massive debt build up. Monetary dilution to suppress rates. The lack of fundamentally cheap assets that yield more than inflation. A supply deficit issue. I think we're headed much, much higher.
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Oh boy. Global freight rate for containers just surged 61% this week. Not the time to celebrate the end of inflation. A second wave is likely underway. H/t @dailychartbook
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Although we all know markets don’t tend to perfectly follow these trading analogs, the chart below gives us a valuable historical context to the recent run-up in US stocks. The correlation says it all. It is remarkable the eerie similarities between today’s environment and
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This is simply not normal. Apple’s market cap is 40% larger than the entire energy sector. Don’t tell me fundamentals justify this disparity. Energy stocks generate almost 50% more in annual FCF than Apple. Wait until oil prices break out above $100/bbl.
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Crazy. Companies are doing more share buybacks versus investing in their own businesses than any other time in the last 25 years.
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I’ve followed silver for a long time, and today’s price action caught my attention. From my experience, silver often behaves in unexpected ways right before a major move. If you ask me:. We are likely on the verge of a significant move back to its all-time highs. This is
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It’s official. US 30-year yield just inverted vs. the Fed funds rate!. Same warning ahead of the GFC, tech bust, Asian crisis, S&L crisis, and 1980’s double dip recessions. The only false signal, 1986. We now have the entire US Treasury curve below the Fed overnight rate.
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Brazilian equities have been attracting unprecedented levels of foreign capital investments, marking a fundamental shift since the global financial crisis. Net inflows from international investors over the past 50 days have reached historically elevated levels, maintaining a
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Silver is the cheapest metal on earth. That’s it. That’s the tweet.
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Brutal. The venture capital index is now down 62% from its peak. Not too far from its March 2020 lows.
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We are currently experiencing a multitude of technical breakouts in the precious metals industry. I can't recall a time when I've seen so many historical moves in this space. Here are my 6 favorite chart setups. 1) Gold and silver miners to gold ratio
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Gold is about to reach record prices on a monthly basis. If historical correlations matter, it is hard to believe silver won't follow the same path. That alone would imply a 110% return from its current levels. Relative to M2 money supply, silver remains one of the cheapest
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Always important to put things into perspective:. Nasdaq has already declined almost as much as it did during the March 2020 crash. Back then, the Fed was all about saving the stock market and the economy. Today, it's all about how much more they are going to hike rates.
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Meanwhile in Canada. The BoC is taking monetary stimulus to a whole new level recently.
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Remember when money printing and stocks were supposed to be positively correlated?. Welcome to the real world.
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It's hard to find a better looking chart than this one. Time to get aggressive with gold, silver, and the miners.
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The recent banking problems reminded us of how the US economy is facing a trifecta of macro imbalances:. ▪️The debt problem of the 1940s.▪️Speculative environment of the late 1990s.▪️Inflationary issues of the 1970s. Never in history have we had all three issues happening at
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Those unseasoned young bucks who called Buffett outdated are about to learn a hard lesson.
Warren Buffett is sitting on enough cash to buy 476 companies in the S&P 500 👀
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Mexico just reported its steepest decline in annual production of silver in 4 years, which is notably worse than during the covid lockdowns. Let us not forget:. That is by far the largest producer of the metal in the world today. The supply of silver remains remarkably
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Insane. The current Nasdaq-to-Treasuries ratio stands 70% higher than its level during the tech bubble's peak. This chart puts into perspective how, despite ongoing issues with Treasuries, the more relevant question now is whether overall equities can remain as overvalued as
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Forget about inflation, the labor market, or maybe even politics:. The chart below is likely the primary reason prompting the Fed to consider cutting interest rates. Assuming current rates remain steady, the cost of servicing the Federal debt alone will approach 6% of GDP by
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We are on the brink of a global rebalancing in my view. Historically, when the dollar enters a structural downtrend, hard assets tend to significantly outperform US equities. What is the usual outcome of austerity combined with lower rates? . A weaker dollar. While fiscal
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Mortgage rates just surged above 7.5% for the first time in 23 years. The economy is currently experiencing a significant tightening of financial conditions, largely driven by the persisting fragility in the Treasury market.
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