In a broadcast aired in October, Tavi Costa, the portfolio manager of Crescat Capital, and Kevin Smith, the company’s chief investment officer, discussed how precious metals would do well in this current “stagflationary” environment.
The portfolio manager asserted that the intrinsic value of these metals was remarkable, in relation to the monetary system in the United States. Smith explained that the company used precious metals as a primary hedge with gold particularly positioned against deep valuations and inflation. Both experts believe that a rally of precious metals is on the horizon, noting that silver is on the verge of a breakout, as demonstrated by its present position. Costa noted that silver was a valuable macro asset whose demand would probably be driven by the green revolution.
In addition to this, the experts discussed how the Fed was boxed in, explaining that it couldn’t act to improve one issue in the U.S. economy without worsening another. Costa gave the example of the Dallas Fed Manufacturing Index, where prices are increasing as business activity declines. This divergence is also seen with the country’s 10-year break-even rates, which are growing, and the U.S. Federal Reserve purchases Treasury Inflation-Protected Securities (TIPS), which are dropping.
The securities affect break-even rates, and with the Federal Reserve decreasing its purchases, inflation expectation numbers have been increasing.
Smith talked about inflationary pressures across the globe in the broadcast. He stated that currently the top-five market cap stocks in the United States were highly overvalued, which was concerning because those valuations weren’t sustainable. He also explained that as inflationary pressures increased, growth was slowing in this “stagflationary” environment. He referenced the Personal Consumption Expenditure Price Index, which had shown that inflation rose once more in October.
Smith added that impending stagflation was an international issue, noting that real yields on 10-year bonds in Germany were at -4.30 while Eurozone inflation had risen to 3.3%, its highest level in over a decade. Furthermore, the chief investment officer explained that while a market crash was unlikely, it could possibly occur. His basis for the argument was the fact that China was in a type of credit collapse, the U.S. Federal Reserve was tapering, stocks in the United States were at record-high valuations and inflation was increasing around the globe.
All these factors create a perfect mix for increased performance by precious metals, including mining stocks such as those offered through Asia Broadband Inc. (OTC: AABB) and precious metals ETFs.
NOTE TO INVESTORS: The latest news and updates relating to Asia Broadband Inc. (OTC: AABB) are available in the company’s newsroom at https://ibn.fm/AABB
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