Crescat Capital LLC, a Denver-based global macro asset management company, released its Q2 2019 Research Letter. The firm is best known for its investment process that applies to three strategies such as Crescat Global Macro, Crescat Long/Short, and Crescat Large Cap. It specializes in providing high absolute, risk-adjusted returns with low connection to benchmarks.
Crescat Capital LLC was founded by Kevin Smith in 1997. Smith, who has over 26 years of investing experience, invented Crescat’s firm-wide global macro investment process. Before starting the firm, Smith worked at Kidder Peabody and UBS Investment Bank. He holds a Bachelor’s Degree from Stanford University and an MBA from The University of Chicago.
You may download a copy of Crescat Capital LLC’s Research Letter below.
We believe there is an opportunity to capitalize on a material downturn in the business cycle based on the composite of timing and imbalance indicators in Crescat’s 16-factor macro model.
US Equity Markets The downturn could be particularly brutal for US stocks because we are record late in a fading economic expansion and at historical high valuations relative to underlying fundamentals across a broad composite of eight measures that we follow at Crescat.
We hear two opposing arguments from bulls today: 1. P/E ratios are reasonable; and 2. Valuations remain attractive relative to interest rates. Let’s address them both. First off, P/Es often appear reasonable at business cycle peaks because that’s when earnings are their strongest. For instance, back in mid-1929, prior to the stock market crash and Great Depression, S&P 500 real earnings per share (on a GAAP standard) had been growing at an unsustainably high 20% year-over-year rate, almost as high as the fleeting 21% growth we just had in 2018. Similarly, profit margins are cyclical. They top out at the peak of expansion, making P/Es appear artificially low. US corporate profit margins in 2018 were the highest they have been since 1929. P/Es are always a potential value trap at the peak of a cycle. But today, P/Es are not even that cheap. Going all the way back to 1871, today we would have potentially the second highest P/E ratio ever for the S&P 500 at a market top prior to a recession, worse than 1929 and the housing bubble.”
You can download a copy of Crescat Capital LLC’s Q2 2019 Research Letter here:
You can also see the list of our 2019 Q2 investor letters and download them on this page.