Tom welcomes back Tavi Costa of Crescat Capital to the show.
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Tavi discusses the key causes of inflation and how it drives inequality. We're seeing increasing use of food stamps and helicopter money which are directed toward the bottom fifty percent of the public. A lot of inflation is showing up in housing which has a large impact as a whole.
We're seeing a secular increase in wages and salaries and continued monetary dilution by central banks. There is a rush towards anything tangible as policymakers have many reasons for spending while suppressing rates.
The Fed is cornered between the need to control rates while preventing inflation. If the costs of capital rise we will see major issues in equities and bonds. Everything is overpriced and rate suppression is necessary to justify valuations. Soon inflation will be difficult to ignore and the Fed will be trapped.
Tavi expects a shift in money velocity which will increase inflation. Higher wages will squeeze the margins of many companies and those costs will likely be passed onto consumers. Expect commodities and natural resources to outperform in the coming years and likely become market leaders.
He explains why gold can work very well in even a deflationary environment as seen over the past two decades in Japan.
Primary silver deposits are difficult to find but there are opportunities as fundamentals have improved with the miners. That will continue to increase the demand for exploration.
China is the largest deflationary risk in the world. There are large currency risks along with massive credit bubbles not unlike the United States. Rising commodity input costs will impact manufacturing which could spill over to the rest of the world.
Lastly, Tavi discusses what could trigger the next move up in gold. Central banks will continue to look for assets that can improve their balance sheets. Both gold and silver are getting primed for another leg higher.
Time Stamp References:
0:00 - Introduction
0:42 - Pillars of Inflation
9:48 - Fed Stuck?
14:39 - Deflation?
20:14 - Wages & Money Velocity
26:36 - Golds Optionality
31:47 - Gold Restrained
36:37 - Silver & Silver Miners
42:04 - China & Credit Bubbles
49:34 - China & Global Risk
56:58 - Concluding Thoughts
59:26 - Wrap Up
Talking Points From This Episode:
- The causes of inflation, its effects, and expanding bubbles in assets.
- Fed cornered between keeping rates low and inflation concerns.
- Higher wages and commodity prices are likely to drive inflation further.
- Silver fundamentals improving and expectations for the metals.
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.