Valuation Risks across all financial assets today

Updated on

Via Crescat Capital

2016 Hedge Fund Letters

Peak Deflation, our sovereign bond short theme, is one of our best performing themes so far in March in the global macro fund, as the probability of a Fed interest rate increase has surged to 90% in the last two days. Our equity short themes also started performing very well today in both hedge funds, as the market at large declined in the face of a frothy valuation of the SNAP IPO that could mark the short-term market top. Our China Currency and Credit Bubble and Asian Contagion themes are top-performing themes month to date in both hedge funds. The Global Macro fund is up 1.2% net for the first two days of March.

Emerging market equities in the last week completed a full Fibonacci 61.8% retracement of their bear market that began in September 2014. Emerging market stocks have begun to break down again. We think an EM bear market could return in full force along with a twin currency and credit crisis that has already begun to unfold in China. Renewed Fed rate hikes are the catalyst.

All of this points to the possibility that the Trump rally may have finally run its course in the short term in US equities. We remain long-term bulls on the U.S. economy and U.S. equities, but have taken some short-term chips off the table in long-only Crescat Large Cap.

February net performance estimates for all three Crescat products are below:

Crescat Global Macro
Crescat Long/Short
Crescat Large Cap

We are including the updated chart below to remind our investors of the valuation risks across all financial assets today (stocks, bonds, and currency) and why we believe our hedge fund strategies, which include short positions as well as longs, should again prove their muscle in the coming months and quarters as they have over the long term. We took more of our long-only chips off the table in Crescat Large Cap.

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