As mainstream, leading financial institutions like Goldman Sachs downplay the likelihood of a U.S. recession in 2024, Tavi Costa, Partner and Macro Strategist at Crescat Capital, warns of a starkly different outlook.
There is a profusion of macro indicators that point to a hard-landing scenario, Costa told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News.
Costa disagreed with Goldman Sachs' relatively optimistic outlook that sees a 15% chance of a contraction in the U.S. economy next year, likely due to an exogenous shock, according to Goldman Sachs chief economist Jan Hatzius.
The U.S. economy is currently teetering on the brink of a significant downturn, Costa said, citing the moves in the yield curve and the alarming trends in the unemployment rate.
"We've had one of the most deeply inverted yield curves in the U.S. that we've seen in history. And now, with the steepening of that coming out of those inversions, it is one of those classic signs that you tend to see in credit markets where recessions tend to follow," Costa said.
Costa also pointed out that every time unemployment rates crossed their 24-month moving average, it led to the onset of labor market deterioration, which is happening today.
Costa broke down a number of key charts that reveal the actual situation of the U.S. economy. To view which charts he chose to highlight and to get his analysis, watch the video above.
Costa sees de-globalization, labor, and material costs as squeezing corporate margins. "We're at a critical juncture for S&P 500 earnings, and with these cost pressures, I anticipate a noticeable drop in earnings," he stated.
Costa breaks down how the current market situation is similar to a tech bubble and why the recession has been postponed so far, for details watch the video above.
Gold at $2,500 in 3-6 months
Given these macro trends, Costa believes gold is at an inflection point. "It's hard to believe gold is not going to be breaking out, and it isn't an inflection point, and we're very close to seeing something very special for the metal," he said.
Costa noted that central banks have been aggressively purchasing gold, and hedge funds are likely to follow. "Seventy-one percent of financial allocators or advisors have recently responded to a survey that they own less than 1% of gold. I cannot recall a time in history when advisors and general investors have neglected owning gold for so long," he said.
Costa speculates on the future price action in gold if advisors increase their current gold allocations. Watch the video above for details.
David Einhorn’s fund Greenlight Capital invested $34.9 million in the world’s largest gold-backed ETF - SPDR Gold Shares (NYSE: GLD), the firm’s third-quarter 13-F filings with the Securities and Exchange Commission showed. According to reports, this is Greenlight Capital’s biggest stake in GLD on record. The current allocation to GLD represents 4.2% of Greenlight Capital's portfolio, up from just under 2% reported in the second quarter.
Costa sees other hedge funds following that trend.
Investors will flock back to gold next year as the economy shows more issues and signs of a hard landing, he said. "That is what will drive the gold prices a lot higher. Gold could be at $2,500 in three or six months. The list of macro reasons to own the metal right now is larger than at any other time in history."
Source Kitco
BDST: 2113 HRS, NOV 23, 2023
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