The Dow Jones is set for an epic collapse, plunging the US into a recession as early as this year, according to Crescat Capital.
The hedge fund, which consistently outperforms the market, is loading up on short positions on global stocks and shifting assets into gold in anticipation of a stock market meltdown.
It comes less than a day after Nobel Prize winner Robert Shiller said a recession is likely in the next 18 months. The bears are circling, and the stock market is on thin ice. As CCN.com recently reported, US stocks are highly over-priced and due for a monster correction. The Dow is in a bubble. The only question is when will it burst?
Speaking to Bloomberg, Crescat points to a number of factors for its bearish position. Chief of which is the sheer volume of corporate insiders offloading their stock.
Executives are now selling their own company stock at a rate of 5:1 compared to buyers. That’s the highest level in two years with 2,600 executives selling shares in February. Insider selling often indicates a rally is running out of steam.
The hedge fund also points to poor economic data and the high inversion on the Treasury yield curve. Not to mention the China-US trade war which may end with a disappointing outcome for traders.
If Crescat’s prediction is correct, how does it explain the 19% surge in the S&P 500 this year? It’s a “bear market rally,” one Crescat analyst claims.
It echoes analysis from Danielle DiMartino Booth who called the latest Dow surge a “head fake.”
“History is replete with examples of major recoveries following big sell-offs, many of which turn out to be head fakes otherwise known as bear market rallies.”
In other words, don’t be tricked by the latest surge. Crescat’s analysis suggests the ten-year bull market is already over. December’s huge correction marked the start of a bear market and the current uptrend is just a short-term rally. As Crescat explains:
“Soon the buy-the-dip mentality and bull-market greed will turn to fear. Selling will beget more selling. That’s how bear markets work.”
Crescat paints a gloomy picture of the future, predicting a recession within months, not years. Speaking about forecasts of a recession in 2020 or 2021, Crescat analyst Tavi Costa said:
“We think it’s a lot closer than that and we have a number of macro timing indicators that we look at.”
Nobel Prize winner and economics professor at Yale, Robert Shiller, also forecasts a recession in the near future. Speaking to CNBC, he said there was a “greater than average” chance of recession before the end of 2020.
Crescat capital said its strategy of shorting stocks and buying gold is the “trade of the century.”
The hedge fund is a niche firm with around $50 million in assets under management (AUM). But you can’t argue with its performance. The fund’s 12 percent annualized returns outpace the S&P 500, and its Global Macro Fund saw 41 percent returns last year alone. Summing up the strategy, Crescat said:
“There is so much more ahead to profit from the short side of the market. The bear-market rally is running out of steam!”
Last modified: September 23, 2020 12:35 PM