Crescat Capital LLC is an investment firm offering private account management to institutions and high net worth individuals.

Crescat Large Cap Composite

as of 31 December 2013
Morningstar Ratings™:
Large Blend Category
Separate Accounts
10 Year
5 Stars

China Currency and Credit Bubble Presentation

As a part of our investment process, Crescat develops global macroeconomic themes to capitalize on and hedge against worldwide trends.  Many themes have contributed to our success this year, including New Oil and Gas Resources, Nanoscale, Digital Evolution, and Global Fiat Currency Debasement, but we see particularly significant risks and opportunities related to our China Currency and Credit Bubble theme.  Please click here to see our most recent presentation outlining the precarious situation in China.  This presentation provides insight not only to the current China theme, but also serves as an example of the comprehensive research and analysis used at Crescat to develop our themes.

Conference Call Replay – Q1 2014

We have released a slideshow with audio from our recent Quarterly Conference Call, led by Chief Investment Officer Kevin Smith.  In this presentation, Kevin discusses our strong start to 2014, highlighting the success of our global macro investment themes.

Crescat Capital 2013 Q4 Review and 2014 Q1 Update

January 15, 2014

Dear Investors:

All three of Crescat’s investment strategies finished the year 2013 in the black. Crescat’s longest-running strategy, Crescat Large Cap, finished its fifteenth year, up 21.5% net. Long/Short was up 7.5% net for the year. Crescat Global Macro was up 6.5% net for the year, continuing our trend of industry-leading long-term investment performance.See the table and chart below for net-of-fee performance since inception through December 2013.

We are excited to report that Crescat’s investment strategies are off to a strong start in January 2014 (not shown in chart below). Crescat Global Macro is up approximately 9.1% net, Crescat Long/Short up approximately 7.2% net, and Crescat Large Cap up approximately 1.6% net year to date through yesterday’s close. The major U.S. and global benchmarks are down slightly over the same time year to date with the S&P 500 down 0.5% and MSCI World down 0.6%. We have been seeing strong performance from our Nanoscale, Global Fiat Currency Debasement, China Bubble, and New Oil and Gas Resources investment themes so far in 2014. 

Annualized Net Returns Since Inception Crescat vs. Benchmarks thru 2013 1231

Benchmark returns are as follows: Crescat Global Macro - HFRX Macro Discretionary Thematic Index (The latest month is estimated based on the HFRX Global Hedge Fund Index); Crescat Long/Short – HFRX Equity Hedge Index; Crescat Large Cap – Russell 1000 Index.

Please see the linked performance reports for each strategy in compliance with Global Investment Performance Standards (GIPS):

Global Macro, Long/Short, and Large Cap

To view and save the entire investor letter as a PDF, click here.


The Crescat Investment Team Kevin C. Smith, CFA Chief Investment Officer

© 2014 Crescat Capital LLC

Crescat Capital LLC manages private investment accounts for institutions and high-net-worth individuals through its wholly owned subsidiary, Crescat Portfolio Management LLC, an investment adviser registered with the US Securities and Exchange Commission. Reported returns are purely historical, no indication of future performance, and may be adjusted subsequent to third party accounting verification and audit. The information contained herein does not constitute an offer to sell nor the solicitation of an offer to buy interests in any fund.

Crescat Q4 Thematic Update and 2014 Outlook Conference Call and Slide Presentation November 21, 2013

If you missed Crescat’s fourth quarter conference call with Chief Investment Officer Kevin C. Smith, CFA, be sure to take a few minutes to review his commentary and slide presentation below on Crescat’s macro investment themes, where they are in their life cycles, and his expectations for Q4 and 2014.

Click Here For Audio Replay With Slides

Slide Presentation Only

The Resolution of the Global Debt-to-GDP Bubble

The Resolution of the Global Debt-to-GDP Bubble is on overarching macroeconomic theme at Crescat because it relates to all of our themes and investments. It is critically important to know where we are within the various stages of the debt-to-GDP-leverage cycle across different countries, and in aggregate around the world, in order to make wise investment decisions. The United States and most of the developed countries have been experiencing a large expansion of debt compared to their GDP.

In general, debt build-up and debt deleveraging cycles occur in four important sequential stages. The graph below from McKinsey Global Institute illustrates these different phases.

This occurrence makes people ask themselves: is this a normal process in order to grow as an economy?

Stages of the Debt-to-GDP Cycle

Positive Leveraging Stage is an initial debt-to-GDP expansion phase accompanied by positive real economic growth and modest inflation. Many emerging market countries (the BRICS) have been in this stage for a number of years.

Negative Leveraging Stage is the crisis phase where the debt-to-GDP ratio spikes as the recession hits hardest, often marked by financial crisis and outright nominal GDP decline due to deflation. Most of the developed countries went through this phase in 2007 and 2008 leading to the Global Financial Crisis. Today, we consider China at high risk of moving into this stage; therefore, we are short various China-related equity and commodity investments.

Negative Deleveraging Stage is when the debt-to-GDP deleveraging begins typically due to extreme central bank intervention but when real economic weakness continues. This phase of real economic weakness can present in a variety of ways in different countries from low growth to stagflation to hyperinflation. Countries such as Japan and the UK have extraordinarily high debt-to-GDP ratios and are still most likely in the early part of this stage.

Positive Deleveraging Stage: An economic boom period during the later part of the debt-to-GDP deleveraging phase that includes high real GDP growth and inflation. We believe the U.S. is the closest among the developed countries to moving into this phase.

Crescat Thematic Update Conference Call and Slide Presentation August 20, 2013

If you missed Crescat’s third quarter conference call with Chief Investment Officer Kevin C. Smith, CFA, be sure to take a few minutes to review his commentary and slide presentation on Crescat’s macro economic themes, below. Crescat has invested in some important trends fueling the U.S. economy such as the Digital Evolution, Nanoscale, New Energy Resources and the U.S. Housing Recovery. Investments in innovative companies that are capitalizing on those themes, combined with our strategic short positions in the China Real Estate Bubble, Aussie Housing Bubble, Global Debt-to-GDP Resolution, Global Fiat Currency Crisis and others, have the Crescat portfolios set to continue to post strong returns in 2013. 

Click Here For Audio Replay With Slides 

Slide Presentation Only

Investment Outlook

Fears over the “fiscal cliff” present an opportunity to position for and capitalize on Crescat’s macroeconomic investment themes that will play out over the next several years.

The Global Debt-to-GDP Bubble is being resolved, not with deflationary debt deleveraging, but with nominal economic growth from good old fashioned Keynesian fiscal and monetary stimulus, i.e., deficit spending and money printing, as well as from competitive market driven forces.

In the U.S., the Fed’s QE4 and interest rate suppression policies will provide more than enough monetary stimulus to offset any impending fiscal restraint to drive ongoing nominal GDP expansion. Even with the inefficiencies of government intervention in the markets and the economy, the invisible hand of self-motivated economic participants will continue to drive innovation and real economic growth. We see this growth today with respect to Crescat’s macro themes: New Oil and Gas Resources, Digital Evolution, Nanoscale, and the U.S. Housing and Banking Recovery.

There is a battle going on between deflationary and inflationary forces in the economy. There is a deflationary cognitive bias in the U.S. capital markets today that manifests as a high equity risk premium, or risk aversion to equities as compared to cash and bonds.  This risk aversion is in no small part driven by the aftershock and debt overhang that remain after two 50% stock market declines and a housing bust in the first decade of the millennium. Deflationary concerns are being heightened once again by the threat of increased taxes and reduced growth in government spending as a result of a political stalemate over the budget. What these deflationary concerns have in common is a weak outlook for economic growth.

However, there are also deflationary forces at work today that are positive for the economic growth outlook. These result from competition and innovation, particularly with respect to Crescat’s New Oil and Gas Resources and Digital Evolution themes.

On the inflationary side, there is one pre-dominant force at work, the extraordinary monetary stimulus being provided by the Federal Reserve and other global central banks, as represented by Crescat’s ongoing Global Fiat Currency Debasement theme. Central banks have proven more than capable of creating enough liquidity to avert the deflationary debt deleveraging spiral.

The good news is that for the intermediate term, we believe we are at a point in the economic cycle where the deflationary and inflationary forces are counterbalancing each other effectively enough to allow market participants to get on with the business of lifting the economy out of The Great Recession.  As a result, we see continued earnings growth, ongoing low interest rates, higher P/E multiples for stocks (a declining equity risk premium), improving unemployment, and sooner or later a constructive compromise over tax hikes and spending moderation in Washington. These conditions can hold for as long as inflation expectations can be reasonably held in check relative to true inflation, a condition that could remain for a time even under ultimately rising interest rates.

It is a Raging Bull Thesis for Crescat’s investment strategies over the next several years. Crescat employs a dynamic and reflexive investment process based on Top Down Macroeconomic Themes, Bottom-Up Data Driven Analysis, and Pro-Active Investment Execution to capitalize on and hedge against global imbalances in the markets.

The biggest risk to the Raging Bull Thesis for stocks and the economy is if market participants adjust their inflation expectations upward too rapidly. Stimulative monetary policy can only be effective when true inflation is higher than perceived inflation. For the time being, that definitively remains the case.  

Crescat’s composite performance reports through November in compliance with Global Investment Performance Standards (GIPS®) are now available:

Crescat Large Cap

The Crescat Large Cap Composite was up 1.3% net of fees in November 2012 bringing its year-to-date performance up to 9.8% net of fees. Since inception in January 1999 through November 2012, the Composite is up 300.2% net of fees compared to a 48.6% for the S&P 500.

See Crescat’s latest Macroeconomic Research Letter that lays out the Resolution of the Global Debt-to-GDP Bubble and Raging Bull Investment Thesis.

Please contact us at if you would like to get more information on Crescat’s investment strategies or to see a complete firm presentation. 

Happy Holidays!

Kevin C. Smith, CFA
Managing Partner, Chief Investment Officer

The Resolution Of The Global Debt-To-GDP Bubble And The Raging Bull Thesis

Crescat Macro Letter 2012 1203: “We are encouraged at the prospects in the intermediate term for real economic growth with only moderate inflation, a macro environment that could definitively lift the economy out of The Great Recession. The conglomeration of Crescat macroeconomic themes, including New Oil and Gas Resources, Nanoscale, Digital Evolution, U.S. Housing Recovery, and Global Fiat Currency Debasement leads to an intermediate term Raging Bull Thesis for U.S. stocks…

The ‘fiscal cliff’ is perhaps the most advertised pending recession in U.S. history, but it appears to us to be a bear trap for investors. The fiscal cliff is a straw man set up by policy makers to be knocked down with ongoing deficit spending, interest rates suppression, monetization of debt, and the surreptitious inflation tax. It is a bipartisan economic deal that is already done and in full swing…”

LIBOR Rigging Scandal

In June, one of the largest UK and global banks, Barclays PLC, admitted to manipulating LIBOR interest rates in a settlement with the US Justice Department. The LIBOR scandal is significant because according to the Bank for International Settlements, there are $708 trillion in off balance sheet notional value of derivatives in the global banking system, 900% of world GDP. The vast majority of these derivatives are interest rate swaps tied to LIBOR. Barclays’ admission of interest rate rigging implicates other major banks and is blood in the water for attorneys representing many parties.

Interest rate manipulation by the Fed and the rest of the world’s central banks is perfectly legal of course. It is standard operating procedure in support of otherwise insolvent large member banks and governments around the world. Interest rate manipulation is not legal at the bank level however, unless authorized by central banks. The problem is that it has been going on for so long that it has allowed fiat currency, debt, and derivative bubbles to grow to unsustainable historic proportions. With the proliferation of LIBOR lawsuits, the sea might be changing toward some sort of unwind.

The shocking notional value of off balance sheet derivatives reported by the BIS to date may prove best as an estimate of the amount of money printing in today’s dollars that will be needed to bail out the global financial system, its sovereigns, and its starving populations from the consequences of these bubbles.

Current investment themes and positioning (subject to change):

Global Fiat Currency Crisis. Long precious metals and related miners and royalty trusts. Short fiat currencies including the euro, yen, and Australian dollar.

China Infrastructure Bubble. China government led investment in fixed assets has been overdone. Short Chinese equities, short iron ore industrial commodity producers, short copper. Short Australia, Brazil.

New Energy Resources. Production of tight oil and gas from new technologies is booming. Long oil and gas pipeline and utility infrastructure in U.S. Short select integrated and E&Ps.

Debt bubble.  Have backed away from outright shorts of interest rate securities due to interest rate manipulation. Looking opportunistically at re-entry on true unwind. Still have serious scars, LIBOR puts in one fund.

U.S. Nominal GDP Expansion. Favors owning great companies with great products and services in a broad variety of important industries that will survive and even thrive in an inflationary period whether through interest rate suppression, competitive currency devaluation, or outright money printing. Own stocks in agricultural chemicals, pharmaceuticals, industrials, food, credit cards, technology, telecommunications.


Current Themes in Crescat Portfolios

  • Global Fiat Currency Debasement: With historically high and unsustainable global debt to GDP levels across the world, we believe central banks will continue their attempts to forestall sovereign debt and banking crises, stimulate the economy, and fight deflation by engineering negative real interest rates, monetizing debts, and working in cahoots with sovereigns to understate true and rising inflation. In the end, it equates to continued global fiat currency debasement relative to precious metals as we have been right in foretelling for years. We believe there is still much to play out in favor of hard money as the debt to GDP imbalances have yet to be resolved. The Fed recently extended its exceptionally low interest rate forecast through 2014, and the ECB continues to explore monetary measures to address the Eurozone debt crisis while other central banks follow suit. These developments have been positive for precious metals so far in 2012 after a pullback in late 2011.
  • China Infrastructure Bubble: The China growth juggernaut has been driven in no small part by a world record high and unsustainable trend of internal infrastructure and real estate investment relative to GDP. It has resulted in vast excess capacity and what we believe is a looming credit crisis. We believe that the asset bubble will cause a hiccup and possibly worse in China’s growth trajectory, affecting Chinese banks, industrial commodities, and stocks of industrial commodity producers. This theme performed well in 2011 although not so far in 2012.
  • New Energy Resources: The deployment of directional drilling and hydro-fracturing technologies to extract shale gas and oil in North America has created a material and sustainable boost to energy supplies. It foretells a similar trend throughout the world and is one of the countervailing but positive macroeconomic forces in world today. It has mixed implications though for the various participants in the oil and gas sector. Oil prices are likely to follow the gas price experience, as new shale oil resources come on stream and as low natural gas prices stimulates greater oil sands extraction from Canada. Oil prices are historically and unsustainably high on a BTU equivalent basis relative to natural gas. We are short the heating oil/natural gas spread and long stocks of companies that benefit from the expansion of North American oil and gas supplies (oil and gas pipelines) and distribution (natural gas utilities). We are also short a handful of upstream oil and gas producers that are highly overvalued based on the initial response to the shale boom but stand to be hurt by generally declining oil and gas prices that they are collectively creating. 
  • Global Sovereign Debt Bubble: Governments across the world have assumed more social responsibilities than they can afford. We ultimately expect sovereign interest rates to rise materially, but we have been too early or in the wrong place at the wrong time on this theme. We are forced to acknowledge that central banks still wield too much power and influence to control interest rates, although opportunities certainly have arisen already for getting short bonds, particularly in Europe.  We have reduced exposure to this theme until we can assess that the bond vigilantes have taken control again, such as in the late 1970s and early 1980s when there was a loss of confidence in the Fed’s ability to control inflation.
  • Competitive Innovation: U.S. manufacturing is beginning to benefit from rising wage rates in emerging economies. At the same time, cloud computing, nanotechnology, and biotechnology pose opportunities that we can exploit through long positions in various high growth as well as niche cyclical companies across the technology, healthcare, and industrial sectors.
  • Consumer Squeeze:  The biggest lag in inflation remains in housing and consumer incomes while central bank stimulus measures have been flowing through much more quickly to goods and services prices, particularly food and healthcare.  With the consumer debt hangover from the housing bubble still lingering, this trend favors both the high and low end consumer retailers and consumer staples over middle market consumer retailers and consumer cyclicals.

Morningstar Ratings™ are based on risk-adjusted 3-, 5- and 10-year (if applicable) returns, and past performance is no guarantee of future results. Ratings are subject to change every month. For each investment vehicle with at least a 3-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly performance (net of fees), placing more emphasis on downward deviations and rewarding consistent performance. The top 10% of investment vehicles in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star.