Anbang Is China’s Lehman Moment: Crescat Capital

Via Crescat Capital’s latest email to investors

Crescat tweeted a macro model on January 24 that showed the US stock market was extremely overvalued and late cycle across 15 indicators. We said it was ripe for a substantial downturn. We released the model again in our quarterly letter that went out Saturday, January 27. Here it is for your viewing one more time.

The next 9 trading days would see the S&P 500 drop 12% from the highs on January 26 to the recent lows on Feb 9. Crescat capitalized on this market extremely well in our hedge funds as we wrote about on February 8. The market has since bounced, up 8.5% from the February 9 lows. Such bounces are totally normal in a bear market as we also warned in our February 8 letter.

We believe this bounce is indeed a “bull trap” that is poised to fail soon. In the meantime, we think the rally presents an excellent exit point for longs to sell overvalued stocks globally and a great entry point for shorts, including those inclined to enter through Crescat’s hedge funds that remain net short global equities today.

For all the reasons that we have outlined in our past several quarterly letters, we believe that we have now finally reached and likely passed the peak of multiple, historic, global central bank-led asset bubbles that are already in process of bursting. We want to make it clear that we strongly believe this is only the beginning of a substantial bear market for stocks and other risk assets globally.

The news yesterday of the seizure of Anbang Life Insurance Co. by the Chinese government should be viewed akin to China’s AIG moment. It is yet another significant point of evidence that the China currency and credit bubble that we have written about extensively is also now bursting. China’s trophy real estate purchases in the US in the last several years have substantial parallels to Japan’s in the late 1980s that preceded the Japanese stock market and real estate crash and lost decades. You can read about those parallels if you like here and here.

Crescat’s hedge funds remain up significantly for the month of February in a market with the S&P 500 down 2.5% for the month to date. Please contact us if you would like further information about Crescat and our investment strategies.

Here are our downside targets for the S&P 500 in what we believe is only the beginning of the bear market.

 

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