Crescat Capital: China Is Already In Recession, Get Ready For The Implosion

Market update from Crescat Capital’s latest email to investors

ValueWalk
February 23, 2019
By: Jacob Wolinsky

Dear Investors:

There is indeed a business cycle and timing it ahead of key inflection points is key to successful long-term investing. Based on our analysis, we are heading into a bear market in 2019 that will coincide with the start of a global recession that will not be officially acknowledged until well after it began. For the following reasons, we believe September of 2018 marked the essential peak of the US stock market for the current economic cycle:

  1. In 2018, the US stock market historic high valuations across 8 fundamental metrics1;
  2. The technical damage to stocks at the end of last year has altered investor psychology and likely begun a cyclical shift out of stocks from historically high US household allocation to equities that was exceeded only in the tech bubble;
  3. Evidence is building that both China and Europe may already be in recession: industrial production decline in both countries, 2018 Chinese equity bear market, and Chinese manufacturing satellite data show a contraction;
  4. Interest rates across global credit markets are sending signals with uncanny resemblance to past cyclical asset-bubble peaks;
  5. Cross country yield spreads and yield curve inversions are reminiscent of tech and housing bubble peaks;

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