YouSaid · the spoken record

Tavi Costa

lines on the record: 82
first: 2023-05-19
most recent: 2023-05-19
sittings or episodes: 1
sources: podcast

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“Was the beginning of something I called the percentage of yield curving versions. I created this metric. Recently, I actually did a presentation on the IMF explaining why this metric is so relevant for markets. The idea of it is instead of looking at one or two yield curve spreads, let's look at all the possible spreads in the treasury curve, meaning there's about 45 or really 45 mathematical spreads, possible spreads in the yield curve and the entire yield curve. And what you find is rather than looking at one or two specifically, let's see how many of those inversions are happening throughout the curve. So how many of those spreads are actually inverting, are actually negative? And what I figured out is that every time you go above the 70% handle, so when 70% of the yield spreads are inverted, there is a recession. And recession meaning there's a downturn in the business cycle where a lot of things can happen.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Talks on how to really analyze a yield curve. But I do think that the signals that you receive from that are very different. And for portfolio positioning purposes, it's not very helpful because the two versus stands inverted about two years before the downturn during the global financial crisis. If you look back in the tech bust that spread specifically inverted right at the time when you're supposed to be positioning to the downturn. While majority of people like to look at yield curving versions fighting the last war, meaning just looking at 08 and claiming that that's really what happens throughout history, that's not true. In the 70s, we've had times when yield curve inversions coincided with declines and others that precedes the decline. And so to me, this research needed more meat to understand how to really invest in periods when you have that.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Be frank, I think this is almost like a different topic that at the end of it will relate to what we've been talking about. But it's back in just to give some history in 2018-2019, I was really trying to analyze the yield curve signals because we manage a macro fund and yield curving versions are beginning to emerge at that time. There was a risk of a recession. And we wanted to understand portfolio positioning when you have yield curve inversions. And at that time, what I was able to understand was that there were a little, some popular spreads that were people like to look at, like the two-year versus a 10-year yield or looking at the three-month versus the 10-year yield as well. Some folks, Professor Campbell actually got a Nobel Prize for the research on this. And, you know, there's a lot of.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Will continue to be excessive in equity markets. The most popular portfolio allocations in 10 years from now will look very different. Gold is probably going to play a role. Commodities will probably play a role. And all this is linked to this idea that earnings are probably going to be compressing as well. So started to go long on this, but that's really what's in my mind when I think about this chart”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Large multiples that we're seeing today. But it's very, very difficult to maintain that same growth rate that we're seeing that we've had in the last decade. So I think this chart is important. I think it tells us that we're, again, at this critical juncture, that we're probably going to see a decline in earnings for all the reasons I mentioned here. And if that's the case, it really questions again the valuation of financial assets, which we all tend to have a positive and more bullish view, especially the younger generations that have only lived through periods where the by the dip mentality has worked. And I think it will work again at some point, but we do need to see the dip. We haven't seen the real dip in markets yet. And so I think we're overdue for that. And it's just hard for me to think that this excessive allocation of most large portfolio.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“To see that multiples of equity markets, their inflationary period in average compress significantly over 30% during those periods. And so I do think we're at the beginning of another era like that, but never throughout history, we started an inflationary decade with such a large degree of valuations that we have today. The valuations we have currently resembles periods like we've had in the tech bust or prior to the tech bust and during the tech bubble and prior to the Great Depression, so the late 1920s. Again, those are the two times that we also had strong earnings in the prior decade. And it's just normal to see this because we have strong growth in earnings and then analysts, especially Wall Street analysts and other investors begin to extrapolate that we will continue to see that and therefore you get those”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“The beginning of a downturn in terms of earnings of most corporations. And we have to strapulate that thought again and think, well, if we do see a decline in earnings, if earnings are inflated, and despite the fact that earnings are inflated, multiples are at record levels, meaning prices are high relative to inflated fundamentals, what happens if fundamentals fall 20%, 30% or so? What does that do to the current multiple that we have? It's such an important question. I do think we're going to see multiples get compressed. And again, when I go back to history and I see, all right, well, I have a view about inflation. I think there is going to be secular, despite the fact that we may see deceleration and acceleration, like you said, through waves like we saw in the 70s and the 1910s and 1940s all had their waves as well. But what is important to go back in history.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Industries, it is very unlikely that the availability for raw materials will be here in the next three to five years. So the cost of those things, depending on what business you are related to, are likely to be pressuring those margins to be squeezed. Margins are starting to decline currently. So we're now looking at earnings in this chart. But if you look at margins themselves, first of all, they increased to all-time highs. We've never seen margins this high recently with the COVID situation. And then after that, margins have declined to prior peaks, prior peaks that we've had before the global financial crisis, before the tech bust. Look, I think we're going to see a period where there is an earnings recession. I don't think we're immune to those issues. I do think there is a business cycle after all. And I do think we're likely to be experiencing right now.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Than historical standards. And at a time when what I said about wages and salaries is a real problem. Operating expenses are likely to go much higher and cause operating margins to be squeezed significantly. This is the main reason why we've had such a period in terms of the times when corporations have been able to spend less capital paying for their wages and salaries relative to how much money they've been making. And I think that with the political agenda that we have currently, on top of the need for most of the population to start making more money to afford such a high cost of living environment that we have today, it will force those margins to be squeezed over time. I also have a strong view about material costs because of this underinvestments that we've had over commodities and really into the natural resources.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Such a strong period like we've had recently, what would make that change? I mean, some folks believe that the changes that we're seeing today, technologically speaking, will create an environment that justifies the multiples that we have currently in equity markets and maybe justifies the growth that we're seeing in corporate earnings to maintain that over the next decade. I don't think that will be the case. I think despite the fact that we're seeing those breakthroughs through AI and other incredible things that are being created recently, even in the biotechnology space as well, it's just hard to believe that the pillars of inflation are not going to play an important role into squeezing the margins of those companies at a time when cost of capital specifically is, I think, at a structural increase, meaning it's not going to be cyclical. It's going to be, we're going to see cost of capital and specifically cost of debt being high.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“And if you think about those two decades specifically, the subsequent period or the subsequent decade after those two were times when corporations struggled significantly to earn capital, meaning this was the 1930s, which was the Great Depression. And I would say the 1930s was a very, very difficult period as well. In corporations had a significant contraction in their earnings. The same happened in the 90s. After the late 90s, we've had the tech bust. Corporations have struggled to make money again. And then right after that, at the end of the decade, we had the 08 experience as well, which was a decade that was one of the worst periods for growth in terms of corporate earnings that we've had in history. So that never happened throughout. We've never seen two straight decades of strong earnings, especially when we have”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Other things happen during that period, supposedly the roaring 20s was a time when we've had the capital or I should say consumer spending to a degree that we haven't seen in the past. And the macro environment was very different than today, but it's important to see how that period was a time when the economy really prospected, but also corporations did very well despite the differences that we have with the current environment. The second decade that we did very well was in the 1990s, which was that the time when technology was during a revolutionary period when we had the beginnings of the internet and a lot of businesses were created during that phase and was a period where actually, believe it or not, corporations also did very well in terms of their earnings. Their bottom line was growing at a state that we've only seen during those three decades, the 2010s and the 19ths.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“In my opinion, you can find in that research is that earnings, there are really two things that are important here. Well, first, the 2010s, which was the prior decade that we've had, was by far the strongest real earnings growth that we've had in history. That is the first thing to put out. And the question is, can we see two decades of that in a role? And the answer for that is we've never seen this in history. The other two times we've had such a robust growth in earnings of corporations happen in the 1920s, the roaring 20s, which was a time when we had different inventions at the time was the television, the television created a communication piece for the world at that time. It created marketing in a different way, commercials, movies, and different things that you can strap.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Essentially, this we've been in a 70 year channel in earnings per share aggregate basis in S&P 500, meaning there is a band, upper band and a lower band in this chart that you can see very clearly that I pointed out with two lines. And basically every time we hit the upper side of this band, we see a critical juncture in terms of earnings that tend to be in a contraction mode for the next months or years, depending on the situation. And it's important to go back throughout history again and see I like to do analysis on decades because it's a long-term analysis of reduced noise from different macro events that may have occurred. And you can see more clearly macro regimes and different parts of history that played a role into the views that we have today.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“More of a consequence of all those issues that we're seeing growing over time. And again, it's not like we're probably going to go to World War III, although everything is from a probability perspective. I do think that the need for folks to rethink how their dependencies with other countries lie ahead and perhaps internally trying to reduce those dependencies and improve their domestic economy over time. to not have to rely on other countries like China. And so this is all playing a big role into inflation. Those are the four pillars of inflation, wages and salaries, the natural resources underinvestments, the reckless amount of fiscal spending and deglobalization are four things that are called the four pillars of inflation that will probably continue to play a role into creating what I think will be a secular inflation.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Time, it exacerbates this inflationary problem. It creates changes in terms of the logistics and also the need, again, for developed economies to reinvest what I call revitalization of their industrial parts in different places of the world. It will create different partnerships. I think Brazil, South America will play a big role into providing natural resources to some parts of the economy rather than Africa and other parts that have been playing a role and have a bigger connection with places like China. I think we'll create separations of countries that will do well because of the own natural resources and other countries that don't. So all those things are playing a role into creating some sort of issues related to deglobalization. I think that the war between Ukraine and Russia is perhaps”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“A sense percentage of military spending or defense spending back in the 60s was about 9% of GDP. Today is less than 3%. So there's a lot of room for that to grow over time here. So those are three pillars. The fourth pillar has to do with deglobalization. Deglobalization is, to me, one of the most, maybe you started back in 2016 when we've had Trump initiating that narrative to fight China. And we've had his sort of discussions, which took a while until even the Democratic Party began to really understand or maybe even buy into that idea in general. And today I would say it's a very bipartisan idea in terms of being having a very different policies that we've had over the last decade or so. And so deglobalization is a trend that tends to be also something that magnifies over.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Investing in their manufacturing plants. And that is a problem that I think it will create demand for materials, for commodities, but also it is quite large in terms of the level of spending from the fiscal side. And so those things are very important. The Green Revolution is another one that it will fit into the agenda more and more over time. And it'll also be a large percentage of deficits, in my opinion, for the next decade or so. Military spending, it's hard to make a case that military spending is going to be falling out, rising in the following years, especially given what's happening with Russia and Ukraine, China and US, Middle East and the US. And there's a lot of issues unfolding all at once. And I find it hard to believe the military spending is not going to be a much larger percentage of GDP. And just to give people...”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Something that goes to show how why in the world would you be spending more when you have an inflationary problem in the first place? And it's something that we're seeing in a large degree. If you actually adjust for inflationary numbers today in terms of the fiscal spending throughout history, you're going to find that today by far we're seeing something that is quite scary from that sense. It's almost like the government is undoing what the Fed is attempting to do in terms of raising rates and tightening monetary conditions. And I am not sure this is the end of it. I think that the agenda on the fiscal side has never been so extensive. Why? Because you have this inequality issue that forces governments to run a larger social program. Number two, you have, again, this issue with developed economies having to become more industrialized and go back to reinforcing.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Responsible amount of fiscal spending that we're seeing currently. Partially that has to do with the cost of debt. So cost of debt is increasing. It's creating a need for budgets to be or I should say deficits to be larger than historical standards. And this is going to get worse over time. But the interest payment on the debt only explains about 50% of the deficit today. If you look at the deficit currently relative to history, In the 70s and 60s, there was at least a notion from policymakers.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“In order to make the green revolution happen, even how oil has become such a strategic geopolitical asset over time. So all this is sort of playing an important aspect of the need for those materials to be more available, but we don't have that. And it will take a long time for us to see the comeback of those investments into the natural resource industries to then translate into higher supply. I'm in the industry of investing in those things. So I'm very much aware of the time and effort that it takes to go from exploration to development phase and then producing phase of an asset within this space. And so I think that that's also a very secular trend. We've seen this throughout history as well in other decades. But I think it's, again, very pronounced in today's environment. Number three, and I think it's important too, is the reckless or even”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“As well. So that is one pillar, very important that is happening today and has a lot of room for growth, especially if you look at, again, the percentage of capital costs relative to profits from corporations. Number two has to do with what I just touched on initially in your first question, the chronic underinvestments in natural resource businesses. If there's anything that triggers a commodity bull market, that is looking at the aggregate capex of most of the commodity companies. And when you see that at depressed levels, that tends to cause commodity prices to rise. And most of the reasons for that has to do with supply side being so constrained. I think we're in that environment today. And I know that for a fact is because of what's happening in terms of the need for those things to be developed over time. In other words, the need for metals and the availability for resources.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“That part of the population in the US has never seen such a strong labor market throughout history, which means that even inside of the job openings and availability of jobs in general, we're seeing the need for those non-skilled jobs to be fulfilled. And so that is going to create, in my view, a higher demand for salaries to increase. And in a sense, it will play into this where the bottom 50% of the population financially speaking will probably be earning more money over time. And like it or not, like it, there's a reason why folks stay at the bottom 50%. It's because they tend to spend and allocate their capital when they earn it in ways that are less disciplinary than folks that are in the top 90% or so in terms of financially speaking within the population of the United States and other developments.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“To another point here that is important to, I would say elaborate regarding wages and salaries has to do with the fact that we're seeing the share of labor costs relative to profits of corporations being a historical lows. And so there is a secular trend as well just there that we think that corporations are not going to be able to get away with paying such low levels of depressed levels of wages and sellers relative to what they make. And so that pressure is coming. And I think we're just at the beginning of that and it fits into this wealth gap issue that we're seeing where most of the jobs that are likely to get higher wages are probably going to be the less skilled types of jobs for folks that have, that don't have a high school degree and so forth. And if you really explore that, we're probably going to see, and we're seeing that right now, the employment ratio across.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“I've been talking a lot about which is what I call the four pillars of inflation. To me, that's one of the most important ways of explaining how history has not only played out different roles in terms of the drivers of inflationary forces, but also how today this is so pronounced, meaning today we have the wages and salaries growth, the wage prices spiral that is very similar to what we saw in the 1970s. And it starts with, you know, first of all, cost of living rising, which is an important aspect here, which we've seen rents and other things in terms of services and consumer goods and prices have been not only they increase since the pandemic, but also we're not seeing a deflationary aspect of them. They're not coming down in prices. We're actually seeing those prices stay elevated, which causes people to require higher wages and salaries.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think we're getting very close to that for many reasons. First of all, we've had a liquidity issue recently with the banking situation, which was immediately mapped by a Federal Reserve intervention, which is in a way a liquidity injection in the system to avoid a liquidity gap otherwise. And so that goes to show how the Federal Reserve and specialty policymakers of developed economies have one job, which is to maintain the stability of the financial system. And that requires liquidity injections and liquidity injections in an environment that requires as well financial repression ultimately. So it is hard to believe that we're not entering just from that perspective a period of inflation running higher than historical standards. And then you add to the fact something that”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Graduate students in terms of the number of folks that are graduating in those fields has been also in a secular decline. All of those trends shown in this chart are secular trends. They're long-term trends that tend to occur for over a decade or so. And I think that we're entering another one of those. We've had the beginning of that recently. It's the gray rotation, the value to growth transition, the beginning of folks really understanding profitability, higher cost of capital. So it's a lot to unpack on this chart. I can really talk about this chart for hours, perhaps. But I think it's right at the core of why I believe commodities are undervalued and why I think that financial assets are yet to suffer a lot further from what we've seen so far, especially between multiples and prices relative to fundamentals that I think need to compress significantly from.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“I happen to think there's a way to express that view today similar to how people capitalize in the early 90s with the creation of private equities and venture capital approach of investing in many startups back in the 90s of the technology sector, which was the beginning of the internet and so forth, and did very well. The difference here is that this space of natural resource industries is perhaps one of the oldest industries in history. And one other thing that is related to this is a lack of folks that understand this space very well. I mean, we have not only an issue of prices, imbalances between equities and commodities, but also a problem of labor markets that are not being able to fulfill the interest from companies that need geologists, for instance. So geosciences, undergrads, and”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Data today by most investors that believe that we're always going to see equity markets outperforming other asset classes, but also bonds will serve as a haven asset for most portfolios. And all that is, again, is indicated in this chart as what I think that is going to be a paradigm shift for investing where commodities are going to go back and become a larger allocation of investors and also it's not only commodities. It's commodity businesses that are part of this as well. And so I think this chart is just simplistically telling us how cheap those assets are relative to financial assets. But there's a lot of ways to express that view in the markets. Some folks will think a certain commodity will do better than others. Let's say myself, I have a very strong focus in gold and precious metals. Some others have the same view on energy and so forth.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“1910s to the 1940s, and the 1970s. I'll go in this chart, it only goes back 50 years. So we're not seeing the 40s in the 1910s. But you can see clearly that in the 70s, the fact that we did have inflation, in other words, the cost of consumer prices or I should say the price of consumer goods and services was rising during that period. And also we've had the break of the gold standard and other issues that caused this most investors to flock into most of the tangible assets. Housing market did well, better than the stock market, I would say the tangible assets in general, including commodities mostly from copper to gold to silver to energy in general, agricultural all perform better than stocks and bonds. And I think that correlation shift is a little bit understandable.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“With the tangible asset side. We're seeing how commodities have been under allocated by investors. We've had a chronic period of underinvestments in the space. And so a lot of those commodities have been, they need new reserves, they need new discoveries. They have been lacking the level of capital's expenditure that we've had over the other times in history, especially when you are really looking at that data relative to GDP levels because $10 million spent on the ground today certainly isn't the same as we saw back during the global financial crisis period or so. And so this chart showing how depressed, commodity to equity ratios are, it is a reflection of those views. It's also a reflection of the views about inflation. Inflation is something that we've had in other decades.”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT
“Well, to start with, I would say that this chart reflects, I would think most of at least my views in the macro environment. And it's a reflection as well of how cheap tangible assets are relative to financial assets for many reasons. We've had 30 years or so of declining interest rates, discount rates have been declining as a result, cost of capital has been declining as well over the last 20 to 30 years. And therefore, that all had an impact on inflating prices of financial assets. So you have equity markets near record levels in terms of price relative to fundamentals. The same thing is happening with the bond market, despite the fact that in 2022, we've had a decline in both asset classes. And the other side of this, which is absolutely important and critical for investors, has to do”
2023-05-19 · We Study Billionaires · TIP553: Why Hard Assets are Positioned to Outperform w/ Tavi Costa · IDENTIFIED FROM THE TRANSCRIPT