Interview with Robin Griffiths, Chief Technical Strategist at ECU Group in London. Full audio podcast can be found on the Newshour page here or on iTunes here at the 15:40 mark.
US market in bubble territory
“I’ve built an asset allocation model in which we compare forty different world markets and…when I look at all global assets on average they’re fairly valued. There’s nothing much to worry about. But within the matrix there are one or two markets which are frankly expensive. And it doesn’t matter whether you use the Shiller P/E, the Forward P/E, Tobin’s Q, however you stack it up, the US market by its own historic standard is expensive now. In fact you could say it’s quite well into bubble territory.”
Not time to sell yet; possible bear market in 2016-2017
“The US has not broken out of its bull market into a bear yet, but it is having a struggling period and probably in the second half of the year, let’s say from June onwards, it will breakout upwards for another run. However the same model goes on to say that the sixth and seventh years of the decade [2016 and 2017] have a high probability of being negative, and really quite largely negative. So we’re coming up to a sell but we’re not at the sell yet.”
Negative interest rates not going away anytime soon
“The other thing the model says which is quite surprising is…you must own some long dated U.S. Treasuries or British thirty year Gilts; and that’s implying that negative interest rates aren’t going to go away anytime soon. It really doesn’t matter if Janet Yellen is going to hike interest rates a little bit soon, there is no way interest rates are going to go up very far or very long. If they do go up at let’s say ¼ percent they may have to come straight back down again; and we’ve actually got negative interest rates in Switzerland, Denmark and Sweden, and the model or the momentums are saying we’re going to get more negative interest rates.”
Barbell strategy
“The ingredients for a crash are staring us in the face. But we’re not going to have the crash just yet. If I was a big time investment manager, I would be progressively taking risk off the table. And what my model is suggesting is a sort of a barbell strategy with no risk in the middle of the barbell at all; some Treasuries at one end of the bar and those few equity positions at the other end.”
Significant rally in gold this year
“If you’ve got gold in any other currency than dollars, it’s already in a new bull market. Clearly it’s bottomed already and you don’t have to look at just the Russian Ruble to prove this; I mean the Euro is working fine as well. I actually think that even in US dollars you’re going to get a trade up in gold pretty soon—in the next few months. I don’t think this is the trade that takes it straight out past $1900 to a new high but I think it will be a significant rally. I’m thinking $1400 or $1550…comfortably higher than we are now.”
Dividends still more reliable than government bonds
“What I would be doing now is I would buy the Japanese market, hedging the Yen. I would buy some European markets but hedge the Euro. I would buy India unhedged. Within our own markets I think the dominant thing to think about is dividend yields. When you put your money in the bank they are not going to give you a return on it; but you need some income and therefore a stock that’s going to pay you a dividend yield of four to six percent, somewhere in that range, there are a lot of great companies that do that. That income is worth a lot and their share prices should hold up relatively well whatever the P/E is because that income stream is an awful lot more reliable than one coming off a government bond.”
Listen to the rest of this interview with esteemed market technician Robin Griffiths on the Newshour page here or on iTunes here (Robin's portion starts at 15:40). Subscribe to our weekly premium podcast by clicking here.
