Thoughts from our recent conversation with Robin Griffiths, Chief Technical Strategist at The ECU Group, which can be listened to on the Newshour podcast page here or on iTunes here.
Bear Market Rally, 2017 Low
“Everything suggests to me that the world is in fact in a bear market and that what we're having is the end of the first bear market rally…
According to my work, the final low of the bear market is not now—it's not even this year. It's next year and it will be quite a bit lower than we are now in virtually all markets.”
Oil Rally Now Fading
“Whenever a move up is exceptionally violent and vicious—as it's been in the price of oil—usually the buying power is short covering…and, of course, once the shorts are all covered, the next trade is likely to reinforce the last trade that made a profit, i.e. they'll short it again at higher levels.
In the case of something like oil we are still in a position where the world has massive excess supply and a lack of demand so that's the underlying fundamental. You don't fall 80% and then make a nice little V-shape bottom on the chart and then go back to the good old days. That is just so unlikely I can't get my head around betting that way at all. It's much more likely that the rally runs out of steam and we go back down to make a more important base…and at much better value.”
This Doesn’t Happen in a Bull Market
“The probability of making money by running out and buying something aggressively is really vanishingly small and the probability of losing money is really rather high. When I rank in descending order of merit all of the asset classes in the world—I do this ranking in dollars, in sterling, in yen, and in euros so you get slightly different answers depending on which currency you're in—but, basically, I rank them into quintiles and if we were in a bull market, the equity indices would all be in the top quintile and cash, bonds, and inverse equities or short-selling would all be the bottom quintile…
In spite of or including the rally recently, equities are all in the lower quintiles—well below zero—and, as it happens, the US market is one of the stronger of equity markets, but it's still in the bottom quintile. And what my work is suggesting is if you're a hedge fund putting on some new shorts into this rally now is a really good idea and makes you a profit. Holding cash is a slightly less good idea because what cash does is it stops you losing but it doesn't actually make you richer. And the things that have been going up are high-quality government bonds, gold bullion...and inverse equities or short-selling so that can't happen if we are in a bull market basically...”
Slow-Grinding Bear
“The economies are cooling down some more than others and Janet Yellen doesn't want to crash things so the notion that we could have interest rates returning to what used to be normal now or anytime soon is...well, it really can't happen. It's not going to be allowed to happen. But because of valuation levels I use the expression of a 'slow-grinding bear'. I think that is the high probability. The possibility of a crash is much greater from bubble territory but the broader market is not in bubble territory—it's just expensive. And it's had a very long-lasting bull, slightly kept alive on steroids of zero interest rates...”
Millennials to Drive Future Economic Boom
“Trying to be bullish I look forward in time to about 2020 when the demographics in the Western world, and particularly the US, become positive again. It's the generation called Millennials when they get to be old enough to start wanting to get married, buy starter homes, make children, send their children to school and all of that.
It's a big generation. It's not as big in proportion to the baby boomers because the total population is bigger now but it's big enough and it'll definitely drive a boom and that boom will start to get some proper momentum from about 2020 onwards.
Unfortunately, we've got to get from here to there and it's in the next 18 months to 2 years when we've got to correct the excesses...”
Listen to this full podcast interview with ECU Group's Robin Griffiths on our Newshour page here or on our iTunes page here. Subscribe to our weekday premium podcast with various guest experts, strategists, and book authors by clicking here.
