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BookmarkGriffiths: “I think in terms of cycles and the normal cycle is roughly 4 years long. Since 1945 there has been the 4-year US presidential cycle. The way that works out on averages after a recession period is you tend to get 3 really good years in the stock market, and then the 4th year is a correction….
Well, after the low in 2009 you would normally, in the seasonally weak period of last year in October, have had a correction. Of course we didn’t get it because QE was designed to stop that from happening.
When you look back over the last 100 years, some of these recoveries in stocks have lasted longer, but the current one is already 60 months long. So it’s already much longer than the normal cycle. It is definitely a statistical outlier. It isn’t quite the longest one yet.
The longest one actually peaked in 1929 and ended really, really badly. The 1982 to 1987 one was also longer than the current one. If the current rally lasts past July of this year, it will be the second longest in the last 100 years, after the one that ended in 1929. So the rally will last into the new year but won’t last past July without a significant correction, and by significant I’m thinking 20% to 25%. Many people would call that a cyclical bear market. The question is, when does it begin?
All we know from the valuation point of view is that the Schiller P/E is about 26 now. So stocks are already expensive. But if you say, ‘Yes, but this is a bubble,’ well, bubbles can get quite a bit more expensive than this before they burst. So you are relying on what’s called, ‘The greater fool theory.’
It’s OK to run the bubble up as long as you are confident that you will get out before all of the other guys. We think that the current correction is a baby one to unwind the fact that we were strong in December. The markets will continue higher into the new year. But once we start to get past March, where the seasonality starts to weaken, it’s really good time to take risk off the table, to book some profits, and to be risk averse.”
Griffiths also spoke about gold: “Universally commentators were saying, ‘Gold is in a secular bear market.’ ‘It’s broken down.’ ‘It’s dead.’ I don’t agree with that. I have never agreed with that.
As it happens, gold is right on a couple of Fibonacci levels right now. What we have witnessed has been a cyclical bear market within a continuing uptrend. This means that when we get into the next cyclical bull, still in the secular bull, gold won’t only just go back up to $1,900, instead, gold will effortlessly make a new all-time high.
Gold will be well north of $3,000, and numbers like $5,000 aren’t crazy. And what you are doing is hedging the fact that central banks print fiat currencies — trashing them. You want something real that hedges against that wealth destruction. Of course the people with this agenda are the Chinese and the Indians. They have been buying all of the real gold on the planet. All of the selling has been in paper gold. The turnover in gold ETFs has actually been greater than all of the gold actually mined since Solomon.
I can’t see an immediate buy signal on gold, but I think we are near a low. If gold were to go back up past $1,275, I would buy more, saying to myself, ‘OK, that was the low.’ But at some point this year we are going to see gold go into a pattern of rising highs and lows, above the rising 200-day moving average.
At the point gold will be in its cyclical bullish phase and you will want to own it big-time. And you will probably want to own the gold miners as well. But at the moment I’ve got a watch list for gold mining stocks. I’m watching them very carefully but they haven’t given buy signals.
There is one stock that has given a buy signal which is half copper and half gold, and it’s called Freeport McMoRan. That one looks like the low has already been put in. It may have been copper that put the low in because China is clearly the biggest buyer of copper on the planet.
That stock looks dirt cheap and it’s a high quality company. There are also many other smaller miners which investors should follow. These high quality smaller companies are very out of favor. Typically they are half of book value, and many of them have no debt. You can also see the management buying shares in the open market and that’s always a very good sign.
All of the ingredients are there for these stocks to make a turn, but at the moment they are terribly out of favor. So, again, investors should watch those stocks very closely and be ready to buy.”
