The following is a summary of our recent podcast interview with Robin Griffiths, which can be accessed on our site here or on iTunes here.

Markets Have Been Strong, But Narrow Focus Is Worrying

After Trump’s election, when US equities markets took off, world markets followed suit. While being in US equities has been a good play, it hasn’t done as well as world indices, Griffiths pointed out.

1987
Gellinger / Pixabay

“When I rank them all into my quintile system … right in the top quintile is the world index,” he said. “Passively holding the global index is quite hard to beat.”

There are markets beating the global index, however: China, India, and emerging markets. Britain, American, and Japan are in the second quintile, he noted.

While investors in the US have done well, it’s likely they could have done better elsewhere.

Additionally, American equities are being held up by a few blue chip stocks. These are the FANG stocks: Facebook, Amazon, Netflix and Google, and other tech stocks. That’s where most of the action has been. Broader indices aren’t as strong.

“I’m a little bit concerned that the focus is too narrow at the moment,” Griffiths said. “It doesn’t alter the fact that the trend on the chart is definitely upward, though. … We have to go with the trend, yes, but it’s going up, so it’s going to get more expensive.”

1987-Style Crash Possible?

While he doesn’t recommend fighting the uptrend just because it’s expensive, Griffiths does recommend caution. He thinks we should be all right through the end of July.

After that, though, beginning in August and into October, he doesn’t recommend being fully invested.

“I see the risk as being quite similar to 1987,” he said. “Nothing went wrong in 1987. We were right in the early stages of a secular uptrend, which ran all the way through 1982 to the year 2000. And yet, you could come in one day and the market is down 25 percent.”

We’re vulnerable to this kind of correction, he added.

After this correction, forward-looking indicators suggest that through about 2020, the economy likely won’t be booming.

“Slowing down is not the same as going into a recession,” Griffiths said. “There’s no sign of a recession yet. But there is a sign of a topping out and a rolling over.”

Overseas Markets Promising

While the US isn’t necessarily in for a depression-level downturn, Griffiths sees more opportunity abroad.

“My slam dunk, the one I like the best, is the world’s largest democracy,” he said. “Incidentally, there are more Indians now even than Chinese, by many counts.”

With a healthy demographic position, democratic political system, and Prime Minister Modi enacting favorable policies, Griffiths expects growth between 7 and 10 percent for another decade.

China is also strong, but Griffiths is concerned about its non-democratic political system and credit bubble.

“If it was a democracy, they wouldn’t be able to do what they’re doing now,” he said. “They’ve got (the credit bubble) up to numbers that are really quite scary.”

As long as the regime in China has everything under control, things are unlikely to turn sour, Griffiths said, so China and China-related markets look good.

“The final bit of overseas investment that is very exciting … is industrial metals,” Griffiths said.

While the rest of the commodities space doesn’t look great, he stated, industrial metals are coming out of a 6-year bear market and are now in the very early stages of a secular uptrend.

Driving this are various infrastructure projects, which are going to use up these industrial metals.

“I’m not talking about Mr. Trump’s infrastructure projects, although they’re real enough,” he said. “I’m talking about the New Silk Road, as China calls it, which is easily the biggest infrastructure project the planet has ever seen.”

As China has exhausted its stores of industrial metals, this massive project is likely to use up an awful lot of copper, nickel, zinc and eventually steel, for the next two decades.

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