Robin Griffiths

We have been told “that the US economy is now growing at 2.5 per cent per year and the UK at 1.5 per cent, and that these numbers are fantastically good… that China is growing at 7.5 per cent and India at 5 per cent, but these numbers are fantastically bad,” says the much-respected British technical analyst Robin Griffiths.

But “it is an abuse of the English language to describe what has occurred in the West over the past three years as growth. It is, in fact, a partial recovery from what we had before.

“With the exception of the US and Germany, all Western markets are lower than they were in 1999. In real inflation-adjusted terms, even the US and Germany are down about 30 per cent.”

The figures show that average US incomes are well up – “but this is just arithmetic. If you strip out the billionaires in the top 1 per cent, most Americans are earning less now than they did in 2000.”

Equity markets have become captive, not to the realities and prospects of economic growth, and its consequences for corporate earnings, but to the realities and prospects of easy-money policies.

As the year has progressed, there has been increasing belief that the US central bank will soon start to “taper” (cautiously reduce) its prodigious easy-money stimuli.

But global markets have reacted very differently to that prospect, at least until mid-year

The Americans have focused on the reality that any tapering will remain extremely cautious -- because the political class won’t allow any serious attempt to curb their addiction to easy-money -- and will only take place in response to the good news of somewhat stronger economic growth.

Hold high cash levels for the next three months, as uncertainties abound and risks are high, advises Robin Griffiths of Investment Research of Cambridge.

“In today’s markets,” he says, asset classes that have not normally been correlated can all move together. There is no safe haven to run to when bonds, equities and gold all fall at the same time.”

Given relatively weak growth in the US economy, “it is hard to argue that the stock market represents good value. Blue chips are now on a PE of 19 and the small stocks on 26. Bull moves do not usually start from these sorts of numbers, except during a runaway bubble – which then goes on to burst.

“We are approaching a vulnerable period for stock markets. If correct, the low that occurs will give a good buying opportunity for a strong tradeable rally in 2015 and 2016.” Technical analysis suggests this will be followed by “a final capitulation low in late 2017.

“Only after that will the world be ready to move back into a sustainable ‘new normal’ where we will see real growth, driven partly by Asia and also by new technologies. The latter will be dominated by the US.”

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