With chaos in markets surrounding the Fed’s decision, today King World News is pleased to share the thoughts of one of the top strategists in the world, Robin Griffiths of Cazenove out of London. Cazenove Capital is the appointed stockbroker to Her Majesty The Queen. The acclaimed strategist warned about the Fed’s strategy and stated that Western central banks have, “lent out or sold so much of the precious metal that it would take seven years of production to rebuild their reserves to the levels they were at two years ago.” Griffiths also warned about the US dollar and predicted gold is headed to new all-time highs. Below is his outstanding piece.
In the currency markets the most over-crowded trade was to be long the US dollar – but this has not been working. Against the euro, sterling and the yen, the dollar has been losing ground. The old market saying is that when everybody is thinking the same thing, then nobody is thinking at all. They often have a rude awakening and when this happens, cash is king.
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 of 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.
You have also been told that US unemployment is down to 7 per cent. This is the U3 measure. There are also Us 1 to 6 – all official ways of spinning the unemployment numbers. U6 is officially 14 per cent but Shadowstats suggests the true number is 23 per cent. The figures also 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. Their pensions are also worth much less than they thought they would be. So, all in all, the consumption of 90 per cent of Americans will not be driving any growth. A demographic time-bomb is beginning to tick.
There has already been a capitulation phase in gold and silver (more below) ... Meanwhile in the bond markets, China and Japan are selling US Treasuries as fast as they can and the only buyer is the US Federal Reserve. Economists are now taking the view that QE has not been as effective as had been hoped but, if Fed tries to stop it, the stock markets will crash.
Our cycle work indicates that we are approaching a vulnerable period for stock markets. If correct, the low that occurs will give a good buying opportunity for a strong tradable rally in 2015 and 2016. This will probably be driven by money deserting the bond markets and moving into equities. The cycles then suggest there will be 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 but also by new technologies. The latter will be dominated by the US, which will also be given a strong boost by cheap energy in the form of shale gas. We will enjoy all this if we can survive until then. To do that we need cash right now.
Many investors may have been shaken out of their position in gold. This is unfortunate … The charts indicate that a capitulation sell-off has taken place, completing the bear part of a cycle still in secular uptrend. Central banks have been trying to disrupt the bull move but they have simply ended up with nothing in their vaults. They have lent out or sold so much of the precious metal that it would take seven years of production to rebuild their reserves to the levels they were at two years ago.
In due course the next uptrend should break above the old overhead resistance levels, making new all-time highs. We are likely to experience a period when bonds, equities and many paper currencies all lose their value. Gold is one of the very few assets that will not be correlated with this move. Its hedging properties have seldom been more important. We have seen a good example of this recently in India. Indians who bought gold a couple of months ago will have completely offset the fall in the rupee against the US Dollar.
Generally, commodity markets will not move into a sustainable uptrend until growth in China starts accelerating again. This will not happen immediately as the authorities need to unwind the credit bubble that has blown up there. We take the view that they will succeed in doing this and are long term bulls of commodities. Many of the mining stocks are already looking cheap. They have rallied off their lows but we need to see a sustained break of the downtrends before buying into them.
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