Where Macro and Behavioral Technical Analysis Meet ft. Ron William & Robin Griffiths

28:27We're already seeing that. We've already had two waves in headline US inflation that is proving that with inflation volatility that is keeping us on the edge each time. But what that means is a potential two-stage move ahead where we get a resurgence of inflation that leads to a deflationary event. Yes, absolutely. That is what the cycle suggests. the Kondratiev correction is likely later to bring deflationary pressure. And again, if you can think about that, with all these AI chips coming in to do what many normal human workers do, they're going to go right now from getting a raise rise. But when the chips start working, they're going to be fired.

29:08And that will be highly deflationary. So it's a very volatile situation. And we have to go with the trends as they're unfolding. And they can change direction quite quickly. And active portfolio management and trading or investing will be key. Yes. Good time to go back to charts and cycles. And if we go to our follow-up chart in terms of where the next money-making opportunity is, as you highlighted just before, commodities, it's super, super, super cheap and post-crash in absolute and relative terms. This is the ratio chart of commodities versus equity. So down here is commodities underperforming equities.

29:50And it's a generational rotation. You can see the last time we were roughly where we are now was in 1999 tech bubble. And before that, I'd like to share your perspective on this. The 1972 Nifty Fifty. Yes. For the younger people here who don't know what that is. Yes. What is it? I was in the bar when that happened. The idea was with the Nifty Fifty, People say, I've looked at stock selection in my portfolio and I'm going to come up with companies which are so super and so dominant in their marketplace. We can just sit back and grow with them. They will handle the changes as changes come through.

30:28I don't need to change my portfolio. All I need to own is the nifty 50 and I'm made for life for the long term. Now we need to point out that some of the nifty 50 no longer still exist. As a scenario, it didn't work. But markets get focused like this. And at the current moment, we are much more focused than we ever were under the nifty fifty. At the moment, the top 10 stocks in the US market are worth 30 % of the entire S &P 500. And the seven of the top 10 are themselves bigger than entire countries. Indeed, the entire stock market in London is worth less than one of the so-called mega cap stocks.

31:12So we've never seen it so focused like this. And the person that points out how brittle, brittle is a vital word to learn that the stock market can be when it is narrowly focused like this, was Nicholas Taleb of the Black Swan Man. Britality is what we've got in face right now. You'll get a rising markets, but so focused in such a narrow way that it's very brittle. You hit that glass, it's not going to ring, it's going to shatter. at some later point. We're going to take another quick break to hear a word from our partners. We'll be right back with more of the day's top analysis on the Real Vision Daily Briefing.

31:54And just to pencil the point on, well, both technology, it being super overbought and still running higher, but also with that narrow rotation, which has been the theme, the market internal theme from all of last year, 2023. the strategy to a commodity outperformance to come, particularly if inflation picks up, if we go back to the previous chart on commodities, that implies not a buy now and forget about it tomorrow, but a potential going back to Nassim Taleb. He's a fan of what is called the barbell strategy. Recommended as keeping risk asset selectivity. So whatever's making your money, keep it and perhaps take profit.

32:38but with downside protection. That's the other side of the barbell. So in parallel, build up robust defensive play. And then on the commodity side, in things like gold, perhaps a little bit more cash, quality bonds and non-correlated portfolio risk. Incidentally, our grand finale chart is Japan. So keep that in mind in terms of non-correlated equity portfolio. But just to highlight, this ratio doesn't suggest commodities as a buy now. No. They will be soon. but will be soon, and perhaps doing it in a tactical way would be the way to do it. Gold is already long now. I'm long gold right now, but gold is not a commodity.

33:15Gold is real money. Dollars and pounds are not real money. They're pieces of paper, but gold is real money. And we have some early leadership on the commodity side in terms of energy. Yes. Oil marginal, but energy stocks. Yes. Back to the old highs. Yes. Okay, now if we circle back to the point of tech, overboard, now rotation, This chart is one that I've been working with recently. But essentially, it shows what happened in 2022 when technology fell out of grace. Had a fall from grace, I should say. And this is the first three months of that year, January into April. Now, Fang, it dropped 26%.

33:57It later on extended down 50%. That shows, you know, that it's, I mean, things can happen. It can wobble. it can correct and crash and still resume higher again. But what's interesting is the rotation that happened back then. So FANG 1.0, which is mega cap tech, fell off the cliff. But FANG 2.0, and let's just pin that and explain what it is, which is an acronym for industries, not stocks, developed by Bank of America some time ago, that tend to thrive during disruptive and inflationary environments. They tend to be commodity-driven too. So the FANG 2.0, different meaning fuel, then we have, I think, agriculture, then aerospace and defense, timely in terms of some of the disruption going on, nuclear and gold, going back to your point made just now.

34:57Now, the difference between the two, the performance gap was 60%. Something to keep in mind for a future rotation that may come. But for now, we're sticking with commodities and maybe FANG 2.0 as a broader proxy of that. Yes. And just going on to the main chart, which is, of course, the here and now on equity markets. Yes. Headlined, party like it's 1999 until the music stops. My question to you, Robin. Yes. when might the music stop? Right, well, this is very interesting. We're nowhere near the bottom of a bull market now. We're well into a long-running bull market. We are now in the melt-up to the final high.

35:40And from all my work, the two dates that spring immediately to mind as rhyming pretty strongly are the year 2000, the dot-com bubble peak, which most people can remember because it's not that long ago. And the other one that the history books show we need to do is 1929. Now, of course, that time was followed by a Great Depression, and we're not necessarily saying that, but we are certainly saying that when the top comes in, lots of stocks will fall 50%, and some of the famous stocks will disappear, like the nifty-fifty disappear. Events change. If you're making a Polaroid camera and somebody says your smartphone takes pictures, Polaroid is dead right there and then.

36:25So technology is coming in that will make lots of current things totally redundant and they'll die. So this is where we are. Now, we are in the melt up to the final peak on that chart. And just on that chart, so the blue line is NASDAQ 1999. Yes. Being projected here and now over this year into next, so 2024, 2025. The yellow line is the market right now. We're looking at NASDAQ data. And the fit's pretty damn good, isn't it? It does. It's a little bit scary in terms of how tight the fit is. Now, just a disclaimer, these analogs work until they twist and turn and then... They're a model. They are a model.

37:04They're a model. The model is a good reference, but not always reality. So where we are here, just to your point, we're still melt up, still upside to go. Yes. And if it does track the analog as it already has been, it's that peak one red square stage. Yes. And ultimately, probably a question that everyone will be asking is, from a technical chart perspective, how do we spot a top? Well, the market will do it by patterns of falling highs and lows and then falling moving averages and all of that. And a distribution pattern of some sort. A distribution as well. But it could be a V-shape. I think already we're in a parabolic upward shape.

37:48And when you do a parabola, there's no higher to go than that. it has to eventually come down. And when it comes down, I'm pretty clear we will come much lower than we are now. Once the big cyclical high is in, the minimum fall is 50%. Think back to 208, when the housing thing suddenly folded up, most major indices fell 50%. And if it were to be more like the 1929 one, and a lot of different things would have to happen for that to be the case, then it could be more than that. But lots of things will fall 50 % from their final highs. But the final high may be 15 % higher than it is now, because we're melting up.

38:32There's so much cheap money that doesn't want to own bonds and wants to just get in. That's where we are. And an important sub point to make in terms of that breakdown, 50 % is the quantum that you've often spoken about, which typical bear markets produce. That's the price magnitude. Of course, there's the time duration. That can take several years. Absolutely. Not like COVID 2020, which was a few months, you could fall asleep, woken up again and missed the fall down. The only real weird one here happened in 1987 when we were working away in a bull market, went home one night, came in the next day and the market was down 22%.

39:15That can happen. Now, if you notice on that last chart, there was a little wiggle in the blue line before the final high. That could easily be up to 10%. That would not break the big story. But a little thing like that would worry a few people before it went up again is entirely possible. But the final correction when it comes is going to be much more than 10%. In the down-up-down shape, the first down is likely to be more like 25%. And just to clarify, as part of the roadmap model, which we featured at the very beginning of this discussion, the corrective phase, point X, the three stages. WXY.

39:57WXY, thank you. But essentially, it's a full rally. Rest of fall. Full rally, rest of fall is what you have to tell yourself. And not to think when you get the rally, this is the new bull market. It's the rally in the bear market. And not an overnight straight move down or even up. But in the corrective stage, you can see there 0.1, 2, and 3 just highlighted there. And interestingly, according to the work that we've expanded together, it ties in with A, seasonality, but B, also tactical proprietary work that we now do, some of which is based on natural cycles. Essentially, you can see there are potential consolidation during the summer with a flash crash risk between now and then.

40:39And then as we go into the negative seasonality months of September, October, ahead of the US election, we set ourselves up for the rest of the move down. That's what the analog suggests. And time will tell. We can follow up with this chat closer to that time. Yes, yes. Now on to the next chart, of course, in terms of flipping from downside risk to upside record highs, we have gold and Bitcoin. Yes. Interesting mix of the two in terms of both being at record highs, but for different reasons. it seems to be part of the momentum trade and the everything up setup. One of the great things is the US dollar has been far too strong recently against all currencies.

41:22And some of that strength has to go. For gold to be beating the dollar, even when the dollar's strong, means when the dollar returns to its mean, gold will fly. A new all-time high breakout is always important. Now, as you look at the chart, you can see early on gold, the red line made a peak. Then it fell all the way back and all the way down and round and back up to the same level. That makes a cup shape. Since the edge of the cup, it's then gone sideways in a trading range. So that shape on the chart is called a cup and handle. And there are rules about the handle inside the trading range of the handle.

41:59The rule is the market can make a single top, a double top, or a triple top. But there is no such thing as a quadruple top. So if it's even going to try for the fourth time, So I picked up on this one. It was early before it broke out. It will break out and make a new all-time high breakout. And the minimum projection is it will now rise the height of the depth of the cup. So the minimum target for gold now is 27.50. And with excess momentum, it may well make 3 ,000. So I've got the trade on. You are long gold now. It will go to 27.50. And I might sell half the position then. If it gets to 3 ,000, I bank the trade, done.

42:43So I'm not a permanent gold bug, but I'm definitely a gold bug right now. And just to preface that, I mean, I totally agree in terms of the accumulation pattern, also known as the cup and handle pattern. Look up the work of William O 'Neill, a veteran technician from decades ago that coined the pattern. And essentially, this is a multi-year, a long-term pattern on gold, which gives that projection higher. Also, the 1980 peak on gold inflation adjusted is 2 ,700 or close to 3 ,000. So there's a little bit of price confluence there. Plus, there's the currency debasement story and why gold is a good hedge during times like this.

43:21The central bank buying power, which is at record extremes. And then, of course, various defensive play based on geopolitical concerns and whatnot. I've actually got another newsletter, which goes out on ByteTree.com. called the Adaptive Asset Allocation Model. And in that model, there is a position called bold. And bold is a mixture of gold plus Bitcoin. And the idea is they don't go exactly together, but the average gives you a better return than owning one or the other. So personally, I actually own gold. But the people that believe that the cyber money is real as opposed to merely an entry on their computer.

44:07Bold may be a very rewarding asset. I know that the turnover through Bitcoin is enormous in size. It's nothing that's not real. And therefore, look at the combination of Bitcoin and gold. 60-40 sort of division will give you quite a good performance. And that's based on historic volatility, sometimes 60-40, sometimes 80-20, developed by Charlie Morris. Charlie Morris runs Biketree, and he was at HSBC when I was there too. We're good friends. And essentially, if gold were to go sideways or crypto were to have another winter, then you've got protection. But in the meantime, if you're at record highs, it's a double win.

44:49There we are. And on the crypto side, you've got the ETF launch, the halving cycle. So two strong forces still pointing up. But just a quick preface, technically on the short term, both look overbought. and momentum divergence is currently warning potential unwind, but a potential buy on the dip opportunity on both. And then our grand finale chart, as promised and alluded to earlier on, Japan, in terms of non-correlated equity market positioning, keep in mind that Japan is plus 25 % year-to-date already. We still like it. We still like it. And the so-called rising sun has eclipsed its 1989 peak.

45:32The question is what next? But before we go to what next, what happened in 1989? Because you lived through this market. This is a big part of my life. I originally went to live in Japan for just over a year. And as a young man with four young children in England, that was quite a big move for me because the children stayed in England. and I watched the market go, the Nikkei, go all the way from 7 ,000 to 38 ,914 and literally came away and came back to live in England after that peak. Also on the way up, lots and lots of famous investment managers from all around the world came on tours of Japan that I used to put together and my colleague Paul Hoff would take the clients around and we've seen many of the great famous businessmen there.

46:21I remember meeting Papa Honda and Morita from Sony. I mean, we met some of the great names. Of course, as an investment, they were too expensive at the time. On the way down, you can notice that there was a five-wave correction, Elliott Wave style, which are five waves as a major direction. Hence, that was the bear market. And then it made a low, and it took quite a long time making effectively a giant double bottom. Ever since then, it's been going up. And the minute the market retraces more than half of what it's fallen, the prediction is it will go back to the old high. Now it's done it, and a new all-time high breakout is a new buy signal.

47:04All of the old overhead resistance has gone. So the rules are now, on a fallback in the Nikkei, it must not go back below the old all-time high, 38.914. And it will fluctuate. probably can come back to consolidate now. But on the way up, doing my Elliott wave count from the low, I think you've got an up, down, up before the final high is in. And I've got targets like about 40 ,000 on the Nikkei as quite likely. So on my work, it's one of the four strongest trending major markets on the planet. It is more volatile than the Western markets. We have to take volatility into account but i like it i belong and for keen charts the robin's point about the base pattern multi-year uh the old phrase is the bigger the base the higher in space yes certainly achieved that minimum price objective and more yeah and and i i really like the uh perspective about having a conservative uh correct correction level yeah the record high no lower or at least maybe reassess if it does.

48:15Just so you've got a strong bull market to trade. On that point, from a macro perspective, because I know you have views also, of course, attractive relative valuations compared to the rest of the world, especially the US. Structural forms that are taking place in terms of corporate governance and how the Japanese are now changing the way they do business, especially for their shareholders and giving back more dividends. And this is some of the insights shared by the famous investor Warren Buffett when he flew to Tokyo to invest in some of the stocks as to why he saw value and more attractive interest.

48:53This market has already discounted an aging and shrinking population. As well. Which the rest of us markets, we've still got to do that, including America. There's an aging and shrinking population there. Of course, China's having an aging and shrinking. That's in the price right now. And, you know, it's a whole new game now. The stocks in Japan are nowhere near as expensive as they were. They're well placed in the growing Asian market. And most people know that most of the people on the planet are Asian. The other market we haven't got a chart for is India. And India is very like Japan. It's more volatile than normal markets.

49:30So its surge is making it strong, and then a little consolidation makes it look too weak. But the actual trend is incredibly strong. The GNP in India is growing at 8.4%, so it's the fastest growing large economy on the planet. They're having an election right now. It takes a long time for almost a billion people to vote. I mean, our elections are toys, both in America and England. You know, in India, they jolly nearly get a billion people to vote, which is incredible, and they do it successfully without it going wrong. I personally think Mr Modi will be in for one more term of office. However, on the chart, just as Japan is now strong, India is now in a consolidation phase.

50:15Having been priced to perfection. Having been brilliantly strong. It's in a consolidation phase. So on our system, we don't own India right now. We own Japan instead. Thank you very much. And just as a final question, if there's anything you'd like to add, Robin, insights to traders and investors who want to learn more about how to do it better. I'm more of a long-term investor. The only thing I would say to traders is don't try and trade everything on your TV screen. The expenses will kill your capital quite quickly. So pick the few things you really, really know about and know them so well that you're perfectly happy to trade them.

51:01So if you're going to do the short-term trading, pick two or three things that you really know. And they may be index levels rather than stock levels and just trade them. I well remember before he died, Charlie Munger came out with the four things he thought were okay. He had a holding in Berkshire. He had Costco. He had his own house and some other properties he rented. That was enough. You don't need more diversification than that if you're trading. And even in asset allocation, where we're only doing asset classes, we are not allowed to own more than four asset classes alone. I can tell you that's quite enough diversification.

51:41If you take more on more than that, your performance will be below average. It's called diversification. Don't overdo it. Thank you very much. And look forward to more insights. Robert and I will be publishing reports soon under RW Advisory, Trends, Tactics, and Timing T3. We're ready for questions if we still have time. Thank you very much for listening in. And we look forward to any questions that may follow. So we understand questions are coming in. Okay, here we go. Which emerging markets look best to you currently? So you mentioned, well, India counts as one. Any others? Well, in my mind, India is so big, it's not emerging.

52:21It's going to be, in time, it will be the biggest economy on the planet, overtaking China. So looking forward in time, next 10 years, I see the three biggest markets being India, China, and then America. Even though China has an aging, shrinking population, by the time the shrinking has gone on, there will be three times more Chinese than Americans. So don't forget that when you're in America thinking we're not shrinking. You jolly well are shrinking. Your demographics are rubbish. Same as ours, by the way. Now, China has been a catching the falling knife phenomenon. Yes, it has. For most, but it has rebounded.

53:01Yes. What words of guidance can you offer? Bearing in mind that I used to work for HSBC and have met some very senior and important Chinese people whom I liked a lot and who were very well briefed, the message is don't worry about China. If you're suddenly thinking China's going to disappear into a tiny weenie hole and not be a part of it, you can forget that. That's not going to happen. It's going to be, well, already it makes more things than America makes. America will be very lucky to take that manufacturing back into America with robots and do it there. But it's got to do all of that. So at the moment, we've got three big giant economies.

53:40And then Europe is a player, but the odds are against Europe. So that's the fourth player in the big equation. equation. And certainly, if you look at the world versus the US, going forward, as the US starts to unwind, if and when it does, it'll be an international diversification play. Perhaps emerging markets can be part of that. Yeah, I think that's right. Yes. And in a short time, I lived and worked in Asia and Hong Kong. Of course, you've got the Asian countries, some of the Southeast members, which are frontier markets and performing well, might also be useful to add. But I take your point.

54:16China's a polarizing debate at the moment, especially after the big fall. But cheap, due and oversold bounce. But it has been a catching fall of knife phenomenon for some. And by the way, I do not think China will start a war in Taiwan. If such a war starts, it will be started by the USA. China wins wars without firing a bullet. Read Sun Tzu's memoirs, which are well published. China knows that Taiwan is not full of Americans, it's full of Chinese people. The only reason why the West is interested in it is because of one building making microchips. But the technology moves so fast, those chips will be out of date in no time.

54:58You don't fight a war about it. Learn to make the microchips in your own country. That's the answer. And that's already taking place, although maybe not as efficiently as it's currently being done. and the Taiwanese elections have completed. We have double-digit elections to continue around the world. It's another reason why geopolitics is on top of mind for many. Any other questions? So that was from Jenkins. Thank you for that on Emerging Markets. Thank you very much, Robin. Thank you. Thank you so much. And from myself, from William, it's been a pleasure having this discussion between friends and industry colleagues.

55:37I hope you enjoyed the themes, insights, and we look forward to staying in touch. Thank you very much.

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