Jonathan Ruffer has warned investors that the pain and sluggishness of the next phase of markets will be like “sitting on an open Aga with bare buttocks”.
In his latest quarterly investment review, for Q3, the Ruffer chairman said the world is moving from a period when markets have done nothing except go up to one when they will grind lower, punctuated by strong rallies.
He noted of the last 150 quarters of the US equity market, as measured by the S&P 500, 71% were up-periods and only 29% of them were down.
Outlining Ruffer’s approach, he said: “Our contrarian approach has been to capture as much of the sunlight as we dare, while holding tungsten-tipped instruments for extreme danger – danger which usually manifests from a cloudless sky.”
A changing sky
But, he added: “That sky is about to change.”
He said in the next period, the “menacing tactic” will be buying for the bounce which never comes when it should and if these rallies are missed, holding almost-all assets for long-term growth will be a “miserable experience”.
“For this next phase, we make no prediction on longevity, only on challenges – we expect it to be like sitting on an open Aga with bare buttocks: time will indeed pass slowly,” he added.
See also: Ruffer pockets $1bn after selling out of bitcoin
The inescapable problem of indebtedness
Ruffer also predicted the current market strength will “end in a bad way” because of the “inescapable problem” of indebtedness which will have to be addressed through either economic growth, austerity, or taxation.
“The world is therefore trapped on a ledge, savaged if interest rates go up, compromised if asset prices go down, and unable to stop the debt pile increasing until buyers go on strike. A tipping point will come when the purchasers of the world’s currencies no longer have the confidence to see them as a store of value. That, in our view, is the genesis of the next inflation.
“Those who think the party will continue currently see no evidence of an incipient crisis. That is like mistaking a mastiff’s growl for a conversational clearing of the throat. Crises are crises precisely because they are unexpected, even when, at a deeper level, they are very much expected.”
