It's been a rubbish start to the year for most investors. The S&P 500 had its worst week on record last week; the FTSE is down over 5% and the Shanghai Composite fell another 10% last week. Everyone's getting nervous to see just how nervous, read in this week's issue about the RBS analyst who reckons you should be selling "almost everything" immediately.
MoneyWeek readers will be a little less hysterical than most. We've been warning of overvaluation across many markets and suggesting you hold more cash than usual for some time. And when we have suggested investing (in China, for example) we have been very clear that it should be for the long term. No house deposits in the stockmarket please. We also know that however bad things are, there is always something that looks cheap.
What is it right now? I had dinner with one of our favourite analysts, Chris Wood of CLSA, earlier this week and asked him that very question. We had just finished a rather gloomy conversation about the uselessness of monetary policy, the dangers of a ban on cash and the miseries of the London housing market, so I wasn't expecting a particularly enthusiastic response. But I got one.
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Gold miners, he said. This makes sense to us. Gold miners have, as a sector, fallen about as far as anything ever does (just over 70%). That's the kind of fall that often marks a bottom. Still, for a bit more confirmation, I called Canada and spoke to Paul Wong, manager of the $140m Sprott Gold & Precious Minerals Fund.
Wong is not a gold bug. He is a technical and fundamental analyst so despite his job he is not the kind who says gold and gold miners are always a buy. What does he think? In his experience, there are three conditions that need to be in place for a real bull market to kick off in the miners. The first is that there should be capitulation in both gold itself and in the gold-mining sector. That has "probably" happened in the former and definitely in the latter.
The second is that there should be extreme currency volatility. That's a tick. And the third is that inflation should be higher than interest rates as central banks fall behind the curve. We aren't quite there yet, but given how low rates are and how very hard it is turning out to be to raise them we might well be soon.
When we are, says Wong, the miners will "rip". Buying now might be to buy early, but if you want to do so, Wong's top holdings include Lake Shore Gold, Randgold Resources, Detour Gold Corporation and Agnico Eagle. Alternatively, you can as I do hold the Blackrock Gold & General Fund, which holds most of the same stocks.
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