JP Morgan has been a resolute gold bear for years now, which is kind of ironic because the original J P himself was the world’s biggest believer in gold and actually used his personal gold hoard to bail out the markets and the US Treasury back in the collapse of 1907.
But now we see that the bank he founded is coming back to his position. Last month, JPMorgan global equity strategist Mislav Matejka wrote that he advised against buying into the equity rally because although “equities are down ytd… the 2016 P/E is not much cheaper today than it was at the start of the year. In fact, for the US, the P/E multiple is currently higher than it was on 1st January, at 16.8x vs 16.6x then.” You may remember that I also recently commented on this same fact.
But yesterday, JPM said something far more dramatic: JPM is as of this moment underweight equities “for the first time this cycle.” Additionally, JPM is also underweight (UW) commodities such as gas, oil, and copper which are highly correlated to stocks (and China) and overweight gold (OW).
The details in a note from JPM’s Jan Loeys:
“Equities, credit and commodities have all rallied in the last three weeks, as some of the immediate threats to the world economy have faded from attention, possibly only because the bad earnings season has wound up. But, to us, the fundamentals of growth, earnings and recession risk have not improved, and if anything have worsened. We remain wary of the near- empty ammo box of policy makers.”
Here is JPM’s new recommended asset allocation: “Our portfolio is now 5% UW Equities, the first UW this cycle. We retain a 10% OW of Credit, moving Bonds to Neutral, and Cash to OW. Commodities stay UW, but we move it to a small -1%, given recent momentum and volatility. Within Equities, be OW defensive sectors…In Commodities, be short gas, oil and base metals but OW gold.”
I believe they have it just about right, dear reader. Except I would go a little further. The only things I recommend owning are cash, gold and gold shares. When JPM arrives at my asset allocation, I hope you are a seller of gold. I will be.