Since the U.S. Federal Reserve’s rate hike cycle, the S&P 500’s average price-to-earnings multiple had adjusted from 22 times to 16 times, Griffin said.
“We have all underestimated inflation, interest rates,” he acknowledged. “The Fed has gone from saying interest rates in 2023 will be zero 18 months ago. They are now saying rates in 2023 will be 3.75 percent.”
As a result of the dramatic macroeconomic reversal of the pandemic era, Mr Griffin said he was looking at three factors to help decide when to put the fund’s giant cash pile to work in global stocks.
“The first is long-term [US 10-year Treasury] interest rates peak,” he said. “We think that has happened. Now there is a risk of inflation and we have to raise rates longer. From zero to three it hurt, we have reached three [per cent]That’s good.”
Since touching 3.48 percent in June, the US 10-year bond rate has fallen to 2.79 percent.
However, Mr Griffin also wants to see earnings cut in company valuations before deploying cash.
“This growth sale is largely done,” he said. “What’s coming now is that the real economy is starting to roll.
“So all these cyclical things that normally happen in a slowdown, is it going to be a mild recession or a deep recession? Nobody really knows. You can’t see across the valley because the declines are just starting.”
The Munro Global Growth Fund has lost about 19 percent over the past six months, despite being weighted on the long side by technology stocks that have increased in value.
Mr Griffin attributed the relative success to a decision to sell loss-making companies including Square, Spotify, HelloFresh, The Trade Desk and Atlassian more than a year ago as he expected the Fed to raise rates.
“Go back to those things today? No, you don’t,” he said. “The reality is you can buy [tech] monopolies here at an incredibly good price. You can buy Visa, Microsoft at 23 times earnings. Nvidia near 30. Amazon is very cheap at the moment.
“All of these companies should grow through a recession and be created as wonderful opportunities somewhere between one and six months, I’m not exactly sure where.”
The last factor Mr. Griffin expects is the weather. He said patience and caution often proved to be investors’ friends in bear markets.
“It’s important to remember that bear markets last just over 300 days on average and fall 37 percent. This one has been gone for just over 100 days and is down 25 percent at its peak. If you respect history, we could be halfway there.
“Eventually, the Fed will regain its credibility. Inflation will come down. You just have to figure out how deep the slowdown will be. Over the long term, stocks follow earnings growth.”