Sell everythingSell everything, global banking giant tells investors and brace for cataclysmic year
By Ambrose Evans-Pritchard, The Telegraph, Financial Post January 12, 2016 8:23 AM
RBS has advised clients to brace for a cataclysmic year and a global deflationary crisis, warning that the major stock markets could fall by a fifth and oil may reach US$16 a barrel.
The banks credit team said markets are flashing the same stress alerts as they did before the Lehman crisis in 2008.
Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small, it said in a client note.
Andrew Roberts, the banks credit chief, said both global trade and loans are contracting, a nasty cocktail for corporate balance sheets and equity earnings, and uncharted waters given that debt ratios have reached record highs.
China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the Goldilocks love-in of the last two years, he said.
This is about return of capital, not return on capital. In a crowded hall, exit doors are small
Roberts expects Wall Street and European stocks to fall by 10 per cent to 20 per cent, with an even deeper slide for the FTSE-100 thanks to its high weighting of energy and commodities.
London is vulnerable to a negative shock. All these people who are long oil and mining companies thinking the dividends are safe are going to discover that theyre not at all safe, he said.
Brent oil prices will continue to slide after breaking through a key technical level at US$34.40, with a bear flag and Fibonacci signals pointing to a floor of US$16.
The U.S. Federal Reserve of playing with fire by raising rates into the teeth of the storm
The bank said a paralyzed OPEC seems incapable of responding to a deepening slowdown in Asia, the swing region for global oil demand.
Morgan Stanley has also slashed its oil forecast, warning that Brent could fall to US$20 if the U.S. dollar keeps rising, arguing that oil is intensely leveraged to any move in the dollar and is now playing second fiddle to currency effects.
RBS forecast that yields on 10-year German Bunds would fall in time to an all-time low of 0.16 per cent in a flight to safety, and may break zero as deflationary forces tighten their grip.
The European Central Banks policy rate will fall to minus 0.7 per cent. U.S. Treasuries will fall to rock-bottom levels in sympathy, hammering hedge funds that have shorted U.S. bonds in a very crowded reflation trade.
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