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RBS' BIG PICTURE

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RBS' BIG PICTURE


https://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=9A9D73AC-1871-E587-E1215CDCC0B65918
FNArena

Royal Bank Of Scotland Issues Crash Alert
FN Arena News - June 18 2008

By Greg Peel

Doomsayersare not uncommon in any market, particularly in times of turmoil oreven in times of excessive good fortune. Technical analysts are usuallythe first to make the call to start building an Ark as soon as oneinterpretation of the tea leaves sends out warning bells, often only tofind that - shucks - it was not the beginning of Wave 5 after all butreally just the Fibonacci retracement of Wave C, or some such thing.Flamboyant investors such as George Soros can also get absorbed withtheir own power, as Soros admitted to doing after calling the end ofthe world in 1997, and then of course there are the so-called"perma-bears", of which Morgan Stanley's Stephen Roach is the patron,who can call a crash for so long that eventually, statistics suggest,they must be right.

But there is little doubting the world iscurrently very jittery as stock markets fail to recover from earlierlows, credit markets just seem to keep being bogged in the mire, andnow inflation is running rampant at a time when global economic growthis slowing. So it is not without consideration that the Royal Bank ofScotland should suddenly issue a Crash warning, and who better to breakthe news than the London Daily Telegraph's serial doomsayer, AmbroseEvans-Pritchard.

The RBS has advised its clients to brace for afully-fledged crash in global stock and credit markets over the nextthree months as inflation paralyses the major central banks,Evans-Pritchard reports. "A very nasty period is soon to be upon us,"suggested the bank's credit strategist Bob Janjuah, ''so be prepared."

TheRBS report suggests the US S&P 500 stock index is likely to fall bymore than 300 points to 1050 (22%) by September as "all the chickenscome home to roost" from the excesses of the global boom, withcontagion spreading across Europe and emerging markets. Such a slide,on top of what has already occurred, would represent one of the worstbear markets over the last century.

The most unnerving thingabout Janjuah's assertion is that this time last year the analyst madea similar warning call about an impending global credit crisis. He hasbeen feted in the City ever since.

Janjuah expects Wall Streetto rally into July as the effects of the US government's fiscalstimulus package continues to provide momentum. While it might havebeen the case that Americans would put their stimulus hand-outs to gooduse, such as paying down debt or saving the money, the recent monthlyUS retail sales figures proved emphatically otherwise. So when themusic stops...

The US Fed and the European Central Bank bothface what Janjuah refers to as a Hobson's Choice - which is defined asa free choice where only one option is offered. Faced with the prospectof workers losing their jobs and being refused credit as the economiesof the US and Europe slow, central bankers cannot respond with "easymoney" (rate cuts) because oil and food costs are pushing headlineinflation to levels which are unsettling the markets. Inflation is theenemy of any investment, as it erodes profit and capital over time. Thehigher inflation the faster money is lost without actually doinganything. So the world may just have to set itself for much lowerglobal growth in order to beat the inflation menace, Janjuah suggests.

Butif the central banks fail to hike rates in the face of higherinflation, risky assets are no longer worth holding as the requiredreturn to simply break even on the investment is increased by thehigher level of inflation. The response is to sell stocks and bonds andmove into cash. Cash does not conquer inflation, but it's better thanlosing money when investments are sold down.

"The Fed," saysJanjuah, "is in panic mode". It is true that one minute the market isexpecting the Fed to cut rates, the next minute to hike them, and nowto do nothing.

However the ECB seems determined to raise itscash rate and fight inflation at the expense of the wobbling Europeaneconomy. Already consumer demand and confidence in Europe are showingsigns of crashing.

The good news - if there can be good news -is that the price of oil should finally come down following the bigasset sell-off. But not before debt deflation has set in next year.

Thus spake Janjuah - credit market oracle.



https://afp.google.com/article/ALeqM5j7uEPoz-YNhZ7Z8gsbLbWPtdcWzQ
AFP: European shares slip amid report of stock market crash warning

4 hours ago

LONDON(AFP) — European equities fell Wednesday after sharp overnight USlosses as sentiment was also hit by a report that a Royal Bank ofScotland analyst had warned of a global market crash.

In late morning trading, London's FTSE 100 index of leading shares slid 1.53 percent to 5,772.50 points.

TheParis CAC 40 index sank 1.23 percent to 4,628.50 points and Frankfurt'sDAX 30 index shed 0.67 percent to 6,750.31 near the mid-way point.

The Euro Stoxx 50 index of top eurozone shares lost 0.98 percent to 3,520.59 points.

The European single currency stood at 1.5485 dollars.

WallStreet tumbled Tuesday as data showing inflation heating up and housingstill fragile offset surprisingly good earnings from investment bankGoldman Sachs.

Tokyo shares bucked the trend, jumping higher on Wednesday as a weaker yen boosted exporters, dealers said.

InBritain, The Daily Telegraph reported that an analyst working for RoyalBank of Scotland (RBS) had advised clients to prepare for afull-fledged crash in global stock and credit markets in the next threemonths amid soaring inflation.

However, an RBS spokeswoman told AFP that the report did not reflect the view of the bank.

"Avery nasty period is soon to be upon us -- be prepared," said BobJanjuah, senior RBS credit strategist, in a report to clients that waspublished in the daily newspaper.

The RBS report also warnedthat New York's broad-market Standard & Poor's 500 index could shedmore than 300 points to around 1,050 points by September.

In European trade, financial sector fell sharply on Wednesday.

RBS saw its share price dive 3.52 percent to 232.75 pence and banking peer Lloyds TSB fell 2.60 percent to 347 pence.

InParis, French banks Credit Agricole and Societe Generale shed 2.31percent and 2.53 percent to stand at 13.53 euros and 58.48 eurosrespectively.

Back on Wall Street, traders were waiting forquarterly results from US investment bank Morgan Stanley due Wednesday,after better-than-expected earnings at Goldman Sachs.

"Goldman'sbetter-than-expected earnings raised hopes that Morgan Stanley'searnings may not be bad either," JPMorgan strategist Masaru Ohnishitold Dow Jones Newswires.

The Goldman results, however, failedto lift Wall Street on Tuesday, when the Dow Jones index slipped 0.89percent after data showed a rise in wholesale inflation and ongoingproblems in the housing sector.

The Nasdaq composite retreated0.69 percent to 2,457.73 and the Standard & Poor's 500 index shed0.68 percent to end at 1,350.93 points.

In Asia on Wednedsday, Tokyo's benchmark Nikkei-225 index climbed 0.73 percent to end at 14,452.82 points.




https://www.forbes.com/markets/2008/06/18/rbs-outlook-credit-markets-equity-cx_vr_0618markets08.html
RBS Sounds Alarm On Markets - Forbes.com


Market Scan
RBS Sounds Alarm On Markets
Vidya Ram , 06.18.08, 9:05 AM ET






LONDON -

Anotherday, another a grim forecast for credit and equity markets. BobJanjuah, a respected credit market strategist at the Royal Bank ofScotland, said Wednesday he foresaw a 300 point fall in the S&P 500index before September, and central banks unable to restore confidencein the market by cutting rates. The cause? A head on collision offalling credit markets and soaring inflation.

Janjuah said thetroubles would spread to Europe and even emerging markets, once thoughtto be a safe haven from the global economic slowdown.

Ironically,this is a world away from the far more optimistic outlook that RBS madeabout credit and equity markets last week during its interim tradingupdate. (See: "RBS: Tight Lips, Sinking Stock") RBS Chief ExecutiveFred Goodwin had then spoken of a "correction" that he did not thinkwould "be the end of the world" or "inordinately painful."

Contrastthat with Janjuah's warning: "A very nasty period is soon to be uponus--be prepared," he said, according to a report published in the DailyTelegraph newspaper on Wednesday. He advised that cash was the "key"safe haven. "If you have to be in credit, focus on quality, shortdurations, non-cyclical defensive names."

The Royal Bank ofScotland said the note was part of private correspondence with itsclients and would not comment on the discrepancy of views.

Asfor the market, the Dow Jones Eurostoxx index of Europe's 50 largestcompanies was down 1.1% in midday trading, led down by banks and otherfinancial stocks.

After initial hopes that the worst of thecredit market turmoil is over, the outlook for the global bankingindustry is once again souring, following Lehman Brother's dismalearnings last week, and Morgan Stanley's earnings plunge, announcedTuesday.

Goldman Sachs recently estimated that American bankswould have to raise an additional $65.0 billion in capital afterfurther credit losses, which would peak in 2009.

Yet Janjuah'soutlook may be overly bleak, according to Stephen Pope, chief globalmarket strategist at Cantor Fitzgerald in London, since the situationnow is very different to that between August 2000 and October 2002,when the S&P halved in value, post September 11.

"At thetime there was no counterweight, from the Middle East, Latin America orChina; there was no support from sovereign wealth funds for the verylong term, central banks didn’t have the range of sophisticated toolsat their disposal that they do now."

Pope believes that the boomin commodities will mean that miners, as well as steel companies suchas U.S. Steel, with large iron ore resources, and constructioncompanies with a presence in the developing world, will help supportthe indices, even if financial stocks continue to take hits.

"TheS&P Index is well supported at the 1,263 level. It would take amassive cataclysmic move to take it down to the 1,050 level."






https://www.bloomberg.com/apps/news?pid=20601087&sid=ay1fmpIqbwl4&refer=home#
Bloomberg.com: WorldwideStocks, Credit Slump Will Worsen, RBS's Janjuah Says (Update1)

By Alexis Xydias

June18 (Bloomberg) -- The worst of the stock and credit market declinesthat began last year is yet to come as inflation accelerates andeconomic growth falters, according to a Royal Bank of Scotland GroupPlc strategist.

Central bankers are ``in a dangerous corner''where the chance of a ``major policy error has just super-spiked,'' BobJanjuah, a London-based credit strategist at the U.K.'s second- largestbank, wrote in a report. Any stock rally in the next month ``will bethe significant opportunity this year to get short stocks,'' he wrotein a report dated June 11.

The Standard & Poor's 500 Indexmay fall to 1,050, a 22 percent decline from current levels, Janjuahsaid. The cost of protecting bonds from default is likely to soar,pushing the benchmark Markit iTraxx Crossover Index of credit-defaultswaps on 50 European companies to a record 700 basis point from 473,the note said.

The S&P 500 dropped 12 percent from a recordlast June as writedowns stemming from the credit turmoil approached$400 billion. The index is down 3.5 percent this month after FederalReserve and European Central Bank policy makers indicated interestrates may need to increase as the threat of inflation intensifies.

``Mid-July through to October is likely to be the most bearish period we will experience in the bear market,'' Janjuah wrote.

Ina short sale, traders borrow stock to sell it, on expectations priceswill fall. Europe's Dow Jones Stoxx 600 Index dropped 1.1 percent to302.88 as of 1:43 p.m. in London today.

Default Expectations

ECBPresident Jean-Claude Trichet said June 5 the bank may raise the eurozone's benchmark rate next month to curb inflation, running at thefastest pace in 16 years. Four days later, Fed Chairman Ben S. Bernankesaid policy makers will ``strongly resist'' a surge in inflationexpectations.

Janjuah ``is talking about it happening in threemonths so we don't have to wait very long to see if he's right,'' saidMalcolm White, who helps manage about $7 billion in fixed-income assetsat Legal & General Investment Management in London. ``Inflationfears will limit central banks' ability to take steps to control thecrisis. Corporate defaults are going to increase, it's inevitable.''

Banksled declines in European equity trading today, with RBS falling 3.7percent to 232.25 pence ($4.54) in London. Barclays Plc lost 2.9percent to 330.5 pence, and Fortis fell 3.8 percent to 13.25 euros($20.52) in Amsterdam.

To contact the reporter on this story: Alexis Xydias in London at [e-mail].
Last Updated: June 18, 2008 10:20 EDT



https://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/18/cmstockmarket18.xml
RBS stock market alert: Fund managers react - Telegraph

Last Updated: 3:21pm BST 18/06/2008
Fund managers respond to the RBS prediction of a fully-fledged stock market crash. By Paul Farrow

Fundmanagers have reacted strongly to the forecast by the Royal Bank ofScotland of stock market crash and warn investors not to act in hasteand panic.

The Royal Bank of Scotland has advised clients tobrace for a full-fledged crash in global stock and credit markets overthe next three months as inflation paralyses the major central banks.
RBS stock market alert: Fund managers react.
Stock market storm: but do turbulent times really lie ahead?

"Avery nasty period is soon to be upon us - be prepared," said BobJanjuah, the bank's credit strategist. But Richard Buxton, fund managerat Schroders, says Mr Janjuah's comments are 'alarmist'.
# More by Ambrose Evans-Pritchard
# Paul Farrow on structured investment plans
# More on banking

"Ifyou strip out anything stocks related to oil, energy and mining in theFTSE you will see that the market is already down by 30 per cent overthe past year. We are in a bear market which has been masked by theperformance of those sectors."

Buxton points out that many UKshares closely connected to the slowing economy are down between 50 and80 per cent over the year already and it is too late for investors whohave yet to protect their portfolios. They will merely crystalliselosses, he says.

"Yes, we are in for a tough time and there maybe another sell-off but average earnings are cheap and an awful lot ofthe bad news is already priced in. It is too late to sell, investorsneed to look through the volatility - I am investing aggressively ondownturns. Any falls will be temporary - the falls are simply pushingdown on a spring in valuation terms."

Robin Geffen, chiefinvestment officer at Neptune Asset Management says that he finds it'amusing' that the grim outlook from RBS has emerged just days afterthe beleaguered bank completed its Rights Issue.

He echoesBuxton's sentiments. "The RBS analyst is a bit late with his forecast,about a year and half late. We have already had a bear market in manyareas of the market. The guy has got the financial world confused withthe real world where the consumer is real and the building ofinfrastructure is real. Any parallels to the stock market crash in thelate 1920's are ga-ga."

Geffen argues that there is value andopportunities to be found - he has around 10 per cent in cash and isselectively adding to his portfolios.

"I still like emerging market, oil, gas and mining stocks."

TheRBS report warns that the S&P 500 index of Wall Street equities islikely to fall by more than 300 points to around 1050 by September as"all the chickens come home to roost" from the excesses of the globalboom, with contagion spreading across Europe and emerging markets.

Such a slide on world bourses would amount to one of the worst bear markets over the last century.

"Cashis the key safe haven. This is about not losing your money, and notlosing your job," said Mr Janjuah, who became a City star after hisgrim warnings last year about the credit crisis proved all too accurate.

YetMartin Walker, fund manager at Invesco Perpetual says the market hasde-rated to such an extent that he can't envisage the market fallingmuch from here.

"Much of the market is trading on historic lowvaluations, aside from the resource and basic materials. Even if thosesectors fall by half it will not make a massive difference to theoverall fall in the FTSE."

Walker is keen on the pharmaceuticalstocks such as GlaxoSmithKline and AstraZeneca because they areuncorrelated to the economic cycle.

"There are also greatopportunities to invest in companies that are growing profits andgrowing sustainable dividends. BT is yielding 7.5 per cent - and it isa safe yield – that's fantastic value."

Leading portfoliomanager John Chatfeild-Roberts at Jupiter admits that the US economywhich is teetering on the brink of a recession is a concern and thatstagflation (stagnant economic growth and rising inflation) remains areal threat to all Western economies. But he is looking to invest andmake the most of the volatility.

He has recently increased hisexposure to Japan which he reckons is the one major economy in theworld that will benefit from the re-emergence of inflation.

Headds: "The portfolios remain very underweight the UK, which is still inthe early stages of a significant consumer slow down. We areunderweight financials and have no direct property exposure. On theother hand, we favour a variety of energy, infrastructure and emergingmarket plays and think that the current risk/reward ratio of investingin good quality corporate bonds to be very favourable. We will look toincrease our exposure to these securities where appropriate. We doexpect volatility to pick up over the summer months and look forward totaking advantage of this across the portfolios."