Wednesday, January 20, 2016

RBS Cries 'Sell Everything' As Deflationary Crisis Nears

RBS

RBS Warns Clients – Brace for Cataclysmic Year/Global Deflationary Crisis


According to RBS, clients are advised to brace for a cataclysmic year as well as a global deflationary crisis, cautioning that main stock markets would fall by a 5th as well as oil would plunge to $16 per barrel. It was informed by the bank’s credit team that the markets tend to be blinking stress alerts similar to the stormy months prior to the Lehman crisis in 2008. In a client note it had stated to `sell everything except high quality bonds. This is about return of capital, not return on capital.

In a crowded hall, exit doors are small’. Bank’s research chief for European economics and rates, Andrew Roberts commented that the global trade as well as loans have been contracting nasty cocktail for corporate balance sheets and equity earnings which are mainly threatening,considering that global debt ratios have touched record highs.

He further added that `China has set off a main correction and the same is going to snowball. Equities as well as credit have become quite dangerous and we have hardly begun to retrace the `Goldlocks love-in’ of the last two years’. Mr Roberts is hopeful that the Wall Street and European stock would fall by 10 to 20% with a deeper slide for the FTSE 100 taking into account its high weighting of energy and commodities companies.

London Vulnerable to Negative Stock


He has commented saying that `London is vulnerable to a negative stock. All the peoplewho are `long’, oil and mining companies are under the impression that the dividends are safe, will discover that they are not safe at all. The oil prices of Brent will tend to continue to slide after breaking through an important technical level at $34.40, as claimed by RBS, with a `bear flag’ and `Fibonacci’ indication focusing to a floor of $16, which was a level seen last after the East Asia crisis in 1999. The bank has stated that a paralysed OPEC appears unable to respond to a deepening slowdown in Asia with swing region now for global oil demand. RBS predicts that yields on 10-year German Bunds would drop to an all-time low of 0.16% in an effort to safety and would break zero while deflationary powers tend to tighten their grip. The policy rate of European Central Bank would fall to -0.7%.

China – Epicentre of Global Stress


RBS had first delivered its grim warnings in November for the global economy though events had moved much quicker than dreaded. It had estimated that in the fourth quarter, the US economy had slowed to a growth rate of 0.5% and had accused the US Federal Reserve of `playing with fire’, by increasing rates. It stated that there has already been severe financial tightening in the US due to the rising dollar’.

 When the ISM manufacturing index appears to be below the boom-bust line of 50, it seems unusual for the Fed to tighten. Moreover, it is also more shocking to do so after nominal growth of GDP had fallen to 3% and since 2014 been trending down. RBS has informed that China is the epicentre of global stress where the debt driven expansion had reached saturation and the country is now facing a surge in capital flight and is in need of a dramatically lower currency. This next leg of the rolling global drama, according to them is to play out wild and frantically

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