RBS issues global stock and credit crash alert

[J]

Linky

RBS issues global stock and credit crash alert

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 12:19am BST 19/06/2008

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.

A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely 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 global boom, 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.

RBS said the iTraxx index of high-grade corporate bonds could soar to 130/150 while the "Crossover" index of lower grade corporate bonds could reach 650/700 in a renewed bout of panic on the debt markets.

"I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.

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

RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage.

"Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point," he said.

US Federal Reserve and the European Central Bank both face a Hobson's choice as workers start to lose their jobs in earnest and lenders cut off credit.

The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. "The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation," he said.

# Morgan Stanley warns of catastrophe
# More comment and analysis from the Telegraph

"The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets," he said.

Kit Jukes, RBS's head of debt markets, said Europe would not be immune. "Economic weakness is spreading and the latest data on consumer demand and confidence are dire. The ECB is hell-bent on raising rates.

"The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB. Wider spreads between the German Bunds and peripheral markets seem assured," he said.

Ultimately, the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year.

Imagine that, an honest bank. Or maybe it's because they're Scottish.

[Uraniun235]

"Cash is the key safe haven. This is about not losing your money, and not losing your job,"

Is he talking about some more-nuanced concept of economics, or did he basically just tell people to turn everything into cash and stuff it under the mattress?

[TheMuffinKing]

[Mike Myers]If its not Scottish it's crap?[/Mike Myers]

[FireNexus]

"Cash is the key safe haven. This is about not losing your money, and not losing your job,"

Is he talking about some more-nuanced concept of economics, or did he basically just tell people to turn everything into cash and stuff it under the mattress?

I think he was talking to people in the financial world. Like: THis how you handle your clients' money at the moment to keep your job in 3 months.

[Broomstick]

Naw, I read it as "convert to cash, stuff cash in mattress", too.

[cosmicalstorm]

That is very unsettling.

[Shinova]

"Cash is the key safe haven. This is about not losing your money, and not losing your job,"

Is he talking about some more-nuanced concept of economics, or did he basically just tell people to turn everything into cash and stuff it under the mattress?

I thought he meant to only posses real money in physical form or in valid stocks and bonds or such, and not vague things like debt or derivatives and so on.

[aerius]

Is he talking about some more-nuanced concept of economics, or did he basically just tell people to turn everything into cash and stuff it under the mattress?

Basically, it's time to get out of the equities market unless you want to daytrade since the volatility is going insane and there's a good chance of a big crash wiping out your investments. So he advises getting into cash and keeping it somewhere safe, whether it's in the form of T-bills, money in a bank which you know won't go under, or stuffing it into a pillowcase if you have to.

[CJvR]

Naw, I read it as "convert to cash, stuff cash in mattress", too.

At least it isn't "convert to canned food, gas and ammo".

[Broomstick]

I'm stocking up on that, too.

Well, the canned and dry goods and the gas... ammo's sort of useless until I get a gun.

[Adrian Laguna]

Maybe I should tell my mother to cash in her chips? She has a lot of investments.

I'm stocking up on that, too. Well, the canned and dry goods and the gas... ammo's sort of useless until I get a gun.

Arrows count as ammunition.

[Broomstick]

Actually, for crossbows such as I have the technical term is "bolts"

[Adrian Laguna]

Actually, for crossbows such as I have the technical term is "bolts"

That opens up for a lot of fun possibilities. You can say you have bolter at home, or threaten to bolt intruders to the wall, or tell them to bolt or be bolted.

[J]

By the way, we have confirmed Hindenburg Omens for this June.
Historically speaking, this is as one can guess from the name, not a good thing.

[GrandMasterTerwynn]

By the way, we have confirmed Hindenburg Omens for this June.
Historically speaking, this is as one can guess from the name, not a good thing.

Four, in fact. Three of which occurred in the last week.