Royal Bank Of Scotland Warns Of 'Cataclysmic' Year, Sell Everything
By Michael Snyder - The Economic Collapse Blog January 12, 2016 Share this article:
The Royal Bank of Scotland is telling clients that 2016 is going to
be a "cataclysmic year" and that they should "sell everything". This
sounds like something that you might hear from The Economic Collapse
Blog, but up until just recently you would have never expected to get
this kind of message from one of the twenty largest banks on the entire
planet.
Unfortunately, this is just another indication that a
major global financial crisis has begun and that we are now entering a
bear market. The collective market value of companies listed on the
S&P 500 has dropped by about a trillion dollars since the start of
2016, and panic is spreading like wildfire all over the globe.
And
of course when the Royal Bank of Scotland comes out and openly says
that "investors should be afraid" that certainly is not going to help
matters.
It amazes me that the Royal Bank of
Scotland is essentially saying the exact same thing that I have been
saying for months. Just like I have been telling my readers, RBS has
observed that global markets "are flashing the same stress alerts as
they did before the Lehman crisis in 2008"...
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 bank s credit team said markets are flashing the same stress alerts as they did before the Lehman crisis in 2008.
So what should our response be to these warning signs?
According to RBS, the logical thing to do is to "sell everything" excerpt for high quality bonds...
"Sell everything except high quality bonds," warned Andrew Roberts in a note this week.
He
said the bank s red flags for 2016 falling oil, volatility in China,
shrinking world trade, rising debt, weak corporate loans and deflation
had all been seen in just the first week of trading.
"We think investors should be afraid," he said.
And of course RBS is not the only big bank issuing these kinds of ominous warnings.
The biggest bank in America, J.P. Morgan Chase, is "urging investors to sell stocks on any bounce"...
J.P.
Morgan Chase has turned its back on the stock market: For the first
time in seven years, the investment bank is urging investors to sell
stocks on any bounce.
"Our view is that the
risk-reward for equities has worsened materially. In contrast to the
past seven years, when we advocated using the dips as buying
opportunities, we believe the regime has transitioned to one of selling
any rally," Mislav Matejka, an equity strategist at J.P. Morgan, said in
a report.
Aside from technical indicators,
expectations of anemic corporate earnings combined with the downward
trajectory in U.S. manufacturing activity and a continued weakness in
commodities are raising red flags.
Major banks
have not talked like this since the great financial crisis of 2008/2009.
Clearly something really big is going on. Trillions of dollars of
financial wealth were wiped out around the world during the last six
months of 2015, and trillions more dollars have been wiped out during
the first 12 days of 2016. As I noted above, the collective market
value of the S&P 500 is down by about a trillion dollars all by
itself.
One of the big things driving all of
this panic is the stunning collapse in the price of oil. U.S. oil was
trading as low as $29.93 a barrel on Tuesday, and this was the first
time that oil has traded under 30 dollars a barrel since December 2003.
Needless to say, this collapse is absolutely killing energy companies. The following comes from USA Today&
There
aren t many people who feel bad for oil companies. But the implosion in
oil prices is causing a profit decline that almost invokes pity.
The
companies in the Standard & Poor s 500 energy sector are expected
to lose a collective $28.8 billion this calendar year, down from $95.4
billion in net income earned during the industry s bonanza year of 2008,
according to a USA TODAY analysis of data from S&P Capital IQ.
That s a $124 billion swing against energy companies
and one you re probably enjoying at the pump. The analysis includes only
the 36 S&P 500 energy companies that reported net income in 2008.
If
we are to avoid a major global deflationary crisis, we desperately need
the price of oil to get back above 50 dollars a barrel. Unfortunately,
that does not appear to be likely to happen any time soon. In fact,
Dallas Fed President Robert Kaplan says that the price of oil is
probably going to stay very low for years to come...
You d
expect at least some artificial optimism when the president of the
Dallas Fed talks about oil. You d expect some droplets of hope for that
crucial industry in Texas. But when Dallas Fed President Robert Kaplan
spoke on Monday, there was none, not for 2016, and most likely not for
2017 either, and maybe not even for 2018.
The
wide-ranging speech included a blunt section on oil, the dismal future
of the price of oil, the global and US causes for its continued
collapse, and what it might mean for the Texas oil industry: more
bankruptcies, mergers and restructurings&.
The
oil price plunge since mid-2014, with its vicious ups and downs, was
bad enough. But since the OPEC meeting in December, he said, "the
overall tone in the oil and gas sector has soured, as expectations have
decidedly shifted to an even lower for even longer price outlook."
In
recent articles I have discussed so many of the other signs that
indicate that there is big trouble ahead, but today I just want to
quickly mention another one that has just popped up in the news.
The
amount of stuff being shipped across the U.S. by rail has been dropping
dramatically. The only times when we have seen similar large drops has
been during previous recessions. The following comes from
Bloomberg&
Railroad cargo in the U.S. dropped the most in six years in 2015, and things aren t looking good for the new year.
"We
believe rail data may be signaling a warning for the broader economy,"
the recent note from Bank of America says. "Carloads have declined more
than 5 percent in each of the past 11 weeks on a year-over-year basis.
While one-off volume declines occur occasionally, they are generally
followed by a recovery shortly thereafter. The current period of
substantial and sustained weakness, including last week s -10.1 percent
decline, has not occurred since 2009."
BofA
analysts led by Ken Hoexter look at the past 30 years to see what this
type of steep decline usually means for the U.S. economy. What they
found wasn t particularly encouraging: All such drops in rail carloads
preceded, or were accompanied by, an economic slowdown (Note: They
excluded 1996 due to an extremely harsh winter).
The "next economic downturn" is already here, and it is starting to accelerate.
Yes,
the financial markets are starting to catch up with economic reality,
but they still have a long, long way to go. It is going to take another
30 percent drop or so just for them to get to levels that are
considered to be "normal" or "average" by historical standards.
And
the markets are so fragile at this point that any sort of a major
"trigger event" could cause a sudden market implosion unlike anything
that we have ever seen before.
So let us hope for the best, but let us also heed the advice of RBS and get prepared for a "cataclysmic" year.
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