Cyprus-Forum.com

[Raymanoff]

RBS issues global stock and credit crash alert

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 alert: Quotes from the report
# Fund managers react to RBS alert
# Support for the euro is in doubt

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.
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"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.

[GAVCARoCOM]

try to invest here

http://www.cyprus-forum.com/cyprus18259.html

[Johnson&Johnson]

expereinced investors know this, it is nothing new

a major correction in equities has been on the cards since last august

after this short and savage inflationary spike we will see general deflation with all asset classes suffering

stocks, property, commodities... all will go down down down in price

it's just the beginning

[DT.]

expereinced investors know this, it is nothing new

a major correction in equities has been on the cards since last august

after this short and savage inflationary spike we will see general deflation with all asset classes suffering

stocks, property, commodities... all will go down down down in price

it's just the beginning

ALl asset classes?? WHat are you talking about? Stocks will take a hit however the corellation between stocks, bonds and commodities is not a positive one.

When stocks get hit there are safe havens such as bonds and commodities (oil, gold etc) There are even safe haven stocks which are heavily exposed to certain commodities that can be bought and have a negative correlation to the worlds indices.

There are also ETF's (exchange traded funds) which are exposed to shorting the market giving you a positive return in a dropping market.

Sweeping statements such as all asset classes will drop are a little naive, if not crazy

[CBBB]

Better get down to the supermarket and buy all the canned and bottled goods!

[Johnson&Johnson]

the run to gold typically happens in an inflationary spiral when fiat currencies lose their value. I dont see this happening - i had high hopes for a mega bull run on gold, these are now waning as i firmly believe it will be deflation and not inflation which will grip the western economies over the next five years.

oil is in a bubble right now, once demand collapses it will fall much lower, although i believe the long term trend is up due to peaking reserves.

same for commodities

the rest, take your chances. cash is king for the next few years imho

[Tim Drayton]

the run to gold typically happens in an inflationary spiral when fiat currencies lose their value. I dont see this happening - i had high hopes for a mega bull run on gold, these are now waning as i firmly believe it will be deflation and not inflation which will grip the western economies over the next five years.

oil is in a bubble right now, once demand collapses it will fall much lower, although i believe the long term trend is up due to peaking reserves.

same for commodities

the rest, take your chances. cash is king for the next few years imho

Food prices appear to me to be at the beginning of a long secular uptrend, and this detracts from your thesis that deflation, rather than inflation, is the threat.

[Johnson&Johnson]

good point timster

but way i see it, 2 reasons for the upswing in food prices:

1) bush introducing new biofuel legistaltion meant farmers were using land for ethanol production rather than for growing food

2) excess credit sloshing around in the system surged into the agricultural sector which was undervalued by historical trends

both will correct as both are the result of the wider credit bubble which also pushed up property prices worldwide to fantasy levels (cyprus included - pure fantasyland). the credit crunch will take care of the excess liquidity. central banks may have pupmed massive amounts of cash into the system, but these funds have been used by the banks to repair their bottom lines rather than for re-lending to joe shmoe

mark my words: a short period of savage inflation like we are going through now, followed by ten years or more of relentless deflation. we are looking ahead at a 'lost decade', the same thing japan experienced during the 90's

good for savers and those with secure employment

bad for those in debt

[Tim Drayton]

I take the above points.

Bad times are coming, that is clear. I am unsure as to whether this will take the form of deflation, or stagflation. I am also unsure as to whether we are witnessing a general global downturn, or the final stage in a process in which economic domination is shifting from the West to the East.

I think certain fundamental factors are underpinning the rise in food prices. I expect to see increased interest in the once discredited ideas of Thomas Malthus.

I take an interest in technical analysis, and it seems to me that irrational exuberance has been absent from the world stock markets since the dot com bubble burst. I can't help thinking that if there is to be a major stock market crash, we will need to see a brief, frenetic fifth Elliot wave above previous highs first, but I don't see how this can happen in the current climate.

Irrational exuberance certainly took hold in real estate markets, and these are set to fall further.

[Nikitas]

Old hippies will no doubt dust their old copies of Mother Earth News and start growing their own food and fuel. Till a new unforeseen techno break through comes along to fuel the next wave of optimism.

The same thing happened in the late 70s and shortly after we had the gold rush of the Reagan era. A correction occurred with Black Tuesday in 1987 and back we went to more growth. Even more growth took place not with the dot com nonsense but the advent of mobile telephony which is a more far reaching and essential technology than the web. Just think how African laborers can use their cell phones to send money to their families, a use of cell phones never foreseen by their inventors. That is how the economy works.