Sell everything ahead of stock market crash, say RBS economists

Royal Bank of Scotland warns of ‘cataclysmic’ year with slumps in shares and oil and advises clients to shift to bonds

Investors face a “cataclysmic year” where stock markets could fall by up to 20% and oil could slump to $16 a barrel, economists at the Royal Bank of Scotland have warned.
In a note to its clients the bank said: “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.” It said the current situation was reminiscent of 2008, when the collapse of the Lehman Brothers investment bank led to the global financial crisis. This time China could be the crisis point.

Stock markets have already come under severe pressure in 2016, with the FTSE 100 down more than 5% in its worst start since 2000. In the US, the Dow Jones industrial average has made its poorest ever start to a year.
Oil prices have also fallen sharply on fears of lower demand and a supply glut, especially with Iran due to start exporting once more when sanctions are lifted. Tensions between Iran and Saudia Arabia make it less likely that Opec can agree to cut production to halt the slide in prices. Brent crude is down another 1% at $31.18, its lowest level since April 2004.
Investors have been spooked by fears of a severe slowdown in the Chinese economy and a fall in the value of the yuan, not helped by a crash in the country’s stock market despite attempts by the country’s authorities to curtail selling.
Andrew Roberts, RBS’s credit chief, said: “China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the ‘Goldilocks love-in’ of the last two years.”
Markets have been supported for some time by low interest rates, central bank stimulus measures from central banks including quantitative easing, and hopes of economic recovery. But with the Federal Reserve raising rates and the Bank of England expected to follow suit, that prop is being removed.
Roberts said European and US markets could fall by 10% to 20%, with the FTSE 100 particularly at risk due to the predominance of commodity companies in the UK index. “London is vulnerable to a negative shock. All these people who are long [buyers of] oil and mining companies thinking that the dividends are safe are going to discover that they’re not at all safe.
“We suspect 2016 will be characterised by more focus on how the exiting occurs of positions in the three main asset classes that benefitted from quantitative easing: 1) emerging markets, 2) credit, 3) equities ... Risks are high.”
RBS is not the only negative voice at the moment. Analysts at JP Morgan have advised clients to sell stocks on any bounce.
Morgan Stanley has said oil could fall to $20 a barrel, while Standard Chartered has predicted an even bigger slide, to as low as $10. Standard said: “Given that no fundamental relationship is currently driving the oil market towards any equilibrium, prices are being moved almost entirely by financial flows caused by fluctuations in other asset prices, including the US dollar and equity markets.
“We think prices could fall as low as $10 a barrel before most of the money managers in the market conceded that matters had gone too far.”

http://www.theguardian.com/business/2016/jan/12/sell-everything-ahead-of-stock-market-crash-say-rbs-economists

Not good!

Hmmmm, I'm watching the impending takeover of BG Group by Shell with great interest at the moment. Shareholders have been offered several options if that goes through.

Used to work for Shell years ago, have a few shares, not many lol

sassy wrote:Used to work for Shell years ago, have a few shares, not many lol

Standard Life are going to vote against the takeover on the grounds that they don't think it will be good for Shell. On the other hand, BG Group shareholders have been offered a reasonable deal of some cash and some Shell shares, but they could opt to get more Shell shares, or take more cash and run. It's like being in a casino really.

That is exactly what the stock market is.  A big casino, normally using other people's money.

sassy wrote:That is exactly what the stock market is.  A big casino, normally using other people's money.

Indeed. If Shell shares crash, it will be bad for BG investors who opt to take Shell shares, but then again, if they rise, it would be a good thing. Shell dividends are pretty good compared to BG ones, and the CEO of Shell is confident that the price of oil will rise.

The question is - do BG shareholders have to buy more Shell shares at December's prices? The value of Shell shares has gone down since then.

Personally I wouldn't buy any share at the moment, I have no idea of the situation for the BG shareholders, but I'd be off-loading, not buying.

Shares are usually a long term investment, some of which we have had for 50+ years, we have seen them fluctuate quite a few times but largely left them alone.

It is just another way of saving a few shillings

Any shares we have will be transferred to our kids this year.

Well, as it looks like we might be in for a crash, you might not have any to pass on.

sassy wrote:Personally I wouldn't buy any share at the moment, I have no idea of the situation for the BG shareholders, but I'd be off-loading, not buying.

They wouldn't really be buying new shares as such, they'd be transferring their BG holding to Shell. Shell shares are worth more than BG ones at the moment, so they'd get fewer shares, but if the dividend holds up that would be a bonus. The value of Shell shares has been going down over the last 18 months, but who knows what might happen in the future?

sassy wrote:Well, as it looks like we might be in for a crash, you might not have any to pass on.

They're a better investment than savings at the moment though.

The thing is - if everyone thinks it's going to crash, they'll panic and sell their shares, so the value will go down - for the moment anyway. It's best to have nerves of steel and hang in there.

Stormee wrote:Shares are usually a long term investment, some of which we have had for 50+ years, we have seen them fluctuate quite a few times but largely left them alone.

It is just another way of saving a few shillings

Any shares we have will be transferred to our kids this year.

It is a long-term thing, I agree, but do you not fancy a little dabble in the stock market Stormee? I reckon you're loaded, so you could play around a bit and see if you can beat the markets.

Our son and my wife has managed our finances since 1995, previously my old man and my wife managed it while I was away, I am in the background, they have managed without me so far, not that I know anything.
Our dorta is also included in the same system.

I am the black sheep.

Same advice coming from another quarter now:

Beware the great 2016 financial crisis, warns leading City pessimist
Albert Edwards joins RBS in warning of a new crash, saying oil price plunge and deflation from emerging markets will overwhelm central banks, tip the markets and collapse the eurozone

The City of London’s most vocal “bear” has warned that the world is heading for a financial crisis as severe as the crash of 2008-09 that could prompt the collapse of the eurozone.
Albert Edwards, strategist at the bank Société Générale, said the west was about to be hit by a wave of deflation from emerging market economies and that central banks were unaware of the disaster about to hit them. His comments came as analysts at Royal Bank of Scotland urged investors to “sell everything” ahead of an imminent stock market crash.

“Developments in the global economy will push the US back into recession,” Edwards told an investment conference in London. “The financial crisis will reawaken. It will be every bit as bad as in 2008-09 and it will turn very ugly indeed.”
Fears of a second serious financial crisis within a decade have been heightened by the turbulence in markets since the start of the year. Share prices have fallen rapidly and a slump in the cost of oil has left Brent crude trading at barely above $30 a barrel.
“Can it get any worse? Of course it can,” said Edwards, the most prominent of the stock market bears – the terms for analysts who think shares are overvalued and will fall in price. “Emerging market currencies are still in freefall. The US corporate sector is being crushed by the appreciation of the dollar.”
The Soc Gen strategist said the US economy was in far worse shape than the country’s central bank, the US Federal Reserve, realised. “We have seen massive credit expansion in the US. This is not for real economic activity; it is borrowing to finance share buybacks.”
Edwards attacked what he said was the “incredible conceit” of central bankers, who had failed to learn the lessons of the housing bubble that led to the financial crisis and slump of 2008-09.
“They didn’t understand the system then and they don’t understand how they are screwing up again. Deflation is upon us and the central banks can’t see it.”
Edwards said the dollar had risen by as much as the Japanese yen had in the 1990s, an upwards move that pushed Japan into deflation and caused solvency problems for the Asian country’s banks. He added that a sign of the crisis to come was the collapse in demand for credit in China.
“That happens when people lose confidence that policymakers know what they are doing. This is what is going to happen in Europe and the US.”
Europe has shown tentative signs of recovery in the past year, but Edwards said the efforts of the European Central Bank to push the euro lower and growth higher would come to nothing in the event of a fresh downturn. “If the global economy goes back into recession, it is curtains for the eurozone.”
Countries such as France, Spain and Italy would not accept the rising unemployment that would be associated with another recession, he said. “What a disaster the euro has been: it is a doomsday machine in favour of the German economy.”

The warning from Edwards came as stock markets had a respite from the wave of selling seen since the start of the year. The FTSE 100 index rose by 57 points to close at 5,929, while the Dow Jones Industrial Average was up by 10 points in early trading in New York.
The mood in equity markets was helped by intervention by the People’s Bank of China overnight to support the yuan, with the Chinese currency moving higher on foreign exchange markets.
But the slide in the oil price continued, with Brent crude falling a further 3.5% to close in London at $30.45. Oil has not been below $30 a barrel since 2003.

Edwards joked that after years in which he has tended to be a lone voice, other institutions were also becoming a lot gloomier about global prospects.
He was referring to the RBS advice, which warned that investors face a “cataclysmic year” where stock markets could fall by up to 20% and oil could slump to $16 a barrel.
In a note to its clients the bank said: “Sell everything except high-quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.” It said the current situation was reminiscent of 2008, when the collapse of the Lehman Brothers investment bank led to the global financial crisis. This time China could be the crisis point, RBS said.

http://www.theguardian.com/business/2016/jan/12/beware-great-2016-financial-crisis-warns-city-pessimist

Well I'm not selling. I don't give in to fear-mongering.

Good for you, hope you manage to hang on to it then.

sassy wrote:Good for you, hope you manage to hang on to it then.

I know what I'm doing - honest.

A lot of traders have said that, before losing fortunes.

sassy wrote:A lot of traders have said that, before losing fortunes.

I expect even Nick Leeson said it at one point.

I've been quite interested in the stock market ever since the Barings debacle. I won't be losing or making a fortune though.

Glad to hear it, it just betting really.

sassy wrote:Glad to hear it, it just betting really.

True, although it's a sort of calculated betting. Anyone who has a personal pension is also gambling to an extent.

Shell shareholders have voted in favour of the merger with BG, so it's just the BG vote to go, which is tomorrow. I thought there might be more opposition because some investors think that Shell are paying too much for BG.

http://www.bbc.co.uk/news/business-35419184

The value of Shell shares has risen quite a lot in the last week, but what's not clear is how much BG investors will have to pay for Shell shares if they choose to exchange the cash they will get for shares.

BG Group shareholders have voted in favour of the merger - by 99.5% or so. No surprise there really.

Time for shareholders to do some sums.

Well the merger has gone through, so it's goodbye to BG Group - a sad day in some ways.

The BG share price seemed to hold up quite well for those who decided to sell ahead of the merger, and Shell shares dipped a bit, but they're going back up.

The downside is that Shell is planning to ditch quite a lot of jobs now.

http://www.thisismoney.co.uk/money/markets/article-3444688/It-s-goodbye-BG-group-Gas-giant-shuts-doors-ceases-exist-Shell-takeover.html

I just hope I have enough cash to buy what could be some great buying opportunities later on in the year or next.

If the ftse and US indices crash - I'd might just do something simple and buy an ETF.

When in trouble, when in doubt, run in circles, scream and shout!

Fuzzy Zack wrote:If the ftse and US indices crash - I'd might just do something simple and buy an ETF.

ETFs are a bit beyond me.

Are you hoping to gamble on shares taking a dive and then going back up again?

Raggamuffin wrote:

Fuzzy Zack wrote:If the ftse and US indices crash - I'd might just do something simple and buy an ETF.

ETFs are a bit beyond me.

Are you hoping to gamble on shares taking a dive and then going back up again?

Taking a bet on shares taking a dive is called "shorting". Wish I did that for mining over the summer but the dumbass that I am, did the complete opposite.

Too busy with the care home to look at markets but I'm sure they're probably some good shorting opportunities. Thinking oil, banking, etc.

ETF's are Exchange Traded Funds. You get can many flavours that invest in different securities (stocks, minerals, etc).

I'm thinking of an ETF that tracks the FtSe. It works like a unit trust but you buy ALL THE shares in the index and its weighted such that the value of the investment tracks the index. So index goes up, etf value goes up. It's going down now, so I'm waiting for a trough in the market.

Fuzzy Zack wrote:

Raggamuffin wrote:

ETFs are a bit beyond me.

Are you hoping to gamble on shares taking a dive and then going back up again?

Taking a bet on shares taking a dive is called "shorting". Wish I did that for mining over the summer but the dumbass that I am, did the complete opposite.

Too busy with the care home to look at markets but I'm sure they're probably some good shorting opportunities. Thinking oil, banking, etc.

ETF's are Exchange Traded Funds. You get can many flavours that invest in different securities (stocks, minerals, etc).

I'm thinking of an ETF that tracks the FtSe. It works like a unit trust but you buy ALL THE shares in the index and its weighted such that the value of the investment tracks the index. So index goes up, etf value goes up. It's going down now, so I'm waiting for a trough in the market.

Good luck with that.

Short selling consists of someone borrowing shares, selling them for a high price, and then buying them at a lower price, then they pocket the difference and give back the shares. The time to do that is before shares take a dive of course.

You have to be a bit careful though as it doesn't always work. Martin Shkreli strikes again.  

http://www.marketwatch.com/story/help-my-short-position-got-crushed-and-now-i-owe-e-trade-10644556-2015-11-19

gold is always a good bet in these times of uncertainty and has been on the rise again for some weeks.
whether it will hit the heady heights of $2000 an oz anytime soon is another matter. but its over $1200 now.

might be better to have it as bullion rather than on paper if the world goes tits up though

I expect the SNP are glad they lost the referendum the way oil is heading

Well that was interesting (to me anyway ).

The option to take Shell shares rather than cash was oversubscribed, which suggests that investors still have confidence in the stock market and the oil business. It meant that people who had requested all shares in return for their BG Group shares didn't get all the shared they wanted, they got some of it in cash instead.

Raggamuffin wrote:

Stormee wrote:Shares are usually a long term investment, some of which we have had for 50+ years, we have seen them fluctuate quite a few times but largely left them alone...

It is a long-term thing, I agree, but do you not fancy a little dabble in the stock market Stormee? I reckon you're loaded, so you could play around a bit and see if you can beat the markets.

I agree, wholeheartedly...

Better to be an "accumulator" and aim to try and ride it out over the long term;  rather than gamble by being a "player" or a careless or rabid "speculator"..

I wouldn't want to have any money in financials (e.g. banks, insurance, finance companies) or in mining and energy assets, when the next crash does eventuate, as these sectors might see the biggest falls.

AND, never forget one of the chief maxims for long term investors :
For every seller thre has to be a buyer..

Over these next couple of years could be a good chance to sell any stocks you're wary of, and be in a "cashed up" position to buy back in,  once you believe the market is close to bottom of the cycle...



NOTE to sassy : those who are most at risk of losing it all, are those that ==
*  have borrowed heavily to buy shares, or have bought into "highly geared" companies - keeping borrowings below 20% may seem conservative to the gambers out there - but it's also a good way to minimise losses;
*  only have their money in one or two stocks -==  having 5 - 10 or so companies in one's portfolio helps to balance out the 'swings and roundabouts';  and reduces the risks;
*  don't pay due dilligance to a stock's "fundamentals", both when buying, and then when tracking and reviewing that stocks performance.

WhoseYourWolfie wrote:

Raggamuffin wrote:
It is a long-term thing, I agree, but do you not fancy a little dabble in the stock market Stormee? I reckon you're loaded, so you could play around a bit and see if you can beat the markets.

I agree, wholeheartedly...

Better to be an "accumulator" and aim to try and ride it out over the long term;  rather than gamble by being a "player" or a careless or rabid "speculator"..

I wouldn't want to have any money in financials (e.g. banks, insurance, finance companies) or in mining and energy assets, when the next crash does eventuate, as these sectors might see the biggest falls.

AND, never forget one of the chief maxims for long term investors :
For every seller thre has to be a buyer..

Over these next couple of years could be a good chance to sell any stocks you're wary of, and be in a "cashed up" position to buy back in,  once you believe the market is close to bottom of the cycle...



NOTE to sassy : those who are most at risk of losing it all, are those that ==
*  have borrowed heavily to buy shares, or have bought into "highly geared" companies - keeping borrowings below 20% may seem conservative to the gambers out there - but it's also a good way to minimise losses;
*  only have their money in one or two stocks -==  having 5 - 10 or so companies in one's portfolio helps to balance out the 'swings and roundabouts';  and reduces the risks;
*  don't pay due dilligance to a stock's "fundamentals", both when buying, and then when tracking and reviewing that stocks performance.

It sounds like you have an interest in the stock market and that you have some knowledge. I'm interested in it, but I'm still learning.

Selling shares and waiting for the price to go back up is an option, but I bet a lot of people will get stung if they go in for short selling.

Oil is plummeting still.

Gas here is currently at an average of $1.40 although with my supermarket points that I save each month I paid 99cents a gallon yesterday. That is the lowest we paid in the 8 years we've been here. It hasn't been that low since 1979!!!!!!

For comparison sake milk is currently $2.09 a gallon.

Its bonkers.

Raggamuffin wrote:

WhoseYourWolfie wrote:

I agree, wholeheartedly...

Better to be an "accumulator" and aim to try and ride it out over the long term;  rather than gamble by being a "player" or a careless or rabid "speculator"..

I wouldn't want to have any money in financials (e.g. banks, insurance, finance companies) or in mining and energy assets, when the next crash does eventuate, as these sectors might see the biggest falls.

AND, never forget one of the chief maxims for long term investors :
For every seller thre has to be a buyer..

It sounds like you have an interest in the stock market and that you have some knowledge. I'm interested in it, but I'm still learning.

Selling shares and waiting for the price to go back up is an option, but I bet a lot of people will get stung if they go in for short selling.

Economics and Biology were my best, and favourite, subjects at high school..
One ot the contributing factors that led me to studying at Hawkesbury Ag' college (part of the University of Western Sydney) afterwards..

While short selling is an option during a downturn, a less risky alternative is to only sell those companies' stocks that you aren't happy with, clear any debts, and be in a cashed up position to buy shares in a couple of other market sectors when the market starts to recover. Thus helping to maintain a more "diversified" portfolio.

"Buying on the downswings and Selling on the upswings" is the best way to maximise growth returns over the long term..
Those who try to pick the highs and lows of a cycle are often the ones who wait too long, and miss out on buying opportunities..
Also, buying and selling shares in installments, or "tranches", over time helps to average out gains and losses over the long run, compared with simply buying shares in one hit and simply sitting on it;  this also allows a portfolio to be re-balanced, rationalised and/or consolidated over time.

Cass wrote:Oil is plummeting still.

Gas here is currently at an average of $1.40 although with my supermarket points that I save each month I paid 99cents a gallon yesterday. That is the lowest we paid in the 8 years we've been here. It hasn't been that low since 1979!!!!!!

For comparison sake milk is currently $2.09 a gallon.

Its bonkers.

For every loser, there's often a winner out thete...

Oil, gas and gold prices drop, for example, that's bad news for the minig industry - as shown by shrinking margins, mothballed wells and mines, and increasing workforce layoffs..
But at the same time, it's good news for their customers and consumers, who are able to buy more, or alternatively have more spare dosh to spend on other products..

Milk and bread are a couple of products where governments often exert a degree of price control; whereas oil, gas and coal prices are left more to the foibles of "market forces".
A lot of the current low petrol prices are down to the Saudis and their OPEC partners ramping up their production, in a concerted attempt to hurt their competitors in Africa, Russia, Malaysia, USA, Canada, Mexico, Venezuela, et al..

WhoseYourWolfie wrote:

Raggamuffin wrote:

It sounds like you have an interest in the stock market and that you have some knowledge. I'm interested in it, but I'm still learning.

Selling shares and waiting for the price to go back up is an option, but I bet a lot of people will get stung if they go in for short selling.

Economics and Biology were my best, and favourite, subjects at high school..
One ot the contributing factors that led me to studying at Hawkesbury Ag' college (part of the University of Western Sydney) afterwards..

While short selling is an option during a downturn, a less risky alternative is to only sell those companies' stocks that you aren't happy with, clear any debts, and be in a cashed up position to buy shares in a couple of other market sectors when the market starts to recover. Thus helping to maintain a more "diversified" portfolio.

"Buying on the downswings and Selling on the upswings" is the best way to maximise growth returns over the long term..
Those who try to pick the highs and lows of a cycle are often the ones who wait too long, and miss out on buying opportunities..
Also, buying and selling shares in installments, or "tranches", over time helps to average out gains and losses over the long run, compared with simply buying shares in one hit and simply sitting on it;  this also allows a portfolio to be re-balanced, rationalised and/or consolidated over time.

Yes - I guess those who make a living out of it watch the markets all the time, so they get an idea of what's going to go up and what's going to go down. There is a danger though that all this talk of a stock market crash will influence some people to go into short selling, or to rely on shares going down when they might not.

We are about to invest in some "amenity land"

one of those "pockets" of wood land the forestry commission is flogging off....

not likely to ever be wanted for bulding, but highly desirable for those who a quiet getaway of their own

a place to take the caravan any time...and not have to share with hordes of howling brats, or worry that one or other hound has escaped and is helping itself to the guy down the row's barbie sausages....

and of course where I can shoot, where we are looking is also close enough to the coast for a few fishing trips....
and is close to a fishing river with trout and salmon in....YUM....
plus of course te fact that the timber on it is a valuable resorce...

some for firewood about £10 -20 a bag

some for sale as turnery wood... about £10 for a 5 inch dia 18 inch long log

leaf litter for mulch ..at £5-10 a bag....yes really....

and....

all sales from this source are tax exempt...

Sounds lovely Vic

once we are sorted you will suffer the piccies

Lord Foul wrote:once we are sorted you will suffer the piccies

Look forward to it.

I'm still waiting on my kitchen from you. Bring Mrs. Vic and make it a busman's holiday. She and I can lounge by the pool and go shopping while you and Mr. C saw and hit nails and other manly stuff.

So far so good - Shell shares haven't crashed since the BG Group merger and seem to be steadily climbing, and their latest dividend was very good indeed.