The Royal Bank of Scotland compared the current state of financial markets with 2008 when it advised clients in a January 8 note to “sell everything,” as reported by the Wall Street Journal.
In mid-December, Investor’s Business Daily changed its market outlook to “market in correction,” and money manager Gary Kaltbaum described what he saw as a “topping pattern” in major averages, as reported by the Inqusitr. Since then, the Dow Jones Industrial Average (^DJI) has declined by 5.0 percent, with heavy volume selling being witnessed last week.
The note from the Bank of Scotland warned investors to be less concerned with “return on capital” and to concentrate instead on “return of capital” in 2016, predicting that crude oil (NYM: CLG16), currently trading at 12-year lows, may sell-down to the $16-level, and that equities could fall 10 to 20 percent. The note advised investors looking for safety to own “high-quality bonds.”
Andrew Roberts, Bank of Scotland’s “head of European economics, rates & CEEMEA research,” stated that progress in automation and technology are set to “wipe out” up to half of employment in developed countries, and that the global economy has “far too much” debt, to the point where it may hinder global economic output. Roberts sees the majority of 2016 being used to sell profitable positions entered after the 2008 subprime mortgage collapse and the resulting quantitative easing-driven boom that has seen equities, as measured by the Dow Jones, gain about 90 percent since January 1, 2009.
“The world is slowing, trade is slowing, credit is slowing, we are in a currency war, global disinflation is turning to global deflation as China finally realizes what it needs to do (devalue soon, and sharp) and the U.S. then, against ALL THIS countervailing pressure, then stokes the fire by hiking rates,” Andrew Roberts was quoted from the RBS note to clients.
The economist’s outlook was reported to have become negative in November. Since then, he has been reported to write analysis drawing comparisons between the current global economic situation and what was faced in 2008.
Investor’s Business Daily and the Royal Bank of Scotland aren’t the only market participants who advised their clients to sell or who issued gloomy forecasts in recent weeks. Equity and bond rating agency Standard & Poor’s is reported to have more companies with negative ratings that at any time since the 2008 meltdown, and Morgan Stanley (NYSE: MS) issued a forecast stating that the price of crude could fall 10 to 25 percent farther than it already has if strength in the U.S. dollar continues. Merrill Lynch, Bank of America Corporation (NYSE: BAC), Deutsche Bank AG (NYSE: DB), Barclays PLC (NYSE: BCS), Societe Generale Group (Paris: GLE), Macquarie, and Standard Chartered joined Morgan with bearish oil price predictions.
Recent strong-performing stocks have been sold along with the major market averages. Over the past 30 days, Shares of Facebook, Inc. (NASDAQ: FB) are down 5.5 percent, shares of Amazon.com Inc. (NASDAQ: AMZN) are down 5.7 percent, shares of Netflix, Inc. (NASDAQ: NFLX) are down 3.8 percent, shares of Google, Inc. (NASDAQ: GOOG, GOOGL) are down 2.6 percent, and shares of Apple Inc. (NASDAQ: AAPL) are down 11.6 percent.
China’s most widely followed and owned stock indices, the Hang Seng Index (^HSI) and the SSE Composite Index (000001.ss), both joined the United States with heavy volume selling, but at 52-week lows, last week. While U.S. markets bounced yesterday and are down marginally today, the Hang Seng Index fell 0.9 percent, and the SSE Composite Index rose slightly yesterday.
“The fact that it did hold up for the same reasons that it seemed to go down last week, that’s a victory,” Chuck Carlson was quoted with regard to the recent sell-off and yesterday’s perceived relative strength in U.S. markets by Reuters, seemingly in contradiction with the Bank of Scotland view. “Today was kind of a nice, perhaps, first brick in the bottom being put in place.”
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