Bozur
Amicus
Posts: 5,515
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Post by Bozur on Jun 19, 2008 0:47:23 GMT -5
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.
"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. www.telegraph.co.uk/
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Bozur
Amicus
Posts: 5,515
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Post by Bozur on Jun 19, 2008 0:58:54 GMT -5
some comments I applaud RBS for being the only truthful bank in the western world. Greenspan destroyed the western economies with his reckless and egocentric policies. We are all going to pay the price.....the dow and S&P will fail, people will go to bonds and get cut off at the knees, and then panicked managers looking for yield will buy up the energy and precious metals mining stocks because they will be the only companies making good profits. Posted by Retired Analyst on June 18, 2008 11:44 PM---------
What people forget is that there were market crashes in 1826, 1838, 1847, 1854, 1866, 1873, 1893, 1907, 1914, 1929 and about every 8-10 years since World War II. The South Sea Bubble of the 1700s was a market crash, described by Winston Churchill in "History of the English-Speaking Peoples" in the same words that could have described the dot.com bubble. Probably there were others, but econometric data are a bit sparse from back then. These things happen. It's due. Life goes on. Ride it out.
Tom Morrison Vancouver, BC, Canada Posted by Tom Morrison on June 18, 2008 10:17 PM
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This is a typical alarmist. I am sure he will take advantage of the panic he is trying to cause. Truthfully I thought the Euro would be in trouble before this. There is no way all the coutries would work togther for any period of time. Each country has its own special interets. They beat down the dollar to feel good now they worry about the U.S. Economy. Bottom line the U.S. economy drives the world economy. You can bash the U.S. all you want but that is the fact. Posted by Bob Kalb on June 18, 2008 9:22 PM
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1.143 Quadrillion in deriatives and that was in the last three months ,fannie mae and freddie mac both have deriatives in excess of 450 trillion each,, JP morgan wrote over 7 trillion in last three months when fed reserves only took in 198 billion in capitol flow, JP morgan has 117 trillion in deriatives all of it is in the red as all are kill the carry trades, clear hedge funds, stop deriatives out right and charge criminally as it is fraud out right,, back currency with gold and silver,, dollar is gone its history,, every major financial house in the world will be hit if any deriative becomes a notional value the the holder becomes liable ,, anyone believes this isnt damaging or out right fraud needs to investigate this, dollar will go to 0.42 or lower its none event now but wait till a event comes it will be far worse,, no banking system in any form is safe except gold and silver, every currency in the world will be touched every 401K pension plans will be hit none are save take physical holdings of your shares ,, get away from margins dont ever meet one Posted by Randall Sands USA on June 18, 2008 8:28 PM
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I understand this. The problem is there are to many in the banking businesses that want countries who have always been a high risk to get up to speed with the rest of the money markets, debt markets, and global businesses. Even the World Bank won't loan money to these people like they did at one time. When Brazil tells the World Bank they're not going to repay the money they owe, then they devalue their currency. They're not the only ones. Russia is still in bad position for loans, and many of the Balkin and Slavic nations are in bad finacial shape. When you have people like George Soros going in there and wreaking their economies and then leaving them in shambles what do you expect? When the banks in the U.S. loan money to people who have no business being loaned money what do you expect. What these banks want to create is a responsible behavior in people, and nations. They think that if someone loans them the money they desparately need they will finally responsible. Well, duh! Most of these countries are corrupt and have been. You can't make a corrupt nation not corrupt by loaning money to them. It always goes to the people of that nation that weren't supposed to get it. Then the nations becomes delinquint on their payments and then they can't pay at all. When are these do-good banks going to get tough on these countries and their corrupt businesses. The reason why these countries and their businesses are corrupt and bad risks are because of the kind of people the banks are dealing with. If there are any of these kinds of people left in office, and the people of those nations haven't been responsible and gotten rid of them, they are still a bad risk and will be. The reason why American investors didn't pour into the former Soviet Union when supposedly Communism fell was because these people hadn't gone through the birthing period they need to go through where they get their democracy legs. That may take a long time. You have to wait and see if the people are serious about wanting to be free and take over their own economy. They weren't and they didn't. It's that simple. Those nations are still bad risks. There might be alot of companies in those countries, like Africa, that would make good investments. But, when their governments are Socialist or Marxist/Communists that company's profits cannot make it to the market in loan payments. Those profits will be taken by the government and stolen. This leaves that company in debt they cannot pay. Why loan them any more money. It's not the company's fault, it's their countries fault. It's not ready to be democratically profitable. In other words they are ready to be capitalist. They've either been to corrupt or Communist to long and there are to many remnants of the old government left that would still cause problems with their nations companies making a profit that would be theirs to keep. But, it's irresponsible behavior even on the part of ordinary Americans that causes banks to look in other areas to make a profit. When they tell the government they can't make any profit on these people they convince the government to let them make loans to other kinds of people who may not have liquidable assets like the bank would like for them to have, but the bank is willing to take the chance anyway. And look at what happened. There are bad loans that has for far to long called a "boom" in the economy. It's not a boom, it's a bust waiting to happen. When the Bank of Ireland says the boom is about to bust they are pointing out that the time for all these bad, risky loans to run their course and go down. It will be bad on all of us when there isn't enough good business concentrated in enough good business countries like it used to be. A long time ago people wanted to work to make money. Easy credit is what killed the hard work ethic of the people of this world. There are to many money companies that have nothing but credit to loan that don't have to be responsible for the payback. Posted by WillofLa on June 18, 2008 7:42 PM
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Gold: Someone truly said that we give strange value to Gold , that we first dig, and then keep it in warehouse and spend money to secure it. It deliver no value to the society.
Money: The money is being misused by banks, by creating innovative Credit rotations systems. They are increasing demand whereas the supply is restricted.
Stocks: Stocks have become a method of seeing your money using a magnifier lens. Investors put money in stocks and look at the ticker, to be satisfied that they got lot of money which only exist in collective mind.
Energy: Its strange we ignored Energy as most important and valuable commodity. We were living on Energy but took it for granted. No wonder Energy (in the form of oil, gas, neclear) is most valuable think out of all above and is solid investment opportunity.
Posted by PK on June 18, 2008 7:28 PM
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I think we are reaching another inflection point. Loosening credit to facilitate will not work. Borrowers are tapped out and losing jobs, and lenders are panicked and are afraid to loosen credit and they are looking for security (tighter lending terms). It is a Mexican standoff in the credit markets. Real inflation is running at better than 11% in part because inflation indexes ignore food and energy price hikes. With borrowing rates at say 5 or 6% lenders are subsidized for borrowing money and there are few takers. The boom was consumer led and now that consumers are under water with housing prices they feel particularly poor. However all the pundits that failed to see this debacle coming are predicting that it is now over. In reality we are in the 2nd inning. What this article does not talk about is what happens to the US dollar as the stock market collapses and credit tightens and the US treasury discovers that foreign buyers of treasuries has dried up at the same time the US is trying to finance a $3 trillion plus spending program. Checkmate! Posted by John Taylor on June 18, 2008 4:14 PM
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What is money? It is a medium of exchange. What is the medium of exchange? It is the bottleneck between the population's labor of goods and services that the population has labored to produce and distribute for their necessities and simple pleasures of life and the acquisition of same. That medium of exchange always has and always would have to be controlled. This is where the problem lies. Either the government has to control it. Or private interests would have to control it. If it is controlled by the government, then the private interests would worm their way in to get control out of government hands into their own hands and they would seek to exploit the monetary benefits that this control can, and has brought. Babylon as spoken of in the bible in Isaiah 47, Jeremiah 51, and the Apocalypse 17, 18, and 19 is a metaphor for the medium of exchange. I, for one, am tired of fooling with it. May the day come swiftly for God's destruction of it. Posted by Donna Gaddis on June 18, 2008 3:48 PM
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The "Experts" have a big problem. They cannot afford any more bank closures like Bear Stearns. Banks in Asia, Europe, and NAmerica have kept interest rates way too low in order to add liquidity to the currency and credit markets. This has prompted a huge sell-off of dollars, and in turn has created a commodities bubble. Last week the ESB signaled that it wished to increase interest rates, but US Fed Chairman has refused. End result - a further weakening of the dollar. The Fed Chairman must increase interest rates in the US at some point in time despite fears of further bank closings (which is a real danger). We went through this before in the 1970s and it wasn't pretty. Posted by JP on June 18, 2008 3:42 PM
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Im personally sick of reading about all the high costs of fuel and food and now someone wants to write about a full blown depression which is really what this article is saying without saying it. All of these reports by the media must have some time of affect on the psycy of the people. I personally want to go out and buy an ipod touch and a new computer but after reading this essay many people will have second thoughs and probably not buy anything. Which would be playing in to the idea of the depression in this article. All of these articles take the negatives and feed it to people over and over again until that is all people think about. What about innovation, what about transition of lifestyles. Many scinentists are working on a bacteria that would eat garbabe and discreates oil. Im personally sick of all these articles again. Posted by Andy on June 18, 2008 2:46 PM
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The credibility chasm just isn't there for those who know the source of the inflationary spiral we are going through. The inflation is not a result of qucikprinting of dollars or Euro's, nor one of poor central bank management (other than the credit crunch). It is purely a demand driven inflationary spiral - with the demand arising from China, India and the OIL PRODUCING NATIONS who subsidize their citizen's consumption, removing them from the consequences of ANYTHING.
All goods and raw mateirlas, not just oil, are in very high demand and the culprit is dramatic grownth in these nations. And there is nothing we can do about it through the central banks.
If China needs to use 20% more copper than it did last year and can buy it on the open marlket at any price they wish to pay, guess what? Copper spikes to new record levels. Same with oil, platinum, gold, stainless, natural gas, coal, wheat, corn, rice, you name it.
The Fed and the ECB can not do a thing about this one. Posted by Kurt on June 18, 2008 2:36 PM
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Easy money and corporate greed has led to this meltdown as well as surging energy prices, led by speculator greed. Banks and others forsaking risk analysis, lent money to everyone, even if they couldn't afford to pay it back. Housing prices increased at rates that far exceeded income increases. It was only a matter of time before Humpty Dumpty fell off the wall. I believed the stupidity was confined to corpulent, debt ridden America, but alas, the Brits are just as stupid and in fact have a higher ratio of debt per capita. It was only a matter of time before the bubble burst and because we are all so interconnected nowadays, it will be a worldwide occurrence. In the long run, the pain we suffer or will suffer in the future, will be beneficial, especially the lowering of housing costs. For America, in the long term, higher energy costs are also beneficial as we should be more aware of our conspicuous consumption of energy; downsizing cars we buy and downsizing of homes. Posted by Mike from NYC on June 18, 2008 2:17 PM
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