Investors need to sell all of their stocks because a cataclysmic crash, like that of 2008, is imminent – so say economists at one of the world’s largest banks, the Royal Bank of Scotland (RBS).
“Sell everything except high quality bonds,” The European Rates Weekly, prepared by RBS’s Rates Research Team states. “We have been warning in past weeklies that this all looks similar to 2008. We dust off our old mantra: this is about ‘return of capital, not return on capital.’”
In the US, the Dow Jones Industrial Average fell more than 400 points Friday morning.
A combination of low oil prices, the collapse of commodities prices, growing income inequality and the economic slowdown in China will cause a repeat of the financial meltdown of 2007-2008, RBS’s head of European economics, Andrew Roberts, predicts.
Roberts says such a meltdown is imminent in the near future.
Following is a more detailed look at why RBS says a crash is coming:
The plummeting price of oil. RBS’s experts believe oil will drop to $16 a barrel (it was trading at around $30 a barrel on January 14). Falling oil prices are driving down the value of oil stocks and hurting oil companies. Royal Dutch Shell saw its income drop by $11.87 billion over the summer of 2015. Oil companies have already laid off around 90,000 people in the United States. Some experts, including The Wall Street Journal’s Nicole Friedman, think oil prices could drop even down to $10 a barrel.
Commodities prices are devastating entire industries, such as mining and agriculture. Bloomberg estimates that mining stocks lost $1.4 trillion in value between 2011 and 2015. The prices for America’s two main export crops, soybean and corn, have fallen by half since 2012, Bloomberg said.
The Chinese economy is falling. Commodities prices are dropping in part because the economy is slowing in China, the world’s largest market for commodities including minerals and foodstuffs. The LA Times reported that scores of factories in Shenzhen, one of China’s largest industrial centers, have closed in recent months. Even Apple is considering slashing iPhone production because of falling demand. Some Chinese factories have shut down without even paying their workers. Chinese stocks lost 10 percent of their value in 2016.
The world has too much debt. China’s debt quadrupled between 2007 and 2014, growing from $7 trillion to $28 trillion. That means China’s debt now exceeds the economic output of the United States.
Other economies elsewhere in the world are dragging. Venezuela is already suffering hyperinflation — it was 180 percent in October – and Russia had a rate of inflation of 12.9 percent in 2015 and the ruble lost half its value during the year. Brazil in early January was experiencing a rate of inflation of 10.67 percent, according to Bloomberg.
It looks as if 2016 is not going to be a very good year for investors.
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