Royal Bank of Scotland to investors: 'Sell everything'

[Dick Whitman]

RBS Warns: Sell Everything

Writing in a client note dated Jan. 8, the bank’s European rates research team said that clients should be concentrating on return of capital, not return on capital, and that an ominous outlook to the world economy “all looks similar to 2008.”

The Key Points

• He also warned that advances in technology and automation are set to wipe out up to half of all jobs in the developed world.

 

[SpeedTchr]

LUDDITES UNITE!

 

[Baron Scicluna]

All this would never happen if Lena Dunham stopped taking sick days.

 

[SpeedTchr]

Does this have anything to do with Clemson winning last night?

 

[Chef2]

All this would never happen if Leon Durham stopped taking sick days.

 

[TyWebb]

Glad I took the under on number of posts until the first Lena Dunham reference.

 

[JohnHammond]

Should you get your proceeds in euros or gold bullion?

 

[The Big Ragu]

RBS Warns: Sell Everything

Writing in a client note dated Jan. 8, the bank’s European rates research team said that clients should be concentrating on return of capital, not return on capital, and that an ominous outlook to the world economy “all looks similar to 2008.”

The Key Points

• He also warned that advances in technology and automation are set to wipe out up to half of all jobs in the developed world.

There is a credit cycle coming. And it is going to be ugly.

You can't time it. In fact, the fact that we have had multiple research notes in the last week like this one, suggests that it may not be imminent -- these things usually don't happen exactly when everyone is starting to warn. Or maybe the central banks will be able to coordinate somehow (although they are pretty much reduced to fighting each other in a beggar they neighbor currency war game at this point, as the world is surely in a recession. China is going to desperately be devaluaing its currency in the near term, which is going to create turmoil) and can hold off the tital wave a bit longer. But there is something catastrophic ahead. The debt levels that reckless policy has given rise to over the last few decades (and the last decade, in particular, when they inexplicably doubled down with more of what caused the last financial crisis, to try to put off reaping what they sowed). ... and all of the malinvestment and overleveraged speculation it has created since, are a huge danger. High yield bonds are already cracking in the U.S. -- **** companies have been able to borrow insane amounts of money because of zero interest rate policy (along with a lot of good companies that have loaded up their balance sheets with debt).

It is just going to intensify at some point -- I can't see how it goes on much longer, although I have been prepared for this for the last 3 years. It has been so easy to see coming, yet people remain intentionally blind. Ms. Ragu and I put our retirement accounts into 100 percent cash when the S&P first hovered around 2000. I figured it might blow through much higher than it even did but I know there is going to be a great buying opportunity up ahead. I was willing to let it turn into even more of an insane mania if it had gone much farther, because I know when things turn they go down much faster than they went up.

The debt and bad credit -- and this isn't just a U.S. thing -- permeates all aspects of the world's economies -- everything from European sovereigns that are drowning in debt. ... to a Chinese banking system that grew like a rocket shot and is likely swimming in nonperforming loans that may dwarf their foreign reserves. ... to a trillion dollars in subprime auto loans (2008 redux) in the U.S.. ... to a trillion dollars in subsidized student loans. ... to stock markets that were inflated on stock buybacks (fueled by the central banks that stupidly thought creating a wealth effect would somehow create real economic growth). ... to bond markets that were propped by intervention from central banks, which became the biggest buyers (the Federal Reserve created a $4 trillion balance sheet overpaying for bonds and the ECB is still out there buying European sovereign debt). It goes on and on. I saw a story yesterday about how 40 percent of millennials have to use payday loans because their credit cards are maxed out and they are drowning in student loan debt.

Coming into this year--especially with the Federal Reserve fumbling around the way it has been (it backed itself into a corner with its rhetoric and forced itself to raise the overnight rate 25 basis points at the exact worst time -- when all of the economic data has been weakening), my bet was that we wouldn't get through the summer without a severe, negative market event. But honestly, I don't see how people allowed themselves to have gotten sucked in by the phony "stimulus" in the first place over the last several years, and overleveraged themselves and created as much debt as they have. So maybe the party can somehow go on a bit longer. It's already gone on way beyond what I would have ever guessed should be possible. But that is the power of central banks running our lives. When it ends -- and it will, because you can not price fix markets indefinitely -- it is going to make 2008 look quaint.

 

[swingline]

LUDDITES UNITE!

Lucite untie. [dyslexic version]

 

[swingline]

Ragu, is this the economic version of The Masque of the Red Death?

 

[Starman]

Take 200 Tylenols and call the coroner in the morning.

 

[The Big Ragu]

Ragu, is this the economic version of The Masque of the Red Death?

Probably not that bad. The world will continue to spin on its axis. But countless people are being subjected to untold misery for political reasons -- when you price fix the debt markets to allow politicians to make promises and spend, and try to fool people into thinking the economy you sunk is better than it is by juicing their world with debt (for example, we created an auto loan crisis that is going to end badly by encouraging underemployed people with bad credit to buy $40,000 cars with zero percent financing), you create a phony world. It also never will end well.

They can only keep their thumb on the scale of finance for so long. The price of money (what debt markets do well when left free) is the most important price in a free economy. What they have been trying to do is akin to Soviet-style economics. Price-fixing any market -- let alone one as important as the debt markets -- creates huge misalocations of capital. In 2008, you saw a crack in housing due to what Alan Greenspan and Ben Bernanke had created, that in turn showed cracks in a banking system that had overleveraged itself on credit that a free market would have never made available -- without a central bank skewing the risk equation by suppressing rates to make it too easy to borrow.

The geniuses who caused that in the first place, then rushed in with the fix -- it was like the arsonist riding in on the fire truck to come to the rescue -- and they did more -- except on steroids this time. ZIRP (zero interest rate policy) in the U.S. for close to a decade. Negative rates in Europe (it's perverse). Round after round of asset buying (quantitative easing) to keep the Frankenstein debt markets they created in the first place from collapsing. The BOJ (Japan's central bank) has been the most reckless -- they are not the focus at the moment, but their debt to GDP ratio not only keeps their economy in a permanent malaise, their "policy" has run up their stock market worse than ours -- cheap money going right into their casino.

As long as we continue on this path, its an anchor on the worlds' economies. If they stop the manipulation there is going to be a horrific price to pay. They robbed our future economic growth in the name of short-sighted short-term drug fixes. There is a price to pay for that -- we should have let it happen in 2008. But we didn't, so they made the price even steeper.

If they don't stop the manipulation, there is going to be a horrific price to pay, anyhow -- and it will happen in a very disorderly manner when one of these debt-ridden places implodes and creates a chain effect. Plus, the longer they can manage to keep the floodgates from opening, the worse they make the day reckoning.

 

[dixiehack]

 

[Chef2]

Probably not that bad. The world will continue to spin on its axis. But countless people are being subjected to untold misery for political reasons -- when you price fix the debt markets to allow politicians to make promises and spend, and try to fool people into thinking the economy you sunk is better than it is by juicing their world with debt (for example, we created an auto loan crisis that is going to end badly by encouraging underemployed people with bad credit to buy $40,000 cars with zero percent financing), you create a phony world. It also never will end well.

Bingo.
Beginning about 3 weeks ago, lenders started tightening their strings. Ever since 9/11, people have been orgasmic over 0% financing, which in turn bastardized the used car market. "Why the hell would we spend 4,5,6% interest on a used car, when we can get 0% interest forever on a brand new one?"
It's going to flip back around the other way.

 

[The Big Ragu]

U.S. equity futures are getting clubbed pre-market. It is going to be a blood-in-the-streets opening today.

 

[The Big Ragu]

All told, could be a lot worse, given where things were pre-market. I think the Nasdaq 100 was down about 3 percent at the open. But things are holding up relatively well so far, heading into the European close.

Only thing in the back of my head is that we are heading into a three-day weekend and with credit concerns in China and the uncertainty of what might come out of there in the interrum, people might want to go into the weekend flat. Which could make for a late day sell off. The flip side is, on a short-term basis this is way oversold territory.

Aside from what happens today. ... ultimately, this stock market is going to go down hard. It's still a giant bubble with no fundamentals behind it.

 

[Ace]

RBS Warns: Sell Everything

Writing in a client note dated Jan. 8, the bank’s European rates research team said that clients should be concentrating on return of capital, not return on capital, and that an ominous outlook to the world economy “all looks similar to 2008.”

The Key Points

• He also warned that advances in technology and automation are set to wipe out up to half of all jobs in the developed world.

All my investments are in Skynet. So I should be good.

 

[Shropshire Slasher]

Sounds like now's a good time to start plowing funds into Ramen noodle futures.

 

[The Big Ragu]

I am posting this preemptively, to head off dumb random posts sometime in the future. Probably doesn't matter, because the people I am talking about don't actually seem to care what I actually post. ...

But when I say ultimately, this stock market is going down. ... It will happen soon. ... UNLESS the Federal Reserve steps back in with some form of QE4 asset buying (to bloat its balance sheet some more and hasten its own insolvency) or negative interest rates or some other rate suppression measure that I can't even conceive of until they make it up. ... to try to reinflate the bubble and put off dealing with the misery they created.

Even if that happens (and it is actually a pretty good bet, because that is what they do. They are children. Although one of these times, their phony bubble machine isn't going to work and they will be firing a gun with blanks into a their own self-created credit / dollar crisis), this market (along with a lot of other asset bubbles they created) is still going to ultimately go down. The phony artificial rates (near zero percent for a decade) and the asset buying just puts off having to deal with the grim future they pushed forward several decades, but in the process it makes the later price to pay worse. These are like heroin fixes.

Borrowing another analogy from someone else, they basically have covered a cancer (that they created in the first place beginning with Alan Greenspan and his keeping rates too low -- what blew the dot-com and housing bubbles) with a bandaid. They are now trying to take the bandaid off -- very gingerly, they barely moved it -- and underneath it the cancer has gotten much worse and is now a festering wound.

 

[Michael_ Gee]

Without arguing for or against your thesis, Ragu. let me say that in my opinion it is too domestically focused, and that the downswing in US markets is part of the overall global realization in advanced capitalist countries that China's attempt to switch to a consumption based economy while at the same time allowing the Communist (ha!) Party to maintain total societal control is failing and that faced with the choice of fostering faster growth by loosening that control, the ruling elite will maintain its power at all costs. Which could have been foreseen by any political scientist, a species thin on the ground in the financial world.