http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/18/cnrbs118.xml RBS issues global stock and credit crash alert By Ambrose Evans-Pritchard Last Updated: 11:44pm BST 17/06/2008 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.
You just posted that to give Stocktrder a panic attack didn't you Serioulsy though, it isn't a matter of if we are going to see much lower levels just when, its common sense and we all know it despite the daily head fakes. Despite all the finagling the banks and Fed are doing they have only so many fingers with which to plug the dyke. Corporate defaults, residential resets, and higher rates through the fall will overwhelm them. The last few days have been like the eerie quiet before a shit storm.
China is already in crash mode. (SSE down another 2% tonight) Technical analysis shows the major US indexes should go down about 5% from here.
I could post some things that I've heard over the course of the last two weeks that would make some peoples' heads spin. It's not that I'm a VIP or BSD. But I know some people who are, and are dependent on banks for financing right now, and the guys that are working for the banks are scared shitless, not just about not getting deals closed, but about their jobs. But that's not even the scary part. In the depths of their depression, and under the influence of intoxicating liquors (VSOP XO, in most cases), loose lips are revealing a lot of some pretty amazing and frightening things. Buckle up, buttercups.
This guy "Ambrose Evans-Pritchard" picked the seriousness of the current credit crises in July 2007, when others didnt ! So 1 for 1. Interesting, we all know there is TRILLIONS of $$ of derivatives out there and credit default swaps worth jack sh*t, so it can happen anytime or not ! Disclosure: I have been short since SP500 failed to break thru 200 day ma.
If you think paper fiat is of questionable value in this new era of high (but admittedly mixed) inflation, bank loan portfolios are good for wiping one's ass with. They tried to contain the mortgage backed security contagion, failed miserably, it has now infected other assets, and the central banks now have a two headed beast that they can't possibly slay. Bernanke and Trichet are screwed. Regional banks are screwed. BAC and C aren't nearly done with the requisite task at hand (writing off toxic waste). They're screwed. If you're long Lehman, MS or JPM, you're screwed, too. GS, the golden child, may be screwed.
When the levee breaks.... "...Cryin' won't help you, prayin' won't do you no good, Now, cryin' won't help you, prayin' won't do you no good, When the levee breaks, mama, you got to move...." <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/4-AanPHMbC4&hl=en"></param><embed src="http://www.youtube.com/v/4-AanPHMbC4&hl=en" type="application/x-shockwave-flash" width="425" height="344"></embed></object>