Global Stock and Credit Market Crash Alert
06/18/08 -
Royal Bank of
Scotland (RBC) – issues a global stock and credit alert
-
Daily Telegraph reports 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 paralyzes 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... 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...
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.