Update to a previous post:
The RBS report by Andrew Roberts advising clients to “Sell Everything” and which is attracting much morbid attention,
“The bears have killed Goldilocks
…..
The downside is crystallising.
Watch out.
Sell (mostly) everything.”
pdf file — RBS European-Rates-Weekly-08011
Huge stocks, declining consumption and reducing prices. Yet, Saudi Arabian oil production is running at close to maximum, Iraqi oil is increasing and Iranian oil will soon hit the market. Economic theories are being overturned and more than one economist is turning in his grave. (Economists are not, and never have been, very good at forecasts though they are all past-masters at generating theories based on back-casts).
Now, the experts are beginning to contemplate what has been unthinkable so far – oil price diving to $10/barrel.
Reuters: Crude oil fell 3 percent on Tuesday, heading toward $30 per barrel and levels not seen in over a decade, with analysts scrambling to cut their price forecasts and traders betting on further declines.
Prices are down around 20 percent since the start of the year, dragged lower by soaring oversupply, China’s weakening economy and stock market turmoil, as well as the strong dollar, which makes it more expensive for countries using other currencies to buy oil.
…… On the supply side, Iraq, which has become the second biggest producer within the Organization of the Petroleum Exporting Countries (OPEC), plans to export a record of around 3.63 million barrels per day (bpd) from its southern oil terminals in February, trade sources said on Tuesday, citing a preliminary loading program, up 8 percent from this month.
“The near-term outlook for the oil market is bleak. OPEC is producing flat-out into a market that is oversupplied by over 1 million barrels per day; already decelerating demand growth could further decay with slowing economic activity; and OECD inventories that are already at record levels are likely to expand through at least the middle of the year,” Jefferies said on Tuesday.
Adjusting to the price rout, analysts have been shifting their price outlooks downward, with Barclays, Macquarie, Bank of America Merrill Lynch, Standard Chartered and Societe Generale all cutting their 2016 oil forecasts this week.
StanChart took the most bearish view, saying prices could drop as low as $10 a barrel.
“We think prices could fall as low as $10/bbl before most of the money managers in the market conceded that matters had gone too far,” the bank said.
In my simplistic view, a reducing price for something I consume is fundamentally a “good thing”. But I can’t help feeling that this price drop is not a sound, sustainable reduction based on cost reduction. It is manipulated and artificial and is due to a misguided Saudi strategy against shale oil, Russian oil and Iran. And it is going horribly wrong.
The Royal Bank of Scotland is predicting a “cataclysmic” 2016 and advising its clients to “sell everything” except high quality bonds. Stocks will collapse by 10 – 20% and oil will drop to $16/barrel. As pessimism goes this is not just “Doom” it is “Painful and Imminent Doom”. The RBS team are clearly expecting an increasing panic feeding on itself, since there are “few exit doors”. Certainly their dire scenario will itself contribute to the darkening “mood”.
For the modest investor there are few “good” options. The task for them is not so much looking for upsides but one of limiting the downsides. It is probably best to just rely on the wisdom of the Godfather. Convert to cash and “go to the mattresses”.
Keep Calm Sell Everything – Telegraph
RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that major stock markets could fall by a fifth and oil may plummet to $16 a barrel.
The bank’s credit team said markets are flashing stress alerts akin to the turbulent months before the Lehman crisis in 2008. “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” it said in a client note.
Andrew Roberts, the bank’s credit chief, said that global trade and loans are contracting, a nasty cocktail for corporate balance sheets and equity earnings. This is particularly ominous given that global debt ratios have reached record highs.
“China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the ‘Goldlocks love-in’ of the last two years,” he said.
Mr Roberts expects Wall Street and European stocks to fall by 10pc to 20pc, with even an deeper slide for the FTSE 100 given its high weighting of energy and commodities companies. “London is vulnerable to a negative shock. All these people who are ‘long’ oil and mining companies thinking that the dividends are safe are going to discover that they’re not at all safe,” he said. ….
Brent oil prices will continue to slide after breaking through a key technical level at $34.40, RBS claimed, with a “bear flag” and “Fibonacci” signals pointing to a floor of $16, a level last seen after the East Asia crisis in 1999. The bank said a paralysed OPEC seems incapable of responding to a deepening slowdown in Asia, now the swing region for global oil demand.
Morgan Stanley has also slashed its oil forecast, warning that Brent could fall to $20 if the US dollar keeps rising. It argued that oil is intensely leveraged to any move in the dollar and is now playing second fiddle to currency effects.
RBS forecast that yields on 10-year German Bunds would fall time to an all-time low of 0.16pc in a flight to safety, and may break zero as deflationary forces tighten their grip. The European Central Bank’s policy rate will fall to -0.7pc.
US Treasuries will fall to rock-bottom levels in sympathy, hammering hedge funds that have shorted US bonds in a very crowded “reflation trade”. ………..
Business Insider has the RBS bullet list of concerns which are giving their bleak view of 2016:
My bullet point themes into 2016 are (remain):
- Bearish China
- Bearish global commodities (hards, softs, fluids). And more specifically . . .
- Bearish oil (target $26, then clear risk of $16)
- CBs (mostly everywhere) will ease more
- The world has far too much debt to be able to grow well – global output
- gap widens
- Emerging market majors (outside India & Eastern Europe) all remain sells
- Automation on its way to destroy 30-50% of all jobs in developed world
- Currency war / mercantilism
And my new bullet point themes:
- Global disinflation risks turning into global deflation in 2016
- Everyone thinks ‘goldilocks’. We thought this strongly for >2 years (on our liquidity theme) but now worry about equities/credit, both huge, multi-year, well held positions. Negative returns in 2016 are probable, though without a recession they should be manageable, think -10-20%, rather than a rout
- If we see weaker ‘risk on’ products, the last safe ‘high yielder’ is the EMU periphery. Our new 0.75% 10y BTP target could prove too high a yield
- Risks to 0.16% new 10y bund target are on the downside, not upside
- Main risk comes from oil. A plunge sub $20 would aid consumption
It could be a bad year for the small investor.
It is a “breaking news” in Dagens Nyheter today that it is commonplace for gangs of youths to sexually harass and molest young girls at the annual “We are Stockholm” festival. It showed up clearly in 2014 and again last year. The “scoop” in DN is that the police have knowingly, and regularly, played such matters down. But what DN does not spend too much time on is that journalists (including DN journalists) were generally informed that sexual harassment by “asylum seekers” was taking place, but they and their editors chose also to play it down. What DN does not reveal is the depth to which Swedish media are blind, devout followers of the religion of “political correctness”. Normally they play up even the most tenuous cases of purported or alleged sexism. But they have also been the most ardent supporters of multicultural (as opposed to multiethnic) societies.
Thus, they automatically play up anything that follows a “feminist” line except when the perpetrators are immigrants or immigrant gangs of, usually, supposedly Muslim youth. Even in today’s stories in all the newspapers about DN’s “scoop”, none of the mainstream media refers to the ethnicity or the religion of the youth gangs. From social media, even after discounting all the idiotic blather from the usual suspects (mainly right-wing, white-supremacist, often Sweden Democrat rabble), it is fairly clear that most – if not all – of the harassment in Stockholm was by gangs of young, male, “asylum seekers”, mainly from Afghanistan. There are those who claim it is not relevant and should not be reported, but I think that it is highly relevant that the perpetrators were nearly all culturally Muslim (and culture and religion are inextricably intertwined here). Their ethnicity is, I suspect, of less importance than their culture.
It is Cologne all over again. First the police play down such events. The media acquiesce in keeping things quiet since they don’t want to disturb the multicultural narrative. Then social media pressure leads to the news “breaking” in the msm – even though they are themselves heavily complicit in the cover-up in the first place.
We are Sthlm-festival in Kungsträdgården 2015. Photo: Alexander Tillheden/Stockholms stad (via DN)
Dagens Nyheter: For two years, youth gangs have been molesting girls at Europe’s largest youth festival “We Are Stockholm”. The official police version is that conduct at the festival was “quiet” – but the DN’s investigation shows that the internal alarm reports were silenced.
The National Police Commissioner Dan Eliasson promised to investigate the cover-up.
DN has seen the daily internal memo during “We are Sthlm” that was sent to police chiefs and the Stockholm police media center. The first reports of sex crimes against female visitors came early on. “The problem with young men rubbing themselves up against young girls in the audience returned as in previous years,” it says in a memo from the first day of August last year. The problems arose as soon as the concert started.
But what DN does not mention is that they too knew about the harassment in August last year.
Expressen: Dagens Nyheter’s article about the police cover-up of sexual molestation during the music festival “We are Sthlm” has also led to a media debate.
The site, Nyheter Idag, which has connections to the Sweden Democrats has accused the newspaper of itself trying to cover-up the news. …… They claimed in an article published on Sunday that DN engaged in a cover-up and that the newspaper should have known about the molestation at the festival last summer. Information about the abuse had been received by one of DN’s journalists.
On Swedish television this morning, the journalists all pretend they knew nothing at the time and are happy to let the police take the blame. They still will not say that the gangs were mainly “asylum seekers”.
Nyheter Idag writes:
During a single night police and security guards had to intervene against around 90 younger males, but even adult men took part in the abuse, says an eye witness to Nyheter Idag. The eye witness has professional experience from working at the Stockholm Police Department as a psychologist.
The psychologist who knew of what had happened in Kungsträdgården contacted journalist Hanne Kjöller at Dagens Nyheter, by, among other things, e-mail on August 17. The psychologist says he specifically turned to Kjöller because he knew that she had previously written about controversial topics.
“She was very interested and listened until I told her that all the boys and men that were apprehended were young asylum seekers (“unaccompanied” is the terminology used by Swedish authorities) from Afghanistan and Syria. I sensed that she changed the tone (of her voice). But she also said that she would contact the police”, he tells Nyheter Idag.
Kjöller got the phone number to one of the police officers who were on duty during the event in Kungsträdgården and could provide a recollection of the events. Nyheter Idag has talked with the police officer who Kjöller talked to in August, and he was eager to tell Dagens Nyheter about the massive cases of sexual assault against young girls in central Stockholm.
“She sent a text message to me once, early on, where she wrote that she was looking for me, she wanted to talk. After that, I tried to get in touch with her, but that was when things started to get awry. She answered sometimes, said she would get back to me. But it never amounted to anything. She was interested in it for half day or a day, then she wasn’t anymore”.
The officer explains that he worked for several evenings during this week in Kungsträdgården square. He tells of how he and his colleagues had to apprehend a large number of young men who sexually assaulted girls, in large part unaccompanied refugees from Afghanistan.
The fear of being labelled “racist” has led to the ridiculous consequence that “race” and “culture” have been equated. Multiculturalism has been made into a religion. Unacceptable cultural mores have been overlooked and excused – and even encouraged – just so as to avoid being called “racist”. I am more than ever convinced of my thesis that Europe’s future is inevitably multiethnic – but it is not multicultural. The integration of newcomers has to start with cultural integration not with cultural separation. And that starts with language.
Related:
A “society” – to be a society – can be multi-ethnic but not multicultural
The future of Europe is multiethnic but not multicultural
The conventional wisdom is that if Donald Trump wins the Republican nomination, Hillary Clinton will wipe the floor with him. But a few weeks ago I thought that, like the Democrats for Reagan, we might see a similar phenomenon of Democrats for Trump. I saw immigration in the US and the consequent fears of many white Democrats together with the dynamics between different minority groups as being the possible driver for generating these cross-over voters. I wrote then:
Latinos are incensed at Trump’s comments about immigration, but quite like his hard line about Islamic terrorists. East European immigrants are also attracted to this hard line about both Mexican illegal immigrants and Muslim terrorists. Asian immigrants can be split generally into two groups; Muslims mainly from Islamic countries and non-Muslims. Many of the non-Muslims feel threatened by the Islamisation of their communities and the insidious, creeping encroachment of – and perceived silent surrender to – Sharia Law. A large portion of the Asian communities are not comfortable with the influx of illegal, Latino immigrants. ………. Even the black Muslims feel under threat from all the “new Muslims”, since they come quite low down in the hierarchy of “true Muslims”. Normally the bulk of the immigrant population in the US would be Democratic supporters, but Trump is tapping into some of their greatest fears of other immigrant groups. There is also – I think – a large section of the white, middle-class Democratic support which is inhibited from expressing its fears of immigration and Islamisation and are suddenly quite glad that these fears are being expressed by somebody – even if it is only a Trump.
A new survey suggests that such a scenario is not entirely fantasy and there may well be substance to the existence of a “Democrats for Trump”. The poll indicates that 20% of Democratic voters could cross-over to Trump. If my memory serves many of the Democrats for Reagan were “secret” and never actually admitted that they would vote for Reagan. I suspect that the “secret” Democrats for Trump could be a larger proportion even than for Reagan. And I suspect that Trump is not as unacceptable for well-established minority groups as the media assume.
So if Donald Trump proved the political universe wrong and won the Republican presidential nomination, he would be creamed by Hillary Clinton, correct? A new survey of likely voters might at least raise momentary dyspepsia for Democrats since it suggests why it wouldn’t be a cakewalk.
The survey by Washington-based Mercury Analytics is a combination online questionnaire and “dial-test” of Trump’s first big campaign ad among 916 self-proclaimed “likely voters” ……. Nearly 20 percent of likely Democratic voters say they’d cross sides and vote for Trump, while a small number, or 14 percent, of Republicans claim they’d vote for Clinton. When those groups were further broken down, a far higher percentage of the crossover Democrats contend they are “100 percent sure” of switching than the Republicans.
Tied in a statistical dead heat: Hillary Clinton and Donald Trump. REUTERS combo
That Trump is not quite the pariah with Democratic voters as the media seek to portray is also shown by this Reuters/IPSOS poll which has Trump matching Clinton if they were to be pitted against each other
Reuters: In a hypothetical head-to-head race, the real-estate tycoon and TV personality would be supported by 39 percent of likely general election voters, compared with 40 percent for Clinton, according to the latest 5-day average from Friday’s Reuters/Ipsos tracking poll.
The driving issue is likely to be immigration all through 2016. The recent New Years eve rampage of male, “refugee”, Muslim youths in Germany, the politically correct silence by the media about it until forced, and similar behaviour in Finland and the UK and in Scandinavia, only play into Trump’s narrative. Every atrocity committed by ISIS begs the question as to why the male, unaccompanied youths who are seeking refugee status in Europe or North America, are not fighting against ISIS in their own countries?
After a relatively mild December (snow didn’t arrive until the 27th), we have had a few days now at -20ºC (though it has been down to -44ºC in the North). We have had no blizzards but steady snowfall is building up the snow levels.
El Nino is weakening and children have good prospects of healthy snow levels for the “sports week” vacations in February.
From my kitchen window 20160109
Keeping silent about differences due to culture or religion does not help. Pretending that the differences don’t exist won’t make them go away.
I don’t think Cologne was an issue of race (ethnicity) but it certainly was not just due to “bad boys being bad”. Poverty and unemployment cannot be used as an excuse. The root cause was either culture or religion or – more likely – both. I suspect it is both because the religion is Islam and here culture and religion are as intertwined as they are. Many of the religious leaders of Islam still have a world view of women and their place in it, which is a few hundred years out of date. In Germany it was thousands of young males of North African and Middle East origin behaving obnoxiously – but in a coordinated manner – across many cities. I am pretty sure that an overwhelming majority would have been Muslim. Yet the authorities kept silent until they had no choice but to respond to the anger and indignation on social media.
The Local (de): Germany’s authorities and media have been tiptoeing around the issue of sexual violence committed by immigrants and refugees for too long – giving the far right ammunition in their battle against the mainstream, argues Jörg Luyken.
The shocking sexual assaults that happened in Cologne during the New Year festivities – in which dozens of women were sexually abused and in one case raped by groups of young men – have an obvious parallel in events which took place in Cairo’s Tahrir Square during mass protests of the Arab Spring. …..
While there are differences between Tahrir Square and Cologne Cathedral – the Cologne attacks appear partly to have been diversions to enable theft – that men apparently of north African descent entered large crowds to sexually assault and even rape women – should set alarm bells ringing.
But no sober analysis of the influx of millions of people from the Middle East – the majority of whom are young men – could fail to realize that certain behaviours prevalent there would be repeated here. ……
In the last few months, it has seemed that the authorities and the national media would rather sacrifice transparency for the sake of stability.
It was days before police gave full descriptions of the offenders in Cologne, despite a call for eyewitnesses. The national media also ignored the story until a wave of anger on social media made covering it unavoidable. …..
But there is a growing body of anecdotal evidence of sexual crimes committed by new arrivals bubbling up from Germany’s regional media.
In November a club in Bavaria started turning refugees away after a string of complaints of sexual harassment from female clients.
In Baden-Württemberg at least one hospital has hired guards to protect nurses who feel intimidated by the refugees they treat.
The Woman’s Council in Hesse claimed in an open letter to the state parliament in September that they have substantial evidence of sexual abuse, including forced prostitution, in refugee shelters.
In August a regional paper in North Rhine-Westphalia also reported police covering up a serious sexual crime. After hearing about the rape of a 13-year-old girl by a refugee, the paper enquired with police as to what crimes they knew of in the refugee shelters.
There are plenty of anecdotes about similar occurrences in Norway and Sweden. But authorities and media in Scandinavia are also in denial, and just as reluctant to openly confront the reality that Muslim youth (mainly newcomers) are more likely to sexually harass and commit sexual crimes. The reluctance is partly to protect the dead doctrine of multiculturalism, and partly out of the fear of being politically incorrect by seeming to refer disparagingly about race or religion or cultural differences.
It is the same toxic mix of religion and culture which can also be seen in the UK. It shows up in the grooming of young vulnerable girls, in”honour killings” and the treatment of women (especially vulnerable women) as “objects”, which are all not uncommon, even today, in many – supposedly devout – Muslim societies. In the UK it is more often Muslims of Asian rather than Middle East origin. But it is a similar behaviour as exhibited by the spoilt young oil-brats (male of course) who prey on women outside their own countries. Of course the treatment of women as objects happens with other religions and cults as well but usually only in fairly backward societies. For example it still happens in some parts of rural India where casteist racism, mixes with culture and Hinduism to create a most poisonous mix. (Casteism in India can be more virulently racist than any white supremacist movement). It happens even with the polygamous cults – ostensibly Christian – when they pop up from time to time. The common factor is a religion which views women as objects under the authority of a man, and a culture built on that foundation. But it is particularly Muslim cultures which seem to permit and legitimise violence by men against women.
It is my thesis that Europe has to have multiethnic, single culture societies, though the resulting culture prevailing will be dynamic and will change as newcomers are absorbed. Demographics require the influx of new ethnicities into Europe, but it is a fatally flawed concept to imagine that a society without a single overriding culture can avoid being a fractured and splintered society. Playing down the differences due to culture and religion contributes nothing to the creation of new viable societies.
What cannot (or will not) be seen, cannot be addressed.
European stock markets can be expected to decline another 2-3% today. The Chinese stock markets hit the automatic circuit breakers soon after they opened today when they dropped another 7%. The devaluation of the Chinese Yuan continues apace with a 0.5% drop, which is the largest single day drop since August when it was devalued 2%. The Shanghai composite index is now down at 3115, down from the high of 5000 it reached in June 2015. In the meantime Brent oil fell below $35 which is the lowest since 2004.
Back in August last year I expected market “bottom” to be when the SCI was less than 3200 and oil was around $30 per barrel.
So I’m looking for the SCI at or less than 3200 and oil prices of about $30/barrel to start getting bullish again. That will not be before November/December this year.
And until then its probably best to keep cash under the mattress.
Hopefully the bottom is not too far away.
sci jan 2016 graphic by bloomberg
In the meantime the World Bank has released its Global Economic Prospects for 2016. WB Global Economic Prospects January 2016
While the WB expects global growth to increase slightly from 2.4% in 2015 to 2.9%, it sees some major risks ahead. The nightmare scenario is if the economies of the BRICS countries decline simultaneously and that could spillover and cause a prolonged downturn globally.
The simultaneous slowing of four of the largest emerging markets—Brazil, Russia, China, and South Africa—poses the risk of spillover effects for the rest of the world economy. Global ripples from China’s slowdown are expected to be greatest but weak growth in Russia sets back activity in other countries in the region. Disappointing growth again in the largest emerging markets, if combined with new financial stress, could sharply reduce global growth in 2016. …….
…….. Specifically, a 1 percentage point decline in growth in BRICS is associated with a reduction in growth over the following two years by 0.8 percentage points in other emerging markets, 1.5 percentage points in frontier markets, and 0.4 percentage points in the global economy. Spillovers could be considerably larger if the growth slowdown in BRICS were combined with financial market turbulence.
The World Bank ends by advising developing economies to develop resilience – which may be easier said than done
In the current environment, developing countries need to brace for possible shocks by building resilience to risks to growth. Where they are able to boost government spending or lower interest rates, they can provide support to economic activity. They can further encourage investor confidence with reforms to governance, labor market functioning, and business environments. Measures to absorb young workers or to increase workforce participation will relieve demographic pressures in many countries.
Hopefully the stimulus that low oil price provides will be sufficient to prevent the nightmare scenario.
Though N Korea’s claims to have tested a hydrogen bomb have not yet been confirmed, it is worth remembering how Bill Clinton made a deal that he claimed would stop N Korea’s nuclear weapons aspirations in 1994.
NY Times – October 22nd 1994:
After almost four months of difficult negotiations, the United States and North Korea signed an agreement today to end their dispute over North Korea’s nuclear program but kept secret many details of how the accord will be put into effect. ……
After the signing today, North Korea’s chief negotiator, Kang Sok Ju, described it as “a very important milestone document of historic significance” that would resolve his country’s nuclear dispute with the United States “once and for all.” He said the agreement, once put into effect, would resolve “all questions of the so-called nuclear weapons development by North Korea” that have raised “such unfounded concerns and suspicions.” “We have neither the intention nor the plan to develop nuclear weapons,” Mr. Kang said.
At a news conference in Washington, President Clinton said the treaty was “a good deal for the United States.” “The United States and international inspectors will carefully monitor North Korea to make sure it keeps its commitments,” he said. “Only as it does so will North Korea fully join the community of nations.”
Stevengoddard notes the similarities between Clinton/N Korea and Obama/Iran
Clinton/N Korea vs. Obama/Iran
