RBS Chief Credit Strategist: Markets Have Priced in a V-Shape Recovery … Markets Will Crash When Data Shows That Type of Recovery Isn’t Happening

Royal Bank of Scotland’s chief credit strategist – Bob Janjuah – after predicting a big “relief rally” over the early summer, is advising clients to sell out of global equity and commodity markets and prepare for another crash as winter nears.

As the Telegraph writes:

“I expect this risk rally to continue into – and maybe through – a large part of August. What happens after that? The next ugly leg of the bear market begins as we get into the July through September ‘tipping zone’, driven by the failure of the data to validate the V (shaped recovery) that is now fully priced into markets.”

The key indicators to watch are business spending on equipment (Capex), incomes, jobs, and profits. Only a “surge higher” in these gauges can justify current asset prices. Results that are merely “less bad” will not suffice

While media headlines have played up the short-term bounce of corporate earnings, Mr Janjuah said this is a statistical illusion. Profits were in reality down 20pc in the second quarter from the year before. They cannot rise much as the West slowly purges debt and adjusts to record over-capacity. “Investors are again being sucked back into the game where ‘markets make opinions’, where ‘excess liquidity’ is the driving investment rationale.

Janjuah’s advice is German bonds:

Mr Janjuah advises investors to seek safety in 10-year German bonds in late August or early September.

Janjuah thinks that the crash can be delayed a year:

Governments might put off the day of reckoning into the middle of next year if they resort to another shot of stimulus, but that would store yet further problems. “If what I fear plays out then I will have to concede that the lunatics who ran the asylum pretty much into the ground last year are back in control.”

Why would that create more problems? Because, says Janjuah:

The elephant in the room is the spiralling public debt as private losses are shifted on to the taxpayer, especially in Britain and America. “Ask yourself this: who bails out Government after they have bailed out everyone?”


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