RBS: ‘sell everything except high quality bonds’

Economists at Royal Bank of Scotland have warned clients in a note to “sell everything except high quality bonds” and that stocks could fall by up to 20% in 2016.

The note from the RBS rates research team warned: “In a crowded hall, exit doors are small. Risks are high.”

RBS said investors should be afraid that the ominous outlook for the world in its “year ahead” forecast had been borne out over the past six weeks.

“We have been warning … that this all looks similar to 2008. We dust off our old mantra: this is about ‘return of capital, not return on capital’. ”

Among many negative messages for the year ahead, RBS cautioned: “What counts is that the world is slowing, trade is slowing, credit is slowing, we are in a currency war, global disinflation is turning to global deflation as China finally realises what it needs to do (devalue soon, and sharp) and the US then, against ALL THIS countervailing pressure, then stokes the fire by hiking rates.”

The RBS economists added: “China trying to grab market share of (shrinking) world trade leaves every corporate facing tougher conditions, a cheapening competitor selling their wares at a lower prices.

“So, to recap, this is: bad for global earnings, bad for global equities, bad for corporate balance sheets, bad for global credit spreads, bad for commodities.”

The RBS rates research team warned: “The game is up” and that “the world is in trouble.”

The team said the baton of growth pre-credit crunch was in the western world, and was then passed to Asia post-credit crunch — “but this has been a debt-fueled build up” and that “… there is no-one left to take up the baton of growth.”

Read the full RBS note here: http://static.guim.co.uk/ni/1452594796380/European-Rates-Weekly-08011.pdf