RBS warns of Black Monday within three months, buy precious metals
Just a week after this Financial Blog highlighted a Black Monday for stocks and bonds the second largest bank in the UK has decided to join the call. The Royal Bank of Scotland has told clients to expect a global stock and credit crash within the next three months. Cash and precious metals are the place to hide.
In a Daily Telegraph scoop today the bank warns that the S&P 500 will fall by more than 300 points to around 1050 by September. This Wall Street crash will reverberate through Europe, Asia and the emerging markets, and amount to ‘one of the worst bear markets over the last century’ adds the paper.
The bank commented: ‘Cash is the key safe haven. This is about not losing your money, and not losing your job’. Effectively the central bankers of the world are paralyzed by inflation. Easy credit will further fan inflation while tighter credit will smash economies already under pressure.
The RBS team concludes: ‘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’. Then the bank thinks the oil price will fall back as debt deflation grips the world economy.
Does this mean that the Fed will not dare cut interest rates in response to a Black Monday on Wall Street? I don’t think so. The fear of inflation will go out of the window as the greater evil of an economic depression raises its head. ‘Helicopter Ben’ Bernanke will be true to his reputation and pour money into the system.
More inflation will follow but tumbling monetary aggregates in the major global economies already suggest that the systemic risk of higher inflation will not be that great. In short the deflation of housing markets is now so strong that the money supply is static or falling.
However, newly printed dollars from the Federal Reserve will not necessarily be immediately spent on assets that are falling in value. They are more likely to be directed into the commodities complex and keep oil prices high, especially as the dollar will weaken very substantially in this scenario.
Expect precious metals to soar in value as investors channel their money into smaller and smaller rising investment classes, and the dollar tanks to $2 to the euro. Adjusted to reflect the oil price increase since the 1980 all-time high, gold should currently be $3,100 an ounce and silver $194, and a correction to these levels should be anticipated.
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I too have difficulties.
Erik,
Firstly, do you mean overbought or oversold?
Given the inverse relationship of PMs to the $index, and the future of the $ index, you have to say that this is bullish for PMs.
Do you consider the $ index future to be not bullish for PMs?
Or maybe you consider the future deflationary crash will take down PMs too? (This is where I have conceptual problems). For the immediate, I see inflation because of global currency debasement, but this will run its eventual course.
The bounce of gold off $850+/- has been solid.
Could you please explain “the herd is heading for a cliff and hoping…….”.
I
June 20, 2008 at 2:59 pm
I have a hard time with this but here goes…… precious metals are already oversold. I hear what you are saying about them being a safe haven, but the pile-on for gold and other precious metals has already been in full force for quite some time. When you start hearing about people stealing statues because they are supposedly made out of copper.l.. well, things are out of control.
So what is the little man to do? My guess is, put yourself in cash and wait for the waters to recede a little bit. There is already a ton of money sitting on the sidelines. I believe in 07 it was reported that over 5 trillion was parked in savings, money markets,and CD’s. And that is just in the U.S.
So, yes, precious metals are a good play, but not necessarily right now. Right now, the herd is heading for a cliff and hoping that there will be enough gold at the bottom to break their fall.
Erik
June 20, 2008 at 12:18 am