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So, it appears many analysts in RBS (Royal Bank of Scotland) suffer so much from PTSD since the last financial disaster, they have now decided to express the most extreme negative reaction to everything that happens in the stock market (links referenced below).
So, on January 8th, while we were all wishing each other a much cliched TGIF, Andrew Roberts, whose humble title supposedly, is ” the head of European economics, rates and Central and Eastern Europe, Middle East and Africa research” at RBS decided to scare the living crap out of us all, by telling us to “sell everything or else…”
Yes, understandably, China has fallen by about 10% in about a week and the bottom is unknown. Yes, this has affected the global economy, even if the US economy remains unaffected by this, and in fact had its first rate increases in a decade or thereabouts. And yes, caution is important.
But sell EVERYTHING? Why not recommend something better? Such as a Market Neutral Investment Strategy? Or, a way to decouple or balance your effects on somewhat unrelated or fully unrelated economies?
And, please don’t tell me that you did not expect the very artificial Chinese economy to eventually fall. If you were paying attention last week, China tried to brake its fall with several more of its artificial measures, which only made things worse, so they finally gave up trying that. Maybe, they are just growing up. And if you did put your eggs in the Mandarin’s basket (which usually happens to be a very tough to access hole in the tree), it is time for you to grow up as well. Not call for all out panic!
Index Mania
Of course, all this doesn’t mean, we should not take a look at the possibility of a global slow down seriously. I learned with intrigue of this index called the “Baltic Dry Index” which apparently tracks changes in the prices of materials purchased in bulk, and things are seemingly not looking good. Take a look below:
Baltic Dry Index now about 50% below 2008 lows. Make of that what you will. pic.twitter.com/zxZYfnyESp
— Jesse Felder (@jessefelder) January 12, 2016
Well, yes, what would you make of that? In a further explanation, the quoted US News Story (link below), states that, over the past 15 years, the index has fallen, only when the US or one of its major trading partners was in the midst of a recession.
Conclusion
I am only opposed to RBS’s manic reaction to the threat they see. I think the threat is real. Portions of the economy are riding through bubbles or hype cycles, globally and locally. In the US we have a tech bubble, which is yet to show any signs of slow down. We also have the 3D Printing industry (a write up is coming) which is finally coming off the high on its hype cycle, as other hapless souls across the planet climb on to that wagon pulled by a dying horse.
The threat is not a slowdown in the Chinese economy alone. The seemingly good Indian economy (something I question, given the real estate bust cycle they are riding over there, among other things) is sitting on a very lopsided 66:1 ratio against the US Dollar. The Indian and US economies are tied together. The bursting of the tech bubble here will have a direct impact on India, whose economy is quite unbalanced towards exports. Then there are large and small cycles, such as with either Oil on the large end (billions in profits have been wiped out recently in fluctuating oil prices which is still ongoing) or with 3D Printers, where large (3D Systems and Stratasys) and small hype cycle riders are taking hits.
The question now is, will these crashes meld into a positive feedback system, or will we see a cascading effect, where the hits will come one after the other.
References:
- The US News Article: http://www.usnews.com/news/articles/2016-01-12/sell-everything-at-beginning-of-cataclysmic-year-ahead-royal-bank-of-scotland-warns
- The WSJ Article: http://www.wsj.com/articles/oil-plunge-sparks-bankruptcy-concerns-1452560335
- Images courtesy of: https://www.pexels.com/
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