Indicators Suggest a Cataclysmic Year Ahead
A spokesman for the Royal Bank of Scotland had this recommendation:
“Sell everything except high quality bonds,” warned Andrew Roberts in a note this week.
He pointed out that indicators in just the first week of trading in 2016 included falling oil prices, major problems with the economy in China, decreasing world trade, increasing debt, deflation, and few markets actually growing, and added, “We think investors should be afraid.” Not very encouraging, to be sure.
Morgan Stanley warned this week that oil could hit $20 a barrel, and the Royal Bank of Scotland says it could go down even lower to $16 a barrel. As much as that sounds enticing to the driver filling up at the gas station, it could have serious negative effects in the investment arena.
The world is in a global recession, Roberts wrote. This terrible cocktail means investors should now be thinking about getting a “return of capital, not return on capital.”
The mood in investment markets is similar to what existed in 2008 before Lehman Brothers fell and started the last global financial crisis. However, at that time markets such as China were growing and helped the world economy get back on track. As we have seen in recent weeks, China is in no position to help this time around, and in fact needs to adjust its currency down about 20% to realistically value the yuan, which will then serve to cause seismic waves throughout the world.
And for the small investor it seems that there is little wiggle room, and retirement may have to be put off again as portfolios lose value and fail to perform. And although it is a strategy fraught with risk and volatility, it very well may be time to convert a substantial portion of your financial instruments into hard assets such as gold or silver since traditional investment vehicles seem to once again be headed for a fall. It seems that this is “deja vu all over again,” and the common person on the street has to be getting tired and jaded of the whole system, which seems always to be going in the wrong direction.