RBS issues global stock and credit crash alert

by nukegingrich | June 18, 2008 at 01:21 pm

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The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.

A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

I'm not sure how one can "brace for a full-fledged crash," and RBS doesn't offer any suggestions, other than "Cash is the key safe haven." However, if inflation continues to be propelled toward double-digits, the value of a cash investment is steadily eroded.

The concluding statement in the article was somewhat cryptic: "the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year."

We all are experiencing the results of the oil price spike, and will continue to do so for the foreseeable future. That this is a less powerful force than debt deflation is staggering. As the perceived value of debt instruments decrease (think sub-prime crisis on steroids), the resutling financial cascade will be historic.