Sell everything: Advice from global banking giant RBS is overblown, experts say
A note from the Royal Bank of Scotland is warning clients to “sell everything” in advance of a big predicted market crash, but investors should think twice before acting, Canadian experts said.
‘Sell everything,’ global banking giant tells investors and brace for ‘cataclysmic year’
Markets are flashing the same stress alerts as they did before the Lehman crisis in 2008, warns RBS, predicting that global stocks could fall by a fifth and oil bottom at $16
The RBS note made some grim calls for the coming year, predicting oil is set to fall to US$16 a barrel, stocks are poised to drop by a fifth and the robots are coming for one-third to half of all jobs in the developed world. The market is showing signs that are similar to 2008, when Lehman Brothers collapsed and the world was plunged into financial crisis, said the note which spread quickly Tuesday on news websites and through social media around the world.
“Sell everything except high quality bonds,” RBS said. “This is about return of capital, not return on capital.”
With oil dropping below US$30 a barrel Tuesday for the first time since 2003, turmoil in the Chinese stock market and equities down significantly around the world, the temptation to hit the panic button is easy to understand. But before you do, remember one important truth of investing, CIBC World Markets Inc. deputy chief economist Benjamin Tal said.
“When things go down, people say, ‘OK, get out,’ and that’s usually the wrong thing to do,” Tal said. “When people sit on cash, they lose many opportunities. There is a shadow cost, if you wish, of not acting or even selling.”
BMO Capital Markets chief economist Doug Porter said there’s plenty to be worried about when it comes to the global economy. However, he said there’s a big difference between a challenging year and a looming crisis on the scale of 2008.
“When you look at the backdrop in China, Europe or the U.S., it doesn’t match the rhetoric that’s displayed in this piece,” Porter said. “Suffice it to say I think they’re overstating it a bit.”
“Sell everything” sounds simple, but for the average investor, it’s anything but, Porter said. Factor in fees and taxes on capital gains and it turns into an expensive proposition — never mind the potential opportunity costs if markets go up instead of down.
You have to be expecting armageddon for that
“Not everybody is a day trader and can easily sell off their portfolio. It involves some very serious costs,” Porter said. “Even if the markets do go through a very rough ride, it might be bad advice.”
Norman Levine, managing director of Portfolio Management Corporation, said he thinks oil could potentially go as low as the US$16 a barrel predicted by RBS. But he said selling all equities would be an “enormous, risky bet.”
“That, to me, is really, really extreme,” Levine said. “You have to be expecting armageddon for that.”
All three experts said it’s highly unusual for a major bank to issue a note using such direct language. Levine said it was certainly effective at attracting publicity, whether or not it’s sound economic forecasting.
“When people want attention, they have to take extreme positions,” he said. “That’s a great way to get attention, whether you’re right or wrong.”
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