Stocks are higher in Asia today after rallies in the US and Europe last night. The price action suggests buyers have come out of the woodwork to do some bargain hunting. That has effectively stopped the rot and supported prices.
But in the now-famous “Sell everything” note, the RBS rates strategy team warns traders and investors not to try to “fade” the selloff we’ve seen in markets already this year.
(Fade involves investors placing trades in the opposite direction to market movements – at present that means buying when markets fall).
Key here is that Andrew Roberts and his team at RBS believe the moves in stocks, commodities, and credit markets supports and reinforces their “ominous outlook” for markets in 2016.
Roberts says that overall markets are “playing out to plan so far. As we warned, this looks very much like 2008.”
Here is Roberts’ warning to investors trying to buy the dip.
There is a difference between forecasting something and it actually crystallising. We think investors should be afraid that the ominous outlook for the world in our Year Ahead has been borne out (ex-ECB cuts) over the past six weeks. This hardens our ‘anti-goldilocks’ and deflationist views. Rather than fade, we say follow – and be cautious in 2016. We have been warning in past weeklies that this all looks similar to 2008. We dust off our old mantra: this is about ‘return of capital, not return on capital’. We suspect 2016 will be characterised by more focus on how the exiting occurs of positions in the 3 main asset classes that benefitted from QE (other than high quality govt FI, which is cheap): 1) EM, 2) credit, 3) equities. We stick to our -10 – 20% equity downside call. In a crowded hall, exit doors are small. Risks are high.