Following the worst start to a year in the stock market, Week 2 of 2016 sees the likes of the Royal Bank of Scotland (RBS) and JP Morgan issuing a simple warning to clients: Get out of the stock market ASAP!
Don’t worry, we were shocked to hear them say that too.
“This is about return of capital, not return on capital. In a crowded hall, exit doors are small.”
Of course, we’ve already been arguing for some time for people to get to the life boats of the Titanic and as far away from the sinking ship as possible — that is, while there are still available seats on the rafts.
The RBS went further to state that 2016 would be a “cataclysmic year”.
Simply put, the RBS knows that it’s only a matter of time before the market goes belly up and they don’t want to risk their clients losing everything — as many of them did during the 2008 global financial crisis that “no one could see coming”.
JP Morgan has joined RBS in parroting this message that people should jump ship.
For the first time in 7 years the bank has gone bearish on stocks stating:
“Our view is that the risk-reward for equities has worsened materially. In contrast to the past seven years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally.”
This warning becomes even more interesting when you take into context the fact that JP Morgan just posted their first loss in six years with loan loss provisions, to the tune of $89 million. They themselves are feeling the pinch.
If you need a reminder from the 2008 crash and how quickly the stock market can collapse, then do yourself a favor and go see the new movie, The Big Short.
In it, you will see how manipulated these markets are, and how quickly a company like Bear Stearns can go to $2 a share in a matter of days, after being a whopping $159 only 365 days earlier. Or, you can see how loans rated a safe and secure AAA by respected credit rating agencies fell apart in days.
If you think it can’t and won’t happen again, then we have news for you: The problems from 2008 and before have been brewing for some time. They’ve been papered over in a bid to keep this current system going.
But, you know this charade is really running out of steam when the big banks who benefit from this current paradigm are telling you that the sky is about to fall.