“Investors should be preparing for a financial “cliff-edge” as the Eurozone and the US prepare for “monster” money printing exercises, according to RBS.” —MM
In a note to investors last week, RBS head of European rates strategy Andrew Roberts tells investors to move to government bonds and gold in preparation for a second global dip.
He says: “Be maximum long duration of nominal government bonds in safe haven markets. This means US, UK, Germany, in that order, and perhaps others. Be long gold. Think the unthinkable.”
Roberts says another banking collapse in Europe coupled with deflation in the US will lead to “dramatic turn downs in valuations”.
He says: “This may finally destroy the world’s worst cult: the cult of the equity, which has no basis in fact, or history, but yet seems universally accepted. This all sounds somewhat doomsdayish, so we should update how the real economy/banking is panning out for us. It is saying: the end-game approaches.”
Roberts also warns that the US Federal Reserve may be considering a “monster” quantitative easing programme in an attempt to keep bond yields at around 2 per cent.
He says: “We have been wrong before, but we think the risks associated with us being wrong are low but the risks associated with us being right are more than 10 per cent returns in 10-year US government bonds at the same time that equities/commodities will collapse far beyond what even some equity bears anticipate.”
US Dollar: the next Great Bubble?
The next great bubble is the US dollar hands down. There in no disputing this. When you see an economic stimulus plan that is over 50% of GDP it should make you cring at what inflation will bring in five years. The US has a 14 trillion GDP that is shrinking and in 07-08 a 1 trillion loss then Obama is expecting a 2.2 trillion loss for 08-09 and 09 -10 a 3.79 trillion loss. That is very creepy to a bond trader.
Now the rest of the world can see the big big problem of the US dollar being the world currency because all commodity are traded on the US dollar. When oil was at $147 per barrel it was because the US dollar had failed. In Euros oil was still only $75 per barrel. Grain like wheat was the highest Canada has ever seen with fall of the US dollar in August 08.
The entire world recession is because of the US Dollar. What happens when the US dollar is worthless and oil is $2000 per barrel? The world needs another world currency.
If you own a business that had a income of just the taxes generated on 14 trillion and had a debt of 16 trillion. Way way more debt than income how long would a bank keep your company’s debt on the books when you could just cover the interest with all your income?
It was projected by top economists of the world that the US debt to GDP would be equal by the year 2011 and now with the economic problems it is going to be this summer.
All in all if there is not a new world currency expect to pay much much more for every thing traded in US currency. $147 per barrel for oil will be nothing to what will cost. At $147 the volume traded was the same as it is now. Do the math.