RBS warns of new stock market crash

| June 18, 2008 | 0 Comments
RBS warns of new stock market crash

Bob Janjuah, senior credit analyst at Royal Bank of Scotland (RBS) has warned of a potential new stock market crash this Autumn.

According to Janjuah, he expects to see the economic stimulus package in the US continue to help the Dow Jones rally until July.

After that period, he expects inflationary pressures to effectively “paralyse” the ability of central banks in the US and Europe to help support current financial markets.

This is due to a Hobson’s Choice, a paradox where although more than one option may be presented, only one is a realistic choice. In this instace, of allowing inflation to run rampant, or else try and keep the lid on it by not lowering interest rates.

The prediction sees investment strategies become risk averse, in order to counter inflationary pressures which would otherwise erode the value of existing investments.

The result would be a sell off of equities and commodities and a massive influx into cash and bonds.

Already the FTSE 100 is down almost 100 points this morning, with banking shares especially hit, and there is already a sharp rally in progress for gold and platinum.

While Bob Janjuah’s predictions remain speculative, his prediction last year of a collapse in the credit markets - which led to the Credit Crunch - means his commentary carries a lot of weight in the city.

Earlier this week a review by Standard Chartered of their Asian client base has also found a preference for cash and risk aversion to stocks and shares.

Additionally, analysts at Morgan Stanley have also raised grave concerns over the possibility of a rate rise from the ECB this July. This could further weaken the dollar, add to spiralling oil prices, and potentially bringing in major currency destabilisation not seen since the UK’s exit from the ERM in the 1990′s.

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