The Royal Bank of Scotland has sent out a research note calling for clients to brace themselves for what would be a “cataclysmic year” on the markets with bad news coming from the resource sector, the Chinese economy and western bourses.
The bank’s advice? “Sell everything”.
However, the note has been met with plenty of cynicism.
“I think it’s probably the worst kind of recommendation you could make,” responded Robert Pavlik from Boston Private Wealth.
Despite investment guru George Soros also recently warning of another major financial crisis, commodities analyst Edward Meir from INTL FCStone said the RBS note is way too pessimistic.
“I think that is over-blowing it. You know, we are not, we’re not seeing a repeat of 2008/2009,” he said.
Despite his call for calm, Edward Meir conceded the current international economic environment is not pretty.
“It’s a very ugly picture out there,” he added.
In the past week concerns have grown about the health of the Chinese economy and the government’s ability to control its inevitable slowdown.
That has seen a further plunge in commodity prices, with oil trading below $US30 a barrel overnight.
As a defensive move, BP announced that it will let go of 4,000 staff over the course of 2016.
Edward Meir said that is part of a broad industry-wide retrenchment process.
“This is a wave of retrenchment across all commodity markets,” he observed.
Australian iron ore production increase ‘insane’
Mr Meir said, while the rest of the world is scaling back its investment into resources, Australia is ramping up production – something he says makes no sense at all.
“The iron ore producers, the big mining companies in Australia, they are not cutting back at all, which I think is insane,” he said.
Mr Meir said Australia made the mistake of relying on one international trade partner for its economic growth.
“That was the danger, because when China rolled over, as it seems to be the case right now, you do not have room to pivot to other customers who could be doing fairly better or who could pick up some of the slack.”
As for how much further commodity prices have to fall, Robert Pavlik said oil may drop below $US20 a barrel, but it will eventually rise again.
“Sure, we might have a little bit more downside with oil, but I certainly don’t see it going down to $US16 or even $US18 a barrel,” he forecast.