SELL EVERYTHING!!

Markets Stock Market Today
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I suppose it’s a sign of the times. When in doubt, be as outrageous as possible. After all, competition for attention is fierce. That which is timid and equivocating rarely draws attention.sell everything
Of course, you want to avoid being too outrageous. Sure, the great unwashed want a good scare, but you can push the boundaries only so far until you cross the abyss and are viewed as a conspiratorial crank (though you might be right).
A long history and a sound reputation helps set perceptions. It surely helped the Royal Bank of Scotland (RBS). The 289-year-old financial institution drew immediate and universal attention with its “sell everything” proclamation in a Jan. 8 note to clients. The Wall Street Journal, CNN, Yahoo Finance, Business Insider, the United Kingdom’s The Telegraph and The Guardian, yours truly, and many others have given RBS the attention it obviously craved.
So, what does RBS see for the future that set cyberspace aflutter?

  • Falling oil prices: a $26 a barrel target, with a risk of $16 a barrel
  • Falling commodity prices all around: hard (metals), soft (food stuff), fluid (natural gas and oil)
  • Too much worldwide debt
  • Currency wars and mercantilism
  • More monetary easing
  • Automation and concurrent job elimination
  • China slowdown (the go-to variable in every bear-market prognostication)

There’s more, but you get the point. RBS sees 2016 shaping up as an annus horribilis for investors here and abroad. There’s no place to hide, it claims, so sell everything and hunker down in cash.
Is all this because the S&P 500 is down 6% to start the new year? I can’t say for sure. Many sectors – most commodity centric – are down more than 6% in 2016, and were down much more than 6% in 2015. More losses could be in store, which RBS apparently expects. A 20%, 30%, or even a 50% correction could reside on the unseen side of the horizon.
Then again, something entirely different could reside on the unseen side. This could be as bad as it gets, and then it gets better.
I put little faith in predictions. Most are simply extrapolations of the present. What happens today will happen tomorrow, and then continue happening in the many tomorrows that follow. Outliers – or as Nassim Taleb would call “black swans” – are rarely proffered.
Does anyone expect oil to reach $100 a barrel by Jan. 1, 2017? Not that I know of; that would be absurd, right? Well, no one was expecting $140 a barrel in 2008 when oil was $55 per barrel in 2007. Oil hit $140 a barrel in 2008.
Accuracy is another reason I eschew predictions. Experts are notoriously bad at accurately calibrating time and price. James Montier, in his “The Little Book of Behavioral Investing,” shows that experts in most fields are no better than a coin flip at predicting what’s next in their particular area of expertise. In one study, experts with 80% confidence in their predictions were right only 45% of the time. They were worse than a coin flip.
That said, let’s say that RBS gets it right and that you sold your investments and went all cash in 2016. What are the odds that RBS will again call the coin flip right and get you back into a properly allocated investment portfolio at the right time? I would be more willing to bet that the market will have already reached cruising altitude before RBS says “buy everything.”
Last week, I presented a case for income investors to stay the course. In my 30 years of investing, I’ve never seen market conditions so bad for disciplined income investors that it was better to sell than to remain invested. (Especially if you own these “forever stocks.”) On the other hand, I’ve seen a surfeit of market predictions that have turned out quite badly.

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