“Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall the exit doors are small” Andrew Roberts, RBS Head of Credit, 11th January 2016
“I cannot imagine any condition which would cause a ship to founder. I cannot conceive of any vital disaster happening to this vessel. Modern shipbuilding has gone beyond that.”
Captain of the Titanic, Edward Smith
Review of 2016
At the start of 2016 the prevailing market sentiment was one of nervousness that both equity and bond prices were going to struggle as global debt ratios were predicted to reach new highs, world economic growth stagnate; commodity prices collapse; and currencies face turmoil as the debt-driven Chinese economic expansion abruptly ended. Whilst at the extreme end of the scale, the views of Andrew Roberts were not as outlandish as they might appear to investors looking back on a year of solid if not spectacular investment returns.
Of course there were dissenters to the doomsday scenario set forth by RBS and the economist Stephen Koukoulas challenged Andrew Roberts to back his prediction with an Australian Dollar 10,000 wager. If six or more of the eleven metrics chosen by Mr Koukoulas were lower on December 31st 2016, Mr Roberts would win. The metrics were: US equities; Brazil equities; Chinese equities; Japanese equities; US house prices; UK house prices; Sydney house prices; iron ore; oil; copper; and the Australian Dollar versus the US Dollar. Such a display of overconfidence in the other direction is reminiscent of the famous statement by the captain of the Titanic that he could not even imagine disaster happening to the vessel given the advances of technology.