RBS and Economic Collapse: A History of Stock Market Doomsday Predictions

(Editor's Note: This article was originally published January 2016. We're revisiting market predictions in light of COVID-19 and the market downturn in March 2020.) Andrew Roberts of RBS recently warned investors to pull out of the stock market in anticipation of worldwide economic collapse. We've heard this before.

The downside is crystallizing: Sell everything (almost). When Andrew Roberts, head of European Economics at Royal Bank of Scotland, issued his gloomy doomsday prophecy on January 8, it spilled outwards, emblazoning headlines around the world. “This is about return of capital, not return on capital,” wrote Roberts in his research note on European Rates. “In a crowded hall, exit doors are small.”

He pointed to the falling price of oil, volatility in China, climbing debt and shrinking world trade, cobbled together with weak corporate loans and deflation, all, he adds, within the first week of trading for 2016. Roberts’ predictions of a financial collapse stirred people up because he’s not just some doom-saying blogger or fringe economist. He’s the credit chief at the Royal Bank of Scotland.

Some have pointed out that Roberts has a penchant for doomsday predictions. “We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy,” he wrote in 2010. “Think the unthinkable.”

Which didn’t happen in the end. And, of course: “People talk about recovery, but to me we are in a much worse shape than the Great Depression…Even the Congressional Budget Office, probably the most bullish forecaster in the world, is forecasting a US recession in the first half of next year. It’s amazing stuff.” He wrote this about the US economy in July 2012, the same economy that would grow by 3.2% the following year.

But not everyone thinks Roberts’ bearish attitude is undue. French bank Société Générale strategist Albert Edwards echoed the RBS prophecy, warning an impending global financial crisis like the 2008-09 recession is hanging overhead.

“Developments in the global economy will push the US back into recession,” Edwards told an investment conference. “The financial crisis will reawaken. It will be every bit as bad as in 2008-09 and it will turn very ugly indeed.”


So where does that put us? Well, the markets are a teetering mess with a million moving parts; even predictions like this contribute to the overall movements of the economy. Rather than throw our weight behind any particular theory we thought we’d hang out in the back and instead explore five other doomsday predictions over the years and what came of them.

“We will not have any more crashes in our time” – John Maynard Keynes, 1927.

As one of the most notable economists of the 20th century, people listened when he spoke and his theories still furnish world leaders bookshelves to this day. By the late 1920s, Keynes has developed accolades for his financial wizardry. Rumour has it he used to make some of his financial predictions from bed with his broker calling him and Keynes pilfering through the newspaper while having a think.

In late 1928, a year after making his declaration that crashes were basically no longer a concern, Keynes continued to dispute the so-called “dangerous inflation” happening on wall street saying that it would be “premature today to assert the existence of overinvestment – I should be inclined, therefore, to predict that stocks would not slump severely (i.e. below the recent low level) unless the market was discounting a business depression.”


We all know what happened next.

“Stocks will not fall” – Irving Fisher, 1929

Another gem before the crash of all crashes, that benchmark of economic despair we affectionately call The Great Depression, comes from Irving Fisher’s – the godfather of monetary economics – insistence on October 17, 1929, (within breathing room of the stock market crash) that: “Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”

Even as Black Monday (Oct 28) struck with the Dow Jones falling 38 points, followed by another 31 points on Black Tuesday, Irving stuck to his guns, saying a recovery was just around the corner.

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It took 26 years for the Dow Jones to get back to its 1929 level.

“I’ve got a bad feeling about this” – Elaine Garzarelli, October 1987

Elaine Garzarelli was a virtual unknown working for Shearson Lehman Brother, when she came across some troubling details. A relatively new computer model that used market indicators to predict industry performance tipped her off that a crash was en route. She warned her clients that the market was 35% overvalued. In the aftermath of the 600-point crash that took place after her initial warnings, Garzarelli became famous, an international oracle that continued to espouse bearish views and predict several other slumps.

Of course, with great power comes great responsibility.

“A few weeks after that, I made a negative comment, and the market dropped 120 points that day. The Wall Street Journal wrote that I had moved the stock market, and I was very uncomfortable,” recalled Garzarelli to Fortune magazine. “My career was going very nicely until then, and it was too much attention. It was a lot of pressure.”

“The housing bubble is crazy talk” – Ben Bernanke, July 2005

Still considered a foremost expert on monetary economics, Ben Bernanke was adamant that a housing bubble was hardly a worry in 2005 and that murmurings in the analyst community were just “crazy talk.”

“I guess I don’t buy your premise, it’s pretty unlikely possibility, we’ve never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit, I don’t think it’s going to drive the economy too far from its full employment path though,” said Bernanke.

Unfortunately for Mr. Bernanke, increased foreclosure rates started to gain steam the following year, leading up to a U.S. homeowners crisis in August 2008. In October 2007, the U.S. Secretary of the Treasury called the bursting housing bubble “the most significant risk to our economy.”

“Here comes an once-in-a-lifetime housing bust, oil shock, and recession” – Nouriel Roubini, September 7, 2006

They don’t call him Dr. Doom for nothing. In September 2006, Nouriel Roubini, an economics professor at New York University told a crowd of economists at the International Monetary Fund that the US economy was on track for a “once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession.” His predictions: homeowners defaulting, mortgage-backed securities unraveling, and the global financial system going kaput, which would result in bedlam amongst hedge funds, investment banks and major financial institutions like Fannie Mae and Freddie Mac.

What happened? All the above, plus Roubini got a sweet new nickname and a rush of accolades.

So maybe Andrew Roberts is right or maybe he’s wrong. But one thing is for certain: If everyone took his informed musings about an impending stock market crash seriously, we’d have ourselves a good ol’ fashioned self-fulfilling prophecy.

Andrew Seale

Andrew Seale is a Toronto-based business writer who contributes frequently to Yahoo Canada Finance, The Globe and Mail's Report on Business and The Toronto Star.