Tue 23 Dec 2008
Video Interview: Roubini preaches more gloom
Posted by Prieur du Plessis under Investment, Markets, Money
Nouriel Roubini, professor at Stern School of Business at New York University and chairman of RGE Monitor, is renowned for having foreseen the current economic malaise a number of years ago. He was scorned at the time by mainstream economists for being a crank, but the same people are now lauding him for his foresight and paying top price for the consulting services of Roubini Global Economics.
Aline van Duyn, US Markets Editor of the Financial Times, has just conducted a three-part video interview with Roubini on topics ranging from the likely duration of the recession to regulation, the demise of more hedge funds and the outlook for stocks, commodities, currencies and bonds.
In Part 1 of the interview, Roubini expects 2009 to be a year of economic stagflation and recession. Whether or not it persists into 2010 will depend on how aggressive and effective policy actions are: monetary and fiscal policy and efforts to recapitalize financial institutions in the US and elsewhere.
He believes there could be a return to positive economic growth by 2010. The European Central Bank should follow the Federal Reserve and cut interest rates further. The US needs a plan to reduce the debt burden to US households. The remedies will cost taxpayers a lot of money.
Click here or on the image below to view the first part of the interview.
In Part 2, Roubini blames the Federal Reserve, regulators, the greed and arrogance of Wall Street and credit rating agencies for fueling a global asset bubble. The financial system has already changed radically. The times of self-regulation – which means no regulation – are gone. There is always a question of who regulates the regulators.
A significant amount of fiscal resources should be devoted to appropriate regulation. The system needs more regulators and more auditors. This is not the end of capitalism or the end of market economies, but there has to be an appropriate role for governments to make sure the financial system and the real economy are working the way they should.
Click here for Part 2 of the interview.
In Part 3 Roubini expects further financial stress. “A thousand if not more” hedge funds could go bust all at the same time. This means the selling of distressed assets could continue.
Another source of stress is emerging-market economies; there are about a dozen on the verge of a potential financial crisis, such as Latvia, Estonia, Lithuania, Hungary, Bulgaria, Romania, Turkey, Ukraine, Pakistan, Indonesia, Korea, Ecuador, Argentina and Venezuela. Other skeletons could come out of the opaque financial closet, similar to the Bernard Madoff scandal.
The dollar is likely to weaken over the medium term. US and global equities could see declines of another 15 to 20% in the next few months, and a bear market rally will fizzle out. Commodity prices could also fall another 15 to 20%. Cash and cash-like instruments such as government bonds are still the safest bet for the next few months.
Click here for Part 3 of the interview.
An edited transcript of the video can be read here.
Source: Financial Times, December 17, 2008.
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December 23rd, 2008 at 4:25 pm
Once again, Mr. Roubini has made the case, and I wish this time he could be mistaken. Considering the evidence, he is probably accurate which will make any near term rally very short lived.
There are many of us who will unload marginal holdings with any real sign of upward movement.
December 24th, 2008 at 4:47 am
By “economic stagflation”, I understand that Roubini means a stagnant economy accompanied by deflation. “The US needs a plan to reduce the debt burden to US households. The remedies will cost taxpayers a lot of money.” This solution suggests that we borrow from Peter to pay Peter! “The system needs more regulators and more auditors.” Why? The ones we already have obviously don’t function. What we need are the regulators and auditors to actually function rather than just go thru the motions in a civil service-like trance. “There is always a question of who regulates the regulators.” This is a no brainer. The President’s Council of Economic Advisors along with the relevant Congressional Committees should provide oversight. “T…he selling of distressed assets could continue.” You know what that means. Every rally that approaches 9000 will get capped by hedge and mutual fund selling. “US and global equities could see declines of another 15 to 20% in the next few months, and a bear market rally will fizzle out.” The ideal downside target for the S&P500 is still 400 and for the DJIA 2000. Sure some people are optimistic and think the downside target is 500 or even 600, but does this change things a whole lot at this point in time? As for the bear market rally, it has already fizzled out and at the end of the year when everyone expects the market to be rising. “Commodity prices could also fall another 15 to 20%.” Oil is still on track to reach its burst bubble target of $15 a barrel.