Famed economist Nouriel Roubini of New York University warns that the bad start of this investing year will only get worse as repeated eruptions from “seven sources of global tail risk endanger risk assets and result in anemic for global growth.”
“Two dismal months for financial markets may give way to a relief rally for global equities, as some key central banks ease policy more, while others will remain on hold for longer,” he wrote for Project Syndicate.
He recounts the seven deadly risks:
- China and investor fears about a hard landing in Beijing and its likely impact on the stock market. “While China is more likely to have a bumpy landing than a hard one, investors’ concerns have yet to be laid to rest, owing to the ongoing growth slowdown and continued capital flight,” he wrote.
- Emerging markets are in serious trouble. “They face global headwinds (China’s slowdown, the end of the commodity super cycle, the Fed’s exit from zero policy rates). Most have not implemented structural reforms to boost sagging potential growth. And currency weakness increases the real value of trillions of dollars of debt built up in the last decade,” he wrote.
- The Fed probably erred in exiting its zero-interest-rate policy in December. “Weaker growth, lower inflation (owing to a further decline in oil prices), and tighter financial conditions (via a stronger dollar, a corrected stock market, and wider credit spreads) now threaten US growth and inflation expectations,” he explained.
- Geopolitical risks are coming to a boil. “Perhaps the most immediate source of uncertainty is the prospect of a long-term cold war – punctuated by proxy conflicts – between the Middle East’s regional powers, particularly Sunni Saudi Arabia and Shia Iran.”
- Oil’s price plunge. “This may now signal weak global demand – rather than rising supply – as growth in China, emerging markets, and the U.S. slows.”
- Global banks “are challenged by lower returns, owing to the new regulations put in place since 2008, the rise of financial technology that threatens to disrupt their already-challenged business models, the growing use of negative policy rates, rising credit losses on bad assets (energy, commodities, emerging markets, fragile European corporate borrowers), and the movement in Europe to “bail in” banks’ creditors, rather than bail them out with now-restricted state aid.”
- The European Union and the eurozone “could be ground zero of global financial turmoil this year.”
However, other respected investment icons have a more optimistic outlook on the economy, both for the world and the U.S.
For example, billionaire Warren Buffett maintained a typically optimistic tone in his annual letter
to Berkshire Hathaway shareholders.
Buffett said the U.S. economy is in a much better state than the presidential candidates describe. "Today's politicians need not shed tears for tomorrow's children," he said. "Indeed, most of today's children are doing well. All families in my upper middle-class neighborhood regularly enjoy a living standard better than that achieved by John D. Rockefeller Sr. at the time of my birth."
said the insurance business would not be affected by climate change in the near term. However, he believes even a small threat to our environment should be met with action. “If there is only a 1% chance the planet is heading toward a truly major disaster and delay means passing a point of no return, inaction now is foolhardy. Call this Noah’s Law: If an ark may be essential for survival, begin building it today, no matter how cloudless the skies appear.”
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