Tags: roubinin | market | gloom

Roubini: Delusional Investors Waking to Reality

By    |   Monday, 26 Jan 2009 10:16 AM

Clinton-era economist Nouriel Roubini is predicting more gloom for investors, saying the equities markets will this year "head again toward new lows," marking the worst recession in the last 50 years.

"For a few weeks since late November, equity markets ignored the onslaught of much-worse-than-expected macro news — and all the news was really worse than awful — and had a nice 25 percent bear market 'sucker's rally,'" Roubini wrote in his weekly column in Forbes.com.

"But the drumbeat of worse-than-expected macro news — and earnings news, and financial news — has finally taken a toll on the delusional market belief that the worst was over for financial markets and for equity markets and that the U.S. and global economy would recover in the second half of 2009."

Roubini, a professor of economics at New York University, said that global equity prices have already reversed more than half of their most recent bear market rally as the unfortunate macro news has shocked "wishful thinkers."

Retail sales figures just published, Roubini reckons, demonstrate that the debt-burdened U.S. consumer is now panicking as job losses, income losses, declines in home wealth, and a severe credit crunch take a severe toll on their ability to spend.

"The reduction in spending and deleveraging of the U.S. consumer will take years to rebuild," said Roubini.

Research produced by RGE Monitor, Roubini's firm, indicates that the U.S. and global recession will continue at least until Q4 2009 and that the recovery in 2010 will be very weak, with growth around 1 percent — well below a potential of 2.75 percent.

"The credit crunch will persist and spread beyond mortgages. Deleveraging will continue, as thousands of hedge funds — many of which will go bust — and other leveraged players are forced to sell assets into illiquid and distressed markets, causing price declines and driving more insolvent financial institutions out of business," said Roubini.

"Credit losses will mount as the recession deepens, and a few emerging-market economies will certainly experience full-blown financial crisis. The worst indeed is ahead of us. "

Other economic prognosticators are not as negative as the NYU professor.

Former George H.W. Bush White House economist Michael Boskin, a professor at Stanford University, said that what the world's stock markets crave is clarity of vision from the new Obama administration before they settle down and resume normal growth.

"Investors, workers and employers need to have a sense of where tax, spending and regulatory policy are headed, or they will postpone decisions and further weaken the economy," Boskin wrote in The Wall Street Journal.

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Clinton-era economist Nouriel Roubini is predicting more gloom for investors, saying the equities markets will this year "head again toward new lows," marking the worst recession in the last 50 years. "For a few weeks since late November, equity markets ignored the...
roubinin,market,gloom
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2009-16-26
Monday, 26 Jan 2009 10:16 AM
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