29 September 2021
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Big calls

Peter Switzer
17 July 2009

The scariest stock market bear of them all, Nouriel Roubini, with the nickname Doctor Doom, was reported as saying that he’s capitulated and the share buyers loved it. This guy might not be on your social network radar screen, but he has become a market mover and shaker since it was accepted he called the crash and recession.

But he missed seeing or believing in the recovery, continuing to scare the pants off people like me who were prepared to back the more optimistic “we will muddle through” scenario. After being right on the worst slump since the Great Depression, I’ve argued that he was wrong on the economic comeback, but with today’s ‘apparent’ call, I reckon he’s getting it right, at last! Or is he? 

Bear resemblance

The Dow shot up 100 points when the news hit the market that the big bear had publicly revealed he thought the worst of the financial and economic crisis was over.

Like our own local bear — Steve Keen, who writes for switzer.com.au — Roubini is a university professor. Roubini teaches at NYU and is chairman of RGE Global Monitor. (Keen is an associate professor at University of Western Sydney.)

But the similarities don’t end there. Both predicted that a financial day of reckoning would happen and that a serious recession would result. Both were more inclined to bring out the D-word as they had a much gloomier view on the adjustment process from recession to recovery because of the depth of financial problems first, and then the economic flow on effects.

Keen, who is a very intelligent guy, and with whom I taught with at the University of New South Wales, has not recanted his negative view and told me this week on my Sky Business program — SWITZER — he thinks unemployment in Australia will go to 10 per cent!

I don’t agree and most economists are now in the around 8 per cent camp for the future jobless rate, but the Aussie bear isn’t for changing.

The comment

Now back to Roubini: Reuters reported Doctor Doom had said that the economy would emerge from the recession towards the end of 2009, though he did say a second $250 billion fiscal stimulus package might be needed to stem the rise of unemployment.

Not long ago, Roubini was tipping a big market correction and even oil at US$100 a barrel and a double dip recession. He seems to be less gloomy, or should I say doomy. Or is he?

Not so fast

News flash — Doctor Doom has claimed he was misquoted and/or taken out of context! The bears can breathe a sigh of relief.

This is what he said: “It has been widely reported today that I have stated that the recession will be over 'this year' and that I have 'improved' my economic outlook. Despite those reports — however — my views expressed today are no different than the views I have expressed previously. If anything my views were taken out of context.”

Roubini’s outlook

He thinks the recession ends at the end of the year. He sees weak growth next year and the chance of a double-dip recession.

Why? This is where he and Keen have similar arguments.

“While the recession will be over by the end of the year, the recovery will be weak given the debt overhang in the household sector, the financial system and the corporate sector,” Roubini said today. “Now there is also a massive re-leveraging of the public sector with unsustainable fiscal deficits and public debt accumulation.”

He thinks unemployment will go to 11 per cent next year, however he is a little less doomy.

“So, yes there is light at the end of the tunnel for the US and the global economy,” he conceded. “But as I have consistently argued, the recession will continue through the end of the year, and the recovery will be weak and at risk of a double-dip, as the challenge of getting right the timing and size of the exit strategy for monetary and fiscal policy easing will be daunting.” 

The D-word

Let’s get this straight, this guy is really smart and his day-by-day call of the economic and financial collapse in early October last year was very accurate.

And in a CNN article in 2008 it showed that Roubini was measured, at times. He tipped a "very painful and severe recession" that could last for 18 months or more, but it will be more like 1981 than 1929. That was a smart call, however, he has been associated with headlines such as: “Roubini Warns of Possible Systemic Meltdown" and "Severe Global Depression".

The D-word should not be used willy nilly — economists and commentators should never underestimate their impact and so they better be right when they make the big call.

Doctor Doom got a lot right but he will get some things wrong and the severity of the economic adjustment process and the pace of the recovery, I suspect and I hope, will be two of them.

For advice you can trust contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.



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