Dr. Doom Lightens Up
Economist Nouriel Roubini is still bearish, but less so than he has been in the recent past.
Nouriel Roubini -- sometimes known as Dr. Doom for the gloomy, though hauntingly accurate, economic forecasts he's made over the past several years -- is using the d word a lot less than he has been recently.
But Roubini, an economics professor at New York University and chairman of his own economic-research firm, is still down on stocks. "I would not invest in global equities much this year," he says. "Stay in cash, liquid assets and government bonds." He says the 27% rally in Standard & Poor's 500-stock index between March 9 and April 27 won't last. "Over the last two years, the stock market has predicted six of the last zero U.S. economic recoveries," he says.
Row 0 - Cell 0 | Is That You, Bull? |
Row 1 - Cell 0 | These Experts Called It Right |
Row 2 - Cell 0 | Hang on to Your Stocks |
Roubini, who shared his views at the CFA Institute's annual conference in Lake Buena Vista, Fla., is neutral on whether the market will reach new lows. He thinks that the S&P 500 will earn $50 to $60 a share in 2009, and that investors will pay from 10 to 12 times earnings. By that measure the S&P, which closed April 27 at 857.51, could fall to as low as 500. That would be 26% below the market's March 9 low and a whopping 68% below the record high, set on October 9, 2007.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Deflation, rather than inflation, remains the big concern, he says. Three big-picture forces fuel that view. One, Roubini says, is that global demand is falling, while the global supply of goods has risen sharply over the past few years, mostly because of increased production in emerging markets. Unemployment figures suggest that companies have little reason to raise wages -- anyone with a job these days is happy enough just to have one. And he thinks commodity prices could still fall further. Roubini doesn't think massive government spending will kick up inflation for another two to three years.
The U.S. government's "stress tests" of major banks are little more than a gimmick to instill confidence, rather than a true test of how the banks would fare in a worst-case scenario, Roubini says. The worst-case scenario of the stress tests assumes unemployment reaching 10.3% in 2010. But Roubini says that recent figures on initial jobless claims imply that the U.S. will continue to hemorrhage at least 600,000 jobs each month. So he figures that unemployment will hit 10% this July and reach 11%, maybe even 12%, in 2010.
Roubini thinks many banks reported better-than-expected earnings in the first quarter because they didn't set aside sufficient provisions to cover their loan losses. Similarly, he thinks the relaxing of mark-to-market accounting is nothing better than a short-term illusion. "We're fudging results," he says.
But eventually, he says, we'll have to deal with struggling financial institutions decisively. "You have to take over and clean up the hopeless ones," he says, even if this requires temporary nationalization. "Muddling through is not going to work."
So where are the bright patches in his view? He sees the economy bottoming around early 2010, although "next year will feel like a recession, even if we're technically out of one." He's looking for tepid 0.5% growth in the U.S. in 2010, compared with the consensus view of 2% growth. And Roubini is quick to point out that there's someone even more bearish than he is -- the International Monetary Fund expects 0% growth in the U.S. in 2010.
He no longer thinks the U.S. economy is likely to fall into a depression. He won't say it's a zero-probability event -- after all, he's still Dr. Doom -- but he says we're more likely somewhere in the trough of a U-shaped recession. As for stocks, he says, "certainly today, versus a year ago, equity prices are closer to a bottom" than they were. Coming from Dr. Doom, that's pretty darn sunny.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
Earn Delta SkyMiles Worth Up to $1,800 with an AMEX Business Card
Delta SkyMiles and American Express offer 150,000 on business credit card for new cardholders.
By Ellen Kennedy Published
-
Stock Market Today: Markets Soar Amid Strong Earnings for Big Tech
Equities ended the week on an up note thanks to some of the market's biggest names.
By Dan Burrows Published
-
Stock Market Today: Markets Soar Amid Strong Earnings for Big Tech
Equities ended the week on an up note thanks to some of the market's biggest names.
By Dan Burrows Published
-
Stock Market Today: Markets Tumble Amid Slower Economic Growth and Rising Prices
Disappointing readings on GDP and inflation helped tank equities.
By Dan Burrows Published
-
Stock Market Today: Stocks Run Out of Steam Ahead of Meta Earnings
The Dow Jones Industrial Average snapped a four-day winning streak after Boeing's first-quarter results.
By Karee Venema Published
-
Stock Market Today: Nasdaq Soars Ahead of Tesla Earnings
The EV stock rose nearly 2% ahead of its highly anticipated Q1 earnings report, due after tonight's close.
By Karee Venema Published
-
Stock Market Today: Markets Rebound Ahead of Big Week for Earnings
Equities rallied on easing geopolitical tensions, upcoming quarterly results.
By Dan Burrows Published
-
Stock Market Today: Nasdaq Spirals as Netflix Nosedives
A big earnings boom for credit card giant American Express helped the Dow notch another win.
By Karee Venema Published
-
Stock Market Today: S&P 500, Nasdaq Extend Losing Streaks
The two indexes have closed lower for five straight sessions.
By Karee Venema Published
-
Stock Market Today: Dow Slips After Travelers' Earnings Miss
The property and casualty insurer posted a bottom-line miss as catastrophe losses spiked.
By Karee Venema Published