Roubini's Clarification, Comments on the Economy

Nouriel Roubini was recently on CNBC (the video is provided below) discussing his views on the economy, and clarifying his recent comments last week that were interpreted as being more positive than earlier in the year. Some comments/observations from the interview include the following:

• Roubini still believes the recession will last 24 months, causing it to be over by the end of this year.
• The recovery will be weak, sub-par, and below trend, with 1% growth for a few years.
• The "recovery" will feel like a recession, even if growth is positive.
• The unemployment rate will peak around 11% next year.
• Including partial employed/unemployed workers, the unemployment rate is over 16%.
• We have seen the worst, given that the free-fall in the economy is over.
• Nonetheless, even though we will not have an "L" shaped depression, we will also not have a "V" shaped recovery, and he has worries of a "W" shaped double dip recession.
• The slow and lower growth are being driven in-part by current debt and spending levels.
• There is a thin line as to when it is best to exit current monetary policy. This also adds risk.
• A second stimulus bill is needed by the end of the year (we need to wait until later in the year to let the current stimulus start working).
• The second stimulus should include more shovel-ready infrastructure projects.
• If the second stimulus is too small, it will not be effective. If it is too large, the bond market will panic. He believes it should be around $200 billion.
• He feels that the U.S. will be the first advanced economy to exit the recession. While China and India are seeing growth already, it will be weak until the G3 recover and start helping to drive their economies.
• Equities, commodities, and credit markets have gone up too far, too fast.
• There is possible downside surprise regarding marcoeconomic numbers, earnings, credit shocks.
• The risk in the market is still on the downside. Investors should continue to stay away from risky assets.
• The market will not test the lows of March (the levels of which were pricing in depression), but could see a sell-off below current levels and the March lows if his forecast of downward surprises in economic data come true (which he still expects to happen).
  
  Source: CNBC Video

Comments

[Dave Wrixon:]

If he worries about a W shaped recession, you can take his predictions about the length and depth of the recession with a pinch of salt. He'll if he has no conviction why should we believe this nonsense.

Jul 21 06:39 PM

[Beyond Trading:]

you can also read this article moneynews.newsmax.com/...

Jul 24 03:14 PM

[Big Bubbette:]

It only seems like last February when Obama and Biden were beaming saying that 2000 projects were now ahead of schedule and underbudget...

Jul 24 04:38 PM

[Fighting Yoda:]

"- The "recovery" will feel like a recession, even if growth is positive
- Equities, commodities, and credit markets have gone up too far, too fast. "

You can have growth during a recession - that how the math of GDP works - less imports and smaller deficits - increase GDP. Less inflation (or deflation) increases GDP. Govt spending increases GDP. So we have all these factors going for GDP growth.

However true recovery comes only when capacity utlization rises, hours work increase, wages increase, employment improves - none of that is forecasted.

Jul 24 05:45 PM

[storm999:]

I like VWs but only to drive.

Jul 24 07:31 PM

[Moon Kil Woong:]

Hmmm there is incongruencies now with his argument. And I don't mean the Dow is not at 4,000 lol.

He states that The recession will end in 24 months by the end of the year and that we need a second stimulus package. These two statements don't fit together very well.

Even if you support these statements that we need another stimulus to prevent a W as he also states, "Nonetheless, even though we will not have an L shaped depression, we will also not have a V shaped recovery, and he has worries of a W shaped double dip recession." he then states that the driver is as follows: "The slow and lower growth are being driven in-part by current debt and spending levels." Won't more federal spending just add to current debt and maintain spending levels if not depress government spending if it hits in 2011 from the giant spending package already for 2009-2010 if it's just $200 billion? If it hits in 2010 with the brunt of the last spending bill won't the depression after the government spending induced sugar high practically insure a W or double dip down?

Likewise he states, "If the second stimulus is too small, it will not be effective. If it is too large, the bond market will panic." Isn't this a good reason not to stimulate any more?

Don't mistake me, I like Roubini for the most part. However I can't agree with anyone pushing more snake oil spending as a solution regardless of how much I like them. Perhaps the abridged version of his take doesn't do him justice, but I have heard him before mentioning the US needs to lay more firepower on the table. The problem is, we are already out of ammunition and what we used already seems to be burning our hands although we can't really tell because the blast is just starting (the real brunt of it comes next year and it's already toasting long term treasuries and causing an uptick in inflation).

In terms of solutions, I wish he would stick to his earlier calls of cleaning up derivatives and financial transparencies. You can't go wrong with both of these diagnosis.

Jul 24 08:10 PM

[MClift:]

I don't 'grock' your 2nd sentence. you're missing a word or two. thanks.


On Jul 21 06:39 PM Dave Wrixon wrote:

> If he worries about a W shaped recession, you can take his predictions
> about the length and depth of the recession with a pinch of salt.
> He'll if he has no conviction why should we believe this nonsense.

Jul 24 08:13 PM

[RoadtoSerfdom:]

LOL at "grokking".

sudo rm -rf The Fed

So, according to Roubini, "The market will not test the lows of March ..., but could see a sell-off below ... the March lows if his forecast of downward surprises in economic data come true (which he still expects to happen)."

So he does expect that which he does not expect? I don't "grok" that.

Jul 24 08:39 PM

[ron_paulite:]

Give the guy a break.

Unlike Peter Schiff, Ron Paul and Marc Faber who can say anything they like, Roubini works in the academia and needs to show some support to his political masters.

Academicians are beholden to the establishment.


On Jul 24 08:10 PM Moon Kil Woong wrote:

> Hmmm there is incongruencies now with his argument. And I don't mean
> the Dow is not at 4,000 lol.
>
> He states that The recession will end in 24 months by the end of
> the year and that we need a second stimulus package. These two statements
> Don't mistake me, I like Roubini for the most part. However I can't
> agree with anyone pushing more snake oil spending as a solution regardless
> of how much I like them. Perhaps the abridged version of his take
> doesn't do him justice, but I have heard him before mentioning the
> US needs to lay more firepower on the table. The problem is, we are
> already out of ammunition and what we used already seems to be burning

Jul 24 11:50 PM

[Mike Stathis:]

oooooooooook.... let's rehash a clown who is tied into Washington and the "media club."

With Roubini and the rest of the dog-and-pony show on CNBC, newspapers and so forth, I'd say investors might want to hear from fresh, unbiased forecasters.

As many of the details as Schiff got wrong, at least he has professional asset management experience. Roubini soeaks in a vacuum.

I suppose when you're trying to work your way into the media club, one of the best ways to do that is to promo its members.

Jul 25 09:43 AM

[bricki:]

While Schiff has professional asset management experience he has been an utter failure at making money for his clients. His results considerably discredit his ideas.

Roubini I place in the category of blind squirrel finds acorn. In my opinion the fact he was right once does not particularly inform the possibility that he may be right now.

Of the various names common on this web site I think is credible is Robert Shiller. His ideas seem to have some good solid quantitative foundation and seem neither excessively optimistic or pessimistic to me.

> oooooooooook.... let's rehash a clown who is tied into Washington
> and the "media club."
>
> With Roubini and the rest of the dog-and-pony show on CNBC, newspapers
> and so forth, I'd say investors might want to hear from fresh, unbiased
> forecasters.
>
> As many of the details as Schiff got wrong, at least he has professional
> asset management experience. Roubini soeaks in a vacuum.
>
> I suppose when you're trying to work your way into the media club,
> one of the best ways to do that is to promo its members.

Jul 25 09:18 PM

[Fliujniligui:]

Maybe we can invent the |,.;~¤'* shaped recession

Jul 26 01:04 PM

[Ian Cassel:]

It really annoys me the press Roubini gets. The one guy that rarely gets the props he deserves is Marc Faber. One of the best books I ever read "Tomorrows Gold", written in 2002 which basically called almost every step of what we went through, going through, and will go through. An amazing read.
search.barnesandnoble....

Jul 26 03:07 PM

[Eagle-Chief:]

Now all doubt has been removed from my mind. Up until now I have been unsure of who Roubini really is. Now I know he's nuts. In advocating for a second stimulus, he shows that he's not a free market economist. The "stimulus" was a socialist-fascist blunder. It goes against everything that made this (formerly) free market country great.
Also, on SA's homepage it says that Roubini credits Bernanke with avoiding a second great depression. Roubini has LOST ALL CREDIBILITY with me.

Jul 26 06:05 PM

[Matt Miller:]

I like Roubini, but there is too much contradiction in this opinion of his.

"The market will not test the lows of March (the levels of which were pricing in depression), but could see a sell-off below current levels and the March lows if his forecast of downward surprises in economic data come true (which he still expects to happen)."

What the hell does that mean? How do you NOT retest the march lows but see a sell off below current levels AND the March lows?

Fence riding to me.

Jul 27 06:38 AM