Roubini: Not Exactly a Prophet

Aug. 20, 2009 9:46 PM ET7 Comments
Eddy Elfenbein profile picture
Eddy Elfenbein

I think I've been too critical of Nouriel Roubini. He's a very bright guy and well worth listening to. However, as Damien Hoffman points out, Roubini wasn't exactly perfect on predicting the credit crisis.

As we can see, in March 2005 Roubini started by predicting a crisis caused by Foreign Central Banks diversifying out of US Dollars. (See: ‘Does Overseas Appetite for Bonds Put the U.S. Economy at Risk?’) In February 2006, Roubini still solely focused on foreigners diversifying out of US Treasury debt and further incorrectly predicted that “our current patterns of spending above our incomes” would cause a crisis by 2013. (See: ‘Taste of the Future‘.) Given that the credit markets (which Roubini never mentions until others show him the light) imploded recently, I think we can conclude that “spending above our incomes” doesn’t have to do the crisis perp walk. During the same month as The Washington Post article, Roubini’s press releases peppered the New Yorker with his message: “Roubini is among those who fear that America’s profligacy will eventually create a crisis of confidence on the part of its creditors, leading to a run on the dollar, an upward spike in interest rates, and a deep recession.” (See: ‘Moneyman’ and ‘Ominous Warnings and Dire Predictions of the World’s Financial Experts’.)

At a transition point in August 2006 (most likely when Roubini realized he picked the wrong causes), he threw the entire kitchen sink into the center of the causation ring. The USA Today reported, “He [Roubini] spells out a long list of potential risks that could push the country into trouble. Among them: unregulated hedge funds, housing, foreign trade uncertainty, the need to finance the nation’s huge trade deficit, Middle East unrest and the potential for terrorism.” In another article, Roubini added to his laundry list by adding just about everything under the sun: “Among other factors, Roubini cites ‘trade protectionism and asset protectionism; hedgy and trigger-happy investors and rising geopolitical risks; the risk of a disorderly fall in the U.S. dollar; a slush of financial derivatives that are a black box that no-one understands … frothy markets where years of too easy money have created bubbles galore – the latest in housing – that are ready to burst; a bubble of thousands of new hedge funds with inexperienced managers … a housing market whose rout may trigger systemic effects …’” (See: ‘Is Economy Headed to a Soft Landing?’ ‘Surprise: Bears still growling about 1987′ and ‘Recession Isn’t My Greatest Fear’.) How about adding to that list butterflies flapping their wings on the other side of the world, or an attack of the flying space monkeys?

I didn't know it a few years, but apparently everyone was predicting a credit crisis. I wish someone had told me.

Roubini clearly knew something bad was coming -- what and when was hard to pin down. Hoffman writes:

This specific tactic — expanding the “prediction” data set of possibilities — may be the most popular for false prophets and psychics. Usually, there will be a group willing to hang on to the one correct cause out of the many incorrectly asserted. Then, afterward, the charlatan works tirelessly to rewrite history or distract his victims from what was exactly said in the past. It’s like a fake shaman warning the villagers of rain (an inevitable fate) by means of angry gods when in fact the true cause was heavy cloud droplets. Yet, once the rain falls he quickly raises his voice about how he “predicted” the rain. Yes, rain followed the shaman’s warning, but this is not a “prediction” for obvious reasons.

As I've often said, perma-bears and never held to the same level of accountability as perma-bulls. If you want to get a reputation as a prophet, it's easy -- just be very bearish and very vague.

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Eddy Elfenbein profile picture
Fund manager Eddy Elfenbein writes Crossing Wall Street ( He comments on a range of stocks (many of which he owns) and market trends. His work is funny, pithy, rigorous and original. Eddy's philosophy: 'The key to doing well on Wall Street is actually very simple: Buy and hold shares of outstanding companies. But too many investors never learn this valuable lesson. Or if they do learn it, they learn it the hard way. That's where I come in. I want to help investors avoid the mistakes that separate successful investors from those who always find themselves spinning their wheels.' Visit: Crossing Wall Street (

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