Let's call it Nouriel's Effect. When markets are down Roubini's exposure is exponential. So happens, and you find him almost everywhere. Sometimes, like in Italy's Ambrosetti Forum at Cernobbio ( Como) he does not say the whole story.
However seldom he's wrong.
Courtesy of Economist
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The view from Doctor Doom
Oct 18th 2011, 11:59 by Buttonwood
JUST back from chairing a panel session at an asset allocation conference in London. The lead speaker (and panel member) was Nouriel Roubini (who has inherited the title of Doctor Doom from Henry Kaufman). He outlined the case why he thinks there is a 60% chance of a developed world recession.
With the US economy at what he calls "stall speed" of 1% annualised growth in the first half of the year, it cannot continue in such a state. Either it must reaccelerate or fall into recession. He cited a whole range of factors as to why the second outcome was more likely.
History teaches us that financial crises are followed by anaemic growth and the developed economy is duly following the script. Rapid growth is implausible.
Tail risks are not transitory. Eurozone contagion has been spreading; the US government has almost been shut down by fiscal disputes and the super committee won't reach agreement; middle East conflict is also hitting more countries.
For the above reasons, the outlook is very uncertain and that increases the "option value" of waiting. Companies defer investment. Economic weakness can become self-fulfilling.
There is a vicious cycle in which bad macroeconomic news drives down asset markets which have an adverse economic impact; notably credit spreads have risen, increasing corporate borrowing costs.
Some recent US data have been encouraging. But that was true of the first quarter, only for growth to be revised lower. Big companies may be fine but surveys of small business sentiment are at depression-style levels.
US consumption has been artificially boosted by tax cuts and transfer payments that may not be repeated in 2012. Without them, the outlook is bleak given the weak labour market, slow wage growth and poor consumer confidence.
The massive increase in wealth inequality has redistributed income from labour to capital and from the poor to rich. This has reduced the marginal propensity to consume.
Policymakers are running out of bullets (an argument also made here). Fiscal stimulus is being replaced by austerity; there is political resistance to bank bailouts; depreciating currencies to gain export share is a zero-sum game; and monetary policy is becoming impotent because QE merely leads to the build-up of excess bank reserves.
He also pretty much dismissed all the eurozone rescue plans as financial engineering. Doctor Doom indeed.
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