Posted on 10/23/2009 10:06:28 PM PDT by blam
Nouriel Roubini: Big Crash Coming
Written by Dave Nadig
October 23, 2009 00:00 AM
Dr. Nouriel Roubini, professor of economics and international business at the Stern School of Business at NYU and chairman of RGE Monitor, is perhaps best known for his prescient predictions of the financial market collapse in 2005.
Dr. Roubini will be the keynote speaker at IndexUniverse’s upcoming “Inside Commodities” conference on Nov. 4 at the New York Stock Exchange. We sat down with Dr. Roubini ahead of the conference to take his temperature on global markets, the role of oil (NYSEArca: USO) and gold (NYSEArca: GLD) and the impact of regulation.
Index Universe (IU.com): You’ve said that you’re worried we’re already sowing the seeds of the next crisis. Where do you see that most directly?
Dr. Nouriel Roubini (Roubini): Well in commodities, I look at oil prices. They fell from $145 last summer, came down to $30 earlier this year and now they’re back close to $80. But if I look at the fundamentals of demand and supply, demand is down to 2005 levels, supply and inventories are at all-time highs. In my view, the movement in oil prices is not fully justified by the fundamentals.
There are improving fundamentals. There is a global recovery. But that justifies oil going from $30 to maybe $50. I think the other $30 is all speculative demand feeding on it—speculators and herding behavior. Last year, when oil was at $145, that killed the global economy. I worry that oil is going to go up above $100 for reasons that have nothing to do with the fundamentals of supply and demand. Oil at $100 would have the same negative effects on the global economy as oil did at $145 last year.
Last year, when oil was at $145, the global economy was still growing. Right now it has collapsed, and is recovering. Oil pushing above $100 would have nasty, negative real trade effects and real disposable-income effects on all importing countries: U.S., Europe, Japan, China, India; all the countries that were hit by the oil shock last year. So that’s an element that is in my view totally speculative, and dangerous to the global economy.
IU.com: Is that true elsewhere?
Roubini: I could make a similar argument for other commodity prices. In my view, rising commodity prices are not justified by the fundamentals.
There’s a huge bubble, because we have zero rates in the U.S., zero rates around the world and a huge carry trade. Everyone is borrowing at zero interest rates in dollars and getting a capital gain because the dollar is weakening, so they are borrowing at negative rates. And then they invest in risky assets: commodities, equities, credit. We’re creating a bigger bubble than before.
It’s going to go crashing down, in an ugly way. That’s the basics of the argument.
[snip]
I see the dollar collapsing to the point where the price of anything in US dollars becomes meaningless. We’ll all be using Yuang or Euros.
I don’t see it being that bad. But it will be bad enough to get a global currency started.
Good article.
?
lol.
whats the Chinese currency called?
mark
I agree that this will happen eventually, probably sooner rather than later. However, I believe that before this happens, there’s going to be a blow up in the carry trade. This will be caused by an increase in the dollar which leads to a massive unwinding of the carry trade positions and therefore massive short covering. Trillions will evaporate overnight.
Well opinions are worthless without money behind them...If you believe the market will decline, please tell us how much you’ve shorted the market??? Give us details with dates and $.
Maybe we can build floating cities on those cargo and tanker ships. Soveriegn ships.
Perhaps the purpose of all of this is to force a global currency standard.
Did I say the market would decline?
It may well increase dramatically with devalued dollars.
The Zimbabwe Stock Market shot up like a rocket. One week a stock might have been a quarter and the next several dollars. Might have had less actual value though.
I wouldn’t put money in stocks, but thats just me.
Government intervention makes things, even laws and fiat rules, make things unpredictable. Thats never good for business.
Nah.
I just posted the article...I didn't offer an opinion.
I don't know why not. It just seems like there's nothing behind the market. And it also seems like the Dow has a Fairy Godmother. Even today, it seemed to be struggling to get back to 10,000 at the close, although it didn't quite make it ... under very light trading.
I don’t believe I said either of you offer an opinion.
I did say in essence that opinions without money behind them are worthless. I also asked if anyone believes the market will decline to state how much they are shorting.
Would anyone like to put their money behind their opinion?
Short contracts have a deadline, don't they? That makes it hard to act on a vague but overwhelming feeling that the market is going to tank at some point. I suppose it might be reasonable to just sell out, if you really feel that way ... but then you're in dollars! They don't call it "uncertainty" for nothing.
Bank failures Top 100, Only Part Of Industry Woes
By DANIEL WAGNER, AP Business Writer Daniel Wagner, Ap Business Writer – 4 mins ago
WASHINGTON – The cascade of bank failures this year surpassed 100 on Friday, the most in nearly two decades. And the trouble in the banking system from bad loans and the recession goes even deeper than the number suggests.
Dozens, perhaps hundreds, of other banks remain open even though they are as weak as many that have been shuttered. Regulators are seizing banks slowly and selectively — partly to avoid inciting panic and partly because buyers for bad banks are hard to find.
Going slow buys time. An economic recovery could save some banks that would otherwise go under. But if the recovery is slow and smaller banks' finances get even worse, it could wind up costing even more.
[snip]
As long as the Obamaman gets to enjoy his waffle, why worry? All is well!
http://www.youtube.com/watch?v=zDAmPIq29ro
Like most liberal garbage, he blames the financial crisis on lack of regulation. There is no mention of CRA and the sub prime mess the government created.
..."we’ve had a disastrous banking and financial crisis. That was in part due to poor regulation and supervision of financial institutions.
He goes on to say...
Roubini: I don’t believe in market discipline. It doesn’t work. That was the ideology of the last 10 years; self-regulation means no regulation.
Lord Obama will save us all. Praise Obama.
Mmm mmm no.
Actually, I think the analysts are perplexed, although they must be dumber than previously thought if they can't figure it out. With companies like Microsoft and Amazon yesterday, they were scratching their heads and probably other parts figuring why the results weren't better.
I think the retail industry is going to really suck wind this holiday season. Black Friday should be a real interesting indicator on the level of spending to occur throughout the rest of the year. Until Obama is out, or at least Congress is under better control, I don't expect any sustainable improvement. Just one long roller coaster ride.
Plan to read more carefully later.
I'm not sure what you mean by that but in general, not really. If you are short a stock there is no time limit. If you are short stock index futures, well yes the contract has a date, but it's not a big deal since you just roll forward to the next period. You might be thinking of options (puts), where yes, they are dated and you are losing time premium while waiting.
Or the UN will create a whole new currency used by all countries.
He will make sure that evil Big Oil does not earn a profit because he will confiscate it. He will appoint Federal energy oversight committees who will take over the management of the Oil Companies like he did with the Auto industry.
In the mean time, those of us who are not inner city minorities will be forced to resort to horse travel again and become hunter gatherers if we want to survive. Provided we hunt with some other means than guns, that is.
And depending on your party status (and standing) you will be allowed your ration of gas for your Federally mandated vehicle, provided you comply with all regulations and emissions standards designated by the Federal Bureau of Transportation.
Light, world wide Weimar behaviour. Nice, real nice. /sarc.
Don't worry, be happy. Obama will have the middle class pay for it.
while it is true liberal tend to run to the comfy “regulation” excuse, it is also true that the derivative market - the credit default swaps - amplified the mess that was fannie/freddie.
Maybe amplify isn’t the right word.
They multiplied that problem by a factor of, what? a trillion? a gazillion?
Sometimes there are good “regulations”, sometimes bad.
There is something very odd about the swaps market.
The more I read about them, the more they appear to be a form of insurance fraud.
Fraud is not “free market”
Fraud is fraud.
I’ve been getting coupons in the mail from department stores I have accounts with.
$10 off $10 merchandise - just to get you in the store.
$20 off $40 merchandise.
They must really be hurting.
Thats what the risk is; Inflation of Stock prices vs Companies Democrats put out of Business, my 401K/ira is 100% stock
The subprime mess was indeed caused by poor regulation because the regulator was blocked by the Democrats who called the regulator racist. The statement that poor regulation resulted in the subprime crash is correct so far as it goes. It just doesn’t address the root cause, Government meddling in the housing market.
Black Friday
Another unexpected tea party could send a message to the 111th Congress, yes, hard for those running businesses, but those folks in Detroit where basically ignored by Congress inaction to cut taxes for the rich so the poor could find jobs
Yeah, wonder what local businesses would say if Omao told them not to profit now
What? you mean we will still have local business?
That’s an interesting perspective.
I would like to hear your explanation, what makes you think the dollar will strengthen.
The carry trade is now propped up by foreigners borrowing ultra cheap dollars. The only way I see the carry trade collapsing is for interest rates here to ratchet up. It’s hard to imagine that because the economy and especially housing are still really awful.
Roubini destroys his credentials as an economist. There IS NO recovery. I work for a multi-national, and have contact with many regions. Trust me, there is NO global recovery.
Er ist voll mit schiess.
I am getting more convinced the “year of jubilee” was instituted whether we like it or not.
Whatever... look at a chart of oil prices for the past 5 years. And this guys claim to fame is that he predicted the fall of oil prices when they were at 145? A lot of people knew that was coming....
It seems pretty logical that in an economy that is 70% consumer driven, when so many people are out of work or struggling to pay off debts and accumulate savings, the economy won’t see improvement very soon.
Seems only global companies are doing okay.
The intent is to destroy the (mostly) White middle class. That's where all the angry 'Tea-Baggers' originate.
Transcript House Democrat Leaders and Economist Press Conference [”Horrendous” Long-term Outlook]
http://www.freerepublic.com/focus/f-news/2369056/posts
Former Federal Reserve Vice Chairman Alan Blinder
“despite the fact that we’re looking at an absolutely horrendous long-term fiscal outlook,”
Like most liberal garbage, he blames the financial crisis on lack of regulation.
So, then, please explain to us how the exemption of credit default swaps from regulation in 2000 worked out so well. As well as exemption of new commodities exchanges from regulation.
Also, please note, he said 'in part' - not in whole.
I agree that it’s clear the Dems. blocked investigation of the supply side of the problem. But the FBI warned Bush, the Justice dept. and Congress of the CDS fraud on wall street in 2004. And no one did anything. So the Dems & the Repubs are guilty of slopping in over-lapping troughs of special interest. The more we allow the Repubs to pretend to be real Constitutional Conservatives the longer we extend the problem. Of course they are closer to being Constitutional Conservatives but we can’t simply let the pendulum swing back to the right and be satisfied.
They are also depending upon a declining dollar. If the Fed cuts off the carry trade—probably unlikely—that would cause a rush to buy dollars and unwind the trade. What I think is more likely, another stock market crash sending investors into bonds. At the same time a last ditch swap effort with the central banks where they trade a few trillion in dollars for Euro’s, etc. Then they bid up the dollar and make it jump 5 percent overnight. This causes a panic and a massive unwinding of the carry. The only reason I believe this is possible is that everyone assumes the dollar is in a dealth spiral and its headed straight down. However, markets seldom every go straight down. The trend will assert itself over the long term, but during the short term there is plenty of manipulation and evil doing to be done. I’m curious and I would like to hear another opinion. Please let me know what you think.
Roubini was correctly calling the housing bubble back in 2004-5 when many who call themselves conservative were asserting a new normal under which housing prices could only go up.
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