LQD: Roubini predicts the worst financial crisis

European Tribune ^ | July 15, 2005 | Nouriel Roubini

[Freedom_Is_Not_Free]

Yeah, I hate to go to these arcane sources, but I could not find the article on Roubini's "RGE Monitor" website. Maybe it is members only, I don't know.

I know the articles conclusion is inflammatory, calling for the worst recession since the Great Depression. It is not my aim to stir that pot. I am hoping that people will just read and absorb all of the financial reasons he gives to support his conclusion. I'm just trying to convey the extent of the futures losses and logjams in the financials and the economy.

Please try to keep an open mind despite the extreme conclusion the author is lead to by the data. I just want you to know the data and think for yourself what could come from it.

I know... I'm just a RAY of SUNSHINE!

[Freedom of Speech Wins]

Roubini says we are in trouble.

Can we be like Houdini and get out of it?

[MHGinTN]

With the democrat controlled Congress obstructing the drive for energy independence, of course we are doomed! That is precisely what the democrap party wants, our economic failure to empower their complete takeover of this nation. [If you doubt they would have such notions in their dark hearts, look at how they have supported, defended and funded the abortion holocaust as a means to empower their political party!]

BUT, if leadership would make the case for a 'moonshot' style drive for energy independence, the development of our resources --including of course the brilliant American citizen lead technology to exploit-- would drop price for oil immediately and become the means to end out debtor status and make us not only independent but the provider for the rest of the world seeking answers!

[Freedom of Speech Wins]

Mergers and acquisitions causing job losses, tight credit further limiting opportunities, free trade vs. fair trade shifting jobs to other countries, and outsourcing all look like things that could create a populist wave that the Democrats will try to ride to the White House.

I think voters care more about what is happening here in the U.S. than they do what is happening in Iraq.

[MHGinTN]

And your point?

[CharlesWayneCT]

Well, of course. We all know that the houses we live in are worthless, that land is free, that the current infrastructure of the country has no value whatsoever — so of course everything everybody owns is actually worthless.

On the other hand, I don’t I’ll mourn the death of the broker-dealers who did little more than interject themselves in the middle of the process and siphon off quick bucks while leaving others holding the bag.

[Freedom_Is_Not_Free]

Ping

[Attention Surplus Disorder]

I am just about as bearish as Roubini. But IMO it is important to not allow yourself to get too bearish, both as a matter of psychological survival and financial survival. That is sometimes difficult for me, as I tend to be pessimistic. Roubini has a pretty good understanding and I respect his views. I DO expect the US to enter a classically-defined recession, and I expect it to last 12-18 months. Historically it "rhymes" to have a first-year recession upon election of a new prez.

But there is also a possibility that it could get significantly worse, for all the reasons Roubini cites. There are a lot of negative factors in this particular perfect storm, and what I find MOST troubling is: it is not at all clear to me whether our leadership is looking to rip off or outright destroy the last bits of flesh of this country or to actually perform some constructive, corrective action.

Maybe we have to hit a hard bottom, "AA style" before this country can get on its feet again. If that's the case, then we do. Maybe this generation needs to have its "generational challenge" to separate the prevailing brain dead jerkball culture we have going.

I can't say. It's easy to get overwhelmed, we have some very serious stuff going on.

[arthurus]

This administration is not "fighting" inflation. This administration carefully constructed the inflation, probably as a means to finance the profligate spending and the war. See Bush's original announcement that he was "devaluing" the dollar to teach those inscrutable folks in Asia a lesson.

"Devaluation" is inflation, just a less loaded word. That "devaluation" is ongoing with two upticks in the rate in the last 6 years. Real inflation right now is very high and at Carter levels. The official numbers are less onerous because periodically those who report the official rate remove the the most rapidly rising prices from the "basket" of prices used to compute the official rate. The proffered rate is not the inflation rate. It does not measure the actual inflation rate but measures, instead, the rate of increase of a few selected prices. Other prices, like oil, are not included because there are other reasons that can be cited for oil's rise.

If there were not inflation, the drastic rise in oil MUST cause a FALL in the average level of all other prices. That is manifestly not the case. The main clue that inflation is Policy is the nonpublication of the M3 measurement of money. That ceased to be published when it began to be obvious that the money numbers therein showed higher inflation rates than advertised by the government.

[bruinbirdman]

"In a typical US recession equity prices fall by an average of 28% relative to the peak. But this is not a typical US recession; it is rather a severe one associated with a severe financial crisis. Thus, equity prices will fall by about 40% relative to their peak. So, we are only barely mid-way in the meltdown of stock markets. "

Lots of generalities in the article.

Brinker has touted total market mutuals for ever. I don't listen much to him anymore. Has anyone heard him give a sell sign yet?

It is important to be equity specific, IMO.

Anyone heard from "professional" lately.

I can agree with the 28% pullback. When did Roubini write this, after the US market was already down 20% across the board?

Emphasis has been on financials and real estate for more than a year now. Don't invest in them. Don't put new money in equities. Sell financial mutuals or any that have more than 10% in financials.

IMO - The U.S. economy will not see a recession this year. More like 3% GDP growth.

yitbos

[ThePythonicCow]

The February 2008 paper he speaks of with its eight steps appears to be the one at: http://www.house.gov/apps/list/hearing/financialsvcs_dem/roubini022608.pdf.

It is entitled:

The Current U.S. Recession and the Risks of a Systemic Financial Crisis

by

Nouriel Roubini

Professor of Economics at the Stern School of Business,

New York University

and

Chairman of RGE Monitor

(www.rgemonitor.com)

Written Testimony for

the House of Representatives’ Financial Services Committee

Hearing on February 26th, 2008

[ThePythonicCow]

Correction: eight steps twelve steps

[Pelham]

Inflation is the result of how we are paying for the war. We aren’t paying additional taxes to cover the expense, we are borrowing. Congress is authorizing increases in the national debt, which increases the money supply. And that’s inflationary.

If we don’t curtail government spending and reduce the trade deficit the dollar will continue to fall.

[bruinbirdman]

"We aren’t paying additional taxes to cover the expense, we are borrowing."

The U.S.A. economy has been growing nicely for more than 6 years now. GW's tax cuts have added immensly to the federal coffers. U.S. deficit spending is down vis a vis total spending for several years.

yitbos

[ThePythonicCow]

Lots of generalities in the article.

Ah - yeah - it's a one page summary of what Roubini has written about in considerable detail earlier and elsewhere. So ... does it being a summary make it wrong?

Brinker has touted total market mutuals for ever.

What does Bob Brinker have to do with this?

It is important to be equity specific, IMO.

If you're saying that other economic, financial, or market analyses are wrong, because they are not equity specific, I disagree.

Emphasis has been on financials and real estate for more than a year now. Don't invest in them.

Roubini is stating that the bear market is widening, past just financials and real estate. He spells out why. His reasoning seems solid.

IMO - The U.S. economy will not see a recession this year. More like 3% GDP growth.

Have you been listening to Brinker too much ;)?

IMO, you're wrong. We shall see.

[raygun]

Yep.

If we can get Greenspan to keep knitting booties, and if Benranke would just shut the hell up.

Then there’s (maybe) the debt thing (which nobody wanted to hear in January of this year).

SO yes. The problem CAN be fixed (it won’t take Houdini to do it either).

But that’s ONLY if.

[WashingtonSource]

bump

[happygrl]

What I find most troubling also, is what is the basis for the decisions made by our "leadership". Is it ineptitude (bad enough) or is there some real malevalence at work ?

Will the Democrats really lead us over the edge out of spite, or are they just stupid?

[arthurus]

Inflation is not the result of paying for the war. It is the method by which we are paying for the war. It is the government welshing on its debts by paying back dollar denominated debt in smaller dollars, smaller value. All governments indulge from time to time. It has ended some governments. Think of Weimar Germany.

[raybbr]

Well, of course. We all know that the houses we live in are worthless, that land is free, that the current infrastructure of the country has no value whatsoever — so of course everything everybody owns is actually worthless.

What percentage of homes are owned outright? Where will the taxes come from for the towns and municipalities come from to pay the future obligations?

It's easy to call the equity in a home wealth - it's another thing to feed your family with it.