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Recent bounce 'sucker's rally': economic guru

yllus

Elite Member & Lifer
Aug 20, 2000
20,576
431
126
Recent bounce 'sucker's rally': economic guru

Nouriel Roubini says the United States is facing a 12-to 18-month recession that will make a mockery of the recent stock market bounce and the notion of global economic decoupling, cause commodity prices to slide 20% to 30% and hit Canada hard.

"I see the stock market rally as being the last leg of a sucker's rally --essentially people believing the Fed can rescue the economy," Mr. Roubini said in an interview yesterday. "Once the flow of market and financial news gets worse and worse, the expectation of the Fed rescuing the economy is going to be dashed, and the stock market is going to plunge much more."

Mr. Roubini, economics professor at the Stern School of Business, co-founder of economics Web site RGE Monitor and Wall Street bear extraordinaire, may sound alarming, but the rest of the global economics community has spent the better part of the past two years playing catch-up to his increasingly dire prognostications.

Mr. Roubini first forecast a slowdown in the fall of 2005 and said the U.S. housing bubble was heading for a bust in early 2006, just as housing starts peaked. By August, 2006, while many economists were still forecasting a soft landing, he said the recession of 2007 would be nasty, brutish and long.

This February, Mr. Roubini predicted "one or two large and systemically important broker dealers" would "go belly-up," and credit-market losses stemming from the subprime meltdown could top US$1-trillion.

A few weeks later, Bear Stearns Cos. collapsed and the International Monetary Fund came up with a remarkably similar prediction of losses: US$945-billion. It must be pointed out, however, the IMF estimate is only an estimate of losses that might be realized if distressed securities had to be sold or marked to market at current prices. Some of the assets are now attracting buyers.

In that view, then, the estimates are still a worst-case scenario. Mr. Roubini has, in fact, recently raised his credit-loss forecast to US$1.7-trillion as corporate losses pile on.

He says the stock market is following the same pattern it did in the 2001 recession. It started in March and by April the S&P 500 had risen 18% on the view Fed interest-rate cuts would stave off a recession. When it couldn't, the market eventually fell off a cliff, dropping 42%.

The S&P 500 typically drops 28% in a recession, Mr. Roubini says, and having come off only 12% so far, it has a long way to go, he said.

Mr. Roubini is basing his prediction that the United States is facing the worst recession in decades on the view house prices will tumble a total of 30% -- they have dropped 10% so far -- wiping out US$6-trillion in home equity and putting 21 million households, or 40% of all mortgage-holders, in a negative-equity position. Corporate America will be the next to suffer and the credit crisis will continue to spread, Mr. Roubini said.
If you read the entire article (as opposed to just what I've highlighted), the guy's predictions thus far seem to be remarkably accurate. Nobody's clairvoyant, of course, but it seems rather certain that markets will continue to fall yet.
 

StageLeft

No Lifer
Sep 29, 2000
70,150
2
0
This all sounds very reasonable to me. I don't feel that the US has paid the piper his due, the last several years being a bit of a facade. The national debt and just gone up too far, the dollar down too low, the housing crisis expanding, and recently figures from inflation to unemployment all substantially negative. It seems the only people bearish on the economy are the fed, which behind closed doors is probably anything but, but they put up a facade not unlike Baghdad Bob.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: Skoorb
This all sounds very reasonable to me. I don't feel that the US has paid the piper his due, the last several years being a bit of a facade. The national debt and just gone up too far, the dollar down too low, the housing crisis expanding, and recently figures from inflation to unemployment all substantially negative. It seems the only people bearish on the economy are the fed, which behind closed doors is probably anything but, but they put up a facade not unlike Baghdad Bob.
The dollar going lower isn't a bad thing and inflation isn't all that bad currently.

As far as OP, I need to give it more thought.
 

yllus

Elite Member & Lifer
Aug 20, 2000
20,576
431
126
Originally posted by: LegendKiller
The dollar going lower isn't a bad thing and inflation isn't all that bad currently.

As far as OP, I need to give it more thought.
Please do!

From the psychological perspective I think Mr. Roubini is correct. If round two comes around with major institutions coming to the brink of collapse and the Fed can't/doesn't pull them out of the fire, people will lose 'hope' and a much more prolonged fall will occur.

I find the exactness of some of his predictions a little odd - typically a 28% drop for the S&P 500? That's gamble-worthy numbers. I've got too little play money to take a risk right now, but if I did I'd be tempted to start buying when a ~25% drop has occurred.
 

CalvinHobbes

Diamond Member
Feb 27, 2004
3,524
0
0
I'll say the economy is going to continue getting better. We each have the same chance of being right, 50/50.
 

sandorski

No Lifer
Oct 10, 1999
68,393
3,519
126
Originally posted by: CPA
commodity prices tumbling is not a bad thing.
Depends on how important Commodities is to an Economy. If the guy is right, I didn't read the whole article, it's possible the US won't see much benefit in the drop of Commodity Prices as the $US is still vulnerable for continued devaluation.
 

dmcowen674

No Lifer
Oct 13, 1999
54,894
46
91
www.alienbabeltech.com
Originally posted by: yllus
Recent bounce 'sucker's rally': economic guru

Nouriel Roubini says the United States is facing a 12-to 18-month recession that will make a mockery of the recent stock market bounce and the notion of global economic decoupling, cause commodity prices to slide 20% to 30% and hit Canada hard.
The guy is doing some serious drugs.

The world is tied to oil.

Unless he has some inside knowledge of oil sliding back to $60 a barrel it's only going to get worse from here.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: dmcowen674
Originally posted by: yllus
Recent bounce 'sucker's rally': economic guru

Nouriel Roubini says the United States is facing a 12-to 18-month recession that will make a mockery of the recent stock market bounce and the notion of global economic decoupling, cause commodity prices to slide 20% to 30% and hit Canada hard.
The guy is doing some serious drugs.

The world is tied to oil.

Unless he has some inside knowledge of oil sliding back to $60 a barrel it's only going to get worse from here.
Actually, he might not be too far off.

1. Oil is tied to the dollar, which has relative revaulations depending on PPP and investments. As other world banks decrease interest rates to respond to a global downturn, their currencies will depreciate relative to the dollar, bringing them into a closer parity. This, in turn, will also decrease the cost of oil in those terms.

2. Global reduction in growth will lead to lesser demand for commodities, driving prices down.

3. There may be some analysis performed into the derivatives market, which many believe is responsible for much of the increase in commodity prices. Goldman Sachs performed one recent study which indicated that only 8bn in derivatives contracts per day are needed to hedge oil risk, while more than 250bn are transacted per day. As a result, the fundamental price, which should be about $80, is increased due to the speculation.

Oil may not slide to $60bbl, but it may go down to the 80s.
 

dmcowen674

No Lifer
Oct 13, 1999
54,894
46
91
www.alienbabeltech.com
Originally posted by: LegendKiller

Actually, he might not be too far off.

1. Oil is tied to the dollar, which has relative revaulations depending on PPP and investments. As other world banks decrease interest rates to respond to a global downturn, their currencies will depreciate relative to the dollar, bringing them into a closer parity. This, in turn, will also decrease the cost of oil in those terms.

2. Global reduction in growth will lead to lesser demand for commodities, driving prices down.

3. There may be some analysis performed into the derivatives market, which many believe is responsible for much of the increase in commodity prices. Goldman Sachs performed one recent study which indicated that only 8bn in derivatives contracts per day are needed to hedge oil risk, while more than 250bn are transacted per day. As a result, the fundamental price, which should be about $80, is increased due to the speculation.

Oil may not slide to $60bbl, but it may go down to the 80s.
OK.

On point number one.

How far can the dollar slide before some other currency gets used instead of the dollar?

They have been talking about switching to the Euro for quite some time now.

A global reduction in growth leading to lesser demand for commodities?

What are you smoking? Unless there is a bubonic plague coming along to wipe out a goodly portion of the population on the planet you ain't stopping the babies from popping out faster that corn kernels and the need for real commodities.


 

heyheybooboo

Diamond Member
Jun 29, 2007
6,278
0
0
Gosh - - - I sure hope that we are not facing a 12-to 18-month recession.

I understand the 'textbook' definition. I don't think GDP will 'retract' for 4 or 5 quarters.

There is too much money to be made on the misfortune of others ...

Sad. But true.
 

Dissipate

Diamond Member
Jan 17, 2004
6,815
0
0
If Nouriel Roubini is not shorting the S&P 500 right now with a significant portion of his own money, then he has 0 credibility. All talk, no action.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: dmcowen674
Originally posted by: LegendKiller

Actually, he might not be too far off.

1. Oil is tied to the dollar, which has relative revaulations depending on PPP and investments. As other world banks decrease interest rates to respond to a global downturn, their currencies will depreciate relative to the dollar, bringing them into a closer parity. This, in turn, will also decrease the cost of oil in those terms.

2. Global reduction in growth will lead to lesser demand for commodities, driving prices down.

3. There may be some analysis performed into the derivatives market, which many believe is responsible for much of the increase in commodity prices. Goldman Sachs performed one recent study which indicated that only 8bn in derivatives contracts per day are needed to hedge oil risk, while more than 250bn are transacted per day. As a result, the fundamental price, which should be about $80, is increased due to the speculation.

Oil may not slide to $60bbl, but it may go down to the 80s.
OK.

On point number one.

How far can the dollar slide before some other currency gets used instead of the dollar?

They have been talking about switching to the Euro for quite some time now.

A global reduction in growth leading to lesser demand for commodities?

What are you smoking? Unless there is a bubonic plague coming along to wipe out a goodly portion of the population on the planet you ain't stopping the babies from popping out faster that corn kernels and the need for real commodities.
In the age of derivatives and defense pacts? It could be forever. Not to mention that we potentially have an oil field 50% larger than *all* oil in SA sitting underneath ND/SD/Montana. It'll be hard to extract, but it's there.

They may be popping out, but they are popping out in countries with lesser needs. If global demand for more modern economies decelerates, you're going to see prices drop. Naturally, long-term prices will be higher, but short/medium term prices will fall.
 

woodie1

Diamond Member
Mar 7, 2000
5,947
0
0
Originally posted by: Dissipate
If Nouriel Roubini is not shorting the S&P 500 right now with a significant portion of his own money, then he has 0 credibility. All talk, no action.
That was my 1st thought. Where is his money right now? Also, if he's so good at this why isn't he on top of the Forbes' richest list?
 

ponyo

Lifer
Feb 14, 2002
19,158
2,435
126
Several of the people I read and follow have been saying the same thing for several years now. Problem is, path is not straight down and has lot of bumps along the way. Being 1 day early or late in the financial market might mean the difference of making a killing or getting your head blown off.
 

StageLeft

No Lifer
Sep 29, 2000
70,150
2
0
Originally posted by: CalvinHobbes
I'll say the economy is going to continue getting better. We each have the same chance of being right, 50/50.
wth. That's like me saying I'm going to win the lottery and you saying I"m not and then saying we're both 50/50.
The dollar going lower isn't a bad thing
If that was the case, why didn't the gov do it earlier, just print more money and drop it from planes? That will lower it nice and quick.
Also, if he's so good at this why isn't he on top of the Forbes' richest list?
Why isn't Bernanke, who holds a completely opposing view? That's a silly question.
 

Vic

Elite Member
Jun 12, 2001
48,413
9,267
126
The commodities bubble popping would be a good thing IMO.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: Naustica
Several of the people I read and follow have been saying the same thing for several years now. Problem is, path is not straight down and has lot of bumps along the way. Being 1 day early or late in the financial market might mean the difference of making a killing or getting your head blown off.
I know a lot of people saying the opposite thing.
 

miketheidiot

Lifer
Sep 3, 2004
11,062
1
0
Originally posted by: LegendKiller
Originally posted by: dmcowen674
Originally posted by: yllus
Recent bounce 'sucker's rally': economic guru

Nouriel Roubini says the United States is facing a 12-to 18-month recession that will make a mockery of the recent stock market bounce and the notion of global economic decoupling, cause commodity prices to slide 20% to 30% and hit Canada hard.
The guy is doing some serious drugs.

The world is tied to oil.

Unless he has some inside knowledge of oil sliding back to $60 a barrel it's only going to get worse from here.
Actually, he might not be too far off.

1. Oil is tied to the dollar, which has relative revaulations depending on PPP and investments. As other world banks decrease interest rates to respond to a global downturn, their currencies will depreciate relative to the dollar, bringing them into a closer parity. This, in turn, will also decrease the cost of oil in those terms.

2. Global reduction in growth will lead to lesser demand for commodities, driving prices down.

3. There may be some analysis performed into the derivatives market, which many believe is responsible for much of the increase in commodity prices. Goldman Sachs performed one recent study which indicated that only 8bn in derivatives contracts per day are needed to hedge oil risk, while more than 250bn are transacted per day. As a result, the fundamental price, which should be about $80, is increased due to the speculation.

Oil may not slide to $60bbl, but it may go down to the 80s.
i've been hearing about speculation being a large reason that commodity prices have been spiking, i think there was even an article in businessweek about it. Peopel have been making money there, so more people throw money at it and prices go higher, ensuring more profits. It's like a unintentional pyramid scheme, the people who got in first make bank and as long as more peopel keep bringing money, everyone wins, but evenentually the money stream might run out, and everyone gets screwed.
 

StageLeft

No Lifer
Sep 29, 2000
70,150
2
0
This is true. The current price of oil has a lot of speculation. I think they have their own little oil bubble going. Looking at the amount of increased use vs production vs sliding dollar, it's plain to see that oil is overvalued at $108 (?)/barrel. It would be a very risky decision to buy a bunch now expecting its price to continue to soar.
 

Thump553

Lifer
Jun 2, 2000
11,905
1,245
126
My gut feeling-not based on any real research-is that there is definately a speculative bubble in oil, probably in gold (and that one may have already burst) and possibly corn. A while back I posted a thread referencing a NPR broadcast citing studies that claimed the true cost of oil based on demand should be in the $80s (this was when oil was over $100).

Such is the nature of commodity markets to some extent. In theory they stabilize costs by allowing users and vendors to preplan their purchases/sales, but bubbles can and do occur.

Other commodities-such as iron, copper, steel, etc. are way up but I don't think these are bubbles but rather based on real demand fueled by growth in China, India, etc.

If our Congress grows a backbone and ends the foolish, wasteful and environmentally unsound ethanol subsidies, corn futures will tumble down fast. Don't count on this happening any time soon-too many pols benefit from happy farmers or happy "greenies."
 

wwswimming

Banned
Jan 21, 2006
3,702
1
0

Jim PupLava at Financial Sense Newshour

http://www.financialsense.com/

uses the term, "oreo" to describe the US economy in 2008. first quarter
troubles, stock market rally in calendar year quarters 2Q & 3Q, more
troubles in 4Q.

i wouldn't be surprised to see the Dow manipulated to rotate out some
poorly performing companies and rotate in, for example, Google.
 

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