Professor Roubini's predictions revisited

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graphrix_IHB

graphrix_IHB

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I don't read professor Roubini's blog that often but I think should read it more often now. I think it partly has to do with the fact he is very pessimistic and deep down as much as I am a bear I do not want to see a major recession. However some of his most recent posts are a very accurate account of what has happened and what he thinks will happen. As much as I do not want to see a recession I am preparing for the fact that we will and that it could be a lot harder than most thought including myself. I have always respected professor Roubini because he has endured harsh and critical skepticism while keeping his composure. That he teaches at one of the most well known colleges for economics.

I hope this will start an interesting discussion because I am curious as to what others think of professor Roubini.
 
I generally take a sampling of Roubini, Schiff, and Northern Trust. Roubini has been largely correct so far. I'm not sure on his decoupling hypothesis. If the US is willing to repeat the 1970s and move the stock market sidewise with high inflation I believe decoupling can occur. But covariances are very high nowdays in stock markets so his hypothesis of no decoupling is likely to turn out to be correct.

I think if you can figure out how to balance Roubini and Schiff's risk factors you can try to formulate a portfolio to address different states of the world. I think Schiff may be slightly too bearish but Roubini is right his predictions were too mild. I would never have guessed Citigroup would be as close to destruction as it is now in February.

I still feel as I have throughout 2007 that a recession more severe than the early 1990s but less severe than the Great Depression is a certainty. I earned lots of ridicule from the position that 2007 was an excellent time to sell real estate and a horrendous time to buy real estate. I remember looking extremely puzzled when someone I know at Irvine Company said they were aggressively buying office properties this March. Why are you buying more real estate in 2007 at horrendous cap rates when this market lives and dies on mortgage finance jobs? That position has been proven correct. Those of us who predicted the demise of Downey have been largely proven correct. The death of DSL is a matter of when not if at this stage.
 
When I first started reading IHB, I knew I was a bear, but not the bearish of bears. I kept thinking, man, you guys are predicting the worst. I was wrong. I don't think we truly know what the worst could be. Reading through Roubini's posts and others, is our problem is not just our problem it's a global problem. We are not alone in the housing bubble, it seems like a housing and credit pandemic that could have repercussions that run far deeper due to it's global nature.

I don't want a recession either, but it appears that it's more probable than not. It also looks like we'll be hit with both punches, a recession and high inflation.
 
Bubblegum,

I really find no fun in being a bear. We have been labeled doom and gloomers, chicken littles and pessimists because we didn't follow the herd. I hate those labels and would rather be labeled a realist. I see things for what they are and unfortunately they are not pretty. I would rather be prepared so that I can take advantage of it rather than be a victim of it. I am fortunate to have met several of the IHBer's and I can say that they are some of the most outgoing, optimistic and happy people I have met. It is a horrible stereotype that we are doom and gloom losers to be pigeonholed into because it couldn't be further from the truth.

Bishie,

I am mixed on the decoupling effect and whether it will happen or not. I really feel some markets are overbought and overbought by amateurs. I think that only time will tell how much this will come into play. As I type this the Hang Seng is up over 1000 points, Nikkei is up near 200 points, Shanghai is up near 150 points and the US futures market is predicting higher. So what do I know?

I too would never have thought that Citi would be in the world of hurt that they are in. Also I feel sorry for Downey as they use to be the conservative one but in order to survive they kept up with their competition. On the wholesale lending side they were a terribly run company and I should have seen the writing on the wall.

The commercial market is next. Just as Calculated Risk predicts that commercial follows residential it really is happening. Our job growth has been dismal for the last few years when you exclude RE. What people forget is that the professional and business services sector was growing as the RE sector grew because their jobs are dependent on job growth and the RE sector was growing. So why would OC need more office space?

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It amazes me how anyone can be bullish on commercial when the vacancy rate is up 40% and the availability rate is up 55% YOY.
 
I agree. With all these bad signs. Why are new office buildings being built in Irvine? I believe 3 new bldgs near the Jamboree exit off the 5 freeway. And more at the Jeffrey exit.
 
And on both sides of the community I live in. The land are being graded for 2 new communities. And this is on top of the fact that Portola Springs haven't even been sold out. And lets not forget Villages of Columbus. I just don't get it. Is TIC forseeing something that us average joes don't?
 
Roubini is brilliant. Schiff, Kasriel, the same.

As regards doom and gloomers and the pessimist label: Hope for the best. Prepare for the worst.

There is always a bull market somewhere.
 
Good reads. Scary stuff, but unfortunately very likely. Our global economy, our global financial system, our entire civilization is based on a "promise to pay." From your student loans, which allow you learn a trade, down to the checks you right. All are simply promissory notes, payable on demand (check) or at a later date.

When the debt markets start to unravel, the very fabric of our society starts to unravel. Many households, which have been operating solely on debt just to provide basic needs will be destroyed. It doesn't matter to the merchant (seller) if I use a 5 dollar bill, a debit card, or a credit card. Money is evaporating from American's wallets like wildfire. Unfortunately since foreigners have lent much of that money to us, they will feel the pinch as well. That's the problem with a collapsing debt market--both parties are negatively impacted.

Money is the number one cause of divorce and divorces are going to skyrocket. Social services will be hurt due to lower income tax receipts and slowing of charitable donations. Its a lot easier to give when times are good. Credit permeates like water amongst ALL industries. It is the life blood of our world. We have a credit sickness right now carried throughout the world's bloodstream. No part of the world will be unaffected. I am not sure how far we will collapse as an economy/society this time. It's anyone's guess.
 
It's almost enough to make me think about the super pessimistic outlook/planning my ancestors had to do fleeing various countries before they went kaboom (ex. China going communist or whatever). The pessimistic theory saying people can take everything you have, but if you get an education, they can't take away what's inside your head.

I guess the silver lining is that my kids are getting a great education, anyway. No one can inflate or devalue that away - someone still has to take care of all the boomers later...
 
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+November+2007.htm

Bill Gross agrees with the Professor.

"Ben Bernanke has no such luxury. While he does have the backstop of a global economy powering on at a 4-5% annual clip, today’s U.S. IPOs were more a creation of leverage and the shadow banking system’s ability to create productivity gains through finance, as opposed to technological innovation. With banks and their shadows in retreat and modern day “world saving committees” relatively impotent, Bernanke must do some heavy lifting as opposed to the light housework required of Alan Greenspan in 1998. An increasingly recessionary looking U.S. economy will likely require 1% real short rates and 3½% Fed Funds in order to stabilize a potential growth contraction in lending not witnessed since the early 1970s or, to be honest, Roosevelt’s depressionary 1930s. We can only hope that Bernanke, Paulson, and their cohorts recognize the danger and that the music keeps playing with the lights still turned on.

William H. Gross

Managing Director"
 
Re: "your kids' education is going to cost $100K+.. " .. hey if Greenspan is right and we get high inflation again, it's all good, it'll go away ...
 
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