Economist Nouriel Roubini, who correctly forecasted 2008 financial crisis, predicts a “long and ugly” recession in the United States and around the world by the end of 2022 that might endure until the end of 2023, as well as a steep correction in the S&P 500. In an interview Monday, Roubini, chairman and CEO of Roubini Macro Associates, said in an interview that “Even in a plain vanilla recession, the S&P 500 can fall by 30%.”. He expects it may plummet the 40% in a “very hard landing.”
Roubini, whose foresight on the 2007-2008 housing bubble meltdown earned him the moniker “Dr. Doom,” suggested that those anticipating a brief US recession examine corporate and government debt ratios. As interest rates rise and debt servicing costs rise, he predicts that “many zombie institutions, zombie people, corporates, banks, shadow banks, and zombie governments will perish.” “So we’ll see who’s naked in the pool.”.
Roubini, who has warned throughout bull and bear markets that global debt levels will drive down stocks, stated that the Federal Reserve’s goal of attaining 2% inflation without a harsh landing will be “mission impossible.” He anticipates a rate hike of 75 basis points at the current meeting and 50 basis points in both November and December. The Fed funds rate would then be between 4% and 4.5% by the end of the year.
However, continuing inflation, particularly in wages and the service sector, will force the Fed to “probably have no choice” but to raise interest rates further, with funds rates approaching 5%, he said. Furthermore, negative supply shocks from the pandemic, the Russia-Ukraine conflict, and China’s zero COVID tolerance policy will raise costs and slow economic growth. This will make the Fed’s current “growth recession” goal impossible to achieve a prolonged period of low GDP and rising unemployment to contain inflation.
Roubini believes that once the world enters a recession, fiscal stimulus measures will be ineffective because governments with excessive debt have “run out of fiscal bullets.” Inflationary pressures would also imply that “if you conduct fiscal stimulus, you’re overheating the aggregate demand.” As a result, Roubini predicts stagflation similar to the 1970s and widespread debt distress similar to the 2008 global financial catastrophe. He predicted that “it will not be a brief and shallow recession; it will be harsh, protracted, and nasty.”.
Roubini predicts that the US and global recessions will last until 2023, depending on the severity of supply disruptions and financial hardship. Households and banks were the hardest hit during the 2008 financial crisis. He predicted that companies and shadow banks, such as hedge funds, private equity, and credit funds, would “implode” this time.
In his latest book, “Megathreats,” Roubini lists 11 medium-term negative supply shocks that diminish potential growth by raising manufacturing costs. These include deglobalization and protectionism; factory relocation from China and Asia to Europe and the United States; population aging in established economies and emerging markets; migration limitations; US-China decoupling; global climate change; and reoccurring pandemics.
“It’s only a matter of time until we get the next horrible pandemic,” he predicted. He advises investors to be light on equities and have more cash. Though cash is eroded by inflation, its nominal worth remains zero, “while equities and other assets can decrease by 10%, 20%, or 30%.” He tells people who want to invest not to buy long-term bonds but to buy short-term treasuries or inflation index bonds like TIPS instead.
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