Nouriel Roubini has seen his star rise faster than almost anyone after predicting a deep recession during what was hailed by some as the “goldilocks” economy of 2006-2007. The so-called “Dr. Doom” is now a legitimate superstar and his words carry a lot of weight. We noted back in July (A Week of Superstar Bears Moving the Market) that Roubini’s remarks were regarded as a change in direction and the stock market rode a wave of positive sentiment much higher. It was surprising to us that such a event that has absolutely nothing to do with market fundamentals would be met with such ebullience from the market. Well, according to Bloomberg on Friday, Roubini has started to come around to the idea of recovery.
New York University Professor Nouriel Roubini said that action by governments and central banks has led to a “bottoming out” of the global recession and that there is “light at the end of the tunnel.”
In the U.S., “there are signs right now that the recession might be close to over,” Roubini, who gained notoriety for predicting the global financial crisis, said today in Istanbul. While he sees a U-shaped recovery, there remains a “a risk” of “a double-dip recession.”
“Right now, the main issue is the question” of reversing policies implemented to bolster economies from the crisis, Roubini said. Exiting from fiscal and monetary stimulus programs globally “is going to be a very difficult thing” and the timing of this is one of the factors that could lead to a double-dip recession. — Bloomberg.com 10/2/2009
He made these comments while in Istanbul for the annual meeting of the International Monetary Fund. This time the market is not soaring higher on his statements, but this is markedly improved over his view of just a few months ago. He still warns that risks remain and that optimism in the market “is excessive”, but he will find no argument here on those points. Also, he notes that the very same measures taken by world leaders to stimulate the world economy out of recession could potentially create trouble down the road.
While we would not consider this capitulation, Roubini’s language is softening. He must at least recognize the possibility that the stock market could continue to rise, and his shooting star would lose some of its luster. Investors who have followed his lead, would likely have missed out on the market’s rally over the past 7-months (nor would they have had their money in the market prior to Lehman’s collapse). In his defense, he is an economist and not an equity analyst. The recent performance of the market has been driven much more by improved sentiment than by improved fundamentals. We will continue to monitor Roubini because he remains one of the brightest economists in the world, and he has a tendency to see what many others cannot.