Stocks have gained significantly around the world in the past two quarters as evidence continues to mount that the economy is emerging from its deepest contraction since the GD. New York University Professor and chairman of RGEMonitor.com Nouriel Roubini however, thinks the “markets have gone up too much, too soon, too fast.” Sharing his outlook with CNBC this morning, while calling himself a realist, Roubini said we are headed for U-shaped recovery not a V-shaped one. He gave six reasons as to why the recovery is going to be anemic and subpar below trend:
- “The Labor market is still awful, in the US and advanced economies, that’s going to be a drag in labor income and consumption.
- The U.S. consumer is shopped out, they are saving more and consuming less.
- In the corporate sector we have a glut of capacity. Utilization is at 69%. In most V-shaped recoveries investments grow rapidly, not this time around.
- The financial system is damaged. Credit growth is limited, meaning we will not be able to refinance residential investments, consumer durable and capex spending.
- The fiscal stimulus is going to be a drag by next year. If the fiscal stimulus continues, eventually large budget deficit will lead to crowd out of private spending.
- Globally, overspending countries like the U.S. are spending less, while over-saving countries like China, Japan, Germany are not increasing their private domestic consumption to compensate for the falling U.S. demand. So, globally, there is a glut of capacity and the recovery in aggregate is going to be weaker.”
“I don’t know how people can say this is going to be a rapid recovery,” said Roubini,”I don’t see the argument for it.”
If something does not begin to happen to open up credit markets for small businesses, we won’t have a V recovery, we will have and upside down U, double-dip recession. We have interviewed small businesses for over 30 years now and have never seen a situation like what we have now.