Roubini on the Seeds of the Next Crisis

Nouriel Roubini, one of the biggest bears on Wall Street and known for his warnings about the U.S. economy, believes oil is going to push over $100 for reasons that have nothing to do with the fundamentals of supply and demand. According to him, a similar argument can be made for other commodity prices.

IndexUniverse: “There’s a huge bubble, because we have zero rates in the U.S.”, Roubini said in an interview with IU, “..Everyone is borrowing at zero interest rates in dollars and getting a capital gain because the dollar is weakening, so they are borrowing at negative rates. And then they invest in risky assets: commodities, equities, credit. We’re creating a bigger bubble than before. It’s going to go crashing down, in an ugly way. That’s the basics of the argument.

Roubini also said that “a wall liquidity” is chasing risky assets, “that liquidity can chase those assets higher for the time being until the huge carry trade—the asset bubble and the wall of liquidity—comes crashing down. You can still have all the risky assets going higher. Of course, the higher they go, the more they diverge from fundamentals, and the riskier the situation becomes.”

Roubini touched also on the deflation argument, hinting that gold is not the answer. He said ” the only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.”

emphasis added

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