Friday, September 23, 2022
Economist Nouriel Roubini, who correctly predicted the 2008 financial crisis, has said there is a "long and ugly" global recession coming up that could last all of 2023.
Chairman and chief executive officer of Roubini Macro Associates, Roubini got the nickname "Dr Doom" after he correctly predicted the housing bubble crash of 2007 to 2008.
In a recent interview, he said that he expects the S&P 500 to fall by 40%, reported NDTV.
"Even in a plain vanilla recession, the S&P 500 can fall by 30%."
Roubini added that the upcoming US recession is not going to be shallow. He said that US citizens should notice the large debt ratios of corporations and governments.
With inflation and a rise in debt servicing costs, he believes many "zombie" households, banks, shadow banks, and countries will die.
"So we'll see who's swimming naked."
Roubini also understands that it is impossible for Federal Reserve to achieve 2% inflation without a hard landing.
Dr Doom expects a 50 basis points rate hike in November and December. This means that by the end of 2022, the Fed funds rate will be between 4% and 4.25%, according to a report by NDTV.
Continuous inflation in the service sector and wages will force the Fed to hike more, he said. All of this will happen on top of the preexisting negative supply shocks coming from the Russia-Ukraine conflict, the pandemic, and China's zero-COVID policy.
Roubini said that he does not see fiscal stimulus remedies once the globe is in recession since governments burdened with debt are "running out of fiscal bullets."
"If you do fiscal stimulus, you're overheating the aggregate demand."
He sees the simultaneous appearance of slow growth, high unemployment, and rising prices, like in the 1970s along with massive debt distress.
He confidently predicted that it was not going to be a "short and shallow recession, it's going to be severe, long and ugly."
In 2008, households and banks suffered the most. He said that this time, "corporations, and shadow banks, such as hedge funds, private equity, and credit funds" will take the hardest hit.
He added that the world was going to witness another "nasty" pandemic any time soon.
Roubini advised investors to be "light on equities and have more cash".He said that assets can fall by 10%-30% while the nominal value of cash stays at zero.
For people with fixed incomes, he recommended staying away from long-duration bonds.