Nouriel Roubini, professor of economics at New York University, was one of the first to predict the collapse of the U.S. banking system and the current financial crisis. Well, he's back in the news with his forecasts.
What does he see in our future? More bad news. The bear market is not over, says Roubini. The stimulus package will slow the rate of contraction, but that will take time. Macro news, earnings reports and financial shocks will be worse than expected.
Another super bear, Meredith Whitney of Meredith Whitney Advisory Group, has been following the banking sector. She's convinced that stabilization in the banking sector holds the key to a turnaround. She went on to say: "it's not just that banks have to stabilize their own lending, it's that they have to make up for the void of the shadow banking industry that has been shut down since the summer of 2007."
As an investor, there are several questions you must answer for yourself. First, you have to decide whether or not the recent market bottom is the final bottom? If the answer is yes, then we are in a real bull market. On the other hand, if you believe, like Roubini does, that there will be a new market bottom, then this rally is just a rebound in an oversold market and the market will turn south again. This is not an easy call. We have a very weak economy. But if you believe that the stock market discounts the economy by about six months, then there is reason to believe that the market will continue to move higher.
Do you agree with Roubini?
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Reader Comments (Page 1 of 1)
4-08-2009 @ 2:57PM
Iridium said...
The biggest issue to deal with is whether or not the system has been repaired. In all reality it has not. One can argue that the system was never repaired after the Dotcom collapse. No real money was generated over the past 8 years.
If you look at the books the housing and commodity boom create vast ammounts of paper wealth that wasn't really based on an actual product being sold. All that was created was massive ammounts of debt sold as investments.
The money that was taken out of the pocketbooks of the working class through the massive rise in commodities was money that should have gone to repay the debt obligation of the nation. When billions were diverted from the repayment of debt the value of the intital investment went south.
Anyone with a rational mind could see that the collapse was inevitable. You can't make money out of nothing. You could aslo see that the jobless recovery after the dotcom collapse could not support the ever increasing cost of housing.
The working class made far less in real income yet they were supposed to be able to afford a triple digit increase in the cost of living. A rosy outcome was impossible.
Wages have yet to increase back to the point before the rise of the dotcom in many industries. In the late 90s the average starting salary in my profession was $70k a year. In 2008 you would be lucky to land a starting job at $35k. In fact the average salary today with 10 years of experience is around $70k.
So today with ten years of experience you are lucky to make what a green rookie out of college would have made in the late 90s. When you look at the cost of living increase since then you can easily figure out why a $215k median price of housing was way too high.
Until we get wage stagnation under control the economy can only go down until it reaches a point where th ereal wage can match the real cost of living.