Roubini, 3 Big Reasons Why This Rally Will Fail
Nouriel Roubini is one of the most popular economists currently today. Known to many as, “Dr. Doom” Nouriel does not shun away from stating his opinion (and being right more often than not) about the economy. Today on Yahoo Tech Ticker he shared his thoughts about the latest market rally that has seen prices jump over 30% since March lows.
Nouriel offers three reasons why he thinks the latest market rally is going to fail:
1. Volatility and Uncertainty Will Increase. Note: the CBOE Volatility Index is currently down more than 50% since the October panic.
2. Corporate Earnings Will Disappoint. He says the market is pricing in a robust ‘V’ shape recovery. However, when earnings miss expectations, buyers will turn into sellers, as was the case this week with FedEx (FDX). (Research In Motion , RIMM, shares were down early Friday after the firm’s guidance failed to live up to expectations.)
3. The Global Financial System Still Faces Serious Problems. Roubini thinks unemployment will rise to 11%, bank losses will increase across the globe, and the recession in Europe will get worse.
What will be interesting to see is how long it takes the market to fully turn back down if Nouriel is actually right. We have spent trillions to prevent disaster and the effects of what should be heavy inflation and the like may not be seen for some time.
In the end the consumer dictates what the economy will look like, and without easy access to credit via homes, credit cards, personal loans, etc. consumer spending isn’t going to be on the uptick anytime soon. It should be an interesting back half of 2009.
Video Below (NOTE: RSS and Email Subscribers click through to view the post on STTG to watch the video):
Source:
Nouriel Roubini’s Three Reasons Why Stocks Are Bound to Fall
Tech Ticker, Jun 19, 2009 10:00am EDT
If you look at the current chart of the S&P, you will see that the volume was increasing as the index fell. This is a bearish indicator that also makes me believe the rally cannot be sustained.
Very good article, though I am not as pessimistic as you. The US economy is not the global economy. China is seeing 7.5% GDP growth, the Middle East is awash with cash. Early estimates from the UK imply positive growth in April and May, month-on-month. Australia is benefiting from renewed demand for commodities. There are many ‘good news’ stories if one is willing to see them. Nevertheless, you raise excellent points.