Thursday, March 26, 2009

Bloomberg: Roubini Says Stocks Will Drop as Banks Go Belly Up

Sort of funny to see this blurb from Bloomberg since some commentators have been trying to spin Nouriel Roubini's "somewhat constructive" view on Geithner's taxpayer giveaway as "bullish". Nouriel is out to say - not so much. I am a bit confused by his recent focus on his making stock market calls rather than economic calls - many times the two can disassociate as Kool Aid floods the stock market. I do agree with the economic thesis... as for the stock market, we take it day by day since it is all about sentiment. As we said, 2009 would be the great battle between hope and reality - and thus far that call has been spot on.
  • U.S. stocks will fall and the government will nationalize more banks as the economy contracts through the end of 2009, said Nouriel Roubini, the New York University professor who predicted last year’s economic crisis.
  • The stock market is a bit ahead of the real macroeconomic and financial news,” Roubini, a professor at NYU’s Stern School of Business and the chairman of consulting firm Roubini Global Economics, said in an interview with Bloomberg Television in London today. “We’ll have some major banks going belly up that will need to be taken over.”
  • The global equity rebound in March that sent the Standard & Poor’s 500 Index to its best monthly advance in 17 years is a “bear-market rally” and U.S. Treasury yields will “remain relatively low” as investors flock to the safest assets, Roubini said. Treasury Secretary Timothy Geithner’s new plan to remove toxic debt from financial companies won’t be enough for insolvent banks, he said.
  • Roubini’s outlook contrasts with predictions this week from Templeton Asset Management Ltd.’s Mark Mobius and Traxis Partners LLC’s Barton Biggs, who said that equities are poised to rally as government efforts to revive the economy and banking system begin to work. Investors are “way too optimistic” about the prospects for a recovery in the economy and earnings, Roubini said. (I so agree with this point as the market has already turned from "not terribly valued" on my guess of 2009 estimates to "extremely expensive" in the past 3 weeks) Mobius, who helps oversee about $20 billion of emerging- market assets as executive chairman at San Mateo, California- based Templeton, said March 23 the next “bull-market” rally has begun. Biggs, the former chief global strategist for Morgan Stanley who now runs New York-based hedge fund Traxis Partners, predicted the same day the S&P 500 may jump between 30 percent and 50 percent.
  • Roubini, who predicts loan and securities losses in the U.S. will reach $3.6 trillion, said the stress tests will reveal that some banks need to be taken over and have their good and bad assets separated before being sold to the private sector. He didn’t name which companies he thought would need to be rescued. (it would be a farce if none of the banks failed, but farce is us nowadays in the country)
  • With “deflationary forces” lingering for as long as three years, Roubini said U.S. government bond yields will remain low and American house prices will fall as much as 20 percent in the next 18 months. (I agree that deflation will be the problem as the "output gap" is enormous, unemployment ramps in the coming quarters, and housing prices still have a long way to go: as I've been saying 90% of housing issues thus far have been BAD mortgages - we still have the next, more traditional recessionary, leg to go--> housing crisis from job losses) While the dollar will initially benefit as investors seek a safe haven in the U.S., the currency will ultimately drop as the nation’s trade deficit shrinks, he said.
  • Roubini dismissed China’s call for the creation of a new international reserve currency as a “pie in the sky idea” that’s unlikely to gain traction any time soon. (I agree here too; think Euro creation and multiply complexity by 100) “This was a political call and in a nut shell - it ain’t going to happen any time soon,” Roubini said.

[Mar 3, 2009: Nouriel Roubini Lollapalooza]
[Feb 6: What Would Roubini Do?]
[Jan 28: Roubini & Soros on Bad Bank]
[Dec 25: Nouriel Roubini Wishes You a Merry Christmas]
[Sep 30: Roubini on the Bailout - Thumbs Down]
[Sep 15: Nouriel Roubini with a Series of Videos on Yahoo Tech Ticker]
[Aug 20: Nouriel Roubini: "Told you So"]
[Mar 13: Scary Stat of the Day: Roubini Calling for $1 Trillion - $3 Trillion in Losses]

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