What we're reading — "Dr Doom's" latest take on markets
02 February, 2016
Nouriel Roubini is widely known as "Dr Doom" and is one of very few economists to have predicted the housing bubble crash that led to the 2008-2009 global financial crisis.
In February 2013, Roubini predicted that US markets had entered the "mother of all asset bubbles" and that the bubble, bigger than 2008, could well burst in 2016.
In a recent interview he updated his 2016 view.
"No, I don't expect it's 2008 again. I don't expect a global recession or financial crisis.
The current turmoil is driven by a bunch of factors, primarily concern that China might have a hard landing and collapse of its stock market and currency.
My view of China is that it's going to have a bumpy landing, not a hard landing. Growth this year might be 6% going to 5%. Those who say it's slower don't realise that the service sector is rising and growing much faster than the manufacturing sector.
The US is slowing down, especially manufacturing. And the fall of oil prices is a negative, at least in the short run, because the US is a major producer of oil and energy. But more importantly, it's not just a supply shock that is driving oil prices but concerns about global demand — China, emerging markets, and weakening demand are negative for the global economy.
The Middle East is a mess. And even in Europe, there's terrorism and the migration crisis, the risk of Grexit, the risk of Brexit, austerity and bailout fatigue — there are plenty of issues that can go wrong. So, suddenly, the market is becoming nervous and there's a correction.
Whether the correction becomes a true bear market depends firstly on whether these shocks are more or less persistent or less persistent, and second, on the policy response.
At this point, the PBOC (central bank of China) will have to ease more. The Fed will have to signal more clearly they're going to wait longer before they hike rates again. And the European Central Bank and the Bank of Japan will have to ease more.
If all central banks try to do more, you can maybe stop or reverse this particular correction. If you don't have a strong policy response, this could become an outright economic slowdown."
Fisher Funds view: We think Roubini's summary of the 2016 market outlook is right on the money. We expect a continued commitment by central banks to manage their settings to achieve growth and inflation will see a recession or crash averted.