Oct

26

In a recent Bloomberg interview, Roubini says that markets are dysfunctional, there are no natural buyers, markets are in a situation of deleveraging, capitulation and total panic. He says to stay away from the US dollar, which appreciated too much. Stock prices will plunge another 20-30%. Relative economic, political, geostrategic power of the US over time will be eroded and reduced. It is likely we will experience a L shaped recession with long term economic stagnation. Not really an optimistic view I must say. Sen. Obama has a clearer idea of how to solve the crisis. He said a laissez-faire approach at this time cannot work. I was skeptical when I heard him speak at the beginning of this year and then the economy and markets spiraled down as he predicted.

I do not have enough information or the crystal ball to assess whether he is right or not, however, his "predictions" are quite scary. But are we really able to predict how this crisis is going to evolve? Being optimistic may sound silly at this point. The crisis is spreading to East Europe, smaller governments may default, there may be a currency crisis. The speed of this meltdown in the past weeks has been impressive. Are there any positive points? For the moment I do not see many, unless you believe that market forces will start again to price assets orderly and investors will see good value for money at these prices sooner or later. I believe, however, that we may see even a long rebound, but this crisis will have a long term effect. If you look at the charts, e.g. the Nasdaq, you can see that the bear market has actually started in 2000. The uptrend between 2002 and 2007 was only a long rebound. The long term bear trend has now resumed to print a C Elliot wave for the "secular" optimists or a wave 3 for the chronic bears.

Has the ability of creating wealth in our societies become a problem? If technology and innovation are not creating value in our economies, it may the bad sign of the shifting of geostrategic power to other powers of the world. The challenge is intellectual. We need to rethink if we want to tackle this challenge, and how our societies can re-organize and re-assess their life-style, their education, financial and industrial system.

Nigel Davies responds: 

Quite a few people have predicted something like this, though they tend to differ on how it will play out. The big unknown is how we react to this crisis, for example it's a moot point about whether we should have tried to prop the thing up at all.

One very interesting feature to emerge from this is that the World's nations have come to a very sudden understanding that we're all linked economically. So hostile acts vis a vis oil, for example, end up rebounding. I wonder if this will be the great good that emerges from this crisis, an awareness of our shared predicament.

GM Davies is the author of Play 1 e4 e5: A Complete Repertoire for Black, Everyman, 2005


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4 Comments so far

  1. Dan Sturzenbecker on October 26, 2008 1:21 pm

    Markets tend to create their own reality, and they sometimes do it very quickly. I was reminded of this after Hurricane Ike hit Texas and word started spreading of a possible gasoline shortage due to refinery and pipeline shutdowns. Within hours, service stations in many Southeastern metro areas had been drained of supply by a rush of motorists filling their tanks before it was too late. Without a doubt, if enough people distrust the system, the system will collapse. We should remember, however, that the alternative to the system is likely to be a horror show. I don’t fancy the prospect of watching the Ministry of Plenty dole out corn flakes for the next 20 years.

  2. Brian Kuebler on October 26, 2008 10:24 pm

    “The challenge is intellectual.”

    Well, maybe. But I think the human race has plenty of intellect. The problem is we’re crazy.

  3. reid wientge on October 28, 2008 9:56 am

    Byron Wien, more than 10 years ago, predicted the collapse of the US into third world status based on his predictions for the value of the USD.

    There is no hope for sustainable economic growth as long as “we” is defined as governments and NGO rather than free people trading openly in a free society.

  4. David Whitesel on November 2, 2008 9:42 am

    On Silicon Investor i have been reading each and everyone of Mr. Roubini’s summations in one form or another for the last five years. Perhaps its the nature of the business, to seed the well and see what will sell, then package or elevate a new and better mouthpiece to suit the forward task.

    Information is only as good as the sensory organs delivering it.

    congratulations mr roubini, your the newly chosen one, from a long line of chosen ones….reminds me of the whirlwind period of one Lester Thurow….whose predictions on imports and trade deficits set the fear world on fire some many years ago.

    Mr Thurows big predicition of loss of power was easily defeated, but few bothered.

    On so many levels, all i see is another jack in the box

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