He Predicted 2008 Financial Crash. Now, Warns Of ‘Long, Ugly’ Recession

Economist Nouriel Roubini, who correctly estimated the 2008 financial crisis, saw a “long and bad” recession in the US and occurred globally at the end of 2022 which could last throughout 2023 and sharp correction in the S&P 500.Even in the Vanilla Plain Recession, the S&P 500 can drop 30 percent,” said Roubini, chairman and chief executive of Roubini Macro Associates, in an interview on Monday. In “A real hard landing,” that he hopes, it can fall 40 percent.

Roubini, a prescience in the destruction of the 2007 housing bubbles to 2008, made him nicknamed Dr. Doom, said that those who expect a shallow US recession must see the large debt ratio of the company and the government. As the tariff increase and debt service costs increased, “Many zombie institutions, zombie households, companies, banks, shadow banks and zombie countries will die,” he said. “So we will see who is swimming naked.”

Roubini, who has warned through the bull market and bear that the global debt level will drag stock, saying that reaching 2 percent inflation without hard landing will be an “impossible mission” for the federal reserve. He expects an increase in interest rates 75 bases at the current meeting and 50 basis points in November and December. It will lead the Fed Fund rate at the end of the year to between 4 percent and 4.25 percent.

But a persistent inflation, especially on wages and service sectors, will mean the Fed will “may not have a choice” but to climb more, he said, with a funding rate to 5 percent. In addition, negative supply shocks originating from Pandemi, Russian-Ukraine conflicts and zero Covid China tolerance policy will bring higher costs and lower economic growth. This will make the goal of the current “Growth Recession” of the Fed – the protracted period of a small growth and an increase in unemployment to stem inflation – difficult.

Once the world in the recession, Roubini did not expect fiscal stimulus drugs because the government with too much debt “ran out of fiscal bullets.” High inflation also means that “If you do a fiscal stimulus, you are too hot to heat up aggregate demand.”As a result, Roubini saw stagflation as in the 1970s and massive pressure pressure as in the global financial crisisThis will not be a short and shallow recession, it will be severe, long and bad,” he said.

Roubini expects US and global recessions to last throughout 2023, depending on how severe supply shocks and financial pressure. During the 2008 crisis, households and banks received the hardest hit. This time, he said the company, and shadow bank, such as hedge funds, private equity and credit funds, “will explode”

In Roubini’s new book, “Megathreats,” he identified 11 medium -term negative supply shocks that reduce growth potential by increasing production costs. That includes deglobalization and protectionism, relocating manufacturing from China and Asia to Europe and the US, population aging in developed countries and developing markets, migration restrictions, separating the US and China, changes in global climate and recurring pandemic.

It’s just a matter of time until we will get the next evil pandemic,” he said.The advice for investors: “You must be light in equity and have more cash.” Although cash eroded by inflation, the nominal value remains in zero, “While equity and other assets can drop 10 percent, 20 percent, 30 percent.” In fixed income, he recommends staying away from long duration bonds and adds inflation protection from short -term treasury or inflation index bonds such as tips.