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Roubini: The New List Of Macro Concerns

 May 03, 2012 08:39 AM

(By David D Moenning)In September 2006, Nouriel Roubini – aka Dr. Doom – a warned a wary IMF that the U.S. was likely to face a big-time housing bubble bust, an oil shock, and decreased consumer confidence. Essentially, Roubini warned of a deep recession in the U.S., which came to pass. As such, whenever Roubini has spoken since then, people listen.

Although Roubini recently turned positive on U.S. stocks (for a short-term trade, which, by the way, wasn't a bad call), the notoriously negative economist is back with a new list of macro concerns. First, Dr. Doom is cautioning against the continued process of "painful deleveraging" in the advanced economies of Europe. Second, Roubini says the ECB is limited in its capabilities. And third, the price of oil is going to be a problem.

[Related -Has Warren Buffett Found The Best Investment In Oil?]

The chairman of Roubini Global Economics, a consultancy firm, honed in on these three primary points while at the Ambrosetti Workshop on the shores of Lake Como, Italy last month.

He began by accusing the fiscal compact and austerity measures of spoiling short-term geopolitical and economic stability.

"We need growth in the euro zone. We cannot just talk about austerity, because without growth that would be unsustainable."

Roubini explained that austerity measures ultimately exacerbate recessions and said he is anticipating additional strikes and uprisings along with governments weakening to the point of complete deterioration potentially.

The euro zone is expected by some to enter the second part of its double-dip recession this year. The "PIIGS," including: Portugal, Italy, Ireland, Greece and Spain continue to be causes for concern. (We will note that two of the Greece and Spain are already in recession at this time.)

[Related -The Return Of Crisis]

Moreover, the European Central Bank's mass liquidity injection, aimed to boost markets, only serves as a short-term solution.

"The painful problem of deleveraging is going to continue… You cannot resolve the fundamental problems with liquidity," said the "permabear," another moniker the media has given the economist.

He added that the European Central Bank is about capped, "close to the limit" of available funds to help boost Euro-economies.

In sum, Roubini blames the euro zone for causing global volatility in the markets and suggests that growth measures should be focused on at this point in time as austerity alone will not solve the continent's woes The next item on his list: the price of oil. 

Recent concern over supply, despite Saudi Arabia's promises, the situation in the Middle East is becoming increasingly explosive.

"This tension is going to rise throughout the year," he warned. "…There are going to be more sanctions, negotiations are going to fail and it's not just the Israel-Iran Issue."

If oil prices continue to rise – currently only $20 from their peak in 2008 at $145 per barrel – Roubini believes recession followed by stag-deflation and then a combination of recession and deflation is likely.



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