Nouriel Roubini Stock Market 20% Drop Forecast, Time to Buy?
Stock-Markets / Stocks Bear Market May 23, 2010 - 04:47 AM GMTBy: Nadeem_Walayat
According to CNBC, Dr Doom Nouriel Roubini has issued a call that the stock market is expected to fall by as much as a further 20%, not stopping there he also stated that a double dip deeper deflationary recession is likely. Roubini made his call on Thursday with the Dow trading at 10,185.
Roubini stated that he expected the stock market to sell off by 20% over the next few months and a double dip deeper recession. He made some recommendations including buying put options, investing in cash and short-term government bonds of countries such as Germany and Canada, he also expects the Euro and commodities to fall over the next few months.
As expected the gold fish memory mainstream press has lapped up Nouriel Roubini's comments and run ahead to regurgitate the headlines in promotion of his latest book. So, despite it being a rare sunny day here in the UK, I have taken the time to do some proper research to evaluate Nouriel's market calls over the duration of the bull market which bottomed in March 2009 (15 Mar 2009 - Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470 ).
Nouriel Roubini's Stock Market Calls 2009-10
9th March 2009 - Back at the stock market bottom in early March 2009, Nouriel forecast that the S&P would fall from 676 to below 600 during 2009- Bloomberg :
“My main scenario is that it’s highly likely it goes to 600 or below,” Roubini said today in an interview at the Chicago Board Options Exchange Risk Management Conference in Dana Point, California. A level of “500 is less likely, but there is some possibility you get there.”
26th March 2009 - Then again a couple of weeks into the stealth bull market rally, Roubini emerges to state - Bloomberg - Roubini Says Stocks Will Drop as Banks Go ‘Belly
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.
Though the economists that populate the bankrupt bailed out banks did not do much better.
Merrill Lynch & Co.’s chief North American Economist David Rosenberg said today the S&P 500 may bottom out at 600 in October, lowering his estimate after the benchmark’s decline last week. That level is about 20 percent below November’s level of 752.44, which was then widely viewed as the “fundamental low,” Rosenberg said.
21st April 2009 - Soon as the market dips for a few days Roubini is back - Straight Times
Mr Roubini, a professor at New York University's business school and former adviser at the US Treasury Department, also said he expected China's economy to grow up to 5.5 per cent this year, missing the government's 8 per cent target.
Hopes the world economy will stage a faster recovery this year have fueled a six-week rise in global markets, with major benchmarks on Wall Street and in Asia up more than 20 per cent over just six weeks. But Prof Roubini was doubtful and predicted markets would test the lows seen in March.
21st April 2009 - And again in the Independent.
While an increasing number of analysts have in recent weeks urged investors to go back into equities, Mr Roubini, a professor at New York University's Stern School of Business who has emerged as one of the most respected economic voices in the wake of the credit crunch, warned yesterday that he didn't yet see a buying opportunity.
He holds little faith in the recent market rallies, which prompted some to suggest a recovery was underway. "I'm still cautious and bearish," he said. "I believe we are closer to a bottom in the stock market than a year ago, but this is a bear market rally."
July 2009 - Back in July as the Stealth bull market again corrected, Nouriel Roubini re-appears with another bear market call - Global Investor - Market bear Roubini sticks to dour forecasts
"Macro news, earnings news and financial shocks are going to be worse than expected and that's why I believe this is still a bear market rally," he told BNN
"I am more a realist than a pessimist. I'll be the first one to call for the bottom of this economic contraction, recovery of the market when I see a sustained economic and therefore financial recovery," he said.
28th October 09 - With the Dow falling to 9,800, Roubini calls for Stocks being ripe for 10-20% - USA Today -
"Investors are hoping for a V, but there are plenty of signs it could be a U-shaped recovery," he warns, adding that his base case — a 60% probability — is for a sluggish, U-shaped recovery. If his base-case scenario plays out, Roubini says, stocks will be ripe for a price correction of 10% to 20%.
6th Feb 2010 - Stock Market will be flat into the end of the year. BusinessWeek
The stock market will be “flat,” or almost unchanged, through the end of the year, New York University professor Nouriel Roubini said yesterday in a Bloomberg Television interview.
20th May 2010 - Which brings us to the present, with the Dow at 10,185 Roubini calls for a 20% drop on CNBC over the next few months.
Readers can draw their own conclusions as to whether stocks are going to be nearer to 20% lower or higher in a few months time.
The way I see the stock market, it is not a battle between bulls and bears but a battle between those that will be wrong once and those that will be right once.
My last in depth analysis (16 May 2010 - Stocks Bull Market Hits Eurozone Debt Crisis Brick Wall, Forecast Into July 2010) concluded towards the following outlook for the stock market at Dow 10,620.
Stock Market Conclusion
Despite the flash in the pan crash and prevailing Eurozone sovereign debt default gloom and doom, the bottom line is that this is still a stocks bull market with the Dow ONLY down less than 6% from its bull market peak. Therefore the sum of the above analysis concludes towards the stocks bull market under going its most significant and a highly volatile correction since its birth in March 2009 (15 Mar 2009 - Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470 ). This correction could last for several months and may extend all the way into early October, which suggests that the next 2 months are going to see an ABC correction to be followed by a sideways price action between the extremes of 10,900 to 9,800 and so despite continuing wild gyrations I would not be surprised if the Dow is little changed from its last closing price of 10,620 in 2 months time (16th July 2010). Expectations remain for the bull market to resume its trend towards a target of between 12k to 12.5k by late 2010 after the tumultuous trading period over the next few weeks. I have tried to illustrate a more precise Dow forecast projection in the below graph, reality will probably end up being far more volatile.
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Source: http://www.marketoracle.co.uk/Article19717.html
By Nadeem Walayat
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Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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