As if to underscore the point I made below, Nouriel Roubini, also known as “Dr. Doom” has warned that the stock market seems to be rising on not much of anything:
“The real economy is barely recovering while markets are going this way,†Roubini said. If growth doesn’t rebound rapidly, “eventually markets are going to flatten out and correct to valuations that are justified. I see a growing gap between what markets are doing and the weaker real economic activities.â€
This also ties in to one of my posts over the weekend. What is the underlying growth rate in the real economy?
sigh
Has Nouriel Roubini shown a track record of predicting down turns and expansions that is better than most? Or did he just get one (of many) right and now he is being fetted as the new Oracle of Delphi?
Steve –
I think your hero worship remark is fair. However Mr. Roubini’s unwarranted day in the sun aside, I’m finding it hard to find reason for any optimism.
The negative wealth effect on spending from the home equity and and corporate equity market corrections is well documented. And although I believe those classes have reached approximate long term equilibrium now, its not clear that this engine – in effect for at least a decade – has any real horsepower to offer.
Further, as someone who traffics in the entrepreneurial world, I’m not getting any warm and fuzzies. And that’s both from the principal side and the seller side. Concerns about Pres. Obama and Congress’ current posture abound. If I employ will the costs skyrocket? If I invest will the demand be there, and if so, will my tax assumptions be correct? Will I just get fleeced for my efforts?
And don’t the SS and Medicare debacles make a large tax increase inevitable? Shouldn’t I hunker down?
Entrepreneurs have become turtles in their shell. And I didn’t even mention the banks, where capital adequacy still seems to be problematic.
Consumers continue to reduce their personal leverage, and make up for lost retirement savings that vaporized.
This is not a good fact set. Day to day consumer expenditures will necessarily continue, but the bigger ticket items seem to be deferrable……and deferred. I wouldn’t want to be a car manufacturer, washing machine maker, or hotel operator in Hawaii the next few years.
I’m not a doom and gloomer by nature. In fact my entire career has been based on the opposite. And yet, the structural problems I cited previously, plus a populist political posture that seems self defeating and 180 degrees out of step with what is required is a real bitches brew.
I’m thinking 1.5 – 2% GDP growth for several years at least.
That’s not disaster………………except for the 9-12% I foresee unemployed for quite awhile. Its as if we’ve become Europe, especially Italy and France.
Where is the demand going to come from? Personal savings need to be regenerated. Build all you want, produce all you want, there is no one out there to buy it.
Steve