Investing

Dr. Doomlove, or How Nouriel Roubini Learned to Stop Worrying


Though my peoples’ Day of Atonement is still nine months away, I would like to start this essay with an admission of regret, for this spectacle, the lowest point of my journalism career. It was Feb. 9, 2009, when, as a CNBC co-host, I foamed at the chance to interrogate doomsayers du jour Nouriel Roubini and Nassim Nicholas Taleb. Picture the scene and relive the reflux: Markets were staging a generational swoon, banks were failing left and right, the unemployment rate was spiking. This was no time to rain on Roubini and Taleb’s Davos-dispensed econpocalypse.

Or was it? Read on.

Understand, please, Paul Krugman and Columbia Journalism Review, that I merely wanted the two academics—both of whom, after all, had experience in trading and asset management—to tell me and the viewers what we had to do if, as they presaged, the system collapsed; otherwise, they were just their to talk their book. Instead, I got ripped in the journo blogs as a stock tout and came back to a voice-mail box full of invective from so many Dr. Doom groupies. No, not those.

Bad on me for freaking out when I could have intelligently engaged these scholars, who sat for a rare joint appearance on live TV. Honestly, if I could do it all over again, I’d ask softly: “O.K., so let us grant that everything you predict will happen. What should investors and savers do? What about those on the brink of retirement or their kid’s college education? What if we were closer to the end of this crisis than its beginning?”

As Robbie Robertson once posited, you can’t predict the future and can’t forget the past. But with the benefit of hindsight, we now know that the date of that regrettable interview was exactly one month before stock and risk assets the world over set a once-in-a-lifetime-opportunity low, ahead of a roaring bull market that continues into the current all-time high on the Dow Jones industrial average. Everything went on to soar: junk, tech, real estate. Had you bought a rabid raccoon on Feb. 9, 2009, you’d probably be tallying capital gains now.

Why do I so gaze at my navel now, you ask? Well, Nouriel Roubini, who enjoyed a “great” recession indeed, just stepped up to the mic to wax optimistic on 2014. In his outlook for the year, “Dr. Doom” forecasts tail risks becoming “less salient” as developed economies grew at an annual pace of just under 2 percent, with a boost from the resurgent U.S.

In turn, he wrote on Project Syndicate, “Brisker recovery in advanced economies will boost imports from emerging markets. The Fed’s exit from quantitative easing will be slow, keeping interest rates low. Policy reforms in China will attenuate the risk of a hard landing. And, with many emerging markets still urbanising and industrialising, their rising middle classes will consume more goods and services.” Roubini pegged emerging market growth at around 5 percent this year.

While Roubini’s signature prediction of a housing-led economic collapse happened in 2005, he’s been less on-target since. In March, he told CNBC that a market correction was in the offing for the second half of 2013—a year that ended up hosting 52 record highs on the market and a 30 percent calendar return, sans correction. In June, during the now-forgotten Taper Tantrum, he warned that the Federal Reserve’s exit from stimulus would be “treacherous” and would foment financial instability. Merely three months later, Roubini U-turned a bit to predict that the U.S. would in a better position than most developed economies, leading to a stronger dollar and a soft landing for bonds. In 2011, Roubini reportedly tried to sell his consultancy just two years after planning to grow that business sixfold.

Did you invest alongside fellow subprime doomsayer Meredith Whitney? What about the New Normalcy equity alarmism of Pimco, which was hit with mega outflows last year? Elaine Garzarelli predicted the Crash of 1987 … and then? Today, recluse Ivan Boesky might be more likely to appear on CNBC.

“History tells us to avoid the future forecasts of any seer who lands a major outlier,” says wealth manager and Bloomberg columnist Barry Ritholtz. “Subsequent predictions tend to be even worse than the crowd’s. There are a slew of one-trick ponies out there.”

The immutable moral of the story: In the end, none of us—no matter how right we last were—truly knows where anything is headed. Take comfort in this.

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Farzad is a Bloomberg Businessweek contributor. Follow him on Twitter @robenfarzad.

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