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Nouriel Roubini Stock Market 20% Drop Forecast, Time to Buy?

Stock-Markets / Stocks Bear Market May 23, 2010 - 04:47 AM GMT

By: Nadeem_Walayat

Stock-Markets

Best Financial Markets Analysis ArticleAccording 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.

My weekly update will be going out later today, ensure you are subscribed to my ALWAYS FREE Newsletter to get this in your email box.

Source: http://www.marketoracle.co.uk/Article19717.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

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

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

gAnton
24 May 10, 11:05
To Error Is Human, To Forgive Devine

Roubini makes a lot of predicions. Maybe he's now and then wrong on the small stuff, but he's not world famous as a prognosticator because he's inept. If your going to give a catalogue of his errors (after all, it's a complex world and the markets are not free, but rigged), why not be fair and also include talk about his unique triumphs?


Nadeem_Walayat
24 May 10, 12:12
Roubini

CNBC invited a guest onto their show to make a stock market call without any analysis of his past stock market calls.

So far 100% wrong since the march 2009 low on the stock market

Whats the break even point ?


Firemagi
25 May 10, 03:13
Roubini

Roubini is a Hollywood perma bear. CNBC invites him when they're looking for a bear. That's how he gains his recognition - by being predictable. The analysts that aren't predictable don't get invited very often. It's all about show biz. His personal portfolio was probably long for most of 2009.


Nadeem_Walayat
25 May 10, 04:43
CNBC

Yeh, CNBC is a punch and judy show.


Lost
02 Jul 10, 16:04
question your opinion

with what is going on,,, lets say you are about to get your retierment back on aug. 1st,,, and it has dropped from what it was at and the people that is holding your retierment said that it could be put into money market and it would stay at what price it is at now,, but it won't go up or down,, or you can just wait and see if stock goes back up.... so what would you do???


Nadeem_Walayat
02 Jul 10, 20:00
retirement ?

if your that close to retirement you should have been in mostly cash long ago.

Stocks is for the long-term where 10% to 20% moves against you don't matter. Because your investing for the long-run, 5 to 10 years.

Under 1 year and you are at the mercy of the market.

Under 2 months and your asking for trouble.

Your risk / reward profile is too high. The aim of the game is to manage risk.

Holding a stock Investment for 5 years is low risk to hold now, less than 2 months is very high risk!


jibb
03 Jul 10, 07:54
the problem

The problem is we had to move from alaska back to the lower 48. I'm not 60+ but I had to pull it for the move i know i get a 10% tax on top of the 10%... thats fine but the problem the state of alaska makes you wait 60 days to get your money. they say its for there paper to make sure its all done.. I thought that on my last day whatever my funds where at is what i got back.. but come to find out no they let it go until the 60 days are up... my stocks where doing good but not anymore... and the compeny that its in won't do anything about it they said i can move it around on my own but i dont know much about it... and there is limited stocks i can move it to for some reason,,, was getting 27k now its down to 24 not much of a loss but don't want it to drop down to 5000 by agu.1st any ideas ?


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