Re: Roubini
Posted by WARREN MOSLER on January 14th, 2009
(email exchange)
>
> On Tue, Jan 13 at 5:48, Morris wrote:
>
> He believes most market participants correctly expect the first half of ’09 to be
> weak but he thinks most expect a second half recovery which says won’t
> happen.
>
Depends on the fiscal package. He could be right.
>
> To him the FED is pushing on a string.
>
He doesn’t realize it’s always pushing on strings.
>
> When he first suggested that financial losses would be $1 trillion and then
> inched up to $2 trillion no one agreed with his analysis; at this point it looks
> like the actual number for ’08 will be north of $3 trillion.
>
Only because of a total failure of government. I thought they’d do a Q3 fiscal package.
>
> He maintains the banking system is insolvent
>
Always is on the way down. As soon as things turn up it isn’t anymore.
>
> And the credit crunch remains severe. The government will have to contribute > another $1 trillion to the banking system to enable lending.
>
No, delinquencies will have to fall and systemic creditworthiness to enable lending.
>
> His estimate is that the recession will end in Dec ’09 but in 2010 growth will be
> a disappointing 1-1 1/2% so the recovery will be very tepid and not help
> valuations. At present he sees 60% of global GDP contracting and he looks for
> earnings disappointments out of capital goods and technology companies due
> to muted spending.
>
Agreed.
>
> China GDP will grow at best 5% in ’09 which is the equivalent of a hard landing
> and may be worse. Russia will decline 2-3% in ’09. Commodity prices might
> decline an additional 15-20% and we face deflation pressures.
>
Not with a real, trillion plus fiscal package.
>
> The governments response is aggressive but the markets are overestimating
> their effectiveness.
>
Don’t agree. They will be very effective if they are large enough.
>
> This is a solvency not just a liquidity crisis.
>
Usually is only a solvency crisis.
>
> His three main points are: 1) We are facing an ugly synchronized global
> contraction. 2) Forecast of all firms EPS growth is “delusional”. For ’09 the S&P
> will at best be $60 and could be $50 with a P/E in the range of 10-12X.
>
Very possible without the right fiscal package.
>
> The effect of those projections would result in the market declining 20-25% in
> the mildest case and up to 30-40% in his “worst case scenario”. 3)There
> remains room for financial shocks. We no longer face a total financial systemic
> shock but it could take another 2-3 years of increased individual household
> savings to repair balance sheets before consumption can grow.
>
Will take far less than that with the right fiscal package. Government deficit = non government savings
>
> Unemployment can hit 9 1/2% by mid 2010.
>
Maybe, it’s a lagging indicator.
>
> We have too many zombie institutions and the government has to permit
> more to fail…he did not name any.
>
There aren’t many he could name.
>
> Real estate liquidations cost US financial institutions 20 cents on the dollar so
> he prefers government loan modifications as being more efficient and a
> cheaper alternative.
>
I prefer a payroll tax holiday, which should have happened in September, to restore the ability to make mortgage payments.
>
> There remains no asset class in which to hide. These are globally synchronized
> problems. He is long term bearish the dollar which needs to decline to help
> the export sector.
>
It might decline but doesn’t have to for the purpose of helping exports.
From his previous writings he’s way out of paradigm but has been right for many of the wrong reasons.
[top]
January 14th, 2009 at 8:49 am
Tax issues from
Bloomberg: 3w.bloomberg.com/apps/news?pid=newsarchive&sid=aNBAnLWYFToQ
Excerpts:
Democrats in Congress may cut the share of the economic stimulus package dedicated to tax cuts below the $300 billion or more that President-elect Barack Obama is asking for, House Ways and Means Committee Chairman Charles Rangel said.
“The tax cuts will go in with 300 or less,†Rangel, a New York Democrat whose committee writes tax laws, said after a closed-door party meeting. He didn’t give details.
Republicans said more tax cuts were needed in the stimulus. Senate Minority Leader Mitch McConnell of Kentucky said one idea discussed during a Republican caucus lunch yesterday was a two- year suspension of the payroll tax as part of the stimulus.
“It’s worth taking a look at,†McConnell said.
Resp,
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jcmccutcheon Reply:
January 14th, 2009 at 11:04 am
So we’ve got democratic party leaders saying we’ll give everybody a $1K dollar payroll tax cut with republicans leaders countering with a 2 year payroll tax holiday, possibly 10K?
I am reading this right?
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warren mosler Reply:
January 14th, 2009 at 2:36 pm
yes, reps like tax cuts that ‘starve the beast’ the great communicator once said. dems don’t like that- want a larger public sector, etc.
i don’t have much use for either of the parties
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January 14th, 2009 at 9:01 am
The Great Roubini… Coming up with an S&P target by slapping a PE multiple on trough earnings makes for a great headline, but seems a bit beneath an NYU prof.
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January 14th, 2009 at 2:54 pm
A payroll tax holiday does not do much for retirees, savings of whom are among the hardest hit by the market decline. As the baby boomers retire over the next 10 years, they will gradually reduce aggregate contributions to savings and retirement plans plus start taking Social Security payments. They will also (not often mentioned) tend to reduce consumption (reduced need for a new car, dry cleaning, shoes, meals out, new house, new furniture, new gadgets, family vacations, etc.) and do more for them selves (home and auto repairs and maintenance). This will be a head wind for economic recovery and stimulus packages that may not be fully considered … yet.
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jcmccutcheon Reply:
January 14th, 2009 at 3:08 pm
But the will “consume” more health care.
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January 14th, 2009 at 3:10 pm
and there is no limit to the scope of fiscal adjustment to sustain output and employment if that’s a political goal
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January 14th, 2009 at 3:27 pm
Roubini is not out of paradigm, he just has an inherent anti-America bias. He always has. That means he’ll adopt whatever paradigm necessary to paint doomsday scenarios for the United States. There are lots of people like that: Jim Rogers, Peter Schiff, Stephen Roach, to name a few.
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January 14th, 2009 at 4:55 pm
good to know, thanks!
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January 14th, 2009 at 7:24 pm
I would not classify Roubini as being anti-American, and I’ve been reading his stuff for a couple of years now.
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January 14th, 2009 at 8:47 pm
ok, I’ll leave it as some think he is and some don’t.
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January 14th, 2009 at 9:46 pm
Roubini 2004: “US as Net Debtor: the Sustainaility of US External Imbalances”
This piece is out of paradigm in the sense that Roubini doesn’t see exports as a cost and imports as a benefit, and doesn’t appreciate the US floating fx regime with regard to the “sustainability” of trade deficits. This lead him to forecast a big dollar decline and a big rise in interest rates in order to “finance” the ever increasing net debt position.
Roubini was right about the crisis indirectly because the trade deficit that so consumed him was a symptom of a real risk factor, rising personal sector debt that eventually ran into an income constraint. His more recent research focuses more on this real risk factor and he often sites Wynne Godley. So in that sense, he is in PK paradigm.
Schiff has been right about the US housing crisis and the stock market plunge, but told his clients to buy European and Asian stocks instead. Oops. The name of his firm is Euro Pacific for a reason. His “anti-Americanism” is just basic self-interest.
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