Dr Doom Warns More Doom Ahead!

The worst is still ahead of us, warns Dr Doom, Nouriel Roubini. He was interviewed by Boomberg and wrote an article in Foreign Policy in early January 2009.

Summary of Key points here:

1. While the odds of a systemic financial meltdown have been reduced by the actions of the Group of Seven and other economies, severe vulnerabilities remain.


2. The credit crunch will persist and spread beyond mortgages. Deleveraging will continue, as thousands of hedge funds - many of which will go bust - and other leveraged players are forced to sell assets into illiquid and distressed markets, thus causing price declines and driving more insolvent financial institutions out of business. Credit losses will mount as the recession deepens. And a few emerging-market economies will certainly enter a full-blown financial crisis.

3. So 2009 will be a painful year of global recession and further financial stresses, losses and bankruptcies.

4. Certainly, the United States will experience its worst recession in decades. The formerly mainstream notion that the U.S. contraction would be short and shallow—a V-shaped recession with a quick recovery like the ones in 1990–91 and 2001—is out the window. Instead, the U.S. contraction will be U-shaped: long, deep, and lasting about 24 months (probability is two-third). It could end up being even longer, an L-shaped, multiyear stagnation, like the one Japan suffered in the 1990s (probability is now rising to a third).

5. Only aggressive, coordinated and effective policy actions by advanced and emerging-market countries can ensure that the global economy starts to recover -- however slowly --in 2010, rather than entering a more protracted period of economic stagnation.

6. As the U.S. economy shrinks, the entire global economy will go into recession. In Europe, Canada, Japan, and the other advanced economies, it will be severe. Nor will emerging-market economies—linked to the developed world by trade in goods, finance, and currency—escape real pain.

7. This scenario is dangerous for many reasons. A number of central banks will be close enough to setting interest rates of zero that their economies fall into a triple whammy: a liquidity trap, a deflation trap, and debt deflation. In a liquidity trap, the banks lose their ability to stimulate the economy because they cannot set nominal interest rates below zero. In a deflation trap, falling prices mean that real interest rates are relatively high, choking off consumption and investment. This leads to a vicious circle wherein incomes and jobs are falling, with demand dropping still further. Finally, in debt deflation, the real value of nominal debts rises as prices fall—bad news for countries such as the United States and Japan that have high ratios of debt to GDP.

More Fengshui Stock Market Predictions 2009

Here are their Stock Market Predictions:

Hong Kong Fengshui Master:

1. Quite a few world leaders in 2009 were associated with "Yin Earth", including US President-elect Barack Obama and French president Nicolas Sarkozy. People belonging to the Yin Earth tend to be more charming and charitable. They love peace rather than war. They are usually the ones who contribute to science and humanity. However, he did not expect Obama or other state leaders to be able to turn around the global economic situation in 2009 because the element of fire - which stands for the force that motivates financial activities - is missing for most of next year. It is a year for Obama to lay the foundation for his administration, rather than achieve anything.

2. Financial markets will go up a little in the first couple of months but this will be short-lived. Investors are bound to be disappointed in the end.


Malaysia Fengshui Master:

1. First half of 2009 will be all right, while the second half will see deterioration.

2. The financial tsunami needs to happen. 2008 up to 2010 will be the rebuilding years, before wealthy times appear.

3. There will be a little spring appearing in mid-2009, which is a false image. People will think this spring marks the start of a rally. Things will in fact go down after that. My advice is for investors to ride on the wave of this little spring when it happens. Use this opportunity to sell.

(My comments: the little spring is likely to be in first quarter only)