I give great credit to NYU economics professor Nouriel Roubini. Unless you reside on another planet, you know that he correctly predicted the mortgage-related crash.
Recently, "Dr. Doom" warned about a coming market correction. He believes "markets have gone up too much, too soon, too fast."
Should investors rely on Professor Roubini's crystal ball?
In its December 11, 2008 issue, Fortune Magazine featured a story entitled: "8 really, really scary predictions."
Titles that inspire fear and panic sell magazines. This fact is not lost on Fortune and others in the financial media.
Here is Professor Roubini's prediction for 2009:
For the next 12 months I would stay away from risky assets. I would stay away from the stock market. I would stay away from commodities. I would stay away from credit, both high-yield and high-grade. I would stay in cash or cashlike instruments such as short-term or longer-term government bonds. It's better to stay in things with low returns rather than to lose 50% of your wealth. You should preserve capital. It'll be hard and challenging enough. I wish I could be more cheerful, but I was right a year ago, and I think I'll be right this year too.
Year to date, the S&P 500 is up 23.99%; the Dow is up 17.73% and the Nasdaq is up a whopping 36.76%.
The S&P GSCI index, which benchmarks investment performance in the commodity markets, is up 11.65%. Industrial metals are up 68.87%.
In stark contrast, 12 month U.S. Treasuries are yielding 0.26%. Longer term (10 year) Treasuries are yielding 3.37%.
Clearly, Professor Roubini was right about 2008, but he was dead wrong about 2009.
As I indicated in last week's blog, his equally well credentialed colleague, Wharton professor and author, Jeremy Siegel, was shockingly wide of the mark with his 2008 stock market predictions.
Of course, professors, economists and others have a right to make predictions. The financial media has every right to print them. The problem is that so many investors rely on them, when they are nothing more than voodoo science.
That's really, really scary!
Dan Solin is the author of The Smartest Retirement Book You'll Ever Read.
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