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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They are kind of like pagliacci-type clowns. People expect them to put out doom and gloom prognostications so they do; and they become more and more dire as they receive less and less attention in order to try and please.
It is clear as day.
It will crash.
There are many potentially very bad scenarios that could be lingering right over the horizon. From a fiscal disaster (bankruptcy) in any one of several states (or multiple states), to the collapse of an Eastern European country or Western European bank, to sudden weakness or even a collapse in China (which I expect in time), to the collapse of another US bank (Citi for example is insolvent if they followed true market to market accounting), to the impending commercial real estate disaster that will take out some major regionals, to another down leg in consumer spending and housing which will result in another downleg in unemployment (household survey showed 550,000 jobs lost last month) and foreclosures and lead to more failed banks, etc.etc - all these could lead to significantly lower equity values.
As far as the current yield on US treasuries, it doesn't matter how low they are. It's the price that matters, and that price will go up substantially if the equity market sells off. Short term paper has already gone up dramatically in recent weeks, and up exponentially from a few years ago.