I had the pleasure of listening to Dr. Roubini in Singapore on Friday. Barclays Capital had arranged his talk, over lunch. He will also be present at the Nomura Investor Forum next week. He spent more time on the negatives in the world economy than on the positives. But, he refused to make a ‘perfect storm in 2013′ scenario as his base scenario. That perfect storm scenario arises when Europe, US and China realize that they can no longer kick the can down the road – Europe with its peripheral countries’ debt crisis, US with its fiscal policy and political polarization and China with its credit and investment binge.
His baseline scenario is one of ‘muddle through’ – in other words, the can will be successfully kicked further down the road! Developed countries would grow anaemically, developing countries will manage high growth and the problem area will only be peripheral European countries. How that would not infect the rest of Europe and from there, other parts of the world was not clear.
Two points he made are worth noting here: He thinks that the market is underestimating the risks of Spain’s market access in 2012. Spanish home prices rose more than even in Ireland and yet they have only dropped 11% as the market has not cleared. Hence, banks are left holding a lot of dud assets in their books which they had not written down. In other words, the s**t is yet to hit the fan.
On China, he foresees troubles after the handover next year. His salient observation is that no country that has binged on credit to invest – in real estate or infrastructure, it does not matter – has avoided hard landing. He does not see any reason why China alone should be the exception.[That should make you wary of Stephen Roach’s ten reasons as to why China is different. Even if he may well be right in the long-run, it might not stop a sharp economic slowdown near-term]
By and large, I got the impression that Dr. Roubini was trying to hard to live down his Dr. Doom image. But, to his credit, he did not succeed with me.
(BTW, just finished seeing ‘Inside Job’, the Oscar-winning documentary on You Tube. If you had not seen it yet, please do so at your earliest convenience)