財經觀察 2035 --- ROUBINI AT ML\'s RISING STAR CONFERENCE

Basic synopsis of his comments as follows.

Where are we in the crisis - a case of good news / bad news

The good news:
Things have improved since Lehman thanks to- Liquidity injections Deposit guarantees Financial institution re-capitalisation

The Bad News:
Liability side of Balance Sheet has been dealt with - but asset side problems remain. Roubini believes credit losses will be US$3.6trn (current IMF f/cast US$2.7trn) Reducing leverage ratios for banks will take another US$700bn. Sub prime issues extending to prime, student loans, car loans, credit cards etc., etc

US Economic Outlook
He sees a U shaped recovery of 24+ mths duration (currently in the 17th
month) Policy action has been aggressive ( and required in his view to avoid depression) He thinks probability of extended L shape has reduced from 30% to 15% Consensus US growth f/casts iof 2% in 4Q CY09 and 2010 are too high He expects -2% in 4q and +0.5% in 2010

Global Outlook
Hard landing is far reaching
Eastern Europe and LatAm facing major financial crises Acknowledges there has been stabilisation Emerging Market recovery is dependant on Developed Market recovery Asia has not de-coupled, but rather re-coupled because of trade and financial links Asia spending too much on growing capacity and not enough to stimulate domestic consumption eg. China

Why is he so Bearish?
Many countries are over-leveraged.
US consumption has further to fall. Now 70% of GDP back from a high of 72% against a historical average of 65% Financial institutions decimated and semi-bankrupt Still to be hit by the Private Equity mis-priced LBO overhang Huge leverage being transferred to sovereign balance sheets increasing very real risk of default for even developed countries US Corporates in trouble given high yield debt issuance.

How to fix the Banks?
Creeping nationalisation is not helping. Paradoxically, outright nationalisation would be more mkt friendly. Current measures (creeping
nationalisation) creating zombie banks - will extend the crisis Need to swap debt for equity - a la Chapter 11

Thinks we see "Stagdeflation"
Deflation pressure to last another 2-3 years Given gap between supply and demand pricing power not returning Slack in labour markets Slack in commodity markets - sees downside risk to prices in 2010 Politically easier decision to print more money than to raise taxes / cut spending

The Rally?
Thinks it is a Bear Market Rally
Market looks forward but is not always right Market has predicted 16 of the last 9 recessions and 6 of the last 0 recoveries! Macro news will surprise on the downside, largely driven by falling consumer demand from job losses. Corporate earnings to miss expectations in coming quarters. This qtr was OK reflecting cost controls (job cuts) - positive impact is short term.

And some quick comments on:

US$
Remains strong. Things are bad in the US but they are as bad if not worse elsewhere US Treasuries the only true AAA rates asset

Near term model portfolio?
Underweight equities, commodities, real estate Long Governement bonds with low sovereign risk

Gold?
The fear trade is dead. Bearish

Oil?
Actually thinks it looks OK medium term. Demand to rise, supply to be caught short (again) by under-investment. Production largely in areas of low political stability

The Final Word?
Audience (600 odd) straw polled at the conclusion of the presentation if Roubini should be know as Dr. Doom or Dr. Reality. The vast majority voted for the latter.