In the Q&A session, I asked Nouriel three questions:
- How can he explain the schmeissing in U.S. equities when, at the same time, certain risk measures (lower bank swap spreads, Libor, junk bond yields, a higher euro, etc.) and risk markets appear to have stabilised?
- Could the U.S. stock market be attractive in light of generally reduced economic expectations and lower corporate profit assumptions?
- Could the U.S. stock market be attractive with markets selling at less than 12x realistic 2011 S&P 500 profits vs. an historical average of 15.5x and at 17.0x when interest rates and inflation are quiescent?
On the first question, Nouriel agreed with my observation that, unlike the May swoon, risk metrics had stabilised. I was delighted to hear that he said he now recognises that his principal role is as an economist, as he has learned over the past few years that there are other influences that affect the equities market and that the stock market and the economy are often (especially on a short-term basis) out of sync. On the second and third questions I asked, he felt that the stock markets were still discounting higher and unrealistic economic growth and corporate profits. I responded that my impression is that economists have ratcheted down economic and profit forecasts — many of whom are not materially higher than him now. On question three, he admitted that, absent another dislocation, stocks might be cheap relative to history.
Before Sunday, I had never met Nouriel Roubini. I came away from yesterday’s lecture not learning more than when I entered but thinking that he is more well-intentioned and perhaps even more studious than I previously thought. He is an engaging speaker, and he seems to be a very nice guy.
So, in the future, I plan to go easy on the guy — perhaps in the hope that he will invite me to one of his infamous parties!
Party on, Nouriel!
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