ROUBINI: 'Short-Term Bullish, Long-Term Catastrophe'

Nouriel Roubini

Photo: Daily Ticker

NYU economist Nouriel Roubini – known to many by his nickname, “Dr. Doom” – is getting bullish.

Roubini has been pretty negative over the past few months, despite the rally in asset prices and a general turn in sentiment toward the economy and markets on the Street.

Now, it seems like Roubini is finally coming around to the consensus view. In a way.

Coincidentally, his latest interview – with Yahoo! Finance’s Aaron Task – comes hot on the heels of the biggest sell-off this year, and as Task notes, people like Dennis Gartman are now rushing for the sidelines.

Roubini told Task in the interview:

It’s not going to be that we are going to get a rout in the bond market, because the Fed knows that when they exit, they have to exit slowly – and they can hold to maturity.

So, if you’re not going to have goods inflation – if you’re not going to exit fast enough – then the risk is like during the cycle of 2003-2006, where we’re exiting very slowly. It was a measured pace – 25 basis points every six weeks, and we got what? An asset bubble. A credit bubble. A housing, a sub-prime bubble.

So, like Jeremy Stein at the Fed says, we are at the beginning of another credit bubble, because we are going to exit so slowly that the financial excess is not going to go into goods inflation; we’re not going to have a bond market rout.

Of course, a financial asset bubble implies good news for stock prices, at least until it bursts.

“Off camera, Roubini sums up his analysis of all this as ‘short-term bullish, long-term catastrophic,'” writes Task.

The bottom line for Roubini: “The outcome of it could be a credit bubble that’s bigger than the one we had in 2007.”

Click here to watch the full interview >

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