Applying Roubini wisdom to stocks means missing out

NEW YORK: Making money on the thinking of Nouriel Roubini isn't what it used to be.

The New York University professor, who in 2006 foretold the worst financial unraveling since the Great Depression, has yet to say the economy is worth investing in again. "There is a big risk of a double-dip recession," wrote Roubini, also known as Dr Doom, in his column in the Financial Times last week.

Anyone attempting to apply Roubini's wisdom to stocks may be forgiven for missing the biggest rally since the 1930s as the Standard & Poor's 500 Index climbed 52 percent in six months. While Roubini said in March the advance was a "dead-cat bounce", that it may "fizzle" in May and warned in July that the economy's "not out of the woods", the MSCI World Index was posting a 58 percent gain, the largest since it began in 1970.

"We're looking at a bull cycle in phase one," Laszlo Birinyi said in a telephone interview. Birinyi was the top-ranked Dow Jones Industrial Average forecaster for most of the 1990s on PBS' Wall Street Week with Louis Rukeyser.

"No one wants to come out and say, 'This is a bull market.' Everyone's just dancing around the term," he said.

The S&P 500 added 14 percent since Westport, Connecticut-based Birinyi Associates Inc, which manages $350 million, said on May 20 that a bull market had begun, according to data compiled by Bloomberg. Roubini, who forecast in October 2008 that the US was in a recession that would last 24 months, said on March 9 that the index might fall back to 600. It has risen to 1,028 since then.

About $4 trillion has been restored to US equity markets since March following better-than-forecast corporate profits and signs of an improving economy.

More than 72 percent of the S&P 500's companies beat analysts' average estimates for second- quarter earnings, matching the highest proportion since Bloomberg began tracking the data in 1993. The Conference Board's index of leading economic indicators has risen four consecutive months.

Roubini's July 2006 warning about the financial crisis protected investors from losses in the S&P 500's worst annual tumble in seven decades. He also correctly warned investors to avoid stocks following the steepest advances in 2008.

On Dec 12, he said US stocks might fall 20 percent after the S&P 500 gained 17 percent in three weeks.

The index lost 23 percent through March 9, 2009. During an 18 percent jump in the index between Oct 27 and Nov 4, Roubini warned the S&P 500 might reverse course and lose 30 percent. It dropped 28 percent through March.

He may have missed this year's bull market because Roubini isn't focused on stocks, according to Birinyi.

Roubini has "done a very good job on the economy", Birinyi said in an interview on Aug 24. "Our approach is to try to understand the market and not try to do much more than that."

Jonathan D. Goldberg, a New York-based spokesman for Roubini, said he wasn't available to comment because he's on vacation.

Roubini, 51, wrote last week in the Financial Times that the economy may worsen again even after it stops shrinking this year.

The global contraction will bottom in the second half of 2009, and the recession in the US won't be "formally over" before the end of the year, he said.

The forecast was a reiteration of Roubini's call for an 18- to 24-month contraction that he made in October 2008. The recession began in December 2007, according to the National Bureau of Economic Research's Business Cycle Dating Committee.

Bloomberg News

(China Daily 08/31/2009 page11)