Search Results for: Nouriel Roubini

Nouriel Roubini’s Latest – Must Read

(NOTE: There are many more NR articles on this blog, going back to 2006, just use the search box at the top of the right-hand sidebar (or click here).  Here’s one from January.  I have been writing about the coming crisis myself since 2004, when I sold my co-op in DC and started renting, and also started liquidating my other real estate investments.  The asset and credit bubbles were obvious to all who had their eyes open and thought for themselves.  Sadly, most people do not think for themselves, maybe that’s why we have the term sheeple.)

The US and global financial crisis is becoming much more severe in spite of the Treasury rescue plan. The risk of a total systemic meltdown is now as high as ever

The next step of this panic could become the mother of all bank runs…

By Nouriel Roubini

It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this plan it totally flawed). The severe strains in financial markets (money markets, credit markets, stock markets, CDS and derivative markets) are becoming more severe rather than less severe in spite of the nuclear option (after the Fannie and Freddie $200 billion bazooka bailout failed to restore confidence) of a $700 billion package: interbank spreads are widening (TED spread, swap spreads, Libo-OIS spread) and are at level never seen before; credit spreads (such as junk bond yield spreads relative to Treasuries are widening to new peaks; short-term Treasury yields are going back to near zero levels as there is flight to safety; CDS spread for financial institutions are rising to extreme levels (Morgan Stanley ones at 1200 last week) as the ban on shorting of financial stock has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package (US market are down about 3% this morning at their opening).

Let me explain now in more detail why we are now back to the risk of a total systemic financial meltdown…


Quick Updates: Stock Market, London, BuzzPal, Nouriel Roubini

2008-9-24 UPDATE: See here for pics and a complete debrief of me week in London.

Some interesting events since my most recent post (“The End of an Era“) and market update, when I said “it’s time to allocate some [brain] CPU and bandwidth, primarily for the purpose of monitoring the sentiment as it works towards its next extreme (and reversal).”

This is exactly what happened.  Unfortunately (for my trading), BuzzPal and I were in London for Seedcamp week, where we went to events, held meetings, and co-sponsored the first-ever TechCrunch Tech Talk, which was a smashing success and a great party, including after hours with some people you might recognize (see pic, below).


FT: “Mother of All Carry Trades Faces Bust”

I consider this a must read article. It’s basically analogous to Roubini’s February 2008 article “The Twelve Steps to Financial Disaster,” which I posted back then (you can download the PDF from the first link here).

Excerpt: So the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe – for now – for the mother of all carry trades and mother of all highly leveraged global asset bubbles.

“Mother of all carry trades faces an inevitable bust”
By Nouriel Roubini
Financial Times (original)

Since March there has been a massive rally in all sorts of risky assets – equities, oil, energy and commodity prices – a narrowing of high-yield and high-grade credit spreads, and an even bigger rally in emerging market asset classes (their stocks, bonds and currencies). At the same time, the dollar has weakened sharply , while government bond yields have gently increased but stayed low and stable.


Ten Principles for a Black Swan-proof World

A year and a half ago, Nouriel Roubini gave us his recipe for financial meltdown, The Twelve Steps to Financial Disaster, each of which unfolded in sequence. Now Nassim Nicholas Taleb gives us his “Ten Steps for a Black Swan-proof World” (below).

Roubini’s steps were the inevitable outcome of a flawed system. Sadly, perhaps, Taleb’s steps are not inevitable.

Additional reading:

Now on to the article:


First Post From the USA and First Post From the New MacBook

Just time for a quickie:

  1. NYT: Bailout Plan: $2.5 Trillion and a Strong U.S. Hand
  2. NYT Graphic: The Government’s $8.8 Trillion Bailout Tab
  3. Nouriel Roubini: Treasury’s Financial Stability Plan: Will It Work?
  4. Nouriel Roubini: It Is Time to Nationalize Insolvent Banking Systems
  5. Video and My Comments: Obama and Henrietta Hughes at Town Hall Meeting

UPDATE: Two additional articles:

  1. NYT: Stopping a Financial Crisis, the Swedish Way
    (September 2008)
  2. Matthew Richardson and Nouriel Roubini: Nationalize the Banks! We’re all Swedes Now (current)


Market Update: Good News/Bad News

Just time for a quick post before a busy afternoon of prep work for our Thanksgiving dinner party tomorrow night (we’re in Sweden, so the Saturday before the official Thanksgiving Day is when we do it).

Ok, the post got a little long when I used Fred Wilson’s tweets  (links below) to launch into some of my investment philosophy.  I like Fred a lot, and his tweets and blog, it’s just that I’ve been watching him buy Google from above $400 down into the $200s.  It’s been painful, but he will eventually catch that oh so sweet bottom!  More below.

Bonus! At the end I tagged on two great pieces by Michael Lewis, the author of Liar’s Poker: Rising Through the Wreckage on Wall Street.

First, some market stats:

  • Thursday: Summary and volume leaders. Look at that volume! Over 10 billion shares on the NYSE and 3 billion on the Naz. That is people saying “I can’t take the pain any longer, get me out, I don’t care about the price, just make the pain stop!” Margin calls, mutual and hedge fund redemptions, portfolio insurance (see The Anatomy of a Crash), and delta hedging by put sellers, like Warren Buffett, have forced a lot of sales, of course. Call it a perfect storm, a rare glimpse at the naked and ugly side of human emotions, greed into panic. The story never changes, just the names, faces, and dates.  Of course, great opportunities also come at times of extreme emotions.  That will be the same this time, as well.


U.S. Homeownership and Stock Market Participation Rates

Just a quick post of some interesting date from the U.S. Census Bureau. As shown on the chart above (click for larger image), the percentage of Americans who own their own homes is declining. No surprise there, but it does beg a few questions, such as:

What (and when) was the peak and how far (and how long) will the rate fall?

To consider these questions, I hopped over to this page at U.S. Census Bureau website,  downloaded this spreadsheet and quickly crunched a few numbers in this spreadsheet.

What I found was that…


Web 2.0 Expo Next Week, First Doing Market Update

Susanne and I just got back from a great 4-day trip to Berlin for the Web 2.0 Expo. Met a lot of interesting people and startups there and will report on it next week. First, however, a quick market update.

The reprieve rally I blogged about here is over, with new lows being set Thursday. See the 18 comments I added to that blog post for a number of interesting articles. Also see Nouriel Roubini’s video from yesterday in London: “It’s going to be a financial and economic wreak.”


Sentiment Extremes Everywhere + Biggest Weekly Drop Ever & Biggest Daily Range

Just a quick post to cap the week. Sentiment extremes where everywhere you looked, even on Twitter.  Images and a few comments below.  Also some links to outside articles.

Bottom line:

  1. A rally is imminent: All but one of the elements were in place by Friday morning (2008-10-10) and Friday’s intraday reversal might have been that last element. We won’t know until next week, but I did buy late in the day.
  2. Regardless of when the tradable rally develops, based on current information and thinking, we are likely at least halfway to the bear market low (in terms of time and price), but less than halfway through the recession.
  3. While sentiment reached an extreme Friday morning, it doesn’t mean it reached the extreme of this cycle.


What Bank Run? See This Google Search Trends Chart

True it’s only anecdotal evidence, but I’m pretty sure people search Google about FDIC insurance when they’re worried about their bank going bust.

What you see on this chart is a bank run precursor, the starting gun getting cocked.  All someone has to do now is blink and the run is on.  Doesn’t matter if it’s a false start or not once a run starts, the outcome becomes inevitable.

As discussed for months by Nouriel Roubini (see here for some of his articles and references on my blog and see here for a Bloogberg radio interview with him last week).

Note, there are solutions to this problem, as discussed by Roubini. It starts with the government increasing FDIC insurance immediately (a temporary increase to $250,000 FDIC insurance was signed into law on Friday) and also recapitalizing banks (more than buying bad assets).


Bailout “Hope Rally” = Eye of the Storm

(just time for a quick, somewhat unpolished update)

What I mean by “hope rally” is the rally off a (bear-market) low that is driven by the hope that some specified thing (the Bailout legislation in this case) is going to make everything all better. That is never the case, of course, otherwise it would be called the start of a new bull market.  Also, in the current situation, it’s almost certainly (effectively certainly) too early (time and price) in the bear market for a new bull market to start.

That’s why I make the eye of the hurricane analogy, because any “Bailout Reprieve” will (almost certainly) be only temporary.

Last week’s…


The End of an Era

Just a quick post to note today’s taxpayer bailout of Fannie Mae and Freddie Mac, which was inevitable given the system of corruption, which has been discussed on this blog since its inception over four years ago, such as in this April 2004 post, where I said:

What we have here is the greed-fed denial of a flawed system whereby real estate sales people, mortgage brokers, appraisers, Fannie Mae, Freddie Mac, and investment banks are driven to originate volume, earn their fees, and pass off the risk to others. It’s a great game in a booming market, but after markets boom there is another phase that ain’t so pretty.

One day this will unwind and besides creating some surprised and upside-down homeowners and burnt bond and asset-backed securities investors there could easily be enough carnage to carry beyond Capitol Hill and to U.S. taxpayers. Could even be enough to make the S&L crisis of the ‘80’s look like child’s play.

The man who said it best, and who thinks and articulates most clearly, is Nouriel Roubini:


A Recession by Any Other Name

(chart shows “USA Recession in ’08” contract as of today)

A timely article given the ongoing “what is a recession” confusion in many minds.

A Recession by Any Other Name
By John Mauldin

Remember the comfort the bulls took in the fact that GDP when first reported was a positive 0.6% in the fourth quarter of 2007? Now is has been revised to a negative 0.2%. As I have repeatedly said, GDP numbers will be revised downward in this part of the cycle, but maybe a few years after the fact when real data and not estimates are available.

Let’s look at this piece from David Rosenberg, the North American Economist for Merrill Lynch. He does a good job of telling us why GDP estimates that suggest the economy is not on recession may not reflect the facts on the ground.

“You’ll miss a lot of action waiting for GDP to go negative.


What Happens Next to Fannie and Freddie?

Insolvency of the Fannie and Freddie Predicted Two Years Ago. What Happens Next? Or How to Avoid the “Mother of All Bailouts”
By Nouriel Roubini

A pretty good article from Nouriel Roubini. A choice quote below, then on to the article.

“Privatizing profits and socializing” losses may dominate the policy outcome. Financial institutions love a system where they gamble recklessly, pocket the profits in good times and let the fisc (taxpayer) pay the bill when their reckless behavior triggers a financial crisis; this is socialism for the rich. That is why you already hear the whole Wall Street Greek chorus moaning for a bailout of the GSEs.


Did the Fed Create the Mother of All Moral Hazards?

Sure sounds like it here:

The Fed and Treasury created the mother of all moral hazards by the way they resolved the Bear collapse: they did not fully wipe out the Bear shareholders; they did not fire any of the senior management; they bailed out the creditors of an insolvent Bear; they subsidized heavily JPMorgan’s purchase of Bear; they provided a $30 billon lifeline that subsidizes Bear shareholders and management, Bear creditors and JPMorgan; and they provided – for the first time since the Great Depression – a new massive lender of last resort support to all non-bank primary dealers in the form of two new lending facilities (the TSLF and the PDCF).

Should Securities Firms be Regulated and Supervised like Banks?
Nouriel Roubini | Mar 23, 2008

The events of the last few weeks – including the collapse of Bear Stearns and of other highly leveraged, illiquid and insolvent institutions that are members of the shadow financial system – have shown that non bank financial institutions are at risk of liquidity runs in the same way as banks are. The response of the Fed to this bank-like runs on non-bank institutions has been the most radical change in monetary policy and lender of last resort support by the Fed since the Great Depression