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Why I hate Nouriel Roubini

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by Peter Switzer

There’s a guy I don’t know but I have to confess I hate him. He is an economist and so he does give you a head start on hating him. However, it's his relentless commitment to supplying bad news, which makes me wish that his predictions be proved wrong and his credibility shot to pieces.

His name is Nouriel Roubini and he is the head of Roubini Global Economics. He’s credited with predicting the GFC but I’m not sure how well tested that is.

The media always says he did but we in the media can get on a bandwagon that has not been tested as rigorously as it should be. For example, our own bear economist — Associate Professor Steve Keen of the University of Western Sydney — also predicted a market and economic day of reckoning but he did so a long time before it happened.

His economics was right but his timing was not spot on.

It’s getting worse all the time

Roubini, since 2008 when he was acclaimed as Dr Doom, has not run a positive view, always saying it will get worse. Anyone who was spooked by him would have seen their portfolio slide by 50 per cent and then miss the 50 per cent rebound in 2009. They of course need a 100 per cent comeback to make up the 50 per cent loss but listening to Roubini, too late, would have been bad for your hip pocket.

The Roubini view

Overnight, he has changed his tune a tad but is still in the scaring the pants off people caper. He told CNBC that growth will come to a standstill in the second half of 2010 and while a technical double dip might not happen, he now says it won’t matter as it will feel like a recession.

This is an excuse for earlier claims that a double dip was in train.

"It will be a vicious circle because the economy is going to surprise to the downside," Roubini told CNBC. "The stock market is going to correct, credit spreads are going to widen. It will be a negative effect on consumption investment, the cost of capital is going to rise. And then you have another shock to the real economy, ending in a vicious cycle in which you can go off a cliff."

He also tipped third-quarter GDP is likely to be closer to one per cent than 2.5 per cent. The consensus is pointing to the bigger figure.

Right or wrong?

Don’t get me wrong, he could be right but also he could be wrong. Getting one call right does not mean you will get every call right. I sometimes think these celebrity, big-call economists get trapped like a mouse inside a spinning can, which means they have to stick to their predictions. But what really worries me is that they spook people and become a player rather than a commentator. They are seeking to influence the result to justify their gamble of opening their big mouths.

Influencing opinion

I criticised a US hedge fund manager Jim Chanos early this year, who was calling China a bubble and he was actively promoting his view.

If you have an inside view, you don’t share it unless you need to influence opinion to make it happen.

We have economists here who thought unemployment would go to nine or 10 per cent but they had the guts to recognise they were wrong and be realistic about what they now see.

If Roubini is proved right I will publicly praise his insights but until then I choose to hate him as a grandstanding opportunist. I know it is not very Christian but we economists are hard buggers!

For advice you can trust, contact Switzer Financial Services.

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Published on: Friday, September 10, 2010