While it would be an exaggeration to describe Dr. Doom as an optimist, economist Nouriel Roubini offered a nuanced view of the global economy that contained some upbeat expectations for investors together with a heavy emphasis on latent risks.
Speaking Wednesday at ETF.com’s InsideETFs conference in Hollywood, Fla., the head of Roubini Global Economics and NYU business professor said 2014 was likely to be a good year for stocks and not a disastrous year for bonds, as many fear.
As a result of the advanced economies’ very gradual tapering or increase of asset purchases, fears of a bond market rout are unwarranted, Roubini says, and asset reflation will be the order of the day.
The problem, he says, is that reflation risks a dangerous bubble, and a bursting bubble would lead to financial instability. Aggressive withdrawal from lose monetary policy risks a bond market rout and killing the recovery, but the consensus easy-money approach risks a larger bubble and financial instability.
“Exit slowly and create the mother of all bubbles,” he warned; “exit more quickly and you’re going to kill the patient.”
As he said more than once during his presentation, “You’re damned if you do, and damned if you don’t.”
He sees U.S. stocks gaining in the 8% to 10% range, double-digit gains for eurozone stocks, and still higher returns for Japanese equities in the 15 to 20% range. The benchmark U.S. 10-year bond won’t yield any more than 3.4% by year-end and should remain in “steady state” as the Fed tapers slowly, he says.
Commodities will continue their decline as supply continues to increase more than demand, he added.