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Monday, July 6, 2015

Roubini : Grexit risk Rising




Nouriel Roubini on Twitter: Our Roubini Global Economics take on the referendum: "Greece No Means More Negotiations" but Grexit risk rising https://www.roubini.com/analysis/greece-no-means-more-negotiations … $$




Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics

Saturday, July 4, 2015

Roubini : This 'time bomb' will trigger next Financial Collapse


The man who called the 2008 financial crisis is sounding the alarm about what may cause the next one.
Nouriel Roubini, who has been dubbed "Dr. Doom" for his dark predictions, warned in an Op-Ed in The Guardian on Monday about the existence of a "liquidity time bomb" that he fears will eventually "trigger a bust and a collapse."

The New York University economist joins a growing number of observers who are worried about the issue. Liquidity is the lifeblood of financial markets. It measures how easy it is for investors to quickly sell stocks and bonds. When investors get fearful but can't sell their stocks, it causes even more panic.

Are more flash crashes coming? Roubini pointed to several scary episodes to back up his case that investors should be worried about "severe market illiquidity."
Investors around the world were spooked by the May 2010 flash crash, which sent the Dow Industrials plummeting nearly 1,000 points in about half an hour before recovering.
And then there was the "taper tantrum" in the spring of 2013 when bond yields skyrocketed for a few days after ex-Fed chief Ben Bernanke suggested ending quantitative easing.
Just last fall, bonds had a "flash crash" of their own, mysteriously plummeting in dramatic fashion on one day before rebounding. One New York Fed official even said reduced liquidity may have played a role in the incident.

So what's causing these liquidity troubles? Roubini pointed to three major factors:
1) Herding behavior: Lightning fast trading makes up an increasingly large amount of activity in the stock market. This has led to "herding behavior" and crowded trades (think: bullish on the U.S. dollar) that can create chaos when surprises occur and everyone heads for the exits at the same time.
2) Bonds are not stocks: It's important to remember that fixed-income assets don't trade in super liquid stock markets. They mostly change hands in illiquid, over-the-counter markets. Despite that, as Roubini points out, investors can cash out overnight. That creates the potential for fire sales like those that hit the mortgage bond market in 2007 and 2008.










 Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics

Thursday, July 2, 2015

Roubini: Worries that Fed rate hike will negatively impact emerging markets exaggerated




“The prospect that the U.S. Federal Reserve will start exiting zero policy rates later this year has fueled growing fear of renewed volatility in emerging economies’ currency, bond, and stock markets,” Nouriel Roubini wrote in his monthly column for Project Syndicate.




 Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics

Tuesday, June 30, 2015

Nouriel Roubini: Emerging Markets After the Fed Hikes Rates




NEW YORK – The prospect that the US Federal Reserve will start exiting zero policy rates later this year has fueled growing fear of renewed volatility in emerging economies' currency, bond, and stock markets. The concern is understandable: When the Fed signaled in 2013 that the end of its quantitative-easing (QE) policy was forthcoming, the resulting "taper tantrum" sent shock waves through many emerging countries' financial markets and economies.
Indeed, rising interest rates in the United States and the ensuing likely rise in the value of the dollar could, it is feared, wreak havoc among emerging markets' governments, financial institutions, corporations, and even households. Because all have borrowed trillions of dollars in the last few years, they will now face an increase in the real local-currency value of these debts, while rising US rates will push emerging markets' domestic interest rates higher, thus increasing debt-service costs further.
But, although the prospect of the Fed raising interest rates is likely to create significant turbulence in emerging countries' financial markets, the risk of outright crises and distress is more limited. For starters, whereas the 2013 taper tantrum caught markets by surprise, the Fed's intention to hike rates this year, clearly stated over many months, will not. Moreover, the Fed is likely to start raising rates later and more slowly than in previous cycles, responding gradually to signs that US economic growth is robust enough to sustain higher borrowing costs. This stronger growth will benefit emerging markets that export goods and services to the US.
Another reason not to panic is that, compared to 2013, when policy rates were low in many fragile emerging economies, central banks already have tightened their monetary policy significantly. With policy rates at or close to double-digit levels in many of those economies, the authorities are not behind the curve the way they were in 2013. Loose fiscal and credit policies have been tightened as well, reducing large current-account and fiscal deficits. And, compared to 2013, when currencies, equities, commodity, and bond prices were too high, a correction has already occurred in most emerging markets, limiting the need for further major adjustment when the Fed moves.
Above all, most emerging markets are financially more sound today than they were a decade or two ago, when financial fragilities led to currency, banking, and sovereign-debt crises. Most now have flexible exchange rates, which leave them less vulnerable to a disruptive collapse of currency pegs, as well as ample reserves to shield them against a run on their currencies, government debt, and bank deposits. Most also have a relatively smaller share of dollar debt relative to local-currency debt than they did a decade ago, which will limit the increase in their debt burden when the currency depreciates. Their financial systems are typically more sound as well, with more capital and liquidity than when they experienced banking crises. And, with a few exceptions, most do not suffer from solvency problems; although private and public debts have been rising rapidly in recent years, they have done so from relatively low levels.
In fact, serious financial problems in several emerging economies – particularly oil and commodity producers exposed to the slowdown in China – are unrelated to what the Fed does. Brazil, which will experience recession and high inflation this year, complained when the Fed launched QE and then when it stopped QE. Its problems are mostly self-inflicted – the result of loose monetary, fiscal, and credit policies, all of which must now be tightened, during President Dilma Roussef's first administration.
Russia's troubles, too, do not reflect the impact of Fed policies. Its economy is suffering as a result of the fall in oil prices and international sanctions imposed following its invasion of Ukraine – a war that will now force Ukraine to restructure its foreign debt, which the war, severe recession, and currency depreciation have rendered unsustainable.
Likewise, Venezuela was running large fiscal deficits and tolerating high inflation even when oil prices were above $100 a barrel; at current prices, it may have to default on its public debt, unless China decides to bail out the country. Similarly, some of the economic and financial stresses faced by South Africa, Argentina, and Turkey are the result of poor policies and domestic political uncertainties, not Fed action.
In short, the Fed's exit from zero policy rates will cause serious problems for those emerging market economies that have large internal and external borrowing needs, large stocks of dollar-denominated debt, and macroeconomic and policy fragilities. China's economic slowdown, together with the end of the commodity super-cycle, will create additional headwinds for emerging economies, most of which have not implemented the structural reforms needed to boost their potential growth.
But, again, these problems are self-inflicted, and many emerging economies do have stronger macro and structural fundamentals, which will give them greater resilience when the Fed starts hiking rates. When it does, some will suffer more than others; but, with a few exceptions lacking systemic importance, widespread distress and crises need not occur.
Nouriel Roubini, a professor at NYU's Stern School of Business and Chairman of Roubini Global Economics, was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

- in Project Syndicate





Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics

Friday, June 26, 2015

Roubini on Italian political risk and emerging markets

New York University economics professor Nouriel Roubini comments on the state of the U.S. economy from Cernobbio, Italy







 Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics