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This famous economist predicted the 2008 crash more accurately than Michael Burry. What warning is he coming up with…

Jamie Cameron
20. 10. 2022
5 min read

Michael Burry is an absolute legend - especially with his 2008 prediction. But there is one man who predicted the crash even more accurately than Burry. And now he comes with an urgent warning. What is it?

Nouriel Roubini is also known on Wall Street as Dr. DOOM

It's Nouriel Roubini - known as Dr. DOOM. I think that says it all. But I'll break it down a little bit.

The 64-year-old economics professor at New York University and CEO of Roubini Macro Associates has shared many predictions over the years. And most of them have been so extremely pessimistic that he has earned that very nickname.

Few doomsayers have matched the legendary Burry in his career. But Roubini is one of the select few who have successfully followed him. Most of them are a laughing stock for investors and the general public. After all, scaring the apocalypse over and over again until one day it comes true is not such an art.

But Roubini wasn't often wrong. He hit both the dot-com bubble and 2008 with a pls minus . That made him much more famous. He had been warning of a housing market crash in the US since 2006.

Understandably, Michael Burry became the most famous figure in these events , but he wasn't quite the only one who saw the problem.

https://www.youtube.com/watch?v=qL-CZWc3RME&t=1s

Roubini's history

His pessimistic ride began with a bearish opinion that appeared in an International Monetary Fund document. Along with other economists who had much more positive predictions. The document states that Roubini told a group of 300 IMF staffers at a meeting in Washington that a crash in the US housing market would eventually cause a deep global recession.

Roubini literally said that the housing market would cause something of a domino effect. "When the United States sneezes, the rest of the world will get a cold," he said, arguing that even a Federal Reserve interest rate cut won't save the situation.

The Fed cut, but it didn't save the situation. Source

Roubini was right, of course. The U.S. housing market began to crumble in 2007, which eventually triggered the Great Financial Crisis a year later, and the Fed was unable to save the markets.

What is Roubini warning about now?

According to many, history is not repeating itself, but it may be at least somewhat similar.

Roubini has previously argued that the US economy will fall into a deep recession by the end of this year. That might not be so strange. Almost everyone now seems to agree on that. But Roubini went further. He now claims that we are heading into a "stagflationary crisis the likes of which we have never seen before".

Roubini recently said that the toxic economic combination of low growth and high inflation will lead to massive defaults and cascading financial crises around the world in the coming years. So he is repeating his domino analogy again. Let us hope that he sticks to his reputation as a doomsayer and does not confirm his qualities as a brilliant soothsayer who hits all the big crises.

https://www.youtube.com/watch?v=uHBG_wHfAjQ

His argument is based on the idea that we are entering a new era of the global economy after hyperglobalization, relative geopolitical stability, and technological innovation have helped keep inflation at bay since the Cold War.

That is, unlike others, he is not only worried about market downturns, but also that we are entering a new and different era in which the economy will not function as we have been used to for several decades.

Roubini believes that our new era of great stagflationary instability will be driven by inflationary trends. But his idea of inflationary effects is probably a little different than the classical economic definition says. He includes an ageing population, climate change, supply disruptions, greater protectionism and industrial reorganisation - or the process of moving overseas businesses back to their home countries.

Deglobalisation in particular is a trend that seems to be a really big issue. After all, we have addressed it several times here at Bulios.

Roubini even comes up with a specific scenario for the coming years:

In order to fight inflation in this environment, central banks will be forced to raise interest rates back to historical norms after years of moving in the opposite direction.

"The rapid normalisation of monetary policy and rising interest rates will drive highly indebted households, firms, financial institutions and governments into bankruptcy and insolvency," he points out, noting that the share of private and public debt in world GDP has jumped from 200% in 1999 to 350% this year.

His advice is somewhat general -

"Investors need to find assets that will hedge them against inflation, political and geopolitical risks, and environmental damage: These include short-term government and inflation-indexed bonds, gold and other precious metals, and real estate that is resilient to environmental damage."

But of course Roubini is not alone. The current situation has almost all the big names in the financial, investment and business world criticizing the Fed's actions. From Ray Dalio to Elon Musk.

Stanley Druckenmiller, for example, has outright identified the Fed and their actions as the specific source of the problem that will cause the problem and eventually a recession. Read more here: Don't invest, don't give a damn. Nothing will happen for 10 years now, discourages investment by well-known billionaire

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Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and a few other analyses. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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