Nouriel Roubini's Global EconoMonitor

Archive for August, 2006

  • Revised Q2 GDP Figures: Much Worse Than the Headline…Beware of the Spin Doctors

    The revised Q2 figures are out and the headline figure – 2.9% growth – is better than the initial advance estimate of 2.5%.  Right after the publication of these revised figures today the spin doctors have been in a frenzy to use this number to prove that the economy is fine. First in the line […]

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  • Bob Shiller is Sharply Shrill…and the Risks of a Housing-Led Systemic Financial Crisis

    Bob Shiller is Sharply Shrill…Sorry for the poetic alliteration. As I guessed in my previous blog on a severe housing-led recession, Bob Shiller – my former colleague at Yale in the 1990s – is himself a proud member of the Shrill Order of the Reputable Reality-Based Eeyores, as his op-ed  – with Karl Case – […]

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  • Eight Market Spins About Housing by Perma-Bull Spin-Doctors…And the Reality of the Coming Ugliest Housing Bust Ever….

    My recent detailed analysis of the high risks of a housing-led recession in 2007 has stirred some serious discussions and debates in the blogosphere and the press. Now that the onslaught of bad news about housing (see the table below) has taken the force of a tsunami that will soon trigger an ugly recession, Goldilocks spin-masters and perma-bulls are on the defensive. Since the housing slump is now undeniable – and rather than a slump it looks like a really ugly bust – the new line of defense of perma-bulls is to argue that the problems of the housing market are only a healthy correction from bubbly excesses, that housing is only in a modest slump that will soon bottom out and recover, and that housing problems will not lead to wider macroeconomic troubles such a broad recession.  What a set of Delightfully Delusional Dreams that smash against the ugly reality of recent free falling housing data shown in the table below.

    The difference a year makes
    Recent data quantify housing cooldown (year-over-year changes).

    Builders’ sentiment                              -52.2%

    New-home sales                                  -21.6%

    Purchase-mortgage applications           -20.9%

    Building permits                                  -20.8%

    Housing starts                                      -13.3%

    Existing-home sales                             -11.2%

    Existing-home inventories                       +39.9%

    New-home inventories                              +22.4%

    Source: MarketWatch

    This free falling bust in the housing sector – that I warned about in my last paper –  was indeed colorfully depicted today by David Rosenberg and by Steve Roach, as cited in the FT: “New home sales are now down 22 per cent year-on-year, which is a swing of gargantuan proportion from the plus 26 per cent trend exactly a year ago – this is the weakest trend in a decade,” said David Rosenberg, North American economist at Merrill Lynch. “The only thing ‘orderly’ out there right now is the guy carrying the stretcher.” Stephen Roach, chief economist at Morgan Stanley, added: “America‘s housing bubble finally appears to be bursting.” He said a post-housing bubble shakeout could take at least two percentage points off the overall US gross domestic product growth rate.

    Indeed, in a matter of months, the gravity-defying housing boom and bubble turned into an alleged “orderly slowdown”; then, the orderly slowdown turned into a euphemistic “soft landing”; and next, the soft landing slipped into a “slump”; most recently, the slump worsened into a hard landing; while the latest data suggest that the hard landing recently turned into a bust. And soon enough this housing bust will turn into a rout and an unprecedented meltdown. To paraphrase the witty Rosenberg, soon enough the only thing “soft” and “orderly” about the collapse of a comatose housing market will be the undertaker carrying the coffin.

    As the onslaught of data about the disorderly housing meltdown is piling up, even evergreen perma-bulls such as the WSJ op-ed page are now in defensive and semi-panic mode and are attacking “not-so-cool economists” (what does that is supposed to mean? that you need to be “cool” or hip to be right? what a stupid remark from a WSJ op-ed page that is starting to nervously sweat about the coming recession and is losing its own well-groomed “cool”) that worry about a housing-related bust; but then, the same WSJ op-ed page goes on to warn about the housing slump and blaming only the Fed’s past loose monetary policies for the ugly hangover from the housing bubble (more on this below).

    I have analyzed in detail in my last blog why we will soon have a housing related recession; these views have been widely picked in the press, most prominently by Paul Krugman in his Friday column in the NYT. While, as Krugman correctly points out, I may be the only “well-known” economist who is arguing that we will have a housing-led recession, many other very prominent economists – including Krugman himself as well as Ed Leamer (who calls a soft landing scenario a “fantasy”), Jim Hamilton (see also here) and Bob Shiller (who predicted the tech bust stock of 2000 and is now predicting a housing bust) – are now of the view that there are serious risk of a housing market bust that could then have macro consequences.

    Then, whether this housing bust will lead to a recession or not is the only remaining uncertainty: Krugman himself does not yet share my “certainty” – as he puts it – about a recession but, short of that certainty, he is fully of the view that the housing bust will be “ugly” and has some risks of triggering a broader economy-wide recession. So, the “Shrill Order of the Reality-Based Reputable Eeyores” is growing by the day and I am proud to be in company of such distinguished academic and non-academic colleagues.

    For now, since a lot of spin is being furiously spinned around – often from folks close to real estate interests – to minimize the importance of this housing bust, it is worth to point out a number of flawed arguments and misperception that are being peddled around.  You will hear many of these arguments over and over again in the financial pages of the media, in sell-side research reports and in innumerous TV programs. So, be prepared to understand this misinformation, myths and spins.

    in the rest of this blog  below I will thus deconstruct and unspin eight commonly heard spin arguments on why we should not worry about the coming housing bust.

    Continue reading this blog right below… 

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  • “The Biggest Slump in US Housing in the Last 40 Years”…or 53 Years?

    The Biggest Slump in US Housing in the Last 40 Years: These are not my views but those of the Toll Brothers, the famous luxury McMansions homebuilders, as CNN reported last week. Also, as reported by the WSJ today: In his 40 years as a home builder, Mr. Toll says, he has never seen a […]

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  • Recent Macro Indicators Strongly Reinforce My Recession Call…

    The macroeconomic indicators published in the last week or so have strongly reinforced my out-of-consensus view that the US economy will fall into a recession by early 2007: quite simply most of them are headed sharply south, consistent with a sharp deceleration in growth in H2 that will lead to a recession by 2007. First, […]

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  • Will South-South Economic Links Allow Emerging Markets to Decouple from the US Recession? No…

    This morning we sent to our RGE readers our bi-weekly note on the macro topics we cover. In this note we stressed the importance of South-South trade and financial links, such as the growing role of China in the fortunes of emerging markets, from Asia to Africa and Latin America. As we put it in […]

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  • The Current Risks of a 1987-Style Financial Meltdown: The Scary Similarities between 2006 and 1987

    In my recent “recession call” blog I made the observation that current economic and financial conditions in the U.S. eerily resemble those that led to the stock market crash in October 1987. Let me elaborate on the quite worrisome and scary similarities between 2006 and 1987. In 1987, like in 2006, a new Fed Chairman […]

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  • The Next Move by the Fed Will be a Cut, Not a Hike, as the US Slips into a Recession…

    As I pointed out in my previous blog, markets and investors are behind the curve in terms of their views of what the Fed will do next. The debate and commentary among markets, bloggers and investors – based on yesterday’s FOMC statement – is still on the question of whether the Fed will keep its […]

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  • The Fairy Tale that the World Will “Decouple” from the Coming U.S. Recession…

    In a matter of days, my out-of-consensus recession call has become more mainstream and is being picked up and amplified all over the press. Even super-blogger and star academic macroeconomist Brad DeLong has joined my doom & doom club, now predicting – with 30% odds – something worse than a U.S. recession, rather a major […]

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  • Some Cheerful Economic News from the Last Week or So…

    Since I have been accused of being an excessively pessimistic bear (even the Dr. Strangelove of Global Macro) – indeed a true member of the tribe of the Nattering Naboos of Negativism (to cite the famous Bill Safire expression) – here is a not-fully random list of “good news” from the US economy in the […]

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