Nouriel Roubini: rising interest rates wiped out over 80% of bank capital

Bank managers, regulators and investors forgot duration risk and market risk.  When yields are higher, the price of the bonds is lower.  Investors lost 20% last year on 10-year Treasuries...  For the overall banks, you have about $620 billion of unrealized losses on the securities out of a capital of $2.2 trillion.  And for some of the regional banks the numbers are much higher.  

But it's not just the securities that have lower value.  Many of the banks had issued loans, like mortgages at fixed rates at 30 years when interest rates were 1% while right now they're at 3 1/2% for 10-year Treasuries.  So the market value of those assets is also down.  People have estimated, therefore, the overall losses for the U.S. banking system from the rise in interest rates, both on securities and loans, are equivalent to $1.8 trillion out of a capital of $2.2 trillion.  Hundreds of the smaller banks are literally insolvent.

So that's a fundamental problem: When interest rates go higher, the value of securities and loans is lower and then we have mass liquidity and solvency problems.

~ Nouriel Roubini, Bloomberg TV interview, 0:30 mark, March 31, 2023

Nouriel Roubini on the odds of recession

That's why my point of view is that there’s a 60% probability by 2024 we will end up with a hard landing. 

~ Nouriel Roubini, "Roubini Sees a ‘Hard Landing’ for the Economy," WealthManagement.com, June 1, 2022

(Roubini said there has never been a time when both inflation rose higher than 5% while the unemployment rate was below 5% that the country didn’t experience a hard landing when the Fed raised interest rates to try to reduce inflation.)

Nouriel Roubini: no economic recovery yet

I'll be the first to call a recovery, but I just don't see it yet, and it's getting uglier.

~ Nouriel Roubini, January 2009, World Economic Forum, Davos, Switzerland

Nouriel Roubini on gold: "The world is not going to end"

Our forecast, medium term—meaning by 2015—is that gold is going down toward $1,000 an ounce, so from current levels, another 25-30 percent correction could occur. We have written extensively on the reasons for this:

1. Tail risks in the global economy are lower than they used to be. The world is not going to end.
2. In spite of the QEs, inflation is going to remain low because growth is weak, and therefore all this extra money is going into the reserves of the banks, as velocity is collapsing. If anything, inflation is now falling both in emerging and advanced economies. So buying gold as a hedge against inflation, in spite of all these QEs, is not a good investment.
3. There is a global economic recovery. There are now other assets that provide both an income and a capital gain—from equities to even real estate—while gold has always been a play on capital appreciation.
4. Real interest rates became very negative in the U.S. and globally. So at current levels, they can only go higher rather than lower because there is a strong relation in gold prices and real interest rates. However, slow as the normalization by the Fed is going to be, eventually there will be one, and the real rates are going to hurt things like gold.
5. In a world where other advanced economies are weak and emerging markets are soft, the dollar may tend to appreciate, affecting the dollar prices of commodities, including gold.

The question always with gold has never been black and white on whether you want to have gold in your portfolio. The issue with gold is always, Do you want to be market weight, overweight or underweight? In our view, in the past, there were reasons you wanted to be overweight. But now there are these five reasons to be underweight. It is because the gold prices are more likely to fall rather than rise.

~ Nouriel Roubini, "Roubini Sees $1,000 Gold, Stronger US Growth," IndexUniverse.com, July 29, 2013

Nouriel Roubini: "I don't see the markets falling"

Right now I don't see the financial markets falling.  I see the U.S. stock market flat for the rest of the year.

~ Nouriel Roubini

Robert Wenzel on Nouriel Roubini, central bank propagandist

Nouriel Roubini is either ignorant of financial history, or attempting to keep the populace ignorant. Roubini should stop tweeting on history until he is willing to tweet the facts. The rest of us should continue to study history so that we will be aware when central bank propagandists are attempting to distort history in front of our very own eyes.

~ Robert Wenzel, "Roubini's Off the Wall History of Financial Crashes," Economic Policy Journal, August 21, 2011

Jim Cramer on the "flash crash" flushing out the marginal stock holders

Take the bogus 1,000-point drop last Thursday. As unfortunate as it was, it cleansed the market of a lot of froth; froth is the signal that we're nearing a top. Second, last week the oft-quoted pessimists grabbed the microphone and scared away all the wafflers. Thanks to the negativeness, the "we-cants" were easily panicked. They've been blown out by inter-locking fields of bearish fire. They're all gone!

Now we've got a situation where the only people left are the solid, long-term holders. So, we don't have to worry about or fight our fellow shareholders who are desperately trying to get out the door-- they've already left the building.

I want to thank the "Roubs" for this, so-called because of their leader, Nouriel "Roub"-ini, the professor who seems to have tenure on television. All these Johnny-One-Notes would make you very poor if you actually took their advice.

~Jim Cramer, "Curb Your Enthusiasm?", Mad Money, May 13th, 2010

Nouriel Roubini: Jim Rogers's $2,000 gold is "utter nonsense"

[Today's forecast by investor Jim Rogers that gold will double to at least $2,000 an ounce is] utter nonsense. [There is no inflation or] “near-depression” [to drive gold prices that high. If a severe depression came to pass, with investors buying canned goods and hiding out in log cabins,] maybe you want some gold in that scenario. Maybe it will reach $1,100 or so but $1,500 or $2,000 is nonsense.

~ Nouriel Roubini, speech at the Inside Commodities Conference in New York, reported by Bloomberg TV, "Rogers's $2,000 gold 'utter nonsense'," November 5, 2009

(Gold rose to a record $1,098.50 today.)

Brent Mattis on Nouriel Roubini's diagnosis and remedy for the credit crisis

Nouriel Roubini accurately saw the building problems that led to the crisis, but his understanding of the solution is completely false. He's like a Doctor who detected cancer before anyone else, but recommended magic charms and chicken bones to cure it.

~ Brent Mattis, December 24, 2008

Noriel Roubini on the need for fiscal stimulus to prevent a financial meltdown

Given the collapse of private aggregate demand, consumption, residential investment and non-residential investment in structures are falling, and capital expenditure by the corporate sector was already falling before the latest financial shock and will now be plunging at an even faster rate. You need to give a boost to aggregate demand to ensure that an unavoidable two-year recession does not become a decadelong stagnation.

Since the private sector is not spending, and since the first fiscal stimulus plan (tax rebates for households and tax incentives to firms) failed miserably as households and firms are saving rather than spending and investing, it is necessary now to boost public consumption of goods and services via a massive spending program (a $300 billion fiscal stimulus).

The U.S. government should have a plan to immediately spend on infrastructure and new green technologies; also unemployment benefits should be sharply increased, together with targeted tax rebates only for lower income households at risk; and federal block grants should be given to state and local government to boost their infrastructure spending (roads, sewer systems, etc.). If the private sector does not or cannot spend, old-fashioned, traditional Keynesian spending by the government is necessary. It is true that the U.S. already has large and growing budget deficits; but $300 billion of public works is more effective and productive than spending $700 billion to buy toxic assets.

… Radical action can – and should – be taken to control the damage and prevent this meltdown from occurring.

~ Nouriel Roubini, "The New New Deal," Forbes.com, October 9, 2008

Nouriel Roubini on the need for monetary stimulus to stop the bleeding in world markets

Recently I suggested the need for a coordinated monetary policy rate cut. That cut arrived in early October, with the Fed, the European Central Bank and other central banks cutting their policy rates by 50 basis points (bps). The action is necessary, but only cosmetic, and it is too little, too late. European central banks should have cut rates many months ago, before the recession and financial crisis became so virulent. Now, 50 bps for the Eurozone is peanuts at a time when a minimum of 150 bps is necessary to restart the economy and unclog frozen financial markets; 50 bps is also too little in the U.S., given the damage to the real economy from the financial shocks of the last month.

~ Nouriel Roubini, "The New New Deal," Forbes.com, October 9, 2008

Nouriel Roubini on the Treasury plan to bail out Fannie Mae and Freddie Mac

The treasury bail-out plan (the mother of all moral hazard social bail-outs) is socialism for the rich, well-connected, and Wall Street. It is the continuation of a corrupt system where profits are privatized and losses are socialized.

~ Nouriel Roubini, RGE Moniter, July 2008

Nouriel Roubini on the $51 billion FHLB lifeline to Countrywide Financial

The widespread use of the FHLB system to provide liquidity — but more clearly bail out insolvent mortgage lenders — has been outright reckless. Countrywide alone — the poster child of the last decade of reckless and predatory lending practices — received a $51 billion loan from this semi-public system; in the absence of this public bailout Countrywide would have ended up where it should, i.e. into outright bankruptcy. And the largesse of the FHLB system does not stop at Countrywide. A system that usually provides a lending stock of about $150 billion has forked out loans amounting to over $750 billion in the last year with very little oversight of such staggering lending. The risk that this stealth bailout of many insolvent mortgage lenders will end up costing massive amounts of public money is now rising.

~ Nouriel Roubini, New York University economist, "Roubini: FHLB Lending ‘Reckless’," WSJ Economics blog, February 27, 2008

Nouriel Roubini on financial sytem

Non-bank institutions do not have direct access to the Fed and other central banks liquidity support and they are now at risk of a liquidity run as their liabilities are short term while many of their assets are longer term and illiquid; so the risk of something equivalent to a bank run for non-bank financial institutions is now rising. And there is no chance that depository institutions will re-lend to these to these non-banks the funds borrowed by central banks as these banks have severe liquidity problems themselves and they do not trust their non-bank counterparties. So now monetary policy is totally impotent in dealing with the liquidity problems and the risks of runs on liquid liabilities of a large fraction of the financial system.

~ Nouriel Roubini, President, Global EconoMonitor, "Central Banks Are Getting Desperate", December 18, 2007