Nouriel Roubini Sees A Bad Recovery, Then Inflation, Then A Depression

Tracy Alloway (0:11)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:16)

And I'm Joe Weisenthal.

Tracy Alloway (0:18)

So Joe, you know all those economic recovery shape letters that everyone's talking about?

Joe Weisenthal (0:26)

Yes, W, V, U, L, lowercase v, the square root sign, K, I've seen them all.

Tracy Alloway (0:36)

There's some really esoteric ones out there. So what do you think is the most sort of bearish out of all those shapes or letters or symbols or whatever?

Joe Weisenthal (0:48)

That's a good question. I mean, I guess the L or the U, something like that. I mean, anything that doesn't, isn't premised on there being some sort of snapback. Also maybe just the I, just a straight letter down. That just never, never comes back. I suppose that's a possibility too that people don't talk about.

Tracy Alloway (1:06)

I'm glad you said I. So I actually hadn't heard that many people talking about this letter, but yes, there is an I shaped economic recovery, which is a straight line going down. So it's really not an economic recovery at all.

And it's probably the most bearish of all the forecasts. And the person we're going to speak to today is someone who has written about that I possibility.

Joe Weisenthal (1:32)

Yeah, so I'm looking forward to our talk today. It's someone who's going to be very well known to our audience, who in the past, and I don't even know if it's rightly or wrongly. I'm not even sure where he, if he always embraced the nickname, but nonetheless, his nickname, Dr. Doom became, many people would have heard it during the last crisis.

Tracy Alloway (1:55)

Yeah, and I think as soon as you say the name Dr. Doom, everyone knows who we're going to be talking about, but it's Nouriel Roubini, the chairman of Roubini Macro Associates.

And he's known, well, he's known for forecasting the previous financial crisis back in 2008, but he's also known for pretty bearish prognostications. And it's been very bearish of late, has it not?

Joe Weisenthal (2:21)

Things have not been great. So yes, I would say that that is a safe call.

Tracy Alloway (2:25)

All right, understatement of the year.

Okay, well, without further ado, then let's bring on Nouriel Roubini. Nouriel, it's so great to have you. Thanks so much for coming on the show.

Nouriel Roubini (2:36)

Hey, great to be with you today. It's a pleasure.

Tracy Alloway (2:38)

So Nouriel, Joe and I were sort of joking just then, but you do have the Dr. Doom moniker. Do you feel, I guess, vindicated isn't the right word given current events, but do you feel that you are living up to that Doom reputation?

Nouriel Roubini (2:56)

Well, usually I say that I'm Dr. Realist, not Dr. Doom. And if you look at the last decades, I've not been negative all the time. When there were risk of episodes, I pointed them out when there was economic and market recovery. I pointed that out as well. So it's not as if I'm permanently a perma bear. I think that would be a mischaracterization of my views.

So call me Dr. Realist.

Joe Weisenthal (3:23)

Something I'm curious about is, you know, we see these economist forecasts right now. They're like, oh, OK, Q2 GDP is going to plunge 30% and then maybe we'll have a small recovery in Q3 and then maybe we'll have a robust recovery in Q4, whatever it is.

How do you go about the process of making a recovery forecast? How does anyone, while separating that recovery from the policy response? Because of course, we got the CARES Act at the end of March and that probably helps slow down the crash somewhat. But it seems hard to make any sort of forecast about Q4 or Q1 of next year without having a view on how robust the policy response from both the Fed and fiscal authorities will continue to be throughout the course of this year.

Nouriel Roubini (4:13)

Well, usually when there is a recession, it's very hard to make a forecast about the length of it and the shape of the recovery.

By definition, it's a change in regime and even traditional economic forecasting models essentially break down because those models don't tend to predict recessions.

So once you are in a recession or a financial crisis, you have to ask yourself in a more, I would say, qualitative way rather than a quantitative one, what is gonna be the shape of the economic recovery.

So for example, I wrote a recent paper with my global economic outlook with my research colleagues and we argued that there are three scenarios.