Nouriel Roubini: "Reaching a breaking point..."

“The worst is yet to come,” according to economist Nouriel Roubini. Called Dr. Doom for his gloomy views that today command worldwide respect. Opinions once dismissed now widely sought. He believes recession began in early 2008. Will last throughout 2009. Will be severe and painful with GDP contracting 4 - 5%. On October 29, he told Bloomberg: "We're entering a vicious circle where economies are spinning down, financial markets are spinning lower, and policy makers in my view - and that's my biggest fear - have lost control of what's going on in the financial markets."

In London in late October he predicted that hundreds of hedge funds will close down and given the extent of panic selling markets may have to suspend trading. Perhaps for a week or more before resuming. In September, Russia's stock exchanges shut down after their steepest ever one day fall. They did again in late October after falling nearly as much. Perhaps Wall Street is next. Maybe Europe.

If the latest (October 28 reported) consumer confidence report is an indication, it may happen sooner, not later. It was dismal by any standard. From the Conference Board. An all-time low and far below expectations. Surveyed economists forecast a reading of 52. It came in woefully short at 38 from an upwardly revised 61.4 September figure. Results were "significantly more pessimistic" on future business prospects and jobs. It signals trouble if translated into spending that, in turn, means lower profits and share prices already crushed over the past 12 months. With no end of pain in sight.

Yet markets remain volatile because of heavy insider manipulation for big profits up or down. The "not-so-invisible hand" working its magic. Killing the "free-market" according to author Ellen Brown. Making it hazardous for ordinary investors to risk anything in this climate. Casino capitalism with the odds heavily favoring the house. Getting Brown to quote a talk show commentator saying: "I'm fully diversified; some under the mattress; some under the floor boards; and some in the backyard." Better that than lose everything.

Because world economies are "at a breaking point" according to Roubini. "Essentially in free fall (and near) sheer panic." Played out in markets that reflect future expectations. Despite relief rallies, very much pointing down and signaling no end of crisis in sight. It got Roubini to state:

"Every time there has been a severe crisis in the last six months, people have said this is the catastrophic event that signals the bottom." Every time so far they were wrong. "They said it after Bear Stearns, after Fannie and Freddie, after AIG, and after" the $700 billion bailout plan. "Each time they have called the bottom, and the bottom has not been reached."

Despite everything world governments throw at their problems, Roubini thinks investors no longer trust them or believe they'll do the right things. For good reason. Because so far they haven't and what they're now doing is mostly woefully misdirected and inadequate. "Even using the nuclear option of guaranteeing everything, providing unlimited liquidity, nationalising the banks, making clear that nobody of importance is going to fail, even that has not helped." Economic fundamentals no longer apply. "We are reaching a breaking point frankly."

- http://marketoracle.co.uk/Article7089.html