Nouriel Roubini: We’re In the Beginning Of A Credit Bubble


Roubini Global Economics Chairman & Co-Founder Nouriel Roubini spoke with FOX Business Network’s (FBN) Maria Bartiromo during Opening Bell with Maria Bartiromo about emerging markets saying, “there’s been a significant correction in equity markets.” Roubini went on to say, “I would say that maybe the second half of the year might be surprising on the upside for emerging markets, because these elections are hurting right now.” When asked about the supply of energy Roubini said, “over the next years” the “supply of energy is going to increase more sharply than the past while demand is going to be subdued because of the slowdown of the growth of China.” Roubini discusses China saying, “I think that the market will be surprised the next couple of years on the slowdown of China” and that “China is slowing down more sharply than people expected.” When asked about the United States economy Roubini said, “we’re in the beginning I would say even of a credit bubble.”

Nouriel Roubini on emerging markets:

“I would say there’s been a significant correction in equity markets, currencies and even among the fragile five, India, Indonesia, Brazil, Turkey, South Africa.  Some have done more positive adjustment on the monetary and the fiscal.  Some of them have to do more tightening probably on the monetary like South Africa and Turkey. But I would say that maybe the second half of the year might be surprising on the upside for emerging markets because these elections are hurting right now, once some of the political uncertainty is behind us, maybe there will be policy makers  who are more committed to adjustment and reform and the market’s going to take a slightly better and more positive view of emerging markets.”

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Nouriel Roubini on whether he thinks the second half of the year will be an upside for emerging markets:

“Yes, I think that the policy adjustment, some of this correction has been excessive, some reforms are going to occur and maybe in some of the geopolitical risk around the world it will be kind of toned down then, you might see actually a rally in the equities in the second half of the year.”

Nouriel Roubini on the United States economy:

“Maybe today there’s not a bubble in the U.S. stock market.  But if we’re going to exit so slowly, then what’s the risk that we’d have a bubble in credit or in the stock market or in financial market a year from now, two years from now?   Think of it, last time around it took them two years to normalize from a 4 to a 6, too little, too late.  The measure place pre-announced 25 business points every six weeks.  And we created a subprime bubble, housing bubble, credit bubble, equity bubble, financial bubble and then moving the bubble went into bust and a crash.   This time around, after five years of zero policy rates, QE1, QE2, Operation Twist, QE3, we start raising rates only in the middle of the next year, it’s going to take us another four years to go from zero to four, not two years, four years.   So what’s the risk that over this very slow process we’re going to create eventually big bubbles and those big bubbles eventually will lead to crash.  I think that the biggest risk is not when the Fed is going to finish tapering or when it’s going to be first rate hike.  It’s going to be managing the fact that you have only one policy interest rate.  You have to achieve economic stability and recovery.  And you have to avoid bubbles and frothiness in financial markets and now central banks are another objective; financial stability.  You have only one instrument and damn if you do and damn if you don’t.  If you exit too soon you have a bond market crash and you have a killing of the economy.  If you exit too slowly too late, you create a financial bubble, that’s going to be the biggest challenge that the Fed will have to face in the next three, four years.”

Nouriel Roubini on whether we are in a credit bubble:

“So we’re in the beginning I would say even of a credit bubble, just at the beginning of it, we’re not yet full-fledged, but a year or two from now with policy rates still barely above zero, the risk is it becomes a fully-fledged.”

Nouriel Roubini on China:

“There are many issues open there, one is the debate about China’s hard landing versus soft landing, I think that I’m in the middle.  I don’t think it’s going to be a soft landing, it’s impossible for China to give 7.5 percent growth.  But I’m not in the camp with those who believe that there’s going to be a collapse with 10 percent growth.  But I think that the market will be surprised the next couple of years on the slowdown of China.  I see growth going towards 6.5 percent next year, 6 percent or below the next following year, so it’s not something that’s being priced by equity market, by commodity market.  China is slowing down more sharply than people expected.”

Nouriel Roubini on Russia:

“I would say the implication of what’s happening right now in Russia and Ukraine is this Cold War between Russia and the West were to erupt into a real hot war –it’s already escalating, at least in Ukraine, eventually could have sanctions, it could have countersanctions and then Russia could even decide to block or restrict their supply of gas to Western Europe. And the last thing that the Eurozone within an economic recovery is to have an oil or a gas shock of that sort.  We’re not yet there.  Markets have been discounting the risk and now Putin is making some kind of more dovish noises.  But I think the situation that is going to remain unstable for a long period of time.”

Nouriel Roubini on the supply of energy:

“Over the next years, actually supply of energy is going to increase more sharply than the past while demand is going to be subdued because of the slowdown of the growth of China, of emerging markets and the slower recovery of advanced economies and savings on the demand are going to imply slower growth of demand.”

Nouriel Roubini on whether he is expecting us to be out of QE by October:

“Probably by October and I expect then the Fed is going to stay on hold at zero rate at least through the middle of next year and they’re going to then start raising policy rates from zero very, very slowly.  I think it’s going to take them at least through the end of ’18 to go from 0 percent to 4 percent so it will be a very, very gradual exit from very easy monetary policy.”

Nouriel Roubini on whether people will see stimulus from the European Central Bank:

“I’m sure it’s going to happen in June; the reason why they did not change policy rates today was that they have to formally wait until their inflation forecast revision by their staff occurs.  But everything else is going to be in June.  They’re going to revise it downward toward at least 0.8 percent from their initial target of 1.1 percent, and therefore, even if the hawks within the – we have said that given that slippage in the inflation forecast, they have to take policy action. I think the only question is not whether there will be action in June, but rather whether they’re going to do quantitative easing or something like a negative depository.  And in the margin I think that quantitative easing is more likely than a negative deposit rate in terms of the policy action.  There will be for sure policy action in June by the ECB.  And the only question is which policy action.”