Roubini: No 2008 global financial crisis BUT ….

Roubini is a famous person when it comes to crisis predictions. He is also known as Dr. Doom and was one of the few who gave strong warnings for the 2008 crisis before it happened. The below is a sharing from him which I read in an online media when he was asked if the world would soon be going back to 2008 with another global financial crisis and recession. His first answer was a straight forward no. However, he then shared SEVEN potential causes instead of just single factors. They include the following, in brief and explained a little for easy to understand reading.
Worry #1 – Potential for a hard landing in China. He believes China would have a bumpy landing versus a hard landing.

  • We should always be reminded that China has the largest foreign reserve in the world and is also the world’s engine due to the huge demand and manufacturing which feeds the world

Worry #2 – Emerging markets are in serious trouble. Many have macro imbalances where they run current account and fiscal deficits, rising inflation and slowing growth.

  • Please note the three items closely; fiscal deficits, rising inflation and slowing growth. Always look into these three at all times. Of course during good times, nobody notices much.

Worry #3 – Federal Reserve probably made a mistake in ending its zero-interest rate policy in December. This is because weaker growth, lower inflation and even tighter financial conditions may now tamper with US growth.

  • Let’s hope US will still be growing instead of causing uncertainty to all the emerging markets due to the stronger dollar versus the world. 

Worry #4 – Many global conflicts are happening. One of the most certain is the proxy conflicts of Middle East’s regional powers, particularly Sunni Saudi Arabia and Shia Iran.

  • I think the most recent heightened tension closer to home would be North Korea who continued to show defiance even as the US continuing with its warnings to them. 

Worry #5 – Declining oil price is actually due to weak global demands and not due to rising supply. Growth in China, emerging markets and the US slows.

  • Haha. I told my colleague just a few days ago. Based on only the cost of production, I seriously wonder why should the price rise back to the US$100 levels. Demand has always been lower than the supply all these while, even when oil prices were extremely high. 

Worry #6 – Global banks face pressure of lower returns with new regulations since 2008. This is coupled with rise of financial technology that threatens to disrupt their already-challenged business models and more.

  • I think everyone should also note the cost of these global banks. Clearly those bonuses to the top management are unsustainable too. More pressure may mean better efficiency? Let’s hope. 

Worry #7 – The European Union and the eurozone could be ground zero of global financial turmoil this year. One huge crisis would be the migration crisis. Besides, Britain will most probably be exiting the EU. Greece is still in trouble. Briefly, EU is facing its biggest challenge currently.

  • I hope Germany is able to keep EU members together and Britain stays within EU. I do not think they would benefit more by exiting. 

Personally, I do not believe another 2008 or worst case, 1998 is coming back when we look at all the current set of numbers. However, someone told me that the slowdown currently will last at least the next 2 years. I think she is quite right. In fact, after the crazy years of 2009 – 2012 for the property market in Malaysia, I told her that I am hoping that people become a little more objective. Oh yeah, even for 2016, Malaysia is not likely to slip into a recession. Many countries close to us may have to slip into one first including that developed neighbour should China stays in trouble and oil prices drops again continuously. Happy reading.
written on 11 Apr 2016
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