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Who Predicted the Financial Crisis

Nouriel Roubin: Nouriel Roubini's Predictions - Wrong Predictions - Correct Predictions - Economic Forcasts - Economic Outlook

The Accuracy and Reliability of Nouriel Roubini's Predictions
Can they be relied on for investment decisions?

Nouriel Roubini Predictions

Correction Note:

Initial research findings (April 4, 2011) questioned whether Dr. Nouriel Roubini, also known as Dr. Doom, actually predicted the financial crisis or was erroneously promoted by the media without sufficient fact checking. On April 19, 2011 we received a copy of the IMF transcript from ECRI. We can now include Dr Roubini among the experts who did warn about the financial crisis. However, the research results found several incorrect predictions and analysis. The findings cast doubt about Roubini's the accuracy and the value of his predictions in making investment decisions. (See research notes below)

Nouriel Roubini Bio - Nouriel Roubini Predictions - Correction He Did Not Predict The Financial Crisis - Wrong Economic Predictions and Correct Economic Predictions
Photo Source: Wiki

Dr. Nouriel Roubini, Chairman, Co-Founder, Roubini Global Economics

Nouriel Roubini is the co-founder and chairman of Roubini Global Economics, an innovative economic and geostrategic information service and consultancy named one of the best economics websites by Business Week, Forbes, the Wall Street Journal and The Economist. He is also a professor of economics at New York University’s Stern School of Business. Dr. Roubini has extensive policy experience as well as broad academic credentials. From 1998 to 2000, he served as the Senior Economist for International Affairs at the White House Council of Economic Advisors and then the Senior Advisor to the Under Secretary for International Affairs at the U.S. Treasury Department.

Dr. Roubini’s views on global economics issues are widely cited by the media, and he is a frequent commentator on various business news programs. He has been the subject of extended profiles in the New York Times Magazine and other leading current-affairs publications. The Financial Times has also provided extensive coverage of Dr. Roubini’s viewpoints.

Dr. Roubini received an undergraduate degree at Bocconi University in Milan, Italy and a Ph.D. in economics at Harvard University. Prior to joining Stern, he was on the faculty of Yale University’s department of economics.

Source: roubini.com

Politics: Democrat

Note: If readers have comments or corrections, please email them to research {at} economicpredictions.org

Nouriel Roubini Bio - Nouriel Roubini Predictions - Wrong Economic Predictions and Right Economic Predictions - Economic Forcast - Economic Outlook - Accuracy of Predictions

Nouriel Roubini Predictions
 

Wall Street / Economic Predictions

Source & Date

Accuracy

Comments

Roubini claims that he warned the public about the subprime mortgage and the financial crisis in an IMF speech in 2006.

His claims were challenged by another economist Dr. Anirvan Banerji who participated with Roubini in a panel discussion. He says that a transcript of that event shows that Roubini did not predict a market meltdown or any of the other problems he now claims to have predicted. Roubini kept ticking different reason every time - NYTimes

Banerji says that Roubini predicted a recession in 2004 caused by U.S. trade deficits, federal reserve interest rate hikes and high oil prices. His recession calls dating back to at least 2004. Roubini predicted a recession in 2004, 2005, 2006, and 2007. He was wrong four years in a row.

IMF speech 2006? See notes next On April 4, 2011 research results found that the only documented evidence shows that Nouriel Roubini warned about the crisis on September 13, 2007 at an IMF seminar. According to an IMF position paper, the crisis started in August 2007. By August 2007 the sub-prime crisis became known to several insiders and economists. Alan Greenspan, the former Fed Chairman warned about the subprime crisis in September of 2007 in a PBS interview, so no one can take credit for predicting the crisis after August 2007. The dates show that Roubini did not predict the crisis. He warned about the crisis after it began.

On April 19, 2011 we received a copy of the IMF transcript of 2006 confirming that Dr. Roubini did warn about the crisis (exact statements are shown below). We will publish the IMF transcript as soon as we get the permission.

Two experts who warned about the economic crisis before Nouriel Roubini are:

Dean Baker's warning in July 21, 2005

Med Jones' (US Economic Risks June, 2, 2006)

Another expert who warned about the crisis before August 2007 is

Peter Schiff's warning
December 16, 2006
Fox News Debate

More detailed predictions can be found at:

My analysis has implications also for markets. Risky assets will underperform in the U.S. and the rest of the world, and not just the equity markets but also commodities and other ones.
 
September 2006
IMF Transcript
Partially True Risky Assets underperformed but commodities outperformed
There is a risk that the U.S. growth slowdown that we are observing right now this year is going to end up in recession by early next year. September 2006
IMF Transcript
False Timing was off. Missed the recession by one year. Recession happened in end of the year, not early 2007
Unsustainability of the U.S. current account deficit, the risk that essentially at some point foreigners become less willing to finance the U.S. The story I'm going to tell you today is one where shocks to the economy lead to consumer burnout, but they may also trigger foreigner flight from dollar assets.
September 2006
IMF Transcript
False After the crisis, in 2007-2010 global investors invested in US treasuries as safe haven
I'm not going to list them all -- they are all sharply down very severely..

So right now we have a triple whammy. In the past oil was high, but then you had low rates and a bubbly housing market. Today you have the housing bust, you have high oil prices, and you have rising interest rates all the way to 5.25 percent. That is why I think this time around, the oil shock matters more than it would in a different condition.

Residential investment is falling at a 9.8 annualized rate, and I think that everybody now believes that it is going to fall at a much higher rate in the next few quarters. My estimate is it could fall for the next two or three few quarters at an annualized rate of 20 percent or more.

 
September 2006
IMF Transcript
True To his credit, he did predict the housing bust.

The difference between other economists and him, is that every body saw decline in housing prices, but more soft landing. He saw hard landing.

However it also appear that his primary reason for economic recession is oil shock and other economic indicators such as inventories and government spending. The recession was not caused by oil shock but by the housing bubble.

As far the research is concerned, he did in fact warn about the housing bubble and its impact on the economy. It is enough to including him among the experts who warned about the crisis. Even if his other predictions are wrong.

And my concern today is that the bursting of the housing bubble -- we have not seen it yet -- is going to lead to broader systemic banking problems. It is going to start with the subprime lenders -- they are already in trouble because of increases in delinquencies and foreclosures -- and then it is going to be transmitted to other banks and financial institutions all over the country.
September 2006
IMF Transcript
True Uncannily True
There is a view that even if the U.S. goes into a mild slowdown or a severe one, the rest of the world could decouple, with growth in Asia and Europe picking up while the U.S. may be slowing down. I believe for a number of reasons that the world is not going to decouple from a U.S. hard landing. As they say, when the U.S. sneezes, the rest of the world gets a cold. I think that the world still gets the cold when the U.S. slows down. September 2006
IMF Transcript
Partially True Some European countries with week fundamentals and link to the subprime mortgages got hurt. Germany, China and Asia weathered the US recession far better than the US.

US had severe cold (severe recession). China and Asia sneezed (slowed down but still grew).

For instance, some people say Latin America is going to do fine in spite of a U.S. slowdown because they do not export too many goods to the U.S. directly but mostly export commodities to China. But if you have a severe U.S. recession, for sure China is going to be negatively affected. And if there is a slowdown that is severe in China, their demand for commodities is going to fall and, therefore, Latin America is going to be hurt. September 2006
IMF Transcript
False China did not have severe slow down and commodities demand remained stable.
On the Government policy to overcome the recession he said: "The unfortunate thing is that today you cannot do the same trick. Monetary easing is going to be limited by the inflationary pressures that are still there. I do not think they can cut interest rates all the way down to 1 given where we are in terms of inflation -- maybe 200 basis points is all the Fed can cut and that is not going to make much of a difference.

Fiscal easing is limited by the fact that we have a huge now structural budget deficit. It is improving on a cyclical basis, but it is going to worsen once we go to a recession, and having an even bigger deficit is going to be even more reckless, so you cannot do what you did in 2001."

  False Wrong on interest rate and on easing. The government did both action successfully to take the economy out of recession in 2009
We are in the middle of a very severe recession that's going to continue through all of 2009 August 4, 2008 Investment News False Q4 2009 saw growth at 5.7 Worldbank
Stock markets may soon have to shut perhaps for as long as a week August 4, 2008 Investment News False Stock markets panicked but did not shut off
Housing prices would plummet 20% to 30% from their peak August 4, 2008 Investment News True Housing prices down to 30% - 50% depending on the area
The recession, contrary to rosier forecasts from Wall Street, will continue throughout 2009 and result in a cumulative 5 percent contraction in the economy. Jan 26, 2009
Mind Post
False  
Roubini projected GDP growth rates in the United States in Q4 would be -2%. April, 2009
Nick Vardy
CFA Conference
False Growth rates hit 5.6% in Q4 of 2009. Roubini was off by an eye-popping 7.6%.
Economic growth for the United States in 2010 would be 0.5% April, 2009
Nick Vardy
CFA Conference
False U.S. growth in 2010 stand at around 2.5%.
Speaking after a 25% rally since the March 9 lows, Roubini wrote:

“Worse than expected macro news, worse than expected earnings news, worse than expected financial shocks indicate we have not yet reached the bottom of the economic contraction, which means that the current rally is indeed a bear market rally.”

April, 2009
Nick Vardy
CFA Conference
False The S&P 500 has rallied from a low of 666 to more than 1,240 in the last 18 months. (from Dec 2010)
In an August 2008 interview with Barron's, he said as many as 1,400 U.S. banks could fail. August 4, 2009
Daily Finance
False Number is closer to 400
Roubini dismissed the then “green shoots” of economic recovery in the global economy by stating: “The United States is not at the end of a severe recession.”

 

June 2009
Nick Vardy
False The National Bureau of Economic Research, the official body responsible for calling the end of the recession, set its end date at June 2009 — just five weeks after Roubini gave his speech in Orlando.
The economy will continue to eliminate jobs throughout 2009, reaching 9 percent by the end of the year, and job cutting may persist even after the official end of the recession, edging up toward 10 percent in 2010. Jan 26, 2009
Mind Post
False Unemployment rates hit 10.3% in 2009 and declined in 2010 to 8.9%
Stock prices could slide another 20 percent in 2009 Jan 26, 2009
Mind Post
False Stock market prices increased and recovered 90% of lose value
With the industrial world already in outright recession and the emerging world navigating toward a hard landing (growth well below potential), I expect global growth to be flat (around -0.5%) in 2009 January 15, 2009
 
False The global economy grew at 0.6%
I see the real GDP growth contraction playing out through the year as follows: first quarter 2009: -5%; second quarter 2009: -4%; third quarter 2009: -2.5%; fourth quarter 2009: -1%--adding up to a yearly real GDP growth of -3.4% for the U.S. in 2009 January 15, 2009
Forbes
False BEA reported US GDP increase 3.2%
But the recent price surge looks suspiciously like a bubble, with the increase only partly justified by economic fundamentals. Dec, 15, 2009 Project Syndicate False 2010 gold prices were strong
The U.S. faces continued challenges in H2--particularly as historic levels of fiscal stimulus fade--and appears far too close to the tipping point of a double-dip recession. The bitter truth is that there is no way out of this with monetary and fiscal policy. They will just have to see their living standards go down. I see a decade of difficulties for the US March 11, 2010

Forbes
Telegraph

 

False  
Euro members would be forced to abandon the single currency January 27, 2010
MSNBC
False  
I see oil remaining throughout 2009 in the range of $30 to $40” a barrel January 20, 2009
Bloomberg
  Oil risen to $80
The S&P 500, which would sag to 600 Eric Tyson False S&P has surged above 1000
In 2005, Roubini saw Hurricane Katrina and high oil prices causing a U.S. economic slowdown. "This is a very delicate moment. The economy is already very imbalanced. On top of that, we've had a massive oil shock and now we have a natural disaster that might be something of a tipping point."   False  
Dr Roubini said average public debt in the rich countries would rise to 120pc of GDP by 2015 in the rich countries, leaving no scope for a further fiscal stimulus. If they push their luck, they too risk the sort of bond crises seen in Southern Europe this year. March 21, 2011
Telegraph
To be determined Eerily similar prediction of the same year by Med Jones in June 23, 2005 at Geneva Conference and US
Press Release
The global economy's growth 2011 will be marginally weaker than this 2010, with eurozone holding the biggest risk to global growth December 15, 2010
IB Times
To be determined  
U.S. gross domestic product growth to grow at 2.7 December 15, 2010
IB Times
To be determined  
unemployment will remain high at around 9.5 percent. It will take at least a decade to bring down unemployment rate to five percent, even if the U.S. economy grows at a rate of 4 percent a year. December 15, 2010
IB Times
To be determined  
Inflation will remain well below the implicit 2% Fed target for core PCE December 15, 2010
IB Times
To be determined  
Economic growth in most of the major economies in the eurozone, including Germany, France and Italy, will slow down in 2011 December 15, 2010
IB Times
   
If you truly fear a global economic meltdown, you should stock up on guns, canned food, and other commodities that you can actually use in your log cabin Dec, 15, 2009 Project Syndicate To be determined  

Research Note:

Correction Note Dr. Nouriel Roubini (Dr. Doom) claims that he warned the public about the crisis in 2006 at an IMF speech. We found no documented evidence of the transcript of the said speech. To make things worse, Dr. Roubini was challenged by another economist Dr. Anirvan Banerji who participated with Roubini in a panel discussion. He says that a transcript of that event shows that Roubini did not predict a market meltdown or any of the other problems he now claims to have predicted. Banerji says that The justification for his bearish call has evolved over the yearsBanerji went on, "ticking off the different reasons that Roubini has used to justify his predictions of recessions and crises."  (Source: New York Times & Eric Tyson)

Research Conclusion (April 4, 2011):

Initial research found the only documented evidence shows that Nouriel Roubini warned about the crisis on September 13, 2007 at an IMF seminar. According to an International Monetary Fund (IMF) position paper, the crisis started in August 2007. By August 2007 the sub-prime crisis became known to several insiders and economists. Alan Greenspan, the former Fed Chairman warned about the subprime crisis in September of 2007 in a PBS interview, so no one can take credit for predicting the crisis after August 2007. If we do not receive the transcript of the IMF speech of 2006, then we cannot in good conscience support the claims that Dr. Roubini predicted the financial crisis. If you disagree with the research conclusions, please send us the missing transcript of IMF speech of 2006 at

research {at} economicpredictions.org

Research Conclusion (April 19, 2011)

After releasing a press release about the research results of April 4, 2011 and contacting several journalists for fact checking, we received an email from ECRI with a copy of the IMF transcript. We studies the transcript in details. We verified that Dr Roubini in fact did warn about the housing bubble and its economic impact in the IMF transcript of September 7, 2006. (We are waiting for permission to republish the full IMF transcript. However, we published the relevant statements from the transcript and various predictions above. (please read the above table)

Nouriel Roubini Bio - Nouriel Roubini Predictions - Wrong Economic Predictions and Right Economic Predictions - Economic Forcast - Economic Outlook - Accuracy of Predictions

Research Comment on Financial Journalism:
 

Research Comment on Financial Journalism:
The unintended consequence of this research is the questioning of the quality the of financial journalism by Wall Street media and journalists who publicized that Dr Nouriel Roubini predicted the financial crisis without sufficient supporting evidence.

Several TV anchors and financial journalists introduced Dr. Roubini as the expert who predicted the financial crisis. Among these media outlets are Bloomberg, Time Magazine, Fortune Magazine, Wall Street Journal, CNBC, The Guardian (UK), Telegraph (UK), Financial Times, and the Economist. After one of the major media outlets published a story about how Roubini supposedly predicted the crisis, most of the reporters appear to function as copycats more than investigative journalists. Few journalists and authors did not accept the media hype without supporting facts, among hem are Eric Tyson, a well-known financial author and Charlie Gasparino a renowned financial journalist.

Researchers are naturally skeptical but should not be biased. Many economists and investors who missed the crisis are quick to dismiss Dr Nouriel Roubini as lucky or claim that no one could have predicted the crisis. The motivation is self-serving. It is difficult to accept that there are few people out there who could be that much more smarter than the rest of the world who failed to foresee the crisis. The research goal is not to credit or discredit Dr Roubini or others. The goal is to get the facts right and learn from the crisis. The research project casts serious doubts about Roubini's predictions or forecasts and their value in making investment decisions.  (See wrong predictions at Nouriel Roubini Predictions)

On the other hand, the research found several experts who actually predicted the crisis and warned about the crisis publicly yet received far less media coverage. For examples, Dean Baker warned about the crisis earlier than most and Med Jones had the most accurate predictions. Both were barely covered by the media. Other experts who warned about the housing bubble, subprime mortgages and their impact on the economy are Peter Schiff, Brooksley Born, Robert Gnaizda, and Bill Ackman. (we will publish more information about them soon)

Mainstream media should also take responsibility for promoting the illusions of a healthy housing sector and for not asking the right questions. Many media outlets favor a promotional business model at the expense of investigative journalism. The research found a prevalent bias in allocating airwaves and print space to brand name experts. Most journalists and editors seem to ignore voices that are not well-known or those who have a story that do not fit their narrative or preconception. All we had to do is Google simple phrases like "US Economic Risks" to find a wealth of information that would raise so many critical questions. If equal media exposure was given to the voices that warned us about the housing bubble, the damage could have been mitigated.

Nouriel Roubini Bio - Nouriel Roubini Predictions - Wrong Economic Predictions and Right Economic Predictions - Economic Forcast - Economic Outlook - Accuracy of Predictions

How accurate are Roubini's economic predictions? Can they be relied on for investing?

Well, if you did follow Roubini's advice about the housing bubble prediction you could have made a lot money or at least saved yourself a lot of losses. On the other hand if you followed his other predictions you would have lost a lot of money.

One humorous, yet  interesting article by Insider Monkey on Making Money with Roubini Sentiment Indicator Nicholas Vardy, another economist and investment advisor, criticizes Nouriel Roubini's performance with the following statements: "Here’s what’s ironic… Roubini’s public appearances touting doom and gloom are a terrific contrarian indicator that you can use to improve your investment returns. The bottom line is this: it turns out that over the past few years, the more “Roubini” is searched for on Google, the more likely the market is to rally in the following three weeks." He goes on to say Roubini’s name forever will be associated with calling the economic collapse of 2008. For all his lousy calls since then, Roubini lays claim to have made the one big call that really mattered. But here’s a reality check. Sitting in an Ivory Tower, imparting his doom-and-gloom predictions, Roubini has it relatively easy compared to his clients who actually are trying to make money based on his advice.

The best answer about Roubini's prediction comes from Roubini himself

"My analysis has been based on circumstantial kind of observations. I am not a professional forecaster and I do not use a big global macro model. Even then I said the probability of a recession is "70 percent." If you ask me where I got that number: just out of my nose, I will be very honest about that. I think if you had said "50 percent" you look like a wimp, it means you are not sure. So if you have the guts of believing there is going to be a recession, you should say something higher than that, and that is where the "70 percent" comes from". So my model is like a "smell test". (IMF Seminar 2006).

Research Conclusion: It is clear that Roubini has more intuition-based approach than a scientific modeling approach. It is a well known fact that intuition is notorious for getting things wrong, even when they get some guesses right. You cannot run an economy or investment portfolio on intuition alone. This explains why so many of his predictions were wrong and even the ones were right, their timing was wrong too.

Even if an economist is an expert in one sector or area, and was right once or several times, the complexity and number of variables in the economy make it almost impossible to be right all the time. So the value of these predictions is just to become aware of different risks. We only recommend that you follow your own conclusion rather than theirs.

Nouriel Roubini Bio - Nouriel Roubini Predictions - Wrong Economic Predictions and Right Economic Predictions - Economic Forcast - Economic Outlook - Accuracy of Predictions

Compare Nouriel Roubini s Predictions to

Dean Baker Predictions

Med Jones Predictions

Peter Schiff Predictions

 

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