"Dr. Doomsday" Roubini: Inflation + Epidemic + The Fed's turn to the market next year will be even worse

Roubini warned that persistently high inflation, the uncertainty of the epidemic, the Fed's monetary policy shift and systemic concerns may collectively bring "disaster" to the market in 2022.

　　Since this month, Wall Street has repeatedly warned that the US economy may enter a recession. On Wednesday, Roubini , a well-known economist known as the "Doctor of Doom," also warned that with the Fed's policy shift, the systemic risks of US stocks are approaching.

　　Roubini pointed out that looking forward to 2022, the Fed’s expectations of tightening monetary policy have intensified market concerns, and the market expects that the US $ 1.75 trillion stimulus bill that the Biden administration hopes to introduce may not be able to land, coupled with increased uncertainty about the epidemic and inflation. The continued high growth and supply chain crisis have not yet been eliminated, all of which will bring risks to the future trend of US stocks.

　　However Roubini also said that compared with the severe recession of the U.S. economy in 2020, the U.S. financial market will recover strongly in 2021, and U.S. stocks have repeatedly hit new highs, especially the S&P 500 index has risen by more than 27% this year, partly due to the Fed’s ultra-loose currency. policy.

　　However, in the upcoming 2022, the market expects the Fed to tighten its monetary policy. In addition to accelerating the reduction of debt purchases, the market’s expectations of next year’s interest rate hike will also have an impact on US stocks, thus testing the Fed’s determination.

　　In addition, with the large-scale accumulation of debt, the market may not be able to absorb higher borrowing costs. If there is panic in the market, the Fed will find itself in a debt trap and may reverse the process.

　　Is there a bubble in U.S. stocks?

　　Roubini believes that the epidemic is not over, the new crown virus is still uncertain, and the mutant strains of Delta and Omi Keron may continue to pose challenges.

　　In this regard, market risk aversion continues to heat up, coupled with increasing supply chain bottlenecks and continuing high inflation, Roubini believes that there is still an "obvious bubble" in US stocks.

　　Specifically, Roubini cited as an example, as 2021 is drawing to a close, many U.S. stocks have higher-than-average earnings ratios; meme stocks (meme stocks), cryptocurrency and special purpose acquisition companies (SPAC) have set off an upsurge in the United States; U.S. real estate prices (including housing and rent) remain high; U.S. bond yields are still at an ultra-low level, etc.

　　In Roubini's view, as long as the Fed has been adopting an unconventional monetary policy model, the "bubble" can continue, but next year the Fed's monetary policy will begin to normalize, and then asset and credit bubbles may contract with it.

　　Systemic concerns

　　Roubini continued that the new year has also brought some systemic concerns.

　　In 2021, heat waves, fires, droughts, hurricanes, floods, typhoons and other disasters have exposed the real impact of climate change. The drought has caused a dangerous spike in food prices, and the impact of climate change will continue to worsen.

　　In addition, the vigorous promotion of economic decarbonization has led to insufficient investment in fossil fuel production capacity before the supply of renewable energy is sufficient. Over time, this dynamic will lead to substantial increases in energy prices.

　　All in all, Roubini believes that high inflation and slowing growth combined with systemic risks may jointly bring "disaster" to the market in 2022.

　　Regardless, investors may remain nervous for most of next year.