Nouriel Roubini, the economist known as Doctor Doom for predicting the 2008 financial crisis, has turned his forecasting skills to the current economy and predicts a “long and ugly” recession that will begin later this year and last into next year, according to an article in Bloomberg. Roubini also expects the S&P 500 to undergo a sharp correction, sending the index down as much as 40%.

Roubini points to the high debt ratios of corporations and governments around the world as evidence to support his prediction. Rising rates and debt service costs will expose “who’s swimming naked,” he told Bloomberg. Debt levels are something Roubini has warned about before, even during bull markets, as he believes they will drag stocks down. And with inflation persisting, the Fed “will have no choice” but to keep raising rates, ending any hope of a soft landing. Rates could reach 5%, and the Fed’s current goal of moving the economy into a prolonged period of slowing growth and rising unemployment will be difficult to achieve, especially as the war in Ukraine drags on and China continues its tough Covid policies.

Governments with too much debt will not be able to implement fiscal stimulus measures to ease the recession, leading to stagflation and a debt crisis that will make the recession “hard, long and ugly.” The recession will cover the whole world and last until 2023, Roubini expects, but instead of households and banks suffering the most, as was the case in 2008, corporations and “shadow banks” such as hedge funds, private equity funds and credit funds will take over. hit the most. Roubini advises investors to reduce the value of stocks and focus more on cash; even as inflation reduces cash, its face value remains zero, unlike stocks and similar assets, which can fall sharply when market shocks occur. As a hedge against inflation, Roubini suggests adding short-term Treasuries or bonds like TIPS to your portfolio, the article concludes.


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