Roubini: Stocks to Tumble Another 20%, Cash the Safest Place

[Book]

Roubini: Stocks to Tumble Another 20%, Cash the Safest Place

20 May 2010


Stocks are likely to continue their aggressive decline and shed another 20 percent in value as the world economy weakens, economist Nouriel Roubini told CNBC.

As the market slides into correction territory, Roubini said weakness in euro zone countries and a slowdown in the US and other developed countries will make things even more difficult for investors in the months ahead.

"There are some parts of the global economy that are now at the risk of a double-dip recession," said Roubini, head of Roubini Global Economics. "From here on I see things getting worse."

Prices in both stocks and commodities are likely to take a hit, and investors may only be safe in cash and other safe havens. Roubini said investors also can use options to hedge against future market risk that he said is sure to come as conditions weaken in the US, Japan, China and through much of Europe.

That will lave little room for growth both in economic measures and in most investment classes, Roubini said.

"There is that risk because the problems on the macro level are first in the euro zone. Then in China there is evidence of economic slowdown...Japan is in trouble and US economic growth is going to slow down," he said. "There is also regulatory risk because we don't know how financial reform is going to occur."

Investors then should focus on buying debt from countries that are solid economically.

"Apart from cash I would invest in short-term government bonds of countries that don't have a serious debt problem, countries like Germany and maybe Canada, a few other advanced economies that from a fiscal point of view are sounder than the weaker economies," he said.

As for Europe, he called fixing the debt problems in Greece and other troubled nations "mission impossible" and said tough decisions will need to be made.

"What needs to be done is clear. We need to raise taxes and cut spending. Otherwise we're going to get a fiscal train wreck," he said. "It's going to take years of sacrifices."

http://www.cnbc.com/id/37259541

[Horn]

Stocks plummet to 4-month low on jobs report, worsening crisis in Europe

By Dina ElBoghdady and Frank Ahrens
Washington Post Staff Writer
Saturday, June 5, 2010


U.S. stocks hit their lowest levels since February on Friday as a disappointing jobs report and worries about the fiscal health of yet another European country ignited a sell-off.

All the major U.S. indexes plunged by more than 3 percent after a Labor Department report showed that hiring waned in the private sector last month, busting a string of more upbeat data about the U.S. economy and crushing investor confidence about the prospects for growth.

The jobs data added to ongoing market jitters about the debt crisis in Europe, made worse on Friday when a spokesman for Hungary's prime minister said that his country's economy is in "a grave situation." The remark fanned fears that the debt problems gripping some European countries will sink the chances of a global economic recovery.

"This jobs report was supposed to be the catalyst that would have showed us that the U.S. economy is insulated" from Europe's financial troubles, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "Instead, it showed us that business leaders, just like investors, are very nervous and tentative."

The sell-off resulted in the second-worst day of the year for U.S. stocks, as the Dow Jones industrial average dipped below the psychologically significant 10,000 level. The Dow shed 3.15 percent or 323.31 points. It closed at 9,931.97, with all 30 blue-chip stocks down for the day.

The Standard & Poor's 500-stock index, a broad measure of U.S. markets, fell 3.44 percent, or 37.95 points, to 1,064.88. The tech-heavy Nasdaq slumped 3.64 percent, or 83.86 points, to 2,219.17.

For the week, the Dow and S&P were down by more than 2 percent and the Nasdaq was down about 1.7 percent. All three indexes are in negative territory for the year.

Investors fled commodities, contributing to a drop in oil prices, which fell to $71.51, down $3.10. Gloom about the economy, which typically leads to less oil consumption, also hurt oil prices.

Every major European index also fell. The FTSE 100 in Britain tumbled 1.63 percent, the DAX in Germany fell 2 percent and the CAC 40 in France plunged 2.86 percent.

By Friday afternoon, the euro was at its lowest level in more than four years against the dollar as investors sold off the currency.

Nervousness about Hungary helped push down the euro, analysts said. Even though the country's relatively small economy does not use the euro, it trades with many nations that do.

"There's a perceptual tug of war, and we don't need another country, no matter how small or unimportant from the global GDP standpoint, to begin talking about debt problems," said Phil Orlando, chief equity market strategist at Federated Investors in New York. "It makes investors pull in their horns."

Some analysts said investors were most likely dumping stocks ahead of the weekend because they feared what could develop while the markets are closed. The sell-off might also have been exacerbated by "stop-loss orders," which refer to investors' instructions to brokers to sell their stock when it drops to a certain price or has a certain percentage drop. This can create a snowball sell-off effect.

But by far, the jobs report was the biggest disappointment of the day because the U.S. economy had been the bright spot in a period of turmoil.

The Labor Department report showed that even though the economy had gained jobs in May and the unemployment rate had slipped, an outsized share of those jobs came from the hiring of temporary workers by the U.S. Census Bureau. Private employers added only 41,000 workers, well below the 218,000 jobs gained in April and far below what many analysts expected.

"The market is going to sell off first and ask questions later," said Paul Zemsky, head of asset allocation for ING Investment Management. "The market is reacting as if this is a double-dip recession."

Former labor secretary Robert Reich, speaking early Friday on CNBC, raised that possibility.

http://www.washingtonpost.com/wp-dyn/content/article/2010/06/04/AR2010060404947.html