Coronavirus will send stocks and oil into 'free fall' and shrink the global economy, an economist warns
- Nouriel Roubini anticipated Monday's market rout, warned of a global recession, and recommended policies to limit coronavirus' economic impact in a string of tweets on Sunday night and Monday morning.
- The "Dr. Doom" economist forecast declines in equity, oil prices, and the 10-year Treasury yield.
- Roubini also warned that the one-two punch of coronavirus and an oil-price war represented a "perfect risk-off storm and a true signal of upcoming global recession!"
- He advised authorities to ensure easy access to credit, put money in consumers' pockets, and boost market liquidity.
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Nouriel Roubini - the economist nicknamed "Dr. Doom" for his pessimistic predictions - called Monday's market rout, warned of an approaching global recession, and outlined what officials should do to limit the economic fallout from coronavirus in a string of tweets on Sunday and Monday.
"The week will start with US and global equities down another 2% to 3%, credit spreads blowing up especially for high-yield & credit markets seized and frozen, 10-year Treasury yields even lower, and oil prices sharply down," he tweeted.
"Perfect risk-off storm and a true signal of upcoming global recession!" the professor added at New York University's Stern School of Business.
Roubini's dire predictions seem conservative in hindsight.
Sounding the coronavirus alarm
In a Der Spiegel interview before the market sell-off, Roubini said that investors were being "completely delusional" about the economic fallout from coronavirus. He underscored the severity of the threat again on Monday after total infections across more than 100 countries surpassed 110,000, and deaths topped 3,800.
"In next few days, the fundamental news will be that the pandemic is spreading to the US and EU," Roubini tweeted.
"This will trigger a further free fall of risky assets (equity, credit, oil) and a rise in gold prices and safe bond prices," he added.
The economist also forecast a brutal credit crunch this year. He pointed to the sweeping impact of coronavirus, the limited ability of monetary and fiscal policy to address workers falling ill and consumers staying home, and recent growth in the global debt pile.
"2020 credit crisis will be more severe than 2016 and 2019 as not just about energy but also other leveraged sectors; the COVID economic shock is real rather than a fear; policy response more constrained; it also hits illiquid SME/workers; more global debt. Recession/crisis ahead!" he said.
Cash, cash, and more cash
Roubini suggested several ways to mitigate the economic damage caused by coronavirus. He recommended that authorities make credit available to small and medium-sized businesses and households, echoing former Treasury Secretary Larry Summers' recent advice.
He also advised officials to use benefits, subsidies, and tax cuts to put money in the pockets of low- and middle-income consumers. He argued that as coronavirus continues to hammer consumer demand and disrupt businesses and supply chains, poorer Americans are at greater risk of losing their jobs and running short of cash.
Moreover, Roubini called for the Federal Reserve to plow billions into the US economy to boost liquidity and shore up asset prices.
"Apart from right health policy, appropriate macro response is credit provision to solvent but illiquid SMEs and households, transfer payments/tax cuts to low-middle income folks losing income/jobs, and monetary easing to stop asset price crash," he tweeted.
True to form, Roubini said US lawmakers would inevitably fail to make the necessary moves in time. "Will come too late given policy gridlock," he added.
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