Dr. Doom Nouriel Roubini speaks again, predicting a drop in the S&P 500 index of up to -25% in the event of a severe recession-induced GDP contraction in the United States.
“In cases of short and mild recession, usually, the S&P 500 tends to fall from peak to bottom by 30%”recalls the economist, referring to the impact that a fall in GDP usually has on Wall Street.
Consequently, starting from this assumption, e “even in the event of a moderate recession”Wall Street’s benchmark index”should go down another 15%“said the professor emeritus of the New York University Stern School of Business and CEO of Roubini Macro Associates, known for his pessimistic but often prophetic forecasts.
In case instead of “a more severe recession than the scenario of a short and light recession, but not as severe as the one caused by great financial crisis…potentially the downside (for the S&P 500 index) it would be another 25%”.
Dr. Doom, most famous for having predicted the bursting of the US real estate bubble in 2008 and the consequent great global financial crisis, has launched several alarm bells during 2022, speaking of an inevitable recession and a subsequent one global stagflationary debt crisis.
In an article published a few days ago in Project Syndicate, the economist ‘presented’ the so-called inevitable crashaddressing the issue of private and public debts that the various economies have amassed, ‘thanks’ to the monetary drug injected by central banks, and of the so-called “insolvent zombies”.
“Exploding unsustainable debt ratios have led to several debtors – families, businesses, banks, shadow banks, governments, and even entire countries – to become insolvent zombies, who were buoyed by low interest rates (which allowed debt service costs to be manageable)“.
Dr. Doom Nouriel Roubini and the insolvent zombie alert
Of insolvent zombies Dr. Doom Nouriel Roubini is back to talk in the interview with Bloomberg, explaining that, he believes, the first signs of a recession coming will show up in credit markets, particularly in the debts of those zombie companies that are overleveraged and relying on unsustainable business models.
Dr. Doom has also released the outlook on what he will do Jerome Powell’s Fed. A somewhat ‘hawkish’ outlook: in fact, according to him, the American central bank will be forced to raise interest rates up to 6% to defeat the burning inflation.
And just the Fed’s further monetary tightening will put a lot of zombies “in a stressful situation”.
“If we enter a recession, many institutions…will see significant increases in debt servicing costs. So, the credit market will face a stress“Roubini insisted, adding that many zombies “they are already insolvent”.
A study on zombies was conducted, an article in Fortune noted, by the US banking giant Goldman Sachs: it emerged that 13% of US-based companies “could be considered” zombies.
New Constructs CEO David Trainer also believes there are currently 300 publicly traded zombie companies.
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