‘Dr Doom’ Roubini warns of stocks collapse

Professor Nouriel 'Doctor Doom' Roubini, the fun-loving New York economics guru who forewarned us of last year's financial collapse, is now saying that stock and commodity markets may drop again in coming months. "Markets have gone up too much, too soon, too fast," the 50-year-old Turkish-born professor warned yesterday. "I see the risk of a correction, especially when the markets now realise that the recovery is not rapid and V-shaped, but more like U-shaped."

Predictions about what shape a recovery might take have been running the alphabet. First it was 'V' then 'U' then 'L', 'W', the sign for square root and now back to 'U'-shaped with, Roubini says, the risk of "a double-dip recession". Back to 'W', then.

Roubini's prediction comes as global stock markets celebrate record runs. The FTSE 100 is on a tear, rising a record 21 per cent between July and September; the Dow climbed 50 per cent from early March to September 22; Europe's Dow Jones Stoxx 600 is up 48 per cent.

Now Roubini, who has lately been attracting less attention for his economic forecasts than for his party-boy reputation and collection of vagina-shaped sculpture that decorate his Manhattan loft, seems back on his customary doom-and-gloom form.

Of course, Roubini is not alone in this view. He believes investors have been lulled into a false sense of optimism, and there is a growing disparity between the strength of the markets and the economic reality of an anaemic, stumbling recovery.

Since bottoming in early March, the global equity rally has added about $20.1tr to the value of stocks worldwide. Yet the US markets fell last week on poor manufacturing data and a report that unemployment had climbed to a 26-year high. Crucial earnings figures are expected this week.

In the UK, business investment has plunged at its fastest rate in 44 years and the IMF has warned that a dearth of credit could derail Britain's economic recovery.

Roubini thinks he sees "light at the end of the tunnel" but acknowledges the main issue is how governments can wind down stimulus programmes without collapsing any recovery - "a very difficult thing," he believes.

"In the short run we need monetary and fiscal stimulus to avoid another tipping point and to avoid deflation, but now this easy money has already started to create asset bubbles in equities, commodities, credit and emerging markets," Roubini said. "For the sake of achieving growth stability again and avoiding deflation, we may be planting the seeds of the next cycle of financial instability."

For Roubini, who is an Iranian Jew by birth and was raised in Tehran and later in Israel, life as a notable professional downer contrasts starkly with his upbeat bachelor life. His loft parties are the stuff of legend and he's known as a generous host. The financial news channel CNBC plays disco music when he appears on the air; his Facebook profile reveals an interest in meeting women, preferably several decades younger.

"An economist is someone who knows 1,001 sexual positions but doesn't have a girlfriend," he quipped in April. His formula for good times? "Fun people and beautiful girls. I look for ten girls to one guy." His friend Bill Clinton, he has said, is also a fan of this ratio.

Roubini calls his economic approach "holistic." No mathematical formulae - he draws his ideas from history, literature, and international affairs. The article that made his career, The Rising Risk of a Systemic Financial Meltdown: The 12 Steps to Financial Disaster, published in February 2008, accurately predicted the housing bust and the bursting of the credit bubble.

Earlier this month, after several months of muted optimism over the direction of the US economy, he was back on full-force pessimism. "It's going to be death by a thousand cuts. The financial system is severely damaged, and it's not just the banks."

Of course, a strong recovery could pose a problem for an economist who has built his reputation on collapse. "The recession has been great for me," Roubini noted earlier this year at a party while a line of women waited to be photographed next to him. "They love my beautiful mind. I am ugly, but they're attracted to the brains. I'm a rock star among geeks, wonks, and nerds." ·