L or U: Counterpoint

I recently published an article with accompanying information about the possibility of a V-shaped recession. This is the more optimistic viewpoint--and it is supported by the consensus view of GDP growth in the second half of 2009. Of course, the consensus could be wrong.

Enter counterpoint: Nouriel Roubini, a professor at New York University's Stern School of Business, says We could end up ... with a 36-month recession, that could be "L-shaped stagnation, or near depression. He puts the chance of a severe U-shaped recession at 66.7 percent, and a less severe L-shaped recession at 33.3 percent.

He has a reputation as the most pessimistic economist in the academic world. He deserves it. His most recent paper is Can the Fed and Policy Makers Avoid a Systemic Financial Meltdown? Most Likely Not.


We are in the 15th month of a recession, says Roubini. Growth is going to be close to zero and unemployment rate well above 10 percent into next year. He sees no hope for the recession ending in 2009 and will more than likely last into 2010.

I believe it is important to consider all sides of this economic debate. It is also important to not get too emotionally invested in outcomes: either by being blindly optimistic about recovery or irrationally pessimistic about depression.

Here is a recent interview worth watching.





By the way, how are Roubini's own funds invested?

They are 100 per cent in equities. In the long run stocks do best and he is not yet close to retirement, so he keeps putting more money into index funds each month, according to an article in the Financial Times by John Authers.