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Thursday, December 10, 2009

Nouriel Roubini Gold & Stock Market Outlook

Not only is Nouriel Roubini, called "Dr. Doom" by many, a stock market bear, he is bearish on gold. Gold (Gold quote & Charts) is currently trading at $1123 per ounce.

"I don't believe in gold," Roubini told CNBC. "Gold can go up for only two reasons."

"[the first is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there's slack in the labor markets with unemployment above 10 percent in all the advanced economies. So there's no inflation, and there's not going to be for the time being.”

Kirk's Comment: The price of Gold is probably predicting the future out to 10 years or more much as the very low PE ratios for banking and home builders in 2006 and early 2007 predicted the financial meltdown years before it happened. Even today, stocks like Verizon and AT&T have very high dividends with low PE ratios which tells me the market expects communication bandwidth to eventually become a commodity. Low PE ratios and high dividends often say more about the long-term future than the present just as the current high price for gold may be telegraphing the future unless we get our spending under control in the US.

In simpler terms, the price of gold is predicting we will need wheelbarrows to pay interest on our national debt if congress and the white house don't change their spending ways quickly.

The second way gold can go higher in this deflationary economy, according to Roubini, is a financial Armageddon. Roubini says we've avoided that risk.

Kirk's Comment: Have we? If US Treasury interest rates eventually soar to attract money to finance our huge debt, we'll have to borrow even more money to repay the debt. With the democrats and Republicans both spending more than we take in as fast as they can, the price of gold may be predicting a different, but very real financial Armageddon.

Roubini said gold can't move up 20% to 30% unless we end up in a world of inflation or another depression.
So all the gold bugs who say gold is going to go to $1,500, $2,000, they're just speaking nonsense."

click for full size image from

Nouriel Roubini is a professor at the Stern Business School at New York University, chairman of Roubini Global Economics and a weekly columnist for Forbes magazine.

Current Quotes (click for current quote and chart):
My prior updates on Dr. Doom:
Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 157% (a double plus another 57%!!) vs. the S&P500 UP at tiny 7.3% vs. NASDAQ UP at tiny 0.3% (All through 12/10/09)

As of December 10, 2009, "Kirk's Newsletter Explore Portfolio" is up 32.4% YTD vs. DJIA up 18.7% YTD
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Disclaimer: I have no position in Gold but I do have significant personal positions in TIPS, TIPS mutual funds and iBonds plus I hold them in my newsletter portfolios.

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