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Wednesday, March 10, 2010

Ed Hyman & Nouriel Roubini Differ Over Shape of Economic Recovery

Ed Hyman and Nouriel Roubini, often called Dr. Doom, differ on the shape of the economic recovery. Hyman says we will have a "V shaped" recovery while Roubini clings to his belief that the recovery will have a "U" shape and could have a "W" shape.










GDP Growth








Ed Hyman has an excellent record at predicting the economy.

You have to take what "Dr Doom" says will happen with a grain of salt. It was just a year ago that Roubini said DOW 5,000 was possible and the best the S&P500 could hope for as a rally to 720. See my March 09, 2009 article:
  • Nouriel Roubini, Dr Doom, Thinks DOW 5,000 is Possible
    In the best case, Roubini sees the S&P500 (closed today at 676.53 - Charts) at 720, a gain of 6.4%. In the worst case, Roubini thinks there could be another 20% left in the decline with the S&P500 falling as low as 500 to 600 with the DOW down to 5,000 or 6,000.

Dr. Doom was wrong but fear sells so he continues his pitch.

The following excerpts I got via email today from Nouriel Roubini as he tries to sell his services.
While maintaining his core projection of protracted U-shaped growth in the United States, Roubini argued that the risks of a double-dip recession in the United States are rising. The following content is excerpted from that analysis, the full version of which is still available just for clients on

V, U and W

A slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for a U-shaped recovery—at best—in 2010.
Kirk: With 5.9% growth in Q4-09, hasn't a U shaped recovery already been eliminated so all that is left are V and W shaped recoveries?
The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic levels of growth which RGE forecast for H1. The U.S. faces continued challenges in H2—particularly as historic levels of fiscal stimulus fade—and appears far too close to the tipping point of a double-dip recession.
Kirk: More stimulus is on the way including money to buy appliances and "Cash for Caulkers."
This is not the conventional wisdom. Heated debate continues to rage in the United States on whether the economic recovery will be V-shaped (with a rapid return to robust growth above potential), U-shaped (slow anemic, sub-par, below trend growth for at least the next two years) or W-shaped (a double-dip recession). The V camp includes distinguished research groups and individuals such as Ed Hyman’s ISI, Larry Meyer’s Macroeconomic Advisors, the research group of JP Morgan, Michael Mussa and others. The U camp includes—among others—Roubini Global Economics, Goldman Sachs’ U.S. economic research group, PIMCO and Ken Rogoff. As early as August 2009, I worried in a Financial Times op-ed about the risk of a double-dip recession even if our RGE benchmark scenario characterizes the risk of a W as still a low probability event (20% probability) as opposed to a 60% probability for a U-shaped recovery. Others concerned about the double-dip risk include also David Rosenberg, Gary Shilling and John Makin.

Ed Hyman and I debated whether the recovery would be U or V-shaped on a February 22 conference call attended by over 2,200 listeners. Since that call, a slew of new U.S. macro data have come out. They have been almost uniformly poor, if not outright awful.
Remember it was just a year ago that Roubini said DOW 5,000 was possible and the best the S&P500 could hope for as a rally to 720 while we posted ECRI's article saying that an economic recovery was ahead.

DOW JONES INDU ^DJI - More charts
S&P 500 - More charts

The good news is ECRI and Ed Hyman do not predict a double dip recession in 2010.

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