Stagflation ahead: Nouriel Roubini warns of massive debt crisis and advises investors on these assets | news

Stagflation ahead: Nouriel Roubini warns of massive debt crisis and advises investors on these assets |  news

• Nouriel Roubini sees combination of debt crisis and inflation
• Stagnation challenges investors
• Traditional portfolio with problems

“The next crisis will not be like its predecessors,” writes Nouriel Roubini, a professor at NYU Stern School of Business, in an essay for Time, extracted from “MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them ” was adapted.

Debt crises exacerbate the situation

The market expert refers in particular to the situation in the 1970s, when there was stagflation but no massive debt crises arose due to low levels of debt. In 2008 there finally came a debt crisis, but with low inflation or even Deflation was accompanied because the credit crunch triggered a negative demand shock. However, the current situation combines both: stagflation, i.e. economic stagnation and high inflation with high levels of debt. This means “that we are heading for a combination of 1970s-style stagflation and a 2008-style debt crisis – ie a stagflationary debt crisis,” he said.

“The share of private and public debt in global GDP is now much higher than in the past, rising from 200% in 1999 to 350% today. In these circumstances, a rapid normalization of the monetary policy and rising interest rates are forcing households, businesses, financial institutions and governments into bankruptcy and default,” Roubini said.

Hard landing ahead?

The expert is also certain that the monetary watchdogs cannot achieve their inflation target without provoking a so-called hard landing. He thinks this is “much more likely than a soft landing” for the US and most advanced economies. A recession will therefore be inevitable, although the question arises as to whether the USA might already be in one.

Against this background, the question is also important as to whether the recession will be mild and short or severe and characterized by deep financial hardship. In his view, the latter is likely to happen and he is firmly anticipating a long recessionary period with high inflation. “It will not be a short and shallow recession, it will be a deep, long and ugly one,” the expert recently warned in an interview with Bloomberg.

And in his Time essay he also supported this argument, stating: “The coming decade could well be a stagflationary debt crisis like we’ve never seen before”.

Traditional investor portfolio with problems

This isn’t good news for investors, especially those with a traditional investment portfolio that’s 60 percent stocks and 40 percent bonds, Roubini believes.

“It is likely that both components of a traditional investment portfolio – long-dated bonds and US and global equities – will suffer and suffer potentially massive losses. Losses occur in bond portfolios as rising inflation increases bond yields and lowers their prices. And inflation is also bad for stocks, since rising interest rates affect the valuation of company stocks,” he summarizes the situation on the market in his essay.

He also points to the significantly higher price-to-earnings ratio of S&P 500 companies, which increases the risk of a protracted and severe bear market.

Investors therefore need to find assets that will protect them against inflation, political and geopolitical risks, and environmental damage. Specifically, Roubini mentions short-term government bonds and inflation-indexed bonds in this context. In addition, the expert advises gold and other precious metals as well as real estate that is resistant to environmental damage.

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Image credits: Vivien Killilea/Getty Images for Berggruen Inst., Immersion Imagery /

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