Ready for the Next Bubble? Roubini Says Carry Trades Fueling ‘Huge’ Asset Bubble

[Joanne98]

Run time: 03:06 https://www.youtube.com/watch?v=HOa7XCkVBLQ   Posted on YouTube: October 26, 2009 By YouTube Member: Views on YouTube: 0   Posted on DU: October 31, 2009 By DU Member: Joanne98 Views on DU: 598

 

Oct. 27 (Bloomberg) -- Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis, said New York University professor Nouriel Roubini.

“We have the mother of all carry trades,” Roubini, who predicted the banking crisis that spurred more than $1.6 trillion of asset writedowns and credit losses at financial companies worldwide since 2007, said via satellite to a conference in Cape Town, South Africa. “Everybody’s playing the same game and this game is becoming dangerous.”

The dollar has dropped 12 percent in the past year against a basket of six major currencies as the Federal Reserve, led by Chairman Ben S. Bernanke, cut interest rates to near zero in an effort to lift the U.S. economy out of its worst recession since the 1930s. Roubini said the dollar will eventually “bottom out” as the Fed raises borrowing costs and withdraws stimulus measures including purchases of government debt. That may force investors to reverse carry trades and “rush to the exit,” he said.

“The risk is that we are planting the seeds of the next financial crisis,” said Roubini, chairman of New York-based research and advisory service Roubini Global Economics. “This asset bubble is totally inconsistent with a weaker recovery of economic and financial fundamentals.”

‘Wall of Liquidity’

The MSCI World Index of advanced-nation equities has surged 65 percent from this year’s low on March 9, while the MSCI Emerging Markets Index has jumped 96 percent. The Reuters/Jefferies CRB Index of 19 commodities has added 33 percent.

Roubini said he sees a bubble in emerging-market equities and that gains in some developing-nation currencies are becoming “excessive.” The rally in oil “is not justified by the fundamentals,” he said.

An asset “bust” may not occur for another year or two as a “wall of liquidity” pushes prices higher, Roubini said. In a carry trade, investors borrow in countries with low interest rates to invest in higher-yielding assets.

Roubini said the U.S. recession seems to be over, though the economic recovery in advanced nations will be “anemic.” He’s “more optimistic” on the outlook for emerging-nation growth.

The U.S. economy probably expanded at a 3.2 percent pace from July through September after shrinking the previous four quarters, according to the median estimate of 65 economists surveyed by Bloomberg News before the Commerce Department’s report on gross domestic product due Oct. 29.
http://www.bloomberg.com/apps/news?pid=20601087&sid=atlyygQuBLUI

[marmar]

1. When you have an economy that's not based on anything real, this is what you get....

..... bubble after bubble, leading to diasaster after disaster.

[Warpy]

2. When all the wealth is concentrated at the top

and it's always looking for ways to increase, the bubble market is what it will invariably create.

Once the little fish notice a bubble (and trust me, Roubini is a little fish), that market is already over and the big money is being quietly withdrawn. The little fish pay their profit and are left holding an empty bag when it collapses, which it invariably does when the big money is gone.

It doesn't much matter what it picks, it can be metals, soybeans, or exotic financial instruments. It's only a mechanism to bleed more money off the few little fish left who have it to invest.

Bubbles will continue to form, smaller and smaller ones, until and unless wealth concentration is addressed.

[fascisthunter]

3. But But But... we are out of the recession

this government is the problem, along with it's boss, Wall Street

[On the Road]

4. Roubini is probably correct

that there is too much money in assets, although it seems a strange claim with real estate prices being so depressed.

The other side of that is, though, that as the economy recovers and businesses start reinvesting, capital will flow away from commodities to enterprise and revenue-producing assets. It doesn't always play out the way it might look a year or two ahead of time.

[Junkdrawer]

5. Kick

:kick: