Sunday, July 22, 2012

Byron Wien vs. Nouriel Roubini

Nouriel Roubini and Byron Wien do not see eye-to-eye on the stock market and the economy.

Professor Roubini sees gloom and doom ahead. When he looks into his crystal ball he sees us on the verge of an economic contraction. We are not, he says, even close to an economic recovery.

Strategist Wien sees a brighter future ahead. That is, if you think that 2% growth is good news. Wien is not worried by the depression that will probably never happen.

Roubini wrote:

For the last three years, the consensus has been that the U.S. economy was on the verge of a robust and self-sustaining recovery that would restore above-potential growth. That turned out to be wrong, as a painful process of balance-sheet deleveraging—reflecting excessive private-sector debt, and then its carryover to the public sector—implies that the recovery will remain, at best, below-trend for many years to come.

Even this year, the consensus got it wrong, expecting a recovery to annual GDP growth of better than than 3 percent. But the first-half growth rate looks set to come in closer to 1.5 percent at best, even below 2011’s dismal 1.7 percent. And now, after getting the first half of 2012 wrong, many are repeating the fairy tale that a combination of lower oil prices, rising auto sales, recovering house prices, and a resurgence of U.S. manufacturing will boost growth in the second half of the year and fuel above-potential growth by 2013. 

Wien is more optimistic, but his optimism is clearly tempered:

James Freeman reports in the Wall Street Journal:

The bad news, he [Wien] adds, is that while America is the best of the developed economies, "we're a mature country. We should only grow at about 2%" adjusted for inflation. Add in 2% inflation and 1% annual productivity gains and he says corporate earnings should be growing at 5%, down sharply from the annual average of 8.4% since 1945.

Real GDP growth of 2% is the bull case? "The world is just plain a more competitive place," explains Mr. Wien. And he thinks it may get much more competitive. He's bullish on emerging markets and adds that while we may think of China, for example, as a place that simply assembles our inventions like the iPad, that could easily change. "China is filing lots of patents these days. There are a lot of smart Chinese and eventually they'll become innovators too."

He also discusses massive federal debts in the U.S., our persistently high unemployment, and the possibility of "social unrest" as a result. He notes that there are more Americans who have been unemployed for 27 weeks or more than ever before in our history.

There you have it, two great students of the markets seeing the world from two different angles.

As I posted previously, Wien has shared views that differ markedly from his own. See his report of a European friend's bleak pessimism. 

In that spirit I am happy to offer competing visions of the future. There's too little respect for differing points of view, so consider it a gesture in the right direction.

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