Nouriel Roubini issues ‘perfect storm’ warning for stocks

SmartStops commentary:   There are critics of his calls, but Roubini in July 2006 predicted a “catastrophic” global financial meltdown that central bankers would be unable to prevent. The collapse of Lehman Brothers Holdings Inc. in 2008 sparked turmoil that led to the worst financial crisis since the 1930s.   Of course predicting the markets future is challenging to say the least, with so many factors at play.  Its why investor’s methodology must evolve to have protection ready for themselves at all times.   You can’t survive our markets any longer by deploying a buy and hold methodolgy. 

‘Perfect Storm’ warning for stocks

A “perfect storm” of fiscal woe in the U.S., a slowdown in China, European debt restructuring and stagnation in Japan may converge on the global economy, New York University professor Nouriel Roubini said.

There’s a one-in-three chance the factors will combine to stunt growth from 2013, Roubini said in a June 11 interview in Singapore. Other possible outcomes are “anemic but OK” global growth or an “optimistic” scenario in which the expansion improves.

“There are already elements of fragility,” he said. “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest.”

Elevated U.S. unemployment, a surge in oil and food prices, rising interest rates in Asia and trade disruption from Japan’s record earthquake threaten to sap the world economy. Stocks worldwide have lost more than $3.3 trillion since the beginning of May, and Roubini said financial markets by the middle of next year could start worrying about a convergence of risks in 2013.

Be Cautious of ETFs Boosted By Japan’s GDP Revision

Japan witnessed its fourth consecutive quarter of economic growth enabling it to retain its position as the world’s second largest economy after beating GDP expectations impacting the iShares MSCI Japan Index (EWJ), the iShares MSCI Japan Small Cap Index Fund (SCP) and the Vanguard Pacific Stock ETF (VPL).

The Japanese economy expanded by 4.5 percent in the third quarter of the year, exceeding analyst expectations by 0.6 percent and eating away at the nation’s massive deflationary gap.  Furthermore, this expansion has led to Japan’s Minister of Economic and Fiscal Policy to peg an estimated annual growth for the year at around 2.6 percent.

3 Ways To Play Sovereign Debt Crisis

As the sovereign debt crisis continues to take its toll on Europe and fails to linger away, currencies continue to deteriorate, government bond yields continue to rise and stock markets remain volatile.  Depsite the fear that this crisis has brought on, there are four ways one can play it.

Japan

Many believe that the next country to be hit by the crisis is Japan.  Traditionally, the Japanese Yen and Japanese bonds have been a safe haven in times of uncertainty; however, this is no longer the case.   According to a study conducted by Moody’s, Japanese government debt is estimated to be more than 200 percent of the nation’s gross domestic product (GDP), which puts limitations on the government’s ability to spend and implement additional fiscal stimulus plans to stimulate a much battered economy. 

In regards to interest rates, the Bank of Japan needs to keep interest rates at or close to zero and continue its asset-purchase program to curb the effects of deflation and worsen the overall health of its economy.  To make things even more challenging in the Asian nation, Japan’s demographics are highly unfavorable.  The Japanese population is aging and shrinking, which eventually will result in the labor force retiring and cashing in on government bonds, which is likely to result in the Japanese government borrowing more at higher yields from more prospering countries.  

With the future looking relatively gloomy for Japan, some possible plays include the ProShares UltraShort MSCI Japan (EWV), which aims to seek twice the inverse daily performance of the MSCI Japan index.  A second play includes the ProShares UltraShort Yen (YCS), which allows one to bet against the Japanese Yen.  EWV closed at $47.29 on Tuesday and YCS closed at $20.65 on Tuesday.

Emerging Markets

Nations that are fast-growing and rich in natural resources are likely to be at the forefront of this crisis.  One such nation is Brazil.  Brazil is one of the few countries in the world that is self-sufficient in oil as well as is a leader in alternative energy.  Regardless of the volatility in crude, it will continue to remain a sought after commodity as global economies grow and nations rich in black gold will reap the benefits. 

Japan Could Be Opportunistic

By Kevin Grewal

The world’s second largest economy has been struggling to get back on its feet and emerge from its worst recession since World War II. However, recent data suggests that Japan’s economic recovery efforts are finally starting to reach households and its economy could finally be starting to stabilize paving the road to opportunity. 

According to Japan’s Ministry of Economy, Trade and Industry, consumer demand and spending has been on the rise.  Higher demand for automobiles, energy and machinery has pushed retail sales up in February, marking the second straight month of increases, and nearly 4.2%. 

In fact, despite negative publicity and suspension of U.S. production for five days, the world’s largest automaker, Toyota Motor Corporation (TM), boasted an increase in production in nearly all of its regions.  In fact, Toyota boosted output 83% from a year earlier and February was the seventh straight month the automaker has witnessed jumps in production.

This trend has further trickled down to automakers Honda Motor Company (HMC) and Nissan Motors.  Honda is boasting production increases of nearly 49% from a year earlier and Nissan’s production is up nearly 72%.