U.S. economist Prof. Nuriel Rubini, one of the few who predicted the 2008 economic crisis, argues that rising inflation in most developed countries is here to stay, and is not short-term, as previously thought. This is despite the fact that among those who believed that short-term inflation in the past were central banks and decision-makers. Against this background, Robinie provides a particularly pessimistic forecast for the stock market.
In an opinion column published on the MarketWatch website, Robinie wrote that The rise in inflation was not only created naturally, by changes in the market and fiscal decisions, but mainly as a result of radical changes in the supply chain due to the corona and the Russo-Ukrainian war. The importance of the reason for the rise in inflation, according to Robin, is the increased danger of a recession in this situation.
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Soft or hard landing?
Will the policy of the Fed and central banks in the US lead to a soft or hard landing? Until recently, banks would have expected the result to be a soft landing, but now, even the Fed’s chairman, Jerome Powell, has admitted there could be a recession, and it will be challenging to achieve a soft landing. .
Beyond that, the forecasting tool used by the Fed shows a high probability of a difficult landing, and a number of Wall Street officials are already preparing for the recession.
Will Fed decisions on inflation moderate?
According to Rovini, if the Fed eases policy, we are likely to see an increase in inflation and warming of the market – or stagnation, depending on whether there is more demand or more supply.
“Most analysts estimate that central banks will remain hawkish, but I’m not sure,” Robinie says. “I believe they will accept the rise in inflation and the stagnation that will follow, because they will be scared of the damage that will be done to them from a recession after years of low interest rates.”
Now that most analysts understand that the landing will be difficult, a new question arises: Will the recession be short and proportionate, or severe?
Those who did not want to believe that the landing would be difficult, now also hold the belief that the recession will be proportionate. They think the economic situation today is not as bad as the situation before the 2008 economic crisis, so the chances of a severe recession are lower, but according to Robinie, this is a miscalculation.
One of the reasons for the forecast that the recession will be accompanied by a crisis is that public and private debt levels together are much higher today than in the past, rising from about 200% in 1999, to 350% today, with a sharp rise since the beginning of the corona.
Will Wall Street recover from the bear market?
According to Robinie, the stock market will invest even more. In a normal recession, stocks tend to fall by 35%, but because the impending recession will be part of a stagnation, the stock market will fall even more, close to 50%.
In his remarks, Robinie writes that whether the recession is severe or proportionate, history shows that the stock market has a long way to go before it stabilizes – that is, in the current situation, any increase in markets does not indicate a market recovery.