Why Dr. Doom Is Bullish on Stocks
Economist Nouriel Roubini, also known as Dr. Doom, is finally on board with the stock market upswing; in fact, he believes the stock market can go even higher over the next two years.
Now, if you are familiar with the often bearish opinions of Roubini, you’ll know that his hawkish view of the stock market is somewhat bizarre, but you’ll also understand why he thinks this way.
The thinking behind Roubini’s view is similar to my own view on the stock market. Roubini believes that the concerted move by the world’s central banks to provide easy access to money via aggressive monetary policy is helping to drive the current buying in the stock market.
“In the short-term, it’s great for assets,” said Roubini about investors riding the bubble higher. (Source: Farrell, M., “Dr. Doom: Buy stocks while you still can,” CNNMoney.com, April 30, 2013.)
As many of you know, I have long been a critic of the Federal Reserve’s money-printing operations, along with the easy money flow from the world’s other banks.
Roubini predicts that the stock market will move higher over the next two years—as long as the Federal Reserve continues its aggressive stimulus strategy.
Of course, Roubini is aptly named Dr. Doom for a reason: he believes a period of reckoning is coming. And I’m on the same page.
As interest rates edge higher, investors will exit the stock market, and there will be a subsequent backlash.
I refer to this cause and effect as the impending economic Armageddon—it’s coming.
Interest rates will inevitably move higher. The low or near-zero interest rates are currently enticing investors to look to stocks and dividends for added returns, but the shift to higher rates will force some rotation away from the stock market and back into the safety of bonds.
Moreover, the higher interest rates will mean much heavier carrying costs for those who have accumulated massive debt loads during the current low-interest-rate environment.
Just take a look at the government’s massive $16.84 trillion in national debt. Wait until you see what the carrying costs will be on this debt as interest rates edge higher: it’s not going to be pretty.
So just like Roubini advised, the time for stocks is now—as long as interest rates continue to be a non-factor. It’s unclear how long the stock market will hold and edge higher.
In the meantime, ride the wonderful gains, but make sure you have an exit strategy in place for when the easy money flow dries up.