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It can get more frightening

Dec 11, 2008

Fortune magazine has compiled views on the global and US economy from some of the leading experts in the field - the likes of Nouriel Roubini, Bill Gross, Jim Rogers and Wilbur Ross. And the outlook mentioned by most of them seems frightening. Here are key excerpts of what these men have predicted -Nouriel Roubini (Economics professor, New York University) - "We are in the middle of a very severe recession that's going to continue through all of 2009 - the worst U.S. recession in the past 50 years. It's the bursting of a huge leveraged-up credit bubble. There's no going back, and there is no bottom to it. I wish I could be more cheerful, but I was right a year ago, and I think I'll be right this year too."

Jim Rogers (Commodity guru) - "U.S. stocks are still not attractive. Historically, you buy stocks when they're yielding 6% and selling at eight times earnings. You sell them when they're at 22 times earnings and yielding 2%. Right now U.S. stocks are down a lot, but they're still very expensive by that historical valuation method. I'm not saying it will fall that far, but it could very well happen. And if it gets that low and I'm still solvent, I hope I'm smart enough to buy a lot. The key in times like these is to stay solvent so you can load up when opportunity comes."

Bill Gross (Founder, Pimco) - "Investors need to recognize these titanic shifts in market and public policies and be content with single-digit returns in future years. Perhaps the most lucrative pockets of value are in high-quality corporate bonds and preferred stocks of banks and financial institutions that have partnered with the government in programs such as the Troubled Assets Relief Program (TARP). While their profitability may be restricted, their ability to pay interest and preferred dividends should be unhampered. Above all, stick to high-quality companies and asset classes. The road to recovery will be treacherous."

Incidentally, these three experts were crying foul by the middle of last year that the US and world economies were going to suffer a serious downturn due to bursting of the credit and housing bubble. The rest, as they say, is history. Trouble has now, in fact, moved from the financial markets to real economy. There has been a worldwide slowdown in economic activity, with some countries like the US, UK and Japan having entered recession.

The impact on the Indian economy is also starting to show, as economists are revising the GDP (gross domestic product) growth estimates being revised downwards. In a latest instance, the Reserve Bank Of India (RBI) governor has predicted that the next financial year (2009-10 or FY10) is likely to be difficult for the Indian economy.

As for the stock markets, if one were to go by views of experts like Mark Mobius and Rakesh Jhunjhunwala, the worst seems to be over for Indian stocks. "The malaise of the West isn't a problem India is facing; we don't have overextended banking systems or overextended credit. The basis of India's economic growth has far deeper roots than many other countries," Jhunjhunwala said and Bloomberg reported.


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