Warning: Global Perfect Storm Ahead
LONDON -- If you're an economist, you only have to get one big call right and you will be remembered forever. Your reputation is secure for all time, whatever the fate of your subsequent predictions.
Whatever Nouriel Roubini, says or does in future, he will always be known as Dr. Doom: "the man who famously predicted the financial crisis."
So when the New York University professor's sensitive antennae start twitching, people listen. They're twitching now. In fact, they've gone berserk, as he predicts we're heading for a "global perfect storm" in 2013.
So is it time to batten down the hatches?
Forecast: doom, doom, doom
If you thought this summer was wet and windy, brace yourself for 2013. That's when the can finally becomes too big to kick down the road and we hit that global perfect storm, Roubini tells Reuters.
Lots of bad things are set to happen at the same time. The eurozone crisis comes to a head. Tax increases and spending cuts drive the U.S. into recession. The Chinese get their hard landing. Emerging markets slow. And what the hell, why not throw in a war with Iran for good measure?
If Dr. Doom is right, 2013 is going to be, um, interesting.
You won't be surprised to hear that Roubini predicts a sharp drop in U.S. stock markets next year. He does foresee a weak rally, thanks to quantitative easing, but this will do little to offset the weakening economy and slowing earnings growth.
The Federal Reserve may then turn to unconventional measures to ease the crisis. "Eventually if everything goes wrong, they can even buy equities."
If he is right, the rest of us will be buying tinned food and ammunition.
As somebody who didn't famously predict the financial crisis, I'm not going to set my crystal ball against his. Roubini has a strong track record.
Back in 2005, he warned house prices were riding a speculative wave that would eventually sink the U.S. economy and end with "homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unravelling worldwide and the global financial system shuddering to a halt."
In 2006, he announced that "the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence, and, ultimately, a deep recession".
In 2009, he warned of a double-dip recession.
You can see how he got his name.
Dr. Doom's "perfect storm" prediction isn't new, he has been making it for some time. But this week he has all but given us the date.
A matter of time
Why would you invest in equities at such a time? Why don't you spend your money on a good shovel and start digging a shelter in your back garden?
Well, no matter how clever Roubini is, even he doesn't claim to be infallible. He could be wrong. Or more likely, he could get his timing wrong. Accurately predicting the end of the world is hard enough, naming the date is almost impossible. Many of us have been waiting for the perfect storm for the past three years, and we're still waiting.
If you had avoided stock markets altogether in that time, you would have missed out on three years of juicy dividends from blue chips such as Aviva (ISE: AV.L) , which yields 8.76%, BAE Systems (ISE: BA.L) at 6.1%, National Grid (ISE: NG.L) with 5.86%, Vodafone's (ISE: VOD.L) 5.1%, and GlaxoSmithKline (ISE: GSK.L) , which yields 4.8%. Instead, you would have accepted a derisory return from your bank.
Mountains of cash
Roubini isn't the only one nervous about the future. So are many of the world's biggest companies. Instead of spending their cash, they are sitting on it. A mountain of it. That should give investors some security, because those companies aren't going out of business anytime soon. And when they finally start moving that mountain, their profits and share prices will grow. I want to be fully invested when it does.
There is also the question of exactly how far central bankers, especially the Federal Reserve, will let stock markets fall, before cranking up the printing presses.
Although I wouldn't recommend you invest on the assumption they will. It is hardly Foolish wisdom to gamble on central bank intervention for your profits.
Buy in the eye of the storm
I can understand why you're feeling bearish right now. You've heard what Dr. Doom says, and you think it makes sense. In my gloomier moments, it makes sense to me as well.
But it doesn't make as much sense as those fat dividends that Aviva, Glaxo, Royal Dutch Shell, and Vodafone keep giving me. They aren't conjecture, but cold, hard fact.
Roubini may be right. We may get that perfect global storm. If we do, it will be the perfect time to buy more of these solid global dividend payers.
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At the time this article was published Harvey owns shares in Aviva, Glaxo, Royal Dutch Shell, and Vodafone. He doesn't own any other shares mentioned in this article. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.