“We are seeing widespread foam, bubbles, risk taking and leverage,” warns Dr. Doom ‘on the state of the stock market
“We are seeing widespread foam, bubbles, risk taking and leverage … A lot of players have taken too much leverage and too much risk and some of them are going to explode.”
This is the eminent scholar Nouriel Roubini, professor of economics at the Stern School of Business at New York University, explaining in an interview with Bloomberg Television who broadcast Tuesday that risk-taking on Wall Street is reaching dangerous levels, in his view.
He told the Business Network that the swirling liquidity in financial markets and the aggressive use of borrowed money were likely to create new problematic episodes in markets where investors gorged themselves on debt at the expense of the larger market. large.
Roubini’s comments follow the collapse of Archegos Capital Management about two weeks ago which took its toll on the markets, briefly and so far Credit Suisse AG takes $ 4.7 billion charge loan to the family office headed by Bill Hwang.
Archegos is the family investment arm of Hwang and has been forced to liquidate billions of assets after betting on stocks like Discovery DISCA,
and ViacomCBS VIAC,
suddenly turned on him and forced his lenders to unwind his leverage investments.
Roubini said that a rise above 2% for the benchmark 10-year Treasury bill TMUBMUSD10Y,
which is used to set rates on everything from mortgages to auto loans, could spark further investor explosions.
The rise in yields has prompted investors to sell more speculative bets, as higher yields imply that borrowing costs increase for investors as well, making these speculative bets less economically attractive.
Known as “Dr. Doom ”in some circles for his bearish forecast, Roubini has been consistently pessimistic about his outlook for markets and the economy since the pandemic took hold in the United States in earnest last year. Last year he said that the V-shaped bounce “becomes a U, and the U could become a W if we don’t find a vaccine and don’t have enough stimulus.
Roubini, was once named one of the “the world’s top 100 thinkers»After his specific calls on the impact of the housing crisis more than ten years ago.
The American markets, on the other hand, were try to extend the gains, according to the Dow Jones Industrial Average DJIA,
and the S&P 500 SPX index,
On Monday, the two finished at records. Meanwhile, the Nasdaq COMP Composite Index,
was trading within 3% of its closing high.