Roubini expects the recession in the US and the world to last through 2023, depending on how severe the supply shocks and financial problems will be. Households and banks were hit hardest during the 2008 crisis. This time, he said that companies and shadow banks, such as hedge funds, private equity and credit funds, will “implode”.
In Roubini’s new book, “Megathreats,” he identifies 11 negative medium-term supply shocks that reduce potential growth by increasing production costs. These include deglobalization and protectionism, relocation of production from China and Asia to Europe and the US, population aging in advanced economies and emerging markets, migration restrictions, a US-China decoupling, global climate change and recurring pandemics.
“It’s only a matter of time before we have the next nasty pandemic,” he said.
His advice to investors: “You need to be light on stocks and have more cash.” Although cash is being eroded by inflation, its face value remains at zero, “while stocks and other assets can fall by 10 percent, 20 percent, 30 percent.” With fixed income, he recommends staying away from long-term bonds and adding inflation protection through short-term government bonds or inflation-index bonds such as TIPS.