Roubini Says Rally Is a "Dead Cat Bounce"

From The Business Insider, March 16, 2009:

We'll admit to being a bit perplexed at Nouriel Roubini's personal investment strategy and how it compares to the advice he gives on the pages of his RGE Monitor. Last we heard, Dr. Doom was 100% long, and invested in index funds. That was apparently true as recently as February, when it was reported in the Financial Times.

And yet if he really "saw this coming." which everyone in the media accepts, it's hard to understand why he'd sit back and watch his 100% long portfolio whither by some 50%. What's more, the NYU academic is actually giving financial advice, and his advice is to sell.

Here's the conclusion to his latest piece (via Calculated Risk) wordily titled: "Reflections on the latest dead cat bounce or bear market sucker’s rally"

So, in conclusion and caveat emptor for investors: Dear investors, do enjoy this dead cat bounce and bear market sucker’s rally ... don’t wait too long until you jump ship while the financial Titanic hits the next financial iceberg: you may get squeezed and crashed in the rush to the lifeboats.

So he's long but his advice is don't wait too long to sell. He sees the financial system as a Titanic about to hit the iceberg. How could someone 100% long actually believe this? Something doesn't make sense.

We also think it's odd for an academic economist to be predicting stock market movements. Most academics smartly abstain from this. Even Warren Buffett, though he predicts a miserable 2009 for the economy, recognizes that his forecasts tell him nothing about the direction of stocks for the year.

Tyler Cowen suggested recently that Roubini's position on stocks was an extreme case of "mental accounting", basically suggesting that there's some kind of convenient disconnect between theory and practice at work here. Maybe.

Another way to think of it is that Roubini is hedging. The collapse has been great for his personal brand. If stocks went on a long rally, it's doubtful we'd see much Roubini in the media after awhile. In such an event, at least his stocks will be up.

In any event, Roubini has been right in the past and always has interesting things to say.  So here's why he thinks it's just another sucker's rally.  Read the whole thing at RGE Monitor >

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