Mr. Roubini, Please Have a Seat Already

From the gloomster Nouriel Roubini on Apr 23, 2009:

“Today we present some of the main conclusions of the recently released update to the RGE 2009 Global Economic Outlook: The global economy is in the middle of a synchronized contraction that will push global growth into negative territory in 2009 for the first time in decades. This will be the worst financial crisis since the Great Depression and the worst global economic downturn in decades. Global trade volumes face their sharpest contractions of the postwar era – trade is expected to contract 12% in 2009 due to the severe and prolonged global demand slump, excess capacity across supply chains and the continued crunch in trade finance.”

Mr Roubini, please have a seat. The data simply does not support your old, tired, gloomy claims.

1. US. Exports are rebounding sharply. You may have been able to claim that trade was collapsing in the final months of last year as consumers everywhere shut their pocketbooks, but the international wheels of commerce now seem to be spinning well again. The US economy is not collapsing. Export data point to stabilization.

2. The is no “continued crunch in trade finance.” Whether you look at the TED spread, or the Libor/OIS spread they are well below the peak of late October ‘08.

3. There is now a significantly growing list of tangibles that have bounced from their year-end lows. What is probably most notable is that capital goods orders are now up. We are not caught up in your “negative-feedback loop” that will eventually turn into a depression.

4. What is most notable from the past two weeks are bank earnings. Although many like Roubini choose to focus on small increases in allowances for bad debt over the next 1-2 years, what many failed to note was the incredible earnings based on extension of credit by banks in Q1. For instance Wells Fargo took advantage of the drop in interest rates to issue more than $100 billion of mortgages in Q1 alone. Revenues almost doubled to $21 billion, including Wachovia’s contribution, and helped the company overcome $3.3 billion of charges from unpaid loans. The allowance for credit losses totaled $23 billion. If those new loan origination rates continue for Wells, that’s $400B in new loans for 2009 against the $23B reserved for potential losses in 2009 and 2010. Looks pretty bullish to me. In fact, not all banks increased loss allowances.

So Roubini, please sit down. Things may not be completely back to normal. But there is no doubt that conditions aren’t as dire as you continue to claim.

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