Former Professor of Economics, New York University Nouriel Roubini warned The traditional investment advice of investing in stocks and bonds is that it won’t work in an imminent “perfect storm” of inflation, recession, stagflation and debt.
Speaking to Australia’s ABC News last week, Roubini, the economist who predicted the 2007-08 housing and market crash, said he expects “stagflation” this year, putting negative pressure on both stocks and bonds. I am warning you.
Roubini says the Fed and other central banks are trying to fight inflation by raising interest rates, but they are also risking a “financial collapse” in doing so.
He says there is a 50% chance of a global recession as US and European stock markets contract this year due to US interest rate policy.
Rubini claims The Fed needs to raise interest rates above 6% to return to its 2% inflation target.
These efforts “will lead to a hard landing, financial markets will crash, and stock markets will undergo a major correction,” he said.
Ultimately, he predicts, a wave of financial defaults will rock economies around the world.
He believes the Federal Reserve and other central banks will weaken and blink, cutting interest rates and allowing for mid-single-digit inflation.
Economists say “geopolitical shocks” such as the war between Israel and Iran could cause additional problems, causing oil to surge to $200 a barrel.
With the stock market sure to contract this year, Roubini advises investors to invest in four areas:
- Gold, the traditional hedge against inflation
- Inflation-linked bonds
- “Short-term bonds will have higher yields and will not have the same price impact as long-term bonds.
- sustainable real estate
He says that real estate “tends to be a better hedge against inflation than equities” when inflation hits because of its fixed supply.
“So you have to think about a very different portfolio than the traditional 60-stock, 40-safety bond,” he said, referring to portfolio proportions.
“These safe bonds are not safe when inflation is high.”
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