How Nouriel Roubini Became a Research Brand
At Roubini Global Economics, NYU professor Nouriel Roubini is now looking to grow the multimillion-dollar operation that he built to compete with Wall Street firms for the ear of investors.
On a recent muggy July morning in London, Nouriel Roubini was doing what he does best: lecturing. With his shirtsleeves rolled up, the New York University Leonard S. Stern School of Business economics professor outlined, in his low, guttural voice, the reasons why the slowdown in global growth was raising the probability of another recession in advanced economies. The U.S. had yet to face up to its unsustainable deficit, he explained, and problems in the euro zone were intensifying. Public and some private debt in Greece, Ireland and Portugal would have to be restructured. Political dithering, while postponing the inevitable, was raising the likelihood that the restructuring would be disorderly — and damaging — for global credit markets.
Roubini’s audience sat in rapt silence. No one moved, although the crowded room was hot and uncomfortable. Finally, Roubini paused for questions. His listeners, however, weren’t students. They were current and prospective clients from some of the largest banks, asset management firms and family offices in London. The venue: a conference room in the London offices of Roubini’s booming macroeconomic and strategy research firm, Roubini Global Economics. Just down the hall more than a dozen analysts were hard at work, scouring economic reports and sifting through data for the firm’s 1,000 clients.
In the four years since the financial crisis began to erupt, Roubini’s classroom has grown.
When he first sounded the alarm about the probability of a housing market crash and deep recession, in July 2006, Roubini was an obscure academic. Well respected by his peers but largely unknown to the wider public, he had built his career on analyzing the causes of financial crises in emerging markets, not developed markets. Invited to speak before a gathering of economists at the International Monetary Fund in Washington in September of that year, Roubini’s grim message — that a huge crisis was in the making, the likes of which policymakers would be unable to stop — fell on deaf ears. No one quite knew what to make of the stocky, unsmiling economist, but his public profile as a purveyor of bad tidings was sealed. Various media wags promptly dubbed him “Dr. Doom.”
Five years after that fateful summer, Roubini has become a brand name. Instead of teaching graduate students, the 52-year-old economist now lectures on a world stage, jetting across multiple time zones to convene with central bankers, finance ministers, policymakers and politicians. Since the crisis broke he has addressed audiences at the World Economic Forum at Davos, the Council on Foreign Relations and the U.S. Congress. He has been interviewed on PBS by Charlie Rose and cohosted Squawk Box on CNBC. He’s also gained a reputation for hosting lavish parties at his $5.5 million penthouse loft in SoHo. But for all his individual fame, Roubini doesn’t work alone. Behind his instantly recognizable name is a team of economic analysts and market strategists; their work powers his punditry. Aided and abetted by their research, Roubini has transformed RGE from a good idea into one of the most influential economic research firms outside of Wall Street — but the firm is not yet profitable.
Although RGE has more than tripled its revenue since 2008, achieving gross revenue of more than $14 million in 2010, according to sources close to the company, RGE is still looking for ways to accelerate its growth. Reports have recently circulated that the company is for sale, but RGE refuses to comment. What is quite clear, however, is that Roubini and his fellow board members are keen to continue to expand the business and maximize value for the company’s shareholders whether that opportunity comes in the form of a strategic partnership, new investment capital or an outright sale. Their task is not easy. With another phase of the financial crisis unfolding, RGE’s ultimate value may depend on its ability to prove its relevance yet again.
“The most important thing in this kind of business is that you have to be right day in and day out,” Roubini says. “The fact that I made a right call a few years ago doesn’t matter. In this business you have to be right all the time, and we have to work harder because we’re not a traditional economic forecasting firm. We don’t predict minute changes in inflation or unemployment; we aim to look at complex analytical issues and connect all the dots.”
Roubini’s intellectual emphasis on macroeconomic big-picture risks can be traced back to 1997, when, galvanized by the shock of the Asian financial crisis, he launched a website to allow his peers to link quickly to publicly available research on the causes of the crisis and share their views. Roubini’s Monitor functioned as an aggregation service for readers who consumed vast quantities of economic data — mostly fellow economists, policymakers and academicians. Two years later the immediacy of the Asian crisis had waned, but Roubini’s website had grown and become a magnet for a widening lay audience. In 1999 the Economist named the Monitor as the No. 1 economics website in the world. Realizing the power of what he had created, Roubini kept the website going, but he didn’t think about turning it into a business until four years later, by which time the Monitor was attracting 500,000 unique visitors a month.
Much like its web-based predecessor, RGE offers a page with links to external research and commentary, but most of the proprietary material on the firm’s website has been written by its burgeoning group of analysts. Since the incorporation of the business in 2004 and its subsequent launch in 2005, the firm’s roster has expanded from a handful of recent graduates working in cramped offices over a Manhattan Mini Storage on Varick Street in Tribeca to 105 young economists, political scientists, market historians, strategists and other staff split between RGE’s headquarters in a high-rise on Morton Street in New York and its offices on High Holborn in London.
Led by Roubini’s head of global research, Christian Menegatti, who was recruited from the faculty of NYU’s economics department, RGE’s analysts spend their days studying the correlations and interconnections among macroeconomic variables, economies, financial markets, asset classes and public policies. The team not only offers daily insight into major global trends and economic vulnerabilities, it also covers more than 80 separate economies.
For RGE’s senior analysts, getting it right requires gaining a deep understanding of Roubini’s distinctive approach to macroeconomic research. Instead of concentrating primarily on economic flow variables (such as income per capita, budget deficits, investment expenditure and consumption), whose values depend on measurement over a period of time, Roubini advocates the use of “balance-sheet analysis” when researching individual economies and encourages his team to integrate the study of stock variables, which are measured at specific points in time (such as wealth, debt, capital stock and the money supply). By using a balance-sheet approach to assessing the assets and liabilities of governments, financials, corporates and households, the team collectively develops a sweeping, top-down, macroeconomic view that informs its every move. That style of analysis, which Roubini developed while researching the causes of the Asian financial crisis, is an integral part of RGE’s intellectual DNA.
Since RGE’s founding its readership has evolved along with its analytical approach. In 2005, when the firm’s first subscription-based product, RGE Monitor, went live, a smattering of dedicated website readers began to migrate to the new business. By the end of 2006, RGE had about 300 clients, largely university professors, government policymakers and central bank research staff. Subscriptions cost between $1,000 and $10,000, RGE’s CEO, Dean Daniels. Now, in the wake of the financial crisis, the firm has about 1,000 clients, most of whom are directly involved in investment management. Fees have risen as RGE’s services have multiplied, and clients now pay between $7,500 (for a single user) and $100,000 (for 50 users or more) for access to RGE’s website, reports, forecasts, newsletters and conference calls; those at the high end of the fee scale can consult directly with the firm’s economists and analysts.
Only a few select clients willing to pay top dollar ever gain individual access to Roubini, however. As RGE has grown, its namesake has become harder to reach. He travels almost constantly, jetting among conferences and meetings with policymakers, finance minsters, central bankers and fellow economists. Gaining an audience with Roubini is difficult to arrange, even for Institutional Investor, which conducted extensive interviews with him and members of his team over seven months. His clients also have to bide their time. But some longtime friends, like Ronald Perelman, founder, chairman and CEO of MacAndrews & Forbes Holdings (through which Perelman owns a diversified portfolio of companies, including Revlon), still enjoy the benefit of having a quarterly briefing with the globe-trotting economist when he touches down in New York.
“I think we get the best insight from him of any of the economists that we have met,” Perelman says. “What Nouriel says has an enormous influence on our thinking about how aggressive we are willing to be — or how passive we are willing to be — when we look for potential acquisitions. His perspective is extremely important for us in developing those positions.”
Since the peak of the financial crisis, the rapidly changing dynamics of the firm’s expanding client base have forced RGE to adapt accordingly. Last year, in response to growing demand for better tools to help interpret macroeconomic trends, the firm added a new service to its slate of offerings: market strategy. Led by Arnab Das, a former head of emerging-markets research and strategy for Dresdner Kleinwort in London, RGE now has the ability to guide its clients through various scenarios for different asset classes, including commodities, credit, currencies, emerging markets, equities and interest rates.
RGE is now competing head-to-head with Wall Street sell-side research teams. The challenge, as the business grows, is to make sure that RGE’s fundamental expertise in assessing so-called tail risk — the fallout from the sudden, unforeseen market events characterized by Roubini’s fellow academic Nassim Nicholas Taleb as “black swans” — doesn’t color the objectivity and freedom of its research or become an intellectual trap. Solid downside risk assessment will always be valuable in the investment community, but unwavering pessimism can wear thin. RGE’s new generation of clients wants advice it can act on, even in the midst of deepening economic gloom.
“Is Roubini a permabear? Well, that is the world we’re living in,” says Marino Valensise, chief investment officer of London-based Baring Asset Management, a subsidiary of MassMutual Financial Group that oversees £30 billion ($46.5 billion) in assets and subscribes to RGE’s research and market strategy. “Many of Roubini’s points are valid, but you cannot manage money on the assumption that the world is going to end tomorrow. If you did, you would have to retreat to a church somewhere, or a Chinese monastery.”
The dangers of being pigeonholed as an eternal pessimist are all too clear to Roubini, but he has a passion for financial crises that is hard to suppress. He doesn’t see himself as a pessimist; he sees himself as a realist. He likes to unearth risks. He wants to know why things go wrong. And he isn’t bashful about sharing his opinions.
“Nouriel is an incredibly curious, inquisitive fellow,” says Ian Bremmer, one of Roubini’s co-authors on several articles and founder and president of New York–based geopolitical risk consulting firm Eurasia Group. “People say that he is gloomy in outlook, but he is not ideological. His analytic temperament may well lead him to gravitate toward those things that can go badly, but that is very different from saying that he supports a liberal or conservative or anti-American outlook. He is an analytically driven beast.”
Richard Sylla, one of Roubini’s colleagues and a professor of economics at NYU’s Stern School of Business, admits that while some of his own academic peers thought that Roubini wasn’t “theoretical enough” in his research, he considers him to be exceptionally adept at analyzing emerging-markets and developed economies and their corresponding financial systems. But the ambitious professor-turned-entrepreneur has always had an unique take on the world.
Born in Istanbul to Iranian Jewish parents, Roubini grew up learning to adapt quickly to new environments and still calls himself a global nomad. His father ran a wholesale rug import-export business, and when Roubini was just a year old, his family left Istanbul and moved back to Tehran. At the age of three, Roubini was uprooted again when his parents relocated to Tel Aviv, Israel. They changed countries once more when he was six, moving to Milan, where Roubini studied at Bocconi University, graduating with a degree in economics. As a consequence of his peripatetic youth, Roubini — who has two younger brothers and a sister — is fluent in Farsi, Hebrew, Italian and English.
“If you speak several languages and get used to traveling a lot, you understand the complexities of society and tend to feel at home in many different places,” he says. “You become more multicultural and cosmopolitan, and you don’t tend to think of economic problems as just national issues; you think about what is good for the world, as opposed to what is good for just America or Europe.”
Roubini’s first, formative brush with a financial crisis came when he was an undergraduate at Bocconi in the late 1970s and witnessed firsthand the impact of successive oil shocks and rising inflation on the Italian economy. By 1982, the year he graduated, total unemployment in Italy had reached 8.3 percent and inflation had soared to 16.5 percent, dramatically undermining individual wealth and wages. As the 1980s dawned Italy was plagued by strikes, demonstrations, flight of capital and confrontations between trade unions and businesses. Surrounded by suffering, Roubini became aware of issues of social and economic injustice. Studying economics seemed like a rational response. “It was one way of trying to make sense of the world,” he says wryly.
Eager to continue his studies, he left Italy to pursue a graduate degree at Harvard University. There he met future Treasury secretary Lawrence Summers, who had become one of Harvard’s youngest tenured professors in 1983 at age 28, and economist Jeffrey Sachs, who had received tenure the same year at age 29. Both men became friends and advisers. After completing his Ph.D. in 1988, Roubini got a job teaching economics at Yale University.
In 1995 he decamped from Yale to join the faculty of the Stern School, where he has taught ever since — albeit with a few interruptions. In 1997 he coauthored a book with Alberto Alesina and Gerald Cohen, Political Cycles and the Macroeconomy, which explored the impact of political events on inflation, unemployment, economic growth and monetary and fiscal policy. That same year Roubini launched the Monitor.
As he gained an online following, Roubini’s star began to rise. Just a year after the launch of his website, Roubini took an extended leave of absence from NYU to serve as a senior economist for international affairs at the Council of Economic Advisers, under the Clinton administration. When Clinton appointed Summers as his Treasury secretary in 1999, Roubini moved over to the Treasury, where he spent a year working as lead adviser to Timothy Geithner, who was then undersecretary for international affairs. Roubini still describes the experience as one of the most fascinating periods of his career, but he wasn’t prepared to give up academia for a life in public policy.
Upon his return to NYU in 2000, Roubini rededicated himself to understanding financial crises in emerging markets. He had plenty of raw material. The Asian crisis had been followed by Russia’s decision to default on its debt in 1998 and Argentina’s default in 2002. As his research deepened, Roubini gradually developed his trademark balance-sheet approach. Debt sustainability was one major element of his analysis; several emerging-markets countries, he noted, had run up major current-account deficits before their periods of crisis. By importing far more than they exported, these countries had effectively become dependent on foreign investment to underpin their borrowing costs. When investors withdrew their support, the countries lost control of their own economic destinies. Roubini’s ongoing research led to the 2004 publication of his second book, Bailouts or Bail-ins? Responding to Financial Crises in Emerging Markets, which he coauthored with Brad Setser, a former staff economist at the Treasury whom he’d met in Washington.
As an early adopter of web-based technology, Roubini was arguably ahead of his time in putting his own research online and encouraging debate. One of his website followers, Charles Ferguson, whom he met socially in New York in 2003, played an integral role in founding RGE. At the time, Ferguson was known as a software mogul who had made millions when he and Randy Forgaard sold their company, Vermeer Technologies, to Microsoft Corp. At the time they were introduced, Ferguson already knew of Roubini’s work and encouraged him to transform his website into a commercial business.
As a result of their discussions, Ferguson — who subsequently found fame as the director and producer of Inside Job, the scathing exposé of the financial crisis that won an Academy Award for best documentary in 2010 — became one of RGE’s angel investors. He also introduced Roubini to California Internet entrepreneur Camille LeBlanc, who became RGE’s first CEO, and Henry Lichstein, founder and managing partner of Los Angeles–based Dryad Partners, a technology consulting company, who became RGE’s first outside board member. Summers also put money into the fledgling start-up, and the balance, Roubini says, came primarily from family and friends. Today, Roubini maintains a substantial ownership stake in the company, which has more than 20 individual shareholders. Ferguson remains a shareholder, as does LeBlanc, who is still on the board, but Summers had to divest himself of his equity stake when he returned to Washington to lead the National Economic Council in 2009.
The creation of RGE supercharged Roubini’s already enormous productivity. Spinning off the work he’d done for his book on financial crises in emerging markets — and collaborating with co-author Setser, who had joined him as RGE’s head of global research — he extended his analysis of debt sustainability to advanced economies, drawing analogies between the developed and developing worlds.
He made a startling observation. By late 2004 the U.S. had a current-account deficit of more than $600 billion — and it was rising fast. The U.S. government was also running a large fiscal deficit, borrowing heavily from abroad even as private household savings remained at historically low levels, making the domestic funding of rising fiscal deficits virtually impossible. The U.S., which was clearly dependent on China and other Asian countries to continue to support its debt funding, appeared vulnerable to a major financial shock. Roubini promptly sounded a warning that the U.S. could face a hard landing in 2005 or 2006 — and rapid devaluation of the dollar — if China opted to pull away its support.
He didn’t exactly get the timing right. China wasn’t poised to withdraw its support of the dollar; if anything, its backing has increased. But Roubini recovered quickly from his public misstep and returned to his analysis of the U.S. economy, which he had the gumption to treat the same as an emerging market. Few of his peers would have been so bold. Kenneth Rogoff, a professor of public policy and economics at Harvard who has known Roubini for more than a decade, credits him with stepping outside the general economic consensus to make a deeply unpopular call. “Nouriel,” he comments by e-mail, “had the great insight to realize that the advanced countries, even the United States, are not as different from emerging markets as their policymakers would like to believe.”
When the financial crisis finally did erupt, Roubini was vindicated, but the sheer length of time he’d spent sounding the alarm sealed his reputation as Dr. Doom. The crisis had another, unintended, consequence: It spurred tremendous growth in RGE’s business. Roubini and his team were unprepared for the surge in demand for their research. Before the crisis about 80 percent of their clients were policymakers, academics and researchers; investment managers made up only about 20 percent. In the months after the crisis began, those percentages started to converge — and then flipped.
The speed of RGE’s expansion had already revealed latent differences between Roubini and LeBlanc, the firm’s founding CEO. LeBlanc had been hired for her expertise in launching technology start-ups, but RGE was fast becoming something else: a competitive force on Wall Street. As the firm’s standing in the investment community rose and its business accelerated in early 2007, LeBlanc agreed to step aside, and Lichstein, who had joined the board, took over as interim CEO until he and Roubini could find her replacement.
The search for a new CEO took nearly a year. In early 2008, Roubini and Lichstein met Daniels, an eloquent, energetic former broadcast journalist who had helped found, launch and run the CBS New Media division and was then working as COO of Seed Media Group, a science media company in New York. Although he wasn’t familiar with Roubini’s research, he quickly saw the potential in RGE’s business model. Looking forward to a chance to work with a dynamic research firm, Daniels joined RGE in June 2008, but even he was unprepared for the high client demand as the financial crisis deepened and most of the economist’s dark predictions came to pass.
“It made me nervous,” Daniels says. “I’d been here since June, and I’d seen our sales cycles for new clients drop from about three months to two minutes. Making a sale literally just required picking up the phone — and sometimes the phone was already ringing.” Although happy to add so many new subscriptions, he worried that RGE’s business was predicated on Roubini’s expertise on financial crises. At some point, surely, the crisis would end. “I wasn’t sure what would happen when the market started to turn,” Daniels adds. “But when it did, how relevant would we still be?”
In the spring of 2009, global equity markets started to lift from their record lows. Banks began to repair their balance sheets. Corporate profits rose. Although RGE was adept at delivering high-level macroeconomic analysis, its newest clients wanted greater insight into the potential impact of global trends on specific asset classes. The firm began to discuss the possibility of adding a market strategy team to complement its macroeconomic research and complete what Daniels calls “the last mile of connectivity” between RGE and its client base. The division would just need someone to run it.
In London, Das, who had spent the previous ten years at investment bank Dresdner Kleinwort, was facing a professional turning point. Dresdner Kleinwort, which was owned by Frankfurt-based Dresdner Bank, had been acquired by its chief hometown rival, Commerzbank, in November 2008. As the deal closed in May 2009, Commerzbank began laying off thousands of staff. Das left in August. Although he briefly considered joining another bank or a hedge fund, he decided instead to strike out on his own and turned to Roubini for advice.
He already knew the economist well. As a market strategist, he’d spoken on conference panels with Roubini and admired his approach. Dresdner Kleinwort had been one of RGE’s earliest clients. And in February 2008, inspired by Roubini’s controversial essay “The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Disaster,” Das had sold all of his personal investment assets and bought U.S. Treasuries; it was, he says, an “extremely fortuitous” move. When Das sat down with Roubini and Daniels in the summer of 2009 and showed them the business plan he had cobbled together, he had no idea that they had already decided that their firm needed a dedicated market strategy team.
“The timing was just a really interesting coincidence,” says Das. “Nouriel told me that they had a large number of clients who were asking for more guidance, not just about their macro views but, given those macro views, about the markets.”
Roubini and Das could not be more different in their demeanor. Roubini, with his air of grim detachment, is remote and serious; Das, with his self-deprecating sense of humor, is quick and engaging. To Roubini’s passionate focus on downside risk Das brings a positive awareness of opportunity. Whenever he used to encounter Roubini at investment conferences, he says, he liked to challenge his views, just to see if he could shake Roubini’s deeply held convictions. Roubini, who always enjoys a good debate, would take him on. Das often found he ended up agreeing with Roubini, “although generally not admitting it,” he adds with a grin.
Das joined RGE in September 2009. Within weeks he was making his presence felt — and providing a striking counterpoint to Roubini’s skepticism about the longevity of the global equity market rally, which had taken off in late March 2009. As Roubini worried that a government-driven wall of liquidity was pushing global equity prices higher and that persistently large fiscal deficits and public debt accumulation would eventually derail the global recovery, Das suggested — without contradicting Roubini’s long-term views — that investors ought to take advantage of the recovery in the near term and overweight positions in developing nations’ assets. Although emerging markets would have occasional corrections, he reasoned, the surge in asset prices still had some time to run as investors borrowed dollars at historically low interest rates to buy stocks, bonds and currencies in the world’s fastest-growing economies.
The emerging-markets carry trade proved spectacularly hot. As long as the Federal Reserve kept interest rates near zero in the U.S. to revive the banking system — and growth in emerging markets continued to outpace that of more-advanced economies — the opportunity to make money continued. By December 31, 2009, the MSCI Emerging Markets Index had risen 108.3 percent from its 2009 low on March 2. Although the emerging-markets carry trade petered out in 2010 as markets turned more volatile, the MSCI index still ended the year up 16.4 percent.
Das began to scale up the strategy team with Daniels’s help, hiring staff to cover stocks, bonds, interest rate products, commodities and currencies in developed and emerging markets. The market strategy division reflects the intellectual culture of RGE, which embraces open debate, and Das’s own desire to create something different from what he’d known in the City. In his previous career, he says, researchers were too often bound closely to their particular asset-class divisions and prevented from interacting. Das didn’t want to isolate his strategists in silos and confine them to small, asset-specific groups. RGE was an open, almost academic, environment, and he thought they would benefit from greater interaction with their peers.
“RGE has been successful in large measure because of who Nouriel is and how the team has been able to take elements of his intellectual DNA and make them scalable,” Daniels says. “Arnab and I were both concerned about the risk of blowing that up as we started to hire analysts and strategists from investment banks and drop them into this horizontal, collaborative environment where everyone sits shoulder to shoulder. We had to choose carefully.”
At RGE’s new headquarters in New York, everyone interacts. Analysts and market strategists sit together in the same vast, slightly industrial-looking room, separated by little more than cubicle dividers. RGE’s team members gather on a weekly basis for a macro strategy meeting to discuss recent events and debate their views, formulating a range of various plausible economic scenarios and assigning probabilities to each. Roubini attends whenever he is in town, and Menegatti, who oversees global economic research, helps organize the group’s discussions. Das and his market strategists contribute to the analytical process, then work through its implications.
“Every time we change our macro view — formulate a new view on inflation or some other aspect of the economy — our strategy team is busy assessing what those changes will mean for various asset classes and interest rates,” says Menegatti, an Italian economist who joined RGE after spending three years as a research scholar at NYU. “Everyone starts coming up with questions, working through the implications collectively and separately in whatever fashion is most effective for them.”
When big economic or political news breaks, the teams collaborate across time zones to pull together a cohesive view and package their commentary for simultaneous release to their clients. The collaborative approach has expanded the thinking of everyone at RGE, says Rachel Ziemba, who has worked with Roubini since 2006 and is now a senior analyst covering Central and Eastern Europe, the Middle East and Africa and global macroeconomic issues. “The interaction between our analysts and strategists is quite extensive,” she says. Ziemba works closely with the strategist who covers global commodities and resources and watches pricing and market-related phenomena intently; she often focuses more broadly on some of the supply dynamics of key producers and tracks marginal shifts in demand.
Although Roubini is not directly involved in shaping the strategy team’s recommendations, his macro analysis helps guide the firm. Some of his clients have begun to fear that with the extension of RGE’s services he may be overstretched. “Nouriel has an eclectic mind,” says James Breech, founder, president, CEO and CIO of Toronto-based Cougar Global Investments. “He has an uncanny ability to know what is important and what is unimportant; he’s one of the most comprehensively realistic global strategists I know. But I don’t think he has a clear methodology for linking his macroeconomic research to strategic market calls.”
With tensions in the global economy rising, Roubini’s ability to get it right is being tested once again. But this time is different. Since he stood before an audience of his peers at the IMF five years ago, Roubini has gone from being an awkward outsider to a consummate insider. He now has unparalleled access to policymakers, a booming global business and a reputation as an expert in macoeconomic risk.
Last year he coauthored a book with fellow academic Stephen Mihm titled Crisis Economics: A Crash Course in the Future of Finance. In late September, as fears about Europe’s sovereign debt crisis whipsawed stocks, commodities and emerging-markets debt and currencies, Roubini took up his pen again to assail politicians and policymakers for failing to act more swiftly. “We are already behind the curve as regards the policy response to the coming global storm and the time to take bold action is now, if not yesterday,” he writes in one of his latest essays. But instead of taking bold action, policymakers have been taking piecemeal steps, “dithering and muddling through and kicking the can down the road” in the mistaken belief that the markets won’t punish them, he adds.
Roubini advocates action. Developed countries that can afford to help promote growth need to take prompt, dramatic steps to alleviate the risk of recession, he says. Now is not the time to front-load austerity measures. Advanced economies, he writes, need to “provide short-term stimulus; ease monetary policy; provide liquidity to illiquid but solvent sovereigns and private agents; restructure unsustainable private and public debts in an orderly manner; recapitalize banks; restore the competitiveness of struggling economies, possibly through exits from monetary union; invest in workers and long-term productivity growth; encourage emerging markets to pull their weight and help global rebalancing.”
Unlikely as some of those actions may be, Roubini is determined to use his public spotlight to good effect. Over the past year he has been traveling more than ever, alternating between meetings with current and prospective clients and closed-door sessions with key policymakers and politicians — including most of the Group of Ten finance ministers and central bank governors. Christian Hunt, a former principal at London-based Vasari Global, a private investment firm that functions as a family office for South African businessman Vivian Imerman, praises Roubini for going beyond pure macroeconomic theory and grounding his analysis in gritty political reality.
“His level of engagement is astonishing,” Hunt says. “The fact that he is talking to very senior people, attending meetings and advising governments gives his work a level of insight that is hard to match. Any economist at a bank can express a view about what is going on, and he may even say the same thing, but he won’t have the same credibility as someone who is actually moving in those circles.”
Roubini’s current forecast is all the more chilling given his high-level contacts. Last month he and his team at RGE raised their baseline scenario for the likelihood of another recession in the U.S. from 50 percent to 60 percent by late 2011 or early 2012. For the moment, RGE anticipates only a mild downturn with one quarter of outright contraction, based on current economic data. That scenario could worsen, however, depending on the outcome of various internal and external variables, ranging from the pitched battle that will likely erupt over President Obama’s proposal to spur job creation to the probability of a sovereign debt default by Greece. At a conference in Johannesburg in late September, Roubini said bluntly that the U.S. was effectively “already in a recession, although it won’t admit it.”
RGE’s challenge in the months ahead will be to strike a balance between sounding the alarm and delivering actionable market strategy. Although Das and his team do not make recommendations about individual securities — they don’t engage in fundamental research at that level — they do provide guidance on weightings. In September the team recommended that investors hunker down and take an increasingly defensive stance in the event of a full-blown U.S. recession. For global equities they advised overweighting industry sectors such as consumer staples and health care and underweighting financials and consumer discretionary goods. The team also cautioned that today there is no inherent justification in continuing to overweight equities versus cash, or emerging markets versus developed markets. Although none of those recommendations may be all that surprising, RGE’s strategists deliver them with characteristic directness.
“Of course they have a bearish view of what is going on right now,” former Vasari principal Hunt says. “But I see their view as balanced and independent — and for us, getting an alternative perspective that is not tainted by the need to sell other business off the back of it is very useful.”
As RGE’s client base has grown and diversified, Roubini’s role has shifted. In the early years he was much more involved in the day-to-day details of the business; now, with Daniels overseeing RGE’s operations and Das and Menegatti managing its strategists and analysts, Roubini has more time to devote to policy issues. His level of engagement not only imbues his analysis with an understanding of the ways in which political tensions are limiting policy responses to the crisis, it also allows him to influence the debate.
“Sometimes I savor the role that I have right now,” Roubini says. “I’m free to speak openly, without the constraints that I might have if I were working for a bank or working for the government. But I still think of myself as being involved in policy — there are a lot of ways to do that. One way is by being directly involved, but you can also get involved being outside the government too, and I find that I can be as effective from the outside as from the inside.”
Roubini’s criticisms may be sharp, but his overriding perspective is not inherently pessimistic. He just doesn’t have anything to lose by being bold and blunt. In refusing to gloss over the risks that stalk the global economy, he is hoping to call attention to the continued need for political vigilance and perhaps spur innovative policymaking. From his perspective, financial crises are not inexorable black swan events, to borrow the nomenclature of his friend Taleb, but white swans — clear and avoidable, if you only know where to look. • •