'Dr. Doom' says markets may face temporary closures

Economist Nouriel Roubini, who predicted much of the financial catastrophe that has unfolded worldwide over the last year, now says governments may have to temporarily close markets as a way to try to halt another massive wave of selling.

Roubini, an economics professor at New York University and head of Roubini Global Economics, warned a conference of hedge fund managers in London on Thursday that the risk to the financial system "has become bigger and bigger" and could result in market "holidays" ordered by desperate governments.

From Bloomberg News:

"We've reached a situation of sheer panic," Roubini said. . . . "There will be massive dumping of assets" and "hundreds of hedge funds are going to go bust."

"Systemic risk has become bigger and bigger," Roubini said at the Hedge 2008 conference. "Don't be surprised if policymakers need to close down markets for a week or two in coming days," he said.

Although the U.S. Standard & Poor’s 500 index is down a relatively modest 3.4% this week, net losses have been much more severe in many foreign markets over the last four days. The German market has fallen 5.5% this week, Brazilian stocks are down 7.1% and the South Korean market has tumbled 11.1%.

"There are about a dozen emerging markets that are now in severe financial trouble," Roubini said. "Even a small country can have a systemic effect on the global economy," he said. "There is not going to be enough IMF money to support them."

Roubini has become a celebrity in the financial world for accurately calling this credit debacle, earning him the "Dr. Doom" moniker. But I couldn’t tell from his comments on Thursday whether he believed that declaring a market holiday would be a smart idea.

After the U.S. closed down Wall Street for four days after the Sept. 11, 2001, terrorist attacks, some people figured that investors would be dissuaded from selling when markets reopened.

Instead, the Dow industrials dived 7.1% on the first day of trading after the halt and continued falling the rest of the week, losing 14.3% for the five days.

Now, as then, wouldn't a holiday just make people more desperate to sell as soon as the market reopens?

Photo: Nouriel Roubini (Chris Kleponis / Bloomberg News)

Comments

[Mark]

Every crisis creates opportunity, per the ancient Chinese proverb, and this crisis creates tremendous buying opportunities for "LONG TERM INVESTORS!". This forced liquidation creates opportunity for true long term investors, with a 3-5 year time, horizon to take advantage of selective bargains in equities, perhaps value not to be seen again in our lifetimes? I will post this reply on your blog. The forced liquidation of many hedge funds is devoid of fundamental reason and savvy investors can take advantage, as can the individual investor, IMO. Thank you for your superb reporting and insight into our capital markets. Please keep in touch and "never lose your sense of humor or ability to see the forest through the trees(often falling, clear cut, without regard to their true value)!

Sincerely,

Mark

[Sheldon]

I agree with Dr. Roubini on the coming panic and meltdown of world financial markets. A global economic crisis is underway, with panic leading to systemic breakdowns in the world financial system. As Roubini warns, the worst is yet to come.

[Graham]

We've caused a global boom and are now responsible for this global bust.

Just look are these charts-- it's going to be like a tidal wave, a waterfall.
And then, when you've recovered from looking at the charts of the US think about what the charts would look like if they include the rest of the world
http://www.greenfaucet.com/technical-analysis/markets-are-on-the-verge-of-a-waterfall-like-collapse/18976
going to cash for the weekend?

[Steve]

Bring it on; at 7000 I may buy this garbage again. In the interim hard assets is where it is at like RE, The next 5 years the dollar will be worth half and RE will go up a half. This is the 70s revisited and the gov will print more money then ever. Thanks GW you Texas inarticulate illiterate

[Mauibrad]

"Now, as then, wouldn't a holiday just make people more desperate to sell as soon as the market reopens?"

Yes, it would, but desperate government officials don't have many options left, if a full panic were to develop.

Brad