Translated material
Bullish cycle
The success of the US stock market is driven by speculative demand
Investors following economist Nouriel Roubini's bearish advice could miss out on the greatest rally since the end of the Great Depression. So says the head of the investment company Birinyi Associates Inc. Laszlo Birini, known for his accurate stock market forecasts. The American market is showing growth, but some experts believe that it is due to speculative demand for shares of large companies counting on government support.This week, New York University professor Nouriel Roubini once again upset investors by warning of the high risks of a double-dip, or W-shaped, recession. He wrote in the Financial Times that the economic outlook remains unclear. According to Mr. Birini, although Nouriel Roubini predicted the current crisis, his subsequent assessments were too pessimistic. In October 2008, Mr Roubini said the US recession would last two years. Meanwhile, most experts are convinced that the recession has come to an end and a slow recovery is beginning. In March, Mr. Roubini predicted the S&P 500 would fall to 600, but it rose above 1,000.
Mr. Birini's forecasts are so far proving to be more accurate. On May 20, he announced that the market was starting to rise, and since then the S&P 500 index has actually risen 14%. “We are in the early phase of a bull cycle,” Mr. Birini said. “Nobody, of course, will say “this is a bull market,” everyone will just make money from it.”
According to Mr. Birini, Nouriel Roubini has an excellent understanding of economic issues, but he does not specialize in the stock market. “Our job is to understand the market and not try to do more,” László Birini emphasized. Mr. Birinyi, 65, worked for ten years at investment firm Salomon Brothers before founding Birinyi Associates in 1989.
“Both experts have a deep understanding of economic cycles and business cycles,” said First Citizens Bank Chief Investment Officer Eric Thiel. “Roubini has an impressive academic foundation, and Birini has excelled in practical financial management working in the capital markets.”
Nouriel Roubini is also called Dr. Doom (Doctor Fate). In July 2006, Mr. Roubini saved many investors by warning that the financial crisis was approaching. In 2004, he founded the consulting company Roubini Global Economics LLC. It has about 1,300 institutional clients, but Mr. Roubini prefers to make recommendations and does not invest on behalf of his clients.
“The most trusted experts are the ones who invest their money where they advise others,” said Jack Ablin, head of investment at Harris Private Bank. “I’ll be interested when I see that someone who was bearish started buying securities.”
The successes demonstrated by the US stock market may be due to a speculative component. According to Reuters, in recent days the bulk of the total trading volume on the New York Stock Exchange has been occupied by the securities of the four largest companies: Citigroup, Bank of America, Freddie Mac and Fannie Mae. As you know, these financial companies suffered more than others at the end of 2008 during the aggravation of the crisis. Their shares accounted for more than 40% of the total volume of transactions. On Tuesday, Citigroup securities were the leaders in terms of sales volume on the exchange - $681.7 million. In second place was Fannie Mae ($557.2 million), followed by Freddie Mac (188.4 million) and Bank of America ( 148.9 million). The total trading volume on the exchange was $3.88 billion. The share price of these companies has more than doubled compared to their 2009 lows. According to some analysts, this is a speculative increase driven by the hope that the government will continue to support these organizations.
However, most experts are confident that the financial sector is recovering, just as it did in the 90s, when the banking boom followed the collapse of the commercial real estate market. "Stock prices can rise and fall in the short term, but the current situation is reminiscent of October 1990," said Jeff Davis, chief analyst at FTN Equity Capital Markets. - Then it seemed that the end of the world was coming. There were two or three bad quarters, but then the banks began a three-year rally.”