The U.S. has gone from the best of the worst to best bet for now.
The steady anemic global recovery led by the United States means investors ought to overweight U.S. equities, Nouriel Roubini, the New York University economics professor known as “Dr. Doom” because of his dire predictions ahead the market crash of 2008, said Monday at IndexUniverse’s 6th annual “Inside Commodities” conference.
Roubini, who has entirely abandoned the worst-case-scenario forecasts that made him famous five years ago, said the United States is leading the world out of recession, and noted that tighter monetary policy and a strengthening dollar mean commodities prices, like bond prices, will also be under pressure as the U.S. recovery continues to take shape over the next few years.
“You probably want to be underweight in bonds, and overweight in equities, mainly in the U.S.,” Roubini told attendees at the one-day conference in New York. “Higher interest rates will be a negative for commodities prices.”
Most commodities in the next year will be lower rather than higher.
The conference takes place against a backdrop of falling prices of gold and other commodities amid slackening demand from key drivers of the past several years, such as China, and growing signs that monetary policy in the United States is finally about to start being tightened by the Federal Reserve after the downturn of 2008 resulted in the lowest rates in several generations.
The conference also included appearances by luminaries of the commodities-investing world such as Dennis Gartman, Geert Rouwenhorst and Peter Schiff.
Gartman piled on the bearish sentiment regarding commodities, saying gold was unattractive to him at this point, unless perhaps if it’s purchase in yen terms.
“Gold is not a safe haven, and anyone telling you that is a charlatan, liar and a cheat,” Gartman said, noting that gold is largely “an ugly investment” at this point. “I am not a gold bug. I don’t like gold bugs; the world isn’t going to end tomorrow.”
For his part, Roubini sees gold prices headed down to $1,300 a troy ounce at the end of this year and $1,000 at the end of 2014, vs. a cycle high of around $1,900 in late 2011.
His gold outlook is the ultimate example of his shifting sentiment, though panelists like Schiff, convinced the Federal Reserve will debase the dollar, are unabashed about saying gold prices will skyrocket to as high as $5,000.
Euro Still Weak
While the U.S. is definitely recovering, much of its allure is that it’s more attractive than other parts of the developing world, notably Europe, Roubini said.
“The fiscal problems in the U.S. are severe, but on a relative basis, they’re not as severe as in Japan, the eurozone and the U.K.,” he said, highlighting one crucial area where the U.S. has an advantage. “The Fed will exit the zero-interest-rate policy faster than the BOJ, BOE and ECB, and the dollar will strengthen.”
Roubini said that the worst-case scenario is off the table in Europe, and that the fundamental problems of over-indebted countries on the periphery continue.
“The economy in the eurozone is going to be weak,” said Roubini.
No Hard Landing In China
The NYU academic also stressed that while China’s economic model of the past 35 years is no longer viable, the world’s second-biggest economy is transitioning to more of a consumption-based economy, and will likely avert a serious protracted downturn.
“The model of growth is unsustainable,” he said, noting that growth could fall below 6 percent from about 7.5 percent, but that it won’t ever deteriorate into a hard landing that would be growth of about 4 percent.
“It will be more consumption oriented and less resource oriented,” Roubini said of China’s future developmental trajectory , adding that he reckoned the commodities supercycle was probably over.