The uber-bear: Roubini’s ten steps to a hard landing

For the ultimate bear hug, visit Nouriel Roublini’s global economics blog. The professor of economics is on Tuesday due to lay out in detail his views on the current financial turmoil and the prospects for the US, and therefore the global, economy. His preparatory notes do not make happy reading. Here are the key points:

1. The landing is going to be hard in the US, or at best, a growth recession
2. Housing is not bottoming out - the housing recession is getting much worse, not better.
3. There is clear contagion from housing to other sectors - auto, manufacturing, real investment. “Soon contagion to a saving-less consumer who is at its tipping point and on the verge of faltering.”
4. Subprime problems are not limited to the subprime sector - garbage lending practices used for subprime were very widespread and common among near prime and prime mortgages. Effectively measured subprime, near prime and dangerous lending was close to 50% of mortgage originations in 2005-2006, not the 13% share of subprime in the overall stock of mortgages.
5. Serious risk of a generalized credit crunch - “The market myth and spin of a credit crunch limited to subprime is faltering by the hour.”
6. There are already serious signs of contagion to other credit spreads (CDS spreads on major brokers being now near junk, CDX, Itraxx, CMBX, swap spreads all significantly up); and increases in all sorts of measures of market volatility and risk aversion.
7. “This is not a temporary blip of volatility and turmoil (as in spring 2005 and spring 2006) as this time around there is a true and serious growth hard landing risk in the US rather than the temporary and unfounded inflation scare of spring 2006…..this is the beginning of a massive market fall after a period of excessive liquidity, bubbles in many assets and markets and underpricing of risk. All sorts of risky assets will be persistently under pressure.”
8. The Fed will move — sooner rather than later — to ease. But with a glut of housing and consumer durables that will take years to work out lower short and long rates will not help.
9. The world will not decouple from a US hard landing - when the US sneezes the rest of the world gets a cold.
10. “The bubble party is over. It will be a bumpy ride from now on for global financial markets and for the US and global economy.”

Everyone feeling more cheerful now? Excellent.