Fredrik Broden
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During the great credit party that raged around the world for the five years leading up to 2008, a few economists and investors studiously avoided the punch bowl. They stood in the corner, muttering darkly about how it would all end with the hangover of the century. They were outcasts. "I was lambasted and ridiculed as an idiot," says Michael Panzner, a stockbroker and author who began calling the collapse in 2005. "Like one of those guys holding a cardboard sign predicting apocalypse."
By the time Lehman Brothers collapsed and worldwide markets did their synchronized nosedive, Panzner had already published a book called Financial Armageddon: Protect Your Future from Economic Collapse and would soon follow up with When Giants Fall: An Economic Roadmap for the End of the American Era. Bearishness is a countercyclical asset; as the economy fell, the professional reputation of doomsayers soared. Suddenly they were the party animals. Gary Shilling, a veteran investment guru based in New Jersey, was feted for nailing all 13 of his investment guidelines for 2008, most of which involved shorting banks and housing. Banking analyst Meredith Whitney, who had shocked her peers with a devastating report on Citigroup (C) when it was still widely viewed as fundamentally sound, started her own firm on the basis of her newfound celebrity. An obscure New York University professor named Nouriel Roubini, aka Dr. Doom, became a headliner on the international conference circuit, attracting actual groupies.
Then the ground started to shift. For most of the last year the U.S. economy has been inching toward recovery. While far from sunny, 2009 didn't bring with it much in the way of tent cities or snaking breadlines, as some of the most extreme bears said it surely would. The U.S. Labor Dept. reported that payrolls grew by 431,000 in May, marking the fifth consecutive month of gains. In April, sales at U.S. retailers edged up 8.8 percent from the same month last year. The major investment banks beat analysts' (admittedly depressed) earnings expectations, and the markets gained 80 percent in just over a year. Consumer confidence is up, and gross domestic product, though hardly robust, is growing at around 3 percent. Gradually the bears lost airtime, and most—although not Roubini—slipped from view.
Now, as the markets show fresh signs of panic, much of it emanating from the sovereign debt crisis in Europe, the spotlight is swinging back their way. Despite evidence of improving conditions, most bears have changed their outlooks only marginally, if at all. Which raises the question: Is their persistent pessimism a mark of brave, nonconformist thinking, or has their negativity become a kind of crisis schtick—contrariness for the sake of notoriety? To find out if they should be feared or ignored, Bloomberg Businessweek assembled a cast of the most prominent bears from 2008, traced the development of their dark outlooks, and assessed where they see the economy going from here.
As early as 2004, Roubini, now 52, predicted an imminent recession caused by yawning U.S. trade deficits and a spike in oil prices and interest rates. It didn't come. In 2005 he again called for a recession. It didn't come. His revised prediction was for 2006. That year he spoke at an International Monetary Fund meeting and predicted the coming housing bust, saying the "United States was likely to face a once-in-a-lifetime housing bust...and ultimately a deep recession."
After Roubini's predictions finally came true and the world staggered into 2009, he said oil prices would remain low through the year, sinking to between $30 and $40 a barrel, and that the S&P would dip to 600. Neither happened. Oil jumped to $70 a barrel in November and the S&P hit bottom at 676, then blew past 1000. Still, Roubini sees doom almost everywhere, including Brazil, one of the world's best-performing economies over the past year; he diagnosed it as at risk of "overheating" at an event last month in São Paulo.
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