It was Tuesday, August 17, 1982, and I can still remember hearing the radio report that day that famed economist Henry Kaufman, dubbed by the press as Dr. Doom,1 had issued a statement that interest rates would fall. The market surged from 792 to 831, a one-day 4.9% gain.2 This was arguably the day when the bull market of the 80’s ignited, reaching a decadal high of 2791.41 on October 9, 1989, and ultimately continuing through the 90’s.3 Ironically, Kaufman—who had previously forecast that interest rates would rise—was now saying that interests rates would fall because there was no sign of an economic recovery. Institutional investors read this as validation that the market had hit bottom, and charged into the market for fear of missing the upswing.4
In considering when the market will be posed to recover to pre-crisis levels, it’s hard not to draw parallels between Kaufman and Nouriel Roubini, the NYU Business School professor who predicted the mortgage crisis, and is now called Dr. Doom just like Kaufman was (and still is).5 The two hail from different economic career tracks—Kaufman worked for investment bank Salomon Brothers in the early 80’s while Roubini has been in academia and public organizations for much of his career. But like Kaufman, Roubini is considered to be in the elite tier of economists, having served on the White House Council of Economic Advisors and as a senior advisor to now Treasury Secretary Timothy Geithner during Geithner’s earlier tenure as Undersecretary of the Treasury for International Affairs.6
Many of Roubini’s specific predictions, such as his recent pronouncement that the market could fall as low as the Dow at 5000,7 may not come to fruition. However, the experience of the 1982 Kaufman announcement demonstrates the possibility that the market is now so psychologically wrapped up in Roubini’s predictions that an announcement by Roubini himself may be the spark that unleashes a market recovery.
Roubini’s March announcement that a recession could last up to 36 months—with 15 months already under the belt—places his current prediction for the recession as stretching until December 2010. So if the comparison to Kaufman’s 1982 announcement holds, with the expectation that the market will move up several months before the recovery itself, we can foresee the possibility of a major market upswing at some point when Roubini speaks next year.
- Geisst, Charles R, Wall Street, p. 324, (Oxford University Press 1997), http://books.google.com/books?id=rhpGAHx8XosC&pg=PA324&lpg=PA324&dq=henry+kaufman+reagan+stock+market&source=bl&ots=KSOnLNpILg&sig=QfSyC0g_OF103nPKnBaqqsR9pc0&hl=en&ei=MxDxScPSO5CVlAfYz_3QDA&sa=X&oi=book_result&ct=result&resnum=5#PPA324,M1. [↩]
- Trumbore, Brian, http://www.buyandhold.com/bh/en/education/history/2000/paul_volker2.html. [↩]
- http://www.djindexes.com/DJIA110/learning-center/. [↩]
- Will, George F., The Deseret News, August 25, 1982, p. A5, http://news.google.com/newspapers?nid=336&dat=19820824&id=q-kOAAAAIBAJ&sjid=aoMDAAAAIBAJ&pg=5246,5945108. [↩]
- Mihm, Stephen, “Dr.Doom,” The New York Times, August 17, 2008, page MM26, http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html?_r=1. Coincidently or not, this article appeared in print exactly 26 years from the date of Kaufman’s 1982 announcement, though the on-line version seems to have appeared two days earlier on August 15, 2008. [↩]
- See Wikipedia, “Nouriel Roubini, Revision 13:14, April 15, 2009. http://en.wikipedia.org/w/index.php?title=Nouriel_Roubini&oldid=283988733. [↩]
- Yahoo Finance, March 9, 2009, http://finance.yahoo.com/news/Roubini-US-Recession-Could-cnbc-14585541.html. [↩]