What's the worst-case scenario for stocks?

Economist Nouriel Roubini thinks 2013 will be a lousy year, even if the fiscal cliff gets taken care of. But things could actually get worse. Here's how.

By Charley Blaine Nov 16, 2012 4:41PM
© Munshi Ahmed/Bloomberg via Getty ImagesNew York University economist Nouriel Roubini earned the nickname "Dr. Doom" after he predicted much of the 2008 financial collapse.

He's hardly been optimistic since the financial crisis. He thinks 2013 will be trying for the global economy. Europe will be struggling with recession. China's economy is still soft, and he thinks U.S. economic growth will be modest at best.

But a perfect storm of four issues could make 2013 truly awful, Roubini said on an interview on Turkish television. Here they are:

The U.S. fiscal cliff issue doesn't get resolved. That means tax rates go up and government spending gets cut. The result, many economists believe, Roubini among them, will be another recession. We should note that President Obama and House and Senate leaders met Friday and swore they'd get the problem fixed. That was enough to turn a bad day for stocks into a winner.

The European recession gets nasty. This would occur if Greece runs out of cash (a real possibility) and leaves the euro currency in a messy way. Read that as this: Greece basically defaults on its debt and plunges global credit markets into chaos.

China's economy tanks. It's possible. Real estate in many Chinese markets has been overbuilt, and construction spending has slowed. The Shanghai Composite Index, the benchmark Chinese stock index, is down 34% since April 2011 and 67% since peaking in November 2007. Hong Kong's Hang Seng Index, however, suggests things aren't that bad. The index is up 15% this year.

War erupts in the Middle East. This assumes Israel and Iran somehow go to war, not a huge possibility by itself. But the rising tensions between Israel and Syria and Israel and Egypt over what Israeli forces might do in the Gaza Strip could cause major disruptions in crude oil markets, with crude oil pushing toward $200 a barrel with serious effects on the global economy.

So far, however, oil markets aren't in a panic mode.

Crude oil
(-CL) for January delivery in New York settled up $1.05 to $86.92 a barrel Friday and was up 1% on the week. Brent crude, the better indicator to watch in this case, was up 97 cents to $108.98 a barrel and is down slightly for the week.

Wholesale gasoline futures for December delivery ended the day up 1.39 cents to $2.7101 a gallon.

AAA's national average retail price of gasoline was $3.43 a gallon Friday, down slightly from Thursday and down 9.4% this quarter.

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Tags: oil
136Comments
Nov 19, 2012 4:04PM
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Wow! I had not realized that all the ills of the entire world were created in four years by President Obama and by voting for him I would by responsible for the destruction of the USA. I just thought I was voting against Magical thinking fiscal policies that did not add up, and an attack on freedom of thought that suggested that all notions of human behavior were written 2000 years ago by middle eastern mystics.
Magical thinking 1) cutting taxes by $5 trillion will reduce the National Debt.
Magical thinking 2) reducing Government spending and laying off thousands more people directly and indirectly involved in these programs will decrease unemployment.
Mystical thinking 1) Contraception and Abortion are both bad. The sole purpose of sexual relations is to create more young Republicans.
Mystical thinking 2) there is good rape and bad rape. Bad rape produces Democrats.
Nov 19, 2012 3:51PM
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Wow! I had not realized that all the ills of the entire world were created in four years by President Obama and by voting for him I would by responsible for the destruction of the USA. I just thought I was voting against Magical thinking fiscal policies that did not add up, and an attack on freedom of thought that suggested that all notions of human behavior were written 2000 years ago by middle eastern mystics.
Magical thinking 1) cutting taxes by $5 trillion will reduce the National Debt.
Magical thinking 2) reducing Government spending and laying off thousands more people directly and indirectly involved in these programs will decrease unemployment.
Mystical thinking 1) Contraception and Abortion are both bad. The sole purpose of sexual relations is to create more young Republicans.
Mystical thinking 2) there is good rape and bad rape. Bad rape produces Democrats.
Nov 19, 2012 12:57PM
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The worst thing is that we got 4 more years of Bernie and his nonsense policy, zero interest rate. Just by the basics, money ought to have some value in time. Otherwise, the economy becomes just about bubbles, no real creation of wealth.
Nov 19, 2012 12:53PM
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GUESS THIS BULLSHIDT DRIBBLE, IS MORE IMPORTANT THEN MARKET DISPATCHES...?
Nov 19, 2012 12:33PM
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pretty much 2013 is the end year for western economies.

 

Look the middle east is going to explode next year if not this year. Israel is going to use the Gaza situation to get rid of Syria's leadership but Syria's leader is not going down without a fight and will use his chemical weapons on Israel as the Israelis will try to first strike his chemical weapons.

 

This wil cause Israel to launch at Iran and then all the oil fields are sit ablaze by Iran and end of 50 percent of the oil supply to the world.

 

Japan has already collasped into a deep depression and taking China with it as neither side wants to play with the other anymore.

 

Europe well there is not enough money in the world to keep Europe going so it's going to fall apart it is already there people just do not knwo it yet.

 

The US well we collapsed in 2008 and took the world with us and now we are going down again. Basically we need a $2 trillion fix to the economy a year and the budget deal even if successful will only be a $100 million fix to the eoncomy a year. Pretty much 1 to two years is all the US has left for it's economy.

 

Add in another huge crop failure world wide and the Israelis going nuclear in the middle east as the Arab nations no longer under the control of dictators keeping their people under wraps go after Israel in a big way.

 

Pretty much the western banking system will not come out of the coming crisis intact.

Nov 19, 2012 11:55AM
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Worst case scenario TOTAL COLLAPSE !!!
Nov 18, 2012 8:37AM
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"Stocks are a bubble! Enjoy the view from the top. Crash is going to dwarf Great Depression. An entire world cannot borrow non-stop and then hope that all will be fine when the pay back time arrives. The financial system as you know it will end soon with bang."

 

Stocks are a bubble. We will crash. Borrowing isn't the problem, banks as lenders is the problem. We grow when lending is done correctly, we fail whenever banks dominate. It won't end in a bang. We will fall and stall. A small cluster of Inflationists will get caught and executed for world crimes. The rest of us will climb out or fall in, it's the way natural selection works. READING ASSIGNMENT: 1905. Banks had lent to Pawn Brokers making them Loan Sharks. Loan sharking compromised the average worker and family. 4 out of 5 of us were so overindebted that America came to a halt. Take the time to know what happened so history doesn't repeat itself. Hint: the good people created the Small Loan Act. The bad people falsely passed the Federal Reserve Act a few years later. Are we not seeing that same group today in the Party of NO? You read... you tell me.

Nov 18, 2012 2:38AM
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Stocks are a bubble! Enjoy the view from the top. Crash is going to dwarf Great Depression. An entire world cannot borrow non-stop and then hope that all will be fine when the pay back time arrives. The financial system as you know it will end soon with bang. Google PREPARE FOR MARKET CRASH to understand the problem created by decades of credit inflation. The cause is in place, the effect will follow. Money supply will deflate despite Bernanke's printing press. What we use as money is not what Bernanke prints. But it is what we borrow! And we ran out of borrowers in the developed world!
Nov 17, 2012 10:28PM
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Nokia goes to $1,000 P/S and Apple goes to $1.73 P/S.
Nov 17, 2012 9:11PM
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The worst case scenerio for stocks? They all fall to 0. It will not happen. There are cascading effects if the Fed limitlessly prints money to purchase its' own debt.

I do not see any reason to think that stocks will take off, but they won't drop to 0. I would start loading up on Medical stocks.

Maybe we could get the Feds to talk to Texas about how they can run their Government within its budget. They might learn a thing or two. But, D.C. can't find its own a** with both hands.

Nov 17, 2012 8:19PM
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reality 

increase of 14,000,000 on food stamps under OBAMA  to 47,000,000
I BELIEVE AT THIS RATE BY 2016 IT WILL BE  65,000,000  I M O

CHANGE WE CAN BELIEVE IN


Nov 17, 2012 8:04PM
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HELLO TO ALL IN THE U.S. & ALL OVER THE WORLD, the market's  for the  last 4 years, have real rip people off & continue to rip our hard earn $$$ from our hands, your real better off keep it under your pillow, with a big gun, than to have the stress, of lose it to the rich fat cats on WALL STREET, IT SEEM every time the wind blows the wrong way, AROUND THE WORLD,  when make sure it can go real low,  LOOK AT MY great APPLE (AAPL) ** HOLD YOUR CASH  is KING maybe even GOLD. ** LARGE BULK / BLOCK INVESTOR *       DR. KASEY * ATHERTON, CA. * BEV. HILLS, CA. * NY           
Nov 17, 2012 7:50PM
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Love to hear all of you whiners!!!  We survived (barely) 8 years of George Bush, Obama has been a breeze compared to that GOP disaster!

 

Nov 17, 2012 7:43PM
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I've seen on this post that Republican's are called TAKER's

A summarized timeline of Barack Obama's job history:
Student, Occidental College/Columbia University, 1979-1983,Business International Corporation, 1983, New York Public Interest Research Group, 1984, Community Organizer, Developing Communities Project (Chicago), 1985-1988, Student, Harvard Law School, 1988-1991, Editor, Harvard Law Review, 1988-1989, President, Harvard Law Review, 1990-1991, Summer Intern, Sidley & Austin law firm, 1989, Summer Intern, Hopkins & Sutter law firm, 1990, Illinois Project Vote, 1992, Lecturer - Consitutional Law, Chicago Law School, 1992-2004, Davis, Miner, Barnhill & Galland law firm, 1993-2004, Illinois Senator, 13th District, 1996-2004, U.S. Senator, Illinois, 2005-Present. Source: 

I do not see any job where he produced ANYTHING!!


Nov 17, 2012 5:55PM
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This guy is no genius he is just stating the obvious, any investor would know that one or all four could influence the market but its a matter of what sustains, and its a matter of other economic conditions coming into playl. 

 

 

This isnt anything that any smart investor isnt already aware of .  Quit wasting my time with these so called "experts"

Nov 17, 2012 4:32PM
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I dont know about all this. My concern right now is paying my own mortgage, buying food and clothes for my family, putting gas in my truck, whatever incidentals come up, and maybe enough is left over for a 12 pack of beer. China's stocks and Europes economy and fiscal cliffs? Dont care. Life will go on.  If I have to budget in an extra hundred or two hunred for ever changing gas prices, I can do that. Any more than that, I'm screwed. I run my own company, haven't worked less than 70 hrs/week in over 5 years. Am I complaining? HELL NO. I got my family, I got my house, love this country and its workng. If I can afford that beer at the end of the week, its a bonus. no regrets.
Nov 17, 2012 4:20PM
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max     those $2.50 cut will be in 2022   LOL

boehner will not fall for what the demoncats did to REAGAN
Nov 17, 2012 3:56PM
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Here's a question I'd like to submit to this group:

 

If (or when) Hamas should fire a rocket at Jerusalem from Gaza ( or the west bank) and it's trajectory is headed at the Dome of the Rock, Do you think Israel will deploy it's 'Iron shield" or let the rocket hit it's projected target ?

Nov 17, 2012 3:44PM
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One of the 'worse cases' is unfolding: Israel is positioning tanks & reservist along the Gaza strip as well as warships off the coast. The Egyptian Prime Minister, HIsham Qandil, obviously did not study how the 6 day war in 67' went ! In fact, if the US had not say "STOP" to the Israelis, chances are that we would not be dealing with these problems now. Here are a few predictions of how this will go:

1 - Israel will go in with tanks & bulldozers and level about half of the area.

2 - Israel will then attack Iran's nuclear uranium processing areas and destroy them.

3 - America will join in  Israel's defense when Egypt breaks their peace treaty with Israel.

 

If you don't go to church, tomorrow might be a good time to start and PRAY  !

Nov 17, 2012 3:33PM
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After failing to de-seat the Potus, suddenly Boehner realizes the Obama plan of, for every $1 dollar in tax increases we will have $2.50 in government cuts, finally a moment of clarity.
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