Roubini forecasts sweet spot for multinationals, bond market

Economist Nouriel Roubini now predicts that U.S.-based multinational companies and the bond market will both triumph in spite of weak economic growth and the Federal Reserve’s plans to trim its bond purchases, according to a wide-ranging speech he delivered Monday.

Mr. Roubini, who foresaw the global financial crisis and is sometimes known as Dr. Doom for his downbeat predictions, told a professional investors’ conference that inflation pressures remain weak and that Fed’s decision to taper its asset purchases will not destabilize bond markets.

The Fed’s surprise decision last week to adhere to its five-year policy of buying $85 billion in bonds per month drove markets higher.

“It’s clear that the Fed has realized that the economy was weak,” Mr. Roubini said.

He said Fed vice chairman Janet Yellen, a frontrunner to take Ben S. Bernanke’s position as chairman when his term expires in January, would be unlikely to push monetary policy in a new direction.

“She might be a notch more dovish that other members of the board, but under Bernanke, the Fed became a collegial democracy,” Mr. Roubini said after his speech at IndexUniverse’s Inside Commodities conference in New York. “It will be a consensus-driven Fed.”

Mr. Roubini delivered an assessment of a global economy still struggling to rebound from the effects of the economic crisis, saying growth prospects in the U.S. and Europe remain weak. He also predicted a slowdown in China and other emerging markets.

U.S. economic growth could lag at or below 2 percent this year, according to Mr. Roubini.

But he said that the prospects for large-cap companies with global exposure are relatively strong, while bonds and emerging markets will be weak as the Fed tapers. Bonds will survive the tapering process in part because the economy at that point will be stronger, according to Mr. Roubini.

China’s soft landing will mean lower demand for industrial metals such as copper as construction slows, but its switch to a consumer-oriented economy is likely to drive demand for oil and other agricultural commodities higher. There won’t, however, be a run-up in the price of gold because investors are turning to alternative assets that provide a better return, Mr. Roubini said.