Dr. Doom’s 5 ‘Wars’ Facing the Global Economy

Dr. Doom’s at it again.

The notorious doomsayer Nouriel Roubini — who gained notoriety for calling the 2008 financial crisis — is warning investors about some of the greatest dangers facing the world today. The biggest issues for our Pale Blue Dot include out-of-control inflation, climate change and new pandemics. But the forecast wouldn’t be complete, of course, without the mention of an upcoming robot revolution. “We’re going to be in a world where inflation is going to be higher,” he said at a Bloomberg conference last week. “Therefore the traditional defensive asset doesn’t work.”

While higher prices for goods and services wreaked havoc on traditional investments in recent years — especially in 2022 when both fixed income and equities plummeted — it’s not all dire. There are potential investing strategies that can help, and Roubini’s team at Atlas Capital recently launched an exchange-traded fund to combat some of these potential problems. But if his prophecies do come true, the safer investments are probably a backyard bunker and canned soup.

Head For The Hills

The main issue is inflation. There are “five types of war” that our species will have to confront over the next two decades, Roubini said, all of which may be inflationary. It’s why he is predicting significantly higher inflation that could settle in at around 6%. He cited:

• Geopolitical war. With countries all over the world spending to fight hot wars and fund cold ones, the increased investment is going to strain fiscal budgets. “Geopolitical fragmentation is going to also imply less growth and more inflation,” he said.
• Climate change. Changes to the climate imply higher prices for food and commodities, like energy, over time. Desertification, lack of water resources and the collapse of agriculture have already sent food prices soaring. “That was occurring even before the Russian invasion of Ukraine,” he said.
• New pandemics. Forget Covid-19; Roubini is expecting new global pandemics that could disrupt the global economy and add trillions of dollars of deficit spending.
• Robotic revolution. With the increasing use of robotics, people are going to lose jobs, potentially permanently, as major employment sectors disappear altogether. That means paying for a larger social safety net for the unemployed, he said. 
• Social strife. Societal issues have led to populist movements all over the world, and governments may need to create monetary redistribution systems, or face a backlash.

“You’re in a totally different world where you have to think about a different defensive asset for the traditional long-duration treasuries,” he said.

Gloom-Tinted Glasses. Of course, Roubini admits these are only potential outcomes and there are ways to build portfolios to combat them. The main tenet is to protect against runaway inflation. To that end, Roubini launched the Atlas America Fund (USAF), which is marketed as an alternative to traditional fixed income, and invests in climate-change resilient REITs, inflation-protected US Treasuries, and more.

“As long as they take the scenario as a meaningful probability of materializing, you have to rethink your investment strategy,” he told the crowd. “I’m not wanting to be doomish or gloomish.”