Wall Street's 'Doctor Doom' tells BI about his move into money management, where he's off to a market-beating start

Business Insider

4 days ago

On a cold night in December, Nouriel Roubini stood in a dark room at Bloomberg's Manhattan headquarters and prophesied a menacing future for financial markets.
Yields on 10-year Treasurys would soar to 8% thanks to persistent inflation, he said at Bloomberg's ETFs in Depth conference. That would send the S&P 500 and Nasdaq plummeting.
The scene was perfectly on brand for the famously bearish economist widely known as Dr. Doom. That's why it might have been easy to dismiss his gloomy proclamations. Perhaps even more of a reason to discount Roubini's warnings was that he had just launched an ETF, the America Atlas Fund (USAF), meant to act as an alternative to the fixed-income segment of the traditional 60/40 portfolio. A cynical listener could have interpreted his speech as a pitch to buy his product because stocks and bonds would perform poorly.
But six months later, the evidence is irrefutable: Roubini has nailed his opening act as a fund manager.
Since USAF's launch in November, the S&P 500 is flat, suffering a violent 20% drawdown in the interim. Long-end Treasurys have also been volatile, and have sold off in tandem with stocks. Many of the driving forces behind those moves have been those inflation risks that Roubini warned of, including tariffs and restoring, and government spending.
Meanwhile, USAF is up 4% and fell only 2% during the market's "Liberation Day" tantrum when stocks tanked and bond yields spiked. The fund has been volatility-resistant thanks to its heavy allocations to short-end Treasurys (about 50% of the portfolio) and gold (19%). The remaining holdings are a mix of commodities, REITs, and TIPS, and alternative investments.
In other words, Roubini's timing couldn't have been better, and his warnings — at least directionally speaking — have been spot on.
It's been a dream start for the New York University professor, who often gets flak for his regular pessimism.
"Sometimes people say, 'You talk about stuff, but talk is cheap,'" Roubini told BI. "'Put your money where your mouth is. Have some skin in the game.'"
Putting his money where his mouth is
The 67-year-old Roubini, who is most known for predicting the 2008 financial crisis, could have simply kept on with his work at NYU and continued pontificating about where the economy was headed.
But the economist wanted to take on a fresh challenge.
"In different stages in life, you do different things," he said.
In the final chapter of Roubini's 2022 book, "MegaThreats: Ten Dangerous Trends That Imperil Our Future, And How to Survive Them," he lays out how investors might protect themselves from downside risks. In recent years, he decided it was time to put those ideas to the test.
It has always been a logical next step for him to wade into the world of asset management, he said. Plus, it's a chance to respond to his many detractors who have questioned the weight behind his predictions since he didn't have any money under his purview.
"After a career in academia, of policy, of providing economic advice, more and more people say, 'If you are that smart, why don't you try to also manage money rather than just talking about it," he continued. "So it was a natural thing that would have eventually happened."
It remains to be seen if Roubini can keep his string of success going in the years ahead. The outlook informing his positioning is that persistent inflation in the 5-6% range will continue to put upward pressure on 10-year Treasury yields. That's why he's sitting heavily in short-term Treasurys at the moment, collecting a similar yield to longer-term assets while not having to endure the same volatility. If 10-year rates were to get up toward 8%, that would be the right time to buy in, he said.
His views on inflation are well above the consensus in markets and among Wall Street banks, though it's still unclear what impact tariffs and potential tax cuts will have on consumer prices. If inflation fears dissipate, Roubini's exceptionally well-timed introduction to the asset management space may very well prove to be beginner's luck.
Either way, investors now have a way to grade Roubini's forecasts in real time.
"One thing is to talk about money, and another is managing it," Roubini said. "You see right away the feedback between your ideas and what happens in the real markets."