The Wall Street Journal-20080123-Davos 2008 -- Best of the Daily Davos- Updates From the World Economic Forum in Davos- Switzerland
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Davos 2008 -- Best of the Daily Davos: Updates From the World Economic Forum in Davos, Switzerland
Pessimist on Economy Awaits
Arrival of a Third 'Ugly Bear'
Last year, Nouriel Roubini was the lone pessimist on Davos's five- person opening economics panel. His colleagues predicted the world economy would continue to grow strongly without overheating, a rosy scenario economists dubbed "Goldilocks." Mr. Roubini, chairman of Roubini Global Economics and a New York University economics professor, demurred.
"Goldilocks is threatened by three ugly bears," he said, predicting a subprime meltdown, an end to cheap credit and rising oil prices would bring U.S. consumer spending to a halt. At the time, Mr. Roubini's "ugly bears" provoked more laughter than concern.
But Goldilocks has already met two of those bears and signs are mounting that the third -- in the form of a sharp falloff in U.S. consumer spending -- could show up soon. "Sometimes people say about me that even a broken clock can be right twice a day," says Mr. Roubini, who contends his habitually gloomy outlook has been, over the years, more nuanced than he's given credit for.
Now, though, he's unabashedly glum. "2008 will be an ugly year," he says. The question of whether the U.S. will fall into recession is stale: "Now the debate is, how bad will it be? I think it will be extremely severe."
Financial-market conditions will get much worse: "When you add all the losses, not just subprime but also soon enough on auto loans, credit cards, student loans, leveraged loans and corporate bonds, we're looking at $1 trillion of losses in the financial system." These massive losses, he contends, mean "there's a serious risk of a systemic financial crisis. Not just in the U.S., but globally."
"This is just the beginning of a serious bearish market in equities," he says.
-- Joellen Perry
A Quixotic Message
Of Global Strength
C. Fred Bergsten, director of the Peterson Institute for International Economics in Washington, has a quixotic message for 2008: Sustained global growth will help the U.S. avert a deep recession, but the U.S. dollar will stage a second slide -- this time against Asian currencies -- that could prompt intervention from global policy makers.
Mr. Bergsten, a regular at the annual Swiss retreat, says Davos goers are particularly prone to overreaction: "Last year there was excessive euphoria. This year there's excessive gloom." He predicted 2007's dollar rout long before it happened and is taking the contrarian position again this year.
On several Davos panels, Mr. Bergsten also plans to defend the hotly debated notion that the rest of the world can sustain solid growth if the U.S. tanks. Economists call the theory decoupling.
-- Joellen Perry
Could These Scents
Encourage Consensus?
For anyone getting hammered in the markets, Davos could be just the place to get a sweet whiff of ease. This year the forum asked a perfumer to scent the rooms where attendees meet to do their pondering.
It may not help your share price, but it could make you feel more relaxed and happier, says Cristophe Laudamiel, senior perfumer at New York-based International Flavors & Fragrances Inc., who developed fragrances specially to match the forum's themes for the year.
"Think of it as an air sculpture" that portrays certain messages and interpretations, adds the 38-year-old Mr. Laudamiel.
Different rooms where the forum holds sessions get different perfumes. One gets a "Glacier" scent, a tribute to the shrinking polar-ice cap. Others get "Happiness," "Gigabyte" to inspire high-tech thoughts and optimism, "Swiss Heights" for Davos, "Magnolia and Sage", and organic "Lavender Fields".
-- Marc Champion
