(Bloomberg) -- Nouriel Roubini, the famed economist who’s earned the nickname “Dr. Doom” for his prescient predictions of the global financial crisis, has a new warning: a Donald Trump return to the White House raises the risk of a stagflationary shock.
“The combination of trade, currency, monetary, fiscal, immigration and foreign policy of Trump poses much higher risks of stagflationary outcomes than if Kamala Harris is elected,” Roubini said from the sidelines of the Greenwich Economic Forum in Connecticut on Wednesday. In his view, Trump’s policy plans — including imposing higher tariffs, devaluing the US dollar, and taking a tough stance on illegal immigration — threaten to slow down the economy and simultaneously spur inflation higher.
Roubini also points to tensions in the Middle East as a potential catalyst. Further escalations could lead to a spike in oil prices, thus raising price pressures, he said.
Brent crude traded above $81 a barrel last week as tensions between Israel and Iran reheated. Oil has since retreated to hover closer to $75 a barrel amid supply concerns. Higher oil prices hurt businesses and consumers.
Domestically, Trump’s hard-line immigration tactics, such as vowing to force mass deportations, pose another risk given the economic boost migrants provide, Roubini said.
To hedge against these risks, Roubini recommends investors hold gold, short-term duration bonds and Treasury inflation-protected securities, or TIPs.
To be sure, not all of Roubini’s prior forecasts have come to pass. In 2022 he made a similar prediction for a stagflationary debt crisis that thus far has failed to emerge.
Roubini has been a long-time skeptic of rising equity prices, though he’s less bearish when it comes to American technology giants.
“Big Tech is a story that, in my view, is valid in the sense that AI is going to radically change the world starting with the US,” he said. “But it’s not going to happen overnight.”
The economist projects that AI could drive US productivity growth above 3% by the end of the decade, but much of that optimism is already priced into shares, he added.
“Investing into stuff that is technology- and AI-related is a good investment long term, but there will be a significant amount of volatility because of what could happen to inflation, interest rates, and the economy,” he said. “Tech is a long-term play.”
He sees three reasons for why traders have, so far, largely shrugged off the risks of a second Trump presidency win: the tight race with Harris, the prospect that a Trump administration would temper his proposals with a more moderate approach, and the potential for a market selloff that would prevent him from enacting certain policies.
--With assistance from Damian Sassower.
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