Carlyle’s Rubenstein Warns Against Roubini Pessimism in Davos

By Simon Kennedy and Aaron Kirchfeld

Jan. 27 (Bloomberg) -- Carlyle Group LP co-founder David Rubenstein said it’s a “pretty attractive” time to invest, telling New York University Professor Nouriel Roubini that his pessimism about the economic outlook is misplaced.

“There are a lot of great opportunities we see in the United States and abroad,” Rubenstein said today at the World Economic Forum’s annual meeting in Davos, Switzerland. “Sometimes generals fight the last war, economists fight the last recession.”

Diverging outlooks of investors and economists are being thrown into relief in the ski resort as the worst financial crisis since the Great Depression ebbs. While the MSCI World Index has surged about 65 percent since March, Davos delegates including Roubini and Nobel laureate Joseph Stiglitz say the rally may end as the economic rebound loses steam.

“There is now a debate about the shape of this recovery,” Roubini, who predicted the crisis a year before it began in 2007, told the opening panel before Rubenstein challenged him. “I see a faltering of growth in the U.S., Europe and Japan.”

Rubenstein, who heads the world’s second-largest private equity firm, identified emerging economies as “attractive places” for investors alongside U.S. markets for energy and health care. Prices are low and the risk of systemic failure has been eliminated, meaning deals done last year will be among “some of the best” struck in a decade, he said.

‘Largely Recovered’

“The U.S. economy has largely recovered in the view of professional investors from the worst,” he said. “We’ve gone through a bit of a heart attack and heart attacks are not fatal so much anymore, so we’ve learned a lot.”

While he agreed that emerging markets will outperform their richer rivals, Roubini predicted growth in advanced economies such as the U.S. will slacken in the second half of the year. He cited weakening labor markets, declining consumer spending, tight credit, manufacturing overcapacity, government budget cuts and rising bond yields, he said.

“In advanced economies, the first half of the year is going to better than the second half,” Roubini said.

Roubini’s caution was shared by Dennis M. Nally, global chairman of New York-based PricewaterhouseCoopers LLP. A survey conducted by his company found 81 percent of 1,198 chief executives in 52 nations are confident in the next 12 months, yet majorities are worried by the threat of a protracted recession and intend to cut costs deeper.

‘Cautionary View’

“We’re not out of the woods yet,” Nally said. “There is a cautionary view.”

The International Monetary Fund yesterday raised its forecast for global growth this year to 3.9 percent from 3.1 percent, yet said the recovery in industrial nations will stay “sluggish” amid high unemployment and rising public debt.

Rubenstein and Roubini found common ground in agreeing that rising debt in the U.S. poses a threat to its economy and markets. Failure to tackle the debt will trigger a “sinking” dollar and undermine its role as the world’s reserve currency, Rubenstein said. Roubini warned that investors may “wake up” to the fiscal imbalances and push up long-term interest rates, choking the economic recovery.

To contact the reporter on this story: Simon Kennedy in Davos at skennedy4@bloomberg.net; Aaron Kirchfeld in Davos at akirchfeld@bloomberg.net