(FORTUNE Magazine) – No one wants to be a party pooper. That's doubly true if you happen to work anywhere near what for the past nine years or so has been party central--Wall Street. So when Stephen Roach walked to the podium to address Morgan Stanley Dean Witter's global sales force in September, he knew he had to be awfully convincing. As the firm's chief economist, Roach had changed his rosy view on the U.S. economy. That Monday morning he asserted that things would deteriorate a lot faster than anyone had expected. In fact, he put the risk of recession in the year ahead at 40%. There were murmurs of disbelief from the audience, and Roach was grilled about his assumptions. Even his right-hand man, Richard Berner, Morgan's chief U.S. economist, admits he was skeptical at the time. "Roach was making a big call," says a broker who was at the meeting. "The idea of recession wasn't even in the realm of possibility for our clients then."

Three months later nearly everyone on Wall Street is talking slowdown. But most economists still forecast moderate growth in 2001. According to Blue Chip Economic Indicators, a consensus forecast from 50 leading economists, real GDP is expected to grow at 3.1% in the coming year. That pretty much makes Roach, 55, the biggest bear in a Manhattan zip code. Along with Berner, he just cut the firm's 2001 forecast for U.S. growth from 3% to 2.5%, predicting the economy will come to a complete standstill in the first half. "That puts me on full alert for a recession next year," says Roach. "And we're just at the beginning of more downward revisions to growth."

No investment bank likes to be a pessimist, let alone amid a historic expansion that has trapped more bears in a decade than Davy Crockett did his entire life. That's especially true for Morgan Stanley. It's not only the top-rated capital markets player but also the third-largest retail broker in the country and second in IPOs year to date. Small wonder Morgan Stanley President John Mack has been in constant touch with Roach, asking for more details about how deep a recession could be and what it would mean for the market. There's also the delicate business of handling clients. Roach tries to sugarcoat his downbeat message. "You have to look beyond the valley," he recently told a group of the world's largest public utilities. "The forces that will cause the recession are reversible and will set up a strong 2002."

With so much riding on his judgment, Roach needs to be darn sure when he makes a serious call. He has scored big in the past. At the height of the 1998 Russia crisis, the consensus on Wall Street called for a worldwide recession. Roach disagreed and instead predicted continued prosperity based on what he termed "global healing." Obviously he got that right. But Roach has made bad calls too. In the mid-1990s he was adamant that the U.S. economy would come undone because of rising wages, as workers demanded their share of the spoils from the boom. Wages did increase. But so did productivity, which more than offset any ill effects.

Why, then, is Roach so worried now? Last summer he noticed a host of things conspiring against the economy. At the top of his list were higher interest rates, a wobbly stock market, rising financial costs for companies, a downturn in tech spending, and weaker global growth. Roach reckoned that the U.S. economy would crawl along for some time at around 1.25%, leaving business and consumer spending vulnerable in the face of shocks.

What was needed to complete his case for a recession was a good old-fashioned crisis. In September he found the makings of one in sharply rising crude oil prices. With winter approaching and no relief on the supply front, Roach reasoned that firms and households would be buffeted by a sharp increase in heating costs. Even a mild energy shock would be enough to send an already limping economy into negative territory. He has since pinpointed two other possible shocks--a stock market collapse and a dollar selloff.

The most immediate impact of Roach's views is on Morgan Stanley itself. When Roach downgrades growth forecasts, Morgan analysts who cover cyclical stocks scurry to their offices to adjust their models. The result is a stream of earnings downgrades in the days that follow. As for the firm's brokers, they can live with a bearish report so long as Roach makes a strong case. "We're all flooded with information," says one, "but if I can go to clients with something that stands out, it helps me do my job better."

Finally, all the big-name strategists at Morgan Stanley, like Byron Wien and Barton Biggs, have to take Roach's analysis into account. Even if they disagree, as is often the case, they use Roach's view as a benchmark. But for the first time in years, Roach, Biggs, and Wien are in agreement about what lies ahead. "And since we're all bearish," laughs Wien, "it's probably time to buy."