Roubini Predicts A Correction

Written By Brian Hicks

Posted January 22, 2010


bear car


Here’s the latest global forecast from economist Nouriel Roubini.

Needless to say, he’s still bearish….

From Bloomberg by Le-Min Lim and Shamim Adam entitled: Roubini Says Stock Rally may End Amid Muted Recovery

“A global rally in stocks may end in the second half of the year amid a muted recovery in the world’s largest economies and as deflationary pressures limit gains in corporate earnings, Nouriel Roubini said.

Failure to restrain asset-price bubbles in emerging markets, fueled by loose monetary policies in the U.S. and around the world, may also cause an “unraveling and a significant correction of asset prices which will be damaging to global and regional economic growth,” Roubini, the Harvard- schooled New York University professor who in 2006 foresaw the financial crisis, said in Hong Kong today.

The MSCI World Index has surged 73 percent from last year’s low in March, adding more than $27 trillion to the equity rally as the global economy rebounds from the worst postwar recession. The World Bank, while raising its forecast for global growth in 2010 yesterday, warned that the recovery may lose momentum as stimulus programs wind down and “high” unemployment persists.

“The real economy is gradually recovering but since March, asset prices have gone through the roof,” Roubini said. “If I’m correct, by the second half of the year, there’s going to be a slowdown of growth in U.S., Europe and Japan. That could be the beginning of a market correction because the macroeconomic news is going to surprise on the downside.”

Europe and Japan have less room to implement counter- cyclical policies compared to the U.S., making it less likely for those markets to lead the world in the global economic recovery, Roubini said. Sovereign risks in Europe are rising because of persistent budget deficits, and the appreciation of the yen and euro against the U.S. dollar are “making things worse,” he said.

“Even the earnings news is going to surprise on the downside,” Roubini said. Weak economic recovery and deflationary pressures will limit revenue growth as the ability of firms to cut costs runs its course, while losses at U.S. and European financial institutions are going to be larger than those that have been priced by the market amid low growth, a high unemployment rate and still falling home prices, he said.”

Is it just me or does Nouriel always show up every time the markets begin to run red?

Have a great weekend. As for the markets, 10200 on the Dow better hold…

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