Roubini Throws Cold Water on Equity and Commodities Rallies

Nouriel Roubini, who has backed off from what was once his signature bearishiness (he has been calling for an U or perhaps a W shaped recovery) nevertheless thinks the current market rallies are considerably overdone. From Bloomberg:

New York University Professor Nouriel Roubini, who predicted the financial crisis, said stock and commodity markets may drop in coming months as the gradual pace of the economic recovery disappoints investors.

“Markets have gone up too much, too soon, too fast,” Roubini said in an interview in Istanbul on Oct. 3. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year.”…

“The real economy is barely recovering while markets are going this way,” Roubini said. If growth doesn’t rebound rapidly, “eventually markets are going to flatten out and correct to valuations that are justified. I see a growing gap between what markets are doing and the weaker real economic activities.”…

“In the short run we need monetary and fiscal stimulus to avoid another tipping point and to avoid deflation, but now this easy money has already started to create asset bubbles in equities, commodities, credit and emerging markets,” Roubini said. “For the sake of achieving growth stability again and avoiding deflation, we may be planting the seeds of the next cycle of financial instability.”

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  1. fresno dan

    Roubini’s a cockeyed optimist ;)
    Seriously, in our “news” there is a tendency toward exaggeration. And of course, in a financial crisis the gubermint has learned to throw money, hit the computer keys and create money, and that in the short term will alleviate the most serious aspect of the crisis.
    But in the long term, consumption has exceeded income – coming back to equilibrium will be long and unpleasant. Not the end of the world, but no more commercials on CNBC “money out the wazoo!”

  2. NS

    Roubini proves he again is stark raving SANE. fresno-compared with some analysis of late, he is an optimist!

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