April 20 (Bloomberg) -- Nouriel Roubini, the New York University professor who predicted the financial crisis, said that he was “still bearish” and that an economic recovery is going to take “longer than expected.”
Corporate earnings will “surprise on the downside,” Roubini said in a speech in Hong Kong today. “Lots of banks, even the better ones, are going to be in trouble.”
Banks around the world have reported $1.3 trillion in credit losses tied to the housing market collapse since 2007. The deficits, which spurred the first simultaneous recessions in the U.S., Europe and Japan since World War II, pushed the American government to pledge $12.8 trillion to stabilize the banking system and revive economic growth.
The Standard & Poor’s 500 Index, which tumbled 38 percent in 2008, has rallied 29 percent after sinking to a 12-year low on March 9. Roubini said that day that the S&P 500 is likely to drop to 600 or lower this year as the global recession deepens.
George Soros, the billionaire hedge-fund manager who made money last year while most peers suffered losses, said on April 6 that U.S. stocks weren’t at the start of a bull market yet because the economy is still shrinking.
“The current rally is a bear-market rally,” Roubini told reporters after his speech. “I don’t expect a 50 percent adjustment that I expected two years ago, but this is a dead-cat bounce, sucker’s rally, whatever you want to call it.”
Holding Cash
Roubini’s view contradicts that of investor Marc Faber, who said on April 13 that the S&P 500 may rise to 1,000 in the next three months as government spending boosts bank profits.
Markets are “way ahead” of real economic data and this recession will last at least 24 months, Roubini said. He predicted China’s economy will grow 5.5 percent in 2009, which is slower than the 8 percent expansion the Chinese government is targeting.
Roubini has stayed away from “risky assets” including equities, and 95 percent of his savings have gone into cash.
“Reserving capital, compared with losing 50 percent of it, is good,” he said.
To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net
Last Updated: April 20, 2009 04:06 EDT
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