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----- Original Message -----
From: "glenn dickerson"
To: <TimeandCycles@xxxxxxxxxxxxxxx>
Sent: Thursday, March 26, 2009 10:28 AM
Subject: [TimeandCycles] (BN) Roubini Says Stocks Will Drop as Banks Go
‘Belly Up’ (Update2)
Roubini Says Stocks Will Drop as Banks Go ‘Belly Up’ (Update2)
> 2009-03-26 12:32:33.825 GMT
(Adds S&P 500 Index futures in seventh paragraph and
comments on China’s reserve currency proposal from 12th.)
> By Michael Patterson and Maithreyi Seetharaman
> March 26 (Bloomberg) -- U.S. stocks will fall and the
> government will nationalize more banks as the economy contracts
> through the end of 2009, said Nouriel Roubini, the New York
> University professor who predicted last year’s economic crisis.
> “The stock market is a bit ahead of the real macroeconomic
> and financial news,” Roubini, a professor at NYU’s Stern School
> of Business and the chairman of consulting firm Roubini Global
> Economics, said in an interview with Bloomberg Television in
> London today. “We’ll have some major banks going belly up that
> will need to be taken over.”
> The global equity rebound in March that sent the Standard &
> Poor’s 500 Index to its best monthly advance in 17 years is a
> “bear-market rally” and U.S. Treasury yields will “remain
> relatively low” as investors flock to the safest assets,
> Roubini said. Treasury Secretary Timothy Geithner’s new plan to
> remove toxic debt from financial companies won’t be enough for
> insolvent banks, he said.
> Roubini’s outlook contrasts with predictions this week from
> Templeton Asset Management Ltd.’s Mark Mobius and Traxis
> Partners LLC’s Barton Biggs, who said that equities are poised
> to rally as government efforts to revive the economy and banking
> system begin to work. Investors are “way too optimistic” about
> the prospects for a recovery in the economy and earnings,
> Roubini said.
>
> Stress Tests
>
> The S&P 500 surged 7.1 percent on March 23 after Geithner
> unveiled a plan to finance as much as $1 trillion in purchases
> of illiquid real-estate assets, using $75 billion to $100
> billion of the Treasury’s remaining bank-rescue funds. The
> government is conducting stress tests of banks to determine how
> much more capital each will need.
> Roubini, who predicts loan and securities losses in the
> U.S. will reach $3.6 trillion, said the stress tests will reveal
> that some banks need to be taken over and have their good and
> bad assets separated before being sold to the private sector. He
> didn’t name which companies he thought would need to be rescued.
> Futures on the S&P 500 expiring in June advanced 1.2
> percent to 818 as of 8:30 a.m. in New York.
> Critics of Geithner’s plan including Nobel laureate Paul
> Krugman, a professor at Princeton University, say the government
> should take over banks loaded with devalued assets, remove their
> top management, and dispose of the toxic securities. Sweden
> adopted the temporary nationalization approach in the 1990s.
>
> ‘Deflationary Forces’
>
> “Some banks are going to have to be nationalized,” said
> Roubini. “It’s going to be bumpy ahead of us.”
> Geithner and Federal Reserve Chairman Ben S. Bernanke this
> week called for new powers to take over and wind down failing
> financial companies. They said the U.S. also needs stronger
> regulation to constrain the risks taken by firms that could
> endanger the financial system.
> With “deflationary forces” lingering for as long as three
> years, Roubini said U.S. government bond yields will remain low
> and American house prices will fall as much as 20 percent in the
> next 18 months. While the dollar will initially benefit as
> investors seek a safe haven in the U.S., the currency will
> ultimately drop as the nation’s trade deficit shrinks, he said.
> Roubini dismissed China’s call for the creation of a new
> international reserve currency as a “pie in the sky idea”
> that’s unlikely to gain traction any time soon.
>
> Mobius, Biggs
>
> China’s central bank Governor Zhou Xiaochuan this week
> urged the International Monetary Fund to expand the use of so-
> called Special Drawing Rights and move toward a “super-
> sovereign reserve currency.” Geithner sent the dollar tumbling
> yesterday by saying he would consider China’s idea, only to
> drive it back up by affirming that the greenback should remain
> the world’s reserve currency.
> “This was a political call and in a nut shell - it ain’t
> going to happen any time soon,” Roubini said.
> Mobius, who helps oversee about $20 billion of emerging-
> market assets as executive chairman at San Mateo, California-
> based Templeton, said March 23 the next “bull-market” rally
> has begun. Biggs, the former chief global strategist for Morgan
> Stanley who now runs New York-based hedge fund Traxis Partners,
> predicted the same day the S&P 500 may jump between 30 percent
> and 50 percent.
> The benchmark index for U.S. equities has surged 11 percent
> in March, poised for its biggest monthly gain since 1991. The
> MSCI Emerging Markets Index of equities in 23 developing nations
> is headed for the steepest monthly advance on record after
> rising 20 percent in March.
>
> For Related News and Information:
> Stories on U.S. stocks: NI USS <GO>
> Market map of the S&P 500: SPX <Index> IMAP <GO>
> Global market map: MMAP <GO>
> Most-active U.S. stocks: MOST US <GO>
> Feature stories on U.S. stocks: TNI USS FEA <GO>
> Stories on U.S. stock options: NI USO <GO>
>
> --With reporting by Simon Kennedy in Paris, Mark Barton and
> Eric Burg in London. Editors: Christiane Lenzner, Jones Hayden
>
> To contact the reporters on this story:
> Michael Patterson in London at +44-20-7073-3102 or
> mpatterson10@xxxxxxxxxxxxx;
> Maithreyi Seetharaman in London at +44-20-3216-4332 or
> mseetharaman@xxxxxxxxxxxxx
>
> To contact the editor responsible for this story:
> Gavin Serkin at +44-20-7673-2467 or gserkin@xxxxxxxxxxxxx
>
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