Roubini Says Stocks Have
Risen ‘Too Much, Too Soon, Too Fast’
By Shamim
Adam and Francine Lacqua
Oct. 4
(Bloomberg) -- New York University Professor Nouriel
Roubini, who accurately 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
yesterday. “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.”
Stocks have
surged around the world in the past six months as evidence mounts that the
economy is emerging from its deepest recession since the 1930s. The Standard &
Poor’s 500 Index has soared 51 percent from a 12-year low in March
while Europe’s Dow Jones Stoxx 600 is
up 48 percent. The euphoria contrasts with the cautious tone of Group of Seven
policy makers, who said after their meeting in Istanbul yesterday that prospects for growth
“remain fragile.”
“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.”
‘Anemic’
Recovery
The
International Monetary Fund predicts the global economy will expand 3.1 percent
in 2010, led by growth in Asia, after a 1.1
percent contraction this year. That is still “anemic” and
“very weak,” Roubini said.
U.S.
stocks fell last week after manufacturing expanded less than anticipated and
unemployment climbed to a 26-year high, fueling concern the economy is
rebounding more slowly than forecast.
Gains in
the S&P 500 have pushed valuations in the index to more than 19 times
reported operating profits from the past year, data compiled by Bloomberg show.
That’s near the most expensive level since 2004.
The
performance of the U.S.
economy is probably more sluggish than reflected in stock markets, risking a
correction in equities, Nobel Prize-winning economist Michael
Spence said last month. U.S.
stock-market investors have “over processed” the stabilization of
growth in the world’s largest economy, Spence said.
Creating
Bubbles
The
global equity rally has added about $20.1 trillion to the value of stocks
worldwide since this year’s low on March 9. Governments have poured about
$2 trillion of stimulus into the global economy while central banks have cut
interest rates to close to zero in efforts to revive growth.
“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.”
To
contact the reporters on this story: Shamim
Adam in Istanbul at sadam2@xxxxxxxxxxxxx;
Francine
Lacqua in Istanbul at flacqua@xxxxxxxxxxxxx
