Monday, October 5, 2009

Roubini's Weather Forecast

On Friday Bloomberg reported that economist Nouriel Roubini sees light at the end of the tunnel and that there are signs that the recession might be close to over. However, while he sees a U-shaped recovery, there remains a “a risk” of “a double-dip recession.” On Sunday (Oct 4), the same media reported the same Roubini “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,". “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.” This is head spinning.

This is like a weather forecast, it will be sunny tomorrow, but it may rain first. Either way, the forecast is right.

In the meantime, CIT, a lender for thousands of a small and medium businesses, is having big credit problems. While only the big banks like GS, JPM have been in the spotlight, these smaller institutions may be about to collapse. CIT already has. Perhaps Mr. Roubini should focus on what is going on there.

Of course the recession will be over some day, however, Dominique Kahn, French economist, and Managing Director of the International Monetary FundManaging Director, said on Friday: “We will be dealing with the aftermath of the crisis for years to come,”. He also said that some of the “optimism” in the financial markets “is excessive” and that the U.S. financial system is “still in deep trouble.”

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