Roubini Still Predicting Rough Road Ahead for Stock Market and Banks

Roubini, professor at NYU’s Stern School of Business and the chairman of consulting firm Roubini Global Economics, tells Bloomberg that banks are not out of the woods yet. The infamous doomsdayer of the impending mortgage crisis in 2004, is cautioning investors and economist on reveilling in the euphoria of optimist stock market rallys.

Roubini cautions economic recovery heralds as he predicts more major bank failures and nationalization ahead.

I am certainly in his camp on this one. We need to remember that the stock market (normally) does trade on a forward horizon. However, they may be outpacing macroeconomic indicators.

For instance, today’s futures are indicating a strong opening on news that the GDP decline of 6.2 percent beat a survey of economist predicting 6.5-6.6 percent decline. This considered positive trading news–on record declines in GDP–danger!

The other important footnote to these GDP numbers is this fact:

The main culprit behind the GDP downgrade was that businesses’ cut inventories more deeply than estimated a month ago. That shaved 0.11 percentage points off fourth-quarter GDP, rather than adding 0.16 percentage points in the previous report.

That is a definite signal for future inflationary concerns–confidence in consumers and markets, with underlying rapid declines in consumer goods. This can potentially create a Carter administration style whipsaw in inflation as too much money starts chasing too few goods.

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