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    ’Suckers rally’ to fade out, economist Roubini claims

    The Associated Press
    22.04.2009 - 00:00 | Son Güncelleme:

    HONG KONG - Economist Nouriel Roubini, one of the few experts to foresee the current global crisis, said yesterday a "suckers rally" in stock markets would fade as the U.S. economy continues to wither and the financial system suffers unexpected shocks.

    Roubini, a professor at New York University's business school and former adviser at the U.S Treasury Department, also said he expected China's economy to grow up to 5.5 percent this year, missing the government's 8 percent target.

    Hopes the world economy will stage a faster recovery this year have fueled a six-week rise in global markets, with major benchmarks on Wall Street and in Asia up more than 20 percent over just six weeks.

    But Roubini was doubtful and predicted markets would test the lows seen in March. "For people who say there are green shoots, I see only yellow weeds frankly," Roubini said at a conference in Hong Kong. "It's not a true recovery. It's just a bear-market rally, it's a suckers rally." That's because the U.S. economy will still be contracting toward the end of the year and won't grow again until 2010, he said. Unemployment will hit 11 percent next year and corporate earnings will come in worse-than-expected, he predicted.

    Troubles in the financial sector, meanwhile, are far from over and will be worse than many expect. The results of the government's "stress tests" will show even the biggest 19 American banks don't have enough capital to cope with the huge losses they'll inevitably suffer on souring loans.

    ’Ugly’results should be expected
    "The losses are much more than people are predicting and (the banks) have not reserved enough," Roubini said. "It looks ugly for every one of those 19 banks, let alone the smaller ones," he added. "So it's going to be ugly for the financial system."

    In Asia, many investors are betting China's growth will help pull other markets from their slump. Roubini said a tentative recovery in China's economy would be hard to maintain long-term because it was largely the result of government measures rather than a fundamental shift in domestic spending habits.
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