Really? You think?

From Bloomberg:

Roubini said more than half of the 5.7 percent expansion reported yesterday by the government was related to a replenishing of inventories and that consumption depended on monetary and fiscal stimulus. As these forces ebb, growth will slow to just 1.5 percent in the second half of 2010, he said.

“The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor,” Roubini told Bloomberg Television in an interview at the World Economic Forum’s annual meeting in Davos, Switzerland. “I think we are in trouble.”

Roubini said while the world’s largest economy won’t relapse into recession, unemployment will rise from the current 10 percent, posing social and political challenges.

All on needs to do is look past the headlines, do a little personal research, in order to come to the conclusion that the economic recovery is not a recovery at all.

Roubini: I could make a similar argument for other commodity prices. In my view, rising commodity prices are not justified by the fundamentals.

There’s a huge bubble, because we have zero rates in the U.S., zero rates around the world and a huge carry trade. Everyone is borrowing at zero interest rates in dollars and getting a capital gain because the dollar is weakening, so they are borrowing at negative rates. And then they invest in risky assets: commodities, equities, credit. We’re creating a bigger bubble than before.

It’s going to go crashing down, in an ugly way. That’s the basics of the argument.

Let us face the reality of our current stock market ‘recovery’ – the stock market gaining 50% off of the 2009 March lows is an extreme reaction and unsupported by the economic data in the news today.

Nouriel Roubini, one of the 1st people to warn about the financial crash, has commented about current market conditions:

“Markets have gone up too much, too soon, too fast,” Roubini said in an interview in Istanbul on Oct. 3. “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.”

“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.”

While I have made similar comments over the past few months in private, it’s about time I take a look at what I see in regard to the economic conditions facing U.S. and Global and global economic conditions.  I’ll be posting my thoughts in the next few days, so in the mean time take Roubini’s warning to heart and protect your investments .

Why do I have a feeling Fed Chairman Bernanke’s comments of “green shoots” will haunt him for the rest of his days.  Sure, he was trying to inject confidence in the market but without any real evidence of a recovery.  Economist Nouriel Roubini is once again point out there are weeds in with the “green shoots”

Here are the highlights:

• growing divergence between business sentiment surveys
• and industrial production, which is down sharply and receded another 1.1 percent in May
• U.S. jobless rate, already at a 26-year high of 9.4 percent, would reach 11 percent before it begins to ease
• few engines for growth given that U.S. consumers are tapped out
• Rampant inflation could lead to negative economic cycles like the ones that plagued much of the industrialized world in the 1970s

People continue to cheer when 500K jobs are lost instead of 600K, or when retail sales are down but not a much as the month previous.  Bottom line, we are not in a recovery as of yet.  You can cheer all you want but you are, ultimately, just cheering bad news.

Let’s continue on the economic posting theme, shall we?

Nouriel Roubini, the economist who predicted the entire financial crisis several years ago, has come out and stated the economy may face even more difficulty next year.

I still expect that economic growth in the U.S. is going to be negative through Q4, and that we’ll see positive growth in Q1,” Roubini told Reuters in an interview on the sidelines of the Seoul Digital Forum.

“The U.S. recession is going to be U-shaped, lasting roughly 24 months,” he added. “Compared to the current consensus that says we are practically at the end of the recession … my view is: no, it’s going to last another six to nine months before it’s over.”
…

Roubini stood by a recent article in which he mentioned the possibility of a “perfect storm” in 2010.

“There is even a risk of a double dip, a W-shaped recession at the end of next year,” he said, a combination of rising oil prices, rising public debt and increases in real interest rates, rising concerns about inflation and the expiration of a number of tax cuts in the United States.

While I was originally skeptical of Roubini when I first read his work, I’ve since come to pay attention to his works. The price of oil – remember yesterday how Saudi Arabia thought the world could handle $80 oil… yea, not so much – the debt we’ve put on the books in trying to save the economy, and inflation may do use in when it comes to economic recovery.

Sure, anything can change. We are not even out of the woods with our current situation, so talking about what may come next is pure speculation, but I’ve had a lot of fear about energy, debt and inflation ever since the crisis started up. I’ve always thought it would come back to haunt us. I’m glad to see I’m not the only one.

While I had originally doubted Nouriel Roubini, I have come to believe he is one of the very few economists who continues to publicly state the true market conditions. He holds no punches, he appears to have no fear at what others think about his predictions and… he is not swayed by the political landscape.

Today, Mr. Roubini sends another warning:

“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.” 

..

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. 

What will the U.S. Bank Stress test show?  I have a feeling that Roubini is on target with his assessment that some major banks will go bell-up.  That is why when I hear an organization, such as Citibank, say they’ve suddenly become profitable, in the hardest of economic conditions the market has witnessed in years, after over a year of unprofitably just doesn’t seem right.  It’s nearly impossible, and I believe the stress test will show just how vulnerable the institution (and others) really are.

It has often been said the Stock market anticipates what conditions will be like 6 months from now.  If that is the case, the market is being overly optimistic right now.   Major banks need to be addressed, unemployment will continue to rise during the year and retail sales are nowhere near recovery. 

I’m not trying to be to be negative, people need to be realistic about what we are facing.

With politicians – not economists – saying the economy is fundamentally sound, and things are not as bad as perceived, the stock market has responded positively in the last week.  Just to remind you, the stock market is not the economy and in not an indicator of current economic indicators.

Nouriel Roubini, the economist who has been on target with a number of predictions regarding the economic climate, warns about the recent stock market rally:

It is déjà vu all over again. We have already seen this Groundhog Day movie at least six times over and over again in the last year or so: the market starts to rally – this time around about 8% in a week – and the chorus of optimists starts to say that this is the bottom of the economic and financial crisis and that we are at the beginning of a sustained stock market rally that signals the true end of this bear market.

Even before the latest bear market rally started last week I wrote the following on March 2nd:

Of course you cannot rule out another bear market sucker’s rally in 2009, most likely in Q2 or Q3: the drivers of this rally will be the improvement in second derivatives of economic growth and activity in US and China that the policy stimulus will provide on a temporary basis: but after the effects of tax cut will fizzle out in late summer and after the shovel-ready infrastructure projects are done the policy stimulus will slack by Q4 as most infrastructure projects take year to be started let alone finished; similarly in China the fiscal stimulus will provide a fake boost to non-tradeable productive activities while the traded sector and manufacturing continues to contract.  But given the severity of macro, household, financial firms and corporate imbalances in the US and around the world this Q2 or Q3 sucker’s market rally will fizzle out later in the year like the previous 5 ones in the last 12 months.

If I was heavily investing, I would take my profits (if I had any) in the current market until the indicators show the economy is turning – not simply reacting to oversold buying.

Previously I made mention that individuals should listen to Warren Buffett.  His years of experience simply demand that anyone interested the economy pay attention to what he says, regardless of his recent investment choices.  But what about when Nouriel Roubini speaks?  Should anyone pay attention?

Your very first reaction may be “who is Nouriel Roubini?”

Roubini is a professor of economics at New York University and one of the first economists to warn that the housing market will sink the U.S. economy.  In 2006 he went on to warn:

In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae andFreddie Mac.

No one believed him due to his extremely negative outlook.  No one could even begin to foresee, let alone imagine, such a massive economic emergency, mainly because the economy remained strong over such a long period of time.

Now Roubini is providing an even bleaker outlook to the current situation:

“We are in the 15th month of a recession,” said Nouriel Roubini, a professor at New York University’s Stern School of Business, told CNBC in a live interview. “Growth is going to be close to zero and unemployment rate well above 10 percent into next year.”

Echoing a speech he made earlier in the day, Roubini said he sees “no hope for the recession ending in 2009 and will more than likely last into 2010.”

Finally, while he says there will be “a light at the end of the tunnel”, it’ll probably get worse before it gets better. Those who believe in a second half recovery this year “are delusional” he says.

In fact, based on Roubini’s calculations, we could conceivably see the S&P 500 at 500, the Dow at 5000.

My knowledge of Roubini is limited but he seems to be on of the only economists that is willing to say it the way it really is.  Maybe that is due to him not being associated with a financial institution or banking entity.  

Is he right?  No one knows.

Much like Buffett, it would make sense to listen to him and decide for yourself if his forecast strikes a chord.