The man who first predicted the US housing crisis still thinks the stock market has not correctly priced in the outlook for the US economy. He gives a 40 per cent chance of a double dip recession. But he says one per cent growth in the second half 2010 is more likely, though still well below the market expectation of 2.5 per cent.
Nouriel Roubini has been forecasting a correction for stock markets for almost a year and will probably be right in the end. Some analysts now reckon quantitative easing policies may have created so much money in the global economy that this will drive stocks back up. But that would mean inflation risk, something that is again not yet priced into stocks at present levels.
Roubini has a point: stocks look fully priced for a very weak US economic outlook, and vulnerable to a correction. Big buyers also do not seem very interested in taking this risk. Gold seems to be the winner!
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