Tags: Roubini | Fed | QE | stocks

Roubini: Stock Market 'Is Going to Rally' for 2 More Years

By    |   Tuesday, 04 June 2013 10:58 AM

The stock market rally will continue for the next two years, renowned economist Nouriel Roubini told CNBC.

Roubini, a professor at New York University, is known for correctly predicting the housing bubble and ensuing financial crisis.

His forecast for a long-running stock rally seems at odds to his reputation for predictions so pessimistic they sometimes seem to border on the apocalyptic.

Editor's Note:
 
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

But Roubini, who runs Roubini Global Economics, explained that stocks have room to run because the economy is performing poorly. That means the Federal Reserve will maintain low interest rates through quantitative easing (QE).

"Growth is not going to pick up and inflation actually is falling," Roubini told CNBC. "So the markets are worried about tapering off sooner, but I think tapering off is going to occur later and, therefore, the market is going to rally."

Many observers credit the Fed's QE program for boosting the stock market.

However, the good times for equities will end when the wealth gap between Wall Street and Main Street becomes too large, Roubini warned. Eventually, the economy will have to accelerate or stocks will face a correction.

"You're going to have an increasing gap between Wall Street and Main Street, between what's happening to asset prices and real economic growth," he said.

Fed-driven low interest rates remain the over-riding factor, Roubini explained. "But of course over time it cannot trump those gravitational forces of economic fundamentals."

Many investors fear stocks will flounder when the Fed decides to stop purchasing large amounts of Treasury and mortgage-backed bonds, as rates are expected to jump.

Roubini doesn't see it that way. He expects the Fed to taper QE carefully and slowly so the exit will not unsettle the stock market. The Fed will continue QE at least through the middle of next year before gradually phasing it out over the next year and hold rates at zero until the end of next year or the beginning of 2015.

"That's a recipe for long-term interest rates going higher but in a way the market can digest."

When the Fed will start tapering QE is a matter of much discussion. San Francisco Federal Reserve Bank President John Williams has said an improving economy might permit the Fed to start tapering QE this summer, Reuters reported.

"It really is a question for me of watching for continuing signs in the U.S. labor market, continuing signs of greater confidence in the momentum in the U.S. economy, but also watching carefully where the underlying inflation rate is and what the outlook for inflation is," he told reporters.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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The stock market rally will continue for the next two years, renowned economist Nouriel Roubini told CNBC.
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2013-58-04
Tuesday, 04 June 2013 10:58 AM
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