Roubini: 'Suckers Rally' to Fade Amid Economy Woes

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

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, a professor at New York University's business school and former adviser at the U.S Treasury Department, was doubtful and predicted markets would test the lows seen in March.

"For people who say there are green shoots, I seen 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."

Nouriel Roubini
CNBC.com
Nouriel Roubini

That's because the U.S. economy won't grow again until 2010 after contracting by 2 percent this year, 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.

"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."