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Nouriel Roubini's Three Reasons Why Stocks Are Bound to Fall

Posted Jun 19, 2009 10:00am EDT by Tech Ticker in Investing, Newsmakers, Recession, Banking
Related: ^DJI, ^GSPC, SPY, DIA, RIMM, XLF, FDX

Believe it or not, Nouriel Roubini -- professor at NYU's Stern School and Chairman of RGE Monitor -- has some good news: Aggressive government intervention prevented a great depression.

The bad news: Roubini says the stock market rally is long in the tooth. (They don’t call him Dr. Doom for nothing.)

He points to three factors that will lead to a correction in the near future:

1. Volatility and Uncertainty Will Increase.  Note: the CBOE Volatility Index is currently down more than 50% since the October panic.

2. Corporate Earnings Will Disappoint.  He says the market is pricing in a robust ‘V’ shape recovery. However, when earnings miss expectations, buyers will turn into sellers, as was the case this week with FedEx. (Research In Motion shares were down early Friday after the firm’s guidance failed to live up to expectations.)

3. The Global Financial System Still Faces Serious Problems.  Roubini thinks unemployment will rise to 11%, bank losses will increase across the globe, and the recession in Europe will get worse.

The silver lining: Roubini isn’t convinced the market will retest the lows.

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