Monday, October 05, 2009

Roubini Says we are In for a U-Shaped Recovery

Hmm, this is the guy that called the last market free fall so he might know what he is talking about.

“The real economy is barely recovering while markets are going this way,” Roubini said. “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.

I think he might be referring to the "head-fake" recovery where things are pumped up due to stimulus and are now overvalued. When the stimulus runs out then the artificial growth rug will be pulled out from under the market. Roubini also talks about new asset bubbles forming.

“In the short run we need monetary and fiscal stimulus to avoid another tipping point and to avoid deflation, but now this easy money has already started to create asset bubbles in equities, commodities, credit and emerging markets,” Roubini said. “For the sake of achieving growth stability again and avoiding deflation, we may be planting the seeds of the next cycle of financial instability.”

I am already short gold UltraShort Gold ProShares (GLL) because I don't think Chinese demand can prop up a $1000 per ounce price forever. Also deflation would be the exact opposite of what gold is supposed to protect against. Plus I get bubble vibes when I see there are over 126,000 hits for a Google Search of Gold at $10,000 an ounce. Some even peg the gold price at $30,000 an ounce.

I might get short emerging markets as well after I do some research on a bubble forming there. The ETF to do it is ProShares UltraShort Emerging Mrkt (EEV) I mean Emerging Markets are up 67% which is a record one year move. If it is a U-shaped recovery it will take even longer for these companies to recover them some people currently think.

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